March, the 3rd, 2008
Ruukki Group continues implementing Russian strategy,
but interrupts Kostroma
The administration of the Kostroma region has not supported Ruukki Group's priority investor status applications for sawmill and pulp mill. Ruukki Group Plc's (later referred also as "the Company") Russian subsidiary has received information from the Kostroma region of Russian Federation according to which the priority investor status applications made by the Russian subsidiary for sawmill and pulp mill investments have not been supported by the Kostroma region. Last Tuesday the Kostroma region published in its web site an announcement where there was no reference or information related to the non-advocation of the Ruukki Group's pulp mill priority investor status application.
Ruukki Group's strategic aim is to concentrate on wood processing within the Northern coniferous wood zone. Group business operations will be focused on mechanical wood processing, and furthermore on pulp business. The target is to reach revenue of over EUR one billion by the first half of the 2010 decade, and the Group EBIT percentage should be in excess of the average profitability within the same industry. Besides the planned and partially implemented investments in the Kostroma region, Ruukki Group has investigated business and investment opportunities in the other areas in Russian Federation. These investigations and negotiations thereby will be continued and strengthened with a target of finalising an integrated industrial entity, whose scale is expected to be equal to that of the Kostroma plans. Main focus of this work is within the European part of Russia bordered by the Ural mountain range. The Company will make separate announcements on these processes both in accordance with the progress of the projects as well as in conjunction with the Company's interim reports.
Based on the decisions made by the Kostroma region there no longer are any prerequisites to continue with the planning of and carrying out of the investments. Ruukki Group has decided to abort all the preparations and implementation of the Kostroma investment projects. Furthermore, the Company has decided to initiate legal assessment and related processes on the decisions and actions by the Kostroma Oblast and the negligences of its obligations. The primary target of Ruukki Group is to get compensation for damages based on the breach of agreements.
The views and requirements presented by the Kostroma region to change the content of the investment agreements signed on 23 May 2007 and registered on 17 July 2007 are not in any way based on these agreements, and therefore, they are fully unfounded claims made afterwards for signed and confirmed agreements.
Ruukki Group and its Russian subsidiary see that they have definitely made all the preparations for sawmill and pulp mill investments fully in accordance with the main aims and obligations of the signed investment agreements; especially taken into account that Kostroma region has not supported the priority investor status applications as set forth by the positive co-influencing obligations in the investment agreements. Therefore, the Company considers the actions and decision carried out by the administration of Kostroma region after the governor change in autumn 2007 groundless.
There are two main issues related to enticing forest industry investments into the Russian Federation: 1) investment agreement with the region, and 2) priority investor status. With these two vehicles foreign investors are encouraged to develop Russian forest industry in accordance with the current Russian forest legislation.
The priority investor status applications were filed on 9 November 2007 by Ruukki Group's Russian subsidiary. The rules and processes related to the priority investor status, which in turn is based on the new Russian forest code, were given during the summer 2007. According to the Company's view, as assessed afterwards, the Kostroma region's administration has not been considering Ruukki Group's priority investor status applications with serious interest, and therefore has not had the intent to confirm the other major precondition for implementing the investment projects.
Ruukki Group Plc and its Russian subsidiary see that it is not possible that Ruukki Group would have been able to proceed according to the agreements, when the other prerequisite - priority investor status - has not been granted due to negligence by the administration of Kostroma region.
Despite the fact that the other main precondition was not existing Ruukki Group has been going on with the preparations for sawmill and pulp mill investments by strict and goal-directed time schedule as set forth in the investment agreements. Conditions were still valid for the targeted timeframes to be reached so that the sawmill's start-up would have been at the end of 2008 and the start-up of the pulpmill at the end of 2010.
In this situation Ruukki Group is not any more going to continue active negotiations with Kostroma region's administration, and therefore the Company does not consider it possible with the current investment conditions for having the planned industrial integrate of the sawmill and the pulp mill to be situated in Kostroma region.
The change of the Kostroma investment projects' status is not to have substantial impact on the financial forecast of Ruukki Group for the current year.
"For Ruukki Group's growth strategy directed towards Russia the situation evolved now is regrettable. However, this does not prevent us from implementing the planned investment elsewhere - there seem to be many potential parties interested in receiving investments. According to our view, the policy definition by Kostroma region cannot be generalised to be the will of the Russian Federation. This settlement will, unfortunately, have effect on the development of international investments into Russia. It seems fully incomprehensible that first the Russian Federation announces its interest to have major forest industry investments into its territory, but after we have made official agreements based on that announcement the counterparty, as assessed afterwards, factually already after two months breaks away from the agreements.", says Matti Vikkula, CEO of Ruukki Group Plc.
About Ruukki Group:
Ruukki Group's strategic aim is to concentrate on wood processing within the Northern coniferous wood zone. Group business operations will be focused on mechanical wood processing, and furthermore on pulp business. Ruukki Group Plc's share is listed on Helsinki Stock Exchange. In the OMX Nordic Exchange the shares of the company are traded in the mid cap sector, in the industrials segment.
For more information:
Chief Executive Officer Ruukki Group Plc
Telephone +358 45 6700 606
Compiler´s choice - More News Releases
Archive 2005. News Releases