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By John Helmer, Moscow

Igor Zyuzin (lead image), owner of the Mechel steel and coal group, and one of the few Russian metals oligarchs not presently sanctioned  by the US, is a running sore on the Kremlin’s policy of halting,  and also continuing,  industrial pollution.

From his base in Chelyabinsk, and at factories, mines, and ports from Moscow through the Urals to the Pacific coast, Zyuzin has defied decades of protests by residents, city and region investigations, court rulings, and promises by federal officials to stop the water, ground, and air pollution which his businesses have been producing.

Zyuzin is now telling the Kremlin he wants permission for more – more pollution, that is, at lower cost to the profit line on his balance-sheet.

The emergency economic measures being adopted for the war in the Ukraine, Zyuzin is claiming, should now relieve him and his company executives of criminal liability for intentional pollution, and Article 251 of the Criminal Code should be cancelled.  This provision in the Russian law allows regulators, prosecutors and courts to force the dismissal of culpable managers or to send them to prison for up to one year.  

Zyuzin has appealed through the Russian Union of Industrialists and Entrepreneurs (RUIE), the oligarch lobby, for President Vladimir Putin to do this by implementing the promise announced in his Federal Assembly address last month. “I will repeat,” Putin said on February 21, “against the backdrop of external attempts to contain Russia, private businesses have proven their ability to quickly adapt to the changing environment and ensure economic growth in difficult conditions. So, every business initiative aimed at benefiting the country should receive support. I believe it is necessary to return, in this context, to the revision of a number of norms of criminal law as regards the economic elements of crime. Of course, the state must control what is happening in this area. We should not allow an anything-goes attitude here, but we should not go too far either. It is necessary to move faster towards the decriminalisation I mentioned.”  

“Everything we do is solidly rooted in market principles…We have avoided having to apply excessive regulation or distorting the economy by giving the state a more prominent role,” Putin added.  

The head of the RUIE lobby, Alexander Shokin, has been a Zyuzin retainer for many years. Over this time he and Zyuzin have persuaded Putin to accept the principle that Mechel should be allowed to violate the anti-pollution laws on condition it pays small cash penalties for its poison.  

Zyuzin is the only oligarch to whom Putin has publicly apologised. This happened thirteen years ago after  Putin criticised Zyuzin for price rigging and tax evasion, and when, by making his criticism public, Putin  damaged Mechel’s share price.

President Putin and Alexander Shokhin at their last official Kremlin meeting, March 2, 2022.

In July 2008, Putin, then prime minister, convened a meeting of the steel and coal oligarchs to discuss the steelers’ complaint that the suppliers of the coking coal on which they depended were  illegally price gouging. At the time Zyuzin, who had  bought out his partner Vladimir Iorikh two years earlier and held about 70% of the New York-listed Mechel group, failed to appear at the table.  “The director has been invited, and he suddenly became ill,” Putin said of Zyuzin as the cameras rolled. “Of course, illness is illness, but I think he should get well as soon as possible. Otherwise, we will have to send him a doctor and clean up all the problems.”

Putin added a threat of criminal prosecution. “I ask also the Federal Antimonopoly Service [FAS] to pay special attention to this. Perhaps, even the Investigatory Committee of the Office of the Public Prosecutor. It is necessary to understand what is happening.”  

By the time word of Putin’s attack on Zyuzin hit Russian television screens, the Moscow stock market had closed. The New York Stock Exchange, however, saw frenzied selling of Mechel’s shares; the stock price had risen by almost 300% over the preceding year, primarily on the back of rising coking coal prices and steel profits. On the day, the Mechel share price fell 38% on Putin’s statement. Other Russian steelmakers — most of them listed in London — followed Mechel down on the expectation that Putin would implement a significant cut in steel and mining margins.  

He didn’t; Mechel’s share price recovered.

Putin also criticized Mechel and other Russian coal exporters for running offshore tax evasion schemes. “It’s a reduction of the tax base within the country, tax evasion. It’s creating a deficit in the domestic market and results in an increase in the price of metallurgical products,” he said.   The prime minister was correct in fact; he ordered no remedy to follow. Zyuzin ignored the criticism.  

Two years later, in July 2010, Putin (right) made a tour of one of Zyuzin’s plants in Chelyabinsk   where Zyuzin (next to Putin in blue) arranged for him to  inaugurate a new casting machine at the plant. Putin responded with an unprecedented public retraction and endorsement. “I can only regret,” Putin said of his remarks in July 2008, “that this caused the company’s capitalisation to fall by 20% [sic] if I am not mistaken. Anyway, Mr Zyuzin, I want to thank you for everything you did and your continued respect for domestic consumers and Russian law.” 

The investigation archive on Zyuzin and the Mechel group’s steel, coal and nickel operations stretches back to 2005; there are 91 reports altogether.  The evidence is lacking of Zyuzin’s respect either for domestic consumers or for Russian law.

The last report in the archive of Mechel’s record for pollution and the attempts by regional and federal regulators to crack down appeared in 2017.   In Mechel’s required filing for 2016 to the US Securities and Exchange Commission (SEC), the company dismissed the risk of criminal prosecution or of significant civil penalties for its air, ground and water pollution. “In the course of the Group’s operations, the Group may be subject to environmental claims and legal proceedings. The quantification of environmental exposures requires an assessment of many factors, including changing laws and regulations, improvements in environmental technologies, the quality of information available related to specific sites, the assessment stage of each site investigation, preliminary findings and the length of time involved in remediation or settlement. Management does not believe that any pending environmental claims or proceedings will have a material adverse effect on its financial position and results of operations…Possible liabilities, which were identified by management as those that can be subject to potential claims from environmental authorities are not accrued in the consolidated financial statements. The amount of such liabilities was not significant.”

The timing of this Mechel report to the US government is noteworthy because in August 2016 Putin appointed one of his closest aides, Sergei Ivanov, to become the Kremlin’s “Special Representative on the Issues of Environmental Activities, Ecology and Transport.” Ivanov had served with Putin in the KGB; he was Security Council Secretary, then Defence Minister during Putin’s first presidential term; chief of his staff during the second term. The term “special” in Ivanov’s title is an irony; he has retained it but keeps more significant influence as a continuing permanent member of Putin’s Security Council.  

Left, Sergei Ivanov meeting the president on February 1, 2023. The only agenda items they discussed, according to the Kremlin communiqué, were plastics recycling and the preservation of the Amur tiger and leopard. 

Mechel’s record as an industrial polluter has also continued. Last week in the Moscow region town of Vidnoye , Mechel’s coke battery, known as Moskoks,   suffered an explosion and fire, which was neutralized by fire brigades. The company management claimed no one had been hurt and “there is no threat to the environment.”  For a film clip of the fire, click to watch.   Ukrainian media have implied the incident had been the work of Ukrainian saboteurs. The Russia media have reported the cause was work and environmental rule violations compounded by plant negligence.

A regional publisher of investigative journalism, Vybor Salavat (“The Choice of Salavat”), has followed up, reporting the Moskoks incident may prove to be the last straw for government regulators trying to put a stop to Zyuzin’s criminal code violations.  The online publication describes itself as “a virtual publication about the political and social life of the city and the region. We touch upon the topics of pressing problems and share thoughts about the future, recall the past and try to believe in the present. Our correspondents also do not forget to cover the incidents in the city of Salavat. The staff of the publication: Anton Byakov, Viktor Sadykov, Vasilisa Petrenko, Marina Zhanabaeva, Maxim Korshun.”  

Salavat city and region are in Bashkortostan, southwest of Chelyabinsk and due west of Magnitogorsk, another major steel-producing city in the Urals.  The city’s newspaper is more than 70 years old; it changed its name from Leninsky Put (“Lenin’s Way”) to

Vybor Salavat in 1991. It remains officially tied to the Bashkortostan republic’s and the Salavat city’s administration.  

Source: https://www.viborsalavat.com/

This is a verbatim translation of the Vybor Salavat report into English. Illustrations included are from the original, which was first published on March 8, as well as the asset map and pictures which have been added.  Click to read in Russian.   

When the “doctors” won’t help – the regulatory agencies have warned Zyuzin more than once

An explosion at Moskoks could become the last domino, which, as they are falling, may pull the entire holding of Igor Zyuzin down with it.

This evening in Vidnoye, near Moscow, there was an explosion and a fire at the Moskoks plant, which is part of Mechel PAO [Joint Stock Company] and under control by the interests of businessman Igor Zyuzin. As it has turned out, what happened could knock out from under Zyuzin’s feet almost the last support. This is because the accident could have been avoided.

Mechel and the affected plant itself have been subjected repeatedly to inspections by the Ministry of Natural Resources and Rostekhnadzor [the Federal Service for Environmental, Technological and Nuclear Supervision.  ] They  have revealed significant violations — and not only with regard to emissions into the environment. The structure from where the explosion began is called a benzene pumping column. And the latest checks showed violations in the electricity supply lines to which this pumping system could have been vulnerable to inflammable sparks. 

Interestingly, the environmental violations at Moskoks had been detected, not by the local Moscow region, but by the Smolensk and Moscow branches of Rostekhnadzor. It turns out that the harmful emissions from the plant had been reaching as far from the plant as those regional borderlines.

Mechel is notorious for incidents like these – for the operation of the company plants without the required licences; top-of-the-pollution measurements as rated by independent experts; constant complaints from citizens who are unlucky enough to live perilously close to Mechel’s enterprises – this is just a sample list, far from a comprehensive one, on what the Zyuzin factories can be convicted of. And so we have done a big investigation on this subject which we have titled – the bailiffs come calling on Zyuzin.

Despite the fact that they only talk about Mechel’s emissions, representatives of the regulatory agencies say that the data which Zyuzin’s holding presents to the public are also underestimating the  real conditions which people live near the factories of Mr. Zyuzin.

At the same time, enterprises from the Mechel group of companies have repeatedly tried to cover up against the background of all their  pollution and other violations. However,  at Moskoks they have been caught red-handed. Even so,  the oligarch’s lawyers have been very good at defending themselves in court, notwithstanding the fact that in practice emissions at the enterprises have not decreased for years. Well now —  it seems that Moskoks has run out of defences.

Mechel enterprises have been criticised even by the Kremlin’s  plenipotentiary representative in the Siberian Federal District until April 2021,  Sergei Menyailo  (right). Back in the summer of 2020 he asked local Kemerovo region leaders to deal with the pollution problem; he  even appointed an official who would be responsible for enforcing compliance with the industrial safety standards.

The Minister of Ecology of the Chelyabinsk region, Sergei Likhachev, also drew attention to the problem, and in an emphatic tone announced the necessity for strengthening measures to reduce emissions. And, most importantly, the current President of Russia himself (at that time the prime minister) has looked towards Mechel with obvious disapproval against the background of the situation with the rigging of prices for metals and coal inside the Russian Federation at the same time as these materials were cheaper abroad.  Zyuzin did not appear at the meeting where this story was discussed. Like an ostrich hiding its head in the sand and hoping no one would notice, maybe? Putin then threatened Zyuzin with a purgative and asked for a check of Mechel’s activities, not only by the regulators but also the prosecutors.

But there is more than just criticism and scandals. There is now reason to believe that in reality, Zyuzin has run out of cash, not only for the modernization of his enterprises, but also for the maintenance of their regular operations in general. How else to explain the sale of assets of the largest mining unit in the group, which began back in 2013?

Then Mechel sold four factories in Romania for a nominal $70, because they were bringing in only losses. Before then, Zyuzin’s company had actively bought up Romanian assets, and had invested at least $250 million in them. Then in 2013, the company had to pay back $2.7 billion to Zyuzin’s bank lenders – that was about Rb86 billion at the exchange rate of the time.

But that didn’t seem to fix things. In 2020, Zyuzin sold the Elginskoye coal field in Yakutia. At that time, his debts to state-owned banks (Sberbank, Gazprombank, VTB) already amounted to more than 400 billion rubles. In other words, despite the sale of the Romanian assets, the Mechel debts have only grown.


Click on source to view in enlargement. Read the last Mechel presentation to the US market in 2021 before delisting from the New York Stock Exchange began as a result of sanctions in December 2022.  

In the same year also, 2020, Mechel took another 5 billion rubles from VTB to replenish his working capital. According to the website of the Novstal company, during the same year the holding reportedly borrowed another 18 billion rubles from its own structures. Already that looked  like an attempt to drain money out of the group.

In 2021, it became known that Mechel was unable to pay off the loans he taken back in 2010 with the repayment risk secured by under the guarantees of export agencies. And it was money taken from abroad.

Zyuzin builds his business in a peculiar way – he borrows from some and then repays this debt with loans he arranges from others. And to improve the appearances on the company books since 2009 he has been pressing company employees to transfer their savings to Mechel’s company pension fund. By the way,  this organization is now in the process of liquidation. So what about the money of future pensioners?

Other Mechel enterprises are not in the best financial situation either. For example, in the year from 2020 to 2021 the profit of Joint Stock Company Yakutugol [Yakut Coal] decreased by as much as 22 billion rubles. Where’s the money, as they say.


Source: https://www.viborsalavat.com/

Until recently, Mechel itself was registered as an offshore structure based largely in Cyprus.


At the same time, the same Yakutugol, like other enterprises of the holding, is a major supplier for a huge number of government contracts, most of which have not yet been fully completed, despite delays.

It’s laughable, but it seems that Zyuzin recently pumped the remnants of his “former good fortune”  into Moskoks – the company’s revenue from 2020 to 2021 increased by 16 billion rubles.

Basically, however, the Mechel enterprises are being liquidated, while the rest must suffer a long-term risks of losing their independence and of unstable and unreliable sources of financing. The chief management company itself, which owns the majority of Mechel enterprises, Mechel Mining Management Company, is presently showing a negative profit and does not have the means to ensure even current activities!

By contrast, things are going very much better in the companies of Zyuzin’s relatives. Irina Vasilievna Zyuzina, for example, together with SK Bask, previously owned by the family, has earned 37 million rubles in 2021 at Flavix LLC, which trades drugs.

Bask itself makes good money on government contracts. Zyuzina also has the Bask-Med Region” clinic engaged in general medical practice. It looks like Zyuzin is preparing for himself an alternate airfield for take-off and escape.

After all, returning to Mechel and using the words of the classics – “the patient is rather dead” —  at the 2008 meeting where Vladimir Putin criticized Zyuzin, he announced that he would have to send for the doctor.” We are only afraid that now no doctor will help come to save the oligarch.

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