14 September 2018

Oleksiy Kustov: While building grain elevators one should make the project «to grow into»

MASS MEDIA ABOUT US to the news

This year Alebor Group has increased its capacities of onsite grain storage by 104 thousand tons. Also drying capacities at all three grain-collecting stations, automated intake point and railway shipping at Chesne Grain Collecting Station have been enhanced. We kept close eye on the construction process and kept our readers informed about it in our project “Birth of grain elevator”. Currently all three enterprises already take grain at their new capacities. Oleksiy Kustov, the Founder of Alebor Group, told us about final results of construction process and future plans of the company.

— Oleksiy, what will the company gain by such capacities increase?

— Our grain elevators have increased their capacities on rendering services to our “tollers”. We are able to take more crops simultaneously now, therefore, we will be able to transship more amounts of grain. To provide efficient grain conditioning we have bins for moisture and impure grain and powerful grain dryers – at our three grain elevators we dry 12 thousand tons of per 24 hours providing from 33 to 14% of moisture removed. There is a possibility of fast railway shipment. Thus, our transshipment capacities are very efficient.

Moreover, such additional storage capacities are vital considering current problems with railway shipments. We faced the situations when there was no means at all to carry grain to the port and grain silos stayed full of grain. Our potential bailors just turned back and went away, and we lost our money. For this very reason we have taken the decision to increase our capacities.

— While speaking about railway shipment, nowadays Ukrzaliznytsya declares the priority of rendering services to grain elevators with fixed-route shipments. Do all your grain elevators ship the routes?

— Yes, we have made all our three enterprises en-route. We did not have routes at Chesne Grain Collecting Station, but we’ve remedied the situation this year. We’ve built one more railway track and locomotive depot there, bought a locomotive, added rail road-track scales and one more railway shipment point.

— There are some grain elevators which are technically capable to ship the routes, but the railway service itself has not such a possibility. Don’t you face such problems?

— Everything is all right. Khrystynivka is a railway junction. There were some problems with Voronovytsya. When we started our work there, the station was almost a closed facility. We had to employ people all over again. When the railway station gave us 17 railcars for the first time, they thought it was unreal. Then we asked for 20 railcars, then – 50, and there were moments when we asked for 60 railcars per 24 hours. Then the railway station’s management team came to us and told that due to our work the whole clump has revived.

— Thus, you made them work?

— Actually, we gave volumes and money, correspondingly. Their performance indicators have improved, and everything revived there.

— If we compare the construction of silo facilities at all three elevators and the railway infrastructure you’ve added, what is more expensive?

— The cost is approximately equal. It’s necessary to realize the difference between the construction of grain elevator from scratch and its capacities increase. For example, the construction of one greenfield grain elevator with storage capacity of 100 thousand tons will cost about 180-200 USD per one ton of grain storage. If we add storage capacities to the currently exiting grain elevator that will cost 90-100 USD per one ton of storage.

Then, we add a grain dryer, as we did it at Voronovytske Grain Collecting Station, this will be 10 million UAH plus only for the equipment. And also mind the cost of concrete and construction works. This year we also built new laboratory at Khrysynivske Grain Collecting Station and we made site improvements at all our three grain elevators, we have poured thousands tons of square meters of concrete, polished it to the extent of METRO floors (smiles – editor’s note). But all these things make cost increase to the project.

— Have you succeeded to stay within the planned budget?

— Yes, and we have even made more works than we planned. Initially the cost estimate provided for unforeseen expenditures, but fortunately they did not occur. Thus, we have redirected the sum of money for site improvements. As I’ve already mentioned, this includes high-quality road carpet, fences, traffic-control barriers. In other words, we’ve “painted the elevators’ lips”, and now they are not only highly-efficient, but also very good-looking.

I remember our first office at Khrystynivske Grain Collecting Station, where there was asphalt floor, plastic table and two chairs. We came in the morning, chopped up the firewood, burned wood in the stove and brewed tea bags’ tea. Now we have ultimately technological enterprise with modern office building and presentable laboratory.

— Were there any force majeure circumstances during the construction process?

— While looking back it seems that everything went smoothly, and if there were any problems, they were insignificant. But during the building process, surely, we faced problems – look, we had to press the piles 5 days later, but the ground was still frozen, and we had to warm it by making fires. Or, for example, it was raining, and it prevented us from mounting the equipment. It was not a picnic, but we have overcome everything.

— Taking into account the solid experience of Alebor Group, what recommendations could you give to the companies who just begin the building projects? Which mistakes are worth to be avoided?

— From our experience I would advise not to build bit by bit. Even if you conduct phase construction, you should realize the volume of capacities you plan to have within a few years as a result. When we started to build Khrystynivske Grain Collecting Station, we did not fully realize its final volumes. And we increased it gradually, according to the grain increase volumes. We can’t say it was a mistake, it was most of a least-evil solution due to lack of finance provision, but it is better not to do it like this.

Thus, based on our own experience, I’d advise not to build little by little.

Though, our staged building at Khrystynivske Grain Collecting Station served as a good lesson to us. And our next grain elevators we built considering our gained experience.

— That is, it is worth to make the project “to grow into”?

— Exactly. Do you know how to determine how far the owners foresaw while implementing the building project at any grain elevator? Look at the size of receiving pit. It should be built as a very big one and spared no expense on powerful transportation equipment at the same time. By no means, you can add on building everything, but if your receiving pit was initially quite small, its expansion will cost you ultimately expensive. Receiving pit is the very skeleton on which you can develop muscles in future.

— According to your calculations, what will be the pay-back time of your grain elevators?

— Everything depends greatly on the competition rate and on the amount of transshipped production at grain elevators. For example, Voronovytske and Khrystynivske Grain Collection Stations are in the very heart of grain belt – Cherkasy and Vinnytsya regions. There are bumping yields there, and, correspondingly, these grain collecting stations have more potential opportunities.

Chesne Grain Collecting Station is the north of Odesa region, yield performance is lower and the competition level is higher there. So, we have to compete not only with similar grain companies, but with truck transportation facilities, which can deliver the grain from the fields to the port. While calculating pay-back all these factors are compared, and it is rather difficult to say that the construction will pay its way within this or that period of time.

— Do you plan any more capacities increase?

— We have certain cyclicality in this regard. Usually we start planning the construction and increase at the end of November. Then we implement everything and look how to survive the season and how these everything will be repaid. And all this is circle-wise. Thus, it’s rather early time to say something definitely. Le’s see what the season will be like.

But I want to thank the whole team for concerted efforts and well coordinated work. I am grateful that we have met the target dates and fulfilled the tasks set. Special thanks to Oleksiy Tsurkan, our Director General for Grain Elevators, who supervised all three construction projects, and to the Directors of the enterprises.

I also want to emphasize our contractors – Aquary Group and our partners – KMZ Industries, who supplied us with equipment. We’ve been cooperating with these companies during 5 years. And there is a part of their work in our success.

— How do you see the development of grain elevators market in Ukraine? Is it greatly influenced by Ukrzaliznytsya now?

— We are in the conditions of rather hard market relations. Last year about 80% of grain was shipped by 8% of stations. Now, in our country, only 50 grain elevators out of total 800 are fixed-route elevators. And the railway road, suffering the restriction of operation, troubles with infrastructure and railway equipment, makes efforts to ship the routes first, and form extended proposals to provide the locomotive to carry not 5, but 50 railway cars.

Whether it is correctly or not, I don’t know. It is just the way how the market has been formed, and it forces its players to invest into their enterprises and develop them to be very modern.

I consider that in this regard we are at the edge of infrastructure revolution.

Up to now there was a situation when the amount of transshipment capacities was lower than the amount of the goods exported. All the terminals were in demand; the cost of transshipment was high. Currently the transshipment capacities three times exceed the feasibility of export. This suggests that they start competition between them in terms of transshipment cost. It will force such companies as Glencore, Bunge, ADM to move depthwards and increase the capacities of their line grain silos to allocate the crops.

Thus, the competition within linear grain elevators will also grow. Grain elevators like ours will work, and nearby – the elevators of big international traders will operate. Big elevators, the traders’ ones, will gain strength. One 100-thousand tons grain elevator has to transship at least 300 thousand tons of grain during the season. Then it’s economically profitable, and the railway will give railway cars to such enterprise.

As for small businesses and old grain collecting stations – those which are not technically able to ship the routes – they either will disappear or will operate as warehouses for goods producers, for example, oil crushing and milling plants.

— Oleksiy, thank you very much for the talk. We wish all the success and prosperity to you and your team!

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