Global Insight Perspective | |
Significance | The head of a major state corporation Rostekhnologii Sergei Chemezov has secured a joint bid with Vladimir Potanin's Norilsk Nickel and Alisher Usmanov's Metalloinvest for the exploration of copper resources in Russia and Mongolia. |
Implications | Should the government uphold the bid, the new company may eventually control up to 10% of the world copper market. |
Outlook | The alliance of Potanin with Chemezov and Usmanov appeared unlikely only weeks ago, and was propelled by the aggressive attack of another key oligarch, Oleg Deripaska. Chemezov's initiative will be the subject of fierce competition involving key economic players and influential political figures. |
The head of one of Russia's key state corporations, Rostekhnologii, and a close personal friend of President Vladimir Putin Sergei Chemezov has sent the President a letter informing him that the corporation has the assured cooperation of Norilsk Nickel, Russia's top producer of precious and non-ferrous metals, and Metalloinvest, the country's largest producer of iron ore, to jointly bid for the exploration of the Udokan copper field. The third largest resource in the world, holding some 15% of the globe's copper resources, Udokan in the Baikal area of Russia contains some 14.4 million tonnes of copper, 7,300 tonnes of silver and 1.9 tonnes of gold. Chemezov also asked for the state share in the two joint Russia-Mongolia ventures, Erdenet and Mongolroscvetmet, which produce copper, gold and coal, ultimately proposing the creation of the world's largest ore mining and smelting company which would control some 9-10% of the world copper market. It would also lay claims to the Sukhoi Log, the largest gold field in Eurasia with some 205 tonnes of gold, that has not been awarded an exploration licence yet.
Chemezov has put in his proposal for the Udokan field licence tender to be held on 17 July, and Putin has already ordered Prime Minister Viktor Zubkov to "carefully assess" the initiative, according to Kommersant. The decision has yet to be made, as Chemezov is not the only trusted friend of Putin, and other stakeholders will fight to put the brakes on his advancement. The Ministries for Trade and Economic Development and for Natural Resources have already argued against feeding the appetites of Chemezov's mushrooming corporation, which was only created in November 2007 on the basis of arms and military equipment producer and has already spread into the automobile sector while aiming to become Russia's top air carrier. Another state corporation, Russian Railways, headed by another presidential friend Vladimir Yakunin, is joining forces with Vnesheconombank (VEB) and the Urals ore mining company to bid for the Udokan field. The continued competition of the Russian oligarchs will also have an impact on the Udokan licence.
The plan to create the world's top copper producer was itself made possible by the recent manoeuvres by Russian business tycoons that exposed one of the veterans of Russian business Vladimir Potanin, prompting him into action. Last week (25 April), his former business partner Maxim Prokhorov sold his share in Norilsk Nickel to rival Oleg Deripaska, currently Russia's richest oligarch and the owner of the world's top aluminium producer RUSAL. This put RUSAL's share (25% plus 1) in Norilsk Nickel precariously close to Potanin's own (25.3%). Potanin will have to act swiftly to prevent the already declared intention of Deripaska to merge Norilsk Nickel with RUSAL. An urgent meeting of Norilsk Nickel directors will be held tomorrow, and alliance with Chemezov over the Udokan field and with Usmanov's Metalloinvest is expected as an assault and safeguard measure.
Outlook and Implications
Chemezov's initiative to create the world's top copper producer could signal a new stage in the relations of Russia's mightiest economic heavyweights. It also exposes the strong ties between the private and state sector in Russia, as oligarchs, state managers and officials form visible alliances to advance their joint interests and block competitors' initiatives. Russia's large-scale corporate business was never for those without nerves of steel; it has evolved from the crime- and assassination-tainted period of the 1990s to a more structured and formalised terrain without losing its intensity, and has spread wide into the political sphere. The bid over the Udokan licence is a reminder that Russia is not as monolithic as it often appears to be, at least in the economic sphere. The competition is there, fierce, intense and ruthless, with results that are often unpredictable but ultimately having an impact on markets far beyond the country's borders.