According to the Russian Christmas Day tradition, Dyed Moroz (“Father Frost”, aka St. Nicholas, Santa Claus) makes his annual visit to children to question them, before he distributes the presents. He is assisted by Snegourochka (“Snow Girl”).

It can happen that she is late. Then Dyed Moroz is obliged to ask the children to call out aloud to summon her. Those who can shout the loudest are motivated by the idea of catching the old man’s attention, and if they are lucky, first pick at his rewards. Once Snegourochka arrives, Dyed Moroz reviews who has been on his best behaviour for the past year. Asked who has been naughty, the children naturally scream their noes, and again, those who cry loudest hope to be rewarded first and best.

In Russia, it’s always been tough to deserve a reward. That’s possibly why Vyacheslav Shtirov, President of the Sakha republic and godfather of Alrosa, Russia’s dominant diamond miner — the second largest producer of diamonds in the world — is not looking forward to his interview with President Vladimir Putin. Shtirov has been summoned to the Kremlin meeting on January 28.

The last time Shtirov was summoned, Shtirov took Putin a large bouquet of red roses. The discussion was a sanguine one. Shtirov was told that he was to vacate the presidency of Alrosa, and become the president of the regional republic, replacing the two-term incumbent, Mikhail Nikolaev who was threatening to defy the electoral law, as well as the Kremlin, and offer himself for a third term. Nikolaev had been the boss of the republic since the Soviet Union had been demolished, and he had run it as a personal fiefdom by arrangement with President Boris Yeltsin in Moscow. The quid pro quo for Nikolaev was that he rigged the local vote for Yeltsin whenever that was required, and provided diamonds on demand too.

Putin offered Nikolaev immunity from prosecution with a senatorial seat on the Federation Council. Shtirov was told the fiefdom would be his on condition he shared the running with the federal authorities, led by the Finance Ministry, which is the federal agency responsible for the diamond industry; it sits on the board of directors of Alrosa, supervising the state’s 37-percent shareholding; and it runs the Gokhran, the agency in charge of the state’s stockpiles of diamonds and precious metals. However, the federal authorities have been unable to capture control of the system of exports which together, Nikolaev and Shtirov had elaborated through the regional Committee for Precious Metals and Gemstones; Alrosa mining affiliates; and near-bankrupt diamond cutting establishments in Sakha and elsewhere, which Alrosa kept on a short leash.

Knowing the Finance Minister, Alexei Kudrin, to be an obliging man, Shtirov was confident that he could control both the republic, and its principal cashcow Alrosa, much as he had done during his term as the company’s chief executive. And indeed, Kudrin has proved to be almost as obliging to his Sakha diamond constituents as he learned to be, when he was the factotum of Anatoly Chubais, Yeltsin’s Finance Minister, chief of staff, and dispenser of favours.

Putin and his Kremlin aides have proved to be tougher. They, rather than Kudrin, have been giving the orders to the mineral extraction business, starting with oil and gas, moving on to nickel, platinum, aluminium, and gold. Slowly but surely, they have been taking charge of Alrosa for the federal government. Colonel Yury Ionov was put in charge of the company’s legal affairs and cashflow security. Alexander Nichiporuk was placed as deputy CEO, and last month, he was officially promoted to be the chief executive.

Now that Putin has the new legal authority to appoint the regional governors, the interview with Shtirov is bound to focus on Putin’s intention for the future of Sakha; and for the way in which roughly $2 billion of Russia’s annual diamond production is traded and exported. There is local speculation that the Kremlin may replace Shtirov with a man whose loyalty to Moscow is judged to be greater than to the so-called Yakut clan. There is speculation in the international diamond market that the marketing of Russian diamonds will be reorganized to eliminate the price-rigging monopoly that Russian diamond-cutters have long charged against Alrosa in the domestic market, as well as the diversion of cash that has been alleged for its exports abroad. There is speculation in the mining community that Putin’s advisor on mineral resource reform, Professor Vladimir Litvinenko of St. Petersburg, intends to push through new legislation limiting single companies to mining rights of no more than 65-percent of the mineral reerves in a single region. At the moment, Alrosa holds a 100-percent monopoly in Sakha, the principal diamond province of the east, and 75-percent in Arkhangelsk, the new diamond province in the northwest.

Talk is cheap, but noone can afford to underestimate what Putin will tell Shtirov. Least of all, Lev Leviev, the Israeli diamantaire whose political access through Putin’s first chief of staff, Alexander Voioshin, and through Rabbi Berl Lazar, has given him a privileged position in the diamond supply chain. Leviev has accused Alrosa of shorting Ruis, his diamond cutting works in Moscow, of the supplies of rough his factory has the capacity to cut and polish. On the other hand, Leviev is accused of submarining rough through the Alrosa subsidiary Diamonds of Anabar on preferential terms arranged by Matvei Yevseyev, the subsidiary’s chairman. Leviev’s critics hope to persuade Putin that Leviev’s tactics are in embarrassing contradiction to the transparency which Russia’s diamond policymakers want to adopt, as they take over the chairmanship of the Kimberley Process on January 1; this is the international network of diamond producers committed to cleaning up the export trade.

If and when Alrosa is reorganized as an open shareholding company and the state proceeds with privatization, Leviev is a contender to buy a control stake. And because Alrosa is the largest unprivatized diamond mining company in the world, every major international diamond enterprise is a contender too, including De Beers – the world’s largest diamond miner – BHP Billiton, several Indian diamantaires, and Beny Steinmetz, Leviev’s Israeli rival.

Much needs to be done before that contest can get under way in earnest. The first step has been the removal of the state secrecy provisions covering Alrosa’s physical diamond production, sales, exports, and diamond reserves. After postponing the declassification for most of this year, the Kremlin allowed the Finance Ministry to release the first instalment of data last week. In 2003, the official release indicates, Russia produced 33.02 million carats of rough diamonds, which were sold for $1.7 billion, for an average of $51 per carat. In the first half of 2004, the corresponding data were 17.8 million carats produced, worth $948 million, for an average of $53 per carat. For the time being, key data on mine reserves have not been released.

The export data for 2003 issued by the Finance Ministry show that physical volume was 37.8 million carats, at a total recorded value of $883.4 million. In the first nine months of this year, exports totaled 23.6 million carats for $826.4 million in value. The average carat value of these exports was $23 in 2003, and $35 for this year.

Some Russian diamond industry leaders say they have been surprised at how high the production caratage has turned out to be, and correspondingly, how low the average carat value has fallen below expectation, Until now, Alrosa’s average carat value has been estimated in the international diamond market to be at least 30 percent higher.

Even more of a surprise is the discrepancy between the carat value of the diamonds at the minehead, and their value in export sales. The declassified data now indicate that exported diamonds fetched 53 percent less per carat on average in 2003, while this year the exports have been running 34 percent below the production value. This discrepancy is going to be hotly argued, both by those in the federal government who are urging Putin to clean up Alrosa’s export schemes; and also by the domestic diamond cutters who have long accused Alrosa of charging higher domestic prices than De Beers has been paying for the Russian goods. Alrosa has acknowledged that it charges a premium over export prices to domestic diamond manufacturers. But in selling to its own diamond-cutting subsidiary, Brillianty Alrosa, and the Sakha-based diamond-cutting group Tuimaada, the company has apparently offered discounts and preferential credit arrangements.

When Shtirov sits down with Putin in a few days’ time, he could deliver a speech about how arbitrariness in Russian government policy has been hurting the international investment climate, and threatens to damage Alrosa’s return to the Eurobond market for refinancing of its sizeable debts. But Putin isn’t Father Frost. The louder Shtirov shouts, the less convinced Putin is likely to be that he deserves a fresh New Year reward, and the more certain Putin’s advisors are that Shtirov must be brought under strict control.

by John Helmer - Tuesday, December 28th, 2004
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MOSCOW (Mineweb.com) – Last Friday, some days ahead of deadline, Norilsk Nickel issued a terse announcement. “MMC Norilsk Nickel,” it read, “a 20% owner of Gold Fields, announced today that, in accordance with previously stated intentions, it voted against the proposed transaction with IAM-Gold.”

On the surface, this appeared to be nothing more than the public reiteration of the company’s well-known, published agreement with Harmony Gold in mid-October, supporting its bid to take over Gold Fields, blocking its lAMGold merger, and opposing any offer Gold Fields, or its allies, might have made to outbid the Harmony offer.

However, by referring to “previously stated intentions,” Norilsk Nickel raises far more questions than those responsible for the statement itself, or the Company’s senior executives, are willing to answer indeed, if the intentions of Norilsk Nickel are carefully scrutinized since March 29, when it first bought the Gold Fields stake from Anglo American, paying $1.16 billion, the trail of evidence shows one dissimulation after another, false undertaking piled on false undertaking, and intent to mislead from beginning to end.

So consistent is this record, that when all the evidence is gathered up, the intention of the company appears to be nothing less than a massive attempt to expatriate Russian assets in violation of Russian law; and when called to account for this, to deceive the shareholders of Harmony and Gold Fields, as well as the regulatory authorities of South Africa and the United States, who also have the obligation to assess the process, according to their legal codes.

This evidence is so compelling, it should have triggered by now that hoary Anglo-American legal doctrine known as “clean hands”. That states that if a party to a contract makes an undertaking or commitment that is unlawful, knowing that he is breaking the law, and attempting to conceal this, he lacks the clean hands required to make the contract lawfully binding. In short, the evidence that has accumulated for over seven months is that Norilsk Nickel’s purchase of the Gold Fields stake was unlawful, arid everything Norilsk Nickel has done since then, including the attempt to push Gold Fields out of South Africa, the “Project Golf plan drawn up with HSBC Bank, and the so-called “irrevocable undertaking” with Harmony, are unlawful, too.

The trail begins, not with Norilsk Nickel, but with Leonid Rozhetskin. Just how different these two, the company and the man, are is the key to unravelling much of the disinformation the company has been issuing. Rozhetskin is officially titled Advisor to the CEO and vice-president of the management board of Norilsk Nickel; his function is to direct the company’s financial strategy, including mergers and acquisitions, asset disposals, and borrowings. Rozhetskin was the initiator of the Russian dealings with Anglo American; he was behind the Gold Fields purchase, and everything that has happened since.

However, he is not a salaried employee, and in a pinch, the company can act or speak as if Rozhetskin represents himself, not the company. This is a loophole which Harmony executives have exploited when telling SA and US regulatory panels and courts that it has not acted on its takeover bid for Gold Fields in concert with Norilsk Nickel. The unstated premise of that claim is that Norilsk Nickel and Rozhetskin are quite different.

In fact, Rozhetskin acts for the controlling shareholders of Norilsk Nickel, Vladimir Potanin, who directs a Moscow holding called Interros, and Mikhail Prokhorov, Norilsk Nickel’s CEO. Between the two of them, they control more than 70% of the company’s shares. At present, through a company offer, they are buying out the independently owned minorities. Rozhetskin is a contractor to them, or to companies they control in registrations outside Russia; he is not their employee. A US passport holder, Rozhetskin is legally obliged to pay US taxes on his worldwide income. He is also subject to US laws governing the way the rewards of dealmaking may be sought, received, and distributed, such as the Foreign Corrupt Practices Act. Officially, Norilsk Nickel will not answer questions about Rozhetskin beyond giving his title. Rozhetskin refuses to answer questions directly.

Officially, Rozhetskin has a deputy, Dmitri Razumov, whose signature appears on legal documents Rozhetskin has negotiated. The reason for this may be that Razumov is legally an employee of Norilsk Nickel, rather than a contractor like Rozhetskin, or Rozhetskin’s employee. Razumov’s official title is Deputy to the CEO of Norilsk Nickel. It is his signature that appears on the October 16 agreement with Harmony to oppose Gold Fields’s lAMGold proposal. Razumov avoids all contact with the press.

Potanin employs several spokesmen at Interros. But they have refused to respond to questions regarding the Gold Fields deal pn the ground that the transaction was done by Norilsk Nickel. This is despite subsequent evidence from Gold Fields CEO Ian Cockerill that, on his first trip to Moscow after the March 29 transaction, he met with Potanin, and understood clearly that Potanin was as much in charge of the deal as Prokhorov. On this point, Kremlin officials have not been misdirected, or misled. When they wanted to discuss the deal, they went to Potanin.

The company’s spokesman for investment relations, Dmitri Usanov, has spent only a few weeks in the job, replacing Sergei Polikarpov. Both of them take their orders from Rozhetskin, but answer no questions about him. Usanov is so reluctant to answer questions, he has even refused to answer placebos, such as confirming the exact stake Norilsk Nickel claims to hold in Gold Fields.

Immediately after the announcement of the Gold Fields purchase, it was Polikarpov who declared that “the deal does not require Central Bank approval.” Rozhetskin had already made that claim in his negotiations with Anglo American, and with Citibank, which provided an $800 million loan to enable Norilsk Nickel to make the purchase. Polikarpov also claimed: “this deal does not require any approval from the Russian government and the Kremlin. Therefore, we have not applied and obtained such approval.”

A few days after he said this, the text of the purchase agreement and the Citibank loan agreement were released. According to the first, Norilsk Nickel declared that “all consents, concessions, approvals, filings, registrations, authorisations and orders, governmental, regulatory, corporate or other, necessary for the execution, delivery and performance by the Purchaser of this Agreement and the consummation of the transactions herein contemplated and for the purchase from the Selling Shareholder of the Sale Shares in the manner set out herein, have been obtained and are in full force and effect.”

In the loan agreement, Norilsk Nickel claimed that “All Authorisations required: (a) to enable it lawfully to enter into, exercise its rights and comply with its obligations in the Finance Documents; and (b) to make the Finance Documents admissible in evidence in its jurisdiction of incorporation have been obtained or effected and are in full force and effect.” It also averred that “any factual information provided by or on behalf of any member of the Borrower Group was true, complete and accurate in all material respects as at the date it was provided or as at the date (if any) at which it is stated.” According to the borrowing agreement, Norilsk Nickel claimed that there 51 were “no administrative proceedings of or before any court, arbitral body or agency which is reasonably likely to be adversely determined and, if so adversely determined, would reasonably be expected to have a Material Adverse Effect” on the Citibank loan or the Gold Fields transaction.

These claims were false. By August, Rozhetskin admitted as much in secret, e-mailing Cockerill at Gold Fields. The text of that message surfaced during document discovery by lawyers for Gold Fields and Harmony, ahead of their federal court hearing in New York last month. Cockerill has said publicly: “About two weeks prior to the [September 2] email, Norilsk had requested that Gold Fields downplay any public discourse on Norilsk’s views on the [lAMGold] transaction or possible future intentions, as Norilsk was, at the time, under scrutiny from the Russian authorities.”

In short, Rozhetskin was secretly admitting what he and his spokesman had earlier denied. But he was not admitting to Cockerill the extent of the Russian government “scrutiny”. That did not become clear for several more weeks, until Russian sources, including the Central Bank, acknowledged that the Gold Fields transaction in March had been unlawful, and that Potanin and Prokhorov had agreed to reverse it.

For weeks before then, however, as testimony in the litigation between Gold Fields and Harmony now reveals, Rozhetskin had tried to pressure Gold Fields into redomiciling at least some, if not all of its gold assets outside South Africa, as part of his plan to increase Norilsk Nickel’s stake in the new offshore company, and vesting ownership of its Russian goldmines in that entity. Rozhetskin was not shy in revealing this scheme to investment bankers, inviting them to propose their deals to him. In April, according to RIA-Novosti, the Russian state news agency, Rozhetskin told a session of the Russian Economic Forum in London that Norilsk Nickel intended to increase its shareholding of Gold Fields. Asked to clarify that, the company spokesmen refused, referring instead to Rozhetskin’s office. Rozhetskin’s secretary said he was unavailable to answer questions. “If he will find it reasonable to respond, he will do so,” she added.

By some time in July, Rozhetskin understood that he could not make his second-stage deal with Gold Fields, that is, his takeover. But it is unclear whether Potanin and Prokhorov, who knew what direction the Kremlin wanted, realized what Rozhetskin was doing. In Moscow he may have said he was fashioning a highly lucrative exit from the 20% stake he had bought, adding two to three hundred million dollars in profit on the $1.16 billion purchase price. But offshore, Rozhetskin was telling Damien Coates, an HSBC banker, and others that he wanted to expand Norilsk Nickel’s offshore stake, not liquidate it.

Disclosure of the secret HSBC plan, code-named Project Golf, reveals what Rozhetskin had been saying outside Russia. He had been discussing “reversal candidates” – foreign-listed companies into which Potanin and Prokhorov could vest some or all of their Norilsk Nickel assets – and these included Canadian goldminers, Kinross and lAMGold. He was unhappy with Gold Fields, he told HSBC, because “G[oldfields]’s shareholders will oppose all schemes, including vesting of Norilsk’s] assets, that result in N[orilsk] gaining ‘creeping control’ without paying full control premium.”

At the same time that Rozhetskin was admitting to Gold Fields that he was worried about Russian government “scrutiny”, he was telling HSBC that “a follow-up deal is highly desirable to demonstrate that the original stake purchase had real commercial synergy.” At least, that is what HSBC thought it could divulge to Harmony, once Rozhetskin and Coates had agreed that Cockerill would insist on dealings “at arms length without favour.” Exactly what “favour” the secret HSBC plan was hinting at, and for whom, remains to be uncovered. But the HSBC document leaves little doubt that Bernard Swanepoel, Harmony’s CEO, appeared to Rozhetskin and to HSBC as indicating “much more flexibility.”

Swanepoel has testified that the HSBC document was nothing more than a proposal, initiated by HSBC, which Harmony decided not to accept. What is not in doubt is that Rozhetskin was prompting HSBC at a time when he knew that both Gold Fields and the Kremlin were opposed to his scheming. Evidence about what Swanepoel knew, or should have known, about the Rozhetskin schemes, and the legality of the Norilsk Nickel transaction, has yet to be examined.

When HSBC took the Project Golf scheme to Swanepoel, indicating that Rozhetskin would back Harmony in a hostile takeover of Gold Fields, it is possible that Rozhetskin withheld the crucial information from Moscow that Norilsk Nickel was obliged to liquidate the unlawful March 29 deal. So long as the Central Bank and the Kremlin covered their investigation with secrecy, Rozhetskin could have been bluffing Swanepoel. About eight weeks elapsed between HSBC’s submission to Swanepoel and the latter’s signing of the “irrevocable undertaking” with Rozhetskin’s man, Razumov. So far, the regulatory panels and court judges who have reviewed this record have ruled only on a portion of the evidence, without determining whether the initial Norilsk Nickel transaction was a lawful one, and whether Swanepoel knew that Rozhetskin was under orders from his superiors to find a way to liquidate it.

Just how uncomfortable Rozhetskin was beginning to feel in Moscow appeared on August 3, two weeks after he warned Cockerill about the government pressure, but days after a Gold Fields executive had openly acknowledged that Norilsk Nickel might try to take over Gold Fields.

According to a company release, “MMC Norilsk Nickel would like to officially state that recent references made in the Russian and foreign press to an announcement made by a leading figure in Gold Fields Ltd concerning MMC Norilsk Nickel’s alleged offer to transfer to that company its gold mining assets in return for an increased shareholding have no basis in fact. MMC Norilsk Nickel is not planning to transfer any shares in its Russian gold mining operations nor any rights to existing or future plant or deposits on the territory of the Russian Federation to the aforementioned South African Company, and accordingly, has made no such offer to Gold Fields Limited.”

That was a lie. The truth was that Rozhetskin had demanded, and Gold Fields had refused. In its place, Rozhetskin then got HSBC to make the very same proposal to Swanepoel. Thus, Norilsk Nickel’s public statement is directly contradicted by the activities of its principal shareholders and their contractor Rozhetskin. Theirs has been a shell-game in which the truth cannot be found.

A similar shell-game is being played by Potanin and Prokhorov’s representatives in South Africa. According to South African corporate executives, Andrei Dubina introduces himself as the Norilsk Nickel representative in SA. He has also referred to himself as a former ambassador to Iraq, according to one SA source. The Russian Foreign Ministry responds that there has never been a Soviet or Russian ambassador of this name, neither to Iraq, nor to any country. At Potanin’s Interros office, the spokesman claims: “we have never heard of Andrei Dubina.” At Norilsk Nickel headquarters, the spokesman says of Dubina and an Armenian associate, also in SA: “nobody knows them. We have no information about these people.”

by John Helmer - Monday, December 6th, 2004
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MOSCOW (Mineweb.com) – When we last left our Great White Hunters, the Anglo American chief executive and two of his companions, they had arrived in Moscow for two days of meetings, Monday and today. Like the legendary Allan Quatermain himself, they were intent on covering their tracks, while manoeuvering into position for their prey. But back at base camp, no-one claimed to know what exactly the hunting party of Tony Trahar, Barry Davison, and Philip Baum were after in Russia.

A spokesman for Trahar in Johannesburg said the trip to Moscow was “a general courtesy visit to discuss paper and pulp.” But the ranking Russian official whom the group met on Monday, Minister of Natural Resources, Yury Trutnev, is primarily concerned with sub-soil mining projects. On Friday, a statement from his office reported that Anglo American wanted to discuss possible exploration in the country, and cooperation with domestic companies. Coal appeared to be the target, according to press reports of the ministry release. Following the Monday meeting, however, Trutnev was quoted in a ministry announcement as focusing on other minerals Proposed or pending amendments to Russia’s mining legislation, Trutnev reportedly said, “will make the sphere of natural resources’ use more attractive tc foreign investors”. He noted that the competition is intense, especially in the oil and gas sector. As for timber processing, Trutnev claimed the new timber: code “will raise the investment appeal of timber-processing enteprises for foreign companies.”

So far, there has been no public mention of Anglo American’s largest investment in Russia, the Mondi division’s investment of over $300 million in the Syktyvkar Forest Enterprise (SLPK), a paper and cardboard producer which was taken over in stages over several years. Based in the northwestern region of Komi, SLPK’s output of paper and cardboard accounts for 40 percent of Russia’s total production of office paper; 9 percent of paper for the country’s newspaper industry; and about 40 percent of cardboard production. In Russia SLPK’s Snegourochka (“Snow Maiden”) brand is acknowledged to be one of the best office-paper trademarks.

Mondi Europe’s strategy for investment into Eastern Europe started with a single paper mill in Austria producing 215,000 tons of paper products in 1995. Mondi then expanded into Hungary, Slovakia, Isreael, and Russia. The Syktyvkar plant has been an extremely lucrative one for Anglo American, as well as for Trahar, who came into the chief executive’s suite from the paper and pulp sector.

The success has attracted Russian raiders. Anglo American has acknowledged that Oleg Deripaska, the aluminium oligarch who has made aggressive takeover bids for other Russian paper, packaging and pulp mills, has been a threat to Syktyvkar. However, Deripaska is no longer a threat, Anglo American now believes. According to the company spokesperson in London, Kate Aindow, Trahar’s visit to Moscow was “in connexion with our paper and pulp interests.” She acknowledged that no-one from that division of the company was accompanying Trahar, and that Davison and Baum have different supervisory roles on the Anglo executive board. Asked if the group was meeting Deripaska, or other Russian paper and pulp producers, Aindow said she “genuinely does not know who they are meeting.” Rick Witt, Anglo’s newly-appointed Moscow representative, an American from the oil equipment sector, declined to respond to a request for the group’s meetings in Moscow.

Deripaska’s Basic Element holding was categorical that it has not met with the Anglo American group. A source at Him Pulp, which manages Kotlass Pulp & Paper, said the same thing. A year ago, llim’s controlling shareholder had been unable to fight or buy off a Deripaska raid, and offered to sell instead to Anglo American, in the hope that it might ride to the rescue. Victor Khristenko, the minister of industry and energy whose ministry supervises the downstream industry, also confirmed that he had not met with Trahar.

A source close to Anglo American believes it is unlikely that Anglo’s strategy in Russia will increase the concentration the group currently has in the paper and pulp sector. Diversification into minerals, including precious metals, is more likely, the source said. AngloGold Ashanti has already bought a $30 million shareholding stake in the UK-listed junior, Trans-Siberian Gold, and has plans to develop mines in the Krasnoyarsk and Kamchatka regiohs. AngloGold has been a regular visitor to Moscow this year, and has been doing due diligence on the mine assets and exploration prospects of at least two major Russian goldminers. No-one from AngloGold was accompanying Trahar in Moscow this week.

Sources at Anglo American acknowledge that the group wants to sell the chrome division of Samancor, which is jointly owned with BHP Billiton; Anglo’s stake is 40 percent; BHP Billiton’s is 60 percent. The sources also claim that the manganese division of Samancor, which may be worth at least $1 billion, is not for sale.

Russian oligarch, Victor Vekselberg, has reportedly been talking to Anglo during the year, both directly on two visits he has made to South Africa; and through his new dealmaker, Brian Gilbertson. Vekselberg was in Johannesburg early in November, but none of his spokesmen nor Gilbertson will confirm with whom he met. Gilbertson heads SUAL, which is primarily a domestic bauxite, alumina and aluminium producer, seeking to diversify (offshore if foreign investors can be found to finance the move. Vekselberg’s holding company Renova is ostensibly a separate company, or group of companies; and although it has no mining experience, and operates no mining projects directly, it has engaged Mark Bouzuk, a former aluminium trader, to negotiate for mining investments in South Africa (SA).

Bouzuk makes plain in an interview that he cannot speak for either Renova or SUAL, Gilbertson or Vekselberg. His company has been contracted by Renova, he says, to develop a South African base, but he himself is not a Renova executive. Clarifying some Russian media reports, which he described as having misquoted him or misunderstood remarks he made last week to the Russian news agency Interfax, Bouzuk said: “we are not interested in Samancor chrome. It is too early to talk about Samancor manganese. Is it for sale?”

For the time being, according to Bouzuk, he has negotiated memoranda of understanding and contracts with several black-owned or empowered companies in SA, with the objective of their partnering Renova in joint mining ventures in SA. The target of these discussions, Bouzuk confirmed, is manganese in the Northern Cape province. He said that lie knows nothing about any presentations of a manganese project to President Thabo Mbeki, or to senior SA government officials. Indeed, he added, his local partner companies have yet to apply for mining licences, or to receive them. He added that he cannot disclose the identities of the SA partner companies at this stage. “We have contracts, but we are not ready to disclose the names,’ he said. When asked if he or Renova were meeting with Trahar in Moscow, Bouzuk replied; “As far as I know, no.” At SUAL headquarters, Gilbertson referred the question to Renova.

Renova’s office in Moscow is headed by Alexander Zarubin. His spokesman said: “As for today, I can confirm that there were no meetings of Renova officials or Viktor Vekselberg personally with anyone from Anglo American.”

by John Helmer - Tuesday, November 30th, 2004
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MOSCOW (Mineweb.com) -The headline in the Moscow newspaper came straight out of Rider Haggard’s century-old adventures. “Renova masters Africa”, it said, going on to describe how Victor Vekselberg, the Russian oligarch behind the Renova company, recently visited South Africa to arrange local approval of a plan for the largest manganese mine in the world, and of another plan which he is still keeping secret.

Whether the plan is for Vekselberg to dig a new mine, or to buy one from South Africa’s Samancor will be clearer by the end of today, after Anglo American executives Tony Trahar, Barry Davison, and Philip Baum complete a round of meetings in Moscow. Baum’s office in Johannesburg confirmed that he, CEO of Anglo’s Ferrous Metals and Industries division, is in Moscow with Trahar and Davison. One meeting on their agenda, confirmed by the Russians, is with Yury Trutnev, Minister of Natural Resources.

In an announcement to the Russian media, Trutnev’s ministry has intimated that today’s session would focus on coal. Baum’s presence suggests the focus is on Samancor’s manganese and chrome. Davison’s involvement indicates that another billion-dollar deal with a Russian oligarch may be in the works. The first, done in perfect secrecy and in less than two weeks in March, saw Anglo American sell a 20% stake in Gold Fields to Vladimir Potanin and Mikhail Prokhorov, the controlling shareholders of Norilsk Nickel, for $1.16 billion.

If Anglo American is about to make a deal with Vekselberg for cash and shares, they are also about to court South African and Russian government investigations into the deal that may reverse it on national interest grounds, much as Kremlin pressure has forced the Norilsk Nickel shareholders to find an exit from their Gold Fields acquisition.

“How can a world be good,” wondered Haggard, creator of gentleman adventurer in Africa, Sir Allan Quatermain, “in which Money is the moving power, and self-interest the guiding star? The wonder is not that it is so bad, but that there should be any good left in it”.

In his quest to find a domicile outside Russia for his mining and mineral assets, Vekselberg has visited South Africa at least twice this year, according to those he met. The first time was in February and the second time, a few days ago, when he left an adventure safari arranged with Mikhail Fridman, the oligarch who heads the Alfa Bank group. In addition, those who have met him say that Brian Gilbertson, now Vekselberg’s appointee as chief executive of the SUAL group, has been calling or meeting with every major South African mineral company, looking for takeover or merger targets. SUAL mines bauxite in northern Russia, and produces alumina and aluminium, and it trades its metal according to Russian tax optimization schemes that have come under increasing scrutiny from the tax authorities in Moscow in recent weeks. Gilbertson and Vekselberg are in a hurry.

Until this month, according to SUAL’s London spokesman Bill Spears, “it is not our policy to disclose the identity of those participating in business meetings with us.” But the group has become more talkative during the visit to Pretoria by Minister Trutnev, in mid-November. Trutnev headed a delegation of Russians for the annual session of the Russia-South Africa commission on inter-government trade and economic cooperation (ITEC). Renova’s Moscow office tried to keep radio silence, refusing to identify in advance that it had joined Trutnev’s delegation. Renova, which was recently divided by Vekselberg into several sections, is nominally headed in Moscow by Alexander Zatulin. For the Pretoria meetings on November 17-18, he was in South Africa, along with Mark Bouzuk, a former Swiss-based aluminium trader who now heads Vekselberg’s drive into Africa. Bouzuk’s deputy in Moscow is Alexei Belokrys.

Ahead of his trip, Trutnev was asked by Mineweb to say if he “supports or opposes efforts by Russian mineral resource licensees) like Victor Vekselberg and Vladimir Potanin to buy stakes in South African companies, and to reverse-list their Russian assets in SA or international listings?” He declined to answer. But in Pretoria, he told a Russian reporter traveling with him that, in parallel with SA company interests in Russia, “there are also: counterpart [Russian] interests; for example, GMK Norilsk Nickel starts work with the Republic of South Africa, and the company Renova has shown interest in ciooperation.”

Exactly what work Trutnev was thinking of when he mentioned Norilsk Nickel is not clear. A team of people, led by a former Russian ambassador to Baghdad and a man identifying himself as a former KGB intelligence liaison with the anti-apartheid movement, have been introducing themselves in Johannesburg as Norilsk Nickel representatives to South Africa. So far, the only work the company has done has been to participate in the hostile takeover bid Gold Fields, which began in planning with HSBC Bank a few weeks after the March 29 purchase. That transaction is the largest single Russian investment abroad, and concomitantly the largest Russian investment ever in Africa. Following Kremlin and Central Bank review, that transaction is being reversed.

Meantime, Trutnev’s intimation of approval for the process has encouraged Renova executive Bouzuk to unveil in Moscow what he claims to be two ambitious plans Renova has for mining in South Africa. In remarks reported by Kommersant, a Moscow business newspaper, Bouzuk claimed one of the plans is still secret. The other, he said, calls for the investment of more than $300 million in a mine and ore-processing mill in the northwest of South Africa. Target, said Bouzuk, is manganese, an important metal used as a purifying and strengthening alloy for steel.

The newspaper report claims that Bouzuk described a plan in which Renova, working with a black-owned South African partner, will explore the area, which already hosts several manganese mines operated by South African interests, including the Sacco family and Samancor, a chrome land manganese mining company jointly owned by BHP Billiton (60%) and Anglo American (40%). An open-pit and underground shaft mine will produce 1.5 million tons of manganese ore, Bouzuk reportedly said, and the mill and concentrator will turn out between 400,000 and 500,000 tons of manganese.

About 80% of the world’s commercially mineable manganese ores are located in SA’s Northern Cape province, where Samancor mines at sites around Hotazel. Together, they lift up to 3.4 million tons of ore per annum. At a nearby plant, this is processed into ferro and silicomanganese According to Samancor it produces between 300,000 and 420,000 tons annually. The Renova mine target is thus substantially larger; indeed, it could be the largest manganese mine in the world so far. At current market prices, Sarmancor sells just short of $400 million worth of manganese per year, most of it to export buyers. The estimated cost of Renova’s project will be more than $300 million, according to Bouzuk.

He told the Moscow press that Renova will raise all of the funds, but will hold just 40% to 45% of the joint venture company. The balance of the shareholding will be held, he reportedly said, by “South African companies belonging to black businessmen”. They were not identified. Again according to Bouzuk, a briefing on the manganese project was made to President Thabo Mbeki and the SA government in what is described as a “closed presentation” sometime during the Russian summer. “This project has already met with the approval of the government of the republic of South Africa,” it was reported in Moscow.

Renova has been unwilling so far to provide any details of this approval process; Bouzuk has refused to answer questions. SA mining sources say they do not believe the approval reports, and they are skeptical of the project claims. In September, during a visit to Moscow of Lulu Xingwana, deputy minister of mining and minerals, she told Mineweb that she had been briefed by Renova officials, and she subsequently made a public speech endorsing Renova’s activity in South Africa. Xingwana also declined to provide any details of her endorsement. She subsequently met Trutnev during the ITEC session in Pretoria, when both appeared to endorse the Renova manganese project.

It is necessary to create “conditions for South African companies to feel comfortable in Russia, and Russian companies in the republic of South Africa, “Trutnev told the Russian news agency Tass, after his recent meeting in Pretoria with Xingwana. But according to SA executives, during his meetings in SA Trutnev concentrated almost entirely on what Russian companies want in SA There appear to have been no reciprocal demands, nor discussion, of SA corporate operations in Russia. According to the official minutes of ITEC prepared by the two governments, Russian interest in SA mining was explicitly identified as manganese and platinum.

SA sources told Mineweb that it is possible that Vekselberg is interested in bidding for existing mine assets, not in developing a new mine. An uncorroborated source has told Mineweb that Vekselberg and Gilbertson have been in discussion with Anglo American for a billion-dollar deal. A senior Anglo American told Mineweb that Samancor is for sale, and that among the potential bidders there may be a Russian. However, the source was categorical that it is Samancor’s chrome division that is for sale, and that the manganese business is not on the block. Market sources told Mineweb they have heard that an unidentified Russian group is seeking substantial financing for a SA mining project, although the rumour did not distinguish between a greenfields project and a takeover. The sources also expressed skepticism that the Renova group, which through SUAL International, has been unable to raise any finance in almost two years of trying, and has been limited in its fund-raising capability for its Russian bauxite projects, could manage the much greater capital requirements that Bouzuk has identified.

On the other hand, Russian government opposition to the expatriation of assets by the oligarchs should make it difficult for Vekselberg to add his Russian assets to a takeover or merger bid in South Africa. Growing scrutiny in Moscow of the asset consolidation and cashflow management schemes of oligarch companies, including Vekselberg’s, may be accelerating his desire to strike an offshore deal as quickly as possible. At the same time, Kremlin policy may make the move impossible – a point which, oddly, Trutnev failed to mention while he was in Pretoria.

by John Helmer - Monday, November 29th, 2004
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By John Helmer in Moscow

Laundering a man’s reputation is a little like laundering money. The more you churn the facts, the harder it is to remember them; the less damage they can do; and the whiter the outcome.

It is for this reason that Russia’s oligarchs have spent so much effort bringing defamation cases against their critics and investigators in the courts of foreign countries. The countries chosen are those where the oligarchs have set up their homes and families; and also where their bankers issue their loans, or where an oligarch can leverage his local business interests against advertising-dependent newspapers. As defamation law varies from country to country, favouring the press in the United States, and the oligarch in the United Kingdom, the preferred choice for a reputation laundering operation is London. There, it is not only the courts, but also the English newspapers, not to mention the English prime ministry, which specialize in reputation laundering.

The greatest disadvantage that a certified Russian oligarch has in the libel courts of the United States is that he is a public person, not a private figure. According to US defamation law, the free-speech provisions of the constitution, and the way in which the US courts have interpreted both, if a good man is deemed to be so well-known in his activities, through government, market or media, a great deal that is bad about him may be reported but not qualify as libel, according to the US standard. For oligarchs who have spent small fortunes at American public relations companies to promote themselves in the US as internationally respected public figures, it is difficult for them to turn around and confide to a US judge that they are nothing but humble individuals unseeking of fame, and undeserving of notoriety. One oligarch, who will argue this before a judge in a US federal court very soon, has amassed the voluminous record of 11,500 pages of English-language press reportage, not to count the Internet, in the last four years. If the judge rules that a man with that record is a public person, then the truthfulness of the bad that has been published about him need not be proven by those who have reported it. Rather, the bad but good oligarch must prove malice in the reporting about him, or reckless disregard for the truth. For oligarchs accustomed to paying for good reports, and assuming that bad reports must be paid for by a rival or enemy, this is a legal standard that is next to impossible to meet. Accordingly, no oligarch is likely to be libeled, according to a US court. But on the other hand, no US judge is likely to get around to adjudicate the truthfully bad from the truthfully good in an oligarch’s reputation.

While England and the US are the countries which the Russian oligarchs depend on the most, there are a handful of other places where they like to live, make and spend their money. In Germany and France, for example, Russian oligarchs have applied for courts to adjudicate libel in their favour against newspapers, generally business newspapers influential in the bank suites. The mere threat of litigation is often enough to persuade even the most respectable of media managements to avoid informing their readers about the risks – real, perceived, suspected, rumoured — of doing business with Russian oligarchs.

This public form of due diligence is serious and problematic enough for at least one oligarch to have gone to the trouble, two years ago, of hiring an internationally reputed detective agency to prepare a report on his reputation. While the contract documents show that the oligarch agreed to pay a large sum of money for the job, the cost of his bankers’ suspicion that he might be a bad man to lend money to was substantially greater, as the detective agency pointed out in the correspondence. And so, the detective agency was hired; a code name was coined for the project; and a large advance payment was invoiced.

To be sure, the detective agency had a reputation of its own to guard. And so, there was a certain awkwardness, on the detective agency’s part, in taking pay from the oligarch for what was mutually agreed to be an “independent” evaluation of all the bad the man was reputed to have done; and for the oligarch to then distribute the detectives’ report to those he suspected of believing he was a bad man. Enquiries were therefore promised of officially independent law enforcement and intelligence agencies around the world, to which the detective agency claimed access. Unfortunately, for the reputation of the detective agency and its report, the latter must have resisted the enquiries that were sought. They told the detectives nothing the latter managed to include in their report.

The internationally reputable detective agency could hardly be drawn into a US court, because the effect of its report would be to substantiate the very point an oligarch must try to deny – that he is a public person with international notoriety. As a private foreign enterprise purporting to investigate official Russian agencies of government, the report would be inadmissible as evidence in a Russian court.

And so, when the report was dispatched recently to a French court, its existence begged the question of what the French government and its intelligence agencies knew about the subject matter. Even if French jurisprudence is inclined to be generous to oligarchs on the distinction between public persons and private individuals, and strict in the requirements for veracity by reporters in print, many centuries have passed since a French court accepted as evidence the opinion of a private foreign enterprise gathering and selling information for money.

For any man to put his reputation on trial in a court of law, there is always the risk of adding to his notoriety, and thus, win or lose on the legal issues, to reinforce the impression that he is the very bad man he has been made out, so wrongly, to be. After all, it is not the exoneration, or esteem, of the man in the street, or the reader of newspapers, that an oligarch is seeking when he goes to court. His target is a bankers’ head of risk, the chairman of the credit committee, the insurer of officers and directors’ liability, the independent auditor, and the legal drafter of his next prospectus for an unsecured Eurobond or American Depositary Share. That’s a small, sophisticated audience, who know the unprintable truth. They are not greatly influenced by guilty or innocent verdicts in libel cases.

Note to readers : on November 22, at the 17th Court of Paris, Mikhail Fridman will present his case for defamation against Les Echos, France’s business newspaper. On December 21, Judge John Banks of the federal US district court of Washington, DC, will hear oral argument on a defendants’ motion for summary judgement in the case of OAO Alfa Bank, ZAO Alfa Eco, Mikhail Fridman and Pyotr Aven v. Center for Public Integrity, Knut Royce and Nathaniel Heller.

by John Helmer - Monday, November 22nd, 2004
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Laundering a man’s reputation is a little like laundering money. The more you churn the facts, the harder it is to remember them; the less damage they can do; and the whiter the outcome.

It is for this reason that Russia’s oligarchs have spent so much effort bringing defamation cases against their critics and investigators in the courts of foreign countries. The countries chosen are those where the oligarchs have set up their homes and families; and also where their bankers issue their loans, or where an oligarch can leverage his local business interests against advertising-dependent newspapers. As defamation law varies from country to country, favouring the press in the United States, and the oligarch in the United Kingdom, the preferred choice for a reputation laundering operation is London. There, it is not only the courts, but also the English newspapers, not to mention the English prime ministry, which specialize in reputation laundering.

The greatest disadvantage that a certified Russian oligarch has in the libel courts of the United States is that he is a public person, not a private figure. According to US defamation law, the free-speech provisions of the constitution, and the way in which the US courts have man is deemed to be so well-known interpreted both, if a good man is deemed to be so well-known in his activities, through government, market or media, a great deal that is bad about him may be reported but not qualify as libel, according to the US standard. For oligarchs who have spent small fortunes at American public relations companies to promote themselves in the US as internationally respected public figures, it is difficult for them to turn around and confide to a US judge that they are nothing but humble individuals unseeking of fame, and undeserving of notoriety. One oligarch, who will argue this before a judge in a US federal court very soon, has amassed the voluminous record of 11,500 pages of English-language press reportage, not to count the Internet, in the last four years. If the judge rules that a man with that record is a public person, then the! truthfulness of the bad that has been published about him need not be proven by those who have reported it. Rather, the bad but good oligarch must prove malice in the reporting about him, or reckless disregard for the truth. For oligarchs accustomed to paying for good reports, and assuming that bad reports must be paid for by a rival or enemy, this is a legal standard that is next to impossible to meet. Accordingly, no oligarch is likely to be libeled, according to a US court. But on the other hand, no US judge is; likely to get around to adjudicate the truthfully bad from the truthfully good in an oligarch’s reputation.

While England and the US are the countries which the Russian oligarchs depend on the most, there are a handful of other places where they like to live, make and spend their money. In Germany and France, for example, Russian oligarchs have applied for courts ‘to adjudicate libel in their favour against newspapers, generally business newspapers influential in the bank suites. The mere threat of litigation is often enough to persuade even the most respectable of media managements to avoid informing their readers about the risks – real, perceived, suspected, rumoured — of doing business with Russian oligarchs.

This public form of due diligence is serious and problematic enough for at least one oligarch to have gone to the: trouble, two years ago, of hiring an internationally reputed detective agency to prepare a report on his reputation. While the contract documents show that the oligarch agreed to pay a large: sum of money for the job, the cost of his bankers’ suspicion that he might be a bad man to lend money to was substantially greater, as the detective agency pointed out in the correspondence. And so, the detective agency was hired; a code name was coined for the project; and a large advance payment was invoiced.

To be sure, the detective agency had a reputation of its own to guard. And so, there was a certain awkwardness, on the detective agency’s part, in taking pay from the oligarch for what was mutually agreed to be an “independent” evaluation of all the bad the man was reputed to have done; and for the oligarch to then distribute the detectives’ report to those he suspected of believing he was a bad man. Enquiries were therefore promised of officially independent law enforcement and intelligence agencies around the world, to which the detective agency claimed access. Unfortunately, for the reputation of the detective agency and its report, the latter must have resisted the enquiries that were sought. They told the detectives nothing the latter managed to include in their report.

The internationally reputable detective agency could hardly be drawn into a US court, because the effect of its report would be to substantiate the very point an oligarch must try to deny – that he is a public person with international notoriety. As a private foreign enterprise purporting to investigate official Russian agencies of government, the report would be inadmissible as evidence in a Russian court.

And so, when the report was dispatched recently to a French court, its existence begged the question of what me French government and its intelligence agencies knew about the subject matter. Even if French jurisprudence is inclined to be generous to oligarchs on the distinction between public persons and private individuals, and strict in the requirements for veracity by reporters in print, many centuries have passed since a French court accepted as evidence the opinion of a private foreign enterprise (lathering and selling information for money.

For any man to put his reputation on trial in a court of law, there is always the risk of adding to his notoriety, and thus, win or lose on the legal issues, to reinforce the impression that he is the very bad man he has been made out, so wrongly, to be, After all, it is not the exoneration, or esteem, of the man in the street, or the reader of newspapers, that an oligarch is seeking when he goes to court. His target is a bankers’ head of risk, the chairman of the credit committee, the insurer of officers and directors’ liability, the independent auditor, and the legal drafter of his next prospectus for an unsecured Eurobond or American Depositary Share. That’s a small, sophisticated audience, who know th« unprintable truth. They are not greatly influenced by guilty or innocent verdicts in libel cases.

Note to readers: on November 22, at the 17th Court of Paris, Mikhail Fridman will present his case for defamation against Les Echos, France’s business newspaper. On December 21, Judge John Banks of the federal US district court of Washington, DC, will hear oral argument on a defendants’ motion for summary judgement in the case of OAO Alfa Bank, ZAO Alfa Eco, Mikhail Fridman and Pyotr Aven v. Center for Public Integrity, Knut Royce and Nathaniel Heller.

by John Helmer - Thursday, November 18th, 2004
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MOSCOW (Mineweb.com) – Brian Gilbertson, the South African appointed a few months ago to head SUAL, a Russian mining and metals company, has run into a problem from a direction he couldn’t have anticipated — from the past. And unless he can quickly resolve the problem, the company he was hired to sell to foreign investors at a premium will have a gaping hole where one of its prize assets should be.

The challenge to SUAL, endorsed by a Russian court ruling two weeks ago, is also an embarrassment for Renova, the US-registered company controlled by SUAL’s chairman, Victor Vekselberg. Renova has been promoting itself in South Africa this year with promises of big investments to come in SA resource projects and black empowerment. Renova has also lobbied SA government officials to smooth the way ahead.

The reality of Renova’s position, however, is that, in Russia, it has allegations of shareholding and metals trading fraud to answer in the courts, while the tax authorities have begun pressing claims that Vekselberg, his company, and his partners should pay.

Once a major shareholder in the Volgograd Aluminium Plant, Shota Mikhelashvili told Mineweb that a recent Volgograd court ruling, invalidating a share emission for the plant that had favoured its takeover by Siberian Ural Aluminum (SUAL), is just the beginning of his campaign to recover a stake he values at a minimum of $20 million.

Mikhelashvili is chairman of the board of the Ralco company, which has held a 17-percent shareholding in the Volgograd smelter since 1993. He and lawyer Timofei Kryuchkov won a ruling this month from the Volgograd region arbitration court over opposition from SUAL, which has been planning to consolidate full control and ownership of Volgograd. The court move has blocked that.

SUAL is controlled by Vekselberg, and Len Blavatnik; Vekselberg’s personal holding company is Renova, while Blavatnik directs Access Industries, both US companies. Bill Spears, their spokesman, told Mineweb he anticipates a successful appeal. “Once the court has studied the faces, we believe it will support the legality of our partners’ position,” he said. Asked what SUAL says in response to Ralco’s claims in the court suit, Speaks said: “concerning Volgograd Aluminium, we are sure our partners are in the right. Beyond this, we do not wish to add anything further.”

The court ruling against SUAL comes at an awkward time for Vekselberg and Blavatnik, two of the three former controlling shareholders of Tyumen Oil Company (TNK), who in 2003 sold their stake in the top-5 oil producer to British Petroleum for cash and BP shares worth a total of $6.75 billion. The third shareholder to sell was Mikhail Fridman of the Alfa group.

Last week, the Russian tax authorities filed a back-tax claim against TNK’s successor, TNK-BP, for the year 2001 totaling $89 million. BP is holding an indemnity, agreed to by Vekselberg, Blavatnik, and Fridman, that makes them liable for any tax claims against TNK, prior to BP’s takeover.

Peter Charow, BP’s Moscow representative, told Mineweb that the indemnity from Vekselberg, Blavatnik and Fridman is in place, but it is “too early to tell” if BP will be obliged to enforce it. “Until we know more about the potential tax claim at issue, it will not be possible to say whether the indemnity will apply to all or part of the potential liability,” Charow said.

The Ralco challenge could prove to be equally costly. According to Mikhelashvili, “we want to fight for a share of SUAL), comparable to our legitimate stake in Volgograd. Our first target is to keep it, not to sell it.”

Two years ago, SUAL announced that it would acquire the assets of Volkhovsky Aluminium Plant, Volgograd Aluminium Plant and Pikalevo Alumina Plant from the Sevzapprom holding company; Sevzapprom is a Russian acronym meaning “Northwestern Industry”. In August of this year, SUAL’s shareholders approved the terms of consolidation with Sevzapprom’s Volgograd Aluminium Plant. At the time of the SUAL takeover, the controlling shareholder in Volgograd was Alexander Bronstein. Since 2003 he has been one of the 7 members of the SUAL board. Gilbertson is a fellow board member.

According to Mikhelashvili, Bronstein was responsible for the manipulation of the Volgograd smelter’s shareholding, before he and Vekselberg made their merger deal. After that, Mikhelashvili claims Vekselberg knew, or had a duty to know, what had become of the Volgograd’s minority shareholders. The statement from Spears confirms that Vekselberg is endorsing Bronstein.

Just before Gilbertson’s takeover, in a document circulated to SUAL shareholders in mid-2004, the SUAL management estimated the value of the Volgograd plant at between $105 million and $135 million, with a midpoint estimate of $120 million. That figure, Mikhelashvili told Mineweb in Moscow this week, “is a value below which it is not polite to go.” He added that if the plant is valued at the market cost of its current annual output, the valuation should be at least twice the SUAL estimate. Mikhelashvili’s 17-percent stake would then jump in value to around $41 million. If a higher valuation for SUAL’s assets is drawn from Gilbertson’s presentations to international investors, Ralco’s claim would grow accordingly.

In a website release, dated September 14, SUAL announced that at shareholder meetings, held on August 31, “an absolute majority of the participants, 99.99 per cent of the total of OAO SUAL shareholders and 93.02 per cent of OAO Volgograd Aluminium shareholders voted in favour of the incorporation of Volgograd Aluminium into OAO SUAL. The next step required to complete the merger will be a joint general meeting of the shareholders of both companies. Volgograd Aluminium and the OAO Metallurg subsidiaries, Volkhov Aluminium and Pikalevo Alumina, were incorporated into the SUAL Group production chain in 2002, after the SUAL Group and the SevZapProm Management Company had made arrangements to merge their aluminium assets.”

The 6.98 percent of shareholders who voted against Volgograd’s incorporation into SUAL comprise the Ralco stake. Mikhelashvili told Mineweb that his original stake of 17 percent was diluted to this by a share emission in 2000. “This emission was not legal,” Mikhelashvili said. This is the claim which the regional arbitration court upheld on November 5, and which SUAL is now appealing.

The Volgograd smelter began operating in 1959, and it has been producing at 150,000 metric tons per annum, said Mikhelashvili, who was a board director at the plant in 1996 and 1997. This is above initial design capacity of 141,000 tons per annum. The output figure is confirmed by a SUAL press release of September 2004. SUAL’s release of quarterly production results does not identify individual smelters, but Volgograd appears to account for about 17 percent of the SUAL aggregate of about 890,000 tons.

Mikhelashvili told Mineweb that Volgograd exports its aluminium through tolling contracts that deprive the plant of between $150 and $200 per ton. “There is an underestimate of annual revenue of $25 to $30 million,” Miikhelashvili alleges.

Alfa-Bank metals analyst Maxim Matveyev reports that Ralco’s court action “could delay the incorporation process, which would be negative for SUAL

by John Helmer - Thursday, November 18th, 2004
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MOSCOW (Mineweb.com) – There is an old Russian tradition of never speaking ill of the powerful. But in March, when President Vladimir Putin plucked Yury Trutnev from provincial obscurity to become his minister of natural resources, it was far from clear whether Trutnev had been chosen because he was already a powerful figure, or because he could be trusted not to become one. Eight months later, Trutnev, who is in South Africa this week heading the Russian delegation at the annual SA-Russia ministerial conference, has still not demonstrated why he was promoted, and what he intends to do for Russia’s vital mining sector. Those who speak for Trutnev are understandably reluctant to answer questions on his behalf; a couple of weeks ago, Trutnev fired one spokesman, and appointed a fresh one. But Trutnev is no-less tight-lipped himself. For the months since his appointment as the co-chairman of the SA-Russia inter-government committee on trade and economic cooperation (ITEC), he has refused to say anythng at all a out his SA assignment, or about the issues that concern SA mining companies in Russia. He has been too busy, a spokesman said, to indicate whether he favours compensating the SA-Australian partnership that held the mining licence for Sukhoi Log, Russia’s largest gold deposit, before it was illegally revoked by corrupt officials in 1997. On the other hand, Trutnev was not too busy to announce in July in Irkutsk, where Sukhoi Log is located, that he favours accelerating the process of awarding the licence anew, a move that has been lobbied by Norilsk Nickel, Russia’s largest goldminer. Many weeks have passed since then. However, there is no sign of the legislative amendments Trutnev promised to implement his intention. Instead, Norilsk Nickel has run into serious trouble with the Kremlin, and with the President’s advisor on mining policy, Vladimir Litvinenko, one of the leading academic geologists in Russia. Trutnev and Litvinenko do not see eye to eye.

Trutnev is also coy, when it comes to saying how he regards the mineral monopoly over diamond-mining jealously guarded by Alrosa, and that of nickel held by Norilsk Nickel. Asked if he favours legislating a 65 percent cap on the mineral reserves a single company can hold under licence in a single region -a measure favoured not only by Litvinenko, but also by the Federal Anti-Monopoly Service – Trutnev refuses again to answer.

He is not even sure whether foreign mining companies should be permitted to bid for Sukhoi Log, or for the large copper deposit known as Udokan. Litvinenko thinks not, but Trutnev has tried to say both yes and no. “We do not see the necessity to create a distinct ban on foreigners,” he announced in July. “Although there are situations when the state should protect the national interest in the sphere of natural resources usage, such situations should not be resolved by administrative methods, and should be required to be registered in the law.” Regarding the future of Udokan, he said “competition is necessary for us…we say an open and transparent auction for the licence.” The front-runner for Udokan is Ural Mining and Metallurgy, a Moscow group controlled by Iskander Makhmudov, a oligarch-sized figure.

The De Beers dispute with a local businessman over the mining licence to the Verkhotina deposit, in the Arkhangelsk region – a diamond deposit estimated to be worth more than $3 billion – has been running now for six years. But when Trutnev was asked to say what he proposed doing about it, his spokesman told Mineweb there had been a scheduled check of activity at the exploration site. Several technical violations had been found, but the spokesman claimed they were removed, and that “nobody was seriously speaking about taking their license.” That was a mistake. At the Kremlin’s direction, out of reach of Trutnev and his ministry, an order had been issued to stop work at the site, and to press for an end to the licence violations that have been caused by the dispute over the De Beers role. Litvinenko is believed to have been the moving force.

When De Beers managing director Gary Ralfe was in Moscow recently, he met with Prime Minister Mikhail Fradkov. The only foreign miner whom Trutnev has met in his new office is BHP Billiton’s chief executive Chip Goodyear. But Trutnev himself did not admit it, and his spokesman at the time attempted to conceal that the October meeting had actually taken place.

Russians who have been dealing with Trutnev say he is much more commercially minded than his predecessors, and more energetic. Most leading Russian miners say they do not know him directly, nor who was behind his appointment. One believes he may have been the candidate of German Gref, Minister of Economic Development and Trade, whose ministry has often clashed with the Natural Resources Ministry in the past.

According to the official biography Trutnev posted on a personal website, he was born into a family of oil-industry workers living in Perm. He graduated from university as a mining engineer, and after a brief spell working on oilfields, he returned to Perm to work as an administrator of the local sports organization. He was well-known in sports circles as a contestant and instructor in various forms of wrestling. As the Soviet Union crumbled, he and his sportsmen went into business together, creating a company called EKS to import Swiss foodstuffs, pharmaceuticals and other goods on order from the region. Russian press estimates suggest that by the mid-1990s, this had made him a comfortable fortune, and he moved into politics, first as a municipal councilman in Perm city, then mayor, and finally, in the year 2000, governor, replacing the incumbent who fallen out of favour with the Kremlin. It was a narrow victory. EKS, Trutnev’s company, remained a supplier to the region, while LUKoil, the major oil driller n Perm, and Uralkali, the major miner (of fertilizers), were supporters.

To gauge his reputation in Perm today, local elected officials, newspaper reporters, and editors were asked to name three positive things they remember Trutnev as having done when he was mayor or governor, and one negative thing. No-one managed to recall a single negative. But they were almost stumped for positives.

According to the editor in chief of Perm News, Yury Puzniansky: “there were no incidents nor any scandals during the time Trutnev was mayor or governor. He was very silent.” Arkadiy Kamenev, Trutnev’s successor as mayor, said: “I do remember his lobbying of a former army building to pass to a church school, and several things like that. I do not remember any very big faults, or anything like that.” A source in the governor’s office said: “We remember Trutnev as a nice man, very powerful and ambitious. From the positive things I can mention the unification of the Perm region and Komi-Permyak autonomous region. He supported small business in Perm when he was a mayor, and all other ways of personal activity. He was supporting the social sphere of the city, and after that, of the region.”

The unification of two separate units of the Russian federation, Perm oblast and the much smaller, poorer Komi-Permyak okrug, was completed last December. It is one of the type of administrative reforrms which the Kremlin has supported around the country as a way of streamlining central authority and cutting budget costs. According to a publication that appeared a few days after Trutnev’s appointment to Moscow was announced, he and Putin became acquainted during a presidential visit to Perm. The president, claims the report, found that he shared a passion for the oriental martial arts with Trutnev; valued his contribution to the regional unification effort, and was “fascinated” by him on other, not so obvious grounds. The most important of these, according to the report that appeared on the website kompromat.ru, on March 19, was that Putin and his political advisors believe Trutnev would make a suitable candidate to succeed Putin as president of Russia in 2008. “The mysterious successor of President Putin is already chosen,” the publication attributed to Victor Anisimov claims. In Russian, the term kompromat refers to material that is compromising for its target, revealing alleged crimes, vices, and other negatives that, were they to be widely circulated, and believed, would do serious, possibly fatal damage to the reputation and standing of the target. Kompromat may be true, but since there is so much in circulation, the authorities so weak, and the public so cynical, it may have absolutely no effect on the intended victim. Or kompromat may be false. Paying for publication of kompromat is a common business tactic for dealing with all manner of rivals and business competition.

In Trutnev’s case, so little was known about him to begin with that the publication of this particular komproma, predicting that Trutnev will be the heir apparent, seemed anything but compromising. Some think that it is a message from those in the Kremlin, who, having overheard Trutnev dreaming aloud, want to warn him against getting too big for his boots.

No-one in a position to know Putin’s thinking on the subject of his succession believes the President, who keeps these things to himself, would overlook much better tested candidates in favour of Trutnev. But of one point, there is no doubt in Moscow. Putin is planning to arrange his succession, so that, although the Russian constitution limits him to two consecutive terms in office, he can arrange the succession in such a way as to return for a third term, so long as there is a decent interval in between. That may require a new president, who resigns after a year. It may involve a game of musical chairs, so that Putin would move to become Prime Minister (or Governor of St Petersburg), while his stand-in takes the presidency, and they make a further swap after a four-year term. Whatever Putin decides to do, Trutnev has every reason to keep his mouth shut, his fingers clean, and his feet ready to march in the direction the wind is blowing.

Making an enigma out of a riddle is something Winston Churchill once claimed that Russians were good at. The Trutnev mystery is no exception.

by John Helmer - Tuesday, November 16th, 2004
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Oleg Deripaska is a very brave man, in all likelihood.

When Ernest Hemingway wrote “Death in the Afternoon,” his study of Spanish bullfighting almost 75 years ago, he made a point of appreciating the quality of bravery in both bullfighters and bulls. So does the audience at corridas today. The most common degree of bravery, Hemingway wrote about the men, is “the ability temporarily to ignore possible consequences.” An even greater degree of bravery, Hemingway added about the matadors he knew, “is the ability not to give a damn for the possible consequences; not only to ignore them, but to despise them.”

In the fifteen months since President Vladimir Putin began his campaign against the Yukos oil company and the oligarch who controlled it, Mikhail Khodorkovsky, Kremlin and other government officials have speculated about whether it would prove to be a one-off affair, or whether Putin would move against other oligarchs, whose record of capital accumulation is similar to Khodorkovsky’s. As time has elapsed,the Kremlin factions have increasingly believed that their boss would be unrelenting. They have therefore begun to speculate about which oligarch would be next. The Russian media have joined the guessing-game, while those newspapers which are controlled by the oligarchs themselves have been Advertising the reasons they can think of why their proprietor should be safe. Not a single oligarch has shown such bravery as Hemingway described as verging on contempt for the consequences! Unlike Khodorkovsky, most of them have prepared their exits from Russia, in the event they face a charge they cannot deflect.

Depending on which source you listen to, Deripaska — the controlling shareholder of Rusian Aluminium (Rusal), world’s third largest producer of aluminium, and Basic Element, a holding that includes auto, paper and pulp, insurance, electricity and other assets – is more vulnerable to Kremlin attack than his fellow oligarchs. But until very recently, this was) self-serving speculation, cheap talk. On September 6, however, a government document appeared that challenges the president to act in a new fashion.

Rusal, Deripaska’s principal source of cash, is revealed in the document to be under official investigation for tax optimization practices which, according to a source redding from the document, cut the group’s tax payments in 2003 to jlnst 2 percent of its declared sales revenues. By contrast, Rusjsian oil company Yukos, whose principal shareholders are in prisofii facing trial on charges of fraud, forgery and tax evasion, paid 38 percent of its annual sales revenues on tax in 2002, and again in 2003. LUKoil, another major Russian oil producer, claims its tax payments for 2003 amounted to 24 percent of sales revenues.

Rusal, which does not disclose detailed financial data, claims its sales revenues for 2002 and 2003 amounted to $4 billion and $4.5 billion, respectively. Rusal executives did not reveal the tax problem at an investor briefing in New York last week, when they predicted imminent agreement from a group of international banks to lend $800 million. If Putin were to decide to seek repayment of past-due taxes at the Yukos level, Rusal could face a potential tax liability of $3 billion for the two years, before interest and penalties.

Here is what has happened already. A report on tax payments by major Russian metal companies, including Rusal, was compiled by the federal Tax Ministry, and delivered early this month to the prime ministry. According to Sergei Kazakov, a spokesman for Prime Minister Mikhail Fradkov, “the report was created at the request of Prime Minister Fradkov’s staff), and was sent there for study. After the staff will carefully study it, they will decide what governmental structures could be interested, and what to do next.” The report has not yet been distributed. A spokesman for the Federal Security Service said: “Our economic crime department did not confirm receiving such a report from the Tax Ministry.” At the General Prosecutor’s office in Moscow, a source said the report may have been read by one of the prosecutors, “but officially we didn’t receive it.”

According to the Tax Ministry, the rate of tax payments in 2003 by Rusal appears to be a fraction of that paid by comparable metals producers. The rate paid by Norilsk Nickel, for example, Russia’s leading producer of nickel, copper and platinum group metals, amounted to 19 percent of sales revenues. A Norilsk Nickel spokesman told me: “”We’ve heard about the report passed to the prime ministry, but I can confirm that no governmental structures made any official claims to the company.”

Severstal, one of Russia’s largest steelmakers, is identified in the report as having paid taxes at between 12 and 14 percent of revenues. Two other steelmakers, Magnitogorsk and Novolipetsk, were reported as having paid taxes at rates of 12 percent and 13 percent, respectively. The report’s authors have identified metal trading companies, acting for the Russian firms, in the Isle of Man, Gibraltar, British Virgin Islands, Cyprus, and other locations.

According to the text of the report, Rusal was able to minimize its tax payments through the use of tolling schemes — contracts for supply and processing of raw materials between Rusal smelters and offshore companies — and through a regional tax relief scheme operated through companies registered in the fareastern region of Chukotka. The region’s governor, Roman Abramovich, was a 50-percent shareholding partner of Deripaska in Rusal until he sold the latter a 25-percent bloc of stock a year ago. Rusal executives claim that Dertpaska is close to negotiating a deal with Abramovich and his holding company, Millhouse, for the purchase of the remaining 25 percent stake.

Abramovich’s administration of Chukotka’ public finances was investigated by the independent state auditor Chamber, earlier this year. A summary of the report by the Chamber, issued in May, revealed companies, linked to Rusal, among 22 corporate beneficiaries of several hundred million dollars in estimated tax benefits. A search of Russian corporate registration files turned up confirmation that Trading House Aluminium and Trading House Russian Foil were registered in Anadyr, in Chukotka. On October 19, 2001, the two companies are recorded as having founded a Moscow company, Russian Aluminium Finance LLC. All three companies are part of the Rusal group. The Chamber spokesman, Andrei Belayev, told me this week: “It’s now clear that Rusal was using tax optimization schemes in the Chukotka region, but it’s difficult to give the exact number of the tax underpayments.”

The legality of the Chukotka tax scheme, according to the regional law in effect at the time, depends on whether those who used it to offset taxes spent half of their tax savings in the Chukotka region. The legality of Rusal’s tolling and the tax relief it provided, depends on interpretation of the relationships between the on-shore production units of the metal, and the offshore trading units, and of the intentions conveyed by the trading records.

Although Rusal spokesmen brief industry analysts, they have declined to respond to press questions about the Chukotka scheme, or the latest Tax Ministry investigation. Rusal also does not publicly disclose detailed trade data, except to say that just over 80 percent of annual sales revenues are earned by “sales outside the Russian Federation”.

Western industry investigations of Rusal’s aluminium trade have been focusing on several unexplained anomalies in the data for Rusal’s exports. According to one investigation, conducted in London, there appears to have been a change in the first quarter of 2004 in the volumes of primary aluminium traded by Rual, a trader associated with the group, and Wainfleet Consultadores, a company reported to be doing business in Madeira, Portugal. Litigation involving Rusal in the US uncovered a large number of trading companies, registered in several tax-haven locations from the Caribbean to Gibraltar, and elsewhere, through which Rusal’s aluminium passes on its way to final destination. During this transit, lawyers claim, legal title to the aluminium changes.

There are also large, unexplained anomalies in Russian customs data for exports of primary aluminium (commodity code 7601) to the US, and the corresponding data for US imports of Russian aluminium. Rusal and a second Russian producer of aluminium, Siberian Ural Aluminum (SUAL), export to the US. Data provided by SUAL indicate that its sales to the US comprise roughly 20 percent of the aggregate Russian sales, with the balance accounted for by Rusal.

According to the Russian customs data, aluminium exports in 2003 totaled $1,408 billion; the corresponding tonnage figure is unavailable. Data released by the US International Trade Commission for the same year show imports of Russian primary aluminium totaled 657,000 metric tons for a value of $950 million. Russia was second only to Canada as the supplier of aluminium to the US. But the US value is $458 million below the declared Russian value. Industry experts in London believe this may reflect changes of origin in the metal, once it leaves Russia according to tolling contracts and the registration of fading companies.

The picture is dramatically different for this year’s trade. In the first seven months of 2004, US imports of primary aluminium from Russia totaled 524,455 metric tons, and were valued at $883 million. The average price was $1,685 per ton, which is close to the international marker, the LME average for the period. Official Russian data obtained for the same period do not reveal the tonnage, but the declared value was $36 3.2 million. The discrepancy in value is almost half a billion dollars.

Russia customs sources provide volume data for the six-month period to June 30, 2004. In that interval Russian exports to the US were 180,163 tons, for a declared value of $228 million. The average price is $1,262 per ton; this is $423 below the international market price. Calculating volume by the month, the US appears to have imported 150 percent more Russian aluminium than the Russian data disclose. The average US value per ton is 34 percent higher than the figure declared to Russian Customs.

According to a source at the State Customs Committee, part of the distortion in US import data has been caused by the use of tolling contracts, which changed the apparent [dace of origin of Russian entering the US. However, he noted that tolling for Russian exports of aluminium ended by January 1 of this year.

If the customs documents which Rusal files when it exports aluminium are under-valuing the price at which the product is sold – and Russian Customs sources do not say that it is – then investigation is the responsibility of the Tax Ministry and the General Prosecutor, according to the State Customs Committee. There, officials are waiting on orders from the prime ministry, which in turn waits on word from the President. Asked whether his staff is reviewing the Tax Ministry report, the presidential spokesmen have yet to reply.

by John Helmer - Thursday, September 30th, 2004
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If anyone should know how to rig a constitution, it’s me and George Bush, Jr. You might say it runs in the family.

Take my uncle, for example.As the British Empire began to break apart in the aftermath of World War II, he was one of many former military intelligence officers assigned by the imperial administrators in London to exercise their Oxbridge educations for the benefit of the constitution drafters in the colonies. On one of his stints, my uncle helped install a British constitution in Ghana. Much later, he helped provide advice during the course of the only constitutional putsch to have occurred in Australian history. The outcome was the removal of the elected Labor prime minister, and his replacement by a conservative. For his legal skills and loyalties, my uncle was handed the unpopular reward of becoming Australia’s governor-general. It was one of those jobs that someone has to do in Australia, if not in Ghana, which got rid of its Colonial Office constitution as quickly as it could manage.

I was working for U.S. President Jimmy Carter when the call for help came in from Prime Minister Jayewardene of Sri Lanka. He had just been elected, and he was thinking of changing his constitution. It was another of those Colonial Office jobs that had my uncle’s fingerprints all over it. The prime minister was thinking of turning himself into a president, and needed someone who knew how to handle the English and American rue-book. We worked hard over the next few months, and for a going-away present, Jayewardene’s Cabinet colleagues presented me with a leather-bound version of their mint-new Sri Lankan Constitution. I was touched, and in my acceptance speech, I invited the 20 or so ministers and advisors at dinner to sign the document, if they didn’t mind. Constitutions can be short-lived, and the good a man does to rig one for today, can be quickly forgotten tomorrow, I said to knowing nods. Within a decade, many of the signatories were unnaturally dead, blown up or shot down in the civil war that has afflicted that unhappy land. I still have my leather-bound keepsake, though.

A decade of good works later, and I happened to be in Athens the year US President Ronald Reagan thought it was time to rig a Greek election, and dispose of socialist Prime Minister Andreas Papandreou. He was much too popular at the time to lose a constitutional election, and as Reagan’s advisors warned, they had already toyed far too often with the Greek constitution for another attempt to be worth the try. And so the idea was hatched to encourage a little war between Turkey and Greece over oil exploration rights on the seabed of the Aegean Sea. The plan was to humiliate Papandreou in front of the voters. The Greeks started preparing for war about six months before Washington told the Turkish prime minister to give the order to set sail into Greek waters.

It was a fateful order. In a flash, Papandreou turned off the electricity at the American intelligence bases, cutting their ability to listen into Greek military communications. He moved the Air Force to front-line bases, fully armed and ready to take off on three minutes’ warning. And he called Todor Zhivkov, president of Bulgaria in those days. Zhivkov ordered his tanks to start rolling towards the Turkish border. It was the first – and last – display of coordinated military action by a NATO state and a member of the Warsaw Pact. It was also the shortest war that Greece has ever won over Turkey. The Turks and the Reaganites suddenly got cold feet. Their geological survey vessel was ordered back to harbor, and the Turkish prime minister checked intci a Houston clinic for a cardiological checkup. Greece and its Const tution were safe, until Reagan’s next trick – a scandal hatched with a Greek fraudster, who owned a local football team. But that’s another story.

The experiment of the Soviet Union constitutionally re-jigging itself under Mikhail Gorbachev was hard for the outside powers to resist manipulating, and as we all know, they didn’t. Russia under Boris Yeltsin turned out to be a familiar story. Only memories are short, especially when prompted by those who receive stipends to forget.

When the Moscow Times reported this week that President Vladimir Putin is proposing to change the Russian Constitution “which was drafted by Yeltsin advisers amid political fights in a Communist-controlled Duma”, the audacity of the misrepresentation, or the forgetfulness, takes one’s breath away. The 1993 constitution that Yeltsin drafted followed his order to shell and machine-gun to death the popularly elected Supreme Soviet. About 140 lives were lost in that attack. The opposition to Yeltsin in parliament included a Communist Party majority because the voters put them there, under the constitution that aimed at maintaining a balance of power, or so it was called at the time. But support for reform of the constitution, then being drafted by non-Communist deputies like Oleg Rumyantsev, Sergei Baburin, and Ruslan Khasbulatov, was in no way controlled by the communists. Quite the reverse – the constitutional reformers were far ahead of the Communist Party.

The Moscow Times compounds its forgetfulness of what really happened with more distortion. The Yeltsin Constitution of 1993, claims the newspaper, “placed a lot of power in the president’s hands but introduced direct elections for governors, and reserved half of the seats in the Duma to directly elected deputies.” What is omitted is that Yeltsin eliminated direct election of senators to the Federation Council, substituting the governors and the regional parliament chairmen in their place. This was done because direct election of the upper house had created an anti-Yeltsin majority during the constitutional battle with the Supreme Soviet. Yeltsin used the formula of direct gubernatorial election to make sure he never faced a hostile senate again. That was an irreversible shift in the balance of power. The Constitutional Court, which had also been showing independent opposition to Yeltsin, was locked out, and its membership then swamped with presidential trusties. These measures were promoted, then roundly applauded in Washington at the time. When Yeltsin rigged the vote for ratification, there was no complaint from foreign democrats, or the local ones besides.

That sordid story does not justify the attack on Putin’s proposals from the same forgetful gang that backed Yeltsin’s destruction of parliament, court, and constitution 11 years ago. Eleven years for a rigged constitution has proved long enough to forget the democratic options that Yeltsin destroyed. He himself can claim today “we will not allow ourselves to deviate from the letter, and most importantly, the spirit of the Constitution that our country adopted by popular referendum in 1993.” But the old crocodile is weeping phoney tears. The spirit of the 1993 constitution was rigged; the letter was a fraud; the outcome was a rotten borough parliament in which seats (as well as parties) have been bought and sold. Eleven years isn’t so long that Putin should be under obligation to preserve that.

Gubernatorial seats are so expensive, they have required oligarch-sized fortunes to acquire. Thus, for exampe, Sibneft owns Chukotka; Norilsk, Krasnoyarsk; Alrosa, Sakha; Russian Aluminium, Samara and Khakassia; and Tyumen Oil Company, Tyumen. It has been cheaper to buy seats in the Federation Council, and the State Duma. It’s difficult to say whether single-mandate seats in the lower chamber are are costly, more tradable than places on the party lists. Both together represent a concentration of corporate wealth that has been the real character of Russia’s parliamentary evolution since 1993.

The big question today is whether Putin will prove strong enough to continue his campaign against the oligarchs, and clean parliament of their corruption at the same time. Remember that, at the start of last year’s parliamentary election campaign, not a single political party or candidate told the voters whether he was for or against Mikhail Khodorkovsky’s massive tax evasion and fraud. That did not become a campaign issue until Putin’s initiative demonstrated that it was both official and popular at the same time. Reviving ideologically distinct political parties through a simple proportional representation system is a worthy aim. But if the United States hasn’t managed to achieve this yet, Putin may be biting off more than he can chew. And if he succeeds, the political outcome may be too democratic to be digestible. For proportional representation will sharpen the ideology of Russia’s political opposition. It will almost inevitably produce a revival of leftwing, even communist opposition. This is hardly what the so-called democratic critics of Putin want to see. The outside powers have spent billions of dollars rigging the Russian Constitution so that would be impossible.

Of course, that was mostly the doing of George Bush Sr. and Bill Clinton. Bush Jr. arrived too late to rig the Russian Constitution. He almost didn’t arrive at all. If he hadn’t rigged the constitutions that regulate the state of Florida and the Supreme Court in Washington, everyone knows that Bush Jr. wouldn’t be president today.

by John Helmer - Wednesday, September 22nd, 2004
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