Putin accused Mechel of selling coal abroad at half the domestic price. He said that as a result the state has not received its due in taxes and domestic prices on steel have soared.
Putin's words caused the company's share price to slump, knocking one third, or $5 billion, off its value.
The Mechel group was set up in 2002-2003, when the coal-mining company Yuzhny Kuzbass, from the Kemerovo Region, bought the Mechel steel plant in the Chelyabinsk Region. Today, Zyuzin owns about 70% of the group's shares. Mechel has a key advantage over its rivals because it owns not only steel-producing facilities but also coking coal, a crucial resource for the ferrous metals industry.
In the last few months, following complaints from pipeline producers and oil companies about growing coal and steel prices, the Russian government has become seriously concerned about this issue. Steel producers said that coal prices increased by 80%-100% from January to April. As a result, at a special meeting in late June, Deputy Prime Minister Igor Sechin advised metal-makers to conclude long-term contracts for the sale of their produce. Mechel announced its decision to switch to this tactic on July 22.
But it was too late. A week before the conference in Nizhny Novgorod, the Federal Antimonopoly Service (FAS) launched a case against Mechel companies for using their dominant position on the market to fix prices. Complaints against Mechel were made by fellow steel producers the Novolipetsk Iron and Steel Corporation, which Mechel had stopped supplying with coal, and the Magnitogorsk Metallurgical Plant.
Mechel's problem was that it had signed the majority of its long-term contracts with foreign partners, leaving its prices on the domestic market subject to sharp fluctuations. Zyuzin's colleagues accuse him of violating the tacit rule of the game - to put domestic consumers before foreign importers.
If the FAS had charged Mechel with violating the rules, the company would have faced a fine of 2% of its total revenues at most. It was the FAS that had supplied the materials for Putin's speech in Nizhny Novgorod, but its criticism of Zyuzin was hardly as strong as the prime minister's. The prime minister was primarily angry because the company was selling its raw materials domestically at double the price of its exports. Putin was also indignant at Zyuzin's absence at the meeting, to which he had been invited (apparently anticipating some trouble, Zyuzin has checked in for treatment at a Moscow cardiological clinic).
Later in his speech, Putin asked FAS head Igor Artemyev, who sat at the table next to him, to find out what was going on, although the FAS had already reported to him on this matter. "Perhaps, I should even ask the [Prosecutor General's Office] Investigative Committee to pay special attention to this problem. We need to know what's going on here," Putin said.
The response to Putin's speech on world stock exchanges was instantaneous. Russian markets had already closed down by the time he made it, while in New York Mechel's stock price plunged from $15 billion to $10 billion. When the Russian stock exchanges opened on Friday, July 25, the company's shares dropped accordingly. They were not the only ones. The shares of its rival metal-makers, and indeed the entire Russian market, went down by an average of 5%.
Some experts believe that if Mechel "behaves well," everything will be fine. In the last two years, Zyuzin, a very cautious Siberian metal-maker, has turned into an aggressive buyer of metallurgical, coal, and energy assets (Forbes ranked him 12th richest man in Russia with $13 billion). Plenty of businessmen would like to buy them from him in this predicament.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
