The regulatory body of the Kremlin-led Customs Union has recommended that import tariffs increase for a range of pipes that could cost billionaire Viktor Pinchuk nearly $800 million in losses in the lucrative market where his Interpipe company sells 44 percent of its output.
On Feb. 12
the Eurasian Economic Commission advised that import tariffs jump for a range
of gas and oil casing pipes to as high as 67.7 percent, up from 19-20 percent.
Analyst
Roman Topolyuk of Concorde Capital says that the imposition of the recommended
tariffs is likely and Interpipe might experience severe losses. Russia has been
applying economic sanctions against Ukraine for years as a political lever or
to protect its own industries, but the trade war has escalated in recent
months.
Russian
import quotas for pipes have dropped by more than half since 2011, with Ukrainian
pipe companies comprising half of this at 0.5 million tons. For
the first nine months of 2013, Interpipe reported that its sales to Russia,
Kazakhstan and Belarus dropped by 26 over the same period the previous year.
The Customs Union accounts for around 44 percent of the company’s total sales.
Until the
middle of 2013, Interpipe oil & gas and pump/compressor pipes entered
Russia duty free, but then the CU imposed tariffs of 19 and 20 percent,
respectively, and through the EEC initiated an anti-dumping investigation. The
EEC reportedly found that Interpipe was selling its products in Russia for half
the average cost of pipes of a group of other pipe-making countries.
An exporter
of pipes to Russia, the European Union, the U.S. and Asia, Interpipe was quick
to react to the current threat by accelerating its diversification plans. Since
the first round of tariff increases in the middle of 2013, Interpipe has
concluded certification of its pipes in Iran and undertaken an audit with
Italy’s ENI. Attempts to tap the U.S. with its shale gas boom have resulted in
yet another anti-dumping investigation. The domestic demand for Interpipe’s
production is currently quite small.
The company
has debts of over $1 billion and reported a $72 million loss in 2012. To make
matters worse, in November 2013, Fitch Ratings lowered its long-term rating on
Interpipe bonds from C to RD, which is the default threshold, after it failed
to service its debt on Nov. 1. Unable to
borrow under favorable conditions, Interpipe’s lack of access to capital brings
essential risks to its business activity.
Interpipe’s
owner Pinchuk is known for his philanthropic activity and organizing the Yalta
European Strategy and Ukrainian lunch during the World Economic Forum in Davos.
Although he is significantly dependent on Russia due to his pipe business,
Pinchuk has a polished image in the West. A lavish philanthropist in the arts,
he recently joined an initiative started by billionaire Warren Buffet to pledge
half his wealth to charity when he dies. His other major assets include Bank CreditDnipro, a number of prominent television stations and Ekonomika
Communication media hub.
Kyiv Post journalist Evan Ostryzniuk can be
reached at [email protected]
