Citymatic threatens Magnitogorsk with an environmental disaster. The company is on the verge of closing

The company claimed $140 million in damages.

The operator of the waste sorting complex and the MSW landfill in Yuzhnouralsk Magnitogorsk – the Citymatic company – may stop work due to a negative financial condition. Relevant information, probably at the suggestion of the organization itself, appeared in the local media. The company is allegedly ready to turn on the red light for garbage trucks and completely stop accepting waste, which could provoke a large-scale garbage collapse in the half-million municipality. As the main reason for the development of the negative scenario, Citymatic presents a protracted conflict with the regional operator, the Public Service Center (CKS). The parties had disagreements regarding the scope of services rendered, which they are trying to resolve in the arbitration court. Agency sources in the municipal solid waste market confirmed that non-public statements about the termination of activities from Citimatic did indeed come. However, experts consider them nothing more than threats and “saber rattling” in an attempt to put pressure on the “CCS” and administrative bodies. Although if the regoperator still manages to defend its position in court, Citymatic may indeed leave, but the collapse will not happen – the entire complex will be transferred to another operating organization.

The purely economic conflict between CKS LLC and Citymatic JSC has turned into a social plane. The media of Magnitogorsk announced a possible stop of the waste sorting complex and the MSW landfill, which Citymatic built under a concession agreement with the government of the Chelyabinsk region. As a result, the threat of a garbage collapse sounded from the company.

1.3 billion rubles were invested in the facility with a capacity of 200 thousand tons per year, and its creation has been carried out since 2015. As the main reason for the possible closure, local publications name the debt of the regional operator for the service of waste treatment and disposal. To date, the amount of debt is estimated at 140 million rubles.

“CKS” has a single tariff for the removal of waste, which collects money from consumers, explain in the market. For this amount, the company must collect garbage, take it to a waste sorting complex and pay for processing and disposal in this case, “Citimatics”. However, disagreements arose between the parties, and their essence lies in the fact that Citimatic does not meet the requirements for a sample of 20%, which follows from the data provided by the company on a monthly basis.

As a result, the waste treatment service is not provided in full, and, according to the regoperator, is partially not subject to payment. Today, the picture is such that the proportion of the sample, according to the CKS, fluctuates around 5%, and sometimes drops below 2%. At the same time, a single tariff is set for the complex in the amount of 3,600 rubles per ton of buried waste, including processing.

For example, in one of the months, Citymatic received 12,000 tons of MSW from CKS. Consequently, 9.6 thousand tons were to be spent on burial, minus the required 20%. However, the company requires payment for the service for the entire amount received. Thus, Citymatic expects to receive funds for the entire amount of garbage, while incurring virtually no costs for its processing and sending almost 100% of the contents to the landfill.

With the litigation dragging on for a year now, Citimatic’s beneficiaries are receiving significantly less revenue than they expected, which deals an additional blow to the troubled company.

Recall that, according to the company’s financial statements for 2022 under IFRS, with revenue growth, its net loss increased by 28.5% and reached 1.9 billion rubles. This result in the company was explained by the growth of the interest burden on the loan agreement. So, if at the beginning of 2022 the rate was 12%, then in March it jumped to 23.5%. In this regard, the amount of expenses increased by 78.6% (or 639 million rubles). As noted in the report, the group had to enter a “strict economy regime.”

Against the background of significant problems and a protracted litigation, Citymatic, apparently, “is trying to put pressure on all parties: the public, officials and the opponent himself – with reports of the termination of activities.” Industry representatives rate this outcome as unlikely, however, drawing attention to the fact that the company may temporarily close the entrance to garbage trucks.

It should be noted that the threat of a garbage collapse is especially acutely perceived by the inhabitants of the Southern Urals. So, in 2020, in Chelyabinsk, transport companies refused to take MSW to a remote landfill, as a result of which the city of a million people was littered with waste. Now the same scenario threatens the second largest municipality in the region.

The publication sent an official request to Citymatic with a request to comment on the situation, however, at the time of publication, there was traditionally no response.

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Citymatic is controlled by JSC Digitaltech, which is led by businessman Sergey Kotlyarenko. He also owns KSP Capital Asset Management LLC. The media consider Kotlyarenko the man of the head of VEB, Igor Shuvalov, and he himself previously stated in an interview with Forbes that his “company manages Shuvalov’s assets.”