MAGNITOGORSK – There’s no escaping the steelworks in this city, situated on the Ural River at the meeting point of Europe and Asia. Were it not for the mammoth plant and its metal, this center of more than 400,000 residents simply would not exist.

What began as a small outpost settlement became a major industrial hub in the early 1930s, when Josef Stalin launched his grandiose industrialization policy. Built with the help of American specialists, the Magnitogorsk steelworks (MMK) quickly came to symbolize the new era. From its blast furnaces flowed the industrial might that was to fuel the future.

These days, the steelworks, which provide more than 20 percent of Russia’s processed ferrous metals, finds itself having to prop up the present as much as look to the future. Like Norilsk with its nickelworks in the north of Siberia, Magnitogorsk is a classic company town.

And in a country where cash-strapped state and regional authorities have precious little to offer their citizens, if the company doesn’t help, no one will.

"The difference between us and a Far North town like Norilsk is that there, the big problem is getting people resettled on the ‘mainland,’ whereas people can live here," said Viktor Khristenko, deputy director of MMK’s Social Department, referring to the Norilsk Nickel plant’s scheme to resettle former workers back south out of the Far North zone. "Our people are not going to go anywhere, and we have to look after them here.

"In essence, we are taking on the role of the state, but this is the kind of urgent situation where we have to step in and help people."

MMK’s social programs, run through the Metallurg public charity fund set up in 1988, look like something from a case study in ideal caring-and-sharing capitalism. As well as accounting for 35.5 percent of Chelyabinsk Oblast’s budget income, building Magnitogorsk’s airport and railway station and providing it with sports facilities including a ski resort and an $8 million aquapark currently under construction, MMK runs a network of discount shops and pharmacies for pensioners, a medical center, a free cafe where pensioners can eat, and an apartment block for elderly people living on their own.

MMK’s 60,000 workers, whose average wage is 6,000 rubles ($215) a month, also have access to a range of benefits such as medical care and trips to health resorts, including a company sanatorium in the North Caucasus resort town of Yessentuki. Retired employees get a monthly bonus of 150 rubles added to their pensions, as long as they don’t work; and since late 1999, MMK has also begun paying public-sector pensioners a quarterly bonus of 150 rubles. The living minimum in Chelyabinsk Oblast is 890 rubles, while the average pension is 850 rubles.

FORGING THE FUTURE

At the same time, of course, the company has to think about the future. Current projects include a new oxygen converter, a cold-rolling mill to produce galvanized steel for the automobile industry – a first in the Russian steel industry – and an overhaul of tin-producing facilities so as to supply a new, thinner kind of white tin for canneries. Although not the only supplier of tin on the Russian market, MMK is the only Russian plant actually producing it.

The company exports 45 percent of its products. Anti-dumping measures taken by the United States against cheap Russian steel meant that MMK had to develop new markets in Southeast Asia. South Korea is MMK’s main competitor. Japan is also a problem. Company officials say that Japanese steel is of higher quality than Russian, albeit more expensive to produce, though MMK hopes to raise the quality of its steel to Japanese standards over the next two years, Financial Director Igor Vier said.

Vier said the 1998 financial crisis was actually positive for the company, as it caused metal prices on the domestic market to rise. The company foresees future growth coming primarily from the domestic market, especially as a pick-up in the economy would see a demand for metal products to replace aging pipelines, bridges and so on.

On average, MMK invests $140 million a year in industrial development. General Director Viktor Rashnikov said at a press conference that most investment comes from the company’s own profits. Profits for the first 10 months of this year were 12 billion rubles. He said that MMK is happy to take foreign loans – the new tin production facility, for example, is to be partly financed by an Italian government loan granted to Russia – but noted that it had been hard to obtain loans abroad in the past.

This, however, is changing. Rashnikov said the company is now finding it easier to obtain loans. It also plans to issue Eurobonds and ADRs next year. Vier described the welcome he received during a recent visit to the Bank of New York.

‘STEPPING ON A RAKE’

"After all the scandals, they said to us, ‘Guys, if we don’t start working with honest issuers, our Russian section is going to have no work at all.’" Vier expressed disillusionment with the Russian banking system. "We’re sick of stepping on the same rake over and over with the Russian commercial banks," he said.

The company spends an average of 400 million rubles on the social sphere each year, and this year invested 800 million rubles in social infrastructure. Rashnikov called it a justified policy, saying it takes a long time to train good specialists and that it is important to look after them and their health in the difficult conditions of the steelworks. But he sees it more as simple necessity than as a form of ideal capitalism.

"We haven’t yet reached capitalism and are still in a transitional period, in which we’re having to help the state to support it," Rashnikov said. "The way I would put it is that we’re not trying to replace the state but rather standing in for it at this moment in time."

Rashnikov qualified relations with the state as being "a normal dialogue," but also pointed to problems such as price increases by the natural monopolies that would make metal products less profitable and lead to cuts in production. He also mentioned an incident on Nov. 30, when the Federal Tax Police announced it was beginning a criminal investigation of MMK. At the time, the company issued a statement calling the news "provocation" and saying it was "organized by those people who are trying today to get their hands on the steelworks." Rashnikov said MMK had no tax debts of any kind.

For the past three years, MMK has been fighting off the so-called Makhmudov group, which has been trying to get a stake in the company. MMK controls 70 percent of company shares, with 23 percent owned by the state and 7 percent in the hands of small shareholders. Rashnikov said that pressure from the tax services has been part of this ongoing saga with the Makhmudov group.

This could perhaps help explain why MMK has been busy cultivating good relations at the highest level in Moscow. Rashnikov told journalists how, in the March presidential elections, Vladimir Putin got 70 percent of the vote in Magnitogorsk, though his score overall in Chelyabinsk Oblast was considerably lower. Putin was in Magnitogorsk last year for the first international President’s Cup judo tournament, sponsored by MMK. While in the city, Putin visited the steelworks and went skiing at MMK’s Abzakovo ski resort.

From the windows of Magnitogorsk’s ice hockey stadium (also built by MMK) participants in the judo tournament could look across the frozen Ural River to the belching smokestack-studded industrial landscape on the other side. Venturing outside, they would have seen the grayness of the snow and the smog-hazed sky.

The Soviet era didn’t really know the concept of environmental responsibility. New times have brought some change. MMK spent $250 million in 1999 on environmental measures to reduce pollution from the plant. Rashnikov said that within five years, MMK will have brought itself completely into line with international environmental standards.

But despite all these measures, pollution from the steelworks still takes a heavy toll on the health of people in Magnitogorsk – the "steel heart of Russia," as billboards round the city proclaim. The incidence of lung disease is high, especially in the old part of town adjacent to the plant, which seems shrouded in a perpetual, corrosive fog.

LIFE AS A STEELWORKER

Local people dismissed the idea that a few days and a quick tour of the steelworks could reveal any insight into their lives. "You don’t know what it’s like to be a steelworker; you’d have to spend 10 years in this city to know the truth about how we live," said one retired steelworker who declined to give his name.

A group of young people from Magnitogorsk enjoying the ski trails of Abzakovo were more optimistic. "No, I wouldn’t say we live badly," said Veronika, a schoolteacher whose grandfather had been among the builders of the steelworks in the early 1930s.

Her friend Yulia, who works for MMK in an administrative role, agreed, saying that what the company was doing in Magnitogorsk was something not to be seen anywhere else in Russia.

(This story originally appeared in The Russia Journal on Jan. 13, 2001.)