Summit Notebook

Exclusive outtakes from industry leaders

Would the last person to leave the smelter please turn out the lights?

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For UC RUSAL, one simple act is crucial to reducing costs.
Bonuses for managers at the world’s largest aluminium company
depend on the company’s 75,000 workers heeding the message.
“We have to introduce a new culture: if you leave the
office, turn off the lights,” Artyom Volynets, UC RUSAL’s deputy
chief executive for strategy, said at Reuters Global Mining and
Steel Summit on Monday.
“We have 16 smelters, each with their own headquarters and
offices. We employ 75,000 people. If each one of them is
switching off the lights at the end of their shift, that would
help tremendously.”
UC RUSAL embarked on a major drive to slash production costs
last year as part of an ultimately successful attempt to secure
Russia’s largest ever private sector debt restructuring.
Easy access to Siberian hydroelectric power, compared with
relatively high-cost coal used to power smelters in other parts
of the world, affords UC RUSAL a distinct cost advantage when
making aluminium used in transport, construction and packaging.
In the first half of 2009, it cost UC RUSAL an average
$1,400 to produce a tonne of aluminium. The metal is now selling
at above $2,200 a tonne.
UC RUSAL has cut costs by sourcing cheaper raw materials of
better quality and improving throughput rates at its smelters in
Siberia, which account for about 80 percent of its total output.
But cheap power in Siberia had also led to complacency.
“Our smelters are located in probably the only remaining
major energy-long region in the world. Therefore, if you buy
power at 2 cents per kilowatt, you don’t really care how much
you spend,” Volynets said.
“For my colleagues on the operational side of the business,
their key performance indicators are 100 percent tied to cost
improvements,” he said. “They will not be compensated if these
improvements are not implemented.”
(Writing by Robin Paxton in Moscow)

Wealth Management: What does the future hold?

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Even the rich aren’t as well-off as they were a year ago but that’s not stopping the wealth management industry from focusing on what the future of private banking will look like after the economic downturn has passed. Click below to view my latest story:

Of bees, bribes and bureaucrats

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Russian banking and aviation magnate Alexander Lebedev, owner of London’s Evening Standard, estimates that Russian bureaucrats have pocketed $500 billion in bribes in the past four years and corruption and red tape make Russia one of the worst places to invest on earth.

On the scale of bureaucratic outrages, Lebedev hit a personal low when the authorities asked him to produce a 100 page report on bee poo. They claimed to be concerned about the excrement produced in the hives at one of his farms.

Move over, Nouriel Roubini

- Mikhail Alexeyev, a veteran of Soviet and Russian banking who now heads Russian operations for Italian bank UniCredit, said he saw the 2008 financial crisis coming when he was still a student at a Soviet state institute of finance.  “I knew it would happen back in 1981, when I was studying political economics. In capitalism you get crises. Marx and Lenin teach us that.”

Moscow: The least worst place for your money

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   Russian investment bank Renaissance Capital was a big backer of Moscow’s ambition to become a major emerging-markets financial centre, a bridge between European and Asian capital, a rival to Dubai.

    It not only trumpeted the idea, but was one of the first big local firms to take out offices in a sleek glass skyscraper by the Moscow River, surrounded by foundation pits and towers of naked steel girders that were to become Moscow’s Canary Wharf.

Note to OPEC: Siberia not Saudi

-    An episodic courtship between Russia, the world’s second largest oil exporter and its sometime rivals in the OPEC group of oil exporting nations, went cold at the beginning of this year when Russia failed to make good on hints that it might cut output in line with OPEC, dominated by Saudi Arabia and other desert states of the Middle East.     Prices for oil, the economic lifeblood of Russia and OPEC countries alike, had fallen below $40, OPEC argued, and supply cuts had to be made to boost prices and finance investment into the oil industry.     Alexander Medvedev, deputy chief executive of Russian energy giant Gazprom, told this year’s Reuters Russia Investment Summit that Russia had an excuse for avoiding the multimillion barrel cuts imposed by OPEC: the Siberian chill .    “It is a very simple explanation for this: We are not in a desert where it’s easily to regulate, we are in an extreme situation in Siberia where reserves could be damaged if you up and down your production levels.”     If Russia shuts down Siberian wells, its industry members argue, they could seize up forever as they go cold.     And Russia hardly left OPEC hanging, Medvedev argued: The financial crisis took its toll even on Russia’s cash rich oil companies: “Actually the supply was substantially lower in the first half of the year.”       Medvedev also said he was still struggling to understand where from the rival Nabucco pipeline will get its gas to rival Gazprom on European markets.      “Even at the (Nabucco) signing ceremony I looked at the photos and tried to find any gas supplier and with all my attempts I could not find any. And it looked strange.”

Russia’s helping hand for Fannie, Freddie

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The head of Russia’s oil pipeline monopoly Transneft, which carries over 10 percent of the world’s oil supply to market, takes a charitable view of Russia’s oil output growth. At a time when oil prices are on the slide, and the OPEC group of oil producing nations is cutting production, he thinks energy-rich Russia must keep pumping more to help the world’s less fortunate consuming nations and their economies.

“What about our beloved Fannie Mae and Freddie Mac? We can’t do it (let production stagnate). We have to support them,” he joked.

Kremlin adviser sees end to graft

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dvork.jpgThe Kremlin has been promising for years to root out corruption from Russia’s bureaucracy. President Dmitry Medvedev has vowed to redouble these efforts. In June, the newly elected president’s administration presented him with new anti-corruption legislation and a plan to clean up the judiciary.  

Medvedev’s top economic adviser, Arkady Dvorkovich, speaking at the Reuters Russian Investment Summit, bristled at a reporter’s suggestion that the anti-corruption campaign might start in the top echelon of politics:

AUDIO – Power industry can’t keep up with the Joneses

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slobodin3.JPGMikhail Slobodin’s Integrated Energy Systems, Russia’s largest private electricity investor, works in a tough industry: Prices for gas are rising, prices for coal are rising more. Russia’s growing economy needs power, and IES has heavy obligations to build new stations at a time when construction costs are soaring and credit is tight. Government price regulation leaves little room for profit.

 And compared to the power industry with its tight finances, the IES chief executive said, his plant personnel can’t help but find the rich neighbours offer more appealing employment.

AUDIO – Vimpelcom: At home in Vietnam

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izosimov.jpgAs Russia’s acquisitive corporations have consolidated their positions at home, their ambitions have spread to other fast growing, often risky and untried emerging markets. First they hit the countries of the former Soviet Union, which many Russian businessmen still view as their backyard,  and more recently, have expanded in other emerging markets in Asia and Africa. Particularly hospitable have been the old Cold War allies of the Soviet Union, as Russian mobile phone operator Vimpelcom found when it made its first step in Asia by entering a joint venture in Vietnam.

“It was the real red carpet treatment,” Vimpelcom chief executive Alexander Izosimov said.  

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