The Possible Nationalization of Russia's Norilsk Nickel
February 01, 2007 03 00 GMT
Russian billionaire businessman Mikhail Prokhorov announced Jan. 31 that he is leaving Interros, a holding company he runs jointly with oligarch Vladimir Potanin. The prize of Interros is Norilsk Nickel -- the world's largest producer of nickel and palladium. While there has been talk of restructuring Interros for almost a year now, the timing of Prokhorov's departure could indicate that things may soon change for Norilsk Nickel as well.
Potanin and Prokhorov each hold 27.39 percent of Norilsk Nickel; Potanin will buy out his partner (the market value of Prokhorov's shares is approximately $7 billion, though the deal is likely to include some share swapping) and Prokhorov will leave his post as director-general of the company once his work on the current projects is completed. Potanin also will replace Prokhorov on the company's board of directors.
Prokhorov has indicated that his future plans include forming his own holding company, comprised of some Interros assets, which will focus on energy innovation. Interros holds a 25.8 percent stake in Rusia Petroleum (a venture in which Russo-British energy company TNK-BP owns a majority stake), and Smart Hydrogen, a joint venture of Interros and Norilsk Nickel, bought 35 percent of U.S. fuel cell developer Plug Power in April 2006.
However, Prokhorov's departure may have less to do with his desire to venture into alternative energy and more to do with Norilsk Nickel's fate. Several Russian officials have hinted at plans for state diamond giant Alrosa to buy Norilsk Nickel, effectively renationalizing the metals company. Although Alrosa is much smaller than Norilsk Nickel, it has the coffers of the Russian Federation behind it. Furthermore, if the Kremlin has its eye on the metals giant, it has many other vehicles through which to purchase the company. And if it wants to take control of Norilsk Nickel, the loyal Potanin would, of course, oblige.
In the past, Prokhorov objected to any possible sale -- a disagreement between the partners that originally surfaced in 2005. Rumors of Prokhorov's imminent departure began flying earlier this month, when he was briefly detained in France on suspicion of participating in a prostitution ring. The more powerful of the two, Potanin appears to have won.
Though the Kremlin will confirm no plans with regard to the metals company, now might be a good time for Potanin to sell, as nickel prices are at an unprecedented high.
No matter what happens with Norilsk Nickel, Prokhorov likely will try to quietly drop off the Kremlin's radar. Russian oligarchs do not customarily exit their businesses unless they are under extreme pressure. Although Prokhorov was never very active in the Russian political scene, surviving -- much less prospering -- in Russian business requires, at the very least, good relations with the Kremlin. Thus, it appears unlikely that Prokhorov's exit from Interros will resemble the departures of Mikhail Khodorkovsky and Boris Berezovsky -- who ended up jailed or exiled after falling out with the Kremlin. Instead, he could go the way of another Russian oligarch, Roman Abramovich, who divested himself of a majority of his assets for a few billion dollars and now lives in London, on good terms with the Kremlin.
The current trend in Russia is government consolidation of strategic assets, including natural resources. Russia derives much of its income and influence from its exports of metals and minerals, as well as oil and natural gas. The "divorce" of the two Interros partners could be the first step in placing Norilsk Nickel under government control, and the company would certainly make a handsome addition to the Russian power base.
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