MOSCOW ( — The two greatest boxing matches ever fought were the two that the slowing, but wily Muhammad Ali won as the 3-to-1 underdog. They were the Rumble in the Jungle (Kinshasa) against George Foreman, and the Thriller in Manila against Joe Frazier. One year separated the bouts, as Ali aged from 32 to 33. By that time, the only fight he had ever lost was to Frazier.

The Thriller in the Chiller is a different sort of bout. In physical terms, Vyacheslav Shtirov is roughly double the weight, girth, and reach of President Vladimir Putin, though the latter, a martial arts adept, is the more agile, and the fitter of the two. In political terms, Putin is the undisputed heavyweight champ. If Shtirov enters the ring, he’s KO’d.

So, to keep his punching power as president of the Sakha republic, and deter Putin from knocking him out, Shtirov is fighting a two-ring strategy — the first to avoid getting on to the mat with Putin; and the second to send substitutes to do his boxing for him. The substitutes, elected politicians from the Sakha region (also known as Yakutia), have their own ambitions too, and their demands pose problems for both the Kremlin and Shtirov.

When Putin and Shtirov met in Yakutsk on January 6 — in a meeting Shtirov’s office denied for weeks was happening, out of wishful thinking – Shtirov promised that by February 2, he and regional officials would sign an agreement returning to federal authority an inventory of valuable mineral resource assets that have been in their hands for more than a decade.

Behind the scenes for two years now, federal government agencies in Moscow have been trying to reassert their control over state property in Sakha. The most important of these is Alrosa, the diamond miner.

The Kremlin wants to see it expand its capital to include non-diamond resource assets, such as coal, oil, and perhaps others as well. Its current capital value is difficult to estimate because as a closed stockholding company, there is no market in its shares. The capital value at the moment is between $4 billion and $7 billion. The federal buildup of assets is intended to achieve 51% control on the basis of the low valuation. Once done, however, the valuation could take off, hitting between $8 and $9 billion. Alrosa’s reach – for new assets like Norilsk Nickel, for example – would grow significantly.

A decade ago, the Sakha assets had been distributed by President Boris Yelstin by means that were not lawful, in order to buy the political loyalty of his allies in the region. As Putin reasserted federal control, he got rid of Yeltsin’s principal ally, Mikhail Nikolaev, the two-term Sakha president, and replaced him with Shtirov. Nikolaev was, by that time, a very wealthy man, but not a powerful one outside his region. He got what he bargained for – a seat on which to hang on to everything. He was appointed a federal senator with immunity from prosecution.

Shtirov had been Nikolaev’s protege as prime minister of the regional government, then CEO of Alrosa. Putin moved him out of Alrosa, and into Nikolaev’s regional seat. This was to enable Alexander Nichiporuk, the new Alrosa CEO, to reorganize the company under federal control, and Kremlin supervision.

Shtirov, however, had other ideas, and he’s been playing on the lack of concentration of his opponent to advance them.

From the Kremlin’s point of view, just $2 billion worth of rough diamond production a year warrants roughly as much attention from the Kremlin as its value, compared to the annual value of production of Russian oil, gas, nickel, copper, iron-ore, coal, gold, and platinum group metals. Accordingly, Putin cannot be expected by his men to focus on the diamond sector for more than once a year.

And so, by the end of Shtirov’s first year in the regional presidency, on December 28, 2004, the federals were able to get Putin to intervene, summoning Shtirov to Moscow, and telling him that, if he continued to stand in the way of the federal asset takeover, he would be ousted. Another year went by, Shtirov was still fighting the federals, and Finance Minister Alexei Kudrin, the minister responsible for the diamond sector and chairman of Alrosa’s board, was too weak to deal with the challenge.

This time, Putin resolved to visit Shtirov in Yakutsk, where the temperature was nearly minus-45 Celsius. Again, Putin told Shtirov that, if he hoped to be reappointed for a second term in Sakha, he must stop sabotaging the federal retrieval of assets at once, and sign them over by February 2. It was made clear to Shtirov that the federals want to end the standoff without delay, and are ready to go to federal court for rulings invalidating the asset transfers of the Yeltsin period, and returning them to federal control The alternative to that process, Shtirov understands, is a negotiating process between locals and federals that never ends.

Shtirov knows how to read the clock, as well as how to count. If the Sakha region currently holds a 32% stake of Alrosa, that is worth only $1.3 billion at today’s sub-market valuation. If the company is expanded, the stake could triple in value. The administrative districts of Sakha, which currently hold 8% of the company, could see their stake jump from $320 million to $720 million. Who should share in these riches is a potent question, but it’s a question Shtirov dare not fight with Putin to decide.

And so, he has recruited some sparring partners to fight for him. The first move was the publication on a Russian website of materials suggesting that Alrosa executives shower Shtirov with vulgar verbal abuse behind his back. But to those who know how the Alrosa executives speak, this appears to have been fabricated. How does Shtirov’s allies gain by making his enemies sound like Mike Tyson?

The answer surfaced in an article published in the Moscow business daily, Kommersant, a few days later. According to the carefully constructed report, not Shtirov, but a group of Sakha region parliamentarians is opposed to Putin’s demands for the transfer of assets to Alrosa. Their conditions are reported to include preservation of the 32% regional government shareholding; the 8% district stake; and written guarantees of compensation for any regional budget shortfall in revenue “in full and on a long-term basis”. Putin, according to an unnamed local parliamentary deputy, should sign a special decree for this.

Shtirov is not cited as favouring the parliamentary move, but it is evident that he is backing it as negotiations open next week between the regional representatives and the federals on the details of the agreement due on February 2. As he marshals the local forces to retrieve the concessions he has already given Putin, a media campaign has been created to suggest that he is the target of an unscrupulous gang of federal conspirators, whose intentions are as foul as their mouths.

In the small world of Russian diamond politics, titrations like these do not change minds. There is no lack of sympathy in the federal government for the Sakha population, who have been more victimized by Nikolaev and Shtirov than rewarded with a share of the wealth Alrosa has generated. The concessions sought to sustain the regional budget, and improve the distribution of its benefits, have already been agreed by the Finance Ministry.

The Speaker of the Sakha parliament, Nyirgun Timofeyev, issued his own statement last Friday, January 27, revealing that, behind the concessions that have been publicly demanded from Moscow – and privately agreed – he wants Putin to write into his decree that Yakut politicians will be able to exercise operational influence over Alrosa in the republic, and enjoy long-term access to the company’s cashflow.

These are unprecedented demands. Even now, the Sakha parliament does not wield this leverage over Alrosa, except insofar as the company pays into the regional budget Rb11 billion ($350 million) in annually agreed leasing fees for use of the region’s resources. This sum amounts to 23% of the entire budget income of Yakut republic.

Beyond assuring this sum, or this percentage, Timofeyev realizes his bargaining power is limited. He publicly acknowledges that, if the Kremlin orders a court hearing, the Sakha fight will be lost. But he also warned that, if the federals move faster than the Yakuts are prepared to concede in negotiations, he will attempt to mobilize an unprecedented parliamentary confrontation.” I do not exclude”, he declared Friday, “that the course of events can force a gathering of the deputies of the State Assembly of the republic for discussion of the situation.”

What remains to be decided is not a choice between the growth of Sakha at Moscow’s expense versus the aggrandizement of Moscow, at the expense of stagnation or impoverishment in Sakha. The choice now is between Shtirov and Putin to control of Alrosa. If Shtirov tries to fight the second, he’s lost. If he believes he can convince anyone in Moscow, let alone the President, that he is fighting the first, he’s lost again. Timofeyev may also be positioning to succeed Shtirov, as the new Putin appointee for republican president, in the event that he can make himself seem more useful to the Kremlin in this contest.


MOSCOW ( – From one banker’s point of view, lending Russian aluminium oligarch Oleg Deripaska $22.5 million is peanuts – too little to warrant much concern about the creditworthiness or asset risk of Deripaska’s principal production company, Russian Aluminium (Rusal), the world’s no.3 producer and largest exporter of primary aluminium. To be sure, if Rusal turns out to be a walnut shell, and Deripaska’s asset value is elsewhere, then wagering peanuts in a shell-game could be more than embarrassing for the bankers. It could expose them to liability lawsuits far costlier than $22.5 million.

This is the concern that was quietly acknowledged inside the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC, the World Bank’s commercial lending window) in the middle of 2004. For several months that year, EBRD and IFC had been negotiating a $150 million loan to Komi Aluminium. In August, the deal appeared to have been done, and was formally announced.

What had been a long, uphill battle by SUAL, Russia’s second aluminium producer, owned by Victor Vekselberg, to get financing for his low-grade but sizeable new bauxite mine., appeared to have succeeded. According to the joint EBRD and IFC announcement, the two banks “have each signed a $75 million loan agreement that will in total provide Russia’s privately-owned SUAL group a total of $150 million to boost Russian production of bauxite, the raw material for the aluminium industry.” The deal was described as a nine-year loan of $45 million from each bank, with “the remaining $30 million portion of each organisation’s $75 million facility, syndicated to international banks under an A/B loan structure. The term of the syndicated portion will be seven years.” The EBRD announced that the syndicate banks included BNP Paribas, the leader, and Barclays, ING, Societe Generate, and Standard Bank.The plan, according to the announcement, is “to increase annual bauxite output at SUAL’s Middle-Timan mine, situated 250 km south of the Arctic Circle, to 6 million tonnes from the current 1 million tonnes over the next four years. This will help overcome a major shortage in domestic supplies of bauxite and improve the competitiveness of the Russian aluminium industry as a whole.” The loan money was to be spent as follows: “$100 million for the expansion of the Middle-Timan bauxite mine and $50 million to fund feasibility studies and preparatory works for an alumina refinery at Sosnogorsk, 245 km southeast of the Middle-Timan mine, and feasibility studies for an aluminium smelter at Pechora, 250 km northeast of Sosnogorsk.”

EBRD and IFC knew that SUAL had been seeking foreign aluminium giants, like Pechiney and Alcan, for a joint venture in the project, but they had refused. As a global aluminium producer, Russia is traditionally long on cheap electricity, but short on alumina. Aluminium is the electrolyzed product of their combination; but to produce the metal, let alone expand production, Rusal is heavily dependent on alumina imported from the Ukraine, Australia, and Guinea, where its control over the supplying refineries, and the bauxite feedstock, is weak, or subject to reversal. Rusal has a local alumina refinery at Achinsk; but it cannot produce enough feedstock for the smelters. SUAL produces more bauxite and alumina than its smelters require.

Logically, their combination made sense. But the opening of negotiations between SUAL and its arch domestic rival, Rusal, came as quite a surprise, Vekselberg and Deripaska had been fighting each other over smelter assets in the Russian northwest – Vekselberg won – and neither seemed inclined to trust the other in a partnership. Each suspected the other – then as now – of plotting to monopolize the assets. Rusal executives publicly aired their pessimism about the possibility of a joint venture.

Nonetheless, on April 24, 2005, Rusal announced it had agreed on the joint venture. Burying the hatchet, Rusal’s CEO Alexander Bulygin is quoted in the announcement as claiming: “The partnership of our two companies in implementing such a large-scale project demonstrates that the Russian aluminium industry is maturing. At the same time, this agreement helps each of our companies address important challenges in their respective strategies”.

They had agreed to jointly, and equally, develop the Komi Aluminium project, starting with an alumina refinery near the city of Sosnogorsk to consume the added output of SUAL’s bauxite. The cost of this stage was estimated at $1.2 billion, and “under the Agreement between RUSAL and SUAL Group,” Rusal said, “the financing will be made on a parity basis by means of debt and shareholders’ capital. The Refinery is scheduled to launch in 2008.” The Komi project, according to both companies, is to “double the share of domestic raw materials consumed by Russian [aluminium] producers from 40% to 70-80%.”

To the EBRD and IFC, this was a significant change in the project they had agreed to lend to. Accordingly, they immediately stopped their plan to disburse the funds committed to the mine expansion and the refinery study. The commercial banks also halted their loan disbursement. SUAL and Rusal were asked to clarify the proposed partnership. While the public and commercial banks had already done the due diligence on SUAL, the prospect of their money finding its way into Rusal management, albeit in a joint venture, led to the disbursement freeze, and to the start of a new process of studying Rusal.

The commercial banks had done this before. To deal with what the bankers at BNP Paribas acknowledged to be the perceived risks of Deripaska as an oligarch, and of the Rusal structure, unusual and unpublicized loan and metal securitization had been introduced. The EBRD and IFC had to start their due diligence from scratch.

This week, on January 17, they announced the process had been completed, and that subject to a set of legal covenants and an 18-month timetable of management promises, which Deripaska had submitted, and Rusal had signed, the EBRD and IFC were lifting the freeze on the old loan, and would start disbursing the cash. According to EBRD, the commercial banks in the syndicate must individually complete their own approval process, before contributing their funds.

The EBRD’s total exposure to the project is $45 million, with the same for IFC. Each of the commercial banks is exposed for $12 million each. Theoretically, the EBRD’s and IFC’s exposure to Rusal in the joint venture is just $22.5 million, while each of the bank syndicate members is exposed to Rusal for just $6 million. These are the peanuts. Together, they add up to just one dollar in eight of the capital expenditure required for the project.

According to a statement issued by Rusal, the unfreezing of the 2004 loan is “a strong endorsement of Rusal’s plans. The [EBRD and IFC] decision to disburse the loans is based on the disclosure of ownership by Rusal and provides for commitments to greater transparency, good corporate governance and high business standards on the part of the company. Compliance with these commitments is stipulated in legal documentation with the IFC and EBRD.”

The dossier EBRD’s lawyers gathered from Rusal remains secret, and EBRD officials refuse to discuss the details. They are sensitive to the fact that Russian prosecutors and auditors of the Accounting Chamber, the Russian state auditor, have long been interested to secure evidence that the offshore companies through which Rusal metal is traded, and through which tax exemption is claimed according to tolling contracts, may belong to Deripaska. If they don’t, then Deripaska doesn’t benefit from more than half of Rusal’s trading activities. If they do, he has violated Russia’s tax laws.

According to a publication by Neil Buckley of the Financial Times, it is the “first [EBRD loan] to Mr. suggests an increasing willingness by the EBRD to lend to oligarchs embracing higher governance standards.” To illustrate his own due diligence on this point, Buckley noted that Deripaska had been “named in a $3 bn US lawsuit filed by rivals alleging fraud and racketeering. The case was thrown out by the US courts, and Mr. Deripaska denied all charges.” Buckley and his newspaper omitted to report that the US courts rejected their jurisdiction over the claim, but never tried the charges. He also omitted to mention that Deripaska and Bulygin secretly settled, and paid the claim last year.

New court litigation alleging a similar pattern of business tactics by Rusal has started in the High Court of the UK, in Nigeria, and in the US afresh. The Financial Times has ignored them all.

Remarks and rulings in recent weeks by an English judge in a case where Deripaska, Bulygin and their offshore companies face charges of illegally and fraudulently taking control of the Tajikistan Aluminium Plant (TadAZ) have publicly targeted Rusal in the court record. In the Nigerian case, currently pending in the federal Nigerian appeals court, Rusal is accused of violating Nigerian privatization rules, and corrupting senior Nigerian government officials, using a British Virgin Islands company as a conduit, in order to take control of the Aluminium Smelter Company of Nigeria.

According to its press release on January 17, the EBRD and IFC “confirmed that they plan to disburse loans totalling $150 million for the Komi Aluminium project after determining that the recent entry of Russian Aluminium (RUSAL) as an equal partner is acceptable. The decision is an important step towards final agreement to disburse. It is based on full disclosure of ownership by RUSAL’s and Basic Element’s owner Oleg Deripaska, and additionally provides for detailed commitments to greater transparency, good corporate governance and high business standards, covering RUSAL and Basic Element. Compliance with these commitments is covenanted in legal documentation with the EBRD and IFC. In particular, the EBRD and IFC welcome the adoption by RUSAL of an action plan over an 18-month timetable covering significant corporate ownership disclosure, the publication of financial information and specific steps aimed at improving corporate governance – notably the election of three independent

Did the EBRD come to these conclusions by glossing over the court record, because the loan was peanuts, or because the courts are peanuts?

Mineweb asked, and EBRD answered: “The EBRD conducted extensive checks on the information provided by Mr. Oleg Deripaska on the companies he owned. As stated in its press release, the Bank decided the information provided was sufficient for the Bank to proceed with the project — with Rusal as a new partner in the borrowing entity. The loan agreement includes a large number of detailed legal covenants covering all aspects of the project, including the information disclosed to the Bank by Mr. Deripaska on the ownership and structure of the group as well as the commitments made by Mr. Derispaka on future action.”

Lawyers are trained to write this sort of thing, and expensively compensated to produce it. Mineweb readers can analyze what is meant, free of charge.

There is no secret about the ownership of Rusal. Deripaska controls about 96% of the company, which in turn has yet to complete the consolidation and financial reporting of the principal smelter, refinery and related assets in the aluminium production chain on the territory of Russia. Less than 5% of the shares is held by or for CEO Bulygin, and Gulzhan Moldazhanova; she used to run the commercial operations of Rusal, before moving to Basic Element, the Deripaska holding company supervising all the Russian assets.

Court records in cases filed against Rusal; court and arbitration rulings in Switzerland; and a new UK High Court case involving another Russian oligarch in breach-of-trust proceedings, indicate how the EBRD may have achieved something less than it seems to claim, and to have produced something less than the “endorsement” Rusal claims.

There are four ways in which Deripaska’s Rusal could be the empty part of an elaborate shell-game: if Deripaska’s claim to controlling ownership turns out to be based on hidden trust and other arrangements with others, who claim ownership rights, but have not been bought out or compensated; if Rusal’s assets turn out to be no more than the smelters, and related raw material supply and affiliated production plants, on Russian territory, but do not incorporate the offshore-registered companies through which assets outside Russia are held; if most of Rusal’s tradeable aluminium does not belong to it, or to the smelters, but is governed by tolling arrangements which vest title, tax exemption, pricing, and profit in tollor companies, also registered by the dozens across the globe; and, finally, if the Kremlin has decided that rather than litigate against Deripaska for tax recovery, it may buy him out through a takeover bid from Unified Energy Systems (UES), the state utility company.

On the ownership issue, the EBRD concedes that the principal claimant to dispute Deripaska’s submissions is Mikhail Chernoy, who currently lives in Israel. He has publicly averred, many times, that he provided Deripaska with an unspecified form of trust arrangement to administer the metal production assets in Russia, and that he still owns a sizeable stake, for which, he claims, Deripaska has yet to pay. As often as Chernoy has made these claims, Deripaska has denied them.

Deripaska has certainly told the EBRD the same thing, assuring the bank that long ago he severed his past relations with Chernoy. Chernoy’s influence over Deripaska from his early days at the Sayansk smelter has been so powerful, the EBRD’s due diligence ought to have questioned Chernoy directly. If the “extensive checks”, to which the EBRD refers, omitted him, then the Mineweb reader might judge that the information gathered may be insufficient. If the EBRD’s lawyers decided not to interview Chernoy, but put Deripaska’s severance of relations, and claim to have bought him out, into the form of a legal covenant, then what Chernoy says in future should bear on compliance with that covenant, and hence on the loan disbursement and project agreement.

Giving Deripaska the benefit of the doubt on this point, with the protection of a covenant against future discoveries, is reasonable. Time should tell, one way or the other, and the risk may be peanuts.

The EBRD told Mineweb that it has sufficiently investigated the “structure” of the Rusal group. Investigation appears to be past tense. Legal covenants relate to future actions and promises by Deripaska and Rusal. The lawyers have not obliged Deripaska and Bulygin, or their assigns, to accept the covenants, if they intend to look the other way when they are broken. But the EBRD is not prepared to disclose what the covenants say, and hence what the EBRD is afraid of in terms of borrower risk.

According to its own statements and press releases, legally, the Rusal group is a Russian territorial holding. According to Bulygin, “we operate on five continents, deliver products to major corporations in 40 countries across the globe and cooperate with leading financial institutions.” According to former Rusal spokesman, Yevgenia Harrison, in a statement she was authorized to issue to Mineweb, “the Russian government is well aware that Rusal is the only Russian metals company whose revenues do not primarily come from the mining of Russian ore. To a very large extent, we are processors of imported raw materials. Thus a relatively large portion of Rusal’s value added is created outside of the Russian Federaton.”

At the time she said this in late 2004, Harrison was responding to a federal Tax Ministry report, commissioned by the Prime Ministry, and delivered on September 6, 2004. In the report, tax payment rates of several major Russian metals companies were disclosed and analyzed. Rusal was reported to have paid tax amounting to just 2% of revenues. This was well below comparable rates reported by the Tax Ministry for the other metal exporting companies examined, and even further behind the rates disclosed by Russian oil exporters.

According to the Tax Ministry report, Rusal was able to lower its tax rate by the use of tolling contracts with offshore companies it claimed not to own or control; and by a regional tax relief scheme for corporate affiliates registered in the fareastern region of Chukotka, where Rusal had no other business and negligible investment. Regarding the Tax Ministry report, Harrison said that Rusal was not under official investigation. “To dramatise what is a routine governmental report into an article that insinuates that Rusal has acted somehow improperly is misleading and damaging to the company’s corporate reputation; a reputation that we are working hard to develop as the company, and indeed Russia, moves forward.”

If Rusal’s value is mostly that of a foreign group, did the EBRD receive a comprehensive list of all the foreign-registered companies through which its trading and asset holding operations are conducted? Did the EBRD oblige Bulygin to sign a covenant that the consolidation of assets and financial reports promised in the next 18 months will bring these entities into the group?

The point is a fundamental one for the future of both Rusal and Deripaska. Governments, including at least one government that is a shareholder of the EBRD, have issued opinions on the point. For example, almost a year ago, when Rusal claimed to be bidding for the privatization of the Podgorica Aluminium Plant (KAP), the most important industrial asset of Montenegro, the Montenegrin government refused to accept the bid at first, when Rusal used a Cyprus-registered company called Salomon as the bidder. In Nigeria, when bidding to take Nigeria’s smelter was conducted, Rusal operated behind Dayson Holdings, a BVI registration with no known holdings and no business activities. In the takeover of TadAZ, leading to a privatization expected after the Tajikistan presidential election this year, the cutout for Rusal, identified in London court proceedings, is a BVI company called CDH Investments.

These are asset holders; CDH is also a participant in tolling. But the full list of trading companies engaged in supplying alumina to the Russian smelters and taking out aluminium, according to tolling contracts, runs into the dozens, if not hundreds. Many of them have been identified in litigation or arbitration proceedings related to Rusal’s trading contracts. Last year, for example, in a BVI case initiated by London traders Simon and David Reuben, and reported by Adrian Gatton in The Independent and Metal Bulletin, a $300 million claim accused Deripaska of breaking an alleged joint venture agreement made in 1995, and creating a tolling chain through companies including the Irish-registered Tradalco.

The claim also alleged that Deripaska siphoned off assets without the knowledge of the Reubens to shadow BVI companies, with identical names but different registrations and bank accounts, to pass them off as the jointly owned companies into which profits were to be directed.

That case was never decided by trial in court, but the Reubens were paid off.

If the process of tolling is legal, according to Russian law, then the companies identified in these proceedings, if they are still active, cannot be considered by the EBRD to be part of the Rusal group. And if Rusal has promised to consolidate its trading into Rusal’s accounts, then either it admits it has controlled the tollors – which would expose the group to huge back-tax claims and penalties – or else it is abandoning the tolling practice altogether. The EBRD holds no promise, or covenant, of either kind.

In 2004, Mineweb did the following calculation of the profitability of Rusal’s aluminium exports for the offshore tolling contractor. This was gauged from the margin of difference between the price Rusal declared at Russian Customs for aluminium, as it left the country, and the price at which the same metal was declared at US Customs, when imported to the United States. The average price in the first half of 2004 for Russian alumium imported to the US was $1,685 per metric ton. The average price of Russian aluminium exported from Russia in the same period was $1,262, a gap of $423 per ton.

According to the US trade data, the US imported 524,455 tons in the period to July 31 of this year, mostly from Rusal. The price gap was thus roughly equal to $222 million. Double that for the full year, and count the parallel, but larger volume trading of Rusal metal into countries other than the US, and the price gap in 2004 may have been larger than $1 billion. According to industry estimates, almost two-thirds of Rusal’s metal is traded through tolling schemes. Rusal has confirmed the legality of its tolling agreements; it has not challenged this calculation of the size of the value gap.

The Kremlin has carried through just one experiment in prosecuting large-scale corporate tax avoidance, and that was the Yukos oil company case. Since the dismantling of that company in 2004 and 2005, and its takeover by state oil company Rosneft, a different procedure has been used to achieve the same end, at least operationally and financially. That is, a leveraged buyout of oligarch assets by state companies, in which loan financing is provided by international banks, secured for their repayment by trade receipts or shares.

In this way, Roman Abramovich’s Sibneft oil company has been bought by Gazprom, Kakha Bendukidze’s OMZ (heavy engineering) by Gazprom; Vladimir Potanin’s Power Machines by the electrical utility, UES; and Norilsk Nickel, property of Portanin and Mikhail Prokhorov, is being considered for purchase by Alrosa, while Rosoboronexport, the state arms agency, is planning to take over VSMPO-Avisma, the titanium producer.

Why should Deripaska’s Rusal be exempt from this process? EBRD’s due diligence assumes that it is, and the 18-month programme it has drafted confirms that Deripaska will still own Rusal when the promise to appoint three independent directors comes due. There are, however, international aluminium makers, as well as senior Russian government officials, who suspect otherwise. And they detect in recent news of Norsk Hydro’s negotiations with UES, the opening of a Kremlin campaign to buy out Rusal, and transfer the aluminium assets to the electricity company, without whose supplies at beneficial tariffs, the metal couldn’t be produced and traded so profitably – UES. This is not the only contender. Vekselberg has also sought Kremlin support for a takeover plan of a different kind.

While EBRD is countiDeripaska may still be the controlling owner of the Rusal group in two years’ time; or he may not. EBRD has decided that whether he does, or he doesn’t, there isn’t much at risk for its $45 million outlay to the Komi project, or to the $22.5 million stake that is Rusal risk. But the one thing the EBRD hasn’t done is the very thing it inspired the reporter of the Financial Times to say it had – to endorse the multi-billion dollar flotation of Deripaska’s shares in Rusal on the London Stock Exchange to non-Russian share buyers. The EBRD’s bet on Deripaska may be peanuts; an IPO would be a much bigger nut to crack, and the EBRD wouldn’t its covenants and promises of good corporate governance, the Kremlin will have a choice of a rather more strategic kind. And Deripaska will be under pressure to sell out locally, and concentrate what remains of his metal business abroad, disconnected by tolling.

Let’s give Deripaska the additional credit for knowing how to fight a takeover of this type, and to mobilize the resources required to defeat it, and win the Kremlin to his side. In his sale of two rolling mills to Alcoa of the US in 2004, he demonstrated considerable skill in overcoming high governmental objections to what he was doing. In Kremlin thinking, by comparison with Yukos’s and Sibneft’s oilfields, or Potanin’s nickel mines and engineering works, those aluminium plants were peanuts. Subject to some tight domestic supply commitments from Alcoa, letting them go was conceded. Selling a large stake of Rusal to foreign owners is a different story.

Deripaska may still be the controlling owner of the Rusal group in two years’ time; or he may not. EBRD has decided that whether he does, or he doesn’t, there isn’t much at risk for its $45 million outlay to the Komi project, or to the $22.5 million stake that is Rusal risk. But the one thing the EBRD hasn’t done is the very thing it inspired the reporter of the Financial Times to say it had – to endorse the multi-billion dollar flotation of Deripaska’s shares in Rusal on the London Stock Exchange to non-Russian share buyers. The EBRD’s bet on Deripaska may be peanuts; an IPO would be a much bigger nut to crack, and ; the EBRD wouldn’t dare.


MOSCOW ( – If Israeli diamantaire Lev Leviev and trade mediator Arkady Gaydamak buy football clubs, as they have recently done, the Roman Empire rule of thumb would be that the businesses of the two men are running into difficulty.

English tabloid readers have been told that Roman Abramovich — the Russian oligarch who accumulated roughly $20 billion milking his oil, aluminium, and gold assets, and then selling them – invented the idea of establishing personal character, institutional respectability, and political asylum by buying the Chelsea Football Club, and pushing it to the top of its league with expensive acquisitions. But Abramovich, who has made up for lack of ideas of his own with very swift fingers, was not the first.

In modern football history, it was a Greek named George Koskotas, house painter by trade, who deserves the credit for the idea that, if your asset acquisitions are in doubt, buy a football team, and let the team’s winning streak deflect suspicion of its owner; and deter investigations of how he came by the cash that, according to the fans, is the key to the club’s success. Koskotas bought his Athens football club after taking over, and looting the Bank of Crete. He was subsequently to discover that football success and media popularity weren’t protection enough from prosecution by the then Socialist government of Greece, led by Andreas Papandreou. An attempt to flee Greece for asylum in the United States, and a deal with US officials to accuse Papandreou of corruption, was foiled when the FBI arrested Koskotas on landing. Ultimately, he was transferred from a US prison to a Greek prison to serve a lengthy sentence for fraud.

But the Koskotas ploy had a much longer, Roman precedent. Almost two thousand years earlier, it was well-known that the more corrupt the consuls, or aspiring caesars, were in business, and the more ruthless in politics, the more extravagant were the Coliseum games they organized for the Roman public. Just the business of supplying exotic animals for parading and killing made fortunes that tied purveyors and shippers all over the empire to the imperial candidates in Rome. The multi-million dollar purchases of footballers from Africa or South America, and their agents, duplicate this antique trade, the rationale for which is something more potent than public entertainment, and also riskier. The problem the Roman consuls quickly ran into was that the rapid cost inflation of their games triggered a cycle of worsening corruption, taxation and criminality which became very unentertaining, indeed.

Football club investment, with its insurance and player purchase schemes that link media rights and related revenues to winning games, is a pyramid scheme, in which the day will inevitably come when winning turns into losing, and debts become unpayable. Getting out of the game before that happens is usually unpopular, but it’s a knack Abramovich may have to learn.

Until he does, the English prime minister Tony Blair isn’t the man Prime Minister Papandreou was; and it remains to be seen if the official investigation now under way into football finance will shake the high-level protection Abramovich’s cash flow receives in the UK. Whether Arkady Gaydamak, father of Alexander Gaydamak, the new purchaser of Portsmouth Football Club, receives similar protection remains to be seen.

Before the Portsmouth deal, Gaydamak senior had acquired Beitar Jerusalem, a football club, and Hapoel Jerusalem, a basketball club. Leviev has bought Hapoel Tel Aviv, a football club. Their gamble is limited to Israel, where the only one of the two reported to be under investigation is Gaydamak. He has said he is innocent of money laundering, and also of other allegations, reported in European jurisdictions, related to his past dealings in Angola and France.

Both Leviev and Gaydamak have enjoyed better relations with the Russian government in the past than they do today – Leviev to assure rough diamond supplies to his cutting factories, and Gaydamak to earn commissions on Soviet debt, arms, and oil trading. Leviev has steadily lost ground in the past three years, as men he was close to exited from the government; and as federal officials began a crackdown on the leakage of rough diamonds from Airosa to favoured buyers.

A scheme, with which Leviev is thought to have been associated, to help accumulate stocks of Russian rough in Israel, and encourage Israeli influence to improve US policy towards Russia, reappears from time to time, at least in the imaginations of Israeli politicians and diamantaires. The latest version, suggested by Israelis close to Ehud Olmert, a prime minister in waiting, is that if the Kremlin would agree to a big increase in Alrosa’s deliveries to Israel, Olmert will neutralize President Vladimir Putin’s opponents from the Yukos oil empire, who have found refuge, and public platform, in Israel – Leonid Nevziin, Mikhail Brudno, and others. The Kremlin has heard this all before (when the target list included ex-oligarch Vladimir Gusinsky), and has no reason to believe it.

Leviev, on the other hand, senses the opportunity of capturing more Russian rough, as De Beers’s share dwindles to nothing; and ultimately, perhaps, of positioning himself to capture equity in Airosa, if, after the federal restructuring now under way, the Kremlin decides to privatize a sizeable stake. So far, however, he’s failed to develop the diamond-mining business he promised to start in the Urals two years ago; he has not drawn more Airosa rough into the domestic cutting industry, let alone his own Ruis plant; and he has no obvious friends left in the Airosa export establishment. These shortcomings are not as ignominious and comprehensive as those which Leviev’s Israeli rival, Beny Steinmetz, has suffered in Russia.

What exactly the Kremlin can achieve with Airosa in the last two years of President Putin’s term depends on how successful Putin himself was in frightening Sakha boss Vyacheslav Shtirov into subservience, when they met on January 6. For the time being, this is very much an internal affair, and neither Leviev nor any of the other major Israeli diamantaires is likely to be able to capitalize in the short term. In the longer term, the government is likely to make sure that Alrosa’s marketing strategy allows noone to corner the bulk of the trade, in order to rig a sub-market price or build buffer stocks abroad, and no-one to replace De Beers.

Gaydamak’s return to Russia has so far failed to produce notable success, either in the Angolan or Congolese diamond schemes he has proposed to Airosa, and to the government ministers who sit on its board. He has thoroughly failed to reestablish himself in the debt trading markets, in which he had undoubted success almost a decade ago. It is a sign of how weak he feels himself to be that Gaydamak thought to ingratiate himself with the Kremlin, and promote himself, by recently buying the Moskovsky Novosti (Moscow News) media group, which has been a bastion of anti-Putin sentiment, funded by the Yukos group. Now, under Gaydamak, it is nothing at all.

Buying media was the Russian oligarchs’ initial target to enhance their reputations and promote their agendas. Football clubs were not. The reason was that in the Soviet Union, sports clubs, especially football and ice hockey, had always been part of the social outlays of the great state and city-forming enterprises. When these were privatized, the oligarchs who acquired them saw the clubs as a negative balance-sheet item – at least until Abramovich gave them a different idea. Now men like aluminium oligarch Oleg Deripaska are keen supporters of the football teams around his plants, and also in the southern region that may be his political base in future – the Kuban.

Buying newspapers is not a gamble like football clubs because the former always lose money. It is a mark of Leviev’s shrewdness that he has not lost money in Russia on either. He is acutely sensitive, however, of what is published about him, and will telephone proprietors personally to remind them of their obligations, when he is offended. Gaydamak has been threatening in a similar fashion. They are about to learn that such tactics do npt avail them much, if their objective is to inspire the teams they put their money on to win public trust.


By John Helmer, Moscow

The Ukraine war is splitting the communist parties of Europe between those taking the US side, and those on the Russian side.

In an unusual public criticism of the Greek Communist Party (KKE) and of smaller communist parties in Europe which have endorsed the Greek criticism of Russia for waging an “imperialist” war against the Ukraine, the Russian Communist Party (KPRF) has responded this week with a 3,300-word declaration:  “The military conflict in Ukraine,” the party said, “cannot be described as an imperialist war, as our comrades would argue. It is essentially a national liberation war of the people of Donbass. From Russia’s point of view it is a struggle against an external threat to national security and against Fascism.”

By contrast, the Russian communists have not bothered to send advice, or air public criticism of the Cypriot communists and their party, the Progressive Party of Working People (AKEL). On March 2, AKEL issued a communiqué “condemn[ing] Russia’s invasion of Ukraine and calls for an immediate ceasefire and the withdrawal of the Russian troops from Ukrainian territories….[and] stresses that the Russian Federation’s action in recognising the Donetsk and Luhansk regions constitutes a violation of the principle of the territorial integrity of states.”

 To the KPRF in Moscow the Cypriots are below contempt; the Greeks are a fraction above it.

A Greek-Cypriot veteran of Cypriot politics and unaffiliated academic explains: “The Cypriot communists do not allow themselves to suffer for what they profess to believe. Actually, they are a misnomer. They are the American party of the left in Cyprus, just as [President Nikos] Anastasiades is the American party of the right.” As for the Greek left, Alexis Tsipras of Syriza – with 85 seats of the Greek parliament’s 300, the leading party of the opposition – the KKE (with 15 seats), and Yanis Varoufakis of MeRA25 (9 seats), the source adds: “The communists are irrelevant in Europe and in the US, except in the very narrow context of Greek party politics.”



By John Helmer, Moscow

The war plan of the US and the European allies is destroying the Russian market for traditional French perfumes, the profits of the French and American conglomerates which own the best-known brands, the bonuses of their managers, and the dividends of their shareholders. The odour  of these losses is too strong for artificial fresheners.

Givaudan, the Swiss-based world leader in production and supply of fragrances, oils and other beauty product ingredients, has long regarded the Russian market as potentially its largest in Europe; it is one of the fastest growing contributors to Givaudan’s profit worldwide. In the recovery from the pandemic of Givaudan’s Fragrance and Beauty division – it accounts for almost half the company’s total sales — the group reported “excellent double-digit growth in 2021, demonstrating strong consumer demand for these product categories.”    Until this year, Givaudan reveals in its latest financial report, the growth rate for Russian demand was double-digit – much faster than the  6.3% sales growth in Europe overall; faster growth than in Germany, Belgium and Spain.    

Between February 2014, when the coup in Kiev started the US war against Russia, and last December, when the Russian non-aggression treaties with the US and NATO were rejected,   Givaudan’s share price jumped three and a half times – from 1,380 Swiss francs to 4,792 francs; from a company with a market capitalisation of 12.7 billion francs ($12.7 billion) to a value of 44.2 billion francs ($44.2 billion). Since the fighting began in eastern Ukraine this year until now, Givaudan has lost 24% of that value – that’s $10 billion.  

The largest of Givaudan’s shareholders is Bill Gates. With his 14%, plus the 10% controlled by Black Rock of New York and MFS of Boston, the US has effective control over the company.

Now, according to the US war sanctions, trade with Russia and the required payment systems have been closed down, alongside the bans on the importation of the leading European perfumes. So in place of the French perfumers, instead of Givaudan, the Russian industry is reorganizing for its future growth with its own perfume brands manufactured from raw materials produced in Crimea and other regions, or supplied by India and China. Givaudan, L’Oréal (Lancome, Yves Saint Laurent), Kering (Balenciaga, Gucci), LVMH (Dior, Guerlain, Givenchy), Chanel, Estée Lauder, Clarins – they have all cut off their noses to spite the Russian face.



By Nikolai Storozhenko, introduced and translated by John Helmer, Moscow

This week President Joseph Biden stopped at an Illinois farm to say he’s going to help the  Ukraine ship 20 million tonnes of wheat and corn out of storage into export, thereby relieving  grain shortages in the international markets and lowering bread prices around the world.  Biden was trying to play a hand in which his cards have already been clipped. By Biden.  

The first Washington-Kiev war plan for eastern Ukraine has already lost about 40% of the Ukrainian wheat fields, 50% of the barley, and all of the grain export ports. Their second war plan to hold the western region defence lines with mobile armour, tanks, and artillery  now risks the loss of the corn and rapeseed crop as well as the export route for trucks to Romania and Moldova. What will be saved in western Ukraine will be unable to grow enough to feed its own people. They will be forced to import US wheat, as well as US guns and the money to pay for both.

Biden told his audience that on the Delaware farms he used to represent in the US Senate “there are more chickens than there are Americans.”  Blaming the Russians is the other card Biden has left.  



By John Helmer, Moscow

The problem with living in exile is the meaning of the word. If you’re in exile, you mean you are forever looking backwards, in geography as well as in time. You’re not only out of place; you’re out of time — yesterday’s man.

Ovid, the Roman poet who was sent into exile from Rome by Caesar Augustus, for offences neither Augustus nor Ovid revealed, never stopped looking back to Rome. His exile, as Ovid described it, was “a barbarous coast, inured to rapine/stalked ever by bloodshed, murder, war.” In such a place or state, he said, “writing a poem you can read to no one is like dancing in the dark.”

The word itself, exsilium in Roman law, was the sentence of loss of citizenship as an alternative to loss of life, capital punishment. It meant being compelled to live outside Rome at a location decided by the emperor. The penalty took several degrees of isolation and severity. In Ovid’s case, he was ordered by Augustus to be shipped to the northeastern limit of the Roman empire,  the Black Sea town called Tomis; it is now Constanta, Romania. Ovid’s last books, Tristia (“Sorrows”) and Epistulae ex Ponto (“Black Sea Letters”), were written from this exile, which began when he was 50 years old, in 8 AD, and ended when he died in Tomis nine years year later, in 17 AD.  

In my case I’ve been driven into exile more than once. The current one is lasting the longest. This is the one from Moscow, which began with my expulsion by the Foreign Ministry on September 28, 2010.  The official sentence is Article 27(1) of the law No. 114-FZ — “necessary for the purposes of defence capability or security of the state, or public order, or protection of health of the population.” The reason, a foreign ministry official told an immigration service official when they didn’t know they were being overheard, was: “Helmer writes bad things about Russia.”



By John Helmer, Moscow

Antonio Guterres is the Secretary-General of the United Nations (UN), who attempted last month  to arrange the escape from Russian capture of Ukrainian soldiers and NATO commanders,  knowing they had committed war crimes. He was asked to explain; he refuses.   

Trevor Cadieu is a Canadian lieutenant-general who was appointed the chief of staff and head of the Canadian Armed Forces last August; was stopped in September; retired from the Army this past April, and went to the Ukraine, where he is in hiding. From whom he is hiding – Canadians or Russians – where he is hiding, and what he will say to explain are questions Cadieu isn’t answering, yet.



By John Helmer, Moscow

Antonio Guterres, the United Nations Secretary-General, is refusing this week to answer questions on the role he played in the recent attempt by US, British, Canadian and other foreign combatants to escape the bunkers under the Azovstal plant, using the human shield of civilians trying to evacuate.

In Guterres’s meeting with President Vladimir Putin at the Kremlin on April 26 (lead image), Putin warned Guterres he had been “misled” in his efforts. “The simplest thing”, Putin told Guterres in the recorded part of their meeting, “for military personnel or members of the nationalist battalions is to release the civilians. It is a crime to keep civilians, if there are any there, as human shields.”  

This war crime has been recognized since 1977 by the UN in Protocol 1 of the Geneva Convention.  In US law for US soldiers and state officials, planning to employ or actually using human shields is a war crime to be prosecuted under 10 US Code Section 950t.  

Instead, Guterres ignored the Kremlin warning and the war crime law, and authorized UN officials, together with Red Cross officials,  to conceal what Guterres himself knew of the foreign military group trying to escape. Overnight from New York, Guterres has refused to say what he knew of the military escape operation, and what he had done to distinguish, or conceal the differences between the civilians and combatants in the evacuation plan over the weekend of April 30-May 1.May.



By Vlad Shlepchenko, introduced & translated by John Helmer, Moscow

The more western politicians announce pledges of fresh weapons for the Ukraine, the more Russian military analysts explain what options their official sources are considering to destroy the arms before they reach the eastern front, and to neutralize Poland’s role as the NATO  hub for resupply and reinforcement of the last-ditch holdout of western Ukraine.

“I would like to note,” Defense Minister Sergei Shoigu, repeated yesterday, “that any transport of the North Atlantic Alliance that arrived on the territory of the country with weapons or material means for the needs of the Ukrainian armed forces is considered by us as a legitimate target for destruction”.  He means the Ukraine border is the red line.



By Lucy Komisar,  New York*

Here’s a story the New York Times has just missed.

US politicians and media pundits are promoting the targeting of “enablers” of Russian oligarchs who stash their money in offshore accounts. A Times article of March 11   highlighted Michael Matlin, CEO of Concord Management as such an “enabler.” But the newspaper missed serious corruption Matlin was involved in. Maybe that’s because Matlin cheated Russia, and also because the Matlin story exposes the William Browder/Sergei Magnitsky hoax aimed at Russia.



By John Helmer, Moscow

In 1939 a little known writer in Moscow named Sigizmund Khrzhizhanovsky published his idea that the Americans, then the Germans would convert human hatred into a new source of energy powering everything which had been dependent until then on coal, gas, and oil.

Called yellow coal, this invention originated with Professor Leker at Harvard University. It was applied, first to running municipal trams, then to army weapons, and finally to cheap electrification of everything from domestic homes and office buildings to factory production lines. In Russian leker means a quack doctor.

The Harvard professor’s idea was to concentrate the neuro-muscular energy people produce when they hate each other.  Generated as bile (yellow), accumulated and concentrated into kinetic spite in machines called myeloabsorberators, Krzhizhanovsky called this globalization process the bilification of society.



By John Helmer, Moscow

In imperial history there is nothing new in cases of dementia in rulers attracting homicidal psychopaths to replace them.  It’s as natural as honey attracts bees.

When US President Woodrow Wilson was incapacitated by a stroke on October 19, 1919, he was partially paralysed and blinded, and was no longer able to feed himself, sign his name, or speak normally; he was not demented.

While his wife and the Navy officer  who was his personal physician concealed his condition, there is no evidence that either Edith Wilson or Admiral Cary Grayson were themselves clinical cases of disability, delusion,  or derangement. They were simply liars driven by the ambition to hold on to the power of the president’s office and deceive everyone who got in their way.  

The White House is always full of people like that. The 25th Amendment to the US Constitution is meant to put a damper on their homicidal tendencies.

What is unusual, probably exceptional in the current case of President Joseph Biden, not to mention the history of the United States,  is the extent of the president’s personal incapacitation; combined with the clinical evidence of psychopathology in his Secretary of State Antony Blinken;  and the delusional condition of the rivals to replace Biden, including Donald Trump and Hillary Clinton.

Like Rome during the first century AD, Washington is now in the ailing emperor-homicidal legionary phase.  But give it another century or two, and the madness, bloodshed, and lies of the characters of the moment won’t matter quite as much as their images on display in the museums of their successors craving legitimacy, or of successor powers celebrating their superiority.  

Exactly this has happened to the original Caesars, as a new book by Mary Beard, a Cambridge University professor of classics, explains. The biggest point of her book, she says, is “dynastic succession” – not only of the original Romans but of those modern rulers who acquired the Roman portraits in marble and later copies in paint, and the copies of those copies, with the idea of communicating “the idea of the direct transfer of power from ancient Romans to Franks and on to later German rulers.”

In the case she narrates of the most famous English owner of a series of the “Twelve Caesars”, King Charles I — instigator of the civil war of 1642-51 and the loser of both the war and his head – the display of his Caesars was intended to demonstrate the king’s self-serving “missing link” between his one-man rule and the ancient Romans who murdered their way to rule, and then apotheosized into immortal gods in what they hoped would be a natural death on a comfortable bed.

With the American and Russian successions due to take place in Washington and Moscow in two years’ time, Beard’s “Twelve Caesars, Images of Power from the Ancient World to the Modern”,  is just the ticket from now to then.


Copyright © 2007-2017 Dances With Bears

Copyright © 2007-2017 Dances With Bears

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