Global Steel Trade; Structural Problems and Future Solutions

Trillions of Rubles
8
7
6
5
4
3
2
1
0
200%
150%
100%
50%
0%
ZapSib
Source: Ekspert.
Nizhny
Tagil
1995 1996 1997 1998
Mechel Nosta Kuznetsk Oskol
3-10. Payables to Suppliers, Mid-Sized Companies
ZapSib
Source: Ekspert.
Nizhny
Tagil
1995 1996 1997 1998
Mechel Nosta Kuznetsk Oskol
3-11. Payables to Suppliers as Percent of Net Sales,
Mid-Sized Companies
The suppliers of raw materials
and energy tolerated this
situation for the same reason
they complied with governmentimposed
low prices on their
products and services: they
were supported by the
government or had export
privileges. Additionally,
suppliers, such as the regional
electric companies, were often
dependent upon local industries
as their only source of cash,
fuel, and other goods needed to
remain in operation, and “have
little incentive to take an
adversarial approach.” 104
Government Taxes. Taxes
have also gone unpaid. At the
end of 1998, according to one
analysis, Russian iron and steel
companies owed the
government roughly $836
million in taxes. 105 Moreover,
the amount of taxes a company
paid was essentially negotiable.
The McKinsey study makes the
point that the nominal tax
burden in Russia is 55–60
percent of GDP, while planned
revenues are 35 percent and
actual cash revenues are
approximately 20 percent. The
difference between what was
supposed to be collected and
what was actually collected in
cash left a lot of room for
unequal tax payments among
companies. 106
The fact that tax arrears grew while production increased sheds light on the unique economic environment
in which Russian steel companies operated. In the words of one analyst, “the state’s systematic failure to
force large enterprises to pay [their taxes] amounts to a massive subsidy to those powerful or resourceful
enough to negotiate amnesties and settlements.” 107
• From 1992 to 1995, Magnitogorsk built-up a substantial tax liability to the federal government. In
1996, Magnitogorsk—apparently along with much of the rest of the industry—was so far behind in its
taxes that bankruptcy proceedings were threatened. 108 After negotiations with the government, the
company was allowed to pay what it owed over several years at a “very, very low” interest rate. 109
While Magnitogorsk was eventually able to pay off its tax debt, after the ruble depreciation made
54 Global Steel Trade: Structural Problems and Future Solutions