|
|
| |
DANCES WITH
BEARS
How to
redress a Russian aluminum
oligarch
By John Helmer
MOSCOW - Picasso was late for dinner at Gertrude
Stein's, in Paris in 1907, when Alice B Toklas said to
him, after the painter had been seated beside her, that
she liked his portrait of Stein, on the wall above them,
very much. To which Picasso famously replied: "Everybody
says that she does not look like it. But that doesn't
make any difference. She will."
Oleg Deripaska
is like that. In negotiations now under way with Alcoa,
the global aluminum leader, he's hoping that the
Americans will come to like him, too. If they do, a
trans-Pacific metal giant will emerge to challenge the
newly conceived Canadian-French combination of Alcan and
Pechiney.
The Russian oligarch, who owns most of
Russian Aluminum (Rusal), and the Basic Element holding,
in which he's placed his paper and pulp assets; car and
bus factories; an aircraft production line; more than
one electricity plant; a bank, an insurance company, and
stakes in a steelmill and regional media, is very
sensitive about how his business operations and acumen
are reported.
Accordingly, he retains a large
staff of public relations men and lawyers to paint the
portraits he prefers of himself, as well as of the
financial condition of his companies. The job of this
staff is also to issue complaints and threats whenever
Deripaska doesn't look like the pictures others draw. He
is currently litigating against Le Monde in Paris, and
Frankfurter Allgemeine Zeitung in Frankfurt, claiming
defamation. In the US, he has engaged a former US
attorney-general and state governor to launder his
reputation. In Moscow, he has frequently sued, or
threatened to sue, newspapers and their writers. But as
Picasso warned, time will decide. None of Deripaska's
efforts will make much difference if President Vladimir
Putin means to include him in his list of five, seven or
10 Russian oligarchs whose empires, Putin announced
before Christmas, face dismantling.
To be true,
Deripaska didn't accumulate his most valuable assets
through rigging privatization of state assets, at least
not if his acquisition of the alumina refinery at
Nikolaev is excluded, because it is across the border in
the Ukraine. It is currently up to a Ukrainian court,
and then the Ukrainian government, to decide that
question. In Moscow, the only legal challenge
Deripaska's assets currently face is aimed at his
takeover of the Ingosstrakh insurance company, Avtobank,
and the Nosta steel company, which federal prosecutors
have been investigating, at the behest of the former
proprietor, for several years now. Elsewhere in Russia,
there are legal challenges to Deripaska's paper and pulp
acquisition strategy, but these are private, and so far
they do not involve state prosecutors. A recent
negotiation between Deripaska and Ilim Pulp has ended
without agreement on the size of the payment Deripaska
would take for lifting his siege.
Deripaska's
prime asset, and the source of most of his cash, is
Rusal, after Alcoa the largest producer of primary
aluminum in the world. It comprises four smelters, two
alumina refineries, the world's largest aluminum rolling
mill, and various other metal fabricating plants. Rights
to mine bauxite in Guinea are also part of the group's
assets.
Deripaska bought them in partnership
with others, the most obvious of whom was Roman
Abramovich. Deripaska claims that he bought the least
reputable of his partners out some time ago. Last
September, he agreed to pay Abramovich $2 billion in
instalments for a 25 percent shareholding in Rusal,
raising his stake to 75 percent. The cash to fund that
acquisition is coming from Rusal. And therein lies a
problem that Deripaska and his financial advisors have
been wrestling with for months. He would like to acquire
100 percent of the Rusal asset as soon as possible, just
as he would like to consolidate the many shareholdings
that comprise the Rusal group into a single, tradeable,
bankable stock.
Among the oligarchs, Deripaska
stands out as the slowest to reorganize the assets he
controls into the form in which he could start selling
it off to Western investors, at a premium price. For the
time being, even if he wanted to cash out, selling a
large stake of Russia's aluminum resource to a foreigner
like Alcoa or Alcan-Pechiney, he can't. With Alcoa, the
most Deripaska can do is to revive an old scheme he
operated with Reynolds Aluminum, and create a joint
marketing network for rolled aluminum products. He even
trails behind his much smaller aluminum competitor,
Victor Vexelberg's Siberian Ural Aluminum (SUAL), in
being able to float on the international market (despite
his promise, Vexelberg has yet to achieve that for
SUAL).
Ironically, these disadvantages are a
form of protection Deripaska may presently enjoy from
the Kremlin's promised policy to secure domestic natural
resources from their disposal by the oligarchs.
Deripaska may be starting to have problems with the
Kremlin's new tax policy. But he can continue playing
the Russian national card. It is to his advantage that
he is not half as welcome in Washington or London as the
other oligarchs.
Understandably, Deripaska feels
this as a personal slight, and also as an added cost on
his borrowing bill. But if Rusal's reputation is to
grow, and its debt servicing charges to drop, Deripaska
must provide more financial transparency than Rusal has
done to date. At all costs, he must avoid the impression
that Rusal is the cash cow which the holding company,
Basic Element, milks, whenever it is thirsty. On the
other hand, the system of internal and offshore pricing
on which Rusal and its producing and trading units has
been built, makes transparency a difficult objective to
achieve. For this reason, it is surprising that
Deripaska and his Rusal have defaulted on the award
against them by a Zurich arbitration tribunal of more
than $100 million. The award - a drop in the bucket for
a group whose revenues are running at about $4 billion
per year - was gained a year ago, following a claim for
arbitration of contract provisions which the Swiss
trader, Aldeco, sought to enforce after Rusal took over
the Krasnoyarsk smelter in 2000, canceling its previous
trading arrangements. Several hundred million more
dollars in similar aluminum trade claims against Rusal
or its units are awaiting arbitration hearings in
several international jurisdictions.
That
Deripaska and Rusal should be afraid of this is revealed
by the lengths they will go to stop anyone from
noticing. Whenever the Aldeco affair is reported, Rusal
executives have issued threats of legal action, along
with letters personally attacking newspaper reporting of
its business. The company has not identified any error
in the reports it has attempted to suppress. Official
disclosures by the company itself are the sources for
the reporting.
A similar pattern of intimidating
letters and threats follows reporting of the movement of
Rusal aluminum from port to port, across the high seas.
Following last year's deep freeze that paralyzed St
Petersburg's port, aluminum shipments, including Rusal
exports, to the United States, China and other
destinations were redirected away from St Petersburg,
according to metal traders and port records. In all,
export shipments of nonferrous metals, including
aluminum, through St Petersburg have fallen year on year
by more than 20 percent.
At the same time, the
State Statistics Committee has reported that production
of primary aluminum rose about 4 percent. Much of that
increase appears to have been exported, because
production of aluminum rolled products has reportedly
fallen during 2003 by about 3 percent. Rusal's official
website has not released comprehensive production or
trade data since 2002. Rusal executives have attempted
to suppress reporting of metal movements by claiming the
details are commercial secrets, threatening anyone who
discusses them. But the campaign of intimidation has
turned out to be more revealing than the information
itself. In the past Deripaska has had reason to rue what
his public relation men have said on his behalf . He
probably doesn't realize the damage they continue to do
to him.
In the months ahead, the oligarchs who
will survive Putin's five, seven or 10 threat will be
the ones who can lie low most effectively. Deripaska
understands how much the Kremlin already knows about his
business. He can be confident that almost nothing that
has been reported in the domestic or foreign media to
date matches the scope of what Putin already knows, or
could call up with a telephone call to a subordinate. On
the scale of demonstrable threats to the economic
security of the state, Deripaska ought to be trying to
convince his detractors, inside the Kremlin and out,
that Basic Element and Rusal are not to be compared with
the Yukos group, Sibneft and Millhouse, or Interros and
Norilsk Nickel. Instead, he has inspired his
subordinates to play a cat-and-mouse game abroad that
threatens the very survival assets Deripaska will need
at home.
(Copyright 2004 Asia Times Online Ltd.
All rights reserved. Please contact content@atimes.com for
information on our sales and syndication
policies.)
|
| |
|
|
 |
|
| |
|
|
|
| |
|
|
|
|
|
