Russian President Vladimir Putin (rigt) and Renova Group head Viktor Vekselberg realized that they have many state interests in common.
Photo: Dmitry Azarov
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Consolidation within the Country Is Practically Complete
Russian President Vladimir Putin met with Renova Group head Viktor Vekselberg yesterday and gave him blessing to the merger of Rusal and SUAL. Kommersant special correspondent Andrey Kolesnikov was at the presidential residence in Sochi and witnessed one more businessman of the new Russia receiving the authorities' stamp of approval.
“We'll probably begin with Africa, of course,” Putin said in a confident tone. “With the recent goings on, a visit, your contracts. How do you evaluate the results of our joint work? What has to be done now? What other assistance from the government?”
No businessman anywhere has ever started a conversation better with any president.
“We tried for two years, and achieved certain successes in Africa,” Vekselberg replied. “We signed a number of licensing agreements for the development of one of the world's largest manganese deposits and have begun geological exploration of the deposit. We plan to begin development of the deposit and build a plant. But that is just the first stage.”
And then:
“Not only our company, but other companies as well, I think, will enter that market. I would like to note, of course, that South Africa in particular, as a state and as a field for sensible economic expansion, is a very important element of foreign policy, for the state as well as for business, I hope.”
The president seemed receptive to Vekselberg's political analysis. “All the more so since those projects and contracts represent jobs saved in Russia. I hope that, when you implement your contracts and when other entrepreneurs do so, there will be deliveries of machine parts, there will be processing… That has to encourage the technological development of Russia itself. That is goal number one for us.”
I don't think I had ever seen such a successful meeting of the goals of business and the state before there.
“Of course,” Vekselberg agreed heartily. “We will bring our knowledge, our technology and we are counting on using Russian contractors to implement our projects. We will use our contractors to build the mine, not to mention at the second stage, when we build the infrastructure of the plant. Of course that will be our technology.”
The president was smiling blissfully, and Vekselberg did likewise until Putin asked, “And what do you have inside?” That alarmed the businessman somewhat.
“What plans do you have inside the country?”
“Well,” Vekselberg said, regaining his composure, “I think it has long been known that our group has a number of rather large projects in the energy complex and in metallurgy. We want to take advantage of the moment to inform you that the group has recently made rather large investments to diversify our activities. One of our new directions or a number of new directions are both housing utilities and housing construction. I would like to familiarize you briefly with these projects, tell you what has been done and what the plans are. All the more so since we are counting on certain support and participation from the state in the implementation of these projects.”
The president nodded with easy willingness.
Vekselberg talked about Sun City, which he would build near Ekaterinburg. He wanted to build it with the help of RAO UES of Russia and Gazprombank, which are participants in the Russian Utilities Systems project and own 50 percent of its stock.
But then this happened.
“It has so happened,” Vekselberg said with a dramatic shrug, “that, at the moment, essentially, there are two shareholders left. They are RAO, with 25 percent, and the 75 percent that we have consolidated. In 2005, the company still had a negative financial result, that is, we had a loss of about 50 million, but this year,” now that Vekselberg had taken over, “we plan to finish with an income of about 800 million. The company's turnover had exceeded 25 billion, that is, already a substantial share of the market of services to the public.”
“What regions do you work in?” the president asked.
“In 13 regions of Russia. I think I will show you and tell you today in more detail. We have a client base of more than 10 million subscribers. In principle, our prospects are good. The three-year investment program is about 15 billion rubles. Even in this short period we have been able to issue company bonds. That means that the market today is beginning to believe in the utilities sector and is ready to credit that sector not from traditional state resource sources, but from funds attracted from the market.”
“How did the placement of those bonds go?” The president was showing unprecedented interest.
“Well, you know, demand exceeded supply by about 30 percent… Seriously. We were surprised ourselves. Pleasantly surprised. This emphasizes again that we are on the right track on the whole. But the situation has come up that, in its restructuring, RAO UES has now declared that asset nonessential and plans to leave that business when the company is liquidated.”
The president furrowed his brows and looked inquisitively at Vekselberg. The latter picked up the lead.
“I think,” Vekselberg continued, “that, at the formative stage, considering that the sector is still so socially sensitive and rather highly regulated, it would be advisable for the state to participate for a certain period. And I would ask you to consider the possibility of making a decision to maintain RAO UES's position for a certain period or to define how the state, so to speak, could sensibly accompany this project so that the many issues that will arise can be agreed on with business and the interests of the state.”
Putin looked relieved to find out what was needed from him. “Now, as a matter of fact, the chairman of the government is meeting with the chairman of the RAO UES management board. I'll talk with him on our behalf. I think that is advisable, so to speak.”
Then Vekselberg switched topic to housing construction and his contribution in Sverdlovsk Region to the national project for housing project. “In essence,” he said, “we are talking about building a new city. The project supposes to what amounts to the foundation of a new micro-neighborhood of the city of Ekaterinburg with a total construction area of more than 15 million square meters in which more than 300,000 people will live. That city will practically be newly built on an area of more than 1000 hectares. Our project turned out very beautiful and, I am not afraid to say it, harmonic. We willwork closely will representatives of all branches of power in this project. It has very interesting solution of ecological problems because the city will in fact be placed on a swamp. We want to drain it. This won't be Venice…”
“Or St. Petersburg…”
“No, no. Not St. Petersburg.” Vekselberg waved his hands. “Or Venice. But there will be canals, in combination with forest massifs. I will show you pictures, but it looks quite ambitious. If the project turns out, we will probably be very proud to have contributed something new.”
“Good luck,” the president said. “And what about metals?” The conversation had gone on for half an hour and he still wasn't bored.
“Metals! In the aluminum sector, it seems to me that we have entered the important stage where consolidation within the country is practically finished. There are two companies, Rusal and our company, that have already begun expanding overseas. All of that points to the necessity of making a decision on further paths of development. We, the group, are considering two possibilities. One possibility is independent movement in the direction of an IPO, that is, placing out stock. We have concluded agreements on the minority participation of one of the foreign partners – that is Norsk Hydro, and also with larger investment structures – those are the IFC and EBRD.
“The second variant is actually more attractive – merging in an alliance with Rusal. The third partner is planned to be Glencore. Of course, the second variant is preferable from the point of view of ambitious plans. That company will immediately become a leader in the world aluminum sector. The negotiation process is underway and, honestly, I really hope that is comes out well. We will make a final decision on the alternatives in the course of a month. It seems to us that there are significant prerequisites in Russian metallurgy today to take a leadership position in the world economy and use it to get further benefit in the raw materials sector and in the sector of further expansion into new markets.”
“The further movement is understood,” the president nodded, easing Vekselberg's way in a future conversation with Rusal head Oleg Deripaska and his own minority shareholders Blavatnik, Olkhovik and Kremer, who are going to be more interested in a SUAL IPO, with the attendant dividends, than in the merger of the companies. A high-placed Kommersant source in the presidential administration confirmed that Vekselberg is having trouble with his minority shareholders. But he was firmly convinced that Vekselberg would overcome that obstacle. “He'll squeeze it out of them,” as the source put it. “He very much wants to lean on Oleg [Deriaska] because he understands that, unlike Oleg, the attitude toward him in the Kremlin is still ambiguous. The story with the Faberge eggs showed that.”
Andrey Kolesnikov
All the Article in Russian as of Sep. 14, 2006
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