Publication: Monitor Volume: 3 Issue: 54

The Norilsk Nickel complex, one of the world’s largest producers of nickel, copper, cobalt, and platinum, and holder of an estimated 15 percent of the world’s nickel reserves, is teetering on the edge of insolvency. (Rossiiskaya gazeta, March 11; Interfax, March 3) Arrears to the federal and regional budgets at the end of 1996 totaled 1.4 trillion rubles ($250 million), while wage arrears by March had reached 900 billion rubles. The complex’s main trade union has responded by announcing plans to strike on March 27 and April 2. Meanwhile, the complex’s management has come under attack from the State Duma, and the Federal Comptroller’s Office has been instructed to conduct by March 25 a check of the complex’s production, economic, and financial activities. The complex’s use of budget funds and deferment of tax payments in 1996 seems to be a matter of particular attention. So does the use of Norilsk Nickel’s federally-owned assets by the Moscow-based Oneksim Bank, which holds these assets as collateral in exchange for credits provided to the state budget under the 1995 "loans for shares" deal.

How can a firm that should be a world leader find itself in such a situation? The answer lies partly in a resistance to change on the part in complex’s management, which is closely tied to the regional authorities in Norilsk and the vast Krasnoyarsk krai. Prior to 1995, Norilsk management went to great lengths to avoid surrendering control to outside owners, even though such owners could have provided the capital needed to modernize the firm’s outdated production facilities. Norilsk Nickel’s links to the regional authorities are also critically important: the complex has traditionally supplied some two thirds of Krasnoyarsk’s regional budget revenues, which in 1996 constituted more than 40 percent of the complex’s total costs. Attempts by Oneksim Bank to increase profits by lowering the complex’s costs have therefore encountered stiff resistance from both the firm and the regional authorities.

Oneksim Bank is nonetheless attempting to offload these social costs onto the regional authorities, as part of a general plan to restructure the complex by dividing it into semi-autonomous profit centers. It has also pledged to spend $300 million to resettle the complex’s 44,000 pensioners from Norilsk (which is located above the Arctic Circle) to other parts of Russia. (Interfax, March 16) However, opposition to the bank’s restructuring plans in the State Duma could potentially lead to the revocation of the bank’s "mortgage," and thereby control, over the complex.

New Estonian Government Takes Office.