In a rare public interview, owner of Port of Sillamäe and a prominent St Petersburg businessman Andrei Katkov talks about the strengths of the harbour, on why he is investing in Estonia, and why it isn't in Russia's interests to give up transport of goods via Baltic ports.
-How do you see Russia’s harbours policy on the Gulf of Finland? A month ago, in his yearly address to the nation, President Vladimir Putin said Russia will keep updating its ports in our region. In Russia, some experts interpreted this as a sign that the Kremlin has taken the course towards totally abandoning transit through Baltic ports. What do you think about that?
I think this is a declaration and it is difficult for Russia to give up Baltic ports. Firstly, trade volumes flows will increase. Secondly, the list of goods will grow. Therefore, I think it is difficult for Russia to do without Baltic ports. If a political decision comes, that it is halted and that’s that, it will mean that our ports will be working poorly. I do not think that economy can be effectively managed with decisions like that. I do not support that, to up and administratively refuse Baltic ports. It just does not make economic sense! True, they built a good port at Ust-Luga, but shall we build one more? Why? Competition alone can determine the effectiveness of any port.
-How does one look at Russia possibly further expanding and enlarging the capacity of its ports in the Gulf of Finland?
I think it is difficult to do. What’s more, I think that in the longer perspective, the St Petersburg sea port (Russia’s second-third largest port on the Gulf of Finland – J. P.) will in the future be closed down altogether as it makes no economic sense to keep a port like that in city centre where land is expensive.
-What do you think is the perspective of Port of Sillamäe, partly owned by you?
Ports are built for centuries, in that sense we are a very young port still. Our main strength is a good location, basically at the (Russian) border. We have no development restrictions regarding the area, towards the west we may basically develop endlessly. And as our port is privately owned, it is very easy for us to take decisions. The three of us (Katkov, his partner Yevgeni Malov and Tiit Vähi – J. P.) do not even need to get together; it is enough if we call on the phone and agree. This, also, is an economic plus somewhat.
-Recently in St Petersburg, I talked with a prominent transit expert over there Andrei Karpov who in the 1990ies served as St Petersburg foreign relations committee deputy head, and afterwards as the transport committee deputy head. He was very sceptical about the perspectives of Port of Sillamäe thinking that it would have been a success in the 1990ies and 2000ies but that now you are already late with developing it. How do you refute that?
Let me tell you a story, to counter that. You know, don’t you, that we opened the Nooruse Spa in Narva-Jõesuu, (Estonia). While we were about to complete that, with a couple of months to go, I had to make some legal changes. For that, Estonian Tax Boar required that I present assessment of the project. They required it be done by one of the Bog Four of the auditors. I said okay so be it.
And so I ordered an assessment of one of them, I will not say which one. They completed this thick material telling me the project was worth €0. I called them just to know what they were thinking. While it was actually quite good with me: legally, it is very easy to work in a project with zero value. You know what the lady told me? She thought I had picked a place with no outlook, the business plan was a failure, and the financial model miscalculated, and thus she judged the project to be loss-making.
In reality, we are currently doing well. Afterwards, my acquaintances in Estonia explained it like that the auditor was probably going by the fact that these past 7–8 nobody had built anything over there. And therefore the place must be bad because this Katkov cannot be smarter than the rest. I think this Karpov is reasoning something like that regarding Port of Sillamäe.
-What do you think of the oil refinery perspectives in the Port of Sillamäe? Will there be the plant?
The company (Jukonoil) who is building it has already covered a certain distance. They have also passed the most vital stage, the environmental impact study. For me, this is currently quite an interesting project. Oil price is low and is not predicted to rise too much. At that, refining margin is rather high. Therefore, I do see a perspective in the plant. We must consider that in near neighbourhood, in the Baltics, there are no decent refineries. The Mažeikiai plant in Lithuania is old and they have very unfortunate logistics.
-Won’t the free fall of oil price and economic crisis not endanger the building of the plant?
What economic crisis? Look at the loan interests, Euribor is soon in the negative. There is plenty of spare money in Europe, with no place to put it. But nobody is investing in real projects, into production, like for instance this project. At the moment money is cheap and I think the plant has a future.
-Why have you invested so much into Estonia?
It’s actually hard to say… Well Estonia is an attractive country, economically speaking. In Germany, for instance, there isn’t much anything to do; over there, all is completed already and built full. In Estonia, there is still room. You have right laws, I mean for instance the 0 percent income tax with reinvestment. This is very comfortable. And I love Estonia and Estonians. As a child already, I went to Narva-Jõesuu with parents when they were on vacation.
-Like a lion, your partner Tiit Vähi is fighting for more pragmatic Estonia-Russia relations. Do you believe in improvement of the relations?
Sure they will improve, as we are neighbours. Can’t live like this.
THE MAN
Plants and hotel owner Andrei Katkov
An unquestioned member of St Petersburg business elite, Andrei Katkov (60) is most known as former business partner of a best known oligarch Gennady Timchenko in a highly profitable oil mediation business.
In the 1980ies, Mr Timchenko and Mr Katkov worked together at Leningrad department of the foreign trade ministry of the USSR. At the end of the 1980ies at the ministry they forced through the idea to create a separate unit at Kirishi refinery which would sell petroleum directly abroad.
Afterwards, the state enterprise became a private one named Kinex which, in the 1990ies, became known as the oil major Surgutneftegaz’ main exporter to the West. That was very lucrative. Russian media data says Kinex’ 1999 turnover amounted to $2bn.
During the Kinex era, Mr Katkov in 1998–2004 also served as chairman to Rossiya Bank through which their company moved their finances. At the time, majority owner of Rossiya Bank was another influential oligarch Yuri Kovalchuk.
In 2004, Mr Katkov and Mr Timchenko decided to stop doing business together. Mr Timchenko kept all of the oil business, and Mr Katkov with Yevgeni Malov – also a Kinex owner – got real estate projects and thermal insulation producer Penoplex. Mr Katkov says Penoplex has evolved into the largest producer in Europe in its field, and second largest globally.
The company has seven plants in Russia and one in Kazakhstan. Currently, Penoplex is indeed the main asset of Mr Katkov’s where he holds controlling interest. During the last economic crisis, 46 percent of the company were bought by a major bank in Russia, Gazprombank.
That selfsame year Mr Katkov and Mr Malov, «divorcing» Mr Timchenko both acquired a 25 percent holding in Port of Sillamäe. The rest belongs to former Estonian prime minister Tiit Vähi.
Business paper Delovoi Peterburg St Petersburg’s rich list this September placed Mr Katkov as 79th in the city at 10.6 billion roubles (then €140m). His business partner Mr Malov was assessed to be worth 5.1 billion roubles. Mr Timchenko was 1st with 660 billion roubles. They all launched their businesses together.
Other than Penoplex, Mr Katkov owns Nevskaya Melnitsa making milled products. Mr Katkov said he bought that for real estate development as the plant owns a large lot on banks of Neva River right close to central St Petersburg.
In Estonia, Mr Katkov is in port business while also owning the Narva-Jõesuu spa hotel Noorus. He also owns a similar hotel in Peterhof near St Petersburg. Near there, Mr Katkov is building a large gold complex.