RusAl Says It Won't Close Plant

United Company RusAl said Friday that it had no plans to close its Bogoslovsky Aluminum Plant after a local trade union and workers said Thursday that they were asked to accept significant salary cuts or else risk the plant’s closure. "We do not have current plans to close production at the Bogoslovsky Aluminum Plant," RusAl's press office said. "At the moment we are seeking the support of the staff for the tough but forced measures." Bogoslovsky’s union and workers said Thursday that the plant’s management threatened to close the smelter if they didn't accept salary cuts of up to 30 percent by April 10. A closure would cripple the economy of Krasnoturyinsk, a Urals town of 65,000 people where the plant is the main employer, and some workers said they were growing frantic. "The town will all die if they close the plant, but we will be forced to starve if we agree that our salaries be cut by a third," alumina shop operator Irina Milyutina, 33, said by telephone from Krasnoturyinsk, located 450 kilometers north of Yekaterinburg. "They are blackmailing us." The Bogoslovsky Aluminum Plant is the sixth-largest aluminum producer and the second-largest maker of alumina in Russia, and RusAl is the world's biggest producer of aluminum. A spokeswoman for RusAl said Thursday that workers have been asked to take a 25 percent pay cut but declined to say whether an ultimatum had been issued. "A temporary 25 percent reduction of salaries from June is being discussed with workers to keep the plant going," the spokeswoman said in written reply to questions. "The company has been subsidizing the plant for several months already," RusAl said Friday. "We have already cut management costs, revised the logistics schemes and are actively optimizing the supply component." The plant's chief executive, Oleg Burkatsky, met with workers on Monday and Tuesday to explain the need to cut salaries or possibly close the plant, said Valery Tushevsky, deputy chairman of the plant's trade union. He told workers to make up their mind by April 10. "We are not going to agree to a 30 percent cut," Tushevsky said. "It would be better for [RusAl CEO Oleg] Deripaska to sell his mansions in London than to victimize people over the global economic situation." He said plant workers were desperate. "They are ready for a strike, a demonstration, a blockade of the federal highway -- anything," Tushevsky said. Milyutina of the alumina shop said the plant CEO told the workers that he could not guarantee that RusAl would not close the plant even of their salaries were reduced. Milyutina said she would not be able to feed her two sons if she agreed to the salary cut. "I would get about 7,000 rubles [$210] a month then," she said. "I have to pay 4,000 rubles for my housing bills and 1,000 rubles for one son's kindergarten. What would I have left for food through the whole month?" She said many of the plant employees were in an even worse predicament. "They also have loans to pay off," she said. The trade union official said plant management has explained the cuts are needed because of a drop in world aluminum prices and an increase in electricity tariffs. "The chief executive told us that RusAl loses up to $1 million every day at its plants in Russia," Tushevsky said. RusAl plans to reduce its aluminum production by 11 percent, or 500,000 tons, by late April and has said it could cut it by a similar amount later this year if prices fall drastically. Aluminum prices have plunged by nearly 60 percent since July to $1,378 a ton on Thursday. Since then, RusAl has lowered production costs by 38 percent, and it says it intends to cut them by another 18 percent to $1,040 per ton by the third quarter. The RusAl spokeswoman said production costs at Bogoslovsky now stand at $1,672 per ton — among the highest in the company. Electricity accounts for 31 percent of expenses, while bauxite accounted for 36 percent, she said. "A recent 28 percent increase in electricity tariffs has become a burden for our production cost initiatives," she said. She said RusAl was holding negotiations with the Sverdlovsk governor and his administration about cutting electricity tariffs to their former level. Sverdlovsk administration spokeswoman Natalya Ponomaryova said electricity tariffs were being discussed but no decision had been made. RusAl has found itself in dire straits as it grapples to pay off its debt of $14.8 billion, including $8 billion due this year. The government said last week that it would not bail out the company. The RusAl spokeswoman said workers would get their old salaries back if aluminum prices grew to $1,500 per ton over the next three months and the plant managed to cut production costs to $1,000 per ton. Marat Gabitov, a metals analyst with UniCredit, voiced skepticism that the plant would be able to lower costs so significantly. "Given how outdated the equipment is at Bogoslovsky, it is unlikely that RusAl will get production costs of $1,000 there," he said. Russian law does not allow an employer to change a labor contract, including the terms of remuneration, because of a change in the financial position of the company, said Yulia Tsokol, a partner at the law firm Goremykina, Tsokol and Partners. "However, all the terms of a labor contract can be changed if there is an agreement between the company and the employees," she said. "If RusAl manages to persuade the employees, it will not break any laws."

Prokhorov Ups RusAl Stake to 18.5%

Mikhail Prokhorov's Onexim Group has agreed to increase its stake in United Company RusAl to 18.5 percent as part of a restructuring of $2.8 billion owed by the aluminum giant, the companies said in a joint statement Sunday. The terms of the deal appeared to be extremely generous for RusAl, whose controlling shareholder Oleg Deripaska has been struggling to make payments on billions of dollars of debt incurred while adding holdings to his Basic Element conglomerate .Of RusAl's debt to Onexim, $2 billion will be converted into shares, while the remaining $800 million will be restructured, according to the statement, which was posted on RusAl's web site. "It values RusAl at $40 billion to $45 billion, which is extremely high," said Michael Kavanagh, metals and mining analyst at UralSib. He said RusAl was not worth 20 percent of that implied value. The sides seem to have agreed on using RusAl's value from April 2008, when Prokhorov sold a Norilsk Nickel stake to Deripaska for a combination of cash and 14 percent of RusAl, as well as an option to sell back the RusAl shares at a fixed price. It was not immediately clear, however, why Prokhorov would agree to such terms. Aluminum prices have fallen from about $3,000 per ton at the time of the deal to about $1,400 on the London Metals Exchange. As part of Sunday's deal, Prokhorov agreed not to use his put options on RusAl shares -- which Vedomosti has reported as being worth $7.3 billion -- for as long as a standstill agreement between RusAl and its creditors is active. Prokhorov has previously said he was not planning to use the option. RusAl had been considering using this general scenario to take care of some of its accrued debt. RusAl chairman Viktor Vekselberg said in January that the company might convert some of its debt to Prokhorov into shares, although he did not comment on the possible size of the conversion. The deal, together with the standstill agreement and RusAl's "program for increasing production efficiency," will "let the company successfully overcome the consequences of the world economic downturn," the statement said. Earlier this month, RusAl announced a standstill deal with more than 70 banks to delay repayment of $7.4 billion for two months with a possibility to extend the standstill for another month. President Dmitry Medvedev last week warned unnamed banks not to be too aggressive in trying to recover their debts, comments widely seen as directed at Mikhail Fridman's Alfa Bank, which is also a RusAl creditor. Basic Element units have accused Alfa of being uncooperative in the standstill talks. "Perhaps someone from the government told Prokhorov: 'This is how it's going to be,'" Kavanagh said. "There is obviously something more to the deal, because in the context of the market right now there are a lot more things he could do with the $2 billion than buying a 4.5 percent stake in RusAl." In April, Prokhorov sold his blocking stake of 25 percent in Norilsk, valued at the time at about $8.7 billion, to Deripaska, who took out $4.5 billion from a syndicate of foreign banks to clinch the deal. First Deputy Prime Minister Igor Shuvalov said Friday that the government had no intention of nationalizing RusAl, despite its heavy debts to state lenders. RusAl owes $4.5 billion to state development bank VEB, which in November helped RusAl repay the foreign banks and now holds the Norilsk stake as collateral. The loan is due this fall, and Shuvalov said he was against giving RusAl more time to repay, although he said he hoped that commercial banks or new shareholders would step in. Kavanagh said it was unlikely that private banks would take over the VEB loan, although state-run lenders such as Sberbank or VTB might open a credit line to RusAl. The deal announced Sunday will dilute the stakes of RusAl's shareholders proportionately, the statement said. EN+, the Basic Element unit that controls Deripaska's stake, will hold 53.8 percent, from about 57 percent. SUAL shareholders will own 18 percent, from 18.9, and Glencore's interest will fall to 9.7 percent, from 10.3 percent

Schroder, Shokhin Join TNK Board

Two powerful figures with close ties to the Russian government — former German Chancellor Gerhard Schroder and big business lobbyist Alexander Shokhin — will serve as independent directors at TNK-BP, BP announced Thursday.BP, caught for months in a dispute with its Russian shareholders in TNK-BP, expressed confidence that SchrЪder's involvement would be good for TNK-BP and Russia. Schroder said he would make TNK-BP a beacon for foreign investment in Russia.Industry watchers viewed the independent directors as capable of being impartial.Schroder developed close personal ties with Prime Minister Vladimir Putin when both were heads of state. He is also chairman of the shareholder committee of Gazprom-controlled Nord Stream AG, the company that is preparing to build a gas pipeline to connect Russia and Germany under the Baltic Sea.Shokhin is president of the Russian Union of Industrialists and Entrepreneurs. He sits on the boards of LUKoil, Russia's largest publicly traded oil company, and Russian Railways, the national rail monopoly.BP announced the names on Thursday after the oil major and its Russian billionaire partners in the 50-50 venture went through a bruising corporate dispute last year. They finally decided to bury the hatchet in September by moving to include three independent directors on the board and install a new chief executive.The third independent director on the 11-member board will be James Leng, board chairman of the mining giant Rio Tinto. BP chief executive Tony Hayward especially praised SchrЪder's decision to join the team.
The counsel of such a distinguished statesman, who brings both enormous geopolitical experience and a history of strong relationships with Russia, gives me particular confidence that the next chapter in the progress of TNK-BP will be good for all shareholders and for Russia," he said in a statement.SchrЪder said he would help make TNK-BP a model for foreign investors of what they can accomplish in Russia."I feel certain that, with the support and trust of both shareholder groups, I will be able to make a contribution to the company's success that will serve as an important example of Russia's cooperation with international investors, thereby providing a significant contribution to Russia's integration in the global economy," he said in the statement.Hayward said the new board "can achieve good business alignment between the shareholders of TNK-BP and safeguard the interests of all sides." Mikhail Fridman, one of the Russian shareholders, said the independent directors would allow the company to enter the global arena. "Their experience and wisdom will be invaluable as the company enters the next stage of its development and focuses on transforming itself into an independently managed international major with global ambitions," he said in a separate statement, from TNK-BP.Russian shareholders, known collectively as the AAR consortium, have said part of the reason for the feud with BP was the British company's reluctance to allow the joint venture to operate globally, which would sometimes make them competitors.The rest of the board will consist of four representatives from each of the two shareholder groups. BP has nominated its senior executives, while AAR has proposed its shareholders Fridman, Viktor Vekselberg, Len Blavatnik and Alex Knaster.BP said last week that it would announce a new TNK-BP chief in the "coming weeks." That person will need to have substantial Russian work experience and Russian language proficiency, the partners in the venture agreed when ending the dispute in September. The new chief is expected to be Denis Morozov, former head of miner Norilsk Nickel.Vekselberg has an interest in aluminum maker United Company RusAl, a rival of his likely fellow board member Leng's Rio Tinto.
Even the support of independent directors will not be able to force decisions on one of the sides in the venture when it comes to major deals. A clause in the new shareholder agreement, announced last week, said only unanimous votes would decide substantial acquisitions, divestments, contracts and any projects outside the business plan.By "substantial," the shareholders mean deals worth more than $1 billion, said BP spokesman Vladimir Buyanov. The board will have until March 31 of every year to endorse that year's business plan unanimously, Buyanov said. Afterward, a simple majority will do, he said.Under the new shareholder agreement, BP will continue to nominate TNK-BP chief executive, subject to the board approval, and AAR will continue to appoint the chairman, BP said last week.The track records of the new independent directors indicate that they will be quite independent, said Ilya Balabanovsky, an analyst at UniCredit Aton brokerage. "I wouldn't say that some of them would defend mostly Russian interests. They will look at the merits of the case," he said.Both Schroder and Shokhin "meet the requirement of being independent," said Denis Kulikov, director of the Investor Protection Association.But the independent directors would not be able to do much if another major spat erupts, said Alexander Nazarov, an analyst at Metropol. "The previous conflict showed that the board of directors — even if it's loyal to one of the sides — doesn't mean anything until the shareholders come to terms between themselves," he said.BP held a majority in the conflict-time board.