Hong Kong
May 17, 2013: 0850

Dear Mr. Helmer:

I have no wish to comment on whatever article you wished to write, but since you have put it to me and I have to disagree with you in many of the statements made, in particular:

1. You mentioned about the controversy concerning my remarks on judges. It is not possible for you to do justice to what I said without understanding the complicated constitutional issues in Hong Kong. It is even more difficult to do so in a few lines in a report totally unconnected with it. I send herewith my submission to Legislative Council for your reference. If you are really interested in what I said, you should read it before coming to any conclusion. In brief, it was an academic exercise and was overly exaggerated by some politicians.
The remark that I am a stooge of the central government is denied.

2. The fact that I am not nominated for re-election is because I was re-elected for another term of 3 years in the last AGM and is not due to retire until 2015.

3. The 5th paragraph is an innuendo that I did only what the chief executive told me or that I fail to consult the minority shareholders is totally unfounded. Matters are decided in Audit Committee and the Board Meetings and Independent directors act not in the interest of a particular shareholder but in the interest of the company and to see to it that minority interests are protected. The fact that certain shareholder dislikes the decisions in such meetings (which are made by majority decision) is no ground for accusation against the INED or INEDs. If such suggestion is put forward, I shall not hesitate to take legal action for defamation.

4. Using the remuneration point to justify an attack that I am not independent is heinous as all directors and Independent Non-Executive Directors are paid remuneration.

5. Regarding the litigation amongst the shareholders, I do not wish to comment on it because the matter is subjudice. As to the Annual Report, it was approved by majority of the directors in the BoD meeting before publication.

6. As to the proposed resolution for my removal and the resolution for a vote of confidence in me, the thing speaks for itself and you should wait for the outcome of the voting..

Elsie Leung

May 17, 2013: 0901

Dear Mr. Helmer,
I forgot to mention, the photograph you use for the article has been tempered. The monkeys do not appear in the backdrop when I did the interview. You could use a caricature but not a forged photograph.
Elsie

By John Helmer, Moscow

So far Elsie Leung Oi-Se has been paid $632,000 by United Company Rusal to listen attentively, read carefully, and speak her mind at meetings of the main board of directors, and also the audit committee of the board. Rusal titles her an independent non-executive director. She is one of five of those on the 18-member board; one of the 5-member audit committee. According to her company biography, she is a lawyer by training and career. She has also been a politician in the Hong Kong government, the equivalent of minister of justice.

First appointed to the Rusal board on November 30, 2009, when the company’s application to be listed on the Hong Kong Stock Exchange was running into difficulty, she was paid $16,000 for one month’s work. In 2010 she was paid $199,000; in 2011 $209,000; and in 2012, $208,000. She is the lowest paid of her peers, the other “independent non-executive” Rusal directors.

According to the Hong Kong press, Leung can be outspoken when she chooses. She was sharply criticized last year for a speech in which she appeared to criticize Hong Kong’s judges and courts, and to endorse the possibility that the Beijing Government’s obligation not to change Hong Kong’s autonomous institutions and laws may not extend to the judicial bench or the legal code. The Hong Kong media all but called her a stooge of the central government; she was then defended in China Daily for having represented nothing but a personal view, and not an incorrect one. Last month she debated in public the role the central government may play in setting restrictions on who may vote and who may run in Hong Kong’s elections. She has what Rusal calls “a profound knowledge of Asian market practices.”

Election of board members is on the agenda for Rusal’s annual general meeting (AGM) on June 14. According to the agenda paper issued by the company last week, 9 of the 18 directors are up for re-election. Of the independent directors, just two – Nigel Kenny and Philip Lader, first appointed in 2007 – have been proposed for reelection. Leung isn’t one of them.

Because Rusal is listed on the Hong Kong Stock Exchange, the independence of its directors is defined and regulated by the rules of the exchange. These rules require, for example, that directors should “be answerable to the listed issuer for the application or misapplication of its assets”. Directors must “apply such degree of skill, care and diligence as may reasonably be expected of a person of his knowledge and experience and holding his office within the listed issuer.” That’s the Three Monkey rule against seeing nothing, saying nothing, hearing nothing.

Rule 3.13(5 ) of the Hong Kong Listing Rules is the no-stooge rule. It is not allowed that an independent director “should be on the board specifically to protect the interests of an entity whose interests are not the same as those of the shareholders as a whole.” If Leung did what chief executive Oleg Deripaska told her, she would be in violation. If she fails to consult the minority shareholders – Mikhail Prokhorov (17.02%), and Victor Vekselberg and Len Blavatnik (15.8%) – she would fail to qualify as independent.

One of the trickier Hong Kong rules relates to how much money a company like Rusal can pay its independent directors without compromising them and buying their complicity. According to the rule book, “independence is more likely to be questioned if the director… has a material interest in any principal business activity of or is involved in any material business dealings with the listed issuer, its holding company or their respective subsidiaries or with any connected persons of the listed issuer.” How much of Leung’s $630,000, and her expectation of more, amount to such a “material interest”?

The audit committee, to which Leung belongs, is required by company documents to assess Rusal’s internal payment systems, and also to make sure the company doesn’t operate double accounting systems, hiding payments from the external auditor and the public shareholders. If there are grounds for suspicion of the latter, or public charges of fraud and money laundering, it’s up to Leung and her committee to investigate, “ensuring the Company’s compliance with all legal and regulatory requirements.”

One of Leung’s votes as an independent director has already been challenged. The challenge is the action by Vekselberg and Blavatnik before the London Court of International Arbitration (LCIA). This charges that contracts arranged by Deripaska with Glencore for trading alumina and aluminium are disadvantageous to the company, and were taken in violation of shareholder agreements. Leung and other board members voted to approve the Glencore contracts in late 2011, but no record of them or their terms has been mentioned by Rusal’s external auditor, KPMG. The LCIA action commenced in April of 2012.

According to Rusal’s last annual report, “On 4 April and 23 July 2012, the Company received separate requests for arbitration made to the London Court of International Arbitration (“LCIA”), pursuant to the LCIA arbitration rules, for the commencement of arbitration by SUAL Partners against Glencore International AG, En+, the Company and Mr. Oleg Deripaska. The two arbitrations were subsequently joined in one arbitration proceeding. The dispute relates to certain shareholder arrangements between the parties in respect of the Company. SUAL Partners alleges, inter alia, that certain contracts between the Company and Glencore International AG and a contract between the Company and a company indirectly controlled by En+ were, or will be, in breach of those shareholder arrangements. SUAL Partners seek injunctive relief preventing the Group from performing the contracts, annulment of the contracts, an account of profits from, and damages against the defendants.”

As an independent director, Leung will have approved this statement. But it’s not clear she and the audit committee have signed off on this conclusion in the annual report (page 201): “Management do not expect that the arbitration will have a material adverse effect on the Group’s financial position or its operation as a whole.”

What does an independent director do when major shareholders of the company are in conflict? If Leung does nothing, she ceases to be independent and in violation of the Three-Monkey and No-Stooge rules.

This is the charge against Leung by Vekselberg and Blavatnik reported in the Moscow press this week. Sources close to them confirm that on April 29 they wrote Rusal, formally proposing that at the AGM Rusal shareholders vote on a candidate to replace Leung. Their proposal charges that Leung has failed to act as an independent director. In her place, the candidacy of Dmitry Vasiliev (right) was proposed.

Vasiliev is currently a director of Nomos Bank and a member of its audit committee. His training has been in Russia, UK and the US; in his corporate career he has worked at JP Morgan and Mosenergo. He has held an investment advisor licence from the UK market regulator, the Financial Services Authority.

Rusal responded to the Vasiliev nomination with an announcement to the Hong Kong market, dated May 13, listing separate votes on Leung’s removal and Vasiliev’s election on the AGM agenda. In addition, the board issued its own vote of confidence in Leung to remain on the board. The Rusal announcement says: “The Board wishes to express that it has confidence in Ms. Elsie Leung Oi-sie in her capacity as an independent non-executive Director who, since being first appointed, has performed her duties with diligence, integrity, independence and in the best interests of the Company and all of its Shareholders. Accordingly, the Board has resolved that a further ordinary resolution be included in the notice convening the AGM expressing the confidence of the Shareholders in Ms. Leung (the “Confidence Resolution”). Given that the resolution goes on to express the desire that she continues to serve as an independent non-executive Director of the Company, the Board considers that the Confidence Resolution is conditional upon the Removal Resolution being rejected.”

Leung was contacted by telephone at her office at the Hong Kong law firm, Iu, Lai & Lee. Asked if she would respond to questions about Rusal, she initially said these should be referred to Barry Cheung, a Hong Kong colleague on the board and its former chairman. Cheung is also listed by Rusal as an independent. His position on the board has been challenged by the Kremlin; he was replaced as Rusal board chairman last October. When told the questions referred to her service on the board and on the audit committee, Leung agreed to answer them by email, and she confirmed her address.

These are the questions for Leung:

1. When does your current term as a Rusal director end?
2. Do you wish to continue as a director on the Rusal board?
3. Did you vote to deny the inclusion on the agenda for the AGM of a vote on your candidacy and on that proposed for Dmitry Vasiliev?
4. Your standing and record as an independent have been publicly criticized. How do you respond to the criticism?
5. During your membership of the audit committee of the Rusal board have you examined and approved all of the Rusal accounts? Have any accounts or details you have requested been withheld? Have you disapproved, objected to, or criticized any account items or issues?
6. As an independent director and member of the audit committee have you investigated and approved the amount of the claims on Rusal which the redeemable shareholders of RTI Ltd of Jersey currently hold?
7. As an independent director and member of the audit committee have you investigated and approved payments for aluminium between Rusal and UK limited liability partnerships (LLP), such as Maxberg, whose establishment and supervision by entities such as Inhold (Bahamas) and Milltown Corporate Services (Belize) have been publicly reported in the UK as agents of fraud and money-laundering vehicles?
8. As an independent director and member of the audit committee do you approve the payment by the company of the costs and operating expenses of the aircraft used by the Chief Executive Oleg Deripaska when on non-business and personal trips? Has Mr Deripaska been asked to provide the audit committee with a log of flights on company aircraft, and has he reimbursed the company for his non-business travel?

For more details on the control the RTI redeemable shareholders exercise over Rusal’s accounts and cashflow, read the archive.

Rusal’s use of UK limited liability partnerships (LLP) like Maxberg, and of Caribbean haven operators like Inhold and Milltown was first reported here.

A special report on UK limited liability partnerships has been published this week by Private Eye in London. The authors, Richard Brooks and Andrew Bousfield describe the LLP as “the international criminal’s corruption vehicle of choice.” LLPs and other “shell company scamming” run into several hundred thousand registrations, and in 2011 amounted to an estimated 11% of the entire UK company register. Among the crimes alleged in the report, there are tax evasion, fraud, gun-running and UN sanctions busting, and money laundering. “While it is impossible to measure precisely how many of Britain’s ghost companies are part of international criminal networks, it is in these helpfully crowded and murky waters that some of the world’s most serious organised crooks swim undetected.”

There is no reference in the Private Eye report to Rusal or Deripaska, and no allegation of wrongdoing is reported about or against them. Deripaska’s use of aircraft to fly to holiday destinations was documented here.

Leung confirms receiving the questions. She replied: “No comment.”

By John Helmer, Moscow

Arkhangelskgeoldobycha (AGD), the LUKoil diamond-mining subsidiary, has made its first detailed presentation of the new mine it is building in Arkhangelsk, with confirmation of the new mine’s diamond grades, volume of production, and financial value. The Grib mine, named after the Russian geologist who first found the deposit, is the first major diamond source to start production in Russia in several years, and the first to be developed independently of the state miner, Alrosa. As chief executive Maxim Mescheryakov, AGD’s chief executive, told a Toronto, Canada, audience, the presentation is designed “to show that we exist; that we are big; and that we commence production this year, fourth quarter. We are talking about 4 million carats delivered to the market annually.”

Mescheryakov estimates that more than $500 million have been spent to date on the new mine. At an average grade of 1 carat per tonne of ore, and at the three-year old price of $100 per carat, AGD and LUKoil expect to recover the cost of the mine in seven years. But given the rise in diamond prices to date, annual sale revenues by 2015 could be more than $650 million, and the payback period cut in half. The life of mine in the open-pit stage is about 15 years (60.5 million carats). Another 50 million carats may be mineable under the pit.

By volume of mine output, Grib trails behind the biggest of the Sakha region mines of Alrosa, which peaked at over 13 million carats per annum several years back. Today, the biggest of Alrosa’s open-pit mines, Nyurbinskaya and Jubilee, are producing, respectively, 7.3 and 6.3 million carats per annum (2012). Grib will produce 2 million carats in 2014, and reach capacity the year after of between 4 and 4.5 million. Thirty kilometres away from Grib, Alrosa subsidiary Severalmaz is building its Lomonosov mine which is planned to produce about 2 million carats next year. Alrosa reports spending Rb120 billion ($390 million) on building this mine since 2010.

Close as the two mines are as the bird flies, there is a world of difference underground, say Russian sources who have compared rough stones sampled from the two pipes. The sources say the Grib diamonds are of much higher quality and provide better shapes for cutting and polishing.

Source: Presentation by Maxim Mescheryakov, CEO, AGD

Mescheryakov announced that LUKoil and AGD have engaged WWW, the UK-based diamond consultancy led by Richard Wake-Walker and Charles Wyndham, to assess the market quality of the Grib diamonds and advise on a marketing plan. WWW is the Canadian Government’s diamond valuer for mines in northwestern Canada. A LUKoil marketing team has been despatched to Antwerp and to Mumbai to discuss the new diamonds with major industry buyers. Wake-Walker said in Toronto he believes the Grib diamonds should fetch on average between $130 and $160 per carat, assuming the market does not drop significantly in the coming months. Alrosa has reported that last year its average price per carat was $136.40.

By John Helmer, Moscow

It’s not a good time to be a steelmaker — not if you are in Russia, not if you are in China, and certainly not if you are in the US or the European Union. But if mining manganese, the vital steel-hardening alloy, is what you do for a living, the coming three years look likely to transform worldwide control, as Russians reach self-sufficiency in manganese supply for the first time; and as a prominent Ukrainian prepares to share a large corner of the global market with the Chinese.

The reason that manganese can prosper while steel is in the doldrums is because almost all of its application is to steelmaking; and because “manganese has no satisfactory substitute in its major applications”, as periodic US Geological Service reports point out.

The new Russian manganese supply is coming from the little-known Siberian Mining and Metallurgical Company (SGMK), controlled by Alexander Rybkin, a former executive of the Evraz steel group. Rybkin’s influence is provincial, limited to his partners – the Evraz group, which has first call on SGMK’s new manganese supplies for its Kemerovo steelmills at Novokuznetsk; and the governor of Kemerovo region, Aman Tuleyev. Until now they have made SGMK’s manganese a captive of Evraz’s demands.

The Ukrainian is Gennady Bogolyubov, who was for a time a board member at Evraz, and is now concentrating on expanding his manganese mines in Western Australia and Ghana. Two new moves may make his influence global. The first is a proposal from Bogolyubov’s Consolidated Minerals (Consmin) to replace the US dollar with the yuan for benchmark pricing of manganese, as well as for regular payments on account. By offering yuan-priced manganese to the Chinese market, Consmin would be aiming to diversify its Chinese clientele and increase its sales, even when growth in overall demand for manganese may be slowing down.

The second move is up to Bogolyubov and OM Holdings (OMH), a mining rival in Australia, to negotiate and agree for their mutual gain. This, claims a metals market source in Hong Kong and analysts in Sydney, would enable OMH to shift its business from the loss-making minehead to its more profitable refineries in China and Malaysia; assign Consmin the role of consolidator of manganese mines in Australia; and tie the two together in a durable ore-supply arrangement. Such a pact is a portent for BHP to beware.

The calculations on which this revolution in the manganese market depends can be drawn from reports from CRU of London, and its manganese specialist, Dee Perera. She is forecasting worldwide consumption of manganese ore will rise at 4.2% per annum until 2017. Production of manganese over the same period will grow slightly faster – at 4.6% pa. Year by year, the CRU forecast is for the manganese ore price to keep rising, even if steel production slows down in China, and even if non-Chinese steelmaking continues to fall, taking prices down with it.

According to CRU, the price of manganese ore will peak in 2014 and not resume growing again until 2016 or 2017 – unless production can be curtailed. Of annual global mine output of around 20 million tonnes, outside China the biggest miner is BHP, which accounts for 8 million tonnes. According to BHP’s reports, it has been extracting record volumes of manganese ore, especially from its northern Australian mines at Groote Eylandt. BHP’s tactics are to over-supply the market, forcing more manganese into unsold stockpiles and drive higher-cost miners out of business.

Russia – variously the fourth or fifth largest steelmaker in the world, swapping places with India – has been obliged to import most of the manganese its steelmills need. The consumption requirement peaked at 738,000 tonnes in 2008, before the global steel bust of that year. The current need is for 651,000 tonnes, most of which is imported from Kazakhstan, China and the Ukraine, in that order. The principal manganese supplier is Eurasian Natural Resources Corporation (ENRC) of Kazakhstan.

Falling Russian demand and lower prices last year recently forced ENRC to declare an impairment loss of $124 million in its annual report for the manganese division. If SGMK can implement its announced mine and smelter plans, ENRC isn’t likely to recover its Russian market. Instead, its exports to Russia are forecast to dwindle to a half or less of the 2012 volume. According to SGMK claims, its Kemerovo mining operations should now be capable of producing 600,000 tonnes of manganese ore per year, and 120,000 tonnes of concentrate. In parallel, a second Russian producer, Chek-Su, is building its own manganese mine and smelting capacity. If and when both reach design capacity, Russian steelmakers will no longer need to import manganese.

SGMK acknowledges that for the time being it supplies all the manganese it can mine to Evraz; it claims it isn’t looking for other clients at the moment. But as planned production surpasses Evraz’s demand, the remainder will substitute for imports flowing to the other steelmills. SGMK refuses to comment.

This modest revolution in Russian manganese will hurt ENRC, but have little impact outside Russia and Kazakhstan. In this larger, global market the revolution that’s under way is an unspoken attack on BHP. For the more manganese ore BHP digs out of Australia, and the larger the global share of manganese ore sales BHP takes, the more threatening its influence over the world price appears to the Chinese. Their steelmaking dominance in the world translates into Chinese dominance of more than three-quarters of the worldwide manganese trade.

This is what the market looks like right now, according to CRU’s Perera. “While the volume of manganese ore stocks at major ports in China has remained largely unchanged for the past four months (i.e. 2.5 Mt), ore imports into China over the first two months of 2013 were up by 20% y/y, suggesting a phase of restocking amongst ferroalloy producers. Consequently, after three months of no change in 2012 Q4, manganese ore prices gained m/m through 2013 Q1. Our latest price assessment of $5.65/dmtu [dry metric tonne unit], CIF China for last month is the highest level registered since March 2011.”

The Australian manganese mines – BHP, Consmin and OMH — have benefitted from the surge more than other country sources. The latest trade data analyzed by Perera show “that, of the top ten exporting countries to China in February, shipments from Australia rose by 8% m/m to 388,000 t, while imports from other traditional suppliers, such as S. Africa, Gabon, Ghana, Brazil, Malaysia and Myanmar all fell between 12% to 61%.”

Consmin reports that for calendar year 2012 its manganese production was down 6% to 2.97 million tonnes. However, Consmin notes, “Ghana manganese ore production in tonnes decreased 13% as a result of the stripping programme during Q4 2012. Australian manganese ore production increased 2% compared to 2011.”

Neither Consmin nor OMH has released first-quarter 2013 results yet. OMH’s latest report shows that for last year mine production was almost 738,000 tonnes, well under its annual 1 million tonne capacity. OMH’s December quarter production of 177,616 tonnes was down 20% on the same period of 2011.

BHP, by contrast, acknowledges it is trying to dig as much manganese as it can. “Record ore production for the nine month period ended March 2013 reflected a substantial improvement in plant availability at GEMCO (Australia), the world’s largest and lowest cost manganese operation.” In its Form 20F report to the US Securities & Exchange Commission, BHP says its priority is mining, not refining manganese. It stops short of acknowledging that in order to raise the profitability of this end of the business, it must keep as much mineable manganese in the ground, if it is controlled by market competitors. “Our strategy is to focus on upstream resource businesses. Manganese alloy smelters are a key conduit of manganese units into steelmaking and enable us to access markets with an optimal mix of ore and alloy, optimise production to best suit market conditions and give us technical insight into the performance of our ores in smelters.” The GEMCO reserves can last for another 12 years.

Until then BHP is investing in more roads and port capacity to allow export shipments to China to hit 7 million tonnes per year. Allowing for about 20% of Australian mine production to go to local refining, BHP’s plan anticipates mine output of up to 8.4 million tonnes – about 6% more than last year.

This strategy would be financially ruinous if not for the fact that manganese sales make up just 3% of BHP’s aggregate revenues, putting manganese at the very bottom of the group’s business units now that it has sold off its diamond mine in Canada. The viability of the manganese strategy is even harder to defend in the stock markets when BHP’s report of earnings for its manganese division reveals that last year Ebit was $235 million, a dramatic 66% below the 2011 level. Company documents put the blame for the shrinking balance-sheet on the global price contraction, justifying the extra output by its low marginal cost. Again, according to the 20F report, “a 22 per cent decline in the average realised price of ore and a 10 per cent decline in the average realised price of alloy reduced Underlying EBIT by US$400 million, net of price-linked costs. In contrast, record manganese ore sales increased Underlying EBIT by US$64 million.”

A Hong Kong source explains that a scheme of yuan-pricing between a supplier like Consmin and Chinese buyers of manganese is aimed at reducing the currency risk and volatility of the trade for mid-size and smaller buyers whose demand will be more sustainable if they can use Chinese currency instead of the dollar. “If you want to expand manganese sales in China, and diversify your client base there, then you have to use the yuan,” the Hong Kong source says.

If there is to be this alliance between Consmin and the Chinese on pricing manganese, is there also to be an alliance to reshape the supply of ore, and consolidate mineable capacity in Australia of almost 4 million tonnes per annum? That’s up to Consmin and OMH to decide between themselves.

OMH has reported to shareholders this year that its mining operations are under pressure. They have been challenged by the Australian aboriginal community which has charged the miner with desecration of a sacred site, as well as other offences against the indigenous people. The charges are being considered by a regional court. Also revealed in the OMH reports are growing tax and royalty claims by the territorial tax authority, which OMH is disputing. The bottom-line for both 2011 and 2012 is loss-making: OMH’s 2012 loss of A$60.9 million is five times greater than the previous year.

The latest financial report from OMH, released in March, reveals that upstream mining in Australia accounted for just 27.5% of group revenue last year; that was down from 34.2% in 2011, and from 48.1% in 2010. Profitability is evidently concentrated outside Australia at the Qinzhou, China, refining unit and the Singapore marketing unit. According to OMH’s breakdown of its operating segments, its refining or processing business earned A$7.5 million in profit; marketing, A$26.8 million. Mining, by contrast, produced a loss of A$27.5 million.

OMH’s presentations are notably more optimistic about the profitability of downstream refining in China and Malaysia than about its Australian mine. The second refinery in Sarawak, Malaysia, OMH said in March, should start production in a year’s time, reaching full capacity in the second quarter of 2015. According to OMH, it has already sold 60% of the refinery’s alloy production with Hanwa and FSE Shoji of Japan, and Fesil of Germany.

Australian brokers and analysts of the manganese sector believe that on current results Consmin is a more profitable mine operator than OMH; a merger between the two has been rumoured in the mining media before.

Oleg Sheiko, chief strategist for Consmin’s mines and markets, says: “we don’t comment on discussions and market speculations. Consolidation in manganese industry outside BHP has clear advantages and synergies.”

By John Helmer, Moscow

“I have always been fond of the West African proverb, ‘Speak softly and carry a big stick; and you will go far.’” That was Theodore Roosevelt in January 1900, when he was thinking of the Caribbean Sea, and when he was US Vice President. No one has ever found the evidence for its proverbial source; Roosevelt probably invented its origin in West Africa.

Current Nigerian policy for the Gulf of Guinea is also mostly invented, and is based on piracy and smuggling against which the Nigerian Navy wields a fake stick and says nothing at all. The case of the Myre Seadiver, a Russian security tender engaged to protect Russian oil tankers in the Gulf of Guinea, has exposed the duplicity of the Nigerian Navy, and also the weakness of the Nigerian government and the court system in protecting international vessels, their crews and owners from corrupt arrest and extortion.

Yesterday, at a hearing in Lagos, Judge James Tsoho delayed for the third time the trial of the 15-man Russian crew of the 541-tonne escort ship, the Myre Seadiver. Owned by Moran Security Group of Moscow, the vessel has been engaged in tanker security in the Gulf of Aden and was arrested on October 20 by the Nigerian Navy in Lagos harbour, as it prepared to leave for a Gulf of Guinea patrol. The ship was taken to a Navy dock where it is being held on a $500,000 bond. The crew were jailed until February, when they were released on bail to live at the Russian Embassy compound.

The Myre Seadiver had entered the port on September 19 with Navy permission after filing an inventory of small arms held on board. Eleven members of the arriving crew flew home and were replaced by a new crew which flew into Lagos with visas issued by the Nigerian Embassy in Moscow. Here is the story so far.

Tsoho was appointed to take over in the case after the previous judge, Okechukwu Okeke, failed to appear at the first trial date on April 9. Okeke then retired from the bench rather than appear at the second trial date of April 30. Although Nigerian prosecutors had said in court on April 30 that the 11 incoming crew would be released yesterday, Tsoho has refused, setting a new court hearing date of June 18.

The Russian government and Moran Security say the charges against the crew of arms smuggling and illegal entry have been trumped up. Nigerian sources say the Lagos court and the judge are under pressure not to allow a trial exposing the Navy’s involvement in selling security to foreign shipowners. The Kremlin has warned the Nigerian government to release the crew. A Russian source told Fairplay “the prosecution side can’t formulate their position towards the case. That’s why they are requesting postponement.”

Nigerian Navy officers and the Nigerian Ambassador in Moscow refuse to comment.

By John Helmer, Moscow

The last time Russian beer drinkers did something unusual was in the unseasonably cool summer of 2011, when sales of the big brand beers dropped sharply. Read all about it. It is happening again, on this occasion during winter, only now the drop in consumption is even more dramatic. This time it looks like a combination of government actions and dwindling numbers of susceptible adolescents are driving the big-money big-brand, foreign brewing companies out of the market to the advantage of Russia’s smaller, regional brewers.

The first-quarter report just out from Inbev (Belgium), the Annheuser-Busch conglomerate which makes Budweiser, Stella Artois, Sibirskaya Korona, and Klinskoye acknowledges that “in Russia, beer volumes fell 17.0% driven mostly by a challenging industry impacted by the new sales restrictions, the carryover of the media ban implemented last July, and price increases following the most recent excise tax adjustment. Our estimated market share remains under pressure, and balancing profitability versus share is a major focus.” Just one Inbev beer brand, Bud, “continues to perform well and grew by over 25% in 1Q13.” This downturn follows a 12% decline in volume for last year, as well as a contraction of Russian market share, explained in the annual Inbev report as “driven by the implementation of tax-related and other selective price increases ahead of competitors, and promotional pressure in key account channels.” With higher priced beer, the loss of sales volume was offset for Inbev by a 19% jump in Russian earnings. Inbev currently claims a market share of almost 16%.

Other foreign brewers are also reporting a downturn in their Russian sales volumes. Heineken (the Netherlands), with a market share last year of 13.4%, reported that beer sales volume grew “in the low-double digits” over 2011, but in the first quarter of this year, the Russian sales volume “declined in the mid-single digits.” The blame, says Heineken, is on “new legislation banning the sale of alcoholic products in kiosks and a further excise duty increase.”

Carlsberg (Denmark), with the leading market share of 38.2%, concedes that in 2012 the Russian market was “flat”, but management has described this lack of growth as temporary, due to “short-term disruption from closures of non-stationary outlets”. That last phrase refers to the new government ban on the sale of beer from kiosks. This year, according to the Carlsberg forecast, there will be more “destocking” in the first quarter. A first-quarter report last week reveals that volume of sales dropped by “mid-single digit percentages”, and revenues also fell. The Carlsberg share of the contracting Russian market was up slightly to 38.4%.

Anadolu Efes (Turkey), the other big-brand foreign brewer in the Russian market (in 2012 it acquired SAB Miller with its own market share of 7%) is also acknowledging the downturn in its report for 2012. “Lower volumes on an operating proforma basis in FY2012 was mainly driven by weaker volumes in Russia, where our performance was negatively impacted by the integration issues and relatively high pricing. All operating countries other than Russia achieved significant growth rates in FY2012, ranging between mid-single to low-teens levels.” The Efes market share in Russia contracted last year to 16% from 17.4% in 2011. The company has yet to release its first-quarter result.

An analysis by Vadim Drobiz, director of the Center for Research on Federal and Regional Markets for Alcohol (TsIFRRA) in Moscow, suggests that the rationalizations of the big-four brewers are misleading. According to Drobiz, they will continue to lose market share and sales volumes, as the Russian beer market undergoes an irreversible change.

“In 2007 this was the peak year. From 1995 to 2007, western companies have monopolized the market; they have invested huge money in advertising; they really formed a generation of beer-drinkers and set a record unmatched in any other country. Consumption and production of beer from 1995 to 2007 grew by 5.5 times – from 15 liters per person to 81. This [2007] is the peak year with peak demand. From then on consumption and production began to decrease for obvious reasons.”

“The first reason is the too rapid saturation of the market, its supersaturation. That is, the consumers cannot continue to grow. Either [the numbers and volumes] must stabilize or they must decline. The second reason — and this is probably even more important than the first – is demographic. Into the beer market have come young people in the 17-18 year old group. They have been drinking since 16, their active [drinking] fully starts from 17 to 18. In 2008, on to the market have arrived young people who were born in 1990-91. But then, between 1990 and 1998, the number of children born in Russia fell by 2.5 times. Therefore, from 2007 to about 2015, every year the the number of young people entering the beer-drinking market will be less by 2.5 times from the pre-2008 base. This is the demographic reason for the decline in beer volumes.

“Then there is the third reason. In late 2008 the socio-economic crisis began worldwide and in Russia also. In crisis times, in all countries consumption of low-alcohol level products falls (beer, wine), while the consumption of hard liquor rises, especially the varieties which are cheap and strong. There are nuances in this trend. In restaurants less alcohol is bought, more in shops. Still, the growth in consumption of strong [alcohol] is due to the fact that this is a more effective antidepressant than low-alcohol drinks.

“What has happened next on the Russian market? In 2007, foreign companies have occupied 92% of the beer market. Ochakovo took 4%, and the remaining 4% was taken by about two hundred small and medium-sized Russian beer companies. And it seemed that everything would be fine. But the market has declined even faster than the first reasons can account for. About three years ago the state banned the advertising of beer until 10 pm on television. This weakened the intensity of the massive information war against the consumer waged by the beer companies.

“Next, in 2010, the rate of excise duty has increased by three times. The rise in prices has not particularly influenced the consumption of beer or caused a reduction in the consumption of beer. Nonetheless, the government has had a victory. In 2009 the excise duty was 3 roubles per liter of beer, and the state has received 30 billion roubles of excise tax. In 2010 it received 87 billion roubles. That is, the rate has become 9 roubles. Today in 2013 the rate is 15 roubles. Next year it will be 18. And while this isn’t a powerful factor in reducing the consumption of beer, the state is gaining fiscally.

“But there is a negative effect. As soon as the excise tax on beer surpassed the 10 rouble mark, I believe that the illegal market of beer has grown dramatically. And first of all, of course, the supply of beer on tap. This beer is made by small and and medium-sized companies, primarily Russian. The market of illegal beer in Russia is not less than 10%.

“So what happened last year? In 2012, the share in the Russian beer market of foreign companies accounted for 82%. This compares with 92% in 2007, 85% in 2011. The market share of Ochakovo fell from about 4% to maybe 2 to 2.5%. Over the same five-year period the share of small and medium-sized brewing companies had grown fourfold. And this is despite the fact that they were subject to the same oppressive measures of the state as the larger companies. So now their market share stands at 16%.

“What else has the government done, in addition to increasing rates of excise duty? Well, in 2012 it dramatically reduced the number of sale outlets. These [trade] points were selling the beer of all sources – small, midsized and large companies. Even though the beer companies claim that about 60,000 stalls and kiosks have been removed, I estimate that not less than 200,000 kiosks stopped selling beer, at least legally.

“Furthermore, through 2012 and to the present day, the number of stores which sell alcohol, including beer, has decreased across Russia from 330,000 to 270,000. By the end of the year I believe there will be no more than 200,000 stores. This reflects the new regulation barring the sale of alcohol within a fixed radius of such social sites as schools. Thus, a significant number of shops will leave the market and stop selling alcohol. This applies to all alcohol sources.

“More than six months ago, in July of 2012, the ban on advertising of alcohol came into effect. What has happened is that the enormous spending on brand advertising by western companies has been curtailed. Until then, certainly the small and medium-sized companies could not effectively compete with them. So you see the growth of their share is evident. I thought that most western companies would intensify their advertising where it is still allowed in stores and restaurants, but on the results of the first four months of this year, this hasn’t happened.

“So I think that the share of foreign brewing companies in Russia will fall to 75%”; lower than that is unlikely. The small and medium-sized companies will increase their share to around 23% compared to today’s level of 16%. [Without the promotion by advertising of national or international brands] the domestic brewers compete primarily in quality. This does not mean that the beer of the small and medium-sized companies is much better. But they are trying to raise regional loyalty and local taste. This trend is likely to continue.

“With the help of advertising the [foreigners] sell more expensive beer . But today they do not enjoy such privileges. Let’s see if they will now deploy a massive advertising campaign in shops. It looks like they will not do this because in Russia today, there is another interesting law, in addition to the ban on advertising. This is the a law prohibiting the dissemination of publicity harmful to children and adolescents. And this law, I think, can be quickly applied if in shops the brewers start a beer advertising blitz. In Russia the number of specialty shops is very small, so all the beer and spirits departments are located in retail stores. So if there is a big noise from the advertising of beer, then I think consumers will very quickly take advantage of this ban on harmful information for the young. This is why I draw the conclusion that in al likelihood the international companies will continue to lose more market share.”

By John Helmer, Moscow

The Russian government has forced the chief executive of the state-owned United Shipbuilding Corporation (USC) to resign. Andrei Dyachkov, who was appointed to run the shipyard holding in June of last year, signed a letter of resignation on April 30, and then took sick leave. He is reportedly in hospital for Soviet reasons – he needs to be isolated not from germs, but from his rivals.

The affair has been leaking into the press slowly for weeks, and was accelerated last month when Dmitry Rogozin, the deputy prime minister in charge of the military industrial complex, gave Dyachkov a public dressing-down. But the real power behind the shove into Dyachkov’s back, according to sources close to the shipyards, is Igor Sechin, currently chief executive of Rosneft and formerly chairman of the USC board. Dyachkov is not the first to be ousted by Sechin. Roman Trotsenko was ousted in June 2012. Before him, Sechin got rid of Alexander Buzakov in November 2009, and others before that. Their tale was told here. Indeed, the only continuity in supervision of Russian shipbuilding since 2008, according to an official close to Sechin, has been Sechin himself.

“Pay attention,” Rogozin told Dyachkov on April 13, “and tear off heads of those who send me” misleading information. Rogozin, an influential politician who served in the State Duma until he was appointed as Russia’s chief representative to NATO between 2008 and December 2011, is a novice in the shipping industry. In the wake of his attack on Dyachkov, there was no official response from USC. But a USC source claimed the company was unsurprised by the high-level criticism. It had heard it all before during Trotsenko’s time. It seemed, the source implied, that there would be no repercussions from Rogozin’s attack.

One of the targets of Rogozin’s attack was the rebuilding of the Zvezda shipyard at Bolshoi Kamen, across Ussuri Bay from Vladivostok. The complex had been a naval submarine yard until the government in Moscow decided on conversion to civilian use, and expansion of non-military construction to supply the requirements of the oil and gas boom in the Russian sector of the Sea of Japan and Sea of Okhotsk. USC then acquired the majority of the port company shares, and negotiated a joint venture with Daewoo Shipbuilding and Marine Engineering (DSME) for a $200 million investment to build tankers, LNG carriers, and drilling platforms with displacement of up to 350,000 tonnes.

This has been one of Sechin’s priorities since the Russian and South Korean governments agreed in 2009 to participate in the project. On June 3, 2010, Sechin presided at the signing of a joint venture between USC and DSME at the Zvezvda complex. The latter issued a release explaining that “with this contract, DSME will construct state-of-the-art shipyard facilities such as a dry dock and a Goliath crane. The yard will be extended by 1 million square meters to take up 1.6 million square meter of land in order to build Large commercial vessels and offshore plants. DSME expects to secure new orders from Russia through this agreement by agreeing to continue building vessels for the Zvezda shipyard.” In the photograph, Sechin is on the left, Trotsenko in the centre.

Note that the Koreans expected that as part of the Zvezda deal their yards in Korea would also benefit from Russian vessel orders. That hasn’t happened yet. Neither has DSME begun their investment in Zvezda, USC has been going it alone.

The new Zvezda production line began to work on the keel and hull components of an icebreaker tanker for Rosneft in December 2011. In March of this year, an inspection of the new facilities by the Kremlin’s minister for the fareast, Victor Ishaev, a former governor of Khabarovsk, concluded with Ishaev’s confident forecast that the new plant would be commissioned this year. “There is no doubt about the facility commissioning date; they’ve already done a lot of work. Our task now is to support the construction, address the challenges related to various institutions and aid in establishing a new production facility. We do not just monitor the progress on the President’s instructions but have to mutually decide how to implement the instructions of the head of the state to create one of the most cutting edge shipyards in Russia in time and to a good quality.”

Officially, USC denies the construction at Zvezda has been delayed. “Fundamentally, there is nothing new to say,” responds USC spokesman Alexei Kravchenko. “We do not comment on the slowness of construction at the shipyard because there is no [slow construction]. There is no construction schedule in any official document at the government level, at the level of the corporation, for which we could have been asked [to meet].”

Off the record, other USC sources believe the accusations against Dyachkov have been trumped up. They add there has been a significant delay in the award of state funding for the project. Until now, according to USC, no state money has been involved in the Zvezda project, and so the construction schedule has not depended on what Rogozin or other government officials, or Rosneft would like, because they are not paying the costs, nor underwriting the loans taken to finance the project to date. “USC”, said Kravchenko, “has requested to advance by two years the start of state funding for the planned shipyard at Bolshoi Kamen from 2016. That means that next year [we] would receive at least the first state money, which allow us to give the process a more or less steady pace of development. Obviously, the schedules will be attached to it.”

Rogozin is not commenting on the ouster of Dyachkov. His last message to followers of his Twitter site, dated May 5, is a greeting on the occasion of the Orthodox Easter holiday. Rogozin ends with the traditional Russian, “Christ is risen”.

Dyachkov, a career shipbuilder and veteran of the Sevmash submarine yard in Severodvinsk, took over at USC from Roman Trotsenko, after he was ousted suddenly himself. Like Trotsenko, Dyachkov has been under pressure from the Russian Navy and Rosoboronexport, the military exporter, for trying to raise prices for naval vessel orders.

Before the latest attacks on Dyachkov, Trotsenko was also criticized for the slowness in commissioning the new super shipyard at Kronstadt [St. Petersburg] and the Zvezda shipyard. For what Trotsenko did to deserve his promotion by Sechin to USC, his management success and failure, and the circumstances of his dismissal, read this.

The Moscow newspaper Kommersant reports that Dyachkov’s ouster came after months of clashes of personality and policy between Dyachkov and executives introduced at USC by Rogozin, as well as with Sechin, and also with Trotsenko who was engaged by Sechin as his adviser after he left USC to Dyachkov. A Russian shipping veteran describes Dyachkov as “an industry professional [who] knew how to build ships. But he was quite weak in the bureaucratic wars and in dealing with people like Rogozin, who knows nothing about how to build ships and submarines.”

As for what will happen next, the source says: “There is only one outcome — we will soon see the funeral of Russian shipbuilding.”

Another veteran of Russian shipbuilding agreed to speak anonymously, confirming the consensus in the shipbuilding sector that Dyachkov is being blamed for Trotsenko’s failures. “Trotsenko launched all these futuristic, phantasmagoric projects to build shipyards — Zvezda shipyard in the Far East and in Kronstadt, St. Petersburg. He started projects and Sechin, even when he was in government, was sceptical, so he sent his men out to check. But as Trotsenko is a very talkative, a PR man, he can sweet-talk just about anyone. So he convinced everyone that everything was being built, that everything was fine.”

“When Trotsenko went to Rosneft with Sechin, Dyachkov was engaged to shovel out these Augean stables. He was trying to understand, to assess the effectiveness, the appropriateness of the project and see what is built. So when Rogozin ran over him… in fact, these claims about delays in construction time – they are not claims against Dyachkov. In essence, these are claims against the project itself, and by and large against Trotsenko who created these projects.”

The source believes Trotsenko is also behind the ouster of Dyachkov because he is hoping to promote schemes for a new Rosneft fleet of gas carriers and large oil tankers, for which Zvezda is necessary.

“Maybe he convinced Sechin and said that wewill now build ourselves a fleet, a fleet like Sovcomflot’s, and all will be well.” Dyachkov got in the way of Trotsenko’s “dream. Dyachkov can be understood – he was sitting quietly doing the business. Naturally, Trotsenko does not like Dyachkov, to put it mildly… It was an unpleasant coincidence for Dyachkov, the political circumstances and the strategic role the head of USC must play. Dyachkov cannot be a politician. He stuck to shipbuilding as much as he could. This was the route to his resignation.”

As for the candidates to replace Dyachkov, the source dismisses some for promoting themselves already in the press. “The new man, who will come to the place of Dyachkov will get all of these problems again because they have not been solved. Most likely the [new person] will play by the rules set by Trotsenko again and with him Sechin.”

There was no response to requests for comment from Rosneft.

By John Helmer, Moscow

Righteous indignation is to investigative journalism what Joseph Goebbels was to truth. So what was really going on in the last days of April when the London media celebrated the Russians who this year topped the UK Rich List, but discovered something going badly, maybe criminally wrong at Eurasian Natural Resources Corporation (ENRC), a London-listed mining company controlled by three Kazakhs and the Kazakh government? If the London newspapers spell the name of one of ENRC’s owners, Alexander Mashkevich, in three different ways — Mahkevitch, according to the Telegraph; Machkevitch to the Guardian; and Mashkevich at the Financial Times and The Times — what to make of the reliability of the anonymous leaks, unseen documents and innuendo from the dismissed or the disgruntled, on which the media campaign against ENRC depends?

This isn’t a question to be answered right now. Instead, it’s what is already happening to take advantage of ENRC’s falling share price and market value that is in focus. For by the time the UK regulators get around to completing their investigations, and deciding what to do about them, the Kremlin will have intervened to coordinate and finance a multi-billion dollar takeover of control at ENRC. By then too, ENRC will no longer be a regulated entity on the London Stock Exchange (LSE).

ENRC publishes a list of the notices it is obliged by rules of the UK Takeover Code and the UK Listing Authority (UKLA) to release to the market. (By the way, the Telegraph has trouble spelling this one too, calling it the UK Listings Authority.) The notices are required by Rule 8 of the Takeover Code; they are intended to prevent secret, collusive or insider dealing in shares to the disadvantage of public shareholders. A Rule 8.3 notice is required when share dealing takes place on the part of “any person who at the relevant time… is interested (directly or indirectly) in 1% or more of any class of relevant securities of any party to the offer.”

So far this year ENRC has issued ninety regulatory news notices, 80 of them since April 22. Read them all here. On that day, BlackRock, the international fund manager, reported that on April 19 it had been buying and selling ENRC shares at prices between £2.35 and £2.91. That was apparently the signal that well-informed people in the marketplace knew that ENRC was about to take a fresh beating in the press, and that betting on the recovery of its share price would be a clever and profitable thing to do. Here is what happened to the share price:

THREE-MONTH TRAJECTORY FOR THE ENRC SHARE PRICE

Source: Bloomberg

The chart shows that since the year started ENRC has hit a high of £4.10 on February 13 and then fallen by 44% to April 15, when the low was £2.29. Since then, as the trouble at ENRC appeared be getting decidedly worse among reporters who can’t spell, those with numeracy skills were pushing the share price upwards to a current level of £2.93; that’s a recovery of 28%. With 1.3 billion shares on issue, the downwards trajectory made ENRC’s market capitalization cheaper by £2.3 billion. For a buyer of shares at the April bottom, the upward trajectory over the past two weeks has added to the value about £800 million.

Among the share buyers with a big enough stash to qualify for a Form 8.3 notice, there are, in addition to BlackRock (1.36% as of May 3), the Government of Singapore Investment Corporation (1.07%), Skagen Funds of Norway (1.11%), and Suleiman Kerimov (3.06%). In the fortnight BlackRock and the Singapore Government have been net sellers – they have ended up with fewer shares in ENRC than they started with.

This notice of April 26 from Societe Generale reveals that ENRC’s control shareholders – Mashkevich, Patokh Chodiev, and Alijan Ibragimov – were also very busy buying and selling ENRC shares, apparently with Kazakh Government participation.

Kerimov is likely to have known what they were doing. He appeared by disclosing on April 29 that he had become the owner of 36.9 million shares for a stake of 2.86%. This notice doesn’t identify what price he paid. Further share-buying notices follow on April 30, May 1, and May 3. The April 30 notice reveals Kerimov paid £2.72 per share; the May 3 notice reveals he paid £2.60. In all, Kerimov is now reported to be holding 2.43 million shares (3.06%). With the recent take-off in share price, this stake is now worth about £92 million ($143 million).

Kerimov operates holding companies in Moscow and Switzerland, and he is precluded by the rules of his Russian parliamentary status – he is one of two senators for Dagestan in the Federation Council – from actively directing his business. So he doesn’t answer directly to questions about the business. Nor does he answer questions about his politics. To comply with an impending Russian statute limiting elected Russian officials from holding assets offshore, Kerimov has put those assets in a Swiss trust. That’s managed by the same Studhalter family who have been taking his business orders for years. Read about them here.

By tracking the movement of Kerimov’s aircraft, it’s possible to see how far afield he goes from Russia in representation of the interests of his ENRC, er, Dagestani constituency. On March 30 he flew from Phuket in Thailand to Moscow, and remained on the ground until April 28. He then flew to the UK for a meeting and on to St. Petersburg on April 29. He was in Moscow on April 30, and then in Bodrum, Turkey, on May 1. His motor yachts were on charter at Barcelona and San Diego (US) during this period.

Sources familiar with Kerimov’s business claim that Kerimov didn’t pay for the 2.86% shareholding in ENRC he disclosed initially. That, the sources claim, had been originally held by a unit of Stephen Jennings’s Renaissance Capital group. How Jennings went bust late last year and applied to Kerimov for a bailout was reported here. Some time after Jennings’ exit from Russia, the sources claim, Kerimov, along with co-creditor of Jennings, Mikhail Prokhorov, took over the ENRC shareholding after Jennings had forfeited.

How it then happened that Prokhorov and Kerimov decided between themselves to assign the asset to Kerimov, so that Kerimov would become the owner of record on the LSE, isn’t known. If Kerimov paid Prokhorov for the stake is also not known. If there was a transaction between them ahead of the April 29 report to the LSE, then it’s likely to have cost between $130 million and $150 million. For such a sum, the sources believe Kerimov must have borrowed from a bank, probably a state-controlled Russian bank.

Kerimov’s spokesman at Nafta Moskva refuses to say how Kerimov came by the initial ENRC stake; whether he has been borrowing to fund the extra share buying; and if so, from whom.

But Kerimov never acts alone, now are his silent partners ever in the dark. According to this notice, dated May 3, the control shareholders of ENRC are planning an offer to buy ENRC shares. Exactly what the offer is has yet to be revealed; it is widely believed to be a buyout of the public shareholders, with the outcome that ENRC will be delisted from the LSE, and become a private company once more.

The offerors, according to the notice, are Mashkevich (14.6%), Chodiev (13.1%), Ibragimov (14.6%), and the State Property Committee of Kazakhstan (11.7%); altogether, a majority of 54%. In addition, the notice reveals the names of four “concert parties” – that’s groups allied with the offerors, and in on their scheme. One is Chodiev’s daughter Mounisssa, the head of press at ENRC (0.039%); another is the sovereign wealth fund of Kazakhstan, Samruk-Kazyna (0.07%).

Then come the Russian state banks – Sberbank is listed with a stake already of 0.06%, and VTB Capital, which reportedly has no shareholding in ENRC.

(Also unmentioned in the notice as a concert party to the share buyback is Kazakhmys, the Kazakh copper miner also listed on the LSE. It controls 26% of ENRC, and has been obliged to write down the value of that asset as ENRC’s share price has fallen. Kazakhmys’s share price has fallen as a result.)

VTB was asked to clarify whether it has loaned Kerimov the money to buy his 3.06%, and whether it has a direct or indirect security interest in those shares. The bank won’t say. Sources familiar with VTB and its chief executive, Andrei Kostin, believe he has taken instruction from the Kremlin on the role VTB should play in the next stage of ENRC’s ownership. Sberbank, run by German Gref, is believed to be taking the same orders. Kerimov is believed to have met with one or both of these men to discuss the ENRC buyout. Sberbank is also refusing to respond to questions.

The name at the bottom of the offer notice is Amanda Keelan. She is an employee of the law firm Clifford Chance. Keelan was asked to clarify the involvement of VTB and Sberbank as concert parties. She was also asked to explain Kerimov’s involvement with them as an unidentified concert party, or as a free rider. She refused to answer.

For the Kremlin to come to the rescue of the Kazakh Government, as the three ENRC oligarchs lose their credibility in the London market, is more than comradely or philanthropic. The Financial Times quotes anonymous sources (“industry specialists”, “two people familiar with the situation”) as believing that VTB and Sberbank will finance the buyback of ENRC shares, secured by a combination of shares and an undertaking from the Kazakh government to guarantee repayment. According to the FT version, the Russian banks will be financing Mashkevich, Chodiev and Ibragimov. The London Times claims, without a source, that VTB and Sberbank “have been hired by the three central Asia tycoons” who have created a special-purpose vehicle to buy up the 15% of shares still in the free float.

Kerimov’s involvement in the scheme is a sign that this isn’t what is happening. It’s possible but unlikely, Russian sources in the know believe, that Kerimov is acting alone, in order to take profit from inside knowledge of the Kremlin-backed buyback at a higher share price than he has paid.

Rather, it is believed the combination of the Russian state banks with Kerimov as front-man indicates another scenario of what is about to happen. This, according to Moscow and London sources familiar with the Russian strategy, is that there has been a joint decision by President Nursultan Nazarbayev and Vladimir Putin to secure the future of ENRC.

If they have agreed, it would not be unprecedented. In the past when Alisher Usmanov attempted to put takeover pressure on ENRC, the Kremlin sided against him with the Kazakhs. In a more recent conflict between Victor Rashnikov and ENRC, the Kremlin stayed out of the dispute – it did not take sides with the Russian.

By contrast, Kazakh suspicion of Russian oligarchs surfaced last month in the release of ENRC’s annual report for 2012. There ENRC accuses Oleg Deripaska’s Rusal of price gouging, blaming Rusal for inflicting “onerous” terms for deliveries of alumina to Rusal’s Russian smelters. The report says ENRC was forced to take a loss of $328 million on its alumina business, with a further $10 million asset “impairment”.

Can the Kazakhs have been persuaded to entrust their future to Kerimov? Has the buyback plan been decided with Russian state bank funds, without a change in the control of ENRC hitherto exercised by Mashkevich, Chodiev and Ibragimov? Exactly what that change might entail – fewer shares, loss of operational control – the sources admit they aren’t sure.

On the outcome Mashkevich has been reported at home as saying last Friday: “Us leaving the business in Kazakhstan? This is out of the question.”

By John Helmer, Moscow

The Nigerian judge Okechukwu Okeke has retired from his Lagos court rather than appear for the trial, scheduled in Lagos on April 30, of the Russian crew of the security tender, Myre Seadiver. Sources in Lagos told Fairplay the trial has been postponed for a second time on account of the judge’s absence. Okeke presided at the February 18 hearing at which the 15-man crew was formally charged, four months after they had been arrested and imprisoned. He released the crew from prison and remanded them to the Russian Embassy, setting April 10 for trial on the charges of arms smuggling and illegal entry to the country. When the judge did not appear on April 10, lawyers at court said they were unable to contact Okeke for an explanation. Yesterday the lawyers were told the judge had retired from the case.

The story of the Myre Seadiver’s arrest by the Nigerian Navy can be read here. Moran Security, which owns and operates the Myre Seadiver and is a Moscow-based vessel protection group under contract for tanker security in the Gulf of Guinea, says the arms and illegal entry charges were trumped up. Documents provided by Moran Security show the vessel master, Andrei Zhelayzkov, had submitted full details of the arms on board before entering Lagos port on September 19, and that the vessel agent, Blueseas Maritime Services Nigeria Ltd., had confirmed port authority and Navy permission. The agent is refusing to comment on the evidence or the court proceedings. Nigerian Navy representatives are also not commenting.

Okeke has been the subject of what are known in Nigeria as controversial allegations. In April he was accused of trying to accelerate one of his pending cases for the benefit of the accused.

In fact, Okeke’s retirement had been officially scheduled for May 18, and the date was known before the two Russian trial dates were fixed. Sources in Lagos say doubts about the charge sheet have surfaced at the Nigerian Ministry of Justice and at the Lagos prosecutor’s office. Several of the crew accused of illegal entry are likely to have that charge dropped, a prosecutor said in court this week, because they had entered Nigeria by plane carrying just issued visas from the Nigerian Embassy in Moscow. They were relieving crew who were on board the Myre Seadiver, when the vessel had first anchored at Lagos port in September, a month before the Navy intervened.

That was on October 20. No evidence and no witnesses have been presented in court since then. Lagos sources believe the prosecutors and their superiors need the extra time to negotiate with the Navy on how to dispose of the case without risking an acquittal, or a retraction and apology in favour of the crew. A new trial date has now been fixed for 13 May. The new judge appointed for the case is James Tsoho.

By John Helmer, Moscow

In the research for its profile on Alisher Usmanov, BBC Radio-4 was told by its sources in Russia that claims Usmanov is close to the Kremlin have been invented; and that Usmanov has never been granted a personal audience with President (Prime Minister) Vladimir Putin.

The BBC programme was broadcast on April 28. For the story and the soundtrack, click here.

The BBC researchers were unable in time to verify that Usmanov has never met Putin in a one-on-one session. So that part of the interview material was omitted from the broadcast. The day after, Usmanov’s spokesman Yulia Mazanova has responded: “Regarding meetings of AB Usmanov with Russian President Vladimir Putin, I can report that Mr Usmanov as a member of the Board of RSPP [Russian Union of Entrepreneurs and Industrialists] regularly participates in the meetings of the President of Russia Mr. Putin and the Russian business community.”

According to RSPP, Usmanov is one of 173 members of the board.

When asked to be explicit about his relationship with Putin, the Guardian of London reported in November 2007: “[Question] How would you describe your relationship with the Russian president, Vladimir Putin? [Usmanov] That of a citizen who supports his president and is proud to have such a leader for this country.”

If Putin has refused to meet Usmanov for a discussion of any of his lines of business, this negative ought to raise questions among Usmanov’s creditors and among regulators, especially in the London market. Metalloinvest, the holding from which Usmanov claims to derive part of his fortune from two iron-ore mines and two steelmills, is a private entity, has no tested market value, and to date has been unable to gain a listing in a regulated stock market. But the holding does release financial reports, the most recent of which indicates that as of December 31, 2012, it owes $6.5 billion. The financial report also reveals that last year Usmanov’s holding was borrowing heavily: the Metalloinvest debt at the end of 2012 was up 37% from the year before.

Which banks control this debt, and what security they have taken over Usmanov’s shares, isn’t disclosed in the Metalloinvest report. It is revealed, however, that state bank VTB owns 20% of Metalloinvest (acquired from Usmanov’s former partner, Vassily Anisimov). In addition, VTB is reported to have required Usmanov to invest in rouble-denominated “discount promissory notes issued by OAO VTB Bank for a consideration of USD 2,478,726 thousand. The promissory notes matured in December 2012.”

Megafon, Usmanov’s listed telephone company, also publishes financial data which show a pattern of recent, heavy borrowing. According to the latest Megafon report, released on February 28, 2013, its short-term debt jumped 168% during last year to reach Rb19.9 billion ($663 million). Its long-term debt jumped 249% in the same period to Rb126.5 billion ($4.1 billion). The report data also reveal that more than half the Megafon debt is owed to three state banks – Sberbank, VTB and Gazprombank.

Altogether then, the two Usmanov assets owe $11.3 billion. Arguably that’s more debt than either of Usmanov’s worse off peers in the oligarch debt table, Oleg Deripaska and Igor Zyuzin, owe. Like them, if the state banks hold Usmanov’s shares as security for the loans, Usmanov’s fortune-bearing assets turn out to be a concession which, far from being private property, is already semi-nationalized, and run at the pleasure of the Kremlin.

Dmitry Peskov, Putin’s spokesman, was asked to confirm that Putin has never had a direct meeting with Usmanov, and explain why. He replied this afternoon: “There was no such meeting, and I won’t comment on it.”