Mega aluminium merger seems to be taking Ukraine by surprise

MOSCOW --Ukrainian government officials acknowledged this week that they had not realized that the proposed merger of Russia's two bauxite, alumina and aluminium producers, Russian Aluminium (Rusal) and SUAL, will also create an aluminium monopoly in the Ukraine, combining the Nikolaev Alumina Refinery (NGZ) and the Zaporozhiye Aluminium Combine (ZALK). Nikolaev was taken over in the year 2000 by Rusal's local subsidiary, Ukrainian Aluminium (Ukral). ZALK was bought in stages by SUAL.

The Ukrainians may not have time to do anything to register their concerns, either with Moscow or with the European Union. Nor, it appears, will anyone else, if the uncharacteristically swift anti-trust bureaucrats in Brussels can arrange matters.

A review of the mega-merger, creating the world's largest vertically integrated bauxite, alumina and aluminium conglomerate, is being undertaken at the moment by the competition policy division of the European Commission (EC). The haste is unprecedented. When the much smaller merger between Canada's Alcan and Alusuisse of Switzerland was proposed in August 1999, the EC delayed until March 2000 -- eight months -- before giving the deal qualified approval. The qualifications included the requirement for several asset divestments by Alusuisse, and the withdrawal by Alcan of its attempt to merge simultaneously with Pechiney, the French producer. According to an EC press release at the time on March 14, 2000: "a second transaction involving Alcan's acquisition of Pechiney, was cancelled today by the parties. The Commission was about to block this merger as it would have created dominant positions in a number of markets."

Alcan returned for EC authority to take over Pechiney in mid-2003; at the time, the combination would be the second largest aluminium producer in the world, after Alcoa of the US. The Alcan bid was resisted by Pechiney. But after three months it was cleared by the EC, the French and US governments -- with substantial asset divestment conditions. The EC announcement noted: "The Commission's review highlighted serious concerns in a number of markets, but Alcan was able to address such concerns by offering to divest a number of businesses. The divestments and other conditions will ensure a comparative level of competition in the supply of aluminium sheets for the beverages and cosmetics industries after the merger. This is not the first time that the Commission makes a competitive analysis of a merger between Alcan and Pechiney. A similar deal was notified 1999, but at the time the companies could not agree on clearance conditions."

Rusal and SUAL, joined by Swiss-based Glencore's alumina assets, announced their merger proposal on October 9. They then delayed notification to the anti-trust regulators in Moscow until the end of November. The Russian Federal Anti-Monopoly Service (FAS) told Mineweb before the holidays that it expected to take months. Then, on January 16, less than a week after the New Year break, Rusal induced the FAS chief, Igor Artemyev, to announce that he would approve the merger within two weeks.

The notification to the EC in Brussels was delayed a month longer than in Moscow. According to Linda Cain, a spokesman for the EC's anti-trust division, it was not received until December 19, just before Christmas. The EC gazetted the notice on December 29, allowing just ten days for public comments to be lodged. The timing suggests an intention to minimize public notice during the New Year holiday period.

Cain claims that EC rules provide that "the Commission has 25 days from notification to reach a conclusion. The deadline for a decision is therefore 1 February." Subtracting 10 days of weekends, but ignoring the New Year vacation period, the EC is rushing to decide on the creation of the world's largest bauxite, alumina and aluminium combine.

The last anti-trust review to be completed by the EC of a Russian company's links with a European company was the review of the diamond trad