Wednesday, March 17, 2010

The Russian oligarchs in Romania



As business at home is coming under uncomfortably close Kremlin surveillance, many Russian oligarchs have moved away and expanded their activities into eastern European countries - one of them being EU member Romania.

Experts claim that the Romanian metal market is dominated by a quartet of Russian and Ukrainian companies. First comes the Ukrainian, Sergey Taruta, a man close to the new, pro-Russian, Ukrainian president Viktor Yanukovich. Mr Taruta bought the steel plant Fortpres CUG in the Transylvanian city of Cluj.

Second is Oleg Deripaska, one of the wealthiest Russians known to be in Russian Prime Minister Vladimir Putin's grace. The other two companies are administered by Russians through Western registered companies: the Swiss-based Conares Trading, acting for Igor Zyuzin, and the German-registered Sinara Handel, run by a group of businessmen.

The ex-Soviet oligarchs have thus come to control an important slice of the Romanian metal industry. And, in addition to its part in steel production, Mr Zyuzin's company controls around 80 percent of the Romanian output of reinforced concrete.

Now, hard hit by the crisis, the metal sector is stagnating. Fortpres CUG in Cluj is one example. Under Communism, the state-owned complex employed 10,000 people. In the 1990s, it was divided into five units, one of which was bought by Mr Taruta. In the meantime, the production site have been shut down. Only five employees remain to guard the premises.

Still, Viktor Yanukovich's victory in the Ukrainian elections could mark a change in fortune for Mr Taruta's Romanian metal business. The Ukrainian press has speculated that the Cluj factory could manufacture rail tracks for the Ukrainian railways.

The most badly affected of the Russian oligarchs seems to have been Oleg Deripaska, who in 2008, with a fortune of $28 billion and companies worth $45 billion at the time, was estimated to be among the 10 richest men worldwide.

In Romania, he bought the aluminium plant in Oradea with the intention of building spare parts for his airplane factory in Russia. Now the Oradea plant is closed and for sale. It is unknown what kind of a dent this has put in Mr Deripaska's fortune.

Another Russian magnate, Mikhail Prokhorov, ranked by Forbes magazine as Russia's richest man today, has bought the "Aurul" ("Gold") gold reprocessing plant in the northern city of Baia Mare. He wants to begin the extraction of gold by using cyanide.

The method is controversial, especially in Romania, where the same "Aurul" plant was in 2000 the source of an environmental disaster, after a dam at the goldmine released huge quantities of cyanide and heavy metal waste into the river Tisza in neighbouring Hungary and down the Danube.

The plant has been closed since. Mr Prokhorov has already announced an investment of €100 million and the authorities are preparing to give him the go-ahead, while a similar project, in the region of Rosia Montana and backed by US and Canadian investors, has been blocked for years.

Alexandru Benea, an economics expert, says that a key reason for Russian oligarchs' interest in the Romanian metal industry is the EU's comparatively low import duties on raw metal ore, intended to secure supply to the 27 member states. On the other hand, the EU imposes high tariffs on finished metal products, in an effort to protect its own producers.

"The Russian oligarchs have for a time very well exploited this situation," said Mr Benea. "They bought factories and industrial units cheaply in Romania. Those who have mines in Russia or Ukraine bring the ore to Romania. The semi-finished products are then sold on the EU internal market at comparatively low prices, given that the salary of a Romanian worker is much lower than that of a worker from Luxembourg or UK. It is legal and it is also a very clever way of profiting from the EU legislation, while staying outside it."

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