By John Helmer in Moscow
The test of a rising empire is how far from home it will go to take wealth from the natives. The test of a declining empire is how much more it will spend on keeping the natives down than being there is worth. By this standard, Russian Aluminium (Rusal) in Africa is no imperialist — more smash-and-grab raid gone wrong. And the Kremlin realizes it.
The Guinean Government in Conakry now says it has enough evidence to launch a court claim against Rusal for at least $1 billion. A local court filing is expected shortly, government sources in Conakry say, citing evidence of inflated costs and other alleged manipulation of financial accounts that have reduced taxes Rusal was obliged to pay in Guinea over several years. At the same time, the Guinean government has decided to engage an internationally recognized accounting firm to analyze both the internal financial accounts, and also Rusal’s export declarations, to support the court claim, and if warranted, increase it.
In Moscow this week, Rusal tested the imperial reflex by responding with what appears to be a threat from the Russian government to punish Guinea in the United Nations (UN) if Rusal’s bauxite and alumina production in Guinea is penalized. A report appearing in a Moscow newspaper warned that Russia may not issue its UN Security Council veto if a resolution imposing sanctions on Guinea for political rights violations is introduced for a vote. The press report claims that a Guinean foreign ministry delegation is expected in Moscow on October 5 to negotiate a diplomatic bargain. “The diplomatic help of Russia is now very necessary to Guinea,” the newspaper reports an anonymous source as claiming. If the Guineans drop their compensation and damage claims against Rusal, the anonymous source is reported as saying the Russian Foreign Ministry will consider vetoing a sanctions resolution against Guinea at the UN.
Not exactly from the halls of Montezuma to the shores of Tripoli! no Britannia rules the wave! not even German women, German fidelity, German wine and German song — Deutschland uber alles!
Still, for almost the first time since a capitalist replaced a communist in the Kremlin a half-generation ago, Russians afar are calling home for help. When that happened in August, President Dmitry Medvedev responded by sending a missile-armed Navy frigate to the rescue of a four-thousand-tonne tramp steamer carrying a $2 million cargo of lumber. The successful rescue has proved something of an embarrassment because, seven weeks after the Russian military and police recaptured the ship, and air-lifted the pirates to jail, the vessel, called the “Arctic Sea”, is still marooned in the mid-Atlantic.
So in September, when Rusal, the aluminium monopoly of Russia, pressed the Kremlin’s help button, the President, the Navy, and the Procurator-General have remained imperiously aloof.
A Conakry court ruled on September 10 in favour of the government’s application to revoke the privatisation of the Friguia refinery to Rusal’s benefit, on the ground that the asset transfer in 2006 violated local law and was priced at only a fraction of the asset value. Depending on the global price of alumina, the refinery is worth, according to the Guineans, at least $250 million. The receipt book shows Rusal paid only one-tenth that price. The court of first instance ruled this was a steal.
Alumina is a white powder that is refined, with a great deal of electricity, from bauxite ore, and then electrolyzed, with even more electricity, to produce aluminium metal. Roughly two tonnes of bauxite are required to make one tonne of alumina, which is turned into half a tonne of aluminium. If you need aluminium, there are no substitutes. Guinea is one of the world’s leading bauxite producers; and during the Soviet era, the French — who ran Guinea as a colony until 1958 — built a refinery in the Ukrainian city of Nikolaev, which depended on Guinean bauxite. Nikolaev’s alumina fed the aluminium smelters of Russia. After the Soviet Union disappeared, Rusal put together this production chain on a commercial basis. All of it is presently owned by Oleg Deripaska, a handful of current partners, the founding partner, and a great many creditors, including the Russian state banks.
Guinea’s bauxite also supplies the production chains of other international production companies, like Alcoa of the US and Rio Tinto (which has absorbed Alcan of Canada, which had earlier taken over Pechiney of France).
A day after the Guinean court ruled that the Friguia refinery belongs to the Guinean state, the Russian Foreign Ministry issued a statement saying that “without interfering with mutual relations of the Guinean authorities with its commercial partners, including Russian UC Rusal, it intends to watch closely the development of the situation.” The communique expressed the “hope that, having undertaken such actions concerning the Russian company, the authorities of the Guinean Republic and the judicial bodies of this country with all responsibility estimate the validity of the claims, [and] are guided exclusively by the spirit and the letter of the law…and realise the possible consequences of such actions as for the general climate of traditionally constructive Russian-Guinean relations…”
Guinean government officials say they took action in court only after months of fruitlessly proposing negotiations with Deripaska. They also say that Rusal and the Guinean authorities had earlier agreed on the appointment of an independent auditor to look into the books and financial claims, but that Rusal had reneged. The story of these negotiations reads like a chapter from Rudyard Kipling.
According to Guinean government officials, Prime Minister Kabiné Komara had written Deripaska in June, inviting him to Guinea for negotiations over the results of the review. Deripaska replied that he was too busy, and suggested the Guinean officials come to Moscow. The Guineans thought the reply was insulting, and started their court action in July.
Then on August 5, Deripaska flew into Conakry and through an intermediary requested an urgent meeting with the President of Guinea, Moussa Dadis Camara. An Army officer, Camara had taken power in a bloodless putsch last December, when the 25-year dictator of Guinea, Lansana Conte, died. The meeting with Camara, Guinean and French sources report, was arranged by a business figure well-known from the Conte days — a Mauritian with a British passport called Raoul Delaware. He brought his guest to the presidential palace after midnight on August 6. In the subsequent account Camara gave to his colleagues, the president heard out the man who had been introduced as Deripaska, and understood that, at last, Rusal was offering to negotiate in good faith. The deal Camara understood was that if the government would slow down the legal sanctions it was seeking in court, Deripaska would send Rusal negotiators to the table. Camara agreed, and ordered the presidential Audit Committee, now examining the concessions awarded to foreign companies by the Conte regime, to delay the Friguia court process.
Rusal acknowledges that Deripaska flew into the country, but won’t say if he met Camara. Government ministers say they were kept in the dark, and asked Camara what had happened. He told the story of the visit in the night, and photographs of Deripaska from the internet were examined. It was then, a source close to the President says, Camara believed he had met a Deripaska double. The request to the Audit Committee was rescinded, and the government moved back into court for a ruling. This was issued on September 10, becoming international news as a sign of Guinea’s new militancy towards foreign investors.
Russia’s trouble-shooter for Africa, Senator Mikhail Margelov, saw a different parallel. He was “not surprised”, he said, that conflicts would arise “for young Russian entrepreneurs who picked up their habits of privatisation in Russia [in the 1990s]. We want to have friendly relations with the African countries. The Russian national interest is to settle the scandal.”
Rusal issued statements claiming it had “purchased Friguia in full compliance with Guinean legislation and we consider the plant to be our legitimate property.” The company adds that it has invested $400 million in its mining and refining operations in the country. It is reported in the Russian press as considering an application to an international arbitration tribunal in Paris to overturn the Guinean court. The Guineans say no appeal to colonial headquarters is possible, because the Friguia property was awarded under Guinean law, and Rusal’s only recourse is to the Guinean appellate court.
The Russian Foreign Ministry maintains a traditional policy of non-interference in the internal affairs of the African states. In July of 2008, Russia opposed a US-drafted sanctions resolution at the UN Security Council, aimed at Zimbabwe. At the time, and backed by South Africa, China, and other UN members, the Foreign Ministry announced in Moscow: “the adoption by UN Security Council of that document would have established a dangerous precedent opening the way for Security Council interference in the domestic affairs of states over some or other political events, including elections, which is a gross violation of the UN Charter.”
Guinean sources in Conakry believe that at least one member of the UN Security Council, apart from Russia, would veto a sanctions move, if it is attempted. A Russian advisor on Africa policy says “the situation [in Guinea] is not similar to Zimbabwe in any way.” He believes Rusal is bluffing.
Unexpectedly and suddenly, on September 28 and 29, what had been a conflict over money and policy was overshadowed by bloodshed in the streets. Opposition demonstrators in Conakry, calling for Camara to step down and take the army out of politics, were attacked. Troops opened fire, and in the subsequent rampage at least 150 people were killed, and more than a thousand wounded. On September 30, Camara apologized publicly, saying he had not been in control of the army units which had caused the bloodshed. He appealed for a “government of national unity” with the opposition parties, and for an commission of international enquiry backed by the UN. Talk of political and economic sanctions against Guinea began to circulate in Paris, at the European Union in Brussels, and at the UN in New York.
It was then that, according to the report by Kommersant newspaper of September 29, the Russian Foreign Ministry agreed to meet with Guinean diplomats for a showdown over Rusal. The meeting has been confirmed for October 5-6 in Moscow.
However, speaking on October 1, Foreign Ministry spokesman Andrei Nesterenko said categorically there is no linkage between the Rusal dispute in Guinea and the Russian government’s political stance on Guinea. Commenting that “like the diplomatic establishments of other countries, the Russian Foreign Ministry supports Russian business abroad,” he cautioned this does not mean that the Foreign Ministry will get involved in commercial disputes involving Rusal and the Guinean authorities.