Russian President Dmitry Medvedev said state ownership of some of the most badly-hit sectors of the economy would only be temporary, a sincere message that reassured private investors. But the Russian state is unlikely to miss out on the opportunity to finally take control over Norilsk Nickel, the world’s largest nickel miner, possibly combining it with RusAl, the world’s third largest aluminium producer, and create a national champion company in the metals and mining sector, Chris Weafer, chief strategist at UralSib investment bank in Moscow, told New Europe in a telephone interview on June 6. He was commenting on Medvedev’s speech a day earlier at the op­ening of the annual St Petersburg Inter­nat­io­nal Forum or the so-called Russian Davos.
“They have been trying for eight years to find some way to get control of Norilsk Nickel and we believe Norilsk Nickel will be the exception to the rule,” Weafer said. “They will use this crisis to get control over Norilsk Nickel and convert it into a national champion in the metals and mining sector, possibly combining it with (billionaire Oleg) Deripaska’s RusAl and maybe even Metalinvest.”
As Medvedev delivered his speech in St Petersburg, Deripaska was summoned by Russian Prime Minister Vladimir Putin to nearby Pikalyovo to be rebuked for not paying wages at his cement plant there since March.
Deripaska controls RusAl, which holds a stake of around 25 percent in Norilsk. In October, RusAl took a loan from state-controlled bank VEB in order to pay back other debt, putting its 25 percent of Norilsk Nickel down as collateral.
“They obviously made an offer to Deripaska. We do believe that the RusAl stake in Norilsk Nickel has already been transferred to the VEB, the Development Bank, that’s part of the bail-out package for RusAl, so the state has 25 percent of Norilsk Nickel anyway in one pocket or another and we believe they made an offer to Deripaska to take out RusAl,” the UralSib chief strategist said.
“At the moment he is obviously trying very hard to find alternative financing with international banks and he is talking about the fact he doesn’t want stake bailout — I think it’s more a case of he doesn’t want stake bailout in the terms that have been offered,” Weafer said. “He is on a ticking clock. He is trying very hard to find alternative financing to bail out RusAl, but if he can’t get that – and at the moment it doesn’t look like he is getting it – then ultimately he would probably have to accept whatever deal is on the table with the state and that’s where we could see this combination of Norilsk with RusAl converging with the state having control,” he said.
“This is unfinished business. They have been trying for eight years to create a national champion in the metals and mining sector,” Weafer said, adding that the same has been the case with Gazprom and gas, Rosneft and oil and Russia’s largest lender, Sberbank, and banking. “This is the missing link or the missing piece of the portfolio that they now are going to control,” he said.
However, Weafer noted in all other Russian companies that need state bailouts, including steel companies and coal companies, these will be temporary investments held in a different portfolio, perhaps under the Development Bank, with a view of selling them on when the market improves.
Medvedev has always been opposed to a greater state role. Even before he became president, he said the state’s role in the economy was already too big and unless it was reduced it would lead to a crisis in the future. A commitment he reiterated during the St Petersburg International Forum on June 5. “I think that’s what he wants to achieve. There has been a great deal of discussion inside the government over how the recovery should approach the question of bailing out companies and there certainly have been some people more on the state side, who have been calling for greater state ownership and in fact they have been saying that is an opportunity for the state to take back control over assets that were sold too cheaply in the 90s,” Weafer said, adding that this group has been calling for the reversal of privatisation process. “But Medvedev and people like Putin — being on the more liberal side of government — have been opposed to that,” Weafer said.
There are two categories of assets. There are those assets that the state believes are strategic for the national interests and here the state certainly has no intention of giving up ownership or giving up control and this  would include Russia’s crown-jewels Gazprom and Rosneft. But what Medvedev was really talking about was companies that need to be bailed in which the state does not want to increase its ownership.
“The new rules of the game are such that the state will hold controlling stakes in the most important companies, which are Gazprom and Rosneft, Sberbank and big companies like that,” Weafer said. The UralSib chief strategist also predicted that there would be further consolidation in the oil and gas sector. “We do expect that Gazprom Neft will combine with TNK-BP. They are now in the process of buying Sibir Energy, will also merge with TNK-BP and maybe even Rosneft because that’s also some unfinished business.”