Oleg Deripaska’s Rusal hits back at Ukraine’s SBU

Oleg Deripaska’s Rusal hits back at Ukraine’s SBU

Russian aluminium giant U.C. Rusal hit back at the Security Service of Ukraine after the SBU accused some of the company’s representatives in the country of deliberately destroying the Zaporozhye Aluminium Smelter (ZALK) and causing damages of over $39 million as a result of their actions.

“The company views those illegal actions as an attempt to retaliate and put political pressure over a lawsuit against the government of Ukraine filed by Rusal to the International Centre for Settlement of Investment Disputes (ICSID),” a company spokesperson said.

The smelter at the center of the tiff, ZALK, which is Ukraine’s sole aluminium plant, was expropriated by the state in 2015 when its shares were transferred from a Rusal subsidiary to the State Property Fund of Ukraine. Rusal initiated proceedings shortly thereafter at the International Centre for the Settlement of Investment Disputes seeking the return of its stake in ZALK, plus costs and interest. Results of the request for arbitration are pending. However, according to Alexander Okhrimenko, a Ukrainian political analyst and president of the Ukrainian Analytical Center, ZALK was set up as part of the USSR’s industrial system and would not be able to function outside the Russian value chain.

The plot further thickened in the fall of 2016, when President Petro Poroshenko levied sanctions upon the Russian firm, alleging it of undermining the country’s national security. The presidential decree gave Ukrainian authorities the right to freeze Rusal’s assets and block its economic actions within the country. It also prohibits the firm from removing capital, bidding on government contracts, and engaging in share transactions. Rusal was one of three hundred other Russian businesses and citizens that were ultimately subjected to restrictions placed upon it by the current Ukrainian leadership since 2014. Although the government’s 2016 decree failed to outline precisely how Rusal may have been threatening the government, Rusal indicated at the time that the sanctions were imposed in retaliation to the simmering ZALK dispute.

It is unclear at this point what the fate of Rusal’s other asset in Ukraine, the Nikolaev Alumina Refinery (NGZ), will be. The Russian company bought a 30 percent share of the plant in 2000, and invested US$430 million in order to increase the 68-year-old plant’s capacity by 700 thousand metric tons per annum. Energy consumption was slashed by one-fifth, largely via converting to automation a significant portion of the smelting process. All in, the operations at NGZ now process between 4 and 5 million tons of bauxite each year, a small share of which was used by ZALK before it was expropriated by the Ukrainian state, with the rest going to other Russian smelters due to differences in production standards that make its output incompatible with European smelters.