Hrazdan-Cement Armenian Company to get tax preferences

ArmInfo. VTB Bank (Armenia) has submitted a rehabilitation program for Hrazdan-Cement Company to the Government of Armenia, Artsvik Minasyan, Economy Minister, said when introducing the Bill exempting the company from fines and penalties in the third and final readying, on April 25.

The minister said the rehabilitation program looks to raise the annual cement production to 200,000 tons versus 23,300 tons in 2014 and 75,000 tons in 2015. New jobs will be created at the company.  According to preliminary calculations, more than 700 million drams will be provided to the state budget.  If the Bill is not passed, the company's assets that have been placed as collateral at VTB Bank (Armenia) will be set to auction and the state budget will receive 0 drams.

The minister recalled that the sole shareholder of VTB (Armenia) is the Russian VTB Bank. Yet on June 2 2013, the Central Bank approved the application of VTB Bank (Armenia) for preliminary agreement to raise 100% stake in Hrazdan-Cement Company.  As for the rumors that Azerbaijan allegedly controls the activity of VTB Bank (Armenia), Artsvik Minasyan recalled that 60.93% of shares of the statutory capital of the Russian VTB Bank belongs to the Russian Federation represented by the Federal Agency for State Property Management.  Another 26% of shares of the Russian VTB are traded on the stock exchange and any subject can buy them. For the time being, 2.95% of the shares belong to the Oil Fund of Azerbaijan, which cannot have any influence either on the VTB Bank (Armenia) or on its parent bank.

In addition, as of late 2015, VTB Bank (Armenia) invested more than 95 billion drams in the development of Armenia's economy and another 73 billion drams in financing of consumer and mortgage loans.  In addition, VTB Bank (Armenia) increased its statutory capital by $50 million (with the support of the parent bank in 2012-2015) of which about $35 million were invested in economy of Armenia in 2015. In 2012- 2015 the bank did not pay dividends from the profits to the parent bank and invested these funds in capitalization and new projects. In 2010-2015, the bank paid 7.5 billion drams taxes and other payments. 

The minister said Hrazdan-Cement Factory has a significant amount of unpaid taxes since the global economic crisis and due to poor management. This has led the company to bankruptcy. 

A working group including all the stakeholders was established by the prime minister's decision a year ago bearing in mind the importance of the plant for the social-economic development of the country, maintaining of 470 job places and the potential of the plant for Armenia's further economic development.  As a result a draft law was initiated, according to which all the fines and penalties amounted to 504.9 mln drams excluding the main sum of the debt were written off.  The total amount of the debt makes 935 mln drams, including environment payments amounted to 5.2 mln drams. The minister recalled that the plant has new owner VTB Bank Armenia, which has provided additional loan funds amounted to 4.6 mln USD.

The minister emphasized that the cement field in Armenia faced crisis, which led to reduction of the production amounts. Before the crisis the production of the two cement plants of the country was about 1 mln tons, as a result of which the import of the product was stopped. This in turn led to growth of cement price. However, because of the crisis the production was significantly curtailed, as a result of which the component of prime cost significantly grew and led to losses. As a result the plant was not able to overcome competition. 

It should be noted that the company "Hrazdan cement" (formerly "Mika Cement") is created on the basis of "Hrazdan cement plant", which was launched in 1970 as a structural unit of "Hrazdan mining and chemical plant", which in 1977 was transformed into "Hrazdan cement factory".  The company's product was used in Armenia in almost all construction sites and areas of importance and was largely exported to the Transcaucasian countries and to Russia.

In the 90s the plant was practically not functioning. In 2001 President of MIKA Armenia Mikhail Bagdasarov privatized the plant.  In the same year, the factory was renamed into "Mika-Cement" CJSC.  Later, the plant was handed over to VTB Bank (Armenia) against debt.  The cement plant was reopened in July 2014 thanks credit received from VTB Bank (Armenia). The plant specializes in production of about 10 brands of Portland cement. The company is located in the town of Hrazdan on an area of 540 thousand square meters. The plant has two production lines with a designed capacity of 1.2 million tons of cement and 1 mln ton of clinker per year.