4.12.Capital Expenditures

In 2015, we reduced our capex by more than 40% to USD 208 m. This was due, among other things, to the completion of the Strategic Investment Programme launched in 2004. Over the past 10 years, the Company’s facilities underwent a large-scale modernisation, which resulted in fully upgraded production capacities. Total investments in the production upgrade, advanced technologies implementation and steelmaking equipment amounted to USD 3.8 bn.

The major projects under the Strategic Investment Programme included:

• Steelmaking facilities at TAGMET with 950 thousand tonnes of steel per year
• Steelmaking facilities at the Seversky Tube Works with 950 thousand tonnes of steel per year
• Production line for large diameter longitudinal pipe at the Volzhsky Pipe Plant with 600 thousand tonnes of pipe per year
• PQF pipe rolling mill at TAGMET with 600 thousand tonnes of pipe per year
• FQM pipe rolling mill at the Seversky Tube Works with 635 thousand tonnes of pipe per year.

As part of our efforts to upgrade production capacities, in 2015, we implemented the following initiatives:

Steelmaking upgrade

This is a strategic business line for TMK as it will cover all our demand in high-quality and less costly billets.

In 2015, the Volzhsky Pipe Plant fully commissioned a new furnace transformer with enhanced electric performance.

TAGMET completed the construction of an oxygen plant to supply process gases to the electric arc furnace (EAF) launched in 2013.

TMK-RESITA completed the assembly of, and commissioned, two overhead cranes for its meltshop.

Development of seamless pipe production for the energy sector

The Seversky Tube Works continued its overall pipe-rolling production upgrade launched in 2011. In particular, in 2015 the entity revamped existing finishing lines and chose a core equipment supplier for the construction of a new pipe heat treatment facility slated to be launched in 2018.

The following projects were also implemented during the reporting year to ramp up the manufacturing of high value-added products, production capacity flexibility and cost effectiveness:

• The Volzhsky Pipe Plant commissioned a unit for automated ultrasonic pipe body inspection under its Integrated Development Programme aimed to meet enhanced requirements of customers to product quality control. As a result, we were successfully qualified by Shell and also passed the qualification audit for compliance with Exxon Mobil’s requirements
• The Sinarsky Pipe Plant launched its bucking equipment and set up a facility for thermal diffusion galvanising of couplings
• As part of its upgrade of tool joint production, the Orsky Machine Building Plant commissioned a forging facility, finishing and tool joint threading machines and a tool-joint make-up device and
• TMK-IPSCO in Ambridge completed the replacement of the piercing mill as well as rebuilding the furnace.

Development of premium connections and oilfield services businesses

USD 3.8 bn total investments

in the production upgrade in 2004–2014

The Sinarsky Pipe Plant installed an advanced hydraulic press, threading equipment for pipes and couplings and launched pipe swedging and calibration equipment.

TAGMET launched its upgrade of existing threading lines, including installation of advanced pipe threading equipment. In 2015, the entity commissioned a coupling blank machine, and completed the assembly of, and launched, a coupling threader as part of a project for upgrading seamless pipe finishing lines and expanding the coupling manufacturing facility.

The Volzhsky Pipe Plant commissioned new coupling threading equipment.

Development of seamless industrial pipe production

TMK-INOX continued putting in place a range of measures aimed to maintain our leadership in Russia in manufacturing stainless steel and alloy pipes, including welded products.

In 2015, TMK-ARTROM took further steps to expand production capacities and extend the share of high value-added product sales. To this end, in 2015, it completed its hydraulic cylinder pipe facility and launched the construction of a heat treatment project.

Environmental initiatives

TAGMET selected the optimal process flow for waste water treatment and ran a tender to select the equipment supplier.

The Sinarsky Pipe Plant completed the construction of a healthcare centre for its employees and local residents.

Capex Forecast for 2016–2017

USD 200 m per year

TMK’s capex programme in 2016–2017

In 2016–2017, TMK’s capex programme will grow to approximately USD 200 m per year. The funds will be mainly used to enhance our finishing operations: heat treatment, pipe finishing, coating and threading operations, coupling production, and improvement of controls.

TMK continues constructing its new R&D facility in Skolkovo, a project that was launched in July 2015. The facility is expected to become the Company’s third, and primary, research and development platform. TMK’s R&D facility is scheduled to come online in 2017.