Russian SIBUR to Invest $3 Billion to Increase Output

July 3 (Bloomberg) — OAO Sibur Holding, eastern Europe’s largest petrochemical company, plans to invest about $3 billion through 2010 to expand its business, produce more plastic and refine more gas.

Sibur, a unit of OAO Gazprom, the world’s largest natural-gas producer, intends to increase revenue about 8 percent this year and about 5 percent a year until 2011. The company will grow 30 percent starting in 2011, when several projects will be completed, President Dmitry Konov said.

«The projects that we plan to develop, which we believe will expand the company, most likely will'' be completed in 2010, Konov said in an interview in London. «We have plans to expand in the market, to buy certain assets and continue restructuring of businesses such as tire'' production to find partners or investors.

Moscow-based Sibur has been expanding its business at least 15 percent a year since 2002, when a group of creditors led by OAO Gazprom agreed to end bankruptcy proceedings against it, enabling Sibur to return to profit. In 2000 and 2001, Gazprom was trying to regain control of assets lost under Yakov Goldovsky, Sibur’s former chief executive, who was convicted in 2002 of abuse of office.

Sibur’s profit doubled last year to 21.4 billion rubles ($834 million) as revenue rose 14 percent to 121.9 billion rubles using international accounting standards, the company said last month.

More Gas

Sibur plans to increase petroleum gas refining to 20 billion cubic meters a year by 2011 to cut flaring and pollution and make more feedstock for its petrochemical division. Petroleum gas, or so-called associated gas, is pumped along with crude oil. It can be refined to produce natural gas and liquefied petroleum gas.

Sibur is building a polypropylene plant at its OOO Tobolsk-Polymer unit in Siberia. It will produce about 500,000 tons a year of the product, which is used in food packaging and plastic.

OAO Novatek, Russia’s second-largest natural-gas producer, may supply gas to Tobolsk, according to a memorandum signed by the two companies in February.

Sibur, Solvay SA, Europe’s second-biggest maker of PVC, and BASF AG, the world’s biggest chemical producer, agreed last month to build a plant in the Nizhny Novgorod region of central Russia, which will make 330,000 tons a year of polyvinyl chloride.

The joint venture, RusVinyl LLC, will buy licenses from Solvay and be in charge of selling vinyl and caustic soda in the former Soviet Union, Sibur said June 28.

Refinery Expansion

Sibur also plans to expand its gas refineries, including the Vyngapurovksy unit in Siberia, Konov said. It has agreed with OAO Rosneft, Russia’s largest oil producer, to split ownership of the Yuzhno-Balyksky plant and double the volume of gas it can process.

Sibur and Gazprom plan to build a plastics plant in Orenburg in southern Russia. It will produce 450,000 tons of polypropylene and 650,000 tons of polyethylene a year, Gazprom said in April.

The Orenburg project ``is in the conceptual and technological'' designing stage and most likely will be implemented between 2012 and 2013, Konov said.

«Polypropylene will be the first stage of the project, while polyethylene is a further prospective'' development. Polypropylene production will require about a $1.1 billion investment, he said.

Sibur is examining plans to spin off its tire-making and fertilizer-producing businesses, which generate about $1 billion and $400 million a year respectively, Alex Filippovsky, the company chief financial officer, told reporters in London. The units generated margins less the 23 percent on the company operating profit in 2006.

«It’s more strategic talk than a transaction,'' Konov said referring to the tire division sale. «We are increasing its value by optimizing operations and cutting costs».

Sibur expects to continue to supply rubber to tire-making companies after any sale, he said.

Gazprom is examining whether to sell a stake in Sibur in an initial public offering or to a strategic investor, Konov said, citing Gazprom Chief Executive Officer Alexei Miller. «No decision has been made,'' Konov said.

-With reporting by Michel Doermer in London. Editor: King