Ukraine of Raw Materials or How Russia is profiting off the Ukrainian Glass – Ukrainska Pravda
98% of raw material for glass production is exported to Russia and Belarus from Ukraine, which then imports ready-made glass products from these countries. No wonder that Ukraine remains nothing more than a raw materials appendage on the global market.
Ukraine has second largest raw stocks of glass materials in Eastern Europe.
The number of deposits is close to 100, and most of them have raw stock of 5 million tons, some a few times that. For instance, in Novoselivka Deposit, not far from Kharkiv, raw stock is estimated at 18.03 million tons.
However, these impressive riches are exploited in a strange way, to say the least. Annually 2% of the mined raw materials are used for producing products of inferior quality, which, because of obsolete early 19th century technology, cannot be used by the construction industry.
18% is purchased by Belarus. The remaining 80% is exported to Russia. Last year 6 million USD worth of raw material was exported there, that is 300 thousand tons. All this at the time when there is a demand for 3.4 billion square meters of modern construction glass on our domestic market. When 245 million tons of raw stock is available. When raw stock deposits are enough to last for 130 years or even longer.
Instead, the import of high-quality glass for double-glazed units manufacturing reached 314 thousand tons last year. Those 673 thousand tons of glass we did manage to produce last year (Fourcault process and casting/grinding), are collecting dust in warehouses.
The reason is simple, they cannot be used in modern construction because they do not comply with EU technical regulations that Ukraine promised to adopt for the Association with the EU.
Ukrainian developers and window manufacturers have adjusted to this situation by importing glass from none other than Russia and Belarus, pumping about 80 million USD to these countries’ economies annually.
In the end, Ukrainians are the ones financing the burden of such model. All currency exchange rate fluctuations and increased prices for the modern windows end up being their problem.
How it’s done in the world
Annual growth of global sheet glass production equals 7%. Average rate of glass consumption per capita correlates with how developed a country is.
For instance, for developing counties or those with transit economy, the level of consumption equals about 3 to 5 kg per capita. In developed European countries, this level is 18-28 kg, depending on a country.
Ukraine is an outsider in this respect, producing about 3.5 kg and consuming less than 5 kg per capita. What is more, those 3.5 kg of glass do not include the modern float-glass. Thus, 100% of the demand is covered by the import.
Lack of modern glass production in Ukraine is explained by the manufacturers’ business logic – that plants are supposedly built in locations where there is market, and raw material, and profit. The numbers stated above and facts mentioned below indicate otherwise.
In Belarus, for instance, there is a number of modern glass plants, while deposits of raw materials are just a tenth of the Ukrainian ones. Belarussians import almost 80% of raw materials for the glass, and this is no hindrance for the foreign investors operating there.
Another example is Kazakhstan, whose glass raw stock is estimated at 13-28 million tons. And this very country is planning to build a plant with the annual capacity of 140 thousand tons in 2 years, funded by investors. These investors are the UAE, Kuwait, China and the UK.
These projects are a result of effective state policy on satisfying the domestic demand and industrial development.
Ukraine, having had 30 glass plants at different points in history, never managed to garner similar support. Not a single one of these 30 plants produced anything better than the “gray” glass of inferior quality. Those four plants that did produce the sheet glass and the one plant in Luhansk that used the modern method of glass manufacturing, were unable to function for long without any support.
That is the very reason Ukraine remains a raw material appendage on the global market. The country is giving away a lion’s share of added value and a great number of working places to other countries’ economies.
When exporting the raw materials, we receive 6 million USD, and then spend 80-90 million USD when importing ready glass products, possibly manufactured from our very raw materials.
As international world practice shows, in order to provide a country with domestically produced glass, one must have one line of glass heat tempering with the capacity of 200 square meters per hour for every one million people.
Thus, Ukraine should have at least 40 such lines. The country has all the prerequisites for their construction, save the investor-friendly business climate and clear effective regulations for businesses in this area.
The outdated “old soviet school” of rules and regulations is the problem, as it makes Ukrainian manufacturers dependent on the import. In particular, it concerns modern energy-efficient window systems field. This problem can be solved, as well as the market problem as a whole by involving a stable investor and implementing transparent and business-friendly rules.
Just a few simple regulatory and organizational steps should be made.
First, it is imperative to provide transparent non-corruption access to quarrying the pits with glass raw material. To eliminate the corruption element that the authorities have gotten so used to and to create incentives for the real manufacturers.
Second, to provide special conditions for the land allocation and connection to engineering networks for the investors of the industry, crucial for the country’s development.
Third, to guarantee investment safety through the effective normative framework.
Fourth, to create prerequisites for profitable operation on the market. For instance, to link the state program of energy efficiency towards domestically manufactured products: to compensate via “warmth credits” only the goods made of Ukrainian glass by Ukrainian enterprises.
Finally, to initiate negotiations on the state level with investors after the preliminary analysis of the top glass producers of the world. For instance, out of top-10 global producers of the sheet glass it may not be worthwhile to negotiate with ATEC Holding (operates in Belarus), Asahi Glass, Saint-Gobain, Pilkington, Guardian (operate in the Russian Federation and are not willing to lose the Ukrainian market).
Among the prospective investors are the Turkish Sisecam and Taiwan Glass, which have joint international projects with Poland and Baltic countries.
Then the Ukrainian economy may be able to retain at least 70 million USD annually, which Ukraine is now paying for the import of glass. With some extra efforts, Ukraine may also get 200 million EUR of direct investments, which can go towards constructing a modern glass production plant.
Olena Shuliak, head of the BRDO “Building” section for pravda.com.ua