Siberian Giant

Take a large part of the Soviet-built aluminum industry and its workers, package them as a mega-company managed by really young, educated, post-Soviet-era executives, and launch it in the free-wheeling Russian economy of the new millenium. Let’s see what happens.

The subject of the experiment is Rusal (Russian Aluminium), owned 75% by Basic Element (a private company owned by Rusal’s chairman Oleg Deripaska) and 25% by Sibneft (a Russian oil company). It was formed in March 2000 from the merging of the assets of Sibneft and Sibersky Aluminium; the former had purchased the Russian aluminum assets of British-based Trans World Group in 2000; the latter was formed by Deripaska in August 1996 as Russia’s first vertically integrated aluminum company.

The resultant company is big: it’s the world’s third largest primary aluminum producer (after Alcoa and Alcan), with over 60,000 employees. It produced 75% of Russia’s (10% of the world’s) aluminum in 2003–2.6 million tonnes–for US$4.5 billion in revenue. Its operations are spread throughout Russia and the former CIS, as well as in Romania and Guinea (West Africa).

The company mines bauxite and nepheline (two locations). It makes 60% of the alumina it needs at three refineries, and has 3- to 10-year contracts to supply the rest. It smelts the alumina in four Siberian smelters to form primary aluminum and alloys. Downstream products include aluminum alloy semi-products, aluminum foil and flexible packaging and beverage cans. In 2003, only 8% of Rusal’s aluminum was sold in Russia; the rest went to Europe (36%), Asia (34%) and North America (22%).

Rusal seems to be succeeding. CEO Alexander Bulygin said in July: “We are seeing strong progress on all our main strategic objectives: overall growth, increased production of premium alloys, enhanced self-sufficiency in raw materials and improved productivity.” He’s right. Primary aluminum production is up 5.1% in the first half of 2004. Bauxite and alumina production increased 5.9% and 5.7%, respectively, and value-added casthouse production has shot up 24.6%.

Since 2001, Rusal has been making serious investments. Capital spending on maintenance and modernization will total US$330 million this year, and there are ambitious plans for expansion. To pay for all this, a public debt offering is being considered in 2005-’06, and an equity financing may be required in 2007-’08.

CMJ joined a press tour of Rusal facilities in early June, which included the Bratsk and Sayanogorsk smelters and the Sayanal foil mill in southern Siberia.

World’s largest aluminum smelter

In the Irkutsk region is the Bratsk smelter which specializes in the production of primary aluminum, rolling products and slabs. It opened in 1968, and is the largest primary aluminum producer in the world, using Soderberg technology to produce 409,200 tonnes of primary aluminum plus 521,300 tonnes of value-added casthouse products, for a total of 930,500 tonnes last year. It is targeting 950,000 tonnes of product in 2004. The plant employs 6,553 people with an average salary of 20,800 rubles for three months (US$240/month). Supplies and product are transported by rail.

Last year, Bratsk imported 41% of its alumina from Venezuela, Australia and Guinea, and 29% from former-CIS countries (Kazakhstan and the Ukraine); 29% was from Russian producers (Achinsk and Boksitogorsk). Its 2,334 electrocells are grouped into 25 pot-rooms of 90-94 cells each. Most product goes to nearby Southeast Asia.

The smelter consumes 2,000 MW of electricity, which is 75% of the present output of the 4,600-MW Bratsk hydroelectric power station, 20 km away. The cost of the power to the smelter is 25.3 kopecs (US$0.009) per kWh.

Rusal is upgrading the smelter, spending US$20-million in 2004, according to the smelter’s managing director Vladimir Berstenev. One of the major projects is to switch to dry anode technology, which allows the smelter to push a higher current of electricity through the cells and make more aluminum. Eight pot-rooms already use dry anodes, and the rest will be converted in 2005.

The smelter is switching to centralized point-feeding for alumina; four pot-rooms have already been converted. This and other programs have resulted in a 20% reduction in airborne emissions since 2000. The smelter received ISO 14001 environmental management certification earlier this year.

Bratsk was one of the first parts of Rusal to reorganize by outsourcing services. In November 2002 the former repair shop became a limited liability company, making spare parts for this and other smelters. A second corporate restructuring in March 2003 spun off the group that makes major repairs to the electrolytic cells. In all, 4,400 people have been spun off to form nine new companies. The agreements force the new companies to give their employees the same salaries and social benefits that they had with Rusal.

Most modern aluminum smelter in Russia

Sayanogorsk is Rusal’s third largest aluminum smelter, 750 km southwest of Bratsk in the Republic of Khakassiya. In 2003 it produced 213,800 tonnes of primary aluminum and 245,200 tonnes of value-added casthouse products, for a total of 459,000 tonnes of product, one-third as higher-value alloys. The goal for 2004 is 500,000 tonnes with 50% alloys. The smelter employs 3,680 people, with an average wage of 16,737 rubles per three months (US$192/month).

The smelter receives alumina by rail from Rusal’s Nikolayev refinery in the Ukraine. It purchases 30% of the power from the nearby Sayano-Shushenskaya 6,400-MW hydroelectric power plant, for 21 kopecs (US$0.007) per kWh, which represents up to 40% of the costs.

This is the most modern smelter in Russia, built in 1985 and continually upgraded. There are >700 electrolytic cells in four pot-lines with eight pot-rooms. All pot-rooms use pre-baked anode technology; all cells have been upgraded with a centralized system for point-feeding alumina.

The smelter has increased its capacity since joining Rusal by adding cells and by increasing the electric current in the cells. It now runs at 255 kA/cm2, and is testing cells at 300 kA. Sayanogorsk’s most modern cells consume 13,300 kWh. Productivity has soared from 67 tonnes in 2000 to an estimated 135 tonnes/person in 2004.

Sayanogorsk was Russia’s first smelter to be certified ISO 9001 and ISO 14001. It is in the process of gaining OHSAS 18001 certification for management of personnel health and safety.

Earthwork started in June to build an additional US$755-million smelter (Sayanogorsk 2), which will increase output by 310,000 tonnes of aluminum. The expansion should be complete by the end of 2006; together the two smelters are expected to produce 845,000 tonnes of aluminum in 2007, all of it as alloy.

Aside from the new smelter, US$59 million of capital spending is planned at Sayanogorsk this year for the addition of new cells, development in the anode plant, and modernization in the casthouse area. This includes an US$8-million state-of-the-art casting line upgrade, a joint venture with the Norwegian-based aluminum producer Norsk Hydro ASA. Norsk sold the equipment and new technology to Sayanogorsk to produce 80,000 tonnes of high-quality extrusion ingot per year, which will later be doubled. Norsk will purchase 100% of the line’s output for 10-13 years, and market it stamped with the logos of both companies.

Reaching out

At a June 9 press conference celebrating the commissioning of Sayanogorsk smelter’s casthouse upgrade, executives from Norsk Hydro were very supportive of their Russian partner. “This project was our first step with Rusal; we would like to do others,” said Harald Odegaard, Norsk’s senior vice-president of strategy and business development. “We’ve been buying Russian aluminum for 10 to 11 years. When Rusal formed we saw that they were a serious company with the same aim as us… Rusal is a very professional company with very good management.” He added, “The lines are blurring between traditional metals production companies in the West
and Russian aluminum companies.”

Rusal is reaching out to the West for technology and strategic joint ventures. As a major player in the Russian economy and in the global aluminum business, Rusal cannot be ignored. It will be interesting to watch as the mega-company moves toward a public listing later this decade…. free enterprise Russian-style.

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