Publication: Monitor Volume: 6 Issue: 67

While President-elect Vladimir Putin promised during the election campaign that Russia’s “oligarchs” would cease to exist as a class, the situation in the country’s aluminum sector suggests that this was little more than campaign sloganeering. Reports over the weekend indicated that the two rival financial-industrial groups competing for the control of the aluminum industry–one led by Roman Abramovich, director of the Sibneft oil giant, the other by Oleg Deripaska, head of the Siberian Aluminum company–reached an agreement to end hostilities. According to other reports–as yet unconfirmed–the two sides have gone further than a simple cessation of hostilities and agreed to form a giant aluminum holding. If formed, such a holding would control 7-11 percent of world aluminum production, depending on the estimate (Nezavisimaya gazeta, Moscow Times, April 4). The issue of war and peace in the aluminum sector has a strong political subtext, given that two major rival political power brokers, Boris Berezovsky and Anatoly Chubais, stand behind Abramovich and Deripaska, respectively.

The latest “aluminum war” broke out in early February, when firms connected to Sibneft’s Abramovich and Berezovsky’s automotive firm, LogoVAZ, bought controlling shares in the Bratsk, Krasnoyarsk and Novokuznetsk aluminum smelters which were held by Britain’s Trans-World Group and long-time aluminum king Lev Chernoy. According to press reports at the time, the “Berezovsky-Abramovich” group’s acquisitions gave it effective control over an estimated 60-70 percent of the country’s aluminum production.

However, the group remained vulnerable in two areas–access to alumina, the main component in aluminum, and to electricity. So while companies linked to Abramovich and Berezovsky were able to get a controlling share in the Achinsk Alumina Plant, Deripaska’s Siberian Aluminum managed to get a controlling stake in the Nikolaev Alumina Plant, located in Ukraine, which supplies the Krasnoyarsk aluminum plant with two-thirds of its alumina needs. In addition, Krasnoyarskenergo, the company which supplies electricity to the Krasnoyarsk aluminum plant, raised its rates last week by 49 percent. Krasnoyarskenergo is a subsidiary of United Energy Systems, Russia’s electrical power grid, which is headed by Chubais.

But while Siberian Aluminum–and its de facto political sponsor, Chubais–were able to thwart a total victory by the Berezovsky-Abramovich group, they were apparently worried that the latter was ready to roll out its biggest weapon–Russian Public Television (ORT), the 51-percent state-owned television channel which Berezovsky is widely believed to control. An unnamed official at Abramovich’s Sibneft was quoted today as saying that Siberian Aluminum wanted “to avoid a media war” (Moscow Times, April 4). The apparent result was a peace agreement–or, at least, a cease-fire.

It is unclear how far the cessation of hostilities has gone. A deputy director of the Krasnoyarsk aluminum plant said over the weekend that Siberian Aluminum and Sibneft officials had met and reached an agreement to merge their aluminum operations, and some Berezovsky-controlled media today also reported the merger as a done deal (Nezavisimaya gazeta, Russian agencies, April 2). Other media, however, suggested that what had been reached was simply an agreement to live together, not an official marriage, and that a merger was unlikely, given that Deripaska would never agree to play second fiddle to the Berezovsky-Abramovich group, which has more shares in all the constituent enterprises (Segodnya, Kommersant, April 4).

Whatever the case, the latest maneuvers in the aluminum sector have direct political implications. Specifically, they raise new doubts over Putin’s promises to reduce the influence of the oligarchs over Russia’s political life. Indeed, according to one account, Putin recently met with Chubais and Deripaska after Abramovich asked the then acting president to help mediate the aluminum conflict, after which Putin urged Deripaska to make peace (Segodnya, April 4). If this account is true, it suggests that Putin has decided to adopt, at least for the time being, the approach that his predecessor, Boris Yeltsin, took toward the oligarchs. Yeltsin’s strategy involved playing referee for the warring financial-political clans and playing them one off against the other. In September 1997, for example, after a vicious mud-flinging contest in the media sparked by a series of disputed privatization auctions, Yeltsin brought together six of the country’s top tycoons in the Kremlin and asked them to quit fighting. Yeltsin, like Putin today, stressed during that period that the state is “above” the oligarchs and there must be one set of rules for everyone. The oligarchs, of course, retained their customary privileged positions in the corridors of power, and some remained more equal than others.

While it is too early to say whether Putin will go with the status quo or try to overturn the oligarchic order, the evidence so far suggests that no revolutions are likely. First Deputy Prime Minister Mikhail Kasyanov, for example, said yesterday that the government considers the various deals which have taken place in the aluminum sector “fully legal”–that is, not in violation of Russia’s antimonopoly laws. He also said that the government “in every way welcomes the amalgamation of companies and the formation of holdings with the international weight of a Gazprom”–Russian’s giant natural gas monopoly (Russian agencies, April 3). Kasyanov is widely viewed as the front-runner among the likely candidates for the post of prime minister in Putin’s new government.