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. Last Updated: 07/27/2016

Deripaska in Power Play for Energo

Some guys just can't get enough power.

Tycoon Oleg Deripaska, who controls the world's second largest aluminum producer, now wants to control the company that powers a large chunk of that production.

And unless the federal government does something in the next 45 days to convince the governor of Irkutsk to cooperate, that company — Irkutskenergo — may end up in the hands of a consortium led by Russian Aluminum, the core unit of which, Siberian Aluminum, is in the hands of Deripaska.

"Hypothetically, this may happen if nothing changes," said Irkutskenergo board chairman Boris Varnavsky, who is also the head of a department in the Fuel Ministry. "But I believe that this should not be the case," he said in a telephone interview Wednesday.

Irkutskenergo is a unique and valuable possession, especially for aluminum producers in Irkutsk, which is home to two massive smelters that together produce more than a third of the nation's total annual production of 3.2 million tons of primary aluminum.

Those two smelters are owned by rival firms Siberian-Urals Aluminum Co. and Russian Aluminum, which would like to control Irkutskenergo for several reasons, most notably because electricity accounts for 33 percent of the total cost of producing aluminum in Russia. If they control the power company, they can chose the price they charge themselves.

Irkutskenergo is also one of the few utilities in the country that generates its power hydroelectrically, which is the cheapest way. It also has tapped the eurobond market and does not belong to national power grid Unified Energy Systems, unlike nearly every other energo.

But to control Irkutskenergo requires controlling its general director. And to control the general requires controlling 50.1 percent of the company's shares.

And here is where the battle is being fought.

In a rare example of cooperation between Siberian-Urals Aluminum, and Russian Aluminum, who together own 36.4 percent of Irkutskenergo, they decided last month call an extraordinary shareholders meeting for April 28, apparently confident that by then they would secure the support of the additional 13.5 percent needed to elect their own man general director.

Irkutsk Governor Boris Govorin is the man who holds the key. His government wields a 15.5 percent stake in the energo. And he will likely add that stake to those of the aluminum giants for a simple reason: he wants to keep his job.

Govorin is up for re-election in July and Russian Aluminum and Siberian-Urals Aluminum are the largest employers in Irkutsk and control the main financial resources in the region.

"The takeover is very likely to happen because the governor is due for re-election in July," said Irkutskenergo board member Vasily Boiko. "Should this happen, Irkutskenergo will end up in the hands of [Deripaska's] Siberian Aluminum for good."

Last month's decision by the aluminum giants to call an extraordinary meeting came on the heels of a decision by the Supreme Arbitration Court over the long-running dispute between federal and regional authorities over a 40 percent stake in Irkutskenergo.

In a controversial decision, the court ruled that the federal Property Ministry owned that stake but that the regional authorities could "use" 15.5 percent of it.

"The wording of the court's decision allows such a leeway in interpretation that it is not clear what exactly should be done with the 15.5 percent stake," a spokesman for the Property Ministry said earlier this week.

But if nothing changes between now and April 28 and the governor casts the region's votes with the aluminum giants to elect a joint director, that director can run the company for as long as he wishes — even if the Property Ministry gets back the voting right to its full stake. This is because the general director of Irkutskenergo usually votes a 14.5 percent stake.

Irkutskenergo's Corporate Pension Fund Energia owns 5 percent of its shares, American Depository Receipt holders have another 5 percent and employees own 4.5 percent.

"The general director always votes for the pension funds and ADR holders, while workers always side with the director," said Boiko. "So once elected, the director will be able to vote a controlling stake."

So the director votes a 14.5 percent stake plus 36.4 percent now in the hands of the aluminum companies, should they decide to give him the proxy votes.

Boiko said the odds are high that Siberian-Urals and Russian Aluminum may fail to cut a deal. But even if they do, he said, Siberian Aluminum may later decide to dump its partner.

It is not clear whether Siberian Aluminum, in its fight for Irkutskenergo, will try to win support from President Vladimir Putin, who is now vacationing in Khakassia. Unofficial reports said that Putin, a long-time fan of skiing, will spend most of his vacation at the Gladenkoye alpine resort, which is owned by Siberian Aluminum.

On Wednesday, the Irkutskenergo's board approved a list of candidates for general director. The list includes current acting director Sergei Kuimov, Russian Aluminum's appointee and former Krasnoyarskenergo director Vladimir Kolmogorov and Siberian-Urals protegee Sergei Yesapov, who is currently in charge of sales at Irkutskenergo.

Russian Aluminum spokesman Alexander Ptashkin said Wednesday that "working discussions" will be carried out before the meeting to decide on the voting tactics.

Siberian-Urals Aluminum refused to comment.

Irkutskenergo's saga dates back to the early 1990s, when an agreement was signed between federal and regional authorities that gave them joint ownership of a 49 percent stake.

But in 1993, the regional administration sold 9 percent of this stake.

Later, the federal authorities attempted to get sole control of the remaining 40 percent.

Last month's ruling by the Supreme Arbitration Court gave half of the original, jointly owned 49 percent stake — 24.5 percent — to the state.

The remaining 15.5 percent — the difference between the disputed 40 percent and 24.5 percent — remained the property of the federal government, but the regional administration could use it.

Earlier this month, an angry Property Ministry issued a press release saying that it would sue the regional registrar, which kept the 15.5 percent on the accounts of the regional administration.

Ministry officials think that they should have the right to vote the full 40 percent at the upcoming meeting, but they may have to take the regional authorities to court to prove their case.

Irkutskenergo stock shed 13.6 percent Wednesday to 6.05 cents per share.

In January 2000, it was traded close to 9 cents a share, then surged to a margin below 12 cents in November on buying by Siberian-Urals, which spent some $50 million last year to buy a 10 percent stake in the company.

The stock has been in a tailspin since the buying spree stopped.