The Galchev interview

Published 21 April 2015

Tagged Under: Filaret Galchev 

Enhancing this month’s coverage of Russian cement markets is an exclusive interview with Filaret Galchev, chairman of the board and CEO of the recently formed Eurocement, a company better known as Shtern Cement until its purchase last year by the former coal producer Rosuglesbyt, and which now produces over 8Mt of cement. The interview was conducted in Eurocement’s Moscow offices, with Mila German of the Russian Journal Zement and its Applications also adding to the debate. As you will glean, the discussions provide an cogent update on this exciting new Russian cement producer and his plans to further develop his sizeable investments.

Filaret Galchev, chairman of the Board and CEO of Eurocement

ICR: Have we met before? Perhaps we met at a European coal conference,
when you were running
 Rosuglesbyt, a leading Russian
 coal production and trading group? I never
 viewed you then as the leading Russian
 cement producer. What’s brought about this
 major conversion? 

Filaret Galchev (FG): Yes, I think we have met before,
 most likely at one of those coal meetings.
 I’m a coal specialist by education, gaining
 my PhD in coal-related studies. And true, I
 was quite successful in the coal business.
 But nothing is permanent in this world,
 and at any stage in the development of a
 company, or for that matter, a person, one
 needs to undertake a periodic review from 
time to time. So last year we decided to
 sell our coal business!
 We used to produce about 40Mta of
 coal and by the way, our coal faces were
 among the largest in the world. So we had
 a business in coal. We knew a lot, but we 
were still learning, and, looking back, we
 managed to do quite well. So I’m happy
 and satisfied that we were able to sell a
company that was in very good shape.

ICR: So now you are a fast-becoming a
 cement leader. Quite a change, but surely
rather unusual to build-up a very 
successful coal business, then just sell it
 and start again?

FG: One might get that impression 
but it’s not quite so. Personally I find
 change exciting. After we sold our coal
 company, we made studies on a number of 
industrial sectors and when someone mentioned
 cement to me I said why not?
 We then made a detailed study of the 
cement sector – it didn’t take us too long
– and made the decision. Our timing was
 also good. Shtern Cement was experiencing 
problems and it looked like they wanted to
 sell the company. We knew that some of
 the world players like HeidelbergCement
 and some others wanted to buy it. But for
 some reason nobody did. I couldn’t understand
 why. Perhaps they wanted to buy it
 on the cheap.
 People also kept telling me nothing 
would come out of our enquiries. But when
 we started studying the options we understood 
it was a major company with a very 
complicated structure, with some rather 
dubious financial foundations. What was to 
be done? We knew we wanted to buy and 
they wanted to sell. It was really quite
 simple. We sat together, locked the door
 and got our agreement. Simple!

ICR: From the time you decided to buy
 Shtern to the final deal – how long did it 
take you?

FG: If you mean the time of the 
actual negotiations, it took us a very short 
space of time. But from the moment we 
started thinking about cement, about three 
Remember, we already had the money 
from our coal sale and we were so keen to
 get back to work. Having a pile of money 
in the bank has no real interest for me.

ICR: Your own background. You said you
 were an engineer?

FG: By education, I’m an economist,
 a mining economist. I was born in Georgia 
40 years ago. I am an ethnic Greek. My 
parents now live in Ukraine. They have a
 small collective farm. I am the last of six 

ICR: With your background, Georgian, Greek 
and Russian I suppose you were always
 destined to make money?

FG: Let me stress, my ancestry is pure 
Greek and in any case isn’t Greece the 
poorest country in the EU? But we are 
proud of our great history. That’s our 
greatest wealth. Every nation has episodic
 rises and falls. Nothing is permanent.

ICR: Do you think Russia is on an upward
 path once again?

FG: Russia can’t be anything else but 
great. Let’s recap: 12,000km from one end
 to the other. Raw material reserves, by any 
count, are at least 30 per cent of the total
 world reserves of virtually all the main 
commodities – gold, diamonds, coal, oil – 
literally everything. Plus people like us.

ICR: Tell us a little about your company

FG: The majority of the shares are
 controlled by company management. No
 shares are traded publicly. Not yet anyway.

Our first job has been to clean up the 
company following the purchase of Shtern 
Cement. Now one can see all the requisite 
information – how much belongs to whom.

ICR: Did you find any skeletons in the

FG: Plenty! That’s why we took a 
gradual approach. First we wanted to concentrate
 on the corporate aspect. Then on 
the production – systematisation of the 
finances and sales. Of course, we are still 
far from the ideal, but we’ve moved ahead
 a lot. Now we’ve started addressing the
 problems of improving the management
 structures. We have used a consulting 
company (KPMG). We have used this same 
firm to deal with the problems of an international
 audit. And finally we have introduced
 a managerial accounting system.
These are three major fields I’m looking
 after personally.

ICR: It’s quite a challenge – how much more
time do you need?

FG: I think two years will be enough.
We should be able to float our shares on 
the public market in two years.

ICR: How much did you pay for the

FG: It depends on the way you count 
it, but a sizeable amount. This would cover
 cash payments, payouts to creditors, bank 
loans, banking charges, taxes, everything.

ICR: Possibly a much higher price than what 
the international players were willing to

FG: Certainly. That’s why I said,
 everyone wanted it on the cheap.

ICR: You have mentioned your financial and
 management priorities over the short term.
 Anything else of immediate importance?

FG: Well, what I can add is that we’re
 going to expand. By the way we’ve just
 bought another plant. This time a dry plant 
in the Urals called Nevyansky Tsement.

ICR: Can you say a few words on domestic
 market conditions for cement?

FG: I can say that this is a gradually
 growing market today. It’s also a fairly stable
 market because over the last three 
years we’ve seen an average growth of up
to nine per cent. And if we take the central
 part of Russia, the figure would be 12-13
 per cent, especially in Moscow and the surrounding 
 I read somewhere recently that, if we 
are going to continue at the same rate, in 
100 years we’ll achieve the European level. 
But there was a “but” there – that was on 
the condition that the Europeans don’t
 build anything in the meantime.
 In my view the rate of construction 
today in Russia is not sufficient.
 Construction is a direct indicator of the 
people’s welfare. If people get richer, 
there’s always a demand for construction.
This year we expect a growth figure of six
 per cent, although the national GDP
growth is expected to be only 3-4 per cent.
 Over the last three years the growth rates 
in the cement sector have been greater 
than those in all the other industrial sectors.
But as you know, there were some 
very substantial falls in production.
 Back in 1990, Russia used to produce 
92Mt of cement. Then the production fell
 to as low as 27Mt. Today the figure is
 almost 38Mt. I think that within 3-4 years
 we’ll achieve a level of about 48Mt.

ICR: What about Russian cement industry
 capacity levels?

FG: In terms of production capacity
 Russia still has around 72Mt. But in reality,
 we don’t know what sort of conditions 
these facilities are in. How mobile are
 they? And its not just technology. It’s the
 mode of operation over the last 10 years.
 Some facilities have been running at a 
capacity utilisation level of 20-30 per cent
 where nothing has been repaired.
You know the Savinsky plant in
 Arkhangelsk oblast? In 2001 it produced 
250,000t. In 2002, especially after we 
arrived there in August, we started to push
 the production and we managed to produce 
0.5Mt. This year we’ll achieve a figure of
 0.8Mt. Next year I think the capacity utilisation
 rate will be over 90 per cent, so the 
output will be 1.1-1.2Mt. But it takes a 
lot of effort.

ICR: How did a relative newcomer to the
 sector achieve such results?

FG: First: with money, and second
 with a desire to succeed. What else! Of
course we are also providing incentives to 
the workforce. They used to get 2500 roubles 
(US$81) but now the average monthly 
pay is 6000 roubles (US$195). They used 
to have collective farms, boiler houses,
 social infrastructure objects, and now
 they’ve got rid of those.
It used to take 1150 people to produce 
250,000t of cement. Today we are going to
 produce 0.8Mt with 700 people.
 When looking at our workforce levels
 we decided that what we had to change 
mostly was the managerial staff. Secondly,
 we rearranged the structure of management.
We didn’t fire anyone. But if someone 
is unable to cope with his work, or 
does not use his working day to his best
 endeavours, then we have to optimise the
Our main goal is not reduction of the 
staff. Our goal is productivity. At Savinsky 
plant, as we mentioned before, the productivity
 level was 400-540t/man. I showed 
them my budget, the norms, the productivity
 targets one had to achieve at
1100t/man. This is your money. This is 
your budget. Of course, if you want to
 achieve this with 700 staff or even as 
many as 3000 staff it’s up to you.
 Again, for this year we have set certain 
indicators for other plants. For example,
they have to achieve a productivity of
1450t/man at Mikhailovsky and Lipetsky
plants. At Maltsovsky, we have already 
achieved about 1750t/man. If we make 
monthly savings of gas and power this will
 also reflect on the cost and the welfare of
 the plant and on the quarry. These are the 
indicators we are interested in.

ICR: How much have you allocated for the
 next two to three years for investment in 

FG: The main project is now under
 study and we’ve prepared a feasibility
 study and a draft statement of work for it.
 The plant has three kilns, one is dry and
 two are semi-dry. We are proposing to 
invest US$30m in the plant to fully convert
 to the dry method and to expand the production 
capacity of the plant. Today, it’s
 1.7Mta and we can easily achieve 2.8Mta
 once fully converted.

ICR: Are you using Russian technology to
advance your kiln systems?

FG: We’re studying both world and Russian technologies. From first impressions,
 I don’t think there’s a very great difference 
between the two technologies. At
 the Lipetsky plant we shall make use of the 
infrastructure that is already available and 
keep the plant running while the conversion
 work takes place.

ICR: How many plants do you now own?

FG: Five, including the latest acquisition.
 And these are cement plants that are 
running today with a utilisation rate of 80-
95 per cent. Not bad!

ICR: Out of the total plants that you now own are there any that are setting you any
 real challenges in terms of technology or 
perhaps the raw material base?

FG: Well, I don’t see any great difficulties
 as far as our cement plants are concerned.
 I think the greatest problem is 
changing the mentality of the management.
The technology of cement production 
is relatively simple.
The raw materials base is different 
everywhere. Different in the depth of
 deposits, aluminium or calcium content.
 For instance, I don’t like certain raw materials 
values at the Maltsovsky plant. The 
initial humidity of the raw materials there
 is higher than at the other plants.
 So you have to spend more on gas.
 However, I like the Lipetsky plant
 very much. I think we’ll make it a 
plant that will match any European 
I also like the Mikhailovsky
 plant very much. If you had been 
there last August, you would probably 
have said: “What’s this? A
 swamp?” Today the situation is radically
 different. Although on my 
first visit I had to wear high rubber
boots and I almost drowned! That 
was also my first real experience of
 a cement plant.

ICR: A good start but clearly one 
that gave you the impetus to bring
 about some rapid changes?

FG: Yes, I understood that the problem 
was not in the plant itself – there were 
kilns, risers – the usual stuff. But if the 
roof is leaking, then people are unable to 
work! I understood that it was a fairly 
good compact cement plant, with a good 
layout, easy to manage. The only thing 
that was lacking there was order. But the 
rate at which we were able to put things in
 order was very high. It’s the same situation 
at the Savinsky plant. It won’t take long to
 put it into great shape.
 But our most efficient plant in operation 
today is Maltsovsky. However, things
 are complicated there, mainly because 
there are actually two plants there – the 
old one and the new one. The area is huge.
 And the output is 3.8Mta. In fact this year
 we are planning to produce 4.04Mt.
Therefore, from that viewpoint, the plant is 
great; but I find smaller, more compact
 plants much more interesting to deal with.
 Again the Nevyansky plant fits this
 view extremely well. It’s the newest plant, only 15 years old. It’s a dry plant. Just one 
kiln, two mills, 1.2Mta capacity. I think we
 can make this plant perfect.

ICR: What about pricing developments for
 cement on the Russian market?

FG: Prices are improving. Currently the
 consumer price is about US$28/t. Within two
 years I should expect to see such prices up at 
the US$50 level, not less than that. Even this 
year it will go up as high as US$45. Higher 
prices are in everyone’s interest. In the interests
 of the state, the construction sector, of 
the people who buy it and, of course, in our 
interests. Of course I want to earn some 
money. If I said I don’t want anything for
 myself, I’ll do it all for my country, well, I
 wouldn’t be sincere.
 Last year when we hiked the prices a 
little, the Anti-Monopoly Committee
 started talking about industry collusion.
 The construction sector lobby also complained.
 But they miscalculated. I asked
t hem these questions: my price is US$28.
 Who wants cement? Is there a shortage?
They say no. So what’s the problem? If you
 don’t want to buy it, don’t.

ICR: You’ve clearly been very successful in
 the Moscow region, in the central part of
 Russia and now in the Urals with the 
Nevyansky purchase. Any other expansion
 plans? For example, have you got any
 designs on the Volga region?

FG: Holcim is already there. Look, our 
goal is not just to buy another plant or 
two. Our goal is qualitative growth. If you 
look at the Russian cement map you could 
find many plants that we could get for
 free. But we don’t want them. We are not 
just going to buy anything that turns up.
 Take the Nevyansky plant, Lafarge wanted to buy it. Why they didn’t I don’t
 know. They’d been bargaining for two years
 and nothing came out of it. Our goal is not
 to buy up any plant in sight. Absolutely
 not. We are satisfied with the production 
capacities that we have. What we want to
have is a qualitative change.

ICR: Do you have any opportunities to
 export cement or clinker at all?

FG: We currently export cement to 
Lithuania and now we are now considering
 exporting to former COMECON countries:
 Bulgaria, Romania, Hungary. But as you know, there’s a surplus of cement in Europe
 now. Perhaps we shall have to make do 
within the framework of our own country.

ICR: What about vertical integration? I 
think you have already started given the 
success of your dry mix division.

FG: Today our structure is like this.
 First, we have a very wide distribution network.
 Second, we are the only and the 
largest company in Moscow which has two 
major storage elevators over 40,000t.
 Moscow consumers, smaller ones, who take 
their cement by truck, all buy it from us.
 So far, we have four dry mortar units. We
  have an asphalt-concrete plant in Moscow,
 we also have a mineral powder plant. A
 small part of its production is used in
 agriculture, but most of it goes to
 asphalt plants. We also have a joint
 venture with Dyckerhoff producing dry
Then we have a concrete product 
plant in Bryansk oblast. But I personally
 think that we have to produce 
both cement and concrete. This is the
r eally interesting development. More so
 than the rest.

ICR: How are your relations with

FG: We are currently conducting 
negotiations with Dyckerhoff and all 
problems between us will be settled.

ICR: Has this experience made you wary 
of entering into any other JVs?

FG: Perhaps I must be a selfish 
man. My experience tells me: whatever 
is mine should be mine. As any woman will
 tell you, you can’t be half pregnant!

ICR: Russian winters must have a strong 
effect on your marketing strategies. How do 
you cope?

FG: It’s not so much of a problem. We
 can do repairs. If sales are down I tell the
 production people: we produce 8Mt. Let’s 
divide it by 12. What’s the problem? In any
 case from time to time you have to stop 
the kilns for periodical planned repairs.
Under normal market conditions such 
repairs could be performed every month.
 For example, today we have eight kilns in 
operation at Maltsovsky. One could leave
 five of them in operation and stop the 
other three for repairs. In winter we have 
five kilns in operation periodically.
 We are one of the few companies that,
 by 1 April this year, had 0.53Mt clinker and 
0.32Mt cement in our stores. We did it on 
purpose, not because we couldn’t sell it. We
 did it to be prepared for the season and now
 we can definitely say that the market is there
 and we’ll have a normal budget by spring.

ICR: What about getting the new generation 
to join the cement sector. Are young people 
interested in a cement career?

FG: Today there is really a shortage of
 specialists. What can we do? We can make 
use of the available age potential as a
 springboard for the young people to give 
them training. My senior vice-president is
Victor Kushchidi. He turned 71 last year.
 He is quite fit, he jogs. But he’s 71 and so 
I tell him that within a year or two you
 will have to train so many specialists in
 various areas. Now we have some college
 students in training.
 Remember in the Soviet times everyone 
wanted to be a cosmonaut, or an engineer,
 or an army officer. During the perestroika
 everyone wanted to be a banker or a bandit.
 People didn’t want to study any more.
 Now everyone is aware of the need for education.
Over the last 4-5 years people 
started realising that education is a base
 you have to have. And now there is competition 
to enter technical colleges.

ICR: How about environmental matters.
 Have you an environmental programme in 
place? Do you have any specific problems to
 overcome quickly?

FG: You know, I wouldn’t say that
 there are particular environmental problems.
There’s more talk than is justified by
the real problems. We had a court case
 against us at Maltsovsky. We realise that
 the cement industry does have its environmental
 problems. And we knew what we 
had to do about them when we acquired
every plant, including Maltsovsky, where 
local pressure groups made trouble. They
 say they want to protect the environment,
the people etc. We say: we have an
 approved programme, here are its implementation
 stages, we have done so much, 
this is what we still have to do.
 Within the next few years we’ll spend
 about US$10m on solving environmental
 problems at all our plants.

ICR: Do you produce white cement or have
 any plans to do so?

FG: No. The market is too small,
 only something like 200,000t produced
 by the Shchurovsky plant.

ICR: Where will you be in two years
 with your production levels?

FG: Last year we produced just
 over 7Mt. This year we planned for a
1.285Mt increase. I now think that
 plan was too ambitious, possibly due 
to a certain lack of competence on my 
part. Now I’m much more knowledgeable
 and we had to revise our figures
 down to 7.716Mt. These were still realistic 
figures, equivalent to a 9.8 per
 cent growth. And the new plan made it
 easier for our production facilities to
 reach the targets. This is without 
Nevyansky which would add 0.83Mt to 
that figure. And I think we’ll be able 
to turn out 0.9Mt there. Next year we’ll
 make 8.2Mt plus a further 1Mt from 
Nevyansky. This is how we see it today.

ICR: In terms of your fuel prices, what’s the 
current situation in Russia?

FG: There was a first positive sign
 this year – a law was adopted on increasing 
the tariffs for energy, railway transportation 
and gas. These prices will be
 changed once a year. This now enables us 
to plan more effectively.
 This year in January there was a 14 per
 cent hike in power prices, a 16 per cent
 rise in the railway tariffs and a 22 per cent
 rise in the gas price. This resulted in an
 approximately 10 per cent increase in our
 production costs. So fuel prices are bound 
to grow, but the growth will be gradual,
 not aggressive.

ICR: Do you have any immediate plans to
 change your cement works to coal-firing?

FG: We haven’t got that many cement
 plants in Russia that work on coal. We are 
in a good position to evaluate the various 
fuel options. We have a plant – Savinsky – 
which burns coal. We have plants that can
 switch to burn fuel oil, Maltsovsky for 
example. We have two dry plants. We even 
have two semi-dry kilns. So, on the basis 
of our own experience, we can test in practice 
the effectiveness of this or that
 cement production method using various 
fuels. This is what we are going to do to 
allow us to properly identify and analyse 
all the options.

ICR: Can you see much higher levels of consolidation
 occuring in Russia as has, for
 example, taken place in western Europe?

FG: This will happen in Russia too.
You know, your neighbours, for example, 
Lafarge, Holcim, Italcementi and the other 
players that are now present on the
 Russian market, have to stop regarding
 Russia as just another banana republic and
 realise that the time is long past when you
 could buy a plant for three cents. If they
 change their psychology there may be 
three or four cement producers left at
 most. Monopolisation is always a big question.
 So I think that in any area there must
 be competition. For Russia, three or a maximum
 of four companies in the cement
 sector will be good.

ICR: Are you a believer in the view that the 
Russian cement industry should be for the 
Russians? Or do you take a more international
 view of markets and ownership?

FG: Probably yes. We intend to be 
looking at some plants in other countries
 as well. The experience of major world
 companies supports this view. When I
 bought Shtern Cement I had the greatest
 wish of buying up many more cement companies,
 but it was a wishful, emotional
 view. Then I analysed the situation, had a 
good look and realised that one could buy
 plants in various countries – a couple of
 plants here, and a couple there – and do 
quite well. Perhaps we can still buy up all
 those Russian plants and make a swap with
 major international players!

ICR: You built up your coal business from
 scratch to a very profitable company in a
very short period of time and then sold it.
 Do you have the same investment strategy
 for cement?

FG: No, and I’ll explain why. In the
 coal business it was exactly the time when
 you had to make a big move. Our coal business 
was entirely focused on servicing the 
power sector. Say, it’s like the German 
experience – now our energy/power sector
is undergoing reform. On these big coal faces
 there are power stations every two,
 three or four kilometres and we did not
 want to take part in the inevitable vertical
 integration process. Thus, we had two 
options: either to sell out, or start working 
according to the new system. There was no 
third option. That would have caused problems.
 So our decision was to sell.
 In cement the situation is different.
 Here you can produce it, you can sell it,
 there’s a great market. I can tell you right
away – we are not a company that buys a
 company, paints it up and sells it off. We
 are in this business for the longer-term. 
It’s as straightforward as that!

Article first published in International Cement Review, June 2003.