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By John Helmer in Moscow

A $200 million road construction project in Kenya, one of the country’s biggest infrastructure investments, is being delayed by a World Bank investigation of the involvement of Oleg Deripaska.

The due diligence investigation of Deripaska now under way at the World Bank is the first acknowledgement by the multilateral global lender, based in Washington, DC, that Deripaska’s track record in the aluminium and other businesses; civil and criminal court records in the UK and Spain; and US Government reports have raised corporate governance and credit eligibility concerns.

Last December, in a Hong Kong Stock Exchange prospectus for United Company Rusal, which Deripaska controls, refinancing agreements were announced with a consortium of international commercial banks and with Russian state banks covering about $17 billion in Rusal debts. Additional loan reorganizations have also been agreed for several billion dollars in additional debts owed by companies in Deripaska’s Moscow holding, Basic Element.

The possibility of a negative ruling by the World Bank on Deripaska challenges the risk and compliance assessments undertaken by the commercial banks.

The only assessment of Deripaska known to have been carried out by another multinational lending organization was undertaken by the European Bank for Reconstruction and Development (EBRD) in late 2005 and completed in January of 2006. In its finding, the EBRD confirmed that they “plan to disburse loans totalling $150 million for the Komi Aluminium project after determining that the recent entry of Russian Aluminium (RUSAL) as an equal partner is acceptable. The decision is an important step towards final agreement to disburse. It is based on full disclosure of ownership by RUSAL’s and Basic Element’s owner Oleg Deripaska, and additionally provides for detailed commitments to greater transparency, good corporate governance and high business standards, covering RUSAL and Basic Element. Compliance with these commitments is covenanted in legal documentation with the EBRD and IFC. In particular, the EBRD and IFC welcome the adoption by RUSAL of an action plan over an 18-month timetable covering significant corporate ownership disclosure, the publication of financial information and specific steps aimed at improving corporate governance.”

In addition to issuing this press release, EBRD sources said at the time that Deripaska had signed undertakings that he had no business relationship with Michael Cherney (Mikhail Chernoy), and owed him no money, dividends, or shares in Rusal. These claims have subsequently been the subject of a UK High Court case, which is still under way, in which Cherney is claiming that Deripaska has been holding on trust and by contract with him a 13% stake in Rusal. The judges’ rulings to date cast doubt on the credibility of Deripaska’s denials to the EBRD.

According to Richard Wallis, the EBRD spokesman, “the EBRD conducted extensive checks on the information provided by Mr. Oleg Deripaska on the companies he owned. The loan agreement includes a large number of detailed legal covenants covering all aspects of the project, including the information disclosed to the Bank by Mr. Deripaska on the ownership and structure of the group as well as the commitments made by Mr. Deripaska on future action.”

The World Bank has apparently decided to reopen the matter. A source close to the International Finance Corporation (IFC), one of the lending arms of the World Bank, said the World Bank currently maintains a black list of companies which have been judged to be ineligible for World Bank or IFC project financing or loans. Deripaska’s companies are not on this list, the source said. However, he noted that the Bank and the IFC are concerned to investigate Deripaska’s record because he is a shareholder in one of the companies seeking finance for the Kenyan project.

The consortium of companies bidding for the project is known as the Nairobi Motorway Group. An Israeli company, Shikun & Binui, and an Austrian company, Strabag, are members of the consortium, according to the IFC. There is no other bidder for the road, which IFC estimates to cost about $200 million, and which is planned to run for more than 130 kilometres between Nairobi, in central Kenya, to Mombasa, on the coast:

Reporting by The Nation, a Kenyan newspaper, last week claimed that work on the project had stalled. “The project has run into trouble apparently because the Russian has been blacklisted by the Bretton Woods institution. But the World Bank says it was still carrying out due diligence on the consortium.”

Sergey Babichenko, a spokesman for Deripaska’s Basic Element holding, declined to answer questions about the project or the World Bank investigation. Through Rusal, Deripaska owns an aluminium smelter in Nigeria, and bauxite and alumina concessions in Guinea. Both are under challenge from government and court proceedings currently under way. Until now Deripaska has not been known to have business interests in East Africa.

The World Bank source, who has direct knowledge of the project and the investigation, but asked not to be identified, said the focus is Deripaska, not because the construction companies that are part of his holding are involved in the project; but because Deripaska is a shareholder in Strabag. The source said he couldn’t estimate a timetable for the investigation.

A spokesman for Strabag said that at the moment Deripaska owns one share in Strabag, with a call option to buy a 25% stake in October of this year at a price of €547 million. This is the tail-end of the deal Deripaska made originally in 2007. At the time, the public reports indicated he had paid €1.2billion for a 30% shareholding in Strabag, borrowing at least €500 million of that amount from the Haselsteiner family, who control Strabag, and Raiffeisen Bank. When Deripaska defaulted on this loan in 2009, the shareholding went back to the lenders, who have maintained their closeness to Deripaska by offering him the buy-back option. Strabag has counted on Deripaska to win major Rusisan government-funded construction contracts, including several intended for the Sochi Winter Olympic Games.

Strabag refers questions on the Nairobi Motorway project to IFC spokesman, Desmond Dodd. He is reported in The Nation as saying: “The shareholders of the company awarded the Nairobi toll road concession are diverse. The World Bank Group requires a high standard of governance on all projects …the World Bank is taking appropriate measures to ensure that they could work with the sponsors of the concession should we receive the financing mandate.”

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