The generals of copper have lost their reputation in the battle for metal

24.06.2010 — Analysis

The holding company Russian Copper Company (RCC) is the third largest producer of refined copper in Russia (after the public corporation Norilsk Nickel and the limited liability company UGMK-Holding). RCC is capable of producing 200,000 tons of copper cathode and 190,000 tons of copper wire rod per year. The company also recovers precious metals from scrap and waste materials.

RCC began experiencing financial difficulties at the beginning of the economic crisis: according to published data, the holding's primary business, a private company called the Kyshtym Copper Electrolytic Plant, ended 2008 with a loss of 361 million rubles. They experienced similar losses in the first quarter of 2009. The holding company began cost-cutting measures and there were massive layoffs at the factory. According to Valery Zimin, president of the Kyshtym Copper Electrolytic Plant's labor union, all but the core divisions of the plant were eliminated, reducing the workforce in one year from 2,900 to 1,400.

The plant's performance indicators began to improve - by 2009 the factory made a net profit of 145 million rubles. By 2010 the operation had returned to a pre-crisis level - it attained a net profit of 150 million rubles in the first quarter. It is noteworthy that the number of workers remained virtually unchanged. The workload had increased, but the owner had not increased their pay. According to Svetlana Mamatova, the vice chairman of the plant's labor union, almost a third of the employees were receiving salaries that were less than the amount stipulated by the labor contract. And it should be pointed out that the contractual salaries were not large to begin with, 4,490 rubles for a first-level (bottom-rung) worker. Seeing that their employer was not prepared to pay even these small sums, the labor union took action.

Yury Goranov, the chairman of the Chelyabinsk Regional Branch of the Mining and Smelting Trade Union of Russia, joined the Labor Inspectorate to organize an audit of the Kyshtym Copper Electrolytic Plant. It was determined that the business was not abiding by its labor contract. Yury Goranov claims that the owners were using a double standard. They made promises to the public and to the authorities to undertake social programs, but these promises were never fulfilled.

The management of the holding company rejected the union's complaints. Aleksandr Khanin, the PR director for RCC, made an official statement that there was no evidence that any labor laws had been violated at KCEP, nor were there any labor disputes. The company challenged the findings of the Russian Labor Inspectorate in court. In response, the labor union held a meeting at which the workers demanded a 20% salary increase, a new compensation policy that would take the quality and quantity of work into account, and an end to the pressure being put on the workers who were union members.

The plant management lost in the court of first instance, then appealed the decision, but they still increased pay by 10%. It's true that by global standards, the factory workers' pay is still very low, about $600 on average. Svetlana Mamatova claims that there are two departments where workers earn no more than $200. Some of these unfortunate souls are employed in the main laboratory of the plant, where they are responsible for the production quality and environmental safety. Judging by the size of the lab workers' salaries, the Kyshtym Copper Electrolytic Plant does not consider quality control and environmental protection to be high priorities. But this seems to concern only the union activists, who are going to continue to fight for their colleagues' rights.

Representatives of RCC continue to act as if nothing is happening at their subsidiaries. Aleksandr Khanin told RusBusinessNews that he was unaware of any legal disputes between the employers and the labor union. Earlier he had claimed that the labor contract at the KCEP was being honored and that there were no more than ten people at the company who were dissatisfied. The PR director's denial of the existence of a labor dispute does nothing to improve the holding company's image.

Experts claim that RCC has never been particularly concerned about its reputation. Two years ago the Dutch company NutriChem B.V. filed a debt claim in the Chelyabinsk court of arbitration against the Kyshtym Copper Electrolytic Plant. In 2002 the two sides agreed that the Dutch company would provide a line of feed-grade copper sulfate and, in exchange, the Urals company would process it. A supplementary agreement in 2003 indicated that the Dutch supplier spent $200,000 on equipment and other expenses. But NutriChem B.V. never received any products. They received $58,400 in September of 2005. Later, it turned out that representatives of KCEP had falsified some documents, making it look like this money was payment for equipment, after which the Kyshtym plant would legally own the line of copper sulfate.

The businessmen from the Urals were caught in their forgery, but this was not enough to force the KCEP to fulfill its obligations. The court determined that the factory had the right to dissolve the lease agreement due to a change in circumstances, and the court did not take into consideration that the equipment they claimed to have purchased was worth considerably more than $58,000. It is possible that the Dutch supplier was baffled by the intricacies of Russian law, or it is possible that there were some unwritten agreements, but this story with its blatant evidence of fraud does not reflect well on the Russian Copper Company.

The Kyshtym Copper Electrolytic Plant suffered an even greater blow to its reputation after an incident with a private entrepreneur named German Grashchenko, who supplied the plant with some raw materials containing precious metals for processing. The documentation on his shipment specified that 614 grams of gold and 695 grams of silver had been recovered. But the data was later altered, and the amount of recovered gold and silver was reduced. The entrepreneur disagreed with the amount of precious metals for which he was to be paid and filed a claim in the court of arbitration for 158,000 rubles. 158,000 rubles is the value of 160 grams of gold and 176 grams of silver. The court rejected German Grashchenko's claim, finding no causal connection between the actions of the defendant and the resulting consequences. In the court's opinion, the reduced amount of precious metals that were recovered did not prove that the employees of the KCEP had done anything illegal and that Mr. Grashchenko had not provided the court with any evidence to the contrary.

Stories of "missing" precious metals occur at the Kyshtym plant with frightening regularity. Recently, the public corporation Yuveliry Urala recovered 117,000 rubles from the Kyshtym Copper Electrolytic Plant in the Chelyabinsk court of arbitration. Like the entrepreneur German Grashchenko, the jewelry manufacturer uses the plant to process waste materials containing gold and silver. In 2009, the KCEP received 15 shipments from the jewelry manufacturer, containing 10 kg. of silver and 325 grams of gold. The court found that the Kyshtym plant had ignored one inventory list and registered instead only 8 kg. of silver and 242 grams of gold. Employees of the processing plant had once again made a mistake in their own favor, but this time the court was not so favorable disposed toward them, possibly because one of the owners of Yuveliry Urala is the daughter of the vice chairman of the Russian State Duma, Valery Yazev.

KCEP's other victims are forced to pay to work with a business that cares nothing for its own reputation. But, of course, not all of them are prepared to simply accept this. Nutrichem Processing LLP, this time representing a British company, currently has a claim for $80,000 pending in the court of arbitration. These foreigners are trying to recover the assets they lost in Russia. They are joined by the KCEP's workers, who did not benefit from all the money that has vanished inside their company.

Vladimir Terletsky