Masters of arts in development studies
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- Interactions between briquetting sector and SIDOR
- Interactions between briquetting sector and CASIMA
- Interactions within briquetting sector
- 3.5 Steel-making sector
- Interactions between SIDOR and FMO
- Interactions between steel-making firms and external markets
- Interactions within steel-making sector
- Chapter 4 Exploring State-anchored District
- 4.2 Conceptualizing Ciudad Guayana’s IS industry
- Role of state at national and local level
- Local and non-local embeddedness
- 4.3 Mapping out Ciudad Guayana’s IS industry
3.3 PelletizingPelletizing process is of a great importance for the district inasmuch as it supplies one of the critical inputs, the pellets, to produce DRI (Direct Reduced Iron) and HIB (Hot Briquetted Iron), both products are concentrated iron to produce steel. SIDOR and FMO each have a pelletizing plant to produce pellets which are used exclusively by local firms. SIDOR production of pellets is intended to supply its own demand of pellets for its reduction plants. This functions as a transferring of cost from one plant to the other. Whereas FMO produces pellets to cover local demand of state-owned briquetting sector (except for O.IRON that uses iron ore fines, as mentioned above). They are highly dependent on FMO pellets dispatches leading to a coerced relationship, as one respondent argued: “basically, the whole region depends on FMO, if FMO does well, we mentioned that yesterday, if FMO does well we are all fine” (Interview 08). 3.4 Briquetting sectorThe briquetting sector is perhaps one of the most successful experiences in the district upgrading, albeit it is still an intermediate product to produce steel. As can be seen in Figure 3.1 the briquette production is committed to external markets leading to disintegration of district inasmuch as this product could be used locally by the steel mills. Interactions between briquetting sector and SIDORThe respondents from briquetting sector unanimously agreed that their firms were created to produce for exports, so they exchange little with local steel mill SIDOR (Interview 06, Interview 07, Interview 08, Interview 09). For the research this was a striking finding because it was expected more integration between the briquetting sector and SIDOR, the largest steel mill in the locality. There are two ways of explaining why the briquette is made for exports and its networking with SIDOR seems to be weak. First, as one respondent stated: “the product in the shape of briquette is made to be exported” (Interview 09). The briquette is basically concentrated iron manufactured in a soap-like shape. Its international standard is known as HBI (Hot Briquetted Iron) which shape and physical properties (less likely to ignite) makes it easier and safer to transport by sea to international markets (Interview 09); HBI could be used in SIDOR steel production since it is concentrated iron, but it is not widely used because SIDOR steel production chain uses a pellet-shape DRI (Direct Reduced Iron) that is smaller than the HBI (Interview 06, Interview 09). It seems that the relationship between briquetting firms and SIDOR tends to be more through a sub-product called CHIPS, albeit this is a negligible part of the process of HBI production. The process of producing HBI generates a sub-product fine (CHIPS) that has the same properties as the HBI (they are little pieces of HBI when briquettes are being cut or screened); those CHIPS are more suitable for SIDOR conveyor belts system designed for handling small materials (Interview 06, Interview 09). Moreover, this size-and-shape issue between SIDOR and briquetting sector somewhat triggered an innovation at local level and tested district capacity to adapt. One respondent from O.IRON elaborated: From 2006 we were working on an innovation to produce a mini-briquette which is a better briquette for in bulk handling…the (standard) briquette we used to send to SIDOR did not work but the mini-briquette was excellent…we produced mini-briquette for them to improve their material handling (Interview 08, emphases added). This example may serve to support the argument that state ownership tends to generate coerced co-operation. Private sector may not produce at higher cost without compensation: This process let us innovate but it increased our cost of production, the cost of producing a mini-briquette is higher than that of producing a standard briquette, but SIDOR has not paid us, as far as I know SIDOR owes us the mini-briquette, SIDOR has not paid us, but actually, there was a negotiation with them to improve their handling (Interview 08). Second, there was a state policy leading to promote export-oriented activity based on natural resources. Through FMO, the state promoted the briquetting sector by attracting to the district both private-domestic and private-foreign investment. By doing so, the state gained in upgrading iron ore to a more sophisticated tradable iron. Moreover, briquette production appears to be a way of making better use of local resources such as natural gas which deposits in the region are 130 kilometres from the district. As mentioned by one respondent “a briquette is the more profitable form to export natural gas” (Interview 15). Natural gas is one of the critical inputs in direct reduction process to separate oxygen from iron. Briquette production also takes advantage of hydroelectric power generation in the region, abundant source of industrial water coming from Caroní River, a navigable channel through Orinoco River that allows a passage to Atlantic Ocean and a pool of skilled workers mainly trained in FIOR laboratory as from the late 1970s (Interview 06, Interview 07, Interview 08, Interview 09, Interview 15). The combination of these local resources leads briquetting sector to lessen cost of production as compared to international standards (Dam et al. 1998: 5) and benefit from exporting the product. Interactions between briquetting sector and CASIMAThe findings suggest that CASIMA has had interactions with all of briquetting plants and those interactions can be regarded as negotiated, as stated by one respondent: If FMO briquetting plant offered us better selling conditions, better that VENPRECAR…or better prices or quality than O.IRON, we bought them, we were indeed very good customers of FMO briquetting plant, but we also were supplied by COMSIGUA and MATESI, we have been supplied by all of them…although we are very close to VENPRECAR (nowadays BRIQVEN) (Interview 14, emphases added) However, interactions between VENPRECAR and CASIMA seem to be stronger. First, because of their proximity, one is located next to the other, as mentioned by respondent above, and second, both used to be part of private Group SIVENSA (Interview 14).
Interactions within briquetting sectorWithin briquetting firms seem to have emerged voluntary co-operation as it is expected to find in industrial districts according to the literature. Although they seem not to exchange their products, they do exchange assets. For example, they jointly created in 1998 an operator called Compañía Puerto de Palua (COPAL) which was in charge of managing Palua Port. In the case of BRIQVEN and COMSIGUA, they were constructed one next to the other by private-foreign investors (Korean and Japanese, respectively) also very closed to FMO pelletizing plant. They have a common space to upload the briquettes to transport by train the product to Palua Port where “two trains can be uploaded simultaneously” one for each firm (Interview 06). Additionally, one respondent mentioned they share the conveyor belt that carries pellets from FMO to the plants (Interview 09). Additionally, knowledge seems to be shared among briquetting sector; during the fieldwork the researcher got the sense that everyone knows very well about everyone else’s process of production. One respondent from O.IRON elaborated: COMSIGUA does benchmarking with VENPRECAR (they use MIDREX technology for direct reduction), if they have a problem with a reactor, they might advise to the other to cut the flux of gas, increase or decrease the temperature and so on, they can do that. Our benchmarking was Port Hedland (in Australia) but that plant shut down and we have survived with our own people (Interview 08, emphases added) It is worth mentioning that VENPRECAR and O.IRON also used to be part of the private Group SIVENSA. Although the two firms were constructed with different technology for direct reduction, they both shared administrative personnel; as elaborated by one respondent: VENPRECAR and O.IRON worked with a high level of cooperation and integration. The Board of Directors was common between the two firms; VENPRECAR was like an administrative and productive department of O.IRON. Their products did not compete they used different production technologies. Business process management were common between the two firms…the process of nationalization broke up this relationship (Interview 07).
Interactions between SIDOR and FMOInteractions between SIDOR and FMO are deemed to be thick as mentioned above. Not only because FMO exclusively supplies iron ore fines to SIDOR’s pelletizing plant, but they appeared to be closely integrated as well, albeit through a coerced form of co-operation driven by CVG. One respondent explained: FMO’s directors used to be SIDOR’s presidents and vice versa…the Management and Board of Directors were all integrated, that was normal because it was a sole vision directed by CVG…that was created from the beginning, but that relationship obviously started to break down. When? When it (SIDOR) was privatized (Interview 15, emphases added) As suggested by the respondent, this relationship cannot be considered totally harmonious since the mining and manufacturing personnel seem to be rather different, not only because mining activity tends to require less professional personnel than the steel industry, but also they might be different in cultural terms leading to a competitive relationship at personnel level.
Interactions between steel-making firms and external marketsAs can be seen in Figure 3.1, steel production is exchanged non-locally, either to domestic markets outside the locality or exports. These exchanges can be regarded as negotiated: Our (SIDOR’s) main customers are located outside Ciudad Guayana…Here in Ciudad Guayana there is nobody which transforms steel, all (steel) transformers are located in the centre (of the country), the tube manufactures, structural mills, they are in the centre (Interview 11a, emphases added) Our (CASIMA’s) production is not of final product, but intermediate product that would finally be transformed into a final product in rolling mills that owns the firm (SIDETUR) outside the zone. We had three destinations for our products: rolling mill in Caracas, rolling mill in Guarenas and eventually exports…we used to export billets (Interview 14, emphases added)
Interactions within steel-making sectorInteractions between SIDOR and CASIMA appear to be voluntary. CASIMA has function independently from SIDOR since it was created as a private initiative in 1989 until its nationalization in 2010. Because negotiations have not been completed, CASIMA continues to function quite independently and its administrative structure remains the same. However, being in the same business seems to have benefited both SIDOR and CASIMA leading to voluntary co-operation. As one respondent suggested (Interview 14), the two firms have maintained a collaborative relationship throughout the time. They have benefited from technologies they have acquired to improve process of production. Typically, SIDOR might attract cutting-edge technology firms because of its large size and CASIMA takes advantage of that as they are in the locality. They have common suppliers and information about what inputs have been dispatched to each firm seems to go back and forth so they might negotiate lending some inputs when needed. The respondent also reported CASIMA supporting SIDOR: Some years ago SIDOR did not produce in its continuously cast, in its steel mill, did not produce high and low carbon steel and eventually we (CASIMA) dispatched them billets with those steel characteristics for them to produce high and low carbon steel. Afterwards they acquired experience and the technology and we stopped dispatching them. You might know that few months ago they had many troubles because of the power issue and we sent them again billets for them to roll (Interview 14, emphases added) 3.6 ConclusionThis chapter has explored inter-firm interactions among state-owned firms in Ciudad Guayana’s I&S. It has sought to answer to whom do they relate? What do they exchange? What nature of co-operation do they have? The findings suggest that along the productive chain: mining, pelletizing, briquetting and steel-making, the nature of co-operation seems to change. At the beginning of the chain the nature of co-operation seems to be coerced as FMO functions as the only supplier of mineral for the district. But among firms within the same sector, voluntary co-operation seems to emerge, as seen in briquetting sector creating a joint operator to manage a Port, and in steel–making sector lending to each other specialized inputs and outputs which is in line with literature on industrial districts. Chapter 4
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Local |
Non-local |
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Iron production |
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72% |
28% |
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FMO |
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38% |
21% |
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SIDOR |
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31% |
0% |
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Other local producers |
2% |
7% | |
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Steel production |
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0% |
100% |
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SIDOR |
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0% |
93% |
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Other local producers |
0% |
7% | |
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Total |
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64% |
36% |
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Source: (Ministerio del Poder Popular para las Industrias Básicas y Minería. 2011),
own elaboration.
However, due to the nature of I&S activity, other imported inputs are also important. For instance, refractory material, ferro-alloys, and spare parts are imported (Interview 08, Interview 09, Interview 11a, Interview 12). Interactions with non-local suppliers are deemed to be substantial and negotiated, as respondents reported:
In steel industry, regarding suppliers as local is half a true; normally suppliers to steel industry are external because of the imported material. Logically, spare parts are imported because of the nature of the industry, being large, being one of great complexity and strength (Interview 14)
There are spare parts that are specific for the industry that are sold by a few suppliers, you cannot go to the market and buy them freely, there are specific suppliers for that purpose (Interview 09)
As for non-local embedded networks, Table 4.1 shows that 36% of total I&S production is traded non-locally. For instance, it was informed by respondents that steel production is committed to clients outside the district (Interview 11a, Interview 14). Both steel mills at local level, SIDOR and CASIMA, seem to have long-term commitments with their customers. Respondent of the former explained: “the bulk of those (private-owned) firms have born and grown along with SIDOR in terms of a long-term project” (Interview 11a, emphases added). Respondent from the latter explained that CASIMA used to send its production to other establishments of the same firm outside the district, thus committed in a long-term fashion (Interview 14). Additionally, as seen in Table 4.1, 28% of iron production is to be exported, out of that 21% would be raw material and 7% would be briquettes, a more sophisticated iron presentation.
4.3 Mapping out Ciudad Guayana’s I&S industry
Ciudad Guayana’s I&S industry has shown a dynamic throughout the time that can be presented schematically. Figure 4.1, Figure 4.2 and Figure 4.3 show firm relationships within the district depicted inside the circle and firms relationships outside the district illustrated by arrows coming in and out the circle. The size of the bubbles shows relative size of the firms. The visual models were elaborated based on the information garnered from the field.
The history of Ciudad Guayana’s I&S industry can be split in three periods taking into account the prevalence of ownership structure. The first stage corresponds to the early 1960s to 1998 where state-owned firms dominated business structure. For the purpose of analysis, this period will be known as state ownership. It is shown schematically in Figure 4.1. As can be seen, it resembles in shape, the hub-and-spoke district suggested by Markusen (1996: 297).
Figure 4.1
Mapping out state ownership
Source: author own elaboration based on Markusen (1996) and fieldwork 2011
The district seems to be dominated by two large vertically integrated state-owned firms: FMO and SIDOR, which developed a thick relationship of cooperation (Interview 15) shown by the width of the arrow. These two hubs also succeeded in inducing positive agglomeration externalities, for example, the creation of a pool of skilled workers:
SIDOR has been a school for Venezuela and the World, a lot of people have left from here to work somewhere else in the centre of the country: engineers, graduates, economists all kind of professionals that worked here in Plan IV when this pole was created, but still there many people here that can be useful because of their knowledge (Interview 05)
FMO supported a lot the Mutun in Bolivia, with our miners, our geologists, that was a deposit that Bolivia opened…FMO supported that exploration, then we have got the (skilled) personnel, our geologists are good, if they can open a mine abroad they are good…if you go abroad is because you are competitive (Interview 15, emphases added)
Additionally, negotiated collaboration between FMO and private sector gave rise in the 1970s to a lab called FIOR to produce briquettes from iron ore fines which benefited the district from the creation of a pool of skilled workers in direct reduction (Interview 06, Interview 08, Interview 09). Small bubbles within the circle represent local-public and -private suppliers of inputs for the hubs. The large size of SIDOR generates several networks with private sector both upstream and downstream. It was gathered information about a sizable private sector (SMEs) that provides services to SIDOR at local level: surveillance, consultancy, maintenance, freight transport and the like (Interview 11a). According to one respondent, the municipality revenues come primarily from tax collection, being central government transfers of less importance for them and taxes levied from local state-owned firms null (Interview 10b). This was a striking finding since municipalities tend to rely on central government transfers and it was expected stated-owned firms to pay municipal taxes. However, it might suggest a sizable local private sector that thrives along with the state-owned firms as municipality respondent elaborated:
Here are the basic industries, but around them it developed an important commerce and service sector, the main revenues are taxes levied on licenses…you can see many private firms that provide services to state-owned firms…the municipality has survived out of own tax collection (Interview 10b)
Other respondent from SIDOR explained:
Thanks to SIDOR, the zones you can see nearby grew significantly, what it is called small and medium enterprises SMEs…some of them provides services exclusively to SIDOR (Interview 12)
Private sector downstream spin-off was also reported, albeit non-local embedded since the majority is located outside the locality in the northern-coastal region of Venezuela (Interview 11a). There are approximately 306 domestic SMEs that are users of SIDOR’s steel production (Siderúrgica del Orinoco "Alfredo Maneiro". 2010).
As mentioned above, Ciudad Guayana’s I&S industry highly depend on inputs supplied by local firms both from public and private sector. State-owned firms provide iron ore, industrial water, natural gas and electricity whereas SME’s provide services to I&S industry. Just after 30 years, in the early 1990s private-owned I&S producers started to establish in the district: a) CASIMA, a private-domestic-owned steel mill which production is committed to non-local producers; b) VENPRECAR a private-domestic-owned briquetting plant which production is used by CASIMA and external markets and c) OPCO (nowadays FMO briquetting plant), a private-foreign-owned briquetting plant which production is committed to external markets. Bubbles outside the circle represent external suppliers which are deemed to be of a great importance for I&S industry. Arrows coming out the circle show non-local commitment of the district. As seen, steel production (SIDOR and CASIMA) tend to be non-locally embedded while iron production (FMO and briquetting firms) is committed both locally and non-locally.
The second stage will be known as private ownership structure and comprises the years from 1998 to 2008. During this period I&S producers within the locality were private-owned firms, except for FMO. Figure 4.2 shows the visual model for this period. As can be seen, it still resembles in shape the hub-and-spoke category of district. The largest steel mill, SIDOR, is now a private-foreign-owned firm. CASIMA remains operating as a private firm which interactions appear not to have changed significantly in this period. Private-owned briquetting sector expanded substantially during this stage. OPCO was nationalized in 2007 and transformed into FMO briquetting plant, so it functioned as a private-owned firm a greater part of the period as it was previously. FIOR transformed into O.IRON a briquetting plant that uses iron ore fines to produce briquettes for export. VENPRECAR consolidated as the oldest private-domestic briquetting firm in the district. COMSIGUA showed up in 1998, a private-foreign-owned plant to produce briquettes for exports. Finally, MATESI (former POSVEN and nowadays BRIQVEN) started in 2000, a private-foreign-owned and export-oriented briquetting plant.
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