Two of Russia’s most powerful and influential business owners are at each other’s throats, so to speak, over a fuel oil spill into pristine Siberian Arctic turf in May.
Oleg Deripaska, the executive behind Rusal, one of the largest aluminum producers in the world, is looking for senior management changes at Nornickel, a massive mining company majority owned by Russia’s richest businessman, Vladimir Potanin.
Rusal owns over 20% of Nornickel.
A Nornickel facility had a diesel fuel storage tank implode in May, sending diesel fuel into rivers and lakes and into permafrost landscape in the Russian far north. Vladimir Putin called for a state of emergency in the area. Environmental groups called it an Arctic Chernobyl.
Rusal thinks Nornickel has dropped the ball more than once on environmental risk, leading to accidents that ultimately will make the companies less attractive to European investors under ESG portfolio investment mandates.
ESG investing, sometimes referred to as ‘impact investing’, invests in companies known to have good environmental practices, good social welfare practices — such as philanthropy — and good corporate governance. Many companies want to be measured by ESG as they see this as a trend in investing: shunned by ESG managers means potentially shunned by reliable, long term investors like European sovereign wealth funds.
Rusal’s complaint is the second public attack on Potanin. The first one came from Russia’s two biggest environmental groups — World Wildlife Fund and Greenpeace Russia, both of which singled out Potanin.
But this is the first time a shareholder railed against Potanini following the May implosion at their TPP-3 facility. Some managers of that plant were fired.
Business daily Kommersant reported on Tuesday that Rusal requested the Norilsk Nickel Board of Directors to adopt a resolution that requires Potanin to change management and relocate its head office to Norilsk instead of Moscow to be closer to day-to-day operations.
“Rusal is seriously concerned about the events of the last month, which are a series of environmental accidents and incidents in Norilsk. What is happening at Norilsk Nickel makes you wonder how competent management is and if they are even able to (risk) manage this company. The question is also for the board of directors: how much is the board able to influence what is happening inside the company and whether it too finds that this situation will inevitably lead to unpleasant questions from environmental and investment communities,” a Rusal statement said.
Rusal owns 27.8% of Norilsk Nickel. Potanin owns 34%.
Shares of Nornickel, officially known as Norilsk Nickel, have fallen just over 7% in rubles in the last four weeks while the RTS Micex Index is up 6.19%.
Russia’s environmental agency estimates that the damage is in the vicinity of 148 billion rubles, or around $2.08 billion.
Nornickel did not agree with government’s damage assessment, Kommersant reported.
After the May spill, there was another smaller one on July 12 where some 44.5 tons of aviation fuel leaked.
This may be as good a time as any for Deripaska’s Rusal to go after Potanin. Rusal has been angered by Rusal’s dividend policy as Potanin is being pressured on the other side to increase Nornickel’s capital investments at the expense of generous dividend payouts. Nornickel dividend yield is still great by anyone’s standards, currently at more than 9%.
Rusal relies on those dividends to pay its debt. In 2019, Rusal got $1.1 billion in Nornickel dividends.
Moreover, Rusal likes to consider itself a pretty lean and green raw materials operator. It’s biggest aluminum smelting plant is powered by the hydroelectric dam it owns, unlike in China, where some of the world’s biggest aluminum smelters are powered by coal. It is unclear if Rusal will be pressured by its own shareholders to disengage from Nornickel if it is continually perceived as an environmental hazard. If so, this could cost Rusal European ESG investors. This could be another reason for the pinpointed targeting of Potanin to make a fast change.
“Potanin is trying to hide the true scale of the tragedy. The responsible authorities under his control deliberately hush up the fact that the contaminant is moving to the north,” writes Moscow hydrogeologist Georgy Kavanosyan after visiting the spill. “Potanin is trying to downplay the magnitude of the disaster.”
The WWF in Russia also blames senior management for not notifying authorities about the spill until a few days after the storage tank imploded at the TPP-3 facility.
Says Alexey Knizhnikov, the head of WWF Russia’s Responsible Industry Program in Moscow: “We are very sure that this accident has happened due to poor management of environmental safety and risks.”