By John Helmer, Moscow
The threat of costly environmental damage to Lake Baikal by power plants of the EN+ group, owned by Oleg Deripaska (lead images), has been raised this week by Russian and Chinese activists with the Financial Conduct Authority (FCA). The UK regulator is considering whether to allow an initial public offering (IPO) of EN+ shares to proceed on the London Stock Exchange next month.
The environmental risk to Lake Baikal has been under investigation for several years by the UNESCO agency, the World Heritage Committee (WHC). Listed by WHC  as a world heritage site since 1996, “the 3.15-million-ha. Lake Baikal is the oldest (25 million years) and deepest (1,700 m) lake in the world. It contains 20% of the world’s total unfrozen freshwater reserve… its age and isolation have produced one of the world’s richest and most unusual freshwater faunas, which is of exceptional value to evolutionary science.”
At its meeting in Cracow, Poland, in July, the WHC warned the Russian government that EN+’s operation of reservoirs and hydroelectric cascades is threatening the lake, the survival of its flora and fauna, and the communities living around the lakeshore, including the city of Irkutsk, which depends on the lake for drinking water. The WHC issued a new decision, repeating earlier ones, urging the Russian Government to conduct a full environmental assessment of EN+’s impact on the lake.
This was followed last week by formal requests from Rivers Without Boundaries, an international, Chinese and Russian organization dedicated to conservation of the riverine environment, for the London Stock Exchange (LSE) and the Financial Conduct Authority (FCA), to make EN+’s proposed share listing conditional on disclosure of the WHC’s risk reports for the lake; and “on thorough assessment and fair disclosure (both to potential buyers and the public) of risks and mitigation plans associated with [the] management of Lake Baikal World Heritage Site.”
The risk of runaway legal liabilities for EN+’s power division comes after Rusal, the Russian aluminium monopoly and the most valuable of EN+’s assets, suffered a wave of insider share sales early this month; these have caused a sharp decline in Rusal’s share price on the Hong Kong Stock Exchange. A statement issued in London yesterday reveals this has now led to a collapse of the target share pricing for EN+.
According to EN+’s announcement  to the LSE, “the indicative price range for the Offering has been set at between USD 14 and USD 17 per GDR. This implies a pre-money equity value of between USD 7.0 billion and USD 8.5 billion.” These figures slash the valuations issued by the Russian state banks which have been behind Deripaska’s London attempt, at least until now. Sberbank had announced it has been valuing EN+ at $10 billion; VTB claims the value may be $16 billion. The new pricing cuts these targets in half.
This is also an acknowledgement of lack of confidence in the London market in Deripaska’s Rusal. Analysts calculate that if EN+ shares open with market capitalization of the group at $7 billion, the corresponding value of Rusal would be $9.6 billion. Today, the Hong Kong Stock Exchange is reporting Rusal’s market capitalization is HK$79.3 billion (US$10.2 billion). “Why,” asks a London source, “would Deripaska ask London sharebuyers to undercut the Hong Kong value by another 6%?”
Rivers Without Boundaries (RWB) is a coalition of non-governmental organizations, most of them from Russia. This was its membership in 2012: US participation has dwindled as the US war against Russia intensified since 2014. Evgeny Simonov is the international coordinator of RWB; he is based in Beijing.
On October 16, RWB sent a report on the impact which EN+ operations are having on Lake Baikal to the LSE and the FCA. “Our campaign related to EN+ s London listing — if it happens — could be called Taming the Monster of Lake Baikal,” Simonov said yesterday. Read the 5-page RWB report here .
“We believe that the IPO process must be adjusted to incentivize significant improvements in the Group’s policies and practices on environmental and social responsibility and related governance issues. We believe that unless recognized, disclosed and properly managed, the environmental and social risks associated with operations of EN+ Group industries may result in substantial material losses and underperformance.”
“In 2011, when EN+ and [its subsidiary] Evrosibenergo had attempted to hold an IPO in Hong Kong, NGOs discussed with the Hong Kong Stock Exchange management similar concerns. Since then, despite the relative openness of the Company to new ideas of ‘green development’, we have not seen substantial improvement in its policies and practices related to specific environmental impacts from the key enterprises that it owns and manages… Current advertising of the EN+ Group as a ‘green business’ is undue and premature exaggeration not supported by a responsible environmental management system, which the Group is yet to design, communicate to stakeholders and put into effect.”
Since 2015 President Vladimir Putin has expressed concern about Mongolian plans for hydropower plants affecting the river flow to the south of the lake. He has not expressed comparable concern about Deripaska’s operation of hydroelectric cascades affecting the flow of Russian river water north of Baikal. Read for background: http://siberiantimes.com/ecology/casestudy/features/f0111-putin-steps-in-to-voice-concern-over-threat-from-mongolian-hydro-plants/ 
For more than a decade, the World Heritage Committee (WHC) has been the focus of Russian citizen campaigns to protect the lake against oil pipelines, illegal logging, lead and zinc mining, and pollution from the Baikal Paper and Pulp mill, also owned by Deripaska; for details, click to open the WHC dossier. A full set of WHC reports and decisions on Lake Baikal can be read here .
The domestic campaigning successfully persuaded Putin to order the re-routing of Rosneft’s new trans-Siberian oil pipeline more than 250 kilometres north of the lake; that was in 2006. For several years thereafter, the focus at the lake has been on stopping Deripaska’s papermill, and the lead mine operated by Lundin, a Canadian-Swedish concern; for that story, read this . Construction of tourism facilities has also become a fresh and growing concern .
The priority of the WHC and Russian environmental groups for the past two years has been to challenge Deripaska’s lobbying of the regional and federal government authorities to relax the legal requirements, and avoid a formal environmental assessment for EN+’s impact on the lake. Experts estimate that the Angara River system of reservoirs and cascades running north and west of Lake Baikal to Ust-Ilimsk and the new Boguchanskaya hydroelectric complex, accounts for about 55% of EN+’s total power production. Curtail Deripaska’s freedom to increase the flow of Baikal water for his purposes, and EN+’s costs will rise; its profitability will fall.
According to Simonov, “environmental flow norms, used in hydropower management around the world, are not a part of the current management rules for any of En+ Group hydropower plants. In addition, a new Draft Management Rules for the Irkutsk Reservoir and Angara Hydropower Cascade have been repeatedly rejected at public hearings in 2010-2016 due to a lack of environmental and social safeguards and inconsistency with the Law on Lake Baikal.” Simply put, when the water level rises at Baikal Deripaska grows richer, the lake grows poorer.
In 2015 the WHC decided to ask the Russian government to return in 2016 with “a report on the state of conservation of the property [Baikal] specific information on the existing provisions and regulations for water use and management in Lake Baikal and their subsequent effects on the hydropower plant management downstream the property, for examination by the World Heritage Committee at its next session.” For “hydropower plant management” read Deripaska.
In 2016 the WHC announced it had received nothing from EN+ or the Russian government. Explaining that the lake’s problems were growing because of excessive water release from EN+’s hydroelectric plants, the WHC “note[d] with concern the recent scientific information about alarming ecological changes in Lake Baikal, including algae and cyanobacteria blooms, and also requests the State Party [Russia] to develop a property-wide ecological monitoring system in order to identify the causes of such changes and the responses required to preserve the ecological integrity of the Lake.”
The WHC also announced it “regrets that the [Russian government] did not provide any information on the existing provisions and regulations for water use and management in Lake Baikal, as was requested in its [year before] Decision 39 COM 7B.22”. WHC warned, discreetly, that it requested no Russian government action benefitting EN+ “until these assessments have been reviewed by IUCN.” The IUCN is a multi-state conservation organ, based in Switzerland; Russia is a member though the federal Ministry of Natural Resources.
Russia is a member of UNESCO (since 1988) and an official observer at WHC meetings, attended by the Russian ambassador to UNESCO, Alexander Kuznetsov (right).  He attended the Cracow session of WHC in July, where the problem of water levels at Baikal was discussed. Read the full report of the session here . The report issued by the WHC acknowledged the Russian presentation of the regulations on water management in the river and lake basin. The WHC decided, however, the regulations were too loose, and enforcement inadequate to preserve the lake from dangerous “fluctuation between the maximum and minimum water levels of Lake Baikal.” Again, the WHC requested a state environmental impact assessment, and no change in the existing regulations “until their effects on the property are fully understood.” The official decision also recorded “significant concern [at] the reported changes in the property’s ecosystem, including algal blooms and decreases in fish stocks.”
Ambassador Kuznetsov told a state news agency  after the meeting: “We are satisfied with the session results. We are not part of the Committee, Russia is an observer state. But all the questions concerning Russian natural and cultural world heritage sites were decided in our favor. And there were many of those questions…Other questions concerning us were reviewed. Some of them were decided without discussion. I mean the West Caucasus, the Wrangel Island, the Golden Mountains of Altai and the Baikal.”
In their appeal to London, Simonov and RWB say EN+ is in violation of the WHC’s international convention on water management, and that the Kremlin is aiding and abetting. They have “allowed more than a twofold increase in water level fluctuations. Those changes were justified by such needs as sustaining energy production by the Angara cascade hydropower plants and safe functioning of water intakes, at least one of which belongs to an En+ coal-fired power plant. The companies of the En+ Group claim that actual water management decisions are made by state agencies; however those companies are obvious end beneficiaries of decisions made by the State in violation of the Convention. The interests of the En+ Group will be directly affected when\if in accordance with the World Heritage Committee decisions the State finally cancels the temporary increase in water level fluctuations and undertakes an internationally validated EIA [environmental impact assessment] to guide future water management policies in the Lake Baikal basin.”
According to Simonov, his objective now is to persuade the UK regulator to make the EN+ prospectus “more environmentally responsible. We want the Group to disclose before the IPO the key environmental and climate risks it is facing and plans\environmental management tools employed to mitigate those risks.”
The FCA’s chief executive Andrew Bailey has acknowledged receiving the RWB report. His spokesman, Ruth Wharram, said she is unable to say whether her agency has approved the application to list from EN+, adding the agency “doesn’t comment on individual company applications.” She declined to answer if the Baikal risks have been reported to the market in the share sale prospectus.
EN+ refuses to release its prospectus. Part has leaked  to Bloomberg, however. The news agency reports the prospectus as disclosing “a significant change in [EN+’s] ownership. Earlier this month, the company transferred a 6.9 percent stake to Polina Deripaska, according to the prospectus. Polina married Oleg in 2001.” Moscow brokerage analysts quoted in the financial press in promotion of the IPO concede they have not seen a copy of the prospectus.
EN+’s spokesman in Moscow, Elena Vishnyakova, and the company’s PR agent in Hong Kong and London, Alastair Hetherington, were asked to explain “why EN+ refuses to carry out the environmental impact assessment of water level management for Lake Baikal, as requested by the World Heritage Committee since 2015? Also, “why the draft prospectus EN+ has prepared for the proposed IPO has failed to identify the World Heritage Convention requirements as significant cost and profitability risks for EN+, taking into account that the Angara Cascade system accounts for more than half of EN+’s power production?”
They have refused to reply.