By John Helmer, Moscow
In a hearing in federal US District Court in Los Angeles on Tuesday, Rusal, the Russian aluminium monopoly, was challenged by Judge Carla Woehrle to substantiate its court claims in London and elsewhere against the Nigerian government and a Nigerian-American company, BFI Group (BFIG). Through its US attorney, Jamie Bartlett, Rusal claimed it did not know what, if anything, is happening in the claim it has lodged in the London Court of International Arbitration (LCIA). Bartlett also told the judge that Rusal has launched no other court claims in Nigeria or the US.
At stake is the future of Nigeria’s only aluminium plant, the Aluminium Smelter Company of Nigeria (ALSCON), which Rusal took from BFIG amid charges of favouritism and corruption. Click here  for the full story. Rusal’s court moves are intended to discredit BFIG, which won Nigerian court approval last July for restoration of its acquisition of the plant by privatization tender in 2004.
In Nigeria in parallel, Rusal has persuaded the acting head of the Bureau of Public Enterprises (BPE), Benjamin Dikki, to order BFIG to pay $41 million within two weeks, or face disqualification of its right to ALSCON. For the second time. The money ultimatum came last week, despite the refusal of Rusal to open the plant for inspection by BFIG, and after protracted delay by BFE to negotiate the terms of the asset transfer and new stakeholder agreement.
BFIG’s US attorney, Jimme Williams, said Rusal is using the US court and London arbitration cases as delaying tactics while in Nigeria “it is threatening us with the same legal ruses which were dismissed by the [Nigerian] Supreme Court in July.” As for the allegations that Rusal used corrupt means to win the Alscon privatization eight years ago, Williams said: “it’s just a select few in the Nigerian government who are acting for Rusal’s benefit in defiance of the Nigerian courts and parliament.”
Rusal did not report aluminium sales revenue from ALSCON in its financial reports for 2011 or 2012. There is no reference to the Nigerian court ruling against Rusal in the company’s most recent operational reports, issued on September 4, December 12, and February 8. The company’s financial report for 2011, issued on June 25, 2012, referred to operations and assets in several countries – Russia, Ukraine, Jamaica, Nigeria and Guinea – noting that “operations in these countries involve risks that typically do not exist in other markets, including reconsideration of privatisation terms in certain countries where the Group operates following changes in governing political powers.”
According to the Rusal website, ALSCON is “one of Rusal’s key African assets”. “Following the acquisition of the controlling stake in ALSCON, RUSAL modernized the facility and re-started it in 2008.” With 785 employees, the plant’s annual production capacity is given as 120,000 tonnes. The latest Rusal report, issued last week, indicates that aluminium output at ALSCON was 15,000 tonnes in 2011, and rose 47% to 22,000 tonnes in 2012.
According to Rusal’s Hong Kong Stock Exchange prospectus of December 31, 2009, the company had already paid $250 million to buy the ALSCON assets and related infrastructure, and was obliged by its agreement with BPE to invest another $150 million. By June 2009, Rusal has conceded, it had invested just $76 million of the amount. How much cash Rusal actually paid the Nigerian government for ALSCON is uncertain. According to the Hong Kong prospectus, Rusal claimed the ALSCON assets had a book value of $183 million in 2007.
The Rusal financial report for 2011 does not mention ALSCON or Nigeria. It does record impairments, or asset value write-downs in its aluminium division, of $20 million in 2010, and $37 million in 2011. In Rusal’s annual report for 2011, the explanation for the impairment charge is “the reassessment of the timing and extent of site restoration and dismantling activities at one of
the Group’s subsidiaries and the recognition of an additional impairment charge relating to the Jamaican assets.” No sign of the write-down in Nigerian asset value. Apparently, what Rusal reports to its auditors, or discloses to its shareholders, isn’t the same thing as it reports to the Nigerian government and stakeholder in ALSCON.
The Nigerian government’s Corporate Affairs Commission gathers annual reports from companies like ALSCON, in which the government holds shares (the state stake in ALSCON is 15%). These reports show that the maximum asset value reported for the plant was 130 billion Naira at December 31, 2006 (equivalent to $826 million). However, since then there has been a sharp write-down. The latest report for December 31, 2011, shows ALSCON’s asset value at just N14.6 billion ($92 million). The write-down has been 89%.
Last month, on January 13, the Metal Products Senior Staff Association of Nigeria (MEPROSSAN) sent BPE and other Nigerian government agencies a report on the deteriorating state of the plant. It described its condition as “deplorable” and “unsafe”, due to “lack of the major spare parts… All the spare parts inherited have been used up. And instead of procuring new ones to service the Plant, we see a situation where if an equipment or machine breaks down, it is abandoned for the one that should be on standby.”
The union report also claims that cranes have become inoperable; at least 30 pots have ceased operation; only one of six compressors continues to work, and that “epileptically”; and power supply is half of what is required for normal potline electrolysis. In addition, the union charged Rusal management with failing to honour the undertakings in its privatization agreement to settle worker pay claims at the time of the takeover. The liability claim, not disclosed by Rusal in its reporting to date, is for N2.7 billion ($17 million).
BFIG charges BPE with blocking an inspection of the ALSCON plant, and with refusing to discuss the devaluation of the assets and damage caused by Rusal’s management since 2004.
In Los Angeles on Tuesday, Judge Woehrle heard argument from Rusal’s lawyers that it wants a court order to oblige BFIG to disclose information which, according to Rusal, is relevant to its litigation elsewhere. However, when the judge asked Bartlett for Rusal to substantiate the relevance by explaining what stage the London arbitration has reached, and what other cases Rusal has filed against BFIG, the lawyer said she didn’t know.
BFIG told the judge that Rusal’s discovery proceeding should be rejected because Nigerian law and the judgement of the Nigerian Supreme Court disallow the application for arbitration in London. Without grounds for the London arbitration proceeding and without other court claims, Rusal’s application against BFIG in Los Angeles will fail. The judge requested more legal presentation on this issue for a hearing next week, on February 19.
In the meantime, BFIG has announced it is commencing suit in the Nigerian courts against Rusal, claiming $2.8 billion in damages for profits from ALSCON lost since 2004. The court papers accuse Rusal of unlawfully interfering with the privatization of the smelter, and of cheating BFIG of the benefits which would otherwise have accrued without the Rusal takeover.
The application for discovery which Rusal has filed against BFIG in relation to the London case is likely to boomerang, as BFIG pursues discovery against the Rusal subsidiary in the US which was engaged in the Nigerian takeover, as well as bank accounts and lawyers involved in the Nigerian transactions. For the first time, the eight-year fight over the Nigerian asset, representing just 0.5% of Rusal’s global aluminium output, and an even tinier fraction of its revenues and earnings, is to strike at the core governance and liability risks for all Rusal shareholders.