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. Last Updated: 07/27/2016

Norilsk, Where Clean Air Is Ominous

NORILSK, Russia -- Clear blue sky is the most obvious sign of the financial trouble at Norilsk Nickel, Russia's giant metals complex deep within the Arctic Circle.


When the factory is working, the town of Norilsk and its 250,000 residents are covered with a layer of sulphurous smoke from its 1940s vintage smelter.


But during a visit in early September, the plant was shut down and the air was clear. Workers at a smelter in the center of Norilsk said that they had had no work for over a week because of a lack of raw materials.


Norilsk Nickel, with 150,000 workers and an approximate market capitalization of 425 billion rubles ($188 million), is one of Russia's biggest companies, producing about 15 percent of the world's nickel, as well as cobalt, copper and platinum.


Shares in the company were sold to workers and to the public in June at a voucher auction which reportedly attracted 2 million privatization vouchers, almost 1.5 percent of the total. The government is hinting that it could sell another 15 percent of stock for cash later this year.


But all around the plant, there are signs of financial crisis. Workers and even local government employees said they had not yet received wages for June, and were being driven into debt to survive.


Labor unions are warning that the region is running dangerously late in the annual process of bringing in fruit and vegetables before the ice freezes in October, cutting off sea access to the port. They cannot decide whether the company or the government is to blame.


Yefim Lebedev, acting president of the Taimyr Trade Union Association, said that workers did not want to disrupt production by going on strike. But he said the situation was very dangerous.


Privatization has also brought its share of problems for Norilsk Nickel. Now a private company, it does not control the five atomic ice breakers which cut a path through the pack ice of the Arctic Ocean, keeping the port of Dudinka, which serves Norilsk, open in the winter months.


These have been given to Murmansk Shipping Inc., a new private company with a desire to make money. A port spokesman said that from December to February last winter, Murmansk Shipping refused to send ice breakers to Dudinka because of outstanding debts. The port was effectively shut.


Jim Lennon, a metals analyst for London-based Macquarie Equities, said that the prospect of disruptions to production in Norilsk are keeping the world price of nickel on the London Metal Exchange close to its annual highs, over $6,000 a ton, almost double its level of two years ago. "The market is viewing it positively," he said.


He estimates production will drop to 155,000 tons from last year's 161,000 tons. Three years ago, production was around 240,000 tons.


Yuri Pronnikov, deputy director for international business, agreed in an interview that Norilsk Nickel's production would fall further this year.


Within Russia, the big consumers of nickel were military plants that used it to make stainless steel alloy for tanks and guns. Pronnikov said that this year, domestic demand has continued to fall.


He said it was barely profitable to export, even at the current high world price, but nevertheless Norilsk Nickel was now turning increasingly to exports because it offered prompt payment. The company had exported 43,000 tons of nickel in the first half of 1994.


Long-term solutions to Norilsk Nickel's problems are not clear. The forthcoming share sale for cash could finance investment. The Russian government has offered some more urgent help in the past month, sharply reducing export duties on nickel last month. Interfax has also reported that the company is negotiating a special holiday from its government debts.


But the major problem for the plant is how to handle its relations with the world nickel market, on which it is increasingly dependent.


In the past few years, locals and experts maintain, much of Norilsk's wealth has ended up with middlemen skimming off profits from the sale of Norilsk's nickel.


Kazbek Karginov, deputy director in charge of developing the raw material base, said in an interview that Norilsk could soon reap more profit from exports as a result of Russia's decision to end government-imposed quotas and licenses from July 1.


He said that last year, Norilsk Nickel had only received quotas to export 20,000 tons of nickel, with the rest going to various metals traders who had made most of the money. But since the decree cancelling quotas, Karginov said, Norilsk Nickel could effectively become the exporter of all its production and make its own decisions on export policy.