Mauro Longobardo, General Director of ArcelorMittal Kryvyi Rih: We would like to reach the level of Green Producer

Mauro Longobardo, General Director of ArcelorMittal Kryvyi Rih: We would like to reach the level of Green Producer In his interview, Mauro Longobardo told to Novoye Vremya edition how Ukraine has changed in the eyes of investors over the past few years, why it is necessary to strengthen cooperation with the government, which technological changes will take place in ArcelorMittal Kryvyi Rih in near future, and what is the updated strategy of sustainable development of the plant.

- What is your assessment of technical and organizational condition of ArcelorMittal Kryvyi Rih?

- This is the largest integral Mining and Processing Plant in Ukraine. 15 years ago, our company purchased this metallurgical complex as a result of a transparent privatization. This is when the transformation program started aimed to migrate from the soviet model and to build a company, which works according to best international standards and practices. I came here to finish what had been started in the company before. Many things have been done already, yet key projects, which will enable to transform ArcelorMittal Kryvyi Rih completely, are still in front of us.

We invested over $5 bln into modernization of the company after its purchase. Air emissions were decreased considerably during this period. In particular, emissions decreased by more than 42% in total since 2006. However, standards are changing, norms are becoming stricter. The government is trying to adjust their standards to European ones. To ensure compliance with new standards we have a plan - a sustainable development program. It will bring the company to the level of "a green producer". I mean environmentally friendly production.

During the next 3-4 years the company is going to execute significant investment plans including previously announced $700 MIO for environmental issues. We are going to build a modern pellet plant, a new gas cleaning unit in BOF, to upgrade Blast Furnace No. 9 completely and to finish upgrading of Sinter Plant No. 2. The longest project is the construction of the pellet plant. In July we will have final negotiations with a supplier. I think that by the end of 2023 the plant will be working already.

- Do you keep on working without any special changes according to the strategy which was approved earlier?

- Regarding the list of necessary investments, there are no major changes. Nevertheless, we prepared comprehensive strategy this year, which refers not only to solve environmental issues and execute investments into production but also defines the operational best practices to be implemented in frames of industrial safety and clarify our social responsibility, participation in programs of the city, the region, the country. I call it sustainable development strategy.

- Will you participate in life of the city, the region and the country in a more active way?

- This is normal practice for large-scale business. It's not my first time when I work at a city-forming enterprise. Currently around 29 000 employees are involved in our activity, including contractors. We need to mutually and proactively cooperate with authorities. When I want to develop a company with a vision of 20 years, not only the question of investments is relevant but also the development of human resources. Whether there will be people who will want to work in Kryvyi Rih particularly in future. At this respect we developed a comprehensive program to attract, train, develop and retain young talents, starting from their last years at school.

- So has the company participated enough in life of the city and the country before?

- Times change. I think that now it is necessary to act more actively. I am not Ukrainian, but I can see, that Ukraine is at an important, dynamic stage of development. There must be more flexibility in communication. Because there will be much more changes further. We want to be a part of this process, so that to understand the situation and to give support.

ArcelorMittal Kryvyi Rih is one of key investors in the country, that is why we would like to touch upon some aspects important for us. Management of the country is trying to attract investors to the country. If the government can handle proactive relationships with those who are working in Ukraine currently, this will definitely help to find new investors.

- Some years ago you already worked in a Ukrainian company. Can you evaluate changes that took place in an investment climate of Ukraine, in Ukraine's cooperation with neighboring countries during this period of time?

- If the largest investors in the country had to struggle and put extraordinary efforts for stable and successful work, I imagine that when other potential investors from Europe see this situation, they might think like this: "I have a smaller company. There are no enough guarantees that proper and on-time decisions are taken based on common sense and laws rather than other reasons, that justice system works that this is safe environment for my investment, etc. I will better wait and see what happens".

That is why our successful case of work in Ukraine or an example of any other foreign company is better that thousands of words.

Some reforms of labor legislation were launched, but this must proceed. There are certain problems with protecting the domestic market. Nowadays most countries in the world are actively protecting their markets from influx of import. Ukraine should learn to adapt to the aggressive reality of protectionism, supporting its national producers. Business conditions are different from what they were five years ago. It is even more necessary to react quickly in a crisis situation, under such circumstances in which we all live in 2020. If this not done in time, if the market is not protected, then an investor, analyzing risks, will hardly choose Ukraine to create a new asset. Ukraine is going through a difficult but very important period. Already during 15 years ArcelorMittal company has been investing in Ukraine, and its well-being and development is sincerely important to us.

- What about staffing? There are many Metal and Mining companies in Kryvyi Rih, which must compete for staff. How did the situation with COVID-19 impact?

- This year, of course, is a special story. Currently we can see a minimal outflow of people. One of the reasons is also because business in Europe went down considerably. Many people there are getting only unemployment compensation from the government now. As a result, the outflow of personnel in 2020 decreased several times and reached the lowest values recently. We forecast that this tendency is temporal, but we know clearly how we can retain our employees.

Personally, I don't have a feeling that Metal and Mining companies in Kryvyi Rih have major problems regarding competition amongst them. An average age of mine workers is quite high. On one hand, these are experienced employees. But, on the other hand, the tendency is worrying, because there is no youth willing to embrace a production career.

Population of Kryvyi Rih is decreasing, unfortunately. First, young people, good specialists, those who can apply their experience successfully elsewhere in Ukraine or in Europe, are leaving this place. It creates a vicious circle. I think that Metal and Mining companies must work together on this problem.

- What is a salary level in the company?

- An average level of salaries was 17.5 K UAH in May in the industry in general, an average salary in Ukraine - 10.5 K UAH, in ArcelorMittal Kryvyi Rih an average salary was over 18 K UAH and within 5 months this year - over 20.5 K UAH.

- Recently Mr. Zelenskiy, the President, gave a task to bring Kryvbas football club back to life in Kryvyi Rih. Many years ago, there was an attempt to involve the plant in its financing, but at that moment it failed. Considering that you are from Italy, where football is almost a religion, have you been already addressed for help?

- I like football. By the way, I am a fan of Juventus. Generally, at ArcelorMittal we do not give direct support to sport associations or clubs, but we rather prefer to support improvement of local environment. For example, in the specific case, we are keen to participate inside certain reasonable budgets to the upgrade the infrastructures in Kryvyi Rih, particularly the stadium, a necessary step to guarantee long term objectives of the football team. As I understand, local companies will be all involved in the refurbishment football stadium.

- In the past many managers of ArcelorMittal Kryvyi Rih were facing pressure of criminal structures. There were shootouts, threats of physical violence. Do you see any risks that it will repeat?

- I heard that pressure, threats, arsons of managers' cars were real situation in the past, when a foreign owner came to the company. It cannot be 100% guaranteed, that it will not repeat, but today we do not see extreme danger. I am quite a straightforward person. If I manage a company, my rules are clear for everybody from A to Z. There are no hidden ideas, no double-meaning vision. According to my experience, when everybody understands it clearly, they try to adjust to regular normal practice.

- Last year an ecological inspection made audits in the company, National Security Agency of Ukraine visited the company and arrested equipment, accused the company of ecocide. How did this story finish?

- An investigation on this case is ongoing. We are looking forward to impartial and objective investigation. In our opinion in no way it can result into a conclusion that the investor, which has been the largest one in Ukraine since 2005, was destroying flora and fauna on purpose so that to cause an ecological disaster.

ArcelorMittal Kryvyi Rih is an industrial company, work of which reinforces Ukraine's economy. It is operating here for 86 years. The involvement in the political agenda is not a target at all for the company as, it will lead to that instead of developing the business, solving problems, implementing investment projects, we will have to focus on other urgent issues depending on a political situation.

This is extremely inefficient, moreover, it can lead to catastrophic consequences for the company. Small example: last year because of the search by National Security Agency of Ukraine a project on the third CCM (metallurgical machine for steel casting, a state-of-the-art investment supplied by German SMS) was postponed for a couple of months. But now we have access to the equipment. We are pre-commissioning it now.

- Is it possible to say, based on the results of that situation, that the company's management had made mistakes in presentation of what you are doing? And what are the conclusions?

- In recent years, ArcelorMittal Kryvyi Rih, like Ukraine as a whole, worked in tough situation due to the various internal and external factors. Under circumstances prevailing after 2014, the challenges for the large enterprises have become largely unprecedented. However, criticism overshadows all reasonable initiatives or alternatives with the help of which business is trying to maintain a stable, successful work for the company and its employees. Now we clearly understand that it is necessary to re-establish communications with different groups of our stakeholders, to share our vision of the situation and further sustainable development. In current difficult situation, it is important to let business continue its work calmly. Of course, complying with all commitments - including environmental ones. So, we do not use outdated technologies anymore - Open-Hearth Shop and the first section of Blooming were decommissioned completely.

- Are all three continuous casting machines already in operation? Have you reached design capacity or not?

- Not yet. Launch of the second line just started in Q1 this year. We hope that by the end of the year we will receive all the necessary permits and start production at design capacity.

- You mentioned the construction of a pellet plant. This is a new project. Will you produce pellets for your own needs?

- Yes, exactly. Nowadays we use only sinter. Three sinter shops are in operation. The idea is to leave one in work, completely modernized. We will replace the other two by a new pellet plant. This will enable us to reduce coke consumption. And we will be able to stop two obsolete coke oven batteries. Thus, the ecological problem will be completely solved.

-What Fe content will be in pellets?

- We are proposing projects to increase Fe content in iron ore raw materials up to 68%. Now the average figure is 65.3%.

- But after replacing sinter by pellets, the changes are also required in Blast Furnace production.

- Therefore, we plan complete reconstruction of Blast Furnace No. 9 in 2023. Now the plant has four Blast Furnaces in operation: No. 6, 8, 7, 9. After the completion of the modernization of Blast Furnace No. 9, we plan to decommission Blast Furnace No.7.

- Will production volume remain?

- Yes. The maximum capacity will be about 20 thousand tons of hot metal per day. This is maximum.

- Well, this is over 7 million tons of steel per year!

- Yes. That's why during these 2-3 years it is necessary to decide if and how to use these volumes of hot metal, because now we can only produce about 6 million tons of steel.

Now it is already difficult to define a strategy in a way to fix it for 20 years. The company must be flexible, dynamic and be able to react fast. This year, for instance, due to COVID-19 situation we increased export of iron ore to China in Q2, since demand for finished goods in Europe reduced. Now sales volumes of steel products might come back, but uncertainty exists. It is necessary to learn how to redirect sales in short times, two weeks namely.

The advantage of ArcelorMittal Kryvyi Rih is the fact that we have the opportunity to choose what to sell: finished products, semi-finished products or iron ore, depending on market conditions.

- You said that you have increased sales of ore. Is it within the Group or to third-party consumers in China?

- Generally and logically, we sell iron ore to other sites of the corporation, but if their demand decreases, as had decreased due to the situation in Europe in H1 this year, then we are able to sell to market.

- Closing the question of variability. Previously, it was planned to build facilities for production of flat products. Do you still have these plans?

- Let's say: the issue is still on the agenda. We are interested in analyzing any alternative to produce additional volumes of products. We will study different options during next years.

- You are talking about sales strategy. But one of your first HR decisions was a change in sales and marketing management. What was the reason for this?

- Changes in the organizational structure are dictated by the results, which we expect to get from the changes in the overall strategy. In fact, after the reorganization, we have created competition between our sales teams, which are operating on different markets.

Besides, I prefer the structure to be horizontal. In general, this requires more efforts from CEO, but at the same time this allows contacting with a large number of the employees, when you see their growth within the organization. Personnel changes is completely normal process for any company that is in dire need to be upgraded.

- In Ukraine, you have created your own network of warehouses of steel products. You also work with major distributors which are Vartis, Vikant, Kaskad. Do you plan to keep the existing scheme on domestic market in Ukraine? Or there may be some changes?

- Ukraine is a key market for us. ArcelorMittal Kryvyi Rih is the country's largest producer of rolled steel products, we want to sell finished products and expand our product line. It is very important for us to maintain our market share in Ukraine and even increase it a bit.

Our plans include further development of the sales chain. I have personally met with all the clients you mentioned. We consider them as the partners rather than the clients. We must ensure the supplies of any product that they require within our range. And it is important to have a sufficient margin regarding these products.

- How do you plan to work on international markets?

- The game is a bit different there. We have traditional markets, which are Middle East, Near East (Turkey, Lebanon, Israel), Africa and Gulf countries. Lately we consider China as an interesting market for us too, although, probably, it is temporarily. It has been importing billets and iron ore for the last three-four months actively.

But I suppose, that China will load own metallurgical capacities in the nearest future, and we will come back to our standard markets. A situation there is more difficult, because it is not only the coronavirus that impacts, but protectionism policy as well. Also, a political factor should not be excluded. For instance, turbulence in Lebanon led to that it became risky to ship products. Sharp increase and decrease of demand are also a serious challenge. This all makes life of the sales team more complicated.

- Recently, the European Bank for Reconstruction and Development has announced a loan to a joint venture between ArcelorMittal and Air Products (USA) for the construction of a new air separation unit. Why did you prefer this producer and this format that is a separate legal entity?

- We held a tender in Ukraine, in which other suppliers also took part. However, Air Products offered the best option from technical and commercial points of view. Therefore, they have won the tender.

- Will it be equal partnership?

- No. This is a complex mechanism, but as a result it will provide benefits for both parties.

- In this case, who is a bigger investor for Ukraine: ArcelorMittal or Air Products?

- The biggest foreign investor in Ukraine is ArcelorMittal!

- Will you be their only consumer?

- Yes. But according to the contract, we will have certain obligations. - What are your relationships with Ukrzaliznytsia now?

- We have business relations. Currently, we see no big problems. In Q2 this year the situation was not too much favorable for Ukrzaliznytsia. Because of decrease in business activity due to the spread of COVID-19 and quarantine restrictions, the volume of traffic has decreased and there was a surplus of wagons. Let's see how the situation will develop when the market returns to its original position (to the pre-crisis level).

As far as you know, Ukrzaliznytsia is planning to change the railway tariffs. Of course, we are against this. However, let's see what the second half of the year will be like.

- Describe your relations with other steel companies in Ukraine? Metinvest, DCH, Interpipe, Ferrexpo? Have you a struggle for the raw material base, sales markets? Or is there enough space to avoid conflicts?

- We have enough space. This is because the main products that we sell, differ despite some overlapping. Metinvest specializes in flat products. Ferrexpo - on pellets, Interpipe - on pipes. ArcelorMittal Kryvyi Rih - on rebar and rolled section steel products.

We can say that we are not competing with other plants for resources. The only exception may be scrap metal, but anyway, the market always finds an equilibrium point in supply balance.

- How did the quarantine influence on relations with personnel and contractors?

- Ukraine, one can say, was lucky. This problem was faced here later than in other countries. Accordingly, we could get prepared better: procedures, protocols, support of people. We also tried to activate available reserves fast, so that to decrease expenditures, to keep business and all our personnel. We were doing everything possible in order not only to prevent from the spread of the infection, but also to protect own employees and members of their families, to help the city in a struggle against the virus and to keel production level as well. Load of our capacities did not go lower than 75%.

I would not like to sound too optimistic, since I have many friends in Italy. They told me how difficult everything is. The situation can change completely any day. Being a part of the international company, we saw size of the disaster worldwide. That is why even now, amid the adjustive quarantine and some relaxations in Ukraine, we keep the strictest measures in our company so that to confront the spread of the virus.

As of today, only nine cases of coronavirus infection were confirmed amongst the employees of our company. Three persons have already recovered. Others are in self-isolation, but without severe symptoms.

We are implementing some investment projects together with European contractors. When quarantine restrictions started worldwide, they all had to decrease their activity. Only now they are starting to come back. Soon our partners from Danieli company, which left us in the end of March, will come back already. We tried to be as much flexible as possible with local contractors, so that not to stop and not to interrupt implementation of important investment programs in the company.

To be honest, I am worried about the second half of the year, considering the forecasted second wave of the virus. We need to keep this issue in focus. However, I strongly believe in professionalism of the team of ArcelorMittal Kryvyi Rih, this year we have jointly overcome many difficulties already and keep on going. Two most important resources, which are necessary to upgrade the whole plant, are money and time. Despite all the challenges, the company is ready to invest but we need some time for the modernization to bring maximum effect.