Roman Abramovich sells his garbage business
The billionaire got involved in the ‘garbage business’ in 2013. On the wave of the environmental warfare announced by authorities, buying a stake in one of the largest Moscow companies MKM-logistik seemed like a gold mine. However, as Life found out, this year Abramovich left the game. The reason is simple: it was not very profitable to take out and dispose waste.
In 2013, through the British Ervington Investments Limited, the investment group Millhouse run by Roman Abramovich bought 33% of one of the largest players in the Moscow market, MKM-logistik. The remaining 77% of the stake belonged to the development empire of the Chigirinskys: C&T estates (overseas) Limited of Alexander, Shalva Chigirinsky's brother and his son Mikhail’s Vebcon Investments Limited.
As Life found out, Abramovich has not participated in the garbage business for a long time and recently sold his share to a certain Alexey Gromov.
"Abramovich was thinking about leaving the company for a long time, for about two years, it was only a matter of time," a source in the industry told Life. “He was not satisfied with the profitability at all, he was used, so to speak, to a different [number of] zeros [in the figure]”.
According to another source of Life that previously worked for Abramovich, initially the oligarch planned to agree on the sale of the stake to his long-time partners Chigirinskys. With Chigirinsky senior, the oligarch has rather close ties: from time to time they shared assets, then transferred them over to each other.
For example, in 2000s both businessmen were engaged in oil production in the joint Sibneft-Yugra, and now Abramovich through Millhouse owns 18% of Alexander Chigirinsky’s development company Snegiri Development. However, the heated debate over the stake in Sibneft resulted in a quarrel. Therefore, Abramovich had the negotiations for the sale of his stake in MKM-logistik with another representative of the clan, Mikhail. But the reason for his refusal, as well as the worth of the deal, is unknown to Life’s source.
Mikhail Chigirinsky did not respond to Life’s inquiry, Alexander Chigirinsky's Snegiri Development did not pick up the phones, the spokesman for Abramovich’s Millhouse John Mann refused to comment.
The assistant to the director of MKM-logistik, who introduced herself as Veronika, confirmed that Ervington Investments Limited had sold the stake in the company, but did not disclose any information on the price of the deal or about the new owner of the 33% stake.
When 158 million rubles are nothing
MKM-logistik is considered to be one of the largest companies in Moscow’s disposal business with a turnover of 2.2 billion rubles ($39m). Abramovich entered into its capital in 2013. A year later, the company began to bring a net profit of 77 million rubles ($1.4m). In 2015, it rose sharply to quite a decent 400 million rubles ($7m).
According to Life’s calculations, from the moment of Abramovich's involvement into this project, he could earn about 158 million rubles ($2.8m). For an oligarch whose fortune is estimated by Forbes at $7.6 billion, this is hardly serious. Today, among Abramovich’s largest assets in Russia, there are shares of the metallurgical company Evraz.
The fact is that the management costs for the company were not covered by its profit, argues Life’s source a Moscow operating company. In addition, the company continued to accumulate large debts. Last year, they almost equaled the net profit: 381 million rubles of debts against 400 million rubles of the net profit, the company's book shows.
The company's obligations to build infrastructure for garbage disposal could have been the problem that led to the debts. Between 2012 and 2014, the Moscow City Hall held nine tenders for the right to sign 15-year contracts for garbage disposal for more than 142 billion rubles. MKM-logistik got 40 billion of the money for removal and disposal of garbage from the Western and South-Western districts. By the way, often the garbage company served Abramovich's other structures, for example, the Four Winds Plaza business center on Bolshaya Gruzinskaya Street, as well as the Chigirinskys’ structures, as evidenced by a number of letters of gratitude (from Four Winds Plaza, S&T and Snegiri) on the company's website.
However, it was the City Hall tenders that brought the main income. According to their terms that Life got to see, the city pays for garbage removal and disposal, and the winners were obliged to purchase new garbage trucks, waste collection containers, and build sorting plants and landfills for the disposal of waste.
- I don’t think the expenses paid off. It was expected that the company's profits will be felt when there is a possibility to recycle garbage, but the current regulatory framework does not allow it”, says Dmitry Kumanovsky, head of the analytical department of the investment company LMS.
“It was assumed that the waste will be taken to processing plants in the future, but it is going to be incinerated”, he admits.
“In our country, using natural raw materials is economically more profitable than using secondary material resources,” said Roman Kuprin, deputy head of the department of metallurgy and materials at the Ministry of Industry and Trade.
According to the Ministry of Industry and Trade, of all solid municipal waste, about 7.5% are involved in the economic turnover; the rest of the garbage is simply buried or burnt. Currently, the authorities are preparing the first contests to construct the first waste disposal plants in the Moscow Region, but their conditions are suitable only for incineration plants, experts noted. Government supported incineration at the end of last year.
“There is a huge gap between burning and processing. Incineration costs less, whereas the price of processing is high. But with regard to output, it is more profitable, of course, to process, although for this the plants need high tariffs for receiving garbage and at the same time its guaranteed flow. Since 2015, the state has not been able to guarantee this to investors," Kumanovsky notes.
The industry is very poorly regulated; the effective regulatory field is being formed too slowly. This creates problems for investors, primarily because of the lack of guarantees for return of investment, said Alexander Nikolsky, vice-president of Soyuzresurs. There is also a second factor: in principle, a negative information field around the garbage issue that looks like a stigma to investors, the expert believes.
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