Russia’s largest petrochemical company, Sibur, operates across the entire petrochemical process chain from gas processing, production of monomers, plastics and synthetic rubbers to the processing of plastics. Over recent years the company has continued to report robust financial and operational results whilst implementing a major investment programme.

The company plans to expand its output by building new production facilities in response to a forecasted annual increase in demand for polymers in Russia. In 2011 Sibur’s investment programme increased by over 35 percent to $2bn compared to the previous year.

Growth through consolidation
Currently Sibur is undertaking several key projects that are scheduled to be operational by late 2012-13. The key project that is currently underway is the new polypropylene production complex Tobolsk-Polymer in Tobolsk (Tyumen Region). When operational, Tobolsk-Polymer will annually produce 500,000 tonnes of polypropylene. The new $1.99bn complex will meet the ever-increasing demand for polypropylene and the products that are derived from it.

As part of the funding of the construction, in 2010 Sibur attracted a $1.44bn loan from Vnesheconombank and a syndicate of foreign banks. Under the loan agreement, a total of $1.22bn was provided for a period of thirteen and a half years under a guarantee from export insurance agencies from European countries, from which Sibur is purchasing the equipment for its new facilities. The remaining funds, $221m, were provided in the form of a credit line for nine years.

An integrated PVC complex
The second ambitious project, with investment of around $1.70bn, is the construction of a PVC plant “RusVinyl” in Russia’s Nizhny Novgorod region. It is a joint venture with the Belgian international chemical group SolVin. Annual production capacity will be 330 kilotonnes of PVC and 235 kilotonnes of caustic soda, with the flexibility to increase capacity up to 500 kilotonnes of PVC by 2016.

The plant will produce a unique range of PVC, not currently produced in Russia, utilising world leading technology licensed from Solvay. It is also one of the key investment projects included in the state plan for the development of the gas and petrochemical industries until 2030. Alexey Filippovsky, CFO of Sibur, said: “This is an important project for Russia’s petrochemical industry. The project is in line with our longer-term strategic development plans as we exploit higher growth and higher margin segments of the market.”

Sibur and SolVin have signed a major €750m, ECA-backed, 12.5 year financing package for the RusVinyl project. This financing has been provided by a group of leading global financial institutions including HSBC, ING Bank, BNP Paribas, Sberbank and the European Bank for Reconstruction and Development (EBRD). The structure is highly innovative, including many features that are unique amongst Russian project financing agreements signed to date, such as:
- Pure multilateral project finance facility with limited recourse to the project sponsors;
- Borrower is a joint venture in which one of the parties is a foreign company;
- Insurance cover for construction provides broader protection than any other project financing to date.

The agreement consists of an 11-year, €150m loan (denominated in rubles) from Sberbank of Russia, an identical loan from the EBRD, and a €450m, 12-year loan split between BNP Paribas, ING Bank N.V. and HSBC, and is guaranteed by COFACE and ONDD, the export credit agencies of France and Belgium. The export credit agencies will provide insurance cover on the financing of equipment as well as licence and service purchases from the French and Belgian suppliers to the project.

LPG transshipment terminal
A third investment project is being implemented to optimise the logistics for the export of liquefied petroleum gas. The $0.68bn facility will be the largest terminal in the CIS for the transshipment of LPG, and the only one in Russia’s northwest region – which is ideally placed for the Western European export market. The complex is designed to handle up to 1.5 million tonnes of LPG and up to 2.5 million tonnes of light oil products per year. It is scheduled to begin operations in the first quarter of 2013.

Experts predict that LPG production in Russia will grow from 9.7 million tonnes at the end of 2010 to 16.4 million tonnes by 2015. A significant portion of this increase will be supplied to the public utility sector in the domestic market as petrochemical feedstock and fuel. However, the free volume of LPG in Russia is predicted to increase by 1.5 times to reach 12.5 million tonnes by 2015, and the surplus will need to be handled efficiently. The export of surplus LPG is the only way to maintain ongoing projects inRussia to increase the utilisation of associated petroleum gas.

Building with care
In December 2011 Sibur’s CEO Dmitry Konov stated that the company is considering building a new petrochemical complex in Tobolsk (Tyumen, Western Siberia), which would be the largest in Russia and one of the largest in the world. The configuration of the project (provisionally called ZapSibNeftehim) provides for the construction of a pyrolysis facility with an output capacity of 1.5 million tonnes of ethylene and several plants producing up to two million tonnes of polymers per year. Dmitry Konov explained that the project “requires the approval of the board of directors” and that “the final decision will be made in 2012.”

Light hydrocarbons are being considered as raw materials; they are obtained in this region through gas processing plants, derived from associated petroleum gas, gas condensate and natural gas. According to the company’s CEO, over three million tonnes of hydrocarbon feedstock are required to obtain 1.5 million tonnes of ethylene. Dmitry Konov noted that ethane should comprise about 600-700 kilotonnes of this volume.

According to Konov, the Tobolsk project will be implemented “cautiously and carefully” so as not to cause any disruption in the company’s financial stability. “This is a large project, even for a company of our size and financial strength,” he said. Once the decision to proceed on this project is taken, it is likely that it would take no less than five years to fully implement.

“This is the first time in the post-Soviet period that billions have been invested in the petrochemical industry in Russia. Such investment will allow Sibur to maintain and develop its status as the petrochemical leader in the markets of Eastern Europe,” said Kirill Shamalov, Deputy Chairman of the Management Board of Sibur LLC.