The delegation of Mitsui, a Japanese holding company operating in 66 countries around the world, has visited Kazan. Today, the group runs business in 14 areas and to expand one of them – petrochemical business – the holding representatives held meetings with their key partners – the companies of TAIF Group. What interests the trade and investment company pursues in Tatarstan, what major challenges a company would face when doing business in Russia and in what way sanctions indirectly impact the Japanese holding — all this Ikuo Kasama, Managing Director, Industrial Projects in Europe, Russia, the CIS Countries and the Middle East said in the interview to Realnoe Vremya.
Mitsui Invested RUB 3 Bln In Russia
Mr. Kasama, what is Mitsui’s investment volume in Russia at the moment? What are the priorities of Mitsui Group in Russia now?
The overall investments in Russia have amounted to $ 3 billion, so far. For Mitsui in Russia, of course, this is a very important market. Historically, Japan has been a supplier of fertilizer production technologies; thus, approximately 60 ammonia and urea production plants have been supplied already. Mitsui has developed strong business relations with Russian companies, and now we aim to expand them in order to not only supply the technologies for fertilizer manufacturing, but also to engage in the projects in the field of petrochemistry, energy, and raw materials.
Are you talking about the establishment of new businesses in these areas?
Mitsui is a trade company, not a manufacturer. We have no own technologies. One of our main functions is the coordination between vendors, licensors, and engineering companies along with investing in foreign markets. At the same time, Mitsui has many divisions working in the field of aerospace engineering, chemical products, IT, and power engineering.
What are the largest projects being implemented with Mitsui’s participation in Russia today?
One of the largest investment projects in Russia is Sakhalin Energy - crude oil and natural gas
production on the Sakhalin Shelf, and natural gas liquefaction. We participate in this project together with a Dutch-British company Shell and Gazprom. In addition to the energy projects, there are also smaller projects in other areas in the group’s portfolio.
Does the major portion of earnings in the company’s sales portfolio come from the power engineering sector?
No, not only. There are oil and gas in Russia and, in particular, in Tatarstan. These are the areas where the greatest development and economic effect may be achieved.
‘It is unlikely that we could establish our 100% subsidiary in Russia’
Toyo, a Mitsui Group company, developed detailed design for the VCC unit at TAIF-NK. What are the prospects of the Heavy Residue Conversion Complex in your opinion?
This is a huge project aimed to crack the oil residues while now they are simply burned as fuel. The technology is very advanced, but operating experience is very important here, too. Once the experience is gained, TAIF-NK will play a big role in the further distribution of the technology as international companies will be interested in their opinion on the process. Therefore, TAIF-NK will be able to put efforts on promotion of the technology among companies in Tatarstan, Russia and all over the world together with Mitsui.
Are you planning to participate in sharing TAIF’s experience with the companies all around the globe?
We could do this.
You have announced your interest in participation in another large project of TAIF – the ethylene plant of Nizhnekamskneftekhim. In what respects do you consider participation?
We are interested to participate in the construction of derivative polymer production units and we are ready to support the purchase of the products through our chemical division. Thus, Mitsui is interested not only in ethylene, but also in further processing of ethylene-derived products. We are ready to share our knowledge. We are ready also to present potential producers and holders of various licenses. To this end, we would like to expand our cooperation.
When considering investments, do you prefer to establish a wholly-owned company or you’d rather create a joint venture in these countries?
It depends, first of all, on the business environment and the relationships with respective customers and business partners.
In Russia, too?
Yes, it is unlikely that we could establish our 100% subsidiary here. I believe there is a plenty of opportunities in Russia since this country is abundant in natural resources such as oil and gas. In such a situation, if one invests in such projects in Russia, the choice of a reliable partner is of crucial importance, this is the key to success.
When It Comes To Financing, Impact of Sanctions Is Felt
What is your opinion on the company’s financial results for the last year?
Last year, we invested in an oil and gas project. And as the oil price slumped dramatically, the value of these assets has significantly decreased, too. And though cash flows were quite good last year, the company’s net profit shown in the financial statements was quite small. After all, Mitsui focuses on oil and gas projects, therefore, oil price directly affects our performance.
Have the sanctions had any impact on your cooperation with Russian companies?
Yes, but not directly. Mitsui itself has no problems, but when it comes to financing, the impact of sanctions is felt. If a company is in the sanction list, certain banks refuse to provide financing. This has affected primarily the US companies, of course.
Consequently, the number of companies that potentially may be your partners in a joint venture has reduced, too?
I do not think so. Many companies are still interested. However, in view of the sanctions planning has become more difficult.
You have said it has become more difficult for the US companies to work in Russia, so do you feel there are more opportunities for your business in this situation?
Yes, we see the opportunities to expand our volume of work in Russia since the situation is favorable.
Do you know whether other Japanese companies have plans to come to the Russian market, given the current situation with the sanctions?
Many companies think of entering the Russian market. But this is a complicated question. On the one hand, there are incentives such as lower taxes and prices of resources. It serves as inducement. But there is another headache, which is currency: the exchange rate is very volatile. In recent years, the ruble’s exchange rate has changed dramatically. If one runs business in Russia, the revenue, obviously, will be denominated in rubles. We, as a Japanese company, would prefer to have revenue in yen. Therefore, it is difficult to forecast the prospects the Russian market would offer Japanese companies.
Planning Horizon In Russia 1-3 Years
You said business planning is a hard task in Russia today. What is Mitsui’s planning horizon here?
This is largely, of course, depends on the direction. Of course, you should have in mind the picture for the next 10 years, but it is very difficult. When the sanctions, for example, are lifted the market will change. So, depending on the scope of business, the planning horizon can be different. In general, in the company it is accepted to declare a planning horizon for the next year and for the next three years.
The Russian companies also plan for the same period. For Mitsui, the company with three hundred years history and the established traditions, it must be difficult to change according to the Russian realities. What other traditions can't be preserved in Russia, what are the differences?
In our company, like in other Japanese ones, the employees usually work until retirement age. The most important things are reliability and trust. Our experience and knowledge go from senior mentors to young employees. It always has been that among new employees are mostly young people. Just for some jobs, we prefer to take people with experience of sometimes over 10 years.
In addition, we, Mitsui, created good relationship with other companies, not only in Japan but also all over the world including Russia, through our huge experience.
I believe that such relationship of mutual trust can create new business in future.
At the 'Tatarstan – Japan' business forum, the head of Investment Development Agency of the Republic said that the Japanese are tough negotiators. Perhaps, you have heard such thing about yourself before. What line of conduct do you adhere to during negotiations?
Actually, I don't know exactly what was said. But I do not see any peculiarities. The only difficulty is to communicate through an interpreter (laughing). And I would like to say about Tatarstan that it is a good place for investments. It is obvious that the republican authorities provide opportunities for investments, even through tax benefits.