By John Helmer, Moscow
Oleg Deripaska has insulted another President of the Republic of Guinea as Rusal’s entire country position, including its bauxite mine concessions and the Friguia alumina refinery, is now under review by a presidential commission. More than 20% of Rusal’s worldwide mineral resources and the raw material base supplying its Russian smelters, is now under threat of revocation and nationalization by the government in Conakry.
Just how sharp the recent deterioration between Deripaska and Alpha Conde, Guinea’s president, has become, and how dangerous for Rusal’s ability to continue operating in the country, was signaled by the Russian Foreign Ministry on April 10. In an unprecedented attack on a domestic Guinean movement for higher wages and safer working conditions at Friguia, site of Rusal’s alumina refinery, the Russian ministry headed by Sergei Lavrov, warned against “illegal actions of a local trade union” and “extremist syndicalists.” According to the ministry, “a threat to the safety of Russian employees has been created; looting has begun of the equipment of the enterprise; and production is halted.”
According to the ministry in Moscow, it is watching “with concern”, and is demanding the Guinean government send in security forces to take protestors to jail. “Insistently we urge the Guinean side to take urgent measures for the suppression of illegal actions of trade unions and the radical elements which have organized the capture of the enterprise; to involve them in judicial and administrative responsibility according to the Guinean legislation, so as to allow restart of normal production at the Friguia plant.”
The Russian Foreign Ministry has taken its cue from Rusal on many cases before; the go-between for the drafting of this communiqué was Sergei Chestnoy, a former Foreign Ministry employee and currently head of international relations at Rusal.
The problem at Friguia, however, is more than unsafe working conditions, air and ground pollution, and wage claims. Alpha Conde, Guinea’s president, is unwilling to be seen defending Rusal and attacking the protesters for fear of being accused of having been corrupted himself. This is after countrywide reports have suggested that Deripaska has been providing special aircraft to fly Conde, Mohammed his son, and other family members to the US and other destinations outside Guinea. There are other suspicions too of the nature of the relationship between Deripaska and the Conde family.
Deripaska’s objective has been to get the Guinean president to lift the threat of government fraud, tax and contract violation claims which were first itemized in 2009 by Guinea’s reform mining and energy minister, Mahmoud Thiam. The latter’s criticism of Rusal’s performance in Guinea led to attempts to threaten him, and to a black propaganda campaign in Paris and London.
Thiam’s dossier on Rusal appeared just ahead of Rusal’s Hong Kong Stock Exchange listing. A report by international consultants commissioned by the Guinean government estimated that in its Friguia refinery operations Rusal was liable to the government for at least $830 million, possibly more than $1 billion.
In its listing prospectus, dated December 31, 2009, Rusal acknowledged it faced a risk of nationalization of the Friguia assets. But the prospectus also dismisses the likelihood of government action by the Guineans, and rejects the loss as financially significant for Rusal, if the Guineans do act. “The [Rusal] Directors believe that the claim has no merit and the risk of any cash outflow in connection with this claim is low. An adverse outcome for the Group may have an adverse effect on the Group’s Friguia operations in the Republic of Guinea, including the potential loss of Friguia, consequent loss of revenue and loss of production of alumina, which is used in production of aluminium at the Bratsk aluminium smelter. The Company believes it could replace any such loss of alumina production with its own production from other facilities or through market purchases. The Directors do not believe that any resulting liabilities will materially adversely affect the Group’s financial position or its operations as a whole.”
Rrereading this since Rusal board chairman Victor Vekselberg resigned last month in protest against Deripaska’s mismanagement, several of the board directors are having second thoughts about the truthfulness of Deripaska’s assurances on the company’s exposure in Guinea.
In Conakry, the Guinean capital not far from Friguia as the wind blows, the Rusal prospectus pronunciamento has been read by Conde as an ultimatum to relieve Rusal of its obligations, or else Rusal will walk away. Conde and his son had negotiated an agreement with Deripaska, which was first reported in August of last year, and then leaked to a Moscow newspaper as done and dusted last October, following conversations in Moscow between Guinean and Russian ministers.
Sources close to Conde reveal there had been a deal with Deripaska, but that when Conde insisted on a payment to the Guinean treasury of $400 million in compensation from Rusal, Deripaska refused. Conde, a second source familiar with him claims, was unable to announce a deal that got Rusal off the hook publicly without a significant payment. “The funds were not forthcoming and a series of contingencies were insisted on by Rusal which became increasingly onerous,” the source says. “These contingencies irritated several of the ministers and progress, if it had been announced as such, would have had bad consequences for Pere and Fils.”
A third source reports that a few days ago Rusal representatives met with Conde, and were heard to be over-bearing and insulting. They reportedly told the President how much Rusal has already done for him and for Guinea. Conde (right) reacted by saying he had been misled about Rusal and its intentions, and that the former government’s approach had been “right all along”.
As this showdown took place in Conakry, the protesters in Friguia were keeping the refinery closed. So far this month Rusal has not issued a statement on the unrest. But in its financial report for 2011, issued on March 19, the company disclosed that in Guinea and worldwide, it had extracted 4% more alumina by volume than it had done in 2010 – 8.2 million tonnes – with a 12.3% increase in the average price of alumina ($374 per tonne). This generated $667 million in sales revenues, 11% more than Rusal had earned from alumina the year before. According to the company, it managed to do all this with a 6.1% reduction in cost of sales ($1.1 billion).
For Conde and his government officials, the numbers mean just one thing: Rusal is taking moreout of Friguia, but paying less. That is exactly what the local court ruling had found in 2009. So much for the “extreme syndicalists” at Friguia.
In Conakry, government experts say there is widespread concern that Rusal has not been maintaining the Friguia plant, allowing it to reach the point of permanent closure and abandonment. “The labour and civil conditions are very difficult”, a government source says. “The previous government was able to calm everyone down with the promise of improvements and compensation from Rusal. The citizens are very angry that they are being cheated of that hope. The plant is falling apart, and there is concern that Rusal will abandon it.”
Conde has ordered a commission of his advisors and mining officials to review the texts of agreements and payment terms for all of Guinea’s foreign concessionaires. It commenced work this week, and is expected to give support for Conde’s new negotiating position. Critics of Conde claim his behaviour with Deripaska is of a pattern. “Everyone comes to a verbal agreement with him. He does something, but then reneges.” This time, the critics acknowledge, last year’s secret deal with Rusal is a hot potato and the terms of a revised deal too public, too politicized across the country for Conde to find the accommodation with Deripaska the Russian Foreign Ministry is pushing. “The social pressure is simply too great to protect Rusal now.”