RUSAL faces problems in Guinea

The government of Guinea, a country in West Africa, wants to revise a bauxite production contract with Russian aluminium giant United Company RUSAL (Russky Alyuminy) owned by business magnate Oleg Deripaska. Although the company could produce aluminium feedstock in other African countries or Australia, it will have to comply with the demands. Foreign investors are now facing similar pressure tactics as those used in Russia.

Rusal officials said the National Assembly of Guinea had planned to examine a supplement regulating lease payments for a concession agreement on the Compagnie des Bauxites de Kindia on April 13 but decided that the document should be modified instead.

A RUSAL spokesperson said this would not influence the implementation of the concession agreement, which fully complies with Guinean legislation, and which was duly approved by the government and parliament.

But the situation could be even more serious because Russian-Guinean contracts are being revised for the first time, and the government has recently said it plans to revise all mining industry agreements.

The unstable Guinea has two-thirds of global bauxite supplies, the main aluminium feedstock. It appears that RUSAL will revise the contract if this is demanded by the government of Guinea, Vyacheslav Zhabin of BrokerCreditService said.

In 2006, RUSAL, the world's third largest aluminium producer, SUAL Group, one of the world's top ten aluminium producers, and Glencore International AG, the Swiss natural resources group, merged their respective aluminium and alumina assets to establish the United Company RUSAL.

RUSAL, SUAL Group and Glencore received 66%, 22% and 12% stakes respectively in the new giant. Deripaska's company has some alternative options left. After the establishment of Russian Aluminium, the delivery of raw materials was diversified. The company started receiving supplies from Sweden's Glencore, which owns considerable deposits in Africa and Australia. These new assets have minimized RUSAL's risks and mitigated economic losses in Guinea, according to Igor Nuzhdin of Zenit, a private bank.