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. Last Updated: 07/27/2016

RusAl Exec Named Irkutskenergo Head

A former Russian Aluminum executive has been elected to run Irkutskenergo, ending months of legal wrangling for control of a key utility that powers two of the nation's largest smelters.

In a compromise deal with other major shareholders of Irkutskenergo — including rival Siberian-Urals Aluminum Co. and the federal government — Russian Aluminum, or RusAl, garnered the support of all 11 board members for the appointment of Vladimir Kolmogorov as general director last week.

"There were no conditions for the appointment," said Alexander Ptashkin, a spokesman for Irkutskenergo. Like his boss, Ptashkin recently worked for RusAl, which controls about 30 percent of the utility's shares and is the world's No. 2 aluminum company.

Mikhail Slobodin — the Siberian-Urals Aluminum, or SUAL, candidate — was put in charge of the company's finances to offset RusAl's influence.

"It is the reflection of a compromise among shareholders," said Alexei Goncharov, spokesman for SUAL, which owns 10 percent of Irkutskenergo.

According to board chairman Sergei Kosarev, the first deputy property minister, "the government strengthened its presence in the company."

Kolmogorov's appointment ends months of fighting between aluminum companies and the federal government over a 15 percent stake in Irkutskenergo. The regional government, supported by aluminum barons, claimed voting rights on the 15 percent stake. But what developed as a mudslinging campaign abruptly ended in a compromise, but no details were made public.

Irkutskenergo is a unique and valuable possession, especially for aluminum producers in Irkutsk, which is home to two massive smelters that together generate more than a third of the nation's total annual production of 3.2 million tons of primary aluminum. Electricity accounts for 33 percent of the operating costs of these smelters, so if RusAl and SUAL control the power company, they can choose the price they charge themselves.

Analysts now expect RusAl and SUAL to guarantee themselves low electricity costs in exchange for a commitment to invest money in upgrading power-generating assets.

"On the one hand, it is normal that a general director represents the majority shareholder," said Vasily Boiko, who lost his position on the board at an special shareholders meeting in April. "But we should be ready for any kind of developments now."

Boiko's investment company, Vash Finansovy Popechitel, or Your Financial Advisor, sold its 9 percent stake in Irkutskenergo last year, so this year he tried to get a seat on behalf of the Investor Protection Association, a lobby group for minority investors.

With minority investors no longer having a say in the company, brokerages are less than bullish. Troika Dialog has recommended that investors sell their stock; Renaissance Capital rated the stock as a long-term "market underperformer"; and United Financial Group put it in the "hold" category.

"Since aluminum smelters would be the company's main customers, there would be no way that minority shareholders could influence tariff policy and prevent value from being transferred upstream to the smelters," NIKoil noted in its morning comment Friday, downgrading its long-term rating to "reduce."

Aluminum companies were unhappy with Irkutskenergo's previous management team after its attempts to raise power tariffs on energy supplied to smelters.

Another source of discontent for SUAL was the sale of a 12.87 percent stake in the Kovykta gas field, run by Rusia Petroleum, to a group of companies affiliated with Interros.

Tyumen Oil Co., which has among its shareholders owners of SUAL, holds 9.06 percent in Kovykta and is hoping to increase its presence. The new Irkutskenergo board voted to reverse the deal, reselling the shares at $6.10 each — 17 percent higher than the price charged to Interros, Interfax reported.

Last December, the Irkutskenergo board decided to sell the company's 12.87 percent stake for $5.20 per share, despite an offer from TNK to buy the stake at $6 per share.