“This is a business, but I want to minimize the risks as much as possible” // Sergei Gushchin, the founder of Rail Service, on where the railway wheel market is heading

Rail Service Group and Evraz began to build their plant for the production of railroad solid-rolled wheels (CCM), which were in great demand in 2018-2019. But since then, the situation has changed fundamentally. The founder of Rail Service told Kommersant how to work in the era of railcar surplus, which slows down the demand for wheels. Sergey Gushchin.

– You started the construction of your own production of solid-rolled wheels together with Evraz. Why did you decide to invest in the construction of the plant?

– We laid the foundation of the Allegro plant on May 19. In fact, construction started at the beginning of the year, many works on site preparation have been completed. More than 1.5 billion rubles have already been spent. At the end of 2022, construction should be completed, and in the first quarter of 2023, the first production should be received. If we talk about the reasons for the decision, then I am a shareholder of two car repair enterprises – VKM and VRZ in Sterlitamak (SVRZ) – with a total formation capacity of more than 100 thousand wheelsets per year and a repair volume of 20 thousand cars, as well as a large service company GDS, repairing about 80 thousand cars a year. And since the wheel is the main cost element, the construction of a plant for the production of pulp and paper mill was a logical step.

– But why not buy from the same Evraz through a long-term contract?

– For ten years we have had good business relations with the Ukrainian Interpipe. But the management changed at the enterprise, and problems began with the supply of Ukrainian wheels. Of course, we maintain business relations with Russian manufacturers, but the market situation is changing, we are unable to fix the terms of delivery for a long period.

I understand this is a business, but I want to minimize the risks as much as possible. Therefore, since 2014, I have been thinking about the construction of a pulp and paper mill production in one way or another. Because of the crisis, we stopped everything, and in general I am glad that we did not go into the project ourselves, but fate brought us together with Evraz. They have a highly professional team with excellent management, technological and engineering potential, colossal experience in the market and in similar production. I can’t even imagine how many problems we would have to solve if we were to build a plant without a partner and for the first time.

– The import of the Interpipe wheel has since been banned …

– Interpipe worked very simply on the Russian market. When there was a surplus, it gave a price lower than our producers. They compensated for the losses in their home market: prices there were always much higher than those at which they supplied here. This is the essence of the anti-dumping duty, when due to the fact that the manufacturer keeps a high price on its market, it supplies for export at a low price.

As soon as there was a deficit, the price began to rise, the Ukrainian importer raised it higher than our producers. Because they will still consume it, they will not go anywhere. And they always skimmed the cream, and the volume of Ukrainian products supplied to the Russian market never fluctuated as much as our producers did. At the same time, they have always defended their economy by prohibiting the operation of the Chinese wheel and supplies from Vyksa. A completely logical step on the part of our state was to ban their wheels on the territory of the Russian Federation.

– You initiated the supply of Chinese wheels to close the deficit. Is this still possible now?

– During the period of large deficit in 2018–2019, with the support of Garant Rail Service (part of Rail Service.— “B”) received permission to purchase Chinese wheels. Their delivery allowed to contain the growth in cost and meet the demand. Then the Ukrainian manufacturer, most interested in maintaining the deficit, lobbies for a decision to ban the use of the Chinese wheel in Ukraine. This actually means closing the opportunity to put this wheel on Russian operators. Almost all Russian operators can enter Ukraine – the wagons are running, moving, and, of course, they do not need these risks.

Today, the possibility of supplying Chinese wheels remains. There is a contract, we constantly meet with our Chinese colleagues, they express their interest and readiness, they understand what is the reason, and there are no complaints against us.

– Now a protracted surplus of cars is expected, in which operators save on repairs, restraining the demand for the wheel. What allows you to count on the success of Allegro?

– Firstly, this is financial stability, which we have achieved by reducing the credit burden. The maximum cost of the project is 18 billion rubles, of which 50% are their own funds, which Evraz and Rail Service contribute on a parity basis. Secondly, the location of the plant: here is the proximity to the billet – 30 km to NTMK, and the free economic zone, which allows you to minimize the tax burden. All equipment is imported, and we contracted before the price increase. JSC Russian Railways provides freight railway infrastructure at its own expense. Again, thanks to Evraz, Allegro has great export potential.

– Under agreements with Evraz, do you take products to your enterprise?

– In our partnership, the responsibility for implementation lies with me. I will pick up all manufactured products at the market price and use them in the work of my car repair enterprises.

– What are the main risks of Allegro?

– Change in the market price for the workpiece. It is tied to world metal prices, while wheel prices depend on internal market conditions. The cost increases, but the selling price may remain the same or even less.

– How is the situation on the car repair market developing?

– As a market, it emerged only in 2019. And the main problem is a large surplus of production capacities, which appeared due to the desire to build their own car-repair enterprises, not paying attention to the balance of capacities and demand. As a result, the profitability of all of them is zero, the surplus of repair capacities is more than 30% and does not allow the development of car repair enterprises.

– And what is the forecast?

– Personally, I believe in the market, but it will not be easy, a number of companies will go bankrupt, competitive ones will survive, and the balance will be restored. But it won’t happen quickly.

– Two years ago there was a loud story with an attempt to transfer the entire fleet to cassette bearings. What do you think of her?

– First of all, I would like to say about the catastrophic situation with the bearing on the car repair market. Due to the fact that the operator is not ready to pay for a new bearing when repairing a wheelset, everyone repairs the old bearing. This has been going on for many years, and, accordingly, one can imagine what state they are in. The statistics of Russian Railways confirms that there are more and more cases of rolling stock stoppages due to problems with the axle box.

Cassette bearings are now being installed on new cars with increased axle loads. There are scientific works showing their positive impact on the operation of rolling stock. Some operators install them themselves, voluntarily. It seems to me that the contradictions arose due to the fact that there was an attempt to transfer to cassette bearings in an administrative, forceful way. And the market was outraged. It was necessary to economically stimulate the translation, showing its effectiveness, to work out this issue more with operators.

– The timing of the first repairs of cars with increased axle load is approaching, which, as far as I understand, is fundamentally different from repairs of standard cars. Are you planning to do this?

– In the current situation, our enterprises are located outside the area of ​​operation of these types of cars.

– But what about Transvagonmash?

– We took this enterprise in the last crisis, in 2015-2016, and developed it well. They kept SVRZ for themselves, it suited us in terms of the geography of repairs, and Transvagonmash was sold to UWC, which was interested in servicing innovative cars.

– In 2019, you divided the business with Sergei Smyslov, leaving him the operator’s, and taking the car repair and others for yourself. How are the companies you sold doing? And how does your relationship with your ex-partner go?

– I and my partners created all businesses from scratch. I like to create something fundamentally new, plus we create them not for sale, but conscientiously. After I leave them, they do not close, but continue to develop. This is a fundamental moment for me. I have worked with Sergei since 1996. In 2019, I stopped seeing prospects in the operator’s market, but Sergei still saw them. I liked the beginning of our journey, in the 2000s: it was a new market, it was a real commercial job. Today, this is largely an administrative market, large players have come to it. I have never been a major player and have always relied on the service, which is why I left. But business is business, and Sergei and I are still friends.

– Are you only interested in the railway industry?

– I have been in business since 1991. The operator appeared at the beginning of the 2000s, it became the main business, but in parallel other areas were developing as well. We have built a VKM, which is engaged in car repair. I was a shareholder of the Ecoline company, which is engaged in the collection, sorting and disposal of waste. Sergei Smyslov and I created “Spetstransgarant”, which operated with tank containers, today it is located within the perimeter of the “SG-Trans” company. Transtelematics is a large IT business, which was then also sold to a large manufacturer of auto parts. Now I have acquired an asset in agribusiness, an enterprise with 20 thousand hectares of agricultural land in the Belgorod region. There are already established business processes, but we want to change a lot and show good results. I would expand this business. I like him.

Interviewed by Natalia Skorlygina

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