Janis Kraulis: The coming years will be hard, but KNAUF is building plants in Russia and believes in the development of the Russian economy

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Janis Kraulis: The coming years will be hard, but KNAUF is building plants in Russia and believes in the development of the Russian economy
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The head of The Knauf Group CIS, Janis Kraulis, answers questions from Construction.ru.

— Mr. Kraulis, according to data from the Higher School of Economics, about 57% of Russian producers increased prices for construction materials in the first half of 2015. Do KNAUF plants deal with these enterprises?
— We deal with just those 43% who didn’t increase the prices in spite of the growing cost of primary materials and components. Even plants manufacturing their product in Russia have to import some components. The currency rate increase resulted in a price rise of the components and consequently the prime cost increased.
The general situation in construction is influenced by two factors: low prices for oil and the absence of opportunities for external financing of projects because of sanctions. Another factor influencing the situation on the construction materials market is the excessive capacity in the construction materials group. Our rivals have put into operation a significant amount of capacity and so demand is lagging behind supply. Besides this, purchasing power is decreasing. In these conditions we have decreased prices for some construction materials by 10% on average.
We make significant efforts to localize innovation material production. I’d like to remind you that the KNAUF Group CIS itself and its Russian enterprises are local companies. We mine prime materials in Russia in our own quarries, process them at our own plants and deliver the finished materials to the local market. The components of the production are 70-90% domestic. We would like to make the local components 100% domestic.

— What is your prognosis on the development of the economic situation in Russia?
— The main tendency on the real estate market is the reduction in volume of new housing. At the same time, the volume of housing repairs is also decreasing, as people are not ready to spend money on this. The commercial realty sector has reacted dramatically to negative changes in the economy, and producers and retailers of construction materials have felt this.
The situation is not likely to change in the near future. It will become even more complicated because construction is a cyclical process, and there are on average 1—3 years between the investment stage and the putting into operation of the finished building.
As construction volume decreases, construction materials consumption decreases too. This year, a 15—20% production decrease is expected at our Russian plants, and next year it is expected to be 10—15%. This is connected with the economic situation in the country.
I travel in the Russian countryside a lot and see that a significant amount of construction is frozen, unfinished. The question is, what will happen to such already half-constructed objects? If companies and citizens do not have money, the objects won’t be bought. What then? If they are not bought, construction companies will not have money to finance their next projects. I am not a pessimist, but we have to face facts.

— Will the KNAUF Group’s investment program be fulfilled in the current economic conditions?
— This year, KNAUF Group CIS is carrying out an investment program to the tune of 60m euro, including 40m euro in Russia. It covers updating existing plants and the construction of new plants, and the production of new types of construction materials.
In spite of the crisis we go on constructing plants. In October, equipment assembly and installation was started at a plant for the production of dry construction mixes in Chapaevsk [in the Samara region]. Additional facilities for mixes production opened at a plant in Baskunchak [in the Astrakhan region], which allowed us both to increase the production volume and also to expand our range of items. We are now working on the construction of a plant for the production of waterproof panels, ‘Aquapanel’, in Novomoskovsk [in the Tula region].
Thus, we are continuing our investment activities and considering opportunities to buy other plants because we believe in the potential for the Russian economy’s development. At the same time, we are sure that the crisis is the time for exploring new possibilities, and we want to use this.

— Not so long ago a new association – ‘The National Union of Construction Materials and Structures Producers’ – was created. If the KNAUF company enters the association, what would you think would be its main activity?
— Our representatives took part in two sittings of the association, in Moscow and in Krasnodar. We are planning to enter it as it strives for activating dialogue between power and business in the sphere of construction materials production and application.
Answering the association’s executives’ request, we told them of our wishes and expect support in a number of problem areas.
It is necessary to start the production of modifying additions to dry construction mixes in Russia, which we are currently importing. We are seeking (with no success yet) producers of cellulose esters, tartaric acid, sodium gluconate, etc.
The existing regulatory system [SNiP – construction rules and regulations] does not offer a clear understanding of what the surface quality must be (for example, of plaster compo boards) before putting on a finishing layer. Neither is there a clear definition of quality.
We suggest developing and implementing a standard for surfaces preparation (walls, ceilings) and for the definition of categories (Q1—Q4) similar to existing European norms.
The next thing is the compulsory certification of construction materials only with accredited authorities and fighting against unprincipled certification authorities and producers: penalties and sanctions prohibiting such production on the market. We suggest creating a special corresponding committee in the new association for that.
There is absolutely no regulatory base for primer composites for the preliminary preparation of surfaces (walls, ceilings and floors) for exterior and interior works in Russia. There are no requirements for these types of production and neither is there any classification. That’s why unprincipled producers’ output of primers are of low quality, and can often even be just water. This results in claims over the quality of materials used on surfaces worked up with bad primer, so it is necessary to create a corresponding regulatory base.
We spend up to 20m rubles annually to support professional training, so we suggest considering taxpayer’s expenditures on social partnerships with professional training institutions for profit taxation. This measure would become a viable mechanism for educational projects support by business on the whole and in the construction industry in particular.
Another problem is the access of vehicles of more than 12 tons to public roads. The RF Ministry of Transportation has prepared a Federal Law draft, ‘On the organization of traffic’, which gives regional and local authorities the right to ban or restrict traffic on roads, to charge money for entering restricted traffic zones, and to regulate parking areas. Being a large cargo owner, KNAUF is rather critical of the draft. We suggest that the Association should support our initiative and take part in expert assessment of the document.

— While providing the construction of the Olympic objects in Sochi, your Krasnodar plant must have been rather strained. What’s going on there now, now that the large-scale events have finished?
— In the Krasnodar region we have the KNAUF Gypsum Kuban plant in Psebay, in the Mostovsky district. Its work has also been impacted by the general economic situation in the country. Earlier, we delivered significant volumes of the plant’s product to the construction sites of the Sochi Olympics. Now you see which objects have been created there. The city may become a second Nice for the Russians.
Now we are looking for other opportunities to sell our product. The preparation for the Football World Cup 2018 will also positively affect the production of construction materials in Russia.

Interview by Alexander Gusev