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. Last Updated: 07/27/2016

Power and Ambition on Deripaska's Watch

MTThe Sayano-Shushinskaya dam overlooking Sayanogorsk will also power the town's second smelter, which is due to start producing aluminum in November.
SAYANOGORSK, Khakasia -- When rival business factions were fighting for control of the Sayanogorsk aluminum smelter in the early 1990s, its young director often kept watch at the plant overnight. Locals say some nights he slept on the factory floor.

A dozen years later, with the country's often-bloody aluminum wars a receding memory, that plant director, Oleg Deripaska, is now the country's undisputed aluminum king with an estimated fortune of $14 billion. His company, Russian Aluminum, is poised to clinch a $30 billion mega merger with its nearest domestic rival, SUAL, and Switzerland's Glencore.

And Sayanogorsk is once again center stage in Deripaska's plans, as RusAl will open a new smelter here in November -- the first to be built in the country in more than 20 years.

For it is in this sparsely populated East Siberian republic that Deripaska will begin his campaign to double RusAl's annual production to 5.2 million tons of aluminum by 2013 and try to leapfrog the world's biggest companies by output, the United States' Alcoa and Canada's Alcan.

Fed by electricity from the giant Sayano-Shushinskaya dam that towers nearby, the new plant, named Khakasia for the republic where it is situated, will operate as an extension of the Sayanogorsk smelter and produce close to 300,000 tons of aluminum per year using RusAl's own smelting technology.

Together, the two smelters will produce 845,000 tons of the metal.

The company's plans are indeed ambitious and depend on an intriguing mix of local and international factors -- from access to hydroelectric power from Siberia's giant dams to winning the global race for supplies of bauxite ore, the key raw material for aluminum.

To add to RusAl's four current Russian smelters "we have a full pipeline of projects," Pavel Ulyanov, the company's managing director of corporate strategy and development, said at a recent briefing in Moscow.

RusAl plans to open a 600,000-ton smelter in Boguchansk, near Irkutsk, in 2012. The following year, the 750,000-ton Taishet smelter will open nearby.

To meet what it forecasts will be a 5 percent growth in aluminum demand worldwide over the next decade, RusAl also plans to open a 140,000-ton smelter in Guinea, West Africa, by 2010.

Other possible locations for new aluminum plants include the Middle East, Iceland, South Africa, Malaysia and Tajikistan, Ulyanov said.

Raw materials for aluminum smelting such as bauxite ore, cathodes and anodes would come from India, Vietnam, Brazil and Jamaica. RusAl's current supplies come from Guinea, Guyana, China and Ukraine.

Despite RusAl's international ambitions, the bulk of aluminum production will remain in Russia -- more specifically in Siberia, said Viktor Zhirnakov, deputy CEO in charge of the firm's aluminum division.

The reason is not so much patriotism as simple economics.

Yuriy Humber / MT
The Sayanogorsk aluminum plant was the last to be built in the Soviet era.
Internationally, close to one-third of the cost of producing aluminum is eaten up by electricity, and the most efficient power plants are hydro and nuclear. Within the next two years, rising electricity costs in Europe and the United States are forecast to lead to aluminum plant closures and the loss of 1 million tons of capacity.

Deripaska's company accesses power from Siberian hydroelectric plants that dam some of the world's mightiest waterways. On a map of Khakasia, the Yenisei and Abakan rivers skewer the kidney-shaped land, splitting off into dozens of branches.

It was access to this hydroelectric power that stood at the heart of many of the 1990s disputes in the industry.

"We estimate that, at present, just 20 percent of Siberia's hydro potential is being used," said a spokesman for HydroOGK, the country's biggest hydroelectric power generation firm. The country has the potential to produce 850 billion kilowatt hours of hydroelectric power, the second-largest capacity in the world after China with 1 trillion kilowatt hours, he said.

RusAl's expansion plans will require about 25 billion kilowatt hours of energy by 2013, Ulyanov said. Without building or acquiring new hydroelectric plants, RusAl will find itself 30 percent short of that target, Ulyanov said.

The huge hydroelectric potential in Siberian Russia and China has led some industry players to claim that the two countries hold the future of global aluminum production in their hands.

Not so, say RusAl's rivals.

"You know, only someone from either of the two [countries] would say that. We see great potential in Brazil," among other countries, Alcoa spokesman Kevin Lowery said.

In Russia, however, the race between aluminum producers for hydroelectric assets, or access to long-term electricity contracts with HydroOGK, a subsidiary of utilities giant Unified Energy Systems, tells a different story. Alcoa and Norway's Hydro Aluminum are vying for contracts alongside RusAl and SUAL.

For HydroOGK, that bodes well for attracting investment to build more plants, as the firm seeks to meet the government's target of doubling the volume of energy derived from the country's waterways to 95 gigawatt hours by 2010.

Yuriy Humber / MT
Workers at the Sayanogorsk plant earn 24,000 rubles per month on average.
For Khakasia, a picturesque republic known for its grassy steppe and rolling fog at dawn, that could also bring large-scale environmental changes.

"Want to know a great place to shoot the next horror movie?" local RusAl spokesman Vladimir Shulekin told a reporter after a press trip to the smelter last week. "Check out the sides of the reservoir by the Sayano-Shushinskaya hydroelectric plant."

The plant has fed the smelter with cheap electricity over the last two decades. In that time, the powerful flows of dammed water have also pulled bark off trees and made the river less hospitable to some kinds of fish. Local anglers have been forced to go farther upstream to get a good catch.

The smelter's workers will admit that the air too has changed.

"But what do you do -- build coal-fired plants? Imagine the number you'd need to get the same volume of power," Shulekin said.

As RusAl's operations in Khakasia expand, the town of Sayanogorsk and the nearby villages of Maina and Cheremushky will increasingly look to the company to provide jobs. About 80,000 people live in the three settlements, and the Sayanogorsk smelter employs 2,600. A further 600 employees will start at the Khakasia plant in November. Workers at the Sayanogorsk plant earn an average of 24,000 rubles ($950) per month.

Apart from a small bakery in Maina and the hydroelectric plant, there's little other industry here. A local railroad-car plant shut its doors in the mid-1990s.

In effect, "the smelters juice the local economy," Shulekin said.

Late one evening last week, as the press bus bounced down an almost deserted Sayanogorsk street, one small side effect of the town's geography -- four time zones east of Moscow -- hit home.

At least tonight's not a football night, Shulekin said.

"The desire to come home and watch the matches is there," Shulekin said. But with most matches screened at 2 a.m. Sayanogorsk time, "the chances are rather bleak."