The most interesting events in the non-ferrous metals sector over the last six months have been not about tangible assets such as shares and plants, but about companies' business reputations. The conflicts of this year show that after a stormy decade in the sector, companies have finally realized that their reputation can be just as valuable as the tens of millions of dollars it can be exchanged for.

War and peace

The stormiest conflict in the non-ferrous world over the last six months took place in the copper sector – traditionally much quieter than the aluminum sector. It arose over the Karabashsky copper smelting plant (KMK), ownership of which is disputed by the country's second and third largest copper producers – Urals Mining and Metals Company (UGMK) and Kyshtym Medelektrolitny Plant (KMEZ).

To be more precise, the conflict between UGMK and KMEZ began over a year ago, when UGMK's Iskander Makhmudov restricted raw material supplies from UGMK to KMEZ. Unable to reach a cooperation agreement with the KMEZ management team, headed by Alexander Volkhin, UGMK successfully blocked a KMEZ project to create a holding out of KMEZ, Karabashmed and the South Urals Mining Co., three companies controlled by the Bashkortostan regional government (Uchalinsky GOK, the Buribayevsky ore company and the Bashkir copper and sulfur plant) and the Chelyabinsk zinc-electrolysis plant.

Chelyabinsk Gov. Pyotr Sumin – the holding project's patron – found himself in an awkward situation when it turned out KMEZ did not have the money to create the holding.

In May this year, UGMK continued its attack by buying a controlling stake in KMK, knowing that this would provoke a conflict with KMEZ. KMK has virtually no assets anymore. KMEZ had transferred KMK's assets to Karabashmed in 1998. But KMK still formally exists and even holds 14 percent in Karabashmed.

Immediately after buying the shares in KMK, UGMK changed the company's management and announced it would challenge the deal that transferred KMK's assets to Karabashmed. KMEZ's reaction was unsurprising – it tried to bring in external management to KMK and then attempted to liquidate the company.

This whole affair is being played out exactly like the legendary wars between local bandits back around 1995. So far, UGMK is winning and has managed to re-register KMK at its legal address in Verkh-nyaya Pyshma. KMEZ has already turned for help to the Urals region's prominent OPS Uralmash. The name of this group, headed by Alexander Khabarov, happens to coincide with that of a well-known Yekaterinburg criminal group, and this is not pure coincidence. But it is still not clear if Uralmash has become a shareholder in KMEZ.

In September, UGMK General Director Andrei Kozitsyn sent KMEZ General Director Alex-ander Volkhin a package of proposals aimed at settling the conflict. Kozitsyn didn't insist on an end to the court proceedings, but proposed the creation with KMEZ of a joint venture to refine scrap copper and a joint program for investment in KMK. Kozitsyn also called for an end to the war between UGMK and KMEZ in the media. Volkhin's official answer is not known yet, but the war has stopped.

The question is, though, why would UGMK give up the fight when it had almost secured definitive victory and has Iskander Makhmudov's powerful resources and connections behind it?

The explanation seems to be that for the first time in Russian business history, a major company has voluntarily backed down from full control over assets in order not to ruin its image. It is symptomatic, too, that it should be UGMK – a company that once considered any tactic valid in its business battles.

Money and power

An equally interesting story is the restructuring process of Norilsk Nickel's assets. The whole operation – a large one even by world standards – had an unexpected end when Mikhail Prokhorov, the head of Rosbank and co-owner of Interros, became general director of GMK Norilsk Nickel.

The restructuring process has not been smooth over the last half year. Interros' opponents managed to give its nerves a shake-up but were not able to stop the process from going ahead. There were attempts through the courts to stop Norilsk Nickel's shares from being listed on the Russian Trading System and the Moscow Inter-Bank Currency Exchange, opposition from small shareholders and the Federal Securities Commission's refusal to give the restructuring legal recognition.

Finally, Norilsk Nickel also had to carry out the most difficult part of the operation – exchanging shares in the old RAO Norilsk Nickel held by thousands of shareholders, scattered right across the country, for shares in the new GMK Norilsk Nickel. Former General Director Alexander Khloponin's statements that the company's capitalization could rise to $8 billion by 2004 would count for nothing if accusations that small shareholders' rights were being ignored proved true.

The unexpected news that Mikhail Prokhorov had left his job as head of Rosbank to become general director of Norilsk Nickel came just a few days before the restructuring project was completed. Prokhorov had just left the ranks of Russia's most successful bankers and richest people to become director of an Arctic plant. It seemed reasonable to ask why.

Prokhorov said that after its restructuring, Norilsk Nickel would become a company with big prospects on the world metals market. The company needed Western-style management, and the former general director, Dzhonson Khagadzheyev, was a great production manager but was not really suitable as a chief operation officer. Prokhorov also saw taking the Norilsk Nickel job as the next step up in his business career, and as a chance to turn the company into a world-class enterprise. Hadn't Lee Iacocca done the same with Chrysler?

This last argument is also symptomatic. If previously, the big dream was to become an oligarch, these days, the career of top manager is becoming ever more attractive. By becoming general director of Norilsk Nickel, Prokhorov has gained control over the development of a huge slice of Russia's business world. The fact that decision-making power is becoming as attractive in the eyes of businessmen as the power of money is perhaps the most promising trend to come out of the last decade of business in Russia.

Past vs. future

The third big event in the last six months was the deal that removed from Krasnoyarsk aluminum plant (KrAZ) Anatoly Bykov, the former chairman of the KrAZ board of directors, who is now in Moscow's Lefortovo prison. This was the deal that ended in the creation of Rusal.

After a series of deals by Sibneft shareholders in April, Bykov and his partners lost control of KrAZ. They hold around 28 percent of shares in KrAZ, Russia's second biggest aluminum plant. Taking into account the particularities of KrAZ's charter, they now can block Rusal from taking any strategic decision about the plant. Bykov, who is accused of being involved in the attempted murder of his former partner, Vladimir Tatarenko, has said through his lawyer, Genrikh Padva, that he is being pressured into selling his shares. He has never named the buyer, but in today's situation, it can only be Rusal. Rusal does not deny that it wants Bykov's shares, but it was not able to buy them.

In August, however, the situation took a turn for the worse for Bykov. On Aug. 5, the KrAZ board of directors, now loyal to Rusal, decided in favor of an additional share issue of $200 million. A week earlier, Anatoly Kondratov, a 27-year-old Kemerovo resident who owned six shares in KrAZ, filed a complaint in court against the company's former board of directors. This resulted in the arrest of Bykov's shares, or to be more precise, 25.5 percent of shares that belonged to two offshore companies – Solomonia Co. and Agoma Enterprises.

To judge by the circumstances, Rusal looks to be behind the court affair. On Aug. 13, the Kemerovo court lifted its arrest of Bykov's shares, but while they were arrested, Bykov was not able to have them registered in time for the shareholders' meeting scheduled for Aug. 22. As a result, Rusal, which denies any link to Kondratov, could get the majority of votes it needed to approve the additional share issue. Bykov's stake would then be reduced to only 3 percent of KrAZ's charter capital, making Rusal the plant's undisputed owner.

The shareholders' meeting took place as scheduled, but its results were not announced until Oct. 1. According to unofficial sources, Rusal spent this time in tough negotiations with Bykov's partners about buying his shares. But Rusal had no success and finally announced that Bykov's stake would be diluted by the new share issue. Rusal representatives said the new share issue was needed to bring in new investment to KrAZ, but it is unlikely investors not connected to Rusal bought any of the new shares.

The removal of Bykov, which had begun in February 1999, became a symbol of Russia's cynical business practices, along with the Zhivilo affair and the seizure of the Kachkanarsky GOK. The additional share issue at KrAZ completed the history of asset consolidation in the aluminum sector. It now opens the road for Rusal to create an aluminum company that can make its mark on world markets. One can ask, of course, whether Oleg Deripaska, who previously had wanted to use the same tactic to remove his former partner TWG from the Sayansk aluminum plant (SaAZ), treated Bykov properly or not. But in any event, in a year's time, Bykov's name will be forgotten, as are those of AYUS head Felix Lvov, former head of Norilsk Nickel Alexei Filatov, and former general director of BrAZ Boris Gromov.

Nonetheless, Rusal held out as long as it could before finally taking the plunge and ending the first decade of the Russian aluminum business with a controversial deal. Perhaps this was because it was aware that, all too often, a new page in history is just a continuation of the previous one.