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Oleg Deripaska is probably too young, and certainly too self-confident, to contemplate those who marked the loss of their power, or their end, with famous last words. Farouk, the last king of Egypt, lived thirteen years after he was deposed, but nothing before, or afterwards, was as memorable as his words on losing his throne. “There will soon be only five kings left,” he said in 1952: “the Kings of England, Diamonds, Hearts, Spades, and Clubs.”

For the Russian oligarchs created by ex-President Boris Yeltsin, this is the time of testing how far their fortunes will go like a deck of cards. Mikhail Khodorkovsky will go to trial in June, or thereabouts. Roman Abramovich is to be tested by the Accounting Chamber on May 15, when an audit of his conduct of the affairs of Chukotka, under his governorship, will be tabled. Vladimir Potanin’s attempt to cash part of his Norilsk Nickel fortune into a multi-billion dollar takeover of South African miner, Gold Fields, is already into the second month of the Kremlin’s investigation. And Deripaska, who controls most of the Russian aluminium sector, is waging a fight for cheap electricity with the federal government and Anatoly Chubais that he has already begun to lose.

A few days ago, the Minister of Economic Development and Trade, German Gref, intervened to block an attempt by Russian Aluminium (Rusal), Deripaska’s most important property, to lock in a low-cost power supply from the 2,000-megawatt Boguchansk hydroelectric power station in Krasnoyarsk region. Government and industry sources confirm that a federal government appointed commission is to meet soon to decide the future of the Boguchansk plant. Gref will supervise the commssion, as he told Alexander Khloponin, the regional governor of Krasnoyarsk, at a recent meeting.

Government and industry sources say this formula has been adopted to neutralize the bid by Deripaska and Rusal’s allies in the Krasnoyarsk region to buy control of the 24-year old, but unfinished plant for a pittance — just $46 million — and a promise to arrange the investment required for its completion.The sources expect the government to favour preserving state control of the plant; but they can do that by protracting the negotiations for completing the low-priority plant for years.

Notwithstanding his setback in Moscow, Deripaska announced at a press conference on April 16 that he and Governor Khloponin, the former chief executive of Norilsk Nickel, had agreed on terms for Deripaska to acquire control of the Boguchansk plant in return for a promise to finish the power station at a cost of up to $1.2 billion, and to construct a new aluminium smelter nearby with annual output capacity of between 300,000 and 600,000 metric tons. Krasnoyarsk sources confirmed that an agreement had been reached but declined to say what Deripaska has promised to pay. Khloponin sang Deripaska’s tune, as if he had never heard from Gref.

Andrei Yegorov, spokesman for United Energy Systems (UES), the national electricity utility, which owns the controlling 64% stake in Boguchansk, says that UES is skeptical of both of Deripaska’s promises, and believes he has no intention of meeting either of them. “It’s important to understand what Deripaska really wants,” Yegorov said. “If it is a wish to finish the electric power station, then we do not see the investment plan, and it was not announced. We think that the main Deripaska priority here is to dilute the [state’s] blocking shareholding and take full control over Krasnoyarsk GES. Boguchansk GES is only of secondary interest and maybe there is no interest at all.”

The Krasnoyarsk power plant is the principal power supplier to Rusal’s smelter at Krasnoyarsk. However, UES has launched court proceedings against Rusal to recover what it claims are non¬payments or artificially low payments over several recent years.

UES chief executive Anatoly Chubais, whose nose is exceptionally sensitive to the way the wind is blowing, has been categorical in saying he opposes Deripaska’s plan for Krasnoyarsk: “We are against the deal and will not allow it to take place.” Chubais, who was speaking at the Russian Economic Forum in London, added: “We have doubts about the transparency of such a deal. We do not support non-transparent deals.”

This was as close as Chubais could come to pleading mea culpa for his past attempts at favouring Deripaska. It was also a signal from Chubais that a higher power in the land than himself won’t tolerate another Chubais giveaway. In July 2002, for example, Deripaska tried to acquire Boguchansk, and he and Chubais signed an agreement for Rusal to lend UES $10 million. In return, Rusal was to receive an equity stake in the plant as collateral for the loan. That plan anticipated that Rusal would gain full control of the plant as it raised more loan funds to finance the construction, and received more equity. But the Putin government intervened. Chubais, under criticism from minority investors in UES and the Russian press, for arranging a sweetheart privatization in Deripaska’s favour, was obliged to abandon the deal. At the time, UES told me, it was spending Rb400 million ($13.2 million) in maintenance alone to preserve the plant. UES had also invested, it said, about $45 million in 2001 and 2002 for first-stage generating capacity of 185 mw.

Today the UES plan, said spokesmanYegorov, is to combine several regional generating companies, but not to unite hydroelectric units with thermal power stations “because hydro power is much cheaper, and everybody will want to use it.” The plan for Boguchansk, Yegorov told me, is to generate “superprofits” from □ two new hydroelectric companies, and use these to fund the Boguchansk capital requirement, without diluting state control. Deripaska, who has borrowing problems of his own recently, will be unnecessary to finance completion of Boguchansk. “Our specialists calculate that superprofit from [two] hydro generating companies will be enough to finish the first part of Boguchansk by 2009,” Yegorov said. There are several different capacity targets for Boguchansk from 2,000 to 9,000 mw, and the investment requirement goes up according to which is selected.

Hartmut Jacob, energy analyst at Moscow’s Renaissance Capital investment bank, reports that “we believe that although this UES financing scheme appears sound, implementation will depend on the willingness [of the federal government] to accept lower taxes from the hydro plants’ production (which could be directed towards social purposes) for the sake of retaining control over the plant.” Jacob also says he expects “the negotiations, from my point of view, will take a long time. The government will try to select a compromise variant.”

Maxim Bistrov, a Ministry of Economic Development and Trade official, reveals that the commission mandate had been agreed by Gref and Khloponin before Deripaska went public with his declaration of himself as virtual winner of the Boguchansk power grab. According to Bistrov, Deripaska’s bid is only one of several competing options, from which the ministry will recommend to the goverfnment and Kremlin its choice. “The commission will evaluate and decide on three general variants, and several additional ones,” he says. The current variants are (1) offering several additional issues of shares of the power plant to an investor; (2) lease of the plant by the investor with the subsequent right to convert spending on built capacity into the share capital of the plant; and (3) merger of the plant with Krasnoyarsk GES hydro plant, which is already controlled by Basic Element the Deripaska holding company.” Implying that other metals producers, including Deripaska’s rival Siberian Ural Aluminum (SUAL), have an interest in the outcome, Bistrov said that “other variants, such as combining the capital of several investors, will be closely evaluated, too,” He said it is too early to say what the schedule of the commission will be.

Yegorov of UES also casts doubt on Deripaska’s promise to build a new smelter in the region. “There is a space for an aluminium smelter near Boguchansk, and it was planned to build a smelter there. But the problem is that currently Rusal doesn’t have an investment plan. There is no project for the smelter too. they have been promising to do it for four years, but even the feasibility study was not done yet. “There is no railroad there, and RZD [national railroad company] doesn’t have plans to move the railroad there in nearest future. A smelter without a railroad is useless.”

Rusal has made other promises to build smelters in exchange for regional approval of shareholding deals in Deripaska’s favour. One of these, a year-2000 undertaking to build a smelter in the Kharkiv region of the Ukraine in return for privatization of state shares in the Nikolaev alumina refinery, is currently in the Ukraine courts, where the State Property agency has filed suit against Deripaska’s Ukrainian subsidiary for failure to honour his promise.

In the Irkutsk region, Deripaska and Rusal have also promised to build a new smelter at Taishet after winning regional support to take control of the smelter from Alucom-Taishet, another developer led by former Bratsk chief executive Boris Gromov. Victor Tifikov, who heads industrial development for the Irkutsk region, told me “there is no Rusal activity around Alucom-Taishet.”

The clash over the Boguchansk power project is the first test of Deripaska’s political influence with the federal government since President Vladimir Putin’s relection in March. If Deripaska loses, several other projects, which Rusal is already proposing to its bankers and contractors, may prove to be as rich as Farouk’s royal flush.

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