By John Helmer, Moscow
Until the moment in April, when the US Government attacked  Oleg Deripaska and his companies, including Rusal, the state aluminium monopoly, his revenues, earnings and profits were looking up, and not only because the aluminium price had been rising. The electricity sale revenues of EN+ were also climbing, even though production of electricity was flat. Profits, most of which flow as dividends to Deripaska and his associates, might have been even greater, EN+ reported last month to the London Stock Exchange, if not for the reduction of water flow down the Angara River and into Lake Baikal. Less water through the sluices to the turbines means less electricity and aluminium; that means less profit in Deripaska’s pocket.
EN+ blames the water problem on the weather. Rivers Without Boundaries (RWB), a leading non-governmental organization devoted to protecting Lake Baikal and the river systems which feed it, announced last week that EN+ is to blame for water flow policies which threaten the lake with a combination of flooding in the wet season and reduced waterflows in the dry. “[The] long-lasting negative social and environmental impacts which go unmitigated for decades,” says Evgeny Simonov of RWB, “are a far greater threat posed by En+ Group to the global security and well-being of the population of Russia than the alleged political implications of its owner’s activity.”
RWB is also charging that last December Deripaska was behind a federal government decree which puts a stop to 16-year old standards for the water volumes entering Lake Baikal from the Angara River. This decree, signed by Prime Minister Dmitry Medvedev on December 27, permits a much wider fluctuation in the lake’s minimum and maximum water levels than the Russian government and its experts judged environmentally safe in 2001. Medvedev’s decree allows Deripaska to divert more river water into his turbines in the dry season, and release more water in the flood season.
And there’s the rub. Until Deripaska’s profit prospects and share value collided  with the US Treasury’s Office of Foreign Assets Control (OFAC), the biggest threat to his profit line was the declining water levels of the river system passing through the Angara River cascade and hydropower complex, and thence to the falling water level of Lake Baikal. For remedy, Deripaska had persuaded the Kremlin to save his profit last December by allowing him to continue generating more hydropower and delivering less water than is good for Lake Baikal.
The decree No. 1667  of last December suspended the water flow levels set by decree no. 234 in 2001. The new measure lowers the minimum and increases the maximum flows now allowed until 2021. In practical effect, this means that Deripaska’s hydropower plants – Boguchansk, Ust-Ilimsk, Bratsk, and Irkutsk — can use more water at both the dry and flood periods of the year to generate more electricity so that his four aluminium smelters, Boguchansk, Taishet, Bratsk, and Irkutsk will be able to turn out more metal for sale. But this also means less water in the dry season and more water in the flood season in Lake Baikal; the former damages the sub-surface life of the lake; the latter damages the lakesides.
Source: http://www.transrivers.org/2017/2092/ 
RWB has mounted a public campaign in Russia, and also written to the British stock market regulator, the Financial Conduct Authority (FCA), accusing Deripaska and EN+ of concealing what they are doing. Simonov has appealed by letter to Irkutsk region and Russian government officials, as well as to EN+ chairman Lord Greg Barker, and to Andrew Bailey, the FCA head. They have been requested to investigate, and not to allow “changes in the water level regulations until their effects on the Lake are fully assessed and understood.” Simonov has charged EN+ with failing to report to its shareholders or to the Russian and Irkutsk governments the “risks anticipated in future water-abundant years associated with limited capacity of Irkutsk Hydro to release water without flooding Irkutsk City and hold water without affecting assets in Buryat Republic and plans to mitigate those risks.”
“At present,” Simonov explains, “we are having a 20-year-plus drought; each year we hope it is over, but in vain. The rivers, especially the Selenge, bring less water than average. The seasonal maximum is in July-August, while the minimum is in April-May. The natural fluctuation is about 80 centimeters. You can see some incomplete graphs of the recent fluctuations of the maxima and minima here .”
“Starting from the 2015/2016 winter, water outflow through Irkutsk Hydro exceeded inflow and the level was dropped beyond what was considered safe for the winter-spring months by the Government in the 2001 Special Decree. So this spring it was 27 centimeters less than the 2001 safe minimum, which is the largest drop in these five years — in 2016 it was 24 cm; in 2017,-about 15 cm below the safe minimum.”
“One reason Irkutskenergo cannot release less water is the necessity to ensure water intake for its coal-fired power plant Number 10. This could have been adapted to lower levels in Angara River long ago, but Deripaska did not want to spend his money. All other water intakes belonging to other industries, except for Deripaska’s, are already adapted to lower levels in the Angara River.
The other reason is that the difference between 1,300 cubic meters per second – this is the current outflow — and 1,100 cubic meters per second — outflow to prevent the dropping of the lake level below safe minimum — bring more than 1 billion rubles into Deripaska’s coffers.”
Barker has refused to reply to Simonov’s questions or to the RWB reports. EN+ has halted its charitable funding of citizen monitoring efforts for Lake Baikal which it supported in recent years.
Right: Greg Barker. After working as a public relations agent for Roman Abramovich, he was elected a Conservative Party MP in 2011, and promoted to an energy ministry portfolio by then-Prime Minister David Cameron. Barker was then exposed during the MP expenses scandal. In 2015 he accepted Cameron’s promotion to the House of Lords. For more details, click . Since his appointment as non-executive chairman of EN+ last October, no press photograph of Barker and Deripaska together has been found.
EN+ listed  its shares on the London Stock Exchange (LSE) last November. The prospectus was faulty, and there was no genuine investor demand outside the political arrangements made by the Kremlin; the control shareholders were unable to sustain the listing price. RWB published an environmental critique of the prospectus here .
EN+’s prospectus  and subsequent operating and financial reports do not mention the decree or its impact on the lake. The group’s annual report, issued on April 27 , promises “the adoption of unique programmes to protect the cultural and natural heritage of Lake Baikal”. EN+ also acknowledges the risk to operations and profitability of fluctuating water levels in the Angara and Yenisei Rivers and Lake Baikal. “The Group’s hydro power generation facilities are subject to fluctuations in water flows, which could result in decreased power generation. In addition, the capacity load factor of the JSC Krasnoyarsk Hydro Power Plant in particular is relatively low and a potential state-owned construction project in Mongolia may also temporarily lower the water inflow to Lake Baikal.”
EN+ has omitted to disclose the decree of last December.
In February of this year President Vladimir Putin was explicitly asked to address the problems of Lake Baikal. Putin was meeting with scientists of the Siberian Branch of the Russian Academy of Sciences at Novosibirsk. The presidential election was one month ahead; Putin was pitching for the support  of the scientists and the regions where they work.
From left to right: Valery Bukhtiyarov, Director of the Boreskov Institute of Catalysis; Alexander Sergeyev, President of the Russian Academy of Sciences; President Putin; Valentin Parmon, Boreskov Institute. Source: http://en.kremlin.ru/events/president/transcripts/56825 
Igor Bychkov, Director of the Matrosov Institute for System Dynamics and Control Theory , in Irkutsk told  Putin: “We ask as part of today’s meeting to focus on Lake Baikal monitoring based on new principles. Unfortunately, we can say that this monitoring largely remains a 19th or even 18th century type of monitoring. They used to set out in rowboats, now they do it in motor ships. They used to take samples from a depth of 200 metres, now we take them from 1,400 metres. They used to look at them through a microscope, now we use an electronic microscope. But the online system involving robotic systems, a system constantly collecting information seven days a week with the use of autonomous unmanned submersibles, is the project on the agenda today.”
Putin was skeptical. “As to your recent proposals, we have to prioritise. I just do not know. Mr [Andrei] Fursenko [science advisor to the President] , do you have these proposals from Irkutsk?… Mr Bychkov, I believe you should prepare it all, put it on paper and submit it. I am not saying we will do everything right way, but it is obvious that some matters deserve special attention, For example, Baikal monitoring and some other things. We have to select the priorities and consider the schedule and the pace.”
Bychkov was asked this week to say what has happened to his proposed Baikal monitoring plan since February. His secretary said he is on vacation, and noone at the institute can answer until Bychkov returns.
In April RWB released this report  noting what Bychkov had told Putin. The report accused the government of cutting funding for scientific work at the lake, and for issuing deceptive claims about the conservation effort. “To the best of our knowledge there is NO special monitoring program that is aimed at relating water level fluctuations to various ecological phenomena of the lake.” RWB charges that reports issued by the government in Moscow have been “commissioned specifically to protect interests of the En+ Group, rather than those of Lake Baikal World Heritage site.”
The latest report from EN+ was issued on May 18, after the start of the US sanctions. It presented  operating and financial results from January 1 through March 31. Overall, revenues reached $3.33 billion in the quarter, up 17% year on year; earnings rose 23% to $929 million; after-tax profit was up 152% to $667 million. The report explained: “The increase came primarily on the back of the increased aluminium price on the London Metals Exchange (“LME”) (up 16.7% from USD 1,850 per tonne in 1Q 2017 to USD 2,159 per tonne in 1Q 2018).”
EN+ ELECTRICITY AND ALUMINIUM PERFORMANCE, FIRST QUARTER 2018
Source: http://www.enplus.ru/ 
The report reveals that a slightly larger increase in aluminium output was squeezed out of the smelters than the volume of electricity produced overall. However, hydro-electricity production was down. “Green [sic] hydro power output decreased to 12.1 TWh [1 terawatt =1 million megwatts] in 1Q 2018 from 12.8 TWh in 1Q 2017 (down 5.3% y-o-y). In 1Q 2018, Krasnoyarsk HPP’s total power generation decreased by 3.7% to 4.5 TWh from 4.7 TWh in 1Q 2017on the back of less favorable hydrological conditions. At the beginning of 1Q 2018, water levels at the head race of the dam were 0.2 metres lower than at the start of 1Q 2017. Water inflows to Lake Baikal remained substantially below normal levels (71% of normal levels in 1Q 2018, compared to 68% of normal levels in 1Q 2017). However, due to the challenging hydrological situation, including severe ice conditions on the lake the Federal Water Resources Agency set the dam water flow levels for the Irkutsk HPP close to the minimal level during 1Q 2018. This resulted in the Group’s Angara cascade HPPs (Irkutsk, Bratsk and Ust-Ilimsk HPPs) decreasing their power generation in 1Q 2018 by 0.5 TWh y-o-y to 7.6 TWh.”
EN+ reported  the Russian Hydrometeorological Centre as forecasting improved water flows through the plants of the Angara cascade in the second quarter, which has just ended. “Water inflows into Lake Baikal are expected to be 2,500–3,100 cubic metres per second or 83-103% of normal level. In 2Q 2017, the useful water inflow was 2,283 cubic metres per second. In 1Q 2018 the water inflow accounted for 263 cubic metres per second (up 5.2% y-o-y). Lateral inflows into the Bratsk Reservoir are expected to be 1,550–1,850 cubic metres per second or 106-127% of normal level. In 2Q 2017, the average monthly lateral inflows into the Bratsk Reservoir were 940 cubic metres per second; in 1Q 2018 the water inflow accounted for 188 cubic metres per second (down 4.2% y-o-y).”
Despite the US attack on April 6, EN+ said it was calm and carrying on. “Whilst further evaluation is being carried out by the Company to assess the impact of the OFAC Sanctions on the Group, the Company’s current assessment still remains the same, as stated in the Company’s Announcement on 9 April 2018. The Company’s primary focus remains on the maintenance of its operations and the protection of the interests of all of its investors, GDR holders and partners. The longer term effects of the OFAC Sanctions, as well as the threat of additional future sanctions, are difficult to determine.”
Investors decided the short-term prospects for the company weren’t difficult to determine. Market demand for EN+ and Rusal shares collapsed together.
6-MONTH SHARE PRICE TRAJECTORY OF EN+ AND RUSAL, COMPARED TO CHINESE AND US RIVALS, CHALCO AND ALCOA
CLICK TO ENLARGE
KEY: blue=EN+; red=Rusal; yellow=Aluminium Co of China (Chalco); green=Alcoa. Source: https://markets.ft.com/  The flat line for both EN+ and Rusal indicates market resistance to the improving financial results reported by EN+ and Rusal for the first quarter to March 31. According to the EN+ report , revenues for both the aluminium and electricity divisions of the group were up, earnings up, profits up.
EN+ was asked in Moscow this week to say what had been the actual waterflow in the quarter to June 30. Olga Tolstova, head of the company’s public relations office, requested time for reply, and then refused.
The Governor of Irkutsk, Sergei Levchenko – one of only two Communist Party governors in the country – was asked to say if he had supported or opposed the December 2017 decree changing permitted water levels in Lake Baikal; and if he believes that variation in water level in the lake is an environmental hazard. Levchenko was also asked if EN+ is fulfilling its published promise to “mitigate and prevent the negative environmental impact of its hydro power plants on Lake Baikal”. His spokesman said Levchenko is away from the office.
Andrei Kryuchkov, minister of natural resources in the Irkutsk region government, and Svetlana Bocharnikova, deputy head of the Federal Agency of Water Resources in Moscow, were asked the same questions. They did not agree to answer.
RWB’s Simonov has written again to the FCA in London, appealing for an investigation of EN+’s tactics, and requesting the FCA “to determine whether the Group disclosed unbiased and comprehensive information on environmental and social aspects that could lead to material consequences for company performance and global environmental security…The requirements of the FCA’s Disclosure Guidance and Transparency Rules clearly assume the integration of ESG [Environmental Social and Governance] issues into financial reporting.” Read RWB’s press releases and reports here .
The FCA reaction has been to sidestep the Lake Baikal question. “Information received regarding possible breaches of our rules can make a valuable contribution to our work,” Bailey’s spokesman wrote Simonov. “We review the issues brought to our attention with a view to determining whether it is appropriate for us to exercise any of our statutory powers. However, you should appreciate that we rarely provide details of such assessments or provide confirmation of whether we intend to take any subsequent action…Where we have concerns about compliance with our rules, we will act as appropriate. We are sorry that we are not unable to provide any further details regarding your concerns, but we trust that you will understand the reasons for this…we will not be able to provide any further information and will be unable to enter into detailed correspondence about the extent of compliance or otherwise with our rules.”
At the same time, a committee of British parliamentarians, advised by a former British soldier currently on a Harvard University stipend, launched an attack on the FCA for allowing EN+ to list its shares on the LSE. “We call on the Government,” the committee reported, “to investigate the gaps in the sanctions regime that allowed a company such as En+ to float on the London Stock Exchange, and to work with the G7, whose markets dominate the financial world, and other international partners, to close those gaps as soon as possible.” Click to open  the report of the House of Commons Foreign Affairs Committee.
As its expert witness on EN+, Rusal and Deripaska, the committee engaged Emile Simpson (right). At a committee hearing in May, Simpson was asked  if the FCA should have allowed the EN+ share flotation. “I will not answer yes or no, because that is not a question for me, but in terms of the controversies surrounding that IPO in November last year, one issue was that En+ is the holding company for Rusal. As I mentioned, Rusal’s own website says that it supplied military material to the Russian military that was potentially used in Syria. That arguably should have attracted the attention of the regulators, given that the EU has sectoral sanctions on the Russian defence sector. The second reason it was controversial was because VTB Bank, which is a sanctioned Russian bank, has a stake in En+. The third reason it was controversial was that En+ had a loan of almost $1 billion from VTB. Using the proceeds of the IPO, which raised £1.5 billion here, En+ repaid that loan to VTB in a way that did not breach sanctions. So, yes, it should have attracted more controversy.”
“This was public knowledge,” a Labour Party MP on the committee told Simpson. “None of these things were secret, so why did the regulator not stop it?” Simpson replied: “This is a good question for the regulator.”
In its identification of Simpson’s credentials to testify, the committee report called him a “research fellow” at Harvard. The committee failed to reveal that Simpson served in the British Army as an infantry lieutenant in the Royal Gurkha Rifles until 2012. “In this role,” a Simpson resume published elsewhere  reveals, “he completed three tours in Southern Afghanistan in combat and operational planning roles. On his last tour he worked for a special team that reported from the field directly to the Commander of the International Security and Assistance Force.” Apart from body counts, Simpson has no recorded expertise  in financial analysis, environmental impact assessment, aluminium production, or Russia.