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MOSCOW (Mineweb.com) –On the eve of Good Friday, President Vladimir Putin called the leaders of Russia’s major businesses to meet with him at the Kremlin. The oligarchs were hoping that Putin would go long on resurrection, and short on crucifixion, at least of the type that has kept their colleague, Mikhail Khodorkovsky, in prison, and destroyed his Yukos oil empire.

At last Thursday’s meeting, Oleg Deripaska, the oligarch who controls Russian Aluminium (Rusal), had his head down as Putin spoke, busy taking notes of the speech Putin was reading from three closely typed pages. Deripaska is the most active of the Russian oligarchs in Africa, with a big bauxite and alumina operation in Guinea, and ambitions to start aluminium smelting plants in Nigeria and the two Congo republics. He has also been trying to gain footholds in India, Venezuela, Jamaica, Australia,Rumania, and Montenegro.

Since the Kremlin issued a full text of the speech immediately, and Deripaska lacks short-hand notetaking among his skills, perhaps he was scribbling to show Putin how attentive he was.

Although Putin made one tentative concession to the assembled oligarchs — to cut the statute of limitations on illegal privatization to three years instead of ten – this can help Deripaska in no way, since he seized his aluminium assets and export revenues, not from the state, but from other Russian businessmen, plant managers, and workers.

“I consider it possible to support the idea of reducing the statute of limitations on privatization deals from 10 years to three,” Putin announced, paying careful attention to the word “possible”.

Putin did not say that he was shortening the statute of limitations on back-tax claims, something of much more urgent concern to most of the oligarchs, especially Deripaska. His Rusal group was identified last September in a report by the Tax Ministry to the cabinet as paying an abnormally low rate of tax on its booming aluminium export business.

This, the report said, was achieved by use of tax minimization schemes, such as tolling, regional tax-offset zones, and transfer pricing. If Putin wants to unleash the tax men, he could deliver a tax bill for Rusal of more than $1 billion per annum for each of the past five years. According to Rusal, in 2004 its aluminium sales, mostly for export, totaled $5.4 billion. Its accumulated debt -an undisclosed figure – stands at over $1.5 billion.

Putin cannot easily change the Civil Code, even if Deripaska wanted him to. Even a concession on privatization violations is of doubtful value legally, because it is not the rigged privatization, in which the Russian government itself was involved a decade ago, that opens up the oligarchs to prosecution. It is their fraud, grand theft, embezzlement, money-laundering, racketeering, forgery, and other crimes, for which the statute of limitations cannot be reduced by a presidential decree.

In the remarks which Deripaska also dutifully copied down, Putin added that “a healthy competitive environment also depends on the appropriate corporate standards and effective self-regulation mechanisms within the business community itself.” That was another warning, less ambiguous than the remark on privatization, that the oligarchs must clean up their acts.

Was this what Deripaska was doing when, a day later, it was announced in Moscow that he had settled claims against him and Rusal by Mikhail Zhivilo of Paris, former owner of the Novokuznetsk Aluminium smelter, which Deripaska seized five years ago?

It was that takeover, and the subsequent conversion of aluminium trading contracts signed between the smelter and the Base Metal Trading and Alucoal group of companies, controlled by Zhivilo, that were the basis of a billion-dollar damage claim in the US federal courts of New York. The subsequent reporting of Deripaska’s record identified him as an alleged racketeer unable to obtain an entry visa for the US. Although the substance of the allegations was never tested in the court, because it refused to accept US jurisdiction, international lenders to the Rusal group have been preoccupied ever since by the risks associated with loans to Deripaska’s offshore companies and the Rusal group in Russia.

Despite the vindication claimed by Rusal from the refusal of the US courts to try the Zhivilo case, and from a parallel rejection of jurisdiction last year by a Stockholm arbitration panel, Deripaska has now agreed to pay Zhivilo between $50 and $60 million, according to a source close to the deal. In the Stockholm arbitration, Zhivilo had sought $325 million in a trading contract claim.

When the US Court of Appeals upheld a lower court’s rejection of US jurisdiction over the Zhivilo claims, Alexander Boulygine, Rusal’s CEO and close friend of Deripaska, said publicly: “each new ruling demonstrates there was never any case to begin with. Plainly, the plaintiffs thought that by generating negative publicity and raising our legal costs they could force us to pay them to leave us alone. We refused to be held to ransom.” Michael Burrows, his lead counsel, went further, attacking Zhivilo for making “false claims disguised with sensational allegations and far-fetched tales of intrigue. The plaintiffs sued without evidence or proof.”

Deripaska’s payment to Zhivilo goes a long way toward suggesting otherwise. It is the third major payment in the past 12 months by Deripaska and Rusal to claimants who had gone to court around the world, accusing his companies of contract violations, or worse.

Last year, Rusal was obliged by a Zurich arbitration tribunal and the Swiss high court to pay a $100 million claim from Aldeco, a trading company controlled by Deripaska’s arch-foe in Russia, Anatoly Bykov, the former head of the Krasnoyarsk Aluminium smelter. Deripaska and Rusal have also paid off a group of consultants in the Republic of Guinea, who won a UK High Court judgement against them for $3.5 million.

Rusal refuses to respond to questions about the settlement with the Zhivilo group, or the earlier deals. A spokeswoman noted that, according to a written order issued by ex-Rusal official Yevgenia Harrison, company executives are forbidden from speaking to Mineweb’s correspondent, and will be punished if they do.

Harrison, and her London-based husband Fred Harrison, recently lost their contract to represent Rusal. They were behind a series of attempts to induce editors of aluminium industry publications, notably McGraw-Hill’s Platts newsletter, into publishing only the good news about their group. After receiving a promotional payment from Rusal, Platts recently invited a Rusal executive, Peter Finnimore, to announce that among the “lessons” Rusal has learned in trading aluminium with the rest of the world, a “high level of customer service” and an “increased emphasis on social responsibility” are important, along with “governance”.

Finnimore glossed over the internal argument over Rusal’s public image. Late last year, this had led to a clash between the Harrisons and others in the company’s public relations division, who argued that negative tactics were continuing to damage Rusal, and that a respected international PR firm should be engaged to remedy the problems.

It will not be easy for Rusal to demonstrate it is turning over a new leaf. A claim for more than $300 million by Deripaska’s original offshore partner, David Reuben’s Trans World group of London, remains to be adjudicated in the courts of the British Virgin Islands. There are other conflicts heading for the courts as well.

Again, as with the Zhivilo claim five years ago, the potential damages of the new litigation are not only substantial, financially. If they reveal Deripaska as unrepentant, his business tactics unchanged, and his potential domestic tax liabilities uncertain, they will continue to cast a shadow over Deripaska’s efforts to persuade foreign governments otherwise. This is vital for him in the Ukraine, where Deripaska is dependent on alumina supply from the Nikolaev refinery, whose privatization is already under government review in Kiev; and in Montenegro, where Deripaska’s payment guarantees for a plant takeover were rejected last month.

In Guinea, and elsewhere in western Africa, the competition for bauxite and alumina is heating up with Alcoa, Alcan, Canada’s Global Alumina, Chinese companies, and others. This rivalry is unlikely to be decided by what goes on as Deripaska wages battle in the courthouses of Europe, or at the Kremlin in Moscow. But if he is to hang on in Africa, let alone expand, Deripaska must be able to convince his Guinea, Nigerian and Congolese partners that he can be trusted.

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