[Marxism] An oligarch stumbles, a tiny nation suffers

Richard Fidler rfidler_8 at sympatico.ca
Wed Jan 14 06:44:19 MST 2009

An oligarch stumbles, a tiny nation suffers 


>From Wednesday's Globe and Mail 

January 14, 2009 at 3:14 AM EST 

ROME — The financial distress of Oleg Deripaska's aluminum business in Montenegro is threatening to turn the hottest economic growth story in the Balkans into the next Iceland. 

The Russian oligarch, through his En+ Group Ltd. subsidiary, has told the Montenegrin government it cannot afford to keep the aluminum refinery, Kombinat Aluminijuma Podgorica, known as KAP, operating at a loss and is likely to close the entire operation unless it receives financial support in a hurry. 

"We cannot pay our bills," KAP director Andrej Kuznjecov said in a phone interview from Moscow yesterday. "We're talking three to four weeks before we make the decision whether to shut it down." 

KAP and its related companies, including a bauxite mine also controlled by Mr. Deripaska, form the most important industry in Montenegro, the small Adriatic country north of Albania that declared independence from Serbia in 2006. The KAP companies have 3,750 employees and account for 40 per cent of gross domestic product. 

Aluminum made up slightly more than half of Montenegro's exports in 2007. 

Aluminum production and exports keep the seaport, the railway and about 100 local suppliers in business. 

KAP's woes provide a graphic illustration of how the credit crisis and recession are creating a domino effect around the world, hurting even robust economies farthest from the world's financial centres. Since 2006, Montenegro has been growing at 8 per cent a year as investors from Russia, Western Europe and Canada pumped up the country with construction, tourism and aluminum projects. 

Growth has since fallen off a cliff. 

Construction is slowing considerably. One of the country's main banks, Prva Banka, which is partly owned by the family of Prime Minister Milo Djukanovic, had to be bailed out. The International Monetary Fund last month estimated growth of just 2 per cent in 2009. All growth bets are off if KAP implodes. 

Mr. Deripaska made his fortune in the aluminum business - he controls UC Rusal, the world's biggest aluminum company. 

He added KAP to his empire in 2005 when commodity prices were soaring. Still, KAP was losing money because of high costs; its long-term success depended on securing cheap sources of electricity, the main expense at any aluminum refinery. But Mr. Deripaska's effort to buy the state-owned electricity-generating plant failed and the refinery was stuck with high energy prices. 

In the first 10 months of 2008, KAP's operating loss was about $38-million (U.S.). The losses could deepen because aluminum prices have fallen by about half since July. 

"The current economic downturn has left us no alternative but to start talks with the government over an urgent aid package aimed at keeping KAP alive," En+ spokesman Peter Lidov said. "We have not reached an agreement over KAP's support with the government so far." 

Closing KAP would not end Mr. Deripaska's presence in Montenegro. He is an investor, along with Barrick Gold Corp. chairman Peter Munk, Nathaniel Rothschild and several other wealthy businessmen, in Porto Montenegro, a luxury superyacht marina under construction on Montenegro's Bay of Kotor. 

In an interview last month, Mr. Munk said the recession would not jeopardize the €260-million ($420-million Canadian) project and that the equity funding from the investors, including Mr. Deripaska, was in place. 

The oceans are still brimming with yachts and Mr. Munk expects Porto Montenegro will attract a lot of them. 

"They won't disappear," he said. "They have to live somewhere."

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