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. Last Updated: 07/27/2016

U.S. Promoters Eye Leningrad Smelter

ST. PETERSBURG -- Leningrad region Governor Valery Serdukov met with U.S. aluminum promoters this week to discuss the possibility of building one of the biggest Russian aluminum smelters in the region.

The planned smelter, Sosnovy Bor Aluminum Factory, would process raw materials into aluminum and be located close to the Leningrad Nuclear Power Plant, or LAES.

Regional government officials would not comment on the factory's proposed production volume, cost or identity of the promoters. It was also unclear which American investors the promoters were representing.

"I can only say that this meeting is the first step in what will be a long process. The meeting was essentially over whether the region is ready for such plans or not. We are ready," said Valentin Sidurin, chief press officer for the Leningrad region administration.

An article in the daily Vedomosti on Thursday valued the cost of building the plant at $500 million.

Svetlana Smirnova, an analyst with Renaissance Capital investment bank, said the plans appeared to be for a medium-sized plant that would cost at least $1 billion to build.

The plant is slated to be built near LAES, and according to the regional government press center, Serdukov will hold meetings with LAES officials to convince them to include the plant in the Unified Energy Systems power grid.

Observers pointed out that one of the main draws toward building the plant next to LAES, one of the nation's largest nuclear-power stations, would be cheap electricity.

Regional authorities, such as St. Petersburg Governor Vladimir Yakovlev, are well-known for their unwillingness to raise electricity tariffs.

But beginning Monday, electricity tariffs on the federal electricity wholesale market will be raised 35 percent, dealing a heavy blow to an industry heavily dependent on electricity. Up to 65 percent of aluminum production costs go toward the purchase of electricity, according to Kommersant newspaper.

However, the proposed aluminum plant could still receive its electricity at below cost from regional authorities, a popular scheme in the industry.

Besides providing a cheap source of electricity, the plant's location would allow the smelter easy access to foreign markets, both for import of primary and intermediate products needed in aluminum production and export through the nearby port.

An estimated 80 percent of the nation's aluminum production is exported abroad, with 20 percent going toward domestic consumption.

The plant would be one of the few smelters not based in Siberia, where some 70 percent of aluminum production takes place. The Siberian plants are located 4,000 kilometers to 6,000 kilometers from Russia's ports, forcing them to incur high transportation costs, according to a report in 1999 by the Russian Institute for the Stock Market and Management.

But perhaps most significantly, the plant will be located close to the country's last undeveloped bauxite field, Srednaya Timana, north of the Leningrad region. Almost all deposits in Russia have been exhausted or are too small to be used by smelters outside of the regions where they are located, such as in the Ural Mountains. Russia only possesses one-third of the bauxite it needs for aluminum production.

Bauxite is a raw material for producing alumina, which in turn is the main raw material for making aluminum.

The project's secrecy comes as no surprise to observers of the aluminum industry, who said the sector was well-known for its murkiness and lack of concrete information.

"The very beginning of the reshuffling in the aluminum industry, during the early post-Soviet era, was notorious for assassinations," said Mikhail Seleznyov, a metals analysts at the Moscow-based brokerage United Financial Group. "Although they [aluminum businessmen] are not killing each other now, they are preferring not to dwell on developments in the industry."

The recent merger of the nation's three largest aluminum smelters and top Russian and Ukrainian alumina plants into the world's second-largest aluminum firm, Russian Aluminum, has also been shrouded in secrecy.

It is still unclear how previous rival investors, who had been battling for control of the aluminum industry, would merge their holdings into a workable company. The identity of the holding's shareholders is believed to include tycoons-turned-State-Duma deputies Roman Abramovich and Boris Berezovsky.

The aluminum industry is Russia's third largest after oil and gas and provides estimated annual revenues of over $2 billion. Russia is also the world's second-largest aluminum producer - after the United States - with output reaching 3.14 million tons last year.