By John Helmer in Moscow
It will take more than a pair of silken toe-shoes for Russian Aluminium (Rusal), sponsor of the Bolshoi Theatre’s programme at Covent Garden this month, to dance its way out of serious drama in the English courts.
On Friday, the High Court in London ruled that Russian Aluminium (Rusal), the global aluminium producer owned by Oleg Deripaska, must face trial for alleged fraud and racketeering in its takeover tactics. The decision is the first ever to oblige the Russian company to submit to the jurisdiction of a reputable foreign court. It was issued by Justice Cresswell of the UK High Court, responding to the application of a group of companies which formerly controlled the Tajikistan Aluminium Plant (TadAZ). They say they were ousted by an unlawful combination of Deripaska, Rusal, and high officials of the Tajik government. Ansol is a Guernsey-registered trading company, which had supplied raw materials to TadAZ plant under contract, until that was cancelled by the Rusal takeover. The principal of the companies is Avaz Nazarov, who was forced to flee from Tajikistan to London.
The ruling to commence trial will also impact on the European Bank of Reconstruction and Development (EBRD), whose lending contracts to both the Tajik Republic and Rusal have so far ignored the evidence submitted in the High Court. In a draft of his judgement, which will be confirmed at a hearing on September 25, Justice Cresswell also ordered that Orienbank — one of EBRD’s favoured loan clients in Tajikistan — should submit as a co-defendant with Rusal. Other co-defendants in the case, according to the ruling, will be TadAZ itself, and CDH, a British Virgin Islands company linked to Rusal and Orienbank, which was the vehicle of the alleged racket.
As Mineweb has reported before, with the involvement of officials led by Tajik President Emomali Rahmonov, TadAZ was taken over by the Rusal group in December 2004. TadAZ is the leading enterprise of the former Soviet republic, which was wracked by faction-fighting and civil war during much of the 1990s. This caused production at TadAZ to fall from design capacity of 517,000 tons of primary aluminium per year to less than 200,000 tons. Because costs to supply and operate the plant were larger than sales revenues, the TadAZ plant was at one time losing about $40 million per year.
In 1996, Nazarov began large-scale supply of alumina to the smelter, and financed the shipment of aluminium to ports in Russia or Estonia. Output steadily increased. From the year 2000, the operating balance-sheet moved from red to black, and Hydro Aluminium, the Norwegian aluminium group, became the largest buyer of the metal.
In the claim in the London High Court, which TadAZ lodged in May 2005, it is alleged that the Nazarov group of companies bribed the smelter management to look the other way while it overcharged TadAZ for its alumina, shortchanging the company of alleged profits of about $220 million.
In its counter-claim, the Nazarov group charges that Deripaska, Alexander Bulygin, the Rusal CEO, and Rusal-controlled companies seized control of TadAZ in December 2004, violating an agreement they had earlier signed with Nazarov, in order to defraud him and his companies of more than $200 million. The supply of aluminium contracted with Hydro was cut off. Rusal trusties were placed in management positions of the smelter and the trading chain, and a new tolling arrangement set up with the BVI shell company, CDH.
TadAZ, which sought the jurisdiction of the High Court in London in order to attack Nazarov, claims it is not subject to UK jurisdiction in the legal claim which Norsk Hydro filed in London, parallel with the Nazarov lawsuit, before an arbitration tribunal. Hydro won a judement of $145 million from the tribunal last November. This is being appealed to the High Court, where TadAZ has sought to keep the proceedings, and details of the arbitration ruling, secret. Hydo executives, together with a Norwegian government emissary, met President Rahmonov in June to discuss the case.
In a series of preliminary rulings in the Nazarov case, the UK High Court has already found in his favour, penalized TadAZ, issued a default judgement against Rahmonov’s rother-in-law, and hinted in open court that it believes Rusal is the chief conspirator in the TadAZ takeover, the mastermind and paymaster of TadAZ’s London litigation.
Commenting on the Cresswell ruling, Nazarov said his company “was particularly concerned to ensure there would be a full and proper airing in an English court of the serious issues underlying what it considers to be its unlawful removal from various aluminium business agreements with TadAZ. Today’s judgement allows for such an opportunity.” The High Court trial of Rusal, he added, “will test the validity of Rusal’s recent pronouncements and assurances to the EBRD and others on transparency, corporate governance and business standards. I have no doubt it will prove enlightening.”
To date, EBRD officials have sought to conceal the terms of the warranties and covenants in a loan and corporate governance agreement they signed with Rusal at the start of the year. “I’m not sure Rusal was involved,” claims Jean-Patrick Marquet, an EBRD resource banker, regarding the Nazarov and Norsk Hydro claims in the High Court. EBRD’s Moscow spokesman Richard Wallis warned against asking questions about the terms of the Rusal-EBRD pact.
Vera Kurochkina, spokesman for Rusal, refuses to comment on the ruling.
Rusal maintains a policy of selective response to media questions. When in 2003 and 2004 US federal courts ruled against taking jursidiction over the company in a racketeering lawsuit by other plaintiffs, the former owners of the Novokuznetsk aluminium smelter, Rusal issued several press releases claiming that it had been vindicated, although the substance of the claims was never tried in court. According to one company statement, Deripaska said “this is the ultimate vindication. Not only has the case been dismissed by the Federal Court in New York, but now even plaintiffs themselves are afraid to go through with the appeal process. More than 90% of the case has been withdrawn. It proves that the plaintiffs had no case to begin with and that they filed in New York only to publish defamatory statements in an effort to extort a considerable sum of money from RUSAL. The Plaintiffs’ tactic was to sue us in many jurisdictions, generate adverse publicity and cause us to incur huge legal costs. Nevertheless, we defended ourselves and we will continue to win wherever they sue us.” That was on November 22, 2003.
Deripaska later paid the Zhivilo brothers, who had been ousted from Novokuznetsk, more than $60 million in a confidential settlement to satisfy their claims.
The Nazarov case has already caused recriminations within the Rusal group. Deripaska himself has curtailed travel to two homes he owns, and where his family stays, one at Belgrave Square in London, and one in the countryside, in order to support claims by his lawyers that he has not entered the jurisdiction of the UK. In last Friday’s judgement, Justice Cresswell ruled against taking jurisdiction of the court over Deripaska, or Bulygin, Rusal’s CEO. Other legal claims in unrelated cases are reportedly pending against Deripaska in the UK.
Rusal has removed the chief legal officer, Konstantin Olifir, who was behind the UK litigation. However, company officials will neither acknowledge his departure, nor identify his replacement. The EBRD, which negotiated with Olifir to establish a code of corporate accountability and transparency, will not say what they know about the circumstances of his departure. “Our commitment to transparency,” Anthony Williams told Mineweb, “does not extend to disclosing the names of individual persons within companies with which we do business.” Williams is chief of the EBRD’s press office.
International bankers, who have signed loan agreements with Rusal in the past, say they are aware that Deripaska has been paying off court and arbitration claims. Their loan agreements, they say, cannot be reversed, or loans called in, unless Rusal faces trial in an established international legal jurisdiction, and is found liable, or convicted on the charges that have been laid. The Cresswell ruling thus challenges the compliance procedures at a syndicate of City of London banks currently in negotiation with Rusal for a loan of up to $2.6 billion. The syndicate is headed by ABN Amro, BNP Paribas, and Citigroup. According to a Rusal press release, it is “currently in discussion with the initial mandated lead arrangers on the possibility of upsizing the facility amount from the original $1.5 billion. The loan will be provided in two amortizing tranches, for five and seven years, respectively. The funds will be used to refinance Rusal’s existing debt, support the company’s capital investment programme, and for general corporate purposes. The facility for Rusal is the largest syndicated loan for a non-oil private corporate in Russia to date. It also represents one of the largest ever aluminium pre-export financings globally and is one of the largest international financings in Russia in 2006.” A Rusal executive is quoted as adding: “The success of this transaction demonstrates the growing prestige of Rusal as a global company among the international banking community.”
Rizwan Shaikh, a director of one of Citigroup’s debt market divisions, claims “the interest among international lenders was very high, proving there is strong demand for well structured and high quality transactions from Russia.”