The Russian billionaires whose chemical factories fuel Russia's war machine

Evraz

30/12/2024 09:39

By Stephen Grey, John Shiffman, Grant Smith
       LONDON, Dec 30 (Reuters) - Chemicals factories founded
or owned by some of Russia's wealthiest men are supplying
ingredients to plants that manufacture explosives used by
Moscow's military during the war in Ukraine, an analysis of
railway and financial data shows.
    Reuters identified five chemical companies, in which five
Western-sanctioned billionaires hold stakes, that provided more
than 75% of the key chemicals shipped by rail to some of
Russia's largest explosives factories from the start of the war
until September this year, according to the railway data.
    The news agency's analysis demonstrates for the first time
how heavily factories forming part of Russia's war machine rely
on these men and their companies. 
The billionaires include Roman Abramovich, former owner of
Chelsea Football Club, and Vagit Alekperov, who was ranked by
Forbes in April as Russia's richest man with a fortune estimated
at $28.6 billion. 
    Abramovich and Alekperov did not respond to requests for
comment sent via their companies or lawyers. London-listed
Evraz, in which Ambramovich holds a 28% stake, said it supplied
the chemicals for "civilian use only". Lukoil, a refiner in
which Alekperov retains a shareholding, said it "does not
manufacture explosives or any related components".
    Anna Nagurney, a University of Massachusetts professor who
closely studies supply chain networks related to the
Ukraine-Russia war and reviewed Reuters' findings, said the five
companies were aiding Moscow not only by providing essential
chemical ingredients for munitions but also by earning
much-needed hard currency from exports of civilian products,
including fertilizers.
    "These chemical companies may be operating as civilian ones,
but they are sustaining the war effort," Nagurney said.
    To determine from where Russia's main munitions factories
received their supplies, Reuters analysed the movement of more
than 600,000 rail shipments that carried the chemicals needed to
make explosives from the invasion of Ukraine in February 2022
through September 2024.
    The railway data from two commercial databases in Russia was
supplied to Reuters by the Open Source Centre, a British-based
NGO devoted to collecting publicly-available intelligence and
monitoring potential sanctions violations. It detailed the type
of cargo in every railway wagon, the weight, origin and
destination, and the names of the company that sent the goods
and the company that received them.
    Reuters cross-checked the data from the two databases to
confirm its accuracy. However, the news agency was unable to
confirm whether the data included every rail shipment to the
explosives factories, or the extent to which the plants received
deliveries by road. 
    The data showed that the billionaires' companies supplied
vital ingredients to five explosive and gunpowder factories in
Russia that are subject to Western sanctions. The plants are
subsidiaries of the giant Russian state arms manufacturer and
automaker Rostec. 
    Using leaked tax invoices covering parts of 2023, Reuters
was also able to verify that four of the chemicals firms were
suppliers to four of the explosives manufacturers.
    Neither the Kremlin, the defence ministry, nor Rostec
responded to Reuters' questions about civilian companies' role
in supplying Russia's munitions industry.
    Before the war, all the explosives plants, as part of
efforts to diversify, also used to make explosives or gunpowder
for civilian use. Reuters could not determine whether such
civilian sales continue and whether the chemicals supplied might
be earmarked for civilian usage.
    Thomas Klapotke, a professor of energetics at the University
of Munich, who helped Reuters analyse the data, said that, while
all the raw materials had many potential uses, the combination
of wagon-loads of specific chemicals needed for explosives
manufacturing arriving at particular plants provided "red
flags". 
    The analysis provides fresh evidence that the West's
strategy of imposing sanctions on Russia as punishment for its
invasion of Ukraine has failed to curb its military production,
according to several experts interviewed by Reuters.
    While the billionaires themselves are all under Western
sanctions, the chemical companies involved have largely escaped
major financial penalties or bans on their import of critical
goods from the USA or the European Union.
    Most of the output of these chemical plants are civilian
products like fertilizer that are critical to farming.
Long-standing Western policies exempt food from sanctions to
prevent famine and diplomatic blowback from developing nations.
    Peter Harrell, a former senior White House official who
worked on Russia sanctions during the war's first year and is
now a scholar at the Carnegie Endowment for International Peace,
said perhaps it's time to review those 2022 decisions now that
nations that once relied on Ukraine and Russia for wheat and
fertilizer have had time to find alternative sources.
    "Potentially, the calculus would weigh towards imposing
sanctions on these companies today," Harrell said, commenting on
Reuters' findings.
    However, Manish N. Raizada, an agriculture professor at the
University of Guelph in Canada, warned that imposing sanctions
on Russian chemical companies could put hundreds of millions of
small-scale farmers at risk, in return for a minor economic
impact on Russia.
    Spokespersons for the U.S. Treasury Department, which
coordinates Washington's sanctions, and the United Nations
Development Program declined to comment on Reuters findings.
    A European Commission spokesperson, in response to questions
about the chemicals companies, said: "We are actively exploring
the possibilities for additional measures to step up pressure
and close loopholes in a manner that would avoid negative
implications for food security."
    The spokesperson stressed that any action would only come
after careful analysis of the effectiveness of any measures and
their impact on European companies. However, he noted that EU
sanctions would already apply to the companies, even if they
were not specifically designated, if they were controlled or
owned by a sanctioned individual.
     
    ARTILLERY WAR
The war in Ukraine has become an artillery duel where a shortage
of high explosives available to NATO and Ukraine has allowed
Russian forces to gain swathes of territory this year, according
to multiple Ukraine commanders interviewed by Reuters.
    Moscow is investing heavily in military production and
seeking to replenish its munitions stockpiles. In 2024, Russia
produced about 2.4 million artillery rounds and imported 3
million from North Korea, according to a Ukraine security
official. The North Korean embassy in London didn't return calls
from Reuters seeking comment.
    The five munitions plants supplied by the billionaires'
companies include the massive Sverdlov facility in Dzerzhinsk.
The plant is the only significant maker in Russia of the plastic
explosives HMX and RDX used in artillery and missiles, according
to a Ukrainian intelligence official.
    Two factories run by Eurochem - founded by Russian
billionaire Andrey Melnichenko - supply chemicals to Sverdlov,
according to the railway data.
    Eurochem is one of the world's largest manufacturers of
mineral fertilizers. Its Nevinnomysskiy Nitrogen plant in
southwest Russia has sent at least 38,000 metric tons of acetic
acid to Sverdlov during the Ukraine war, according to a Reuters
analysis of the railway data.
    A second Eurochem facility, Novomoskovskiy Nitrogen sent
nearly 5,000 metric tons of nitric acid to Sverdlov in the same
period, the railway data showed.
    Both acetic acid and nitric acid are used to make HMX and
RDX.
    According to Reuters calculations, based on scientific
literature and reviewed by an explosives expert, 5,000 tons of
nitric acid could be used to make 3,000 tons of RDX, enough to
fill 500,000 large-calibre artillery shells.
    The tax invoices reviewed by Reuters confirmed that Eurochem
was a supplier to Sverdlov last year. 
    In response to detailed questions, Eurochem said Reuters'
reporting contained "numerous material factual errors".
Specifically, "EuroChem is not part of the defence sector of the
Russian economy and none of our products are designed for
military purposes," read a statement from the company, which is
headquartered in Switzerland. Eurochem said that any suggestion
Melnichenko controlled the company was false. 
    Melnichenko did not respond to questions. The billionaire,
said by Forbes to be worth $17.5 billion, placed his controlling
stake in Eurochem into a trust that benefits his wife, as
Reuters has reported, after the imposition of sanctions on him
by the EU and Nato following the invasion of Ukraine.
    The statement said that while 97% of its output is
fertiliser, Eurochem supplies other industrial products,
including these chemicals, to a wide number of clients in Russia
and abroad. The company didn't answer Reuters' questions about
the chemical shipments to Sverdlov. Questions sent to the email
address on Sverdlov's website went unanswered.
     
    TAX DATA 
    Another fertilizer giant, Uralchem, founded by sanctioned
billionaire Dmitry Mazepin, provided Sverdlov more than 27,000
metric tons of ammonium nitrate, the railway data showed.
Ammonium nitrate is used to make HMX and RDX, and is also mixed
with TNT to produce an explosive called Amatol. Uralchem also
supplied 6,000 metric tons of nitric acid from its nitrogen
fertiliser plant in Berezniki to Sverdlov, the data showed.
    Two other state-owned munitions plants, the Tambov Gunpowder
Plant and Kazan Gunpowder Plant, received shipments of acids
from Uralchem, the rail data showed.
    The leaked Russian tax invoices, reviewed by Reuters, also
revealed that Uralchem supplied the Sverdlov, Tambov and Kazan
factories as well as the state-owned Perm Powder plant last
year.
    Asked in detail about the shipments, Uralchem said the
information was "incorrect". It did not provide further details
or explanation.
    Mazepin, who reduced his ownership of the company from 100%
to 48% just after the invasion of Ukraine, couldn’t be reached
for comment. The Tambov, Perm and Kazan plants didn’t reply to
questions sent to email addresses listed on their websites or on
corporate filings.
    A steel plant in Siberia owned by London-listed Evraz
supplied 5,000 metric tons of toluene – an ingredient for TNT -
to the Biysk Oleum Plant, according to the rail data. Evraz was
sanctioned in 2022 by the British government which said it
supplied steel to the Russian military.  
    In a statement, Evraz said it only supplied toluene for
"civilian use only". The Biysk Oleum plant, a unit of Sverdlov,
didn't respond to requests for comment.
    In April 2024, the government of Altai region, which
includes the city of Biysk, listed the plant among manufacturers
that "significantly increased" their 2023 production in
fulfilment of state defence procurement contracts.
    Reuters identified two other billionaire-linked companies
supplying chemicals to munitions factories. The Sredneuralsk
Copper Smelting Plant (SUMZ) in the Ural mountains, founded by
metals magnate Iskander Makhmudov, provides oleum - also known
as fuming sulphuric acid - used in the Tambov, Kazan, and Perm
powder plants. 
    The Lukoil refinery in Perm provided 6,500 metric tons of
toluene to the Perm powder plant, Kazan, and Biysk. Lukoil is
part-owned by billionaire Alekperov, the company’s former
president. Like others, he divested many shares in 2022 but
retained an 8.55% stake.
    The tax invoices reviewed by Reuters showed that the Lukoil
plant was a supplier to the Perm powder plant last year. They
also document shipments from SUMZ to the Kazan and Perm plants.
    In a statement, Lukoil said its Perm refinery "does not
manufacture explosives or any related components" and that
questions from Reuters about shipments from there contained
"absurd speculations". 
    SUMZ did not respond to detailed questions. Its parent
company, UMMC, which is under sanctions by the US and Britain,
did not respond to a request for comment. Makhmudov, who
divested his controlling stake in 2022, according to Forbes,
also couldn't be reached for comment.

(Additional reporting by Tom Balmforth in Kyiv and Christian
Lowe in London; Editing by Daniel Flynn)
((mailto:daniel.flynn@thomsonreuters.com; +44 20 3197 3000;
Reuters Messaging:
rm://daniel.flynn.thomsonreuters.com@reuters.net/))