Anatoly Sedykh: “Everybody and his brother is looking for train wheels in Russia these days”.

United Metallurgical Company (OMK) Principal Shareholder on Market Ups and Downs,
Train Wheel Prices, and Company Part in Major Projects

Over the Company’s 27-year history, Anatoly Sedykh changed hats more than once.
Initially, he was involved in day-to-day operations as well and was general manager. But in
2002, the Company made the decision that shareholders would not manage the business
any more and would make up the Board of Directors. At the time, Sedykh explained in an
interview to the Vedomosti: “When a shareholder also serves as a company executive,
there are no checks. He or she can make a decision that is counterproductive for the
business but in keeping with the shareholder’s understanding of the shareholder's role in
the bigger national picture or with the shareholder’s idea of where the metal industry
should be going”. However, even later, the OMK owner variously had fewer and more
responsibilities of different nature. Thus, during a management restructuring, Chairman of
the Governance Board Sedykh also took on full sole executive authority previously shared
with the company CEO (position eliminated). A year later Mr. Sedykh stood at the head of
the Board of Directors and focused solely on matters of strategy. And it is no coincidence
that the lion's share of this conversation with the Vedomosti has to do with his view of the
market and projections.

HOW MANY WHEELS

- A serious shortage of train wheels has been observed lately, and the prices have
hiked up. Why is that? Was there no market demand information?

- The wheel market works in a cycle. This time, its growth has surpassed all expectations
because of a synergy created by two factors. On the one hand, there is increased
turnover, and on the other, 335,000 railway cars have been retired over the past 3-4 years
by Government decree. If you multiply 335,000 by 8 wheels, the resulting 2,700,000
wheels represent a third of the total number of wheels being used in the network.
What is the difference between used wheels and new ones? They have very different
lives: a new wheel has 7 to 8 years while a used one no more than 4 on average. As the
amount of freight grew, these was mass failure of these used wheels. At the same time,
there was a surge of new car orders following the retirement. A combination of these two
factors created an explosive demand for wheels. Growth we expected but no one thought
it would be like this. This is a situation that is absolutely without precedent.

- Both OMK and Evraz have announced capacity expansions in their steel wheel
businesses. But these will not be commissioned until 2022. Will the high demand
last? Will this not turn out much like the large-diameter pipe business: companies
will build extra capacity which will be redundant and will sit idle?

- The current situation is unusual, of course. And in a situation like this, there are all kinds
of decisions that can be made, including ill-considered ones I believe that the capacity in
Russia and the “1520 market” (railway network with a gage width of 1,520 mm connecting
the CIS and EAEU to the European Union and Asia-Pacific - Vedomosti) is sufficient to
meet the existing demand for wheels.

The math is simple. We are planning to make 950,000 wheels this year using our existing
capacity and increase production a further 50,000 wheels next year. Evraz is expecting to
expand its capacity to 550,000 wheels. This adds up to 1.5 to 1.6 million wheels a year. In
addition, Ukraine's Interpipe is also a player in the Russian market with its additional
170,000 to 200,000 wheels. As early as the end of this year, we expect Kazakhstan's
Prommashkomplekt as a new market player with a further 250,000 wheels. Which makes a
total of 2,000,0000 wheels which more than meets the demand in Russia and the entire

“1520 market”. This is without the Chinese wheel imports. It remains to be seen whether
they meet the quality requirements of Russian railways.

- Assessments of Russian market demands vary greatly. What do you think?

- At the risk of repeating myself, the demand for wheels works in cycles. If you look at
average demand, it is 1.3 to 1.7 million wheels a year. The problem is that in a cycle, there
are lows when 30% to 40% of the capacity is utilized. That was the case when used cars
were being retired. Also, a considerable share of this small production was being
exported. Existing capacity is sufficient to meet the demand even when the markets are at
their peak.

- When do you expect the market to peak next?

- The cycle is normally 7 to 8 years. We expect the cycle to change in about 5 years.
Growth started two years ago and peaked out in 2018-2019.

- What do you think about the attempts to deal with the shortage using wheel
imports from China and are you ready to compete?

- Yes, there is a license to deliver 800,000 Chinese wheels. The Russian market is
expecting 50,000 to 70,000 wheels this year. This is logical in times of abnormal demand.
When a slow-down begins, it will become illogical for Russia to use foreign wheel
suppliers while domestic manufacturers are shut down.

- Can Russia export train wheels?

- It can but we are exporting virtually nothing right now. We have reserved a little over 1%
for exports outside the CIS to honor old contracts while we are making almost no new
ones. There are also the usual exports to Belarus. Although previously, we used to export
over 100,000 wheels a year (a considerable share, to the United States market). OMK
wheel quality is highly appreciated in the international markets.

But if we were to sell a large number of wheels internationally right now, we would simply
be torn limb from limb. Everybody and his brother is looking for train wheels in Russia
these days. I get calls from many people looking for wheels and digging me up from their
Rolodexes to do that. There are also national objectives, individual tasks that need to be
seen to, and we are stepping up, of course.

- Is this market affected by trade restrictions and duties?

- No, wheels are in high demand, so there are no restrictions against them at this time.

- What is the effective term of your wheel export contract?

- There are different contracts: medium and long-term.

- We are simply trying to understand this: how are you working with your foreign
partners? You are in their markets today, and tomorrow you are only selling in
Russia...

- Well, it is the first time that we have brought our exports almost down to zero. But it
would be wrong to export 100,000 to 150,000 wheels under these circumstances.

- Going back will be hard.

- What choice is there? Just look at what they are saying about us in the media. If we
maintained our exports given the current situation in the domestic market we would have
had even bigger problems.

- They say that the shortage has been created by the wheel makers themselves.

- I may be repeating myself again but the situation today is pure market. Increased
carriage of goods has given rise to greater demand for railway cars: over a short span of
time, the rental price of a car increased by a factor of 3 to 5, from 500 rubles per 24 hours
to 2,000-2,500 rubles.

Objectively, a reasonable rate that keeps the rolling stock operators in business (able to
repay operating and capital costs) is 1,000 to 1,200 rubles. The soaring rate became the
reason for new car orders because cars generate very good returns on investment at this
rate. Railway car builders’ workloads have gone up.
It is expected that 75,000 new cars will be fabricated in 2019. Again, we multiply by 8 and
get a demand of 600,000 wheels.

At present, everyone in the market, including operators, has realized a profit. Far from
every railway car required replacement wheels: there are still some that are running with
old ones. Railway car manufacturers have almost doubled car prices. A set of new wheels
with an old axle (a wheelset following repairs and component replacement, old axle/new
wheels - Vedomosti) has tripled in value. People are making huge profits from these
products. When wheel prices are following the market on its way up, no one wants to give
up a share in the profits, and media report that the higher prices for new cars and car
repairs are the wheel manufacturers’ fault. And this disrupts a harmonious view of the
market, especially if you consider that the service of making wheelsets with new wheels
and an old axle is not in short supply given that there is a surplus of the relevant capacity
in the market, and that the only competitive advantage available to railway car repairers
and workshops was their contracts with wheel manufacturers.

A free market for wheels has emerged in the meantime. Interpipe product is this market’s
mainstay with expected deliveries standing at between 150,000 and 200,000 wheels. They
sell at market prices of between 95,000 and 115,000 rubles per wheel, and even the
introduction of duties did nothing to reduce Interpipe's sales in the Russian market. We
also estimate that the same price is applied to the resale of some 100,000 wheels being
delivered by domestic manufacturers under long-term contracts. Some 17,000 wheels a
year (i. e. about 1.5% of our sales) are sold by OMK under spot offers with the winners’
price standing at 98,000 rubles at the most recent proceeding. Chinese wheels are
cheaper: some 70,000 rubles per wheel (we sell a small part of our product at the same
price). OMK's average price is even lower (50,000 rubles) even though wheels are worth
twice as much in the open market.

- How come this absence of self-interest?

- This is normal contract management. We look towards the long term and discharge our
undertakings in these difficult times.

- Then, why did you decide to sell some at market prices through an auction?

- To curtail the explosive demand and to provide an indication for the market, we sell a
small portion of our surplus wheel production through spot queries. We name a price, say
50,000 rubles, and wait for the buyers to communicate their prices. We get 500 requests
in auctions like that every month and fill 30 of them. This is a very small number of
customers but they have “a fire lit under them” and really need the wheels. The price in
the most recent such proceeding was 98,000 rubles, like I said, and the price in the open
market is as high as 115,000. We sell at the bottom of the range.

- You are saying that the daily rental of a railway car has quadrupled while the price
of a refurbished wheelset (new wheels/old axle) has grown 3-fold, the price of
railway cars has doubled and that for wheels has increased 25%, all in the past year.

What pricing restrictions is OMK facing, and how much impact is the Federal Anti-
Trust Agency (FAS) having?

- We are considered the dominant market player. Lately, this description is being viewed
with very little favor like we pose some implied threat. (Laughing). Although, major
manufacturers are nothing out of the ordinary in any developed economy given that it is
such manufacturers that are capable of making quality product at an acceptable price.
How can we dominate from the price standpoint? We can choose to reduce production,
create a shortage, and raise product prices. Clearly, we are not doing this: seeing as how
we are increasing production and seeing as how our prices are at the bottom of the market
price range. The term “dominant” is being used against us in the media.

- Your contracts are expiring. Do you know at what prices you will be extending?

- Not at all. There are many more requests than we can fill. And we are not quite clear on
what we need to be looking to when extending. Are we supposed to give everyone equal
access to wheels under market conditions? Or sell them following some other procedure
and making only a few players happy? Because the situation that is emerging is weird.
Everyone is writing that wheel prices are high. However, at the same time, people come to
me willing to buy wheels at any price and asking to “take wheels” away from someone else
and to pay the penalties for breaking a contract while saying publically that out wheels are
very expensive. This duplicity is simply astonishing. But it seems to be the consequence of
this abnormal market condition.

- Vyksa Steel Works (VSW) recently gave railway car manufacturers and railway
operators cause for serious concern when it started breaking long-term contracts in
favor of contracts at current spot prices. The FAS Agency also showed an interest.
Why did you decide to do it? Are termination penalties high?

- We have 180 contracts of which we terminated 2. And the reason was our customers’
payment practices. This is not a general trend, as you can see. The issues related to
these customers have been resolved.

Recently, the executives of the Railways Operators Council and RZD submitted a letter to
the FAS Agency requesting a review of the wheel market for price increases. I believe that
it makes no sense to look at that market without looking at the freight carriage, the new
railway car, or the railway car refurbishment markets. It is like looking at the Earth’s
movement without considering the effects of the Sun and the other planets. Everyone is
writing letters saying that the market price is 90,000 to 100,000 rubles, that VSW
dominates the market, and has raised prices by 15%. But no one is looking at whether we
have really raised prices and for whom. I understand the operators: they are experiencing
a shortage of wheels. But are we to blame that no one ordered wheels from us when 30%
of the capacity was being utilized and when we were struggling to survive and selling
wheels below full cost? Personally, we find it harder to understand RZD, a key strategic
partner of ours, that we sell just under 40% of our production to under two long-term
contracts: at 29,000 and 32,000 rubles, respectively. (This is public information). I will not
even comment on the prices. We have been following the contract faithfully and will
continue to do so in the future.

PIPE DIVERSIFICATION

- OMK is also a major manufacturer of large-diameter pipe (LDP). The LDP market
has been in a crisis for the past several years with less than half the capacity being
utilized. What's your view of the future?

- Let's look at some background first. We have made 10.6 million tons of large-diameter
pipe in the past decade. Which means that our average workload has been over a million
tons of large-diameter pipe a year. This is a good workload equaling about 80% to 90%.

The large-diameter pipe market also works in cycles since it depends on projects. Once a
project is over, there is a lull in the market.

Of the 10.6 million tons, 4.3 million tons were consumed by Gazprom, 1.8 million tons by
Transneft, a further 1.6 million tons were delivered by us to offshore pipelines, primarily, to
Gazprom’s international projects, such as Nord Stream 1, Nord Stream 2, and South
Stream. We delivered 1.3 million tons to these three “Streams” becoming the only Russian
manufacturer to have been involved in deliveries for all three. Another 3 million went to
other customers.

Currently, the large-diameter pipe market is experiencing a slow-down. I would say this is
the slowest it has ever been. This is being caused by two factors: first, major projects are
concluded; second, there are new players. This year, we expect domestic demand to be
1.8 million tons with our own workload at 700,000 to 800,000 tons. Low but not unduly so,
much like last year's. The problem in this market is that not only the quantities but also the
prices are experiencing a drop. If production shrinks by 30% to 40%, the revenue from a
ton of pipe shrinks by a half or two thirds producing an avalanche effect. This is where we
are right now.

- Are you expecting new projects and increased demand?

- We project that Gazprom will be requiring 5 million tons of pipe in the next few years.
This will include projects in the Yamal, the Eastern Gas Program, the Southern Corridor.
In addition, Gazprom has repair and maintenance needs, of course. They are fairly stable
and will require several million tons of pipe as well, I believe. There are also Transneft's
stable maintenance needs. We are investigating export opportunities both within the CIS
and elsewhere. But in this regard, we are heavily dependent on freight rates which are
high at this time.

However, we are optimistic when we look towards the future. We are not expecting
production to drop below current levels. I think it has bottomed out. But as we know,
bottoms can fall out of markets, too. (Laughing). A market economy is called market
because it is virtually impossible to predict accurately. One can simply prepare for
different situations and figure out the critical turns.

- And what is a critical turn?

- Production dropping below 500,000 tons of pipe, for instance.

- And what are you going to do if that happens? Close plants down?

- Of course not. We manage production and people at VSW in a flexible manner. For
example, when production in the train wheel business unit dropped, we would take two
shifts from the wheel rolling facility and use them in those areas that were busy at the
time. Personnel is a fairly large item of expenditure. It may not appear so compared to the
total cost breakdown, being about 10%. But it is considerable when compared to our
profits. And we have learned to manage human resources efficiently in the past few years.

- Are there contracts already for these future projects that you mentioned?

- Not yet. There have been no tender proceedings yet. We are simply aware of the
opportunities. 

- OMK is actively developing other pipe markets, such as seamless and in-field.
Why? How are you planning to compete against the existing players in these
markets?

- We are currently in the middle of the largest investment program in our history. Its value
is 167 billion rubles, and the program is designed for 3 to 4 years. This is comparable to the Company's annual revenue that stands at 174 billion rubles. We have a good
debt/EBITDA ratio: < 1. The Company is generating a goodly cash flow. We are expecting
to have an acceptable debt/EBITDA ratio at the end of the program.

- What does the program include?

- It includes pipe making facilities, steel making, pipe fittings, and springs. Commissioning
a seamless pipe mill is the keystone project. We did not have seamless pipe in our
product range before. And this segment is expanding rapidly having potential both in
import substitution and exports. In addition, our customers would like us to make these
pipes. This is a project with a capital outlay of 50 billion rubles and a capacity of 500,000
tons of plain-end and threaded pipe. It will be concluded in 2021.
In conjunction with Danieli, we have developed a compact process requiring less capital
up front. At the same time, the process will yield high-quality at a lower production cost.
We see good opportunities for competition against the existing players. TMK is the largest
player in this market.

- And how are you going to compete with TMK?

- Like we always do. We do already compete with them in other parts of the tubular
market. There was a time when we were the only manufacturer of [LSAW] large-diameter
pipe. Then everyone, including Severstal, Chelpipe (Chelyabinsk Pipe Mill), and TMK
developed some capacity. We never used to be coil or plate manufacturers but we have
learned to make them to be competitive. These days, we make both our own coil and our
own plate, and they are excellent quality. We have skills, we have an understanding of the
market, and we have synergies with the existing product line. We see a place for
ourselves in this market.

- In the first quarter, the Company was supposed make a decision to build a steel
making facility. Has the decision been made? Is the project going forward?

- Yes, the project will proceed. We have to make our own feedstock for downstream
products. Our in-house steel production will double but even that is not going to be enough
to satisfy our own demand.

- You have a contract with Metalloinvest for wheel billets until 2027...

- And we will continue buying them.

- So, you are not thinking about making your own?

- We will be able to but we will need the steel for other things as well. We will continue
performing under all our contracts until 2027, and then we will see. We may continue
buying billets from Metalloinvest. We will still have a shortage of our own steel.

- You have always had two pillars: train wheels and large-diameter pipe. You will
now create a third one: seamless and in-field pipe?

- We have always had these three pillars. It is just that recently we have been focusing
more on oil and gas production tubulars, including the seamless oil range. That is why we
are feeling fairly confident in the market: our various niches have different trends. Our
financials are always stable: one market drops while another picks up the slack. Different
market segments have different cycles.

- Most companies are investing especially in in-field tubulars. Even those that have
shown no interest in them before, such as Severstal, for instance. Why? Are you
expecting drilling activity to pick up?

- In general, I think this market has sufficient capacity. Everyone makes his or her own
investment decisions but no one is immune from a repeat of the large-diameter pipe situation. I am talking about electrically resistance-welded pipe. As for seamless, no
surplus is expected there for the moment. However, there will be no shortage either after
we commission our mill.

- In the early 2000s, you attempted to establish a broad pipe-makers&#39; alliance both
with Andrey Komarov&#39;s Chelpipe and with Alexey Mordashov&#39;s Severstal. But it did
not work. What about today? Is there a way for the Russian steel industry to
consolidate and is there a need?

- This is what is going on in the world. I believe that a merger might be undertaken for
three reasons: to reduce cost, to acquire new capabilities and markets, and to eliminate
unnecessary competition.

In some areas of the Russian market, there is opportunity for mergers. The large-diameter
pipe segment by itself may offer opportunities for a joining of forces. In addition to ZTZ
(Zagorsky Pipe Mill), there is also Liskimontazhkonstruktsiya. They might be interested in
merging with someone who has rolled goods. At this time, large-diameter pipe
manufacturers are frequently operating below full cost, and financially, these facilities are
at risk.

- Is OMK considering the possibility of consolidation?

- No. We do not see a lot of synergies in merging.

INCREASING EFFICIENCY

- In addition to your famous production system which has even earned you an award
from Toyota, what other ways of improving efficiency at OMK would you name?

- One of our other fortes is developing more efficient process solutions in conjunction with
equipment manufacturers. In 2008, we commissioned our integrated casting and rolling
facility. We had started thinking about building this facility in 2004. At the time, only
conventional steel grades could be made in a stable manner using the short process while
we needed to make pipe grades that are among the most demanding, properties-wise.
And we developed a process like this together with Danieli. Fellow metallurgists were
telling us that we were wasting our time and would lose the investment. We were being
told that the equipment we were installing was only good for making roofing steel. And 10
years on, we have made over 10,000,000 tons of highest-quality steel that was further
processed into pipe for the most critical applications. The process was modified with such
success that the supplier was able to sell four more plants like this. We did the same for
Wide Plate Mill 5000 and today, we are able to manufacture plate with specified properties
at a lower cost than our competitors since we are able more effectively to control the
processes within the metal as it is being rolled and cooled.

As soon as we start thinking about an investment, we immediately build in innovation that
we develop in conjunction with the equipment supplier. This makes us competitive in the
markets.

Digital transformation is one of the methods of improving efficiency. We began looking into
it 20 years ago when it had a different name. Our initial choice was Oracle. Now we have
converted to SAP. We are implementing MES systems. Do you know what that is?

- Of course. All the steel makers are telling the same story.

- (Laughing). Everybody is saying the same thing but it works differently in every case.
The only area that we are only just starting and where we are somewhat behind the
industry leaders is an online store.

- An online store, is it an attempt to cut out the trader or to find new buyers?

- On the one hand, this is an attempt to cut out the trader where it is efficient. It is
important because the competition in the market is very stiff. New digital solutions help
optimize the logistics to a large degree. This is where the major profitability reserves are
buried. Traders get a considerable share of the price of the goods, up to 10%, which is
frequently more than the profit we make as manufacturers.

- What share of the sales are you planning to move to the online platform?

- We are selling a couple percent through the online store today. It was launched a year
ago. It would be efficient to sell 20% of our product through the online platform.

- Many of your counterparts from the industry are saying that digital doubles are the
primary technology of the future for the metal sector. Do you believe that OMK
needs a digital double?

- Frankly, I do not know. What is the advantage of this model?

- The ability to research different options for meeting production objectives,
essentially, think a few moves ahead.

- Yes, this is very important. But I also believe that the most important thing is having a
model that would track orders from the moment they are placed all the way through
delivery to the customer. The question is how accurate this model has to be.
You cannot digitize everything. You have to stop somewhere. You have to maintain a
reasonable balance and avoid doing projects for the sake of being able to tell the
shareholders that the company is fully digital and is going to space. Without regard for the
fact that the finances could be shot at the same time.

Digital transformation involves huge costs. About 5 to 7 years ago we did a calculation of
our total cost of ownership to implement and maintain IT solutions. It was 1.5 billion rubles
(or $50 million at the then exchange rate).

I believe that making &quot;digital transformation&quot; a catch phrase is a good marketing ploy on
the part of the companies selling all these solutions.

Let me tell you an interesting tale about computer vision. We got together with some
people from that industry and asked them to help us develop a computer vision technology
that would eliminate operators at the scrap receiving stage. Scrap is the primary feedstock
for our steel making facilities. And in receiving, it is very important to assess the properties
of the scrap correctly: you have to avoid offending your supplier while at the same time
avoiding taking a loss because you have paid for one product, and someone is trying to
saddle you with a different product. And this advanced computer vision failed miserably in
the face of this task. The project is ongoing with no end in sight for the moment.
A system like that would have been an excellent applied solution for the metal sector.
Those who manage to develop it will get an opportunity to make huge amounts of money.
It would enable us to do away with operators in areas extremely sensitive to errors.

WHY DO STEEL MAKERS NEED ART-OVRAG

- And towards the end, let&#39;s talk about beauty and contemporary art. Frequently,
very large companies confine themselves to providing financial support for cultural
events. And OMK has been holding Art-Ovrag, a contemporary art festival, for many
years now in Vyksa which hosts one of its facilities. Why?

- Last year, we spent a total of 740,000,000 rubles developing the various social aspects
of the towns and townships where we operate. Art-Ovrag is just a piece of our broad social
program, albeit a very important one. We are talking about a high degree of culture at our
facilities. It is an impossible situation that people should find themselves in one culture in
the workplace and a different one where they live. That is why we do not differentiate
between the site of the plant and the rest of the town. And Art-Ovrag is a tool for
developing the social environment. As far as Vyksa is concerned, Art-Ovrag is already a
brand that is being identified with the town.

It is the 9th festival already this year. Over the time that it has been around, the town
received 85 items of contemporary art which changed its face. It has begun attracting
tourists who are interested in the unique contemporary art works. The mural on the facade
of Wide Plate Mill 5000 with an area of 10,800 square meters has been recognized as the
largest in Europe. Walls of residential buildings in Vyksa are decorated with unique
paintings both by Russian and foreign artists. There are wall paintings by legendary street
artist Pasha 183. Unfortunately, he has passed away but his murals are preserved in
Vyksa.

Some may know nothing about pipes or wheels but have heard about Art-Ovrag. By the
way, this year it was attended by 23,000 people. Where previously, residents were unsure
about the event, it attracts ever increasing numbers of people now and is becoming closer
to people&#39;s hearts.

We have set up an art residence which is a space where artists can practice their art and
establish their studios. Some of their works, they simply leave behind, some others, we
buy. These artists do not follow a specific subject matter. We impose no restrictions on
their creative fancy but they feel so inspired by the environment they are working in, the
town, the plant, the people, that they frequently use imagery they like in their work. In the
Year of the Theater, we bring 15 theatrical performances to the towns that host our
facilities. Troupes from the capital have visited Vyksa and Chusovoy.
We re currently proceeding with a huge project to create an industrial park for tourists. The
Company owns an old cast iron mill that has been closed down. We would like to turn it
into a technology park or an outdoor technology museum to show people what technology
was like before and what is being used now, to commune with the history of the metal
industry, and to network. It will include workshops where people will be able to make
things, a modern museum complex, an educational center for children, a cafeteria, a
library, and many other things.

- Contemporary art is a complex thing. And metal workers are stern people,
frequently holding to conservative views. So, the people are liking it, "it is grabbing
them"?

- Of course. What is so good about contemporary art? It is utilitarian and inhabits our
space. It dies with the space as well, by the way. For instance, additional insulation was
being installed, and some of the facades sporting unique murals were covered up.
Everyone was disappointed at first, and then they understood that it was life. Life goes on.

Contemporary art targets young people. And young people are our target audience for Art-
Ovrag.

These projects are overseen by my wife Irina. I think that that is the reason they were, sort
of, &quot;doomed to succeed&quot;. Not because she is my wife but because she became a person
for whom it was very important. Any manufacturing company is very efficient. If a
manufacturer needed to solve the problem of improving some backyards, for example, it
would come in, put together a plan, an estimate, a schedule, and would paint all the
backyards the same. But this approach would not do for a real-life situation. Someone has
to invest a piece of their soul. This is where Irina comes in. Thanks to her and to the team
at the OMK-Uchastiye Foundation, these projects have a soul. This attracts people.

- Does this require a fairly large inflow of people from the outside?

- You are absolutely correct. We are seeing it already. We are hoping to attract tourists
and are happy to be able to support small businesses in Vyksa. It is important to provide
people with an opportunity to work not only for the plant but also in services. The service
industry depends heavily on us, on the plant, the salaries it pays, and the number of
people it employs. We have built an excellent 4-star hotel in town. Right now, we can build
a 3-star hotel with several hundred rooms (the Nizhniy Novgorod regional government has
helped us acquire some land). Several thousand people come to the steel works every
year since industrial tourism is very popular. Many people have never been at
manufacturing facilities at all, let alone such large ones with powerful equipment and
interesting products. People come out of these tours shocked: they are expecting to see
something dusty and dirty and what they see is people sitting at consoles and controlling
huge mills with a joystick, they see things moving on their own. This leaves and indelible
impression.
...
Fun Way of Talking About Serious Stuff
VSW is the only steel mill in the world to be recognized with a Toyota silver medal for its
production system. &quot;We are seeing low variable production costs largely owing to our
production system [....] We are fighting today for every percentage point, even for every
tenth or hundredth of a percent of the cost&quot;, says Anatoly Sedykh. The production system
makes for stable quality as well. OMK has been involved in two Nord Stream projects and
was awarded prizes &quot;for the smoothest pipe&quot; and &quot;for the roundest pipe&quot;.
But, according to Sedykh, these &quot;humorous&quot; awards are based on sound economic sense.
Thus, a day of a pipe lay vessel costs about $1,000,000, and the geometry of a pipe
affects how many pipes it can lay.