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A trip to Sayanogorsk would scare any of Rusal’s competitors. Siberia’s gigantic Enisei river pours down through the Sayano-Shushensk hydroelectric station, churning out power that is delivered to the smelter at 0.54 cents per kilowatt hour.

Although the power costs are several times lower than at smelters elsewhere, Rusal sees room to cut them further. “In the course of power industry liberalisation we hope to go over to direct contracts between the smelters and the power stations,” Oleg Mukhamedshin, Rusal’s head of corporate finance, said.

“The costs set by the regional electricity commissions at our smelters are far, far higher than the costs of producing the power, and far higher than the prices paid by other [non-industrial] users,” Mukhamedshin said.

“This is unjust. In Krasnoyarsk, where Rusal shareholders own a controlling stake in the power station, power is produced for about 3 kopeks per kilowatt hour but at Krasnoyarsk aluminium works we pay 24 cents.”

It won’t be hard to convince the Krasnoyarsk power station’s owners to revise their prices downwards – they are Rusal’s owners too. They also have a shareholding in Irkutskenergo, the power company that supplies Bratsk.

The Sayano-Shushensk station is owned by Khakaziaenergo, a 100% subsidiary of Russia’s national power company, UES. But it’s not hard to guess who will be first in the queue if and when shares come up for sale. 

Vasilii Nikolaev, metals analyst at Troika investment company in Moscow, agrees that significant savings have still to come on power. “These plants were built near these power stations for good economic reasons. At present there are cross-subsidies from industrial to domestic consumers – and in that sense the pricing structure is unjust. As power restructuring gets underway, the picture will change. Obviously where the aluminium producer has an interest in the power plant, it will reap the benefits.”

Even at their present level, Rusal’s power costs are strikingly low. The company does not provide exact figures, but at a meeting with analysts in New York claimed production costs of $1000 per tonne of aluminium ingot, of which power comprises 12%.

That’s roughly $120 per tonne, compared to the $178 paid by Alcan, $289 paid by Alcoa and the whopping $330 paid by Kaiser (Deutsche Bank analysts’ estimates). And the prospects for savings are minimal – unlike in Siberia.   A former Alcoa employee estimates the costs at $1400

Labour costs are another area where Rusal has made big savings, and could save further. Rusal states labour costs as 9% of the total, which as a proportion of total costs is less than half what its US competitors pay.

When the Sayansk smelter complex was privatised in 1994, it had 11,000 employees, including such non-core workers (to put it mildly) as livestock farmers and kindergarten teachers. Now there are 5900 at the smelter and about 1000 at the foil factory next door.

Trade union representatives at Sayansk have few complaints about pay – which at an average of 10,300 rubles ( $321) per month is more than twice the regional average of 4,000r – but are nervous about other cost-cutting measures.

Nadezhda Mazorkina, deputy chairman of the town’s branch of the mining and metallurgical union, says: “We are concerned, first, about the impact of further redundancies; second, about changes in the health care scheme which mean that subsidies from the company for rest homes and other payments are reduced; and third about higher rents and other municipal charges.”

Rusal, which all together has about 70,000 workers, half of them at its smelters, says it plans a further 7% staff reduction this year, mostly among non-production personnel. The news the trades unionists at Sayansk are hanging on is of the long-planned expansion at the smelter. “That depends on LME prices, which we watch anxiously,” Mazorkina said.

The overweight item in Rusal’s costs is alumina. And chief operating officer Aleksandr Bulygin, briefing journalists about the company’s development strategy, said: “We need to acquire assets overseas, alumina particularly. I think we should do that first, and then go for a [stock exchange] listing. We are also considering alumina projects: greenfield in Guinea and India, and brownfield in Guinea and Australia.”

World's number two still has an image problem

Rusal has an image problem. As the world’s second biggest primary aluminium producer, it needs to acquire assets abroad and, before too long, access international capital markets. It has to play the transparency and corporate governance game.

It’s hard enough convincing investors that the aluminium industry’s criminalised past is just that – its past. But perhaps it’s even harder to relax management thinking at the company about providing information to the market.

Take the consolidated accounts to international (GAAP) standards for which bankers, financial journalists and analysts are anxiously waiting. Oleg Deripaska, who owns 50% of Rusal, said in a newspaper interview in April that "they will be published in the middle of May". But Oleg Mukhamedshin, corporate finance director, briefing journalists on 22 May, said: “We could distribute them in July or August.”

Chief operating officer Aleksandr Bulygin told the briefing that PriceWaterhouseCoopers will have finished working on three years’ worth of consolidated accounts (1999-2001), which will include all the entities in the group, by the end of the year.

Bulygin emphasised to journalists that the company operates on a need-to-know basis, and may in any case only publish excerpts of the accounts. He declined to give any figure for the company’s profits on its $4 billion turnover in 2001, pointing out: “We provide information to our banks and counter-agents under confidentiality agreements. We will provide more information to the general public when we see fit.”

Bulygin pointed out that Rusal’s trading partner Glencore, which has a larger turnover, makes public even less information. True. But Glencore has banking relationships going back decades… and no intention of doing an IPO.

It is transparency that lies at the heart of Rusal’s credibility gap.

Of course there are worries about the New York court case brought by Base Metals Trading and others, under which some Rusal executives face a suit for damages under the US Racketeer Influence and Corrupt Organisations (RICO) legislation alleging “numerous criminal acts, including murder, extortion, mail and wire fraud and money laundering”.

Until the case is heard, it hangs over Rusal like a shadow of the aluminium industry’s past. But that’s what it is – a shadow of the past. And anyone who wants to do business with anyone in Russia is more concerned about the present and future.

Commercial bankers have shown their confidence in Rusal by lending it hundreds of millions of dollars. The terms on some of the structured commodity finance loans the company has were recently lengthened to two years. But for the wider investment community, Bulygin’s need-to-know basis is not firm enough.

Rusal has been giving itself an image makeover. It wasn’t by accident that it sought and found foreign executives with impressive track records for senior management posts at the Krasnoyarsk smelter, which only two or three years ago was the epicentre of the “aluminium wars”.

The company has met with analysts, and taken two groups of foreign business journalists to its Siberian smelters. But it needs to overcome fear among some managers about openness of information (what Mikhail Gorbachev called glasnost).

Alongside the GAAP accounts muddle is the issue of consolidation. While Rusal’s offshore trading companies – such as Rual Trade of the British Virgin Islands – remain outside the main holding company, so does a large swathe of its revenues. Commercial banks like that, because it is easier to securitize trade finance offshore... but portfolio investors, who like to see everything on one balance sheet, don’t.

And consolidation of onshore entities, including the four smelters, the Achinsk alumina refinery, and downstream fabricating plants, will take a long time under Russian corporate law.

Ownership is another issue over which questions remain. While Abramovich’s asset management company, Millhouse Holdings of the UK, manages 50%, and Deripaska’s Base Element manages the other 50%, the exact names of shareholding entities and the relationships between them are not public.

And then there is the small matter of cash assets. A summary balance sheet for 31 December 2000 was included in a research report by Renaissance Capital, published earlier this year on the basis of figures supplied by Rusal, shows cash of only $33 million on $4.1 billion turnover, with total current assets of $1,685 million and total current liabilities of $1,655 million. Renaissance describes the company as “cash rich”, but that doesn’t tally with the actual figures.

In a world-class company operating on a world scale, no-one doubts there are good answers to all the questions. So if Rusal (unlike Glencore) is going to come to the capital markets, why not let us all know what they are?