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| BasEl Wins Tender for Railroad |
Basic Element, billionaire Oleg Deripaska's holding company, has won a tender to build a 34.5 billion ruble ($1.28 billion) railroad in the far eastern republic of Sakha, the company said Thursday.
When completed in 2013, the 400-kilometer state-funded line will allow access to natural resources in the region such as coal, diamonds and natural gas.
Of the dozens of projects in the country's $1 trillion plan to develop its infrastructure over the next 10 years, this has been among the first to go forward since the onset of the global financial crisis.
Last month, a consortium led by French construction company Vinci won a tender to build the first leg of a motorway from Moscow to St. Petersburg, signaling that Russia is still committed to renewing its infrastructure despite the financial turmoil.
State monopoly Russian Railways will provide 4 billion rubles of funding for the link from the towns of Tommot to Yakutsk, while the rest will come from federal and regional budgets, said Irina Kotenko, spokeswoman for the Basic Element unit handling the construction.
The country has earmarked 350 billion rubles for the development of Sakha, a resource-rich but largely barren region roughly five times the size of France.
"This road is vitally important for the economy of the republic, for its industries and its citizens," the republic's president, Vyacheslav Styrov, said in a statement.
The Moscow Times
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| Kiev May Take Over RusAl Plant
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Ukraine may renationalize the Zaporozhsky aluminum plant, controlled by United Company RusAl, if it does not resume production and do more to modernize the facility, Fuel and Energy Minister Yury Prodan said Tuesday.
The Zaporozhsky plant, the only aluminum smelter in Ukraine, began suspending output this week, blaming the decision on unreasonably high electricity rates and falling aluminum prices.
"We demand that the owners of the plant efficiently manage the smelter, conduct the proper modernization and stick to its investment obligations instead of halting the production because of the lack of super profits," Prodan said in comments confirmed by spokesman Fent Di. "If the owners can't do it, they have to return the smelter to the state."
Di declined to comment on when the renationalization could take place or what legal mechanisms would be used.
No one at RusAl's office in Moscow was available for comment Tuesday, a state holiday, and company spokespeople did not answer their cell phones.
RusAl said Monday that it would lay off 130 workers at the plant, which produces 113,000 tons of aluminum per year and 265,000 tons of alumina.
"The local electricity tariffs are among the most expensive in the world and prohibitive for energy-intensive aluminum production," RusAl said in an e-mailed statement. "The unwillingness of the government to solve the issue of energy tariffs … as well as the slowing growth of global demand for aluminum are the main motives for the move."
Production at the plant will be suspended "until the tariffs issue is solved and the situation on global markets improves," the company said.
Electricity costs in Ukraine have increased greatly over the last two years and currently comprise 48 percent of the plant's costs, RusAl said. The smelter's debt for electricity supplies has reached 41 million hryvnas (around $7 million), Prodan said Tuesday.
The Zaporozhsky plant was privatized at the end of 2000. RusAl received a 97.5 percent stake last year after completing its merger with SUAL, which had previously controlled the smelter.
The Moscow Times
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| Aricom Reviews Iron Ore Projects |
British-Russian miner Aricom is reviewing its iron ore projects to cut funding needs and may seek help from a partner, the company said Tuesday.
Aricom had been seeking $1 billion in financing, but analysts said a scaled-down project could cost $150 million.
Aricom chief Jay Hambro said the firm was considering a range of financing possibilities, including project finance, vendor finance, equipment finance and joint ventures.
If possible, Aricom could go ahead with the full original plan if it got the right combination of finance, but it was also putting together a smaller-scale alternative plan, he added.
Aricom shares, which have shed about 90 percent since their peak on May 19, fell 1.9 percent to 13.25 pence in London on Tuesday.
The firm released a feasibility study on the projects Oct. 8, confirming that it needed $1 billion in external funds to contribute to the $2.3 billion cost of building two mines, a processing mill and a plant.
The Moscow Times
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| UC RUSAL suggests setting up metal reserve |
UC RUSAL approached Russia's Deputy Prime Minister Alexei Kudrin with a proposal to create a strategic state metal reserve to give an impetus to the Russian processing industry and stabilize metal prices, RBC Daily wrote today. To shore up the aluminum market and prevent a fall in aluminum prices, the company suggested that intergovernmental agreements be signed with a number of countries to cut metals production by 10 percent for the next two years. The same idea is propounded in the letter of UC RUSAL's General Director Alexander Bulygin addressed to Alexei Kudrin offering steps to stem the crisis in the Russian metal processing industry. In his letter, Bulygin notes that due to the crisis, the Russian metals industry could be forced to lay off 1.2m people, lose RUB 1 trillion (approx. USD 37.68bn) in export proceeds from high value-added products, and fail to contribute RUB 200bn (approx. USD 7.54bn) in taxes to the federal budget.
UC RUSAL sees a state metals reserve as a way to stanch the crisis, as it will not only work to diversify government investment, but will also help stabilize metal prices.
RBC-News
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| Norilsk Nickel announces layoffs
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Norilsk Nickel plans to lay off 135 people in its Moscow office as part of an anti-crisis program, the Russian nickel producer's press office told RBC today. However, most of these layoffs will be made by not filling vacant positions, the press office said. LUKoil announced in advance that it would not hire any more employees and closed most of its vacancies. The company's executives have also been hit by the layoffs.
Given that Norilsk Nickel's Moscow office currently employs some 1,000 people, roughly 13 percent of its workforce is to be made redundant. In addition, the company has suspended a number of employee incentive programs that it cannot afford in light of the crisis. However, the press office maintained that neither layoffs nor cuts in incentive programs would affect the staff working at Norilsk Nickel's production sites.
RBC-News
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| Novolipetsk Buys Out Beta |
Novolipetsk Steel said Friday that it completed the purchase of closely held Beta Steel and paid 13 percent less than the price originally agreed upon.
The Russian company said it would pay $350 million for the U.S. producer. Novolipetsk said Sept. 4 that it agreed to pay $400 million for the hot-rolled steel producer. Novolipetsk said it would fund the acquisition from existing funds. Beta has no cash or debt, it said.
Bloomberg
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| Zinc Firm Abandons Mine Plans |
Chelyabinsk Zinc Plant, the country's largest zinc producer, has abandoned plans to develop a mine near its main production asset and will slash investments after plummeting metal prices led to a first-half loss.
Chairman Sergei Moiseyev said Chelyabinsk Zinc would make a "dramatic reduction" to its investment program after the firm on Friday reported a net loss of 907 million rubles ($34.2 million) compared with a year-ago profit of 1.2 billion rubles.
"Chelyabinsk Zinc has been through different storms. This is the big one, but I am confident that we have the resources and experience to face it," Moiseyev said in a statement.
Zinc prices have fallen more than 60 percent since March to trade around $1,140 per ton. The metal is worth only one-quarter of its all-time peak of $4,580 per ton in November 2006.
First-half revenues declined 29 percent to 5.7 billion rubles as a 37 percent drop in zinc prices outweighed a 5.5 percent increase in output, Chelyabinsk said.
Moiseyev said the company had reduced its 2009 production forecast to 150,000 tons. Chelyabinsk did not give its earlier forecast for 2009, but has predicted 2008 output of 170,000 tons.
The Moscow Times
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| Norilsk Buyback in Doubt Amid Freeze
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Norilsk Nickel shareholders who signed up for a $1.8 billion share buyback will be able to sell only 7.2 percent of shares tendered, as the offer, which remains subject to a Siberian court case, was 14 times oversubscribed.
The buyback remains in doubt, however, as Norilsk confirmed Wednesday that it received a court injunction freezing the process pending a ruling in a case brought by one-quarter shareholder United Company RusAl, which opposes the offer.
"The market didn't really believe the buyback was going to occur," said James Fenkner, managing director of Red Star Asset Management, which owns shares in Norilsk.
RusAl, controlled by Oleg Deripaska, has challenged Norilsk chairman Vladimir Potanin's plan to spend $1.8 billion in a global credit squeeze to buy stock at more than three times its current value.
Norilsk offered on Aug. 22 to buy back up to 7.95 million shares, or 4 percent of its stock, at 6,167 rubles each. Its shares closed Wednesday on the MICEX at 1914.93 rubles, 74 percent below its May peak, as nickel prices plummet and investors leave Russia.
If all the shares are bought, it will cost Norilsk 49.01 billion rubles ($1.8 billion).
"Paying out that much in the current environment doesn't make much sense," Fenkner said. "The company won't turn around until global sentiment for base metals turns around."
Norilsk received applications for 110 million shares, or 58.5 percent of its share capital, implying that some of its biggest shareholders -- which include billionaire Alisher Usmanov, as well as Potanin and RusAl -- had tendered shares.
"As the free float for the company is about 40 percent, this implies at least 34.6 million shares owned by the major shareholders were tendered, or 18.3 percent of the shares outstanding," Alfa Bank said in a note.
Norilsk said it would buy back shares on a pro rata basis. Shareholders whose applications had been accepted should sign an agreement with Norilsk's registrar before Nov. 27, the company said, and payment would occur within 15 days of the transfer.
Its statement, however, did not mention the decision by an arbitration court in Krasnoyarsk to freeze the buyback.
Citigroup analysts said in a note that the buyback was the main supporting factor for Norilsk's share price in recent weeks.
"Without that, Norilsk's shares may be under pressure given the poor fundamental outlook for platinum group metals and base metals." Norilsk is also the country's largest platinum producer and the world's biggest miner of sister metal palladium.
A Norilsk spokesman, acknowledging the court injunction, said the company risked further court proceedings brought by shareholders should its original proposal be blocked.
"This may result not only in the company paying out the announced sums of money, but in seeing its reputation damaged both in Russia and abroad," he said.
The Moscow Times
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| RusAl Secures $4.5Bln Bailout
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In the biggest state bailout yet, United Company RusAl will receive $4.5 billion to refinance a Western loan coming due this week, news reports said late Wednesday.
Vneshekonombank announced earlier in the day that it had approved nearly $10 billion in loans to help companies refinance their foreign debts, meaning that the funds for RusAl would represent almost half of that amount.
The news came as the realities of the global financial crisis seemed to sink in with the government, as the Economic Development Ministry trimmed its forecast for 2008 economic growth and a senior finance official cautioned that federal spending for 2010 might need to be revised because of low oil prices.
Still, the stock market surged by 12 percent.
RusAl notified the Western banks that lent it the $4.5 billion last spring that it had secured a similar amount from VEB on Wednesday to refinance the debt, Interfax reported, citing a banking source.
"The company sent notification to the banks in the syndicate six hours ago that it has reached an agreement with VEB on a loan of $4.5 billion," the source said.
Bloomberg carried a similar report, citing two unidentified bankers.
RusAl declined to comment on the reports.
A bailout for RusAl had been widely anticipated. RusAl took out a two-year loan in April to acquire a 25 percent stake in Norilsk Nickel. If it had defaulted, it would have had to hand over to Western creditors the stake in Norilsk, which the state considers a strategic asset.
VEB did not specify which companies had qualified for funds in the $10 billion bailout, saying only that they needed to repay loans soon.
"Our supervisory board approved a decision on a range of borrowers whose debts must be refinanced," VEB chief Vladimir Dmitriyev said on Vesti-24 television. "The amount is a little less than $10 billion. These are first-class borrowers that, because of the unfavorable situation on world markets, face the threat of losing their assets."
Meanwhile, the Economic Development Ministry lowered its 2008 GDP forecast by half a percentage point on expectations that the financial crisis would cause a slowdown in the fourth quarter, but it emphasized that economic growth would still be 7.3 percent.
In an indication that the prospect of falling oil prices is a major concern for the government, Deputy Finance Minister Dmitry Pankin warned that the 2010 budget would fall into deficit with oil at $60 per barrel, and he mentioned several measures that the government could take to address this.
"At $60 a barrel, the 2009 budget will be balanced, but probably not in 2010," he said at a UBS investment conference. "One option the government has is to use the Reserve Fund, while another one is to reconsider the budget."
The 2009 budget originally assumed an oil price of $95 per barrel, which currently seems optimistic given that oil prices have fallen more than 50 percent since July.
In the interim, the government is continuing to look for options to ease the blow on real sectors of the economy. Kremlin economic adviser Arkady Dvorkovich told the same investment conference that the government was evaluating a proposal to introduce longer installments on value-added tax payments. Earlier this month, the government passed a law allowing companies to break quarterly VAT payments into three-month installments.
Dvorkovich said the government might now introduce VAT deductions on advances paid by companies for goods and services.
"I think the decision could be made in two or three weeks, and then the appropriate law would be passed," he said. "It could have an immediate effect on companies' working capital."
Amid concerns of the falling ruble and the government's promises of no major ruble devaluation, Gazprom chief financial officer Andrei Kruglov told the conference that the company would actually benefit from a weaker ruble since most of its revenues come from dollar exports and its expenses are ruble-based.
MDM Bank chairman Oleg Vyugin said that continuing to use the system where the ruble is pegged to a basket of dollar-based products might not be the most effective mechanism given Russia's current financial standing and that it necessitates extra spending of government reserves to defend the ruble. He said releasing the ruble might actually show that it is a stronger currency.
Steven Meehan, CEO for UBS in Russia and the CIS, said in an interview that the bank was continuing to expand its staff in Russia — a strong indication that it believes the country is set for a rebound.
Stock market players seemed to agree with that sentiment, with the MICEX Index leaping 13.8 percent and the RTS Index rising 11.9 percent. State-owned blue chips led the way, with Sberbank shares posting a 27.1 percent gain on the RTS and Rosneft and Gazprom rising 22.1 percent and 15.7 percent, respectively.
VEB has invested 20 billion rubles ($740 million) in shares and 5 billion rubles in bonds of Russian companies since last week, Dmitriyev said Tuesday.
The Moscow Times
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| Severstal boosts steel production |
Severstal increased steel production by 23 percent to 16.07m tonnes in the first nine months of 2008 compared to 13.05m tonnes during the same period of the previous year, the Russian steel producer reported today. According to the company's press release, Severstal's output of rolled steel products went up 18 percent to 11.84m tonnes, up from 10.02m tonnes a year earlier.
At the same time, the company's coal production amounted to 2.59m tonnes, which is 22 percent less than in January-September 2007. Iron ore output, in contrast, climbed 21 percent to 3.71m tonnes against 3.06m tonnes in the same period of 2007.
RBC-News
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