Yuri Adno

D

espite economic and organizational complications in recent years, Rusal successfully accomplished the main tasks of corporate structuring: the company’s management mode of operation was established, property relations were adjusted, financial and sale flows were centralized, modernization and production development programs were formed.
Rusal is succeeding in joining the world economy through acquiring large assets abroad and participating in international projects. Today it is one of three major world producers of aluminum. Rusal accounts for about 10% of the world’s production of primary aluminum as well as for a significant share of exporting this metal (Pictures 1, 2). As the leaders of Rusal report, by results for 2004, the company’s turnover exceeded $5.4 billion; about 80% of receipts came from export shipment operations.
The peculiarity of Rusal’s market strategy is that, unlike most of its rivals, including Russia’s SUAL, the company is not going to do a deep processing of aluminum. This has also been proved by the recent sale of two plants in the company’s rolling division, which have been bought by the US company Alcoa. General director of Rusal Alexander Bulygin insists that this deal has made it possible to get rid of "non-specialized business" and to concentrate on developing production of aluminum and alloys. Last year Rusal’s plants raised production of aluminum by 3% more or by 80,000 tons. Making aluminum alloys increased one third and reached about 740,000 tons; the range of alloys exceeds 80 types.
Rusal’s main problem is considered to be a shortage of its own raw material base. That is why the company is actively consolidating it. In 2004 Rusal achieved the growth of alumina production by 33% or 160,000 tons. This increment became possible mainly thanks to the completion of reconstruction works at the Rusal-owned Nikolaevsky alumina plant in Ukraine. The volume of producing bauxites is also on the rise: in 2004 it amounted to 4,800 thousand tons or by 500,000 tons more than in 2003.
In the past year the total volume of investments by Rusal went up almost two times and reached $534 million. In 2005 it is planned to increase investments up to $1.5 billion; $600,000 of them will be used to modernize the existing production facilities. Among the prospective projects in the coming years the following ones stand out:
– building an aluminum plant in the Irkutsk region (Eastern Siberia) with construction works to get started in the first quarter of 2006;
– building an alumina plant on the basis of the Severo-Onezhskoye deposit of bauxites (the north-western region);
– completing modernization and commissioning of the Armenal plant (Armenia);
– developing a new electrolyzer with the strength of current amounting to 400 kVA;
– starting construction of the Rogunskaya hydroelectric power station (Tajikistan);
– increasing capacities at the Nikolaevsky alumina plant up to 1.6 million tons and at the Achinsky integrated alumina mill up to 1.2 million tons year-on-year;
– increasing capacities and modernizing the alumina plant in the Republic of Guinea.
The Russian aluminum giant has a successful credit background. If five years ago Rusal started with obtaining loans of $20 to $30 million and its creditors were mainly Russian banks, today the volume of the company’s credit portfolio amounts to $2.5 billion. The recent five-year credit of $800 million received by Rusal from the syndicate of foreign banks is considered to be a record-setting loan for the Russian metallurgy as a whole.
The corporate strategy for the coming decade that has been approved last year is aimed at pursuing an ambitious goal: to become the world’s leader in production of primary aluminum. To this end it will be necessary to ensure a raw material independence and equalize the balance in producing the metal and alumina by the holding’s enterprises. The specific goals are: to increase making aluminum up to 5 million tons in 10 years (at present the volume is 2.7 million tons), to raise production of alumina up to 8 million tons (from 3.1 million tons). At the same time, there are plans to make production one of the least expensive in the world.
In order to accomplish these tasks, it is presumed that the whole complex of advanced engineering and economic mechanisms will be used for: merging and absorbing assets, constructing new capacities, raising production efficiency at the existing enterprises and modernizing them.
When developing the long-term strategy, the management at Rusal was proceeding from their company’s objective competitive advantages and sober-mindedly examined its vulnerabilities. Its irrefutable advantages include, first, the access to sources of comparatively cheap electric power from Siberian hydroelectric power stations (the average price there is less than 1 cent/kWh), second, the developed customer network, including the foreign one, and, third, its own scientific research base.
In addition to the already mentioned shortage of its own alumina and, as a result, dependence on foreign raw material markets, Rusal’s weak points include high transportation costs caused by the considerable remoteness of the company’s plants from markets and sea ports, outdated technologies at a number of production facilities and increased level of harmful discharges into the environment.
According to the long-term plans, 81% of the aluminum production increment at Rusal will be ensured through constructing new capacities, 13% will be provided by increasing capacities at the aluminum plant in Sayanogorsk (Khakasia), 4% will result from raising production volumes at each operating plant, while 9% will be received from the company’s capacities abroad (Pictures 3, 4).
An increment in production of alumina is expected from acquiring new enterprises (16%), increasing and modernizing the existing production facilities (28%), constructing the new ones (56%). At the same time, about 77% of volumes being raised are to be provided for by Rusal’s assets abroad (Pictures 5, 6). Besides, an agreement has been signed with SUAL under the project Komi-Aluminum aimed at expanding production of alumina by 700,000 tons year-on-year.
A special attention is being paid to energy supply. At present, Rusal’s aluminum plants consume 45.4 billion kWh a year. By 2013 it is planned to generate no less than 25 billion kWh at the company’s own energy sources. To this end it is participating in building new electric power stations in Siberia, which are the Boguchanskaya and Kemerovskaya heat and power plants.
By increasing its production potential and extending the business sphere, Rusal, in fact, has become a transnational company. Its production sites are located at different continents, from Europe to Africa and from Siberia to Australia. The company seeks to develop its production in Nigeria, Australia, Congo, Iceland, Russia’s different regions and, in the first place, in those regions, where raw material resources are available. The immediate plans provide for acquiring plants in North Korea, Czechia, developing a project in Ukraine, which will include building an aluminum plant and a port.
The scale of Rusal’s expansion can be best characterized by its acquisition this year of a 20% stake in the Australian company Queensland Alumina Limited (QAL), the largest producer of alumina (3.85 million tons or almost 10% of Western companies’ production volume). This deal costing over $460 million will let Rusal increase its own production of alumina by 24% or from 3.3 to 4.1 million tons. The whole increment volume will be used for supplying alumina to the holding’s Siberian plants. Capacities at QAL have a potential for getting increased up to 5 million tons of alumina year-on-year. The management at Rusal regards the Australian business direction as quite promising. Rusal has already stated its desire to participate in a tender for developing the bauxite deposit Aurukun, where, by estimates, reserves may amount to about 500 million tons.
It goes without saying that an implementation of such plans is linked to entering the Western capital market and dealing with IPO, which Rusal intends to get involved with in 2007. Till then the company is to come through several stages of preparing itself for a start of placing the first IPOs that embrace optimization of the property structure and putting of the corporate governance in accordance with the international standards.