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Analysis & Opinion
31.08.10 Worthy Nickels
By Tai Adelaja

In the quicksand world of Russian business, the high-profile spat between billionaires Vladimir Potanin and Oleg Deripaska – two of Russia’s best known oligarchs – is threatening to invite a state takeover of Norilsk Nickel, at a time when the Kremlin is struggling to reduce the state’s excessive role in the economy.

On Monday, Deripaska, who co-owns Russia's largest nickel producer, had a taste of the arms-twisting that is a feature of business dealings in Russia when his private jet was denied permission to land at Norilsk. An official at the airport, a Norilsk Nickel subsidiary, said a private plane was prohibited from landing on Monday for reasons not connected with the weather, but could not confirm it was Deripaska's aircraft, RIA Novosti reported.

Representatives of UC RusAl, Deripaska’s aluminum empire, said Tuesday that unnamed “high level state officials” had had to intervene before the oligarch’s jet was allowed to land at 11 am on Tuesday. Deripaska was in Norilsk to attend a meeting on the development of the city and Norilsk Nickel which was chaired by Prime Minister Vladimir Putin.

Potanin and his former business partner, Mikhail Prokhorov, gained control of Norilsk Nickel during the controversial loans-for-shares privatizations in the mid-1990s. Prokhorov later sold a 25 percent stake to RusAl, setting off a seven-month battle for control between Deripaska and Potanin. Potanin's Interros Holding and Oleg Deripaska's United Company RusAl each control at least 25 percent of the miner, which has a market capitalization of $32 billion.

The two-year old conflict between the key shareholders of Norilsk Nickel, the world's largest producer of nickel and palladium, was reignited after the miner’s annual general meeting on June 28. RusAl has accused Norilsk management of manipulating election results, causing it to lose a representative and leaving it on unequal footing with Interros. Norilsk has denied the claim, while both Interros and RusAl have accused the other of trying to run the company against the interests of other shareholders. President Dmitry Medvedev has ordered the Prosecutor General’s Office to look into the dispute, which is already being investigated by the Federal Service for Financial Markets.

Both oligarchs have offered to buy each other out in a dispute over the company strategy and contested elections to its board of directors. In a rare press briefing in his Moscow office earlier this month, Deripaska said that his United Company RusAl is ready to buy out the stake in Norilsk Nickel held by Potanin's Interros Holding to end a shareholder dispute and boost the value of Russia's biggest mining company. Norilsk would be able to "significantly" raise its market value in six months with more efficient management and by selling underperforming assets, Deripaska said. He included U.S. precious-metals producer Stillwater Mining, utility OGK-3 and treasury stock in this list of underperformers. "The company is now worth $32 billion, but it could be worth significantly more, and competent management could achieve that in half a year," Deripaska said.

Potanin’s Interros holding has not received a proposal from RusAl offering to buy its stake in Norilsk, said a company official who asked for anonymity, citing company policy. The official added that Interros shares are not on offer. Potanin's holding has said repeatedly that it could buy RusAl's stake but was not willing to sell its own.

Russian Prime Minister Vladimir Putin told news agencies Friday that the feud is damaging the company. "It is a healthy company," Putin said, Interfax reported. "There is a fight among the main shareholders, and this fight, no doubt, is causing damage to the company," he said. "The government in this case is limited in its actions by the law."

Putin said on Monday however that his government would steer clear of intervention in the conflict only so long as the company continues to address both the environmental and social problems of Norilsk, a point he pressed home in a televised meeting with the company’s shareholders on Tuesday. Putin said he is not interested in who holds what stake in Norilsk Nickel: "The main thing is that they solve the enterprise’s problems, but if someone falls out of this general order, that's when we will do something," he said.

When the conflict first erupted in 2008, the government stepped in to help broker a peace deal between the two Norilsk owners, fearing that their dispute would harm one of the country’s strategic companies and corporate taxpayers. However, the Kremlin has so far ruled out the possibility of the government buying a stake in the company as a way to end the bitter dispute. “Norilsk Nickel is a private company and must remain such in the future,” a Kremlin source, cited in many media reports stated. Bloomberg reported in July that Deripaska discussed the possibility of the government becoming a shareholder in the world’s largest nickel producer with unidentified state-owned companies.

Analysts said however that the government’s refusal to assume ownership of yet another chunk of private business at a time when it prepares to sell off its economic assets does not mean it will not change its mind and buy a slice of Norilsk from either Deripaska or Potanin. There are no other Russian mining companies large enough to buy 25 percent stakes from Deripaska or Potanin, Andrei Lobazov, an analyst at investment company Metropol, said. If the state were to buy an interest in Norilsk, it would likely not settle for anything less than the full stake held by either of the business tycoons, he concluded.
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