By John Helmer in Moscow
Financial collapse inside Oleg Deripaska’s aluminium empire in Moscow is triggering fresh moves by rivals and critics to oust his company from Nigeria and the Republic of Guinea (Conakry).
A costly electricity failure at the Aluminium Smelter Company of Nigeria (ALSCON) has already paralyzed operations there for several weeks, while a Nigerian Supreme Court challenge to the four-year old Russian takeover of the plant, Nigeria’s only domestic source of aluminiun, is expected to be adjudicated in hearings before the end of next month. A Nigerian National Assembly report recommended recently that the privatization agreement for ALSCON be revoked for failure on the part of Deripaska’s company to meet investment spending conditions.
In Guinea, a government move is under way to review the privatization terms, according to which United Company Rusal, which is registered in Jersey and controlled from Moscow by Deripaska, took control over the Friguia alumina refinery, the Kindia bauxite mine, and other licences. Again, alleged failure to make good on capital spending and investment obligations is at issue. Responding to local protests, the Guinean government is also seeking higher wage, social welfare, and infrastructure payments from Rusal.
Deripaska – until recently reported to be Russia’s richest man – controls a 57% stake of Rusal, along with Basic Element, his wholly owned holding company, which controls both aluminium and other assets. But Rusal remains unlisted, and issues no financial reports. Over the past year, Rusal has proved unable in two separate attempts to sell publicly listed shares on the London and Hong Kong Stock Exchanges. An attempt to attract private Chinese investors also failed just over a month ago.
The Russian government has now intervened, dispatching auditors in recent days to check Rusal’s financial management. This follows a decision by the state development bank, Vnesheconombank (VEB), to issue a $4.5 billion loan to prevent the forfeit of a 25% shareholding stake in mining company Norilsk Nickel, which Rusal acquired in April. The collapsing price of Norilsk Nickel shares triggered a loan repayment demand from a group of international banks, but Rusal admitted it was unable to pay, and applied to VEB for a bailout. The emergency VEB loan was issued a week ago to pay off the foreign banks, and protect Norilsk Nickel from becoming majority-owned by foreigners.
Russian government investigation of why Deripaska has been unable to meet margin and loan calls, and where billions of dollars in Rusal cash have gone, has also been triggered after Deripaska’s holding was obliged to give up shareholdings in the Canadian autoparts producer, Magna; and in the Austrian construction firm, Hochtief. Refinancing was also required for the holding’s stake in another Austrian firm, Strabag. There have been problems at the holding’s Russian bank, and at its major auto manufacturing unit, GAZ, which is facing a cutoff of steel supplies.
In the UK, Deripaska has also come under intense press scrutiny, following disclosures of personal and lobbying links, through the Rothschild family, to the Conservative and Labour parties; and after a UK High Court judge ruled that he may be liable to a multi-billion dollar claim by Mikhail Chernoy (Michael Cherney). Chernoy signed a trusteeship agreement with Deripaska in London in March 2001, which Deripaska denies. In July, the court ruled in London that Chernoy’s claim should go to trial, and may succeed. Deripaska is appealing.
Investigators for the Sunday Times of London claim that Deripaska does not have a visa to enter the UK. US sources have confirmed he is barred from entering the US.
In Nigeria, the arrival in April of 2007 of the new presidential administration of Umuru Musa Yar’Adua, led to reviews of details of privatization agreements signed by the former government. The US Embassy in Nigeria also told the Yar’Adua government that it was backing Reuben Jaja and his Los Angeles-based Bancorp Financial Investment Group (BFIG) in litigation to overturn Rusal’s takeover, on the grounds that BFIG had been the high bidder, and that the award to Rusal was unlawful.
The core of BFIG’s case, Jaja has told Business Day, is that Rusal conditioned its takeover bid with a series of demands that were illegal under Nigeria’s privatization law, but were granted to enable Rusal to take over the plant without making the required payments to the government; relieved the Rusal of the obligation to pay ALSCON’s debts, mostly for power; required the government to pay for dredging the river used to ship raw materials and products in and out of the plant; fixed the supply of gas to the plant at a concessional price; and allowed Rusal to export the metal free of tariffs.
Altogether, it has been estimated that the value of these concessions was greater than the amount the government had agreed to accept from Rusal for the takeover. It is also unclear, according to BFIG, what money Rusal has actually paid.
Jaja told Business Day that “dredging of the Imo River-Opobo Estuary has bot commenced despite two years of takeover, and so no meaningful production is going on at the smelter, since raw materials and finished goods can only be brought in or exported via the Imo River- Opobo Estuary. Transportation by road to the nearest port facility is almost impossible, due to poor road condition and the operations of the Niger Delta militants who seized Rusal employees some time ago.”
Rusal disputes BFIG’s claims, and was able to move jurisdiction over the claims from the US to Nigeria. Now, however, lack of cash at Rusal headquarters presents a new complication for Deripaska in Nigeria.
In Guinea, according to Russian and African reports, Rusal’s operating licences face challenges by critics of the Lansana Conte administration. Two accidents have also caused environmental damage. A train spill of caustic chemicals and an oil spill have been reported this year, obligating Rusal to pay indemnities. Responding to the political challenge in Guinea, Rusal spokesman Vera Kurochkina has said that her company operates in “full conformity with the conditions of the agreement, with the legal coordination which has passed all stages with the government of Guinea, and in full conformity with the procedures existing in this country.”
Rusal is not the only international metals company to be targeted by the Guninean government’s review of mine licences. A few days ago, the government announced it is revoking the licence for the enormous Simandou iron-ore deposit, currently held by Rio Tinto.
Vadim Zaytsev, an analyst with Moscow agency Rosafroexpertiza, told Business Day the chemical and oil spills “went unnoticed, and with the help of President Conte, the local regulatory commissions created to investigate went nowhere.” But tensions remain high. Last month, a protest by Guineans at a railway station between the Kindia mine and Conakry port ended in the death of one of the protesters, reportedly when police opened fire. Rusal responded with an announcement that the blockage of trains “does not affect the company’s overall performance targets”.
Zaitsev believes that Rusal’s position in Guinea is as durable as Conte’s. “While Lansana Conte is the president of Guinea, I don’t think anything could happen with Rusal’s licenses there. He is well-known for supporting Rusal there.”He said the Guinean government may succeeed in raising the financial obligation for Rusal to continue operating its refinery and mining projects. The problem of Rusal’s lack of cash has not materialized before, however.
Rusal’s Guinean bauxite is also shipped for refining into alumina – the raw material for smelting into aluminium – to the Nikolaev refinery in the Ukraine. Rusal’s takeover of that plant is also subject to a new review by the Ukrainian government authorities. According to Nina Burluk, of the State Property Fund of Ukraine, the terms of the Nikolaev privatization agreement were extended to the end of 2009. “Currently, everything is fine there. But, and this is a big but, the head of the Fund has clearly stated that none of the enterprises which are controlled by the Fund [including Nikolaev] would be allowed to violate the investment terms, reduce the workforce, or do any other similar action, even in the strong credit crunch. Such enterprises would be immediately returned under control of the Ukrainian government to rescue the jobs and the factories themselves.”
In a separate action, the State Property Fund is suing Rusal to renationalize the Zaporozhe aluminium smelter in northeastern Ukraine. This is due, according to Burluk, to “the failure of the owner to fulfill investment obligations.” She also claims that there has been a default on a $78 million international loan to Zaporozhe.