Russian State halts plans to target foreign construction material producers after key economic forum & court hearing

The Russian State has pledged not to target foreign producers of construction materials based in the country who decided to suspend their business in Russia after the country began its war with Ukraine on 24 February 2022.
Quarry Products / September 22, 2023
By Eugene Gerden
The recent Eastern Economic Forum in Vladivostok. Pic: Ria Novosti, Alexey Danchev

Endorsed by Russian President Vladimir Putin, the pledge follows a key court ruling influenced by criticism from large domestic businesses during the recently held Eastern Economic Forum in Vladivostok, which asked for State pressure to be reduced on all domestic and foreign businesses.

Before the war, the Russian aggregates and construction materials market was rich with promise for global majors, with annual growth rates of 7-10%. Such growth was largely due to Russia's rapidly developing residential construction sector, triggered by relatively cheap mortgages. That attracted the interest of big global players,  many of which operated production facilities in Russia and supplied their products for State needs.

However, with the beginning of hostilities in Ukraine, the market entered crisis management, forcing most global players to halt the planned expansion of their Russia operations and suspend further investment. Some decided to completely leave Russia by selling their local business, axing hundreds of jobs. That sparked criticism from the Russian state, which threatened to begin seizing Russian assets of those foreigners who leave Russia on a unilateral basis.

One leading company that faced the serious threat of losing its Russian business was Heidelberg Materials, formerly HeidelbergCement, and still trading as HeidelbergCement Rus LLC in Russia.

On 8 August 2023, the Arbitration Court of St. Petersburg arrested the shares of HeidelbergCement Rus LLC (HeidelbergCement), Raw Materials Company JSC, Tsesla Shale Cement Plant, and Gurovo-Beton JSC after granting a Russian State request via the Prosecutor General's Office of the Russian Federation. The supervisory authority explained this by the fact that the Heidelberg, Germany-headquartered parent group – which has German billionaire Ludwig Merckle as its biggest shareholder - is registered in the territory of an 'unfriendly' state and "may take actions aimed at withdrawing the property complex of controlled enterprises, selling them to third parties, which will lead to suspension of technological production cycles, reducing production capacity, creating an artificial shortage of manufactured products on the market." The official reason for the shares' arrest was the 'illegal privatisation of enterprises controlled by the company during the 1990s'.

However, on 13 September 2023, the Arbitration Court of St. Petersburg and the Deputy Prosecutor General completely abandoned their claims in the HeidelbergCement case for the seizure of assets.

"Accept the waiver of the claim and terminate the proceedings," the judge ruled. The decision was unexpected for HeidelbergCement's representatives, as it was preparing for a long trial, while the closure of the case became a surprise for it and its lawyers.

HeidelbergCement Russia plant
HeidelbergCement Rus LLC's cement plant in the city of Sterlitamak. Pic: HeidelbergCement Rus LLC

Analysts believe the legal U-turn was mainly down to President Putin's speech at the Eastern Economic Forum, where he said there would be no deprivatisation in Russia.

"There will be no deprivatisation, I can tell you that for sure. Law enforcement agencies have the right to assess what is happening in the economy in specific cases. But this is not connected with any decisions regarding deprivatisation. They won't give anyone a nightmare, but everyone must comply with the laws of the Russian Federation," said Putin.

Analysts also believe another reason for the end of attacks on foreign businesses based in Russia by the Russian State was recent commentary by the Russian Union of Industrialists and Entrepreneurs – a public association uniting large both Russian and foreign businesses, headed by Alexander Shokhin, who has been close to Putin since 1990s. The union said Russian business stability is "more important than secondary reasons for taking away assets from the current owners."

Mikhail Burmistrov, General Director of Infoline-Analytics, one of Russia's leading analysts in the field of construction and construction business, said the situation with HeidelbergCement was very alarming for Russia as the planned nationalisation of the enterprise was based on strange motives.

He continued: "There are some activities that Russian authorities may consider unfriendly when enterprises stop production, for example, the case with Samsung or LG. The logic here is clear. However, as for HeidelbergCement, the situation is completely different."

Holcim, the world's biggest building materials producer, almost lost its Russian business at the end of 2022 after it was subjected to raider capture via fake persons who tried to seize ownership of Holcim's Russian assets consisting of four cement plants in the Moscow region (Voskresensk, Kolomna), in the Kaluga region (Ferzikovo village) and the Saratov region (Volsk), and three aggregate quarries in Karelia.

Before 24 February 2022, Holcim employed about 1,800 people in Russia. At that time, the company was able to save its business, which was sold to its former management and renamed Cementum. Cementum still experiences serious problems, as most modern construction materials plants in Russia were purchased on a turnkey basis in Germany, Denmark, and France, making them heavily dependent on supplies of equipment, technologies and regular servicing from experts and engineers based in those countries. 

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