Nigeria’s President Yar’Adua promises US to reopen Rusal smelter deal.
Author: John Helmer
Posted: Thursday , 29 Nov 2007
MOSCOW - Oleg Deripaska, the Russian oligarch who controls UC Rusal, the world's second largest producer of aluminium, is in hot water in Nigeria, and in Washington, DC, as US companies have persuaded the Bush Administration to back them in a bid to oust Deripaska from the Aluminium Smelter Company of Nigeria (Alscon).
Leading the new US charge at a meeting on November 27 with the President of Nigeria, Umuru Musa Yar'Adua, are Reuben Jaja and his Los Angeles-based Bancorp Financial Investment Group (BFIG). BFIG has been suing Rusal in the Nigerian and US courts for abuse of the privatization process that awarded Alscon to Rusal on a low bid in 2004. Mineweb has reported the blow-by-blow action: http://www.mineweb.com/mineweb/view/mineweb/en/page36?oid=18731&sn=Detail
Jaja was accompanied to this week's meeting with Yar'Adua by Lisa Piascik, currently the head of the US mission in Nigeria, while the ambassadors rotate. The new US ambassador to Nigeria, Robin Sanders, was sworn in in Washington on November 19, and she arrives in Abuja this weekend. Washington sources have told Mineweb that she and other US officials working on Nigeria have a new mandate to support BFIG's case that Rusal has violated Nigerian privatization law and regulations; failed to meet its commitments at Alscon; and should lose the concession awarded by the previous presidential administration of Olusegun Obasanjo.
Yar'Adua was elected on April 1 of this year, in part on an anti-corruption platform. Since then he has undertaken a sweeping review of privatization deals by his predecessor. The Washington sources told Mineweb that major US corporations with interests in Nigeria, including Alcoa and General Electric, have been arguing for State Department support to reopen Nigerian resource and energy assets to a fresh round of bidding.
The day after Yar'Adua met with the US delegation in pursuit of the aluminium concession, Nigerian Vice President Goodluck Jonathan backed a review of the country's steel concession. He told the House of Representatives Committee on Privatization in Abuja that it should "look into the privatisation exercise carried out by the Bureau of Public Enterprises (BPE) to ascertain if due process was followed."
A report by The Times of Nigeria cites Jonathan as explaining "that the committee's function included revisiting any transaction involving the privatisation of firms formerly owned by the government with a view to getting it right." Jonathan is the Chairman of the Privatisation Committee, which is opening a probe into the privatization award of Nigeria's Soviet-built steelmill, the Ajaokuta Steel Company, to Global Steel Holdings Limited of India. A Nigerian group, BUA International Limited, complains it was shortchanged in the deal, and that the Indians took control with a lowball offer, sweetened in the customary fashion.
The US government is also acting against American firms alleged to have engaged in bribery in Nigeria. The US Department of Justice has ordered an American oil services company with sizable operations in Nigeria, GlobalSantaFe Corporation, to produce records of its operations in the country, in order to assess allegations that the company bribed Nigerian officials to secure lucrative contracts. GlobalSantaFe released a statement saying, that it has received a formal order of investigation in connection with the matter. "The company's cooperation with the SEC and the U.S. Department of Justice is ongoing."
A fight over aluminium assets between Deripaska and the Americans is not only news in Nigeria, for it is likely to spill over into Guinea, where domestic anti-corruption campaigners seeking an end to the presidency of ailing Lansana Conte want to challenge Rusal's bauxite mine and alumina refinery concession agreements. At stake in Guinea are some of the world's largest bauxite reserves.
For months now, Deripaska has been vainly pursuing State Department approval of a visa to enter the US; this was revoked a year ago. Deripaska is also named in connection with prosecutor inquiries and police arrests in Germany for alleged money-laundering; in Israel for alleged telephone-tapping of a government minister; and in the UK, where members of parliament and a lawyer close to ex-prime minister Tony Blair were reportedly recruited to undermine a High Court filing against Deripaska by Michael Cherney (Chernoy).
The Nigerian government is now ready, according to Yar'Adua, to investigate how it happened that Deripaska was able to take control of Alscon for $250 million. With smelter capacity of about 193,000 tonnes of aluminium, and taking into account that Rusal has acquired 77.5% of the shares of the plant, the deal amounts to approximately $1,667 per capacity tonne. This is 32% below the current London spot market price for the metal of $2,443.
New smelters generally cost $4,000 per tonne to build, and so Rusal's price for Alscon was almost one-third the going rate. Alscon is virtually new. Partially completed in 1997, it operated for just three years on a trial basis, and has stood idle since 2000, when a combination of inadequate and costly gas supplies for electricity generation, and difficult transportation access by river, made production impossibly costly to sustain.
A statement by Rusal at the time of the deal claimed that "the $250 million purchase price will cover the purchase of the shares in Alscon, as well as the dredging of the river. The company, together with Ferrostaal AG and the Government of Nigeria, also plans to invest an additional $150 million over the next three years to complete, refurbish and modernise Alscon."
BFIG told President Yar'Adua that no money has been paid to the Nigerian government; that it is unlawful for Rusal to include the river-dredging cost in the smelter takeover price; and that investment in the smelter has been minimal. A current website posting by Rusal says: "As a signatory of the UN Global Compact, we are committed to maintaining the best standards of environment and quality management. We also plan to regularly meet with community leaders to jointly work out ways to improve the economic and social situation in the town of Ikot Abasi, home to ALSCON."
An escrow account, opened in London for the takeover, is reported to hold 0 million from a Rusal company, Dayson Holding. But these funds have not been released to Nigeria, although Rusal has taken possession of the smelter. Rusal reportedly has told the Nigerians that this money should be counted, along with a credit of 0 million for river dredging, t o make up the agreed takeover price.
A State Department source declined to say what had transpired at the November 27 meeting with Yar'Adua and BFIG. But a source, who attended, told Mineweb "the Nigerian government is reviewing the Alscon privatization." A BFIG source confirmed that "the U.S. Government has decided to support us in a substantial way."
Documents found by BFIG investigators suggest that under President Obasanjo, the Nigerian government agreed to indemnify Rusal for damages and legal costs, in the event that the lawsuit filed by BFIG in the US goes against Rusal. "Nigeria has yet to receive a cent from Rusal, as far as we know," Mineweb was told by a source close to BFIG, "yet Nigeria would be on the hook for possibly billions in damages if the last of its agreements [with Alscon] is not nullified."
Rusal claims on its website that it closed the deal for Alscon in February of this year. Then on November 7, Andrei Partyansky, Rusal's acting managing director at Alscon, told the Minister of State for Mines and Steel, Alhaji Ahmed Gusau, that the smelter would start operating on December 15. Sources in Lagos claim this is impossible, because Rusal's gas contract requires a 90-day notice in advance of start-up. Nigerian sources say no notice has been filed.
There is also a dispute in government over the price at which gas will be supplied to the electricity generating station supplying the smelter, which Rusal also owns. A gas price subsidy estimated to cost the government about $12 million per annum, was agreed by the Obasanjo administration. This too is now being reviewed. The gas supplier, Royal Dutch Shell, is also reported to be uncommitted to delivering the gas required for the smelter's start-up.
On November 12, during a trip to Nigeria, Alexander Livshits, a former Yeltsin-era finance minister, and currently international lobbyist for Rusal, claimed the start-up date has been moved to January. "Right now, we are modernising the equipment. We will start the plant in January and increase production step by step until we reach full capacity," the local bureau of Reuters quotes Livshits as saying. Livshits also told Reuters that 70 percent of the plant has already been refurbished and upgraded.
The Reuters report blames the delay in start-up on a dispute with the local community over dredging of the Imo River, and the kidnap of six Russian workers at the plant in June. The hostages were released unharmed after two months in captivity. Livshits claimed the purpose of his trip to Nigeria was to find a way to resolve the dispute over the dredging of the Imo River, which is central to the import of raw materials and export of finished aluminium. "We can expand the plant's production capacity faster as soon as we resolve the problems with the local communities," he said.
Livshits declined to answer questions from Mineweb on whether he had discussed Yar'Adua's privatization review with Nigerian officials. Reuters quotes Livshits as refusing to be specific about the amount of money Rusal has spent, and plans to spend, at the plant. "I can only say that we have spent enough money to make it possible for us to start the plant in January."
Yar'Adua told this week's meeting with the Americans that all Nigerians directly involved in the Alscon privatization over the past three years are being investigated now, on his order.
The Nigerian House of Representatives and Senate have also reported that they are preparing a resolution to cancel the privatization in Rusal's favour, and reinstate BFIG's bid. That was for $410 million cash, payable within 90 days, plus costs of the Imo dredging, plus agreement to a subsidy-free gas supply contract with the generating plant. The Chairman of the House Committee on Privatization and Commercialization, Njidda Ahmet Gella, recently told the Americans this should occur within the next fortnight.