Is there a golden future for this metal-basher?

Russia's aluminium industry has a murderous past. Heather Tomlinson in Siberia investigates the firm that says it has ended the feuds

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Rusal wants to forge aluminium merger

Aluminium does not have the glister of gold, nor the romance of diamonds. After all, we see it every day – in cooking foil, in a lager can, in cars and aeroplanes. But when it first became commercially available in 1854 it was more expensive than platinum, and the recent history of its production in the former Soviet bloc is a terrible tale of greed, corruption and murder.

The so-called "aluminium wars" of the 1990s, in which rival gangs fought over control of Russia's smelters, killed more than 100 people, according to estimates from Mark Galeotti, an organised crime expert at Keele University.

Now, it appears that the battles are over. Control of the industry is consolidated into a company called Russian Aluminium, or Rusal, which is the world's second-largest producer of the metal. It owns five enormous aluminium smelters and two refineries in Siberia.

The company's low-key headquarters in Moscow could pass for the offices of a dull British widget company – except for the pistol on the hip of the security guard. But then Rusal says that since it has been established, the industry is more stable than it has ever been. It is controlled by two Russian oligarchs; Oleg Deripaska, the chairman, and, so everyone says, Roman Abramovich, who has other oil and media assets in Russia and is one of the country's richest men. However, as Mr Abramovich is the governor of a Siberian province, he is not allowed to own the business formally.

Rusal is now wooing Western banks and investors, at the same time as President Vladimir Putin moves ever closer to the US and the European Union. But many fingers got burnt after the Russian financial crisis in the late 1990s, and Rusal comes with a little baggage.

The firm is facing a lawsuit from companies associated with former aluminium baron Mikhail Zhivilo. Filed in a New York court, it accuses Rusal, and Mr Deripaska, of "murder, bribery, extortion, mail and wire fraud, and money laundering", during the aluminium wars.

The 600-paragraph writ speaks of bribery of local politicians and accuses Mr Deripaska of being associated with the murderers of an American businessman. It also alleges that he threatened Mr Zhivilo with the same fate.

All of the allegations are rubbished by Rusal. "The management of Russian Aluminium remains confident that there is neither direct nor indirect evidence of any of the allegations," says a spokesperson.

Rusal's supporters also point out that Mr Zhivilo himself is wanted in Russia for murder. However, he says the charges were trumped up by bribed local politicians.

Rusal is hoping the trial will come to a head in September, but denies that business is being affected. "Its trading partners and bankers have long since taken the case in their stride, viewing it as nothing more than an outgrowth of an old business dispute from the chaotic pre-Rusal days," says a spokesperson.

But the court case is not the only thing that needs to be resolved before Western investors can be attracted. Russia still has much to do in reforming its tax and legal systems. A recent report from the Russian think-tank Indem highlights a problem – Russian businesses pay out $36bn (£25bn) a year in bribes: that's 10 per cent of the value of all business transactions, and equivalent to half the annual budget of the Russian government.

Another factor hindering the move to the West is the fact that there is little publicly available financial information. Results for the past three years are due out soon, in preparation for a $200-$300m Eurobond issue later this year. Russian stockbroker Renaissance Capital expects revenues of $4.2bn and profits of nearly $1bn for 2001. Rusal also intends to be ready for a flotation on Western stockmarkets within two years' time.

At present, the company has borrowed small amounts from Western banks including WestLB, Citigroup and Stanbic, the South African banking group. However, to raise money through the riskier process of bond issues or flotations requires a greater trust in the company.

"There are huge hurdles to overcome before Western capital will flow freely into Russia," says Victor Lazarovici, a senior metals analyst at Canadian research firm Nesbitt Burns. "The history [of Rusal] is not as spotless as it could be."

He says the company needs to build up a track record and improve transparency. Rusal is trying to end Soviet-style secrecy, and is arranging for credit ratings agencies to report on the company. But its doors are only ajar at present. Even finding out who exactly owns the company is not easy. Alexander Boulygine, the chief operating officer, says Rusal is half-owned by Base Element, a vehicle controlled by Mr Deripaska, but the other half is managed by a UK company, Millhouse Capital, on behalf of shareholders in the oil company Sibneft; Mr Abramovich is believed to be one of those shareholders, but this is not confirmed. In addition, many of the smelters and refineries still have minority shareholders who are thought to be less than wholesome, although Rusal is trying to buy the factories outright.

Mr Boulygine argues that as the company is still private it is not required to reveal full financial information just yet. Meanwhile, he would rather concentrate on positive issues, such as the upgrading of all of its factories to reduce toxic emissions and its appointment of an independent audit committee

These are signs that the company is trying to change, and the dubious past of the industry might one day be forgotten. Mr Putin's spin-doctors have accused Western journalists of being "Russophobic" and obsessed with mafia activities. Perhaps they have a point: money laundering and financial crime are problems in many countries other than Russia, including Colombia, Italy and the US.

As Rusal waits and hopes for a clean bill of health from the New York court, there is no guarantee that the bad old days of gang warfare is not out of the question. "Some of the real bandits have been forced out," says Keele University's Dr Galeotti, speaking generally on Russian industry. "The situation has moved from the Second World War to the Cold War. It can be a very stable pattern, but as with the Cold War, if there is opportunity or instability, there is still considerable potential for a flare-up."

And that is a scenario that is dreaded by Rusal, its potential investors, and the embattled Russian population.