Temirtau Journal: Steel company buys a mill, gets a Kazakh town
It's not as good as the old days, but it's better than starving, people say

By Douglas FRANTZ

TEMIRTAU, Kazakhstan , July 28 -- When a foreign steel company bought a giant aging steel mill here on the windswept steppes of central Kazakhstan, its executives had no idea they would also become de facto proprietors of a company town.

But in the six years since Ispat International arrived, the company has taken over the power plant supplying Temirtau's heat and electricity, rehabilitated the trolley system, started a television station, provided medical services to residents and refurbished the only decent hotel.

The town was a testament to the economic and social chaos left behind by the collapse of the Soviet Union a decade ago.

''Everything was in disarray and nothing was functioning,'' Narendra Chaudhary, the plant's managing director, said as he sipped a beer in the Ispat hotel as the Ispat trolley ran past carrying workers home from the Ispat steel mill. ''The situation demanded that we take over because no one else could.''

One result is a hybrid of the old Soviet system and the traditional company town. Ispat Karmet, as the steel mill was renamed, employs 27,000 people and provides essential services to the population of 160,000.

Temirtau remains a bleak, unlovely place. Drug abuse and alcoholism are rampant, and Lenin Avenue is lined with ruined apartment blocks abandoned by those who could leave.

But the revitalized steel plant offers a glimmer of hope to the people who had nowhere else to go and it is a symbol of Kazakhstan 's effort to rebuild its economy through foreign investment and privatization.

The results of that policy offer some hope. Kazakhstan 's per capita income is the highest among the former Soviet republics, though it is barely half what it was 10 years ago. The economy grew 9.5 percent last year and is growing at a slightly higher rate this year.

Oil resources have accounted for much of the expansion, but the Ispat plant reflects the government's attempt to diversify outside the energy industry.

The effort is not without some major hitches. Allegations of government interference and corruption abound and, as in other parts of the former Soviet Union, the prosperity enjoyed by a few has not filtered down to average people, who are generally worse off than they were in Soviet times.

When times were good in the Soviet days, the sprawling steel plant in Temirtau was an integral part of a vast industrial belt running across central and northern Kazakhstan and southern Russia, much of it built by prison labor.

In Temirtau, plentiful high-quality coal from nearby mines fired seven coke ovens and four blast furnaces in a plant covering 50 square miles. Sales, almost entirely to other Soviet republics, accounted for 10 percent of Kazakhstan 's gross domestic product.

Nursultan Nazarbayev rose from the shop floor here to become the republic's Communist Party boss and, in 1991, the independent country's first president, a position he still holds. Ispat Karmet officials said that Mr. Nazarbayev retained a special interest in the plant, which no doubt helped cut through the bureaucratic problems encountered by other foreign investors.

The end of the Soviet Union meant the plant lost its captive customers. In a scene repeated throughout the former republics, factories in Temirtau closed almost immediately. The government struggled to keep the mill open, but sales plummeted and it appeared that the blast furnaces at the heart of the faltering city would go cold, too.

In 1995, Ispat International bought the plant for $250 million and assumed some of its debts. Ispat is part of LNM Group, a London-based company controlled by an Indian billionaire, Lakshmi N. Mittal.

The company operates steel plants worldwide, including the former Inland Steel in Chicago, and specializes in turning around money-losing plants. The turnaround in Temirtau, however, ended up a bit more complicated than expected.

The first challenge for the Indian executives assigned to Temirtau was adjusting to the isolation and harsh climate. The city is halfway between Moscow and Beijing. Temperatures drop to 50 below zero Fahrenheit in winter and ropes are strung between buildings at the steel plant so workers can find their way in blinding snowstorms.

The steel plant had not been upgraded in 40 years and no maintenance had been carried out for five years. With a $450 million loan from the European Bank for Reconstruction and Development and $350 million of its own money, Ispat modernized the plant.

Mr. Chaudhary, who helped with the start-up and returned two years ago >from the company's plant in Mexico, said that the plant's workers were skilled and disciplined, but that its managers had to learn to respond to the competitive international steel market.

Ispat Karmet earned its first profit in late 1999. Last year was profitable, too, though this year the mill is suffering from low steel prices and high supplies worldwide.

Not long after arriving, the Indian executives discovered that not all the problems were inside the gates.

Miners at the coal pits in nearby Karaganda threatened to cut off supplies because they had not been paid. Ispat bought the mines and paid the 29,000 workers to ensure a steady supply of coal. The purchase made the company Kazakhstan 's largest private employer.

Ispat also was forced into the power-supply business. The generating station that supplies the city's electricity failed 16 times in 1996, shutting down the plant each time. Ispat bought the plant and its distribution network, which meant it began supplying the city's heat and electricity.

The company took over the aging water supply system and the trolley that links the plant to the rest of the city. It started a television station to foster community pride and opened a small history museum. To provide uniforms for workers, Ispat bought a textile factory and it took over and refurbished a rundown hotel to provide a place for visitors to stay and a restaurant with Indian food.

Temirtau had always counted on the mill to provide not only jobs, but also housing, medical care and other social services. Local government could not afford to fill the gap, so Ispat began paying to expand health services and to subsidize salaries for schoolteachers.

The company has not met every expectation. Local officials complained that it had not helped enough in some areas. Workers are paid an average of $250 a month, well above the national norm, but there has been discord with the unions over layoffs.

Abdygaliev Berik, the deputy mayor of Temirtau, said Ispat Karmet has been particularly helpful in financing anti-AIDS efforts. He said, however, that the last time the government asked for money for a program to give condoms to drug users, the company did not provide more money. ''They said they had given enough,'' he said.

On balance, however, city officials and plant employees said the company saved Temirtau from joining the long line of industrial dinosaurs stretching across the former Soviet Union.

''It's not as good as the old days,'' said Igor Gourevich, who works at the steel plant, ''but it's better than starving.''