WE HAVE BIG STRENGTH FACTOR

Interview by Emmanuil Lazarian,ArmInfo, March 30 2006

After buying the national air carrier Armavia from the Russian Siberia
last year, the president of Mika Limited Mikhail Bagdassarov has
begun to more often appear on TV, radio and in the press. His company
also owns the Mika Cement in Hrazdan, who has also been frequently
mentioned of late because of the forthcoming rise in the price of
gas and, consequently, of construction materials, especially as Mika
Limited is very successful in the construction business.

Bagdasarov’s companies have a quote for importing petrol into the
country and have a big network of filling stations. Bagdassarov has
kindly agreed to give an interview to ArmInfo:

Mr.Bagdassarov, do you expect growing cement prices following the
rise in the gas tariff? If yes – for how much will they grow?

Speaking of cement, we should first look at what cement prices our
neighbors have. The point is that our neighbors sell cement at much
higher prices than we do. Not that their costs are lower simply their
demand, especially in Azerbaijan and Iraq, is higher. Today their
cement price is $120 per ton, in Georgia it is $85-100 per ton. In
Armenia the price is $65-67. That’s why we have such a big export.

Today our plant exports 50% of what it gives. Formerly, we exported
only 10%. Following the last year’s growth in prices, we have
established good contacts with Georgia, and today the whole of that
country is working with Armenian cement companies. The regional
market is very big. In Iraq alone we have orders for 500,000-600,000
tons – a quantity we can’t carry on our own because of transport
problems. So, Iraq buys and carries it via Iran on its own. But
our car park and roads are improving, especially crucial for us was
the Sevan-Yeghegnadzor highway leading to Iran. So now the growing
demand and productivity will boost cement export prices. Naturally,
we should spend much money and effort to bring that productivity
to necessary level, we should invest in equipment, technologies,
mechanisms, certainly, in new mines. We yet have only one mine, which
makes it hard for us to supply the company with raw materials. We
have also obtained two limestone mines nearby and are carrying the
raw materials by trucks as the railroad has no necessary capacities.

I would like to say that the rise in the gas tariff has already
had an impact on the price of cement in Georgia and Azerbaijan. In
Georgia they have raised the price by 15%. We don’t want such a big
raise as it can lead to speculations. That’s why we are raising the
price gradually – $1 a week. Concerning the possible impact, as you
may probably know, the gas tariff will be much lower than predicted.

Besides, it is not the only factor: the cement price depends on the
prices of raw materials and also on the volume of investments. I don’t
think that we will have the same cement price as our neighbors do,
we will not allow this. But still it may grow by 7-8% – no more.

Your Hrazdan Cement Plant Mika Cement and Ararat Cement Plant
belonging to Multi Group have different technologies but almost similar
prices. Is it easy for you to come to terms with your rival in price
and sale policies?

The point is that we have no problems because everything we both
produce is sold. Everybody sells at whatever price he wants. If he
sells cheaper he loses. But still everything will be bought – if not
in Armenia, then in Georgia, if not in Georgia, then in Iran, if not
in Iran, then in Iraq – nothing will be left. If nothing is left,
there is no rivalry. You know well that there is a real construction
boom in our region and the whole CIS, and cement is the key material
for construction.

Will the cost value of the construction grow?

I don’t think it will, we will try not to allow rise in the cement
price by Apr 10. There may be just symbolical, if any, rise. We think
we will raise the price in mid May or even in June, but not a lot.

Some 3-4 years ago we could hardly imagine that two gigantic plants
would not be able to meet the whole demand for cement. Still our
plant can produce 4 times as much as it does today. We have a huge
capacities – a big strength factor – but this is not the only factor:
we should also ensure the necessary output of our raw materials,
we should ensure the necessary operation of our furnaces and, most
importantly, we should diversify pour transport routes.

Are the roads so big a problem?

The government has done a lot to improve them, they have invested
huge money in the roads. But still our roads are yet far from the
European quality. But we’ll solve this problem too. We’ll start
laying concrete slabs, covering them with a thin layer of asphalt
and we’ll get first-quality roads, especially as we have good soil,
not some marshes like they have in Moscow region. Of course, this
will be more expensive but this will also be for years and of very
high quality. Such roads are strategically indispensable. Already
today the government is considering this possibility and is carrying
out some pilot projects. To this end, we have started to produce a
special road cement.

Do you have plans, new projects in production, real sector?

We are planning to open a new production, a new plant that will be
launched in Feb 2007. I would better not say what kind of plant it
will be – this is a commercial secret yet. I can just say that what
we’ll produce is now imported into Armenia with big difficulties and
expenses. In a few months, when we get the tools, I will tell you
about this project.

What is going on in Armenia’s petrol market today? Are the imports
growing and what are the sources of petrol?

Even though Armenian transport is actively beginning to use gas as
an alternative to petrol, the petrol imports are growing. People are
getting richer, are beginning to buy cars, and all this is forcing us
to diversify the sources of petrol import into the country. Our key
sources are as before – Bulgaria and Romania. Now we are beginning
to import petrol from Russia and a little from Ukraine. We are also
considering the possibility of bringing petrol via Iran via the
well-known Caspian ferry route North-South and further by tank cars
to Armenia. The other option is Port Kavkaz-Poti train ferry, which
will reduce the length of transit via Russia. The possible reopening
of the Abkhazia railroad will solve many problems and will influence
the prices and volumes. This will be a real relief for us.

Acquisition of A-319 is the first big investment in Armavia air
company. The company is said to have some difficulties. What kind of
difficulties are these?

Of course, the company has some difficulties, but they are often
exaggerated by the people who leave the company as their work-style
doesn’t meet the interests of a private company. The public should not
be frightened that the people’s difficulties are connected with the
company’s problems. No, they have problems as they have been deprived
of an opportunity to replenish their own funds at the expense of
the company.

We have got almost a new A-319 aircraft made in 2004 on a financial
leasing, and we are going to take another in May. Very soon, the
company’s fleet will comprise 5 airbuses, 2 Yak-42 and 1 Yak-40
aircraft as well as 1 Il-86. Besides, we reached an agreement in
March to acquire another ultra-modern airbus, which will take a direct
course to Yerevan from the French Toulouse airbus plant. It will be
an A-320 airbus with plastic composite and wings. The companies we
deal with, for example “Siberia,” also acquire airbuses but not as
modern as ours. Their airbuses were produced about 10-12 years ago,
whereas ours are delivered either directly from the plant or in 1 –
2 years after production. Such planes, of course, will bring the
company a special quality and weight in the CIS market and will make
it competitive in Europe. I’d like to stress our good relations with
“Aeroflot.” Besides, our ties with “Siberia” has been improved and
stabilized. We enjoy very good relations with “Krasavia,” good ties
with KLM, and not bad relations with “British Airways” and “Lufthansa.”

These companies have made sure that Armavia has chosen the right way
and all the above talks did not correspond to reality. Our company
sees numerous new opportunities which will and already bring good
results. During the last months, especially the whole last week.,
we had no tickets to Moscow flights due to the liquidation of the old
practice of ticket reservation. All tickets are accessible to everyone
now. Besides, we announce special actions. Thus, every 100,000th
passenger gets a present, the 700,000th passenger wins a car “Pegeout,”
and the passenger No.1 million wins a “Mercedes.” We are expected the
passenger No. 100,000 already in May. I think the company has enough
possibilities today to enjoy good results. The company just has to win
itself. It is succeeds, it will become very strong and powerful. To
win itself, the company must liquidate the lacks which were globally
ruining the Armenian aviation for the last 10 years. The situation is
changing so sharply that I think, we will see revival of our national
Armenian civil aviation within the coming 6 months.

We also develop the route network. Israel has let us down. The Embassy
of that country is delaying the opening of the Consulate in Armenia,
which resulted in suspension of a new flight to Tel-Aviv. We intend
to open new routes to China and the USA (Los Angeles), but they
are still in the strategic plans. We will organize charter flights
to Antalya , Nicosia, Remini. “Armavia” tries to operate with the
European up-to-date technologies to ensure safety, reliability and
comfort of passengers. We have a great strength factor.