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Russia's RusHydro eyes aluminum production -CEO

Wednesday, Jul 08, 2009
LONDON, Jul 7 (Dow Jones) -- Russian state-controlled hydro power monopoly RusHydro sees entering aluminum production by constructing new smelters in Russia as its strategy for the future, Chief Executive Vasily Zubakin told Dow Jones Newswires Monday. "Our strategic target is to export electricity in the form of aluminum," he said. The price of energy is the main contributor to the cost of producing aluminum. "The market for aluminum will definitely come back (to its pre-crisis state) in some years," he added. Zubakin said that RusHydro, which owns 25,000 megawatts of hydroelectric capacity, wants to build new smelters, not take over the existing ones in Russia, which are owned by aluminum giant United Company Rusal. RusHydro and debt-laden Rusal are equal partners in construction of the 3,000MW hydro power plant in Siberia, which will feed the Boguchansk aluminum smelter, also jointly built by Rusal and RusHydro. After several months of tug of war between the partners, Rusal has paid its share of the investment, Zubakin said. While production of aluminum remains a long-term strategic task, in the near future the world's largest publicly traded generator of renewable energy is planning to increase its presence in Asia, Zubakin said. Zubakin said that RusHydro is looking to India, Nepal and Bhutan with an eye to buying assets, but mostly it wants to establish joint ventures with the local companies there. In the former Soviet Union, the company is most interested in renewable-energy projects in Central Asia, notably in Kyrgyzstan, he said. In Russia itself, Zubakin said he sees energy demand stabilizing after a steep drop. "Last autumn and the winter were very bad. We saw a sharp decline in electricity demand, as the plants curbed their production, but in spring there was some increase in demand, which has stabilized since then," he said. Demand for electricity in a crisis-stricken Russia is currently averaging about 6% from levels seen in 2008, but in some heavily industrialized regions the figure is twice as high. Zubakin said devaluation of the Russian ruble by about a third during the winter has helped the economy, notably the country's metals and mining companies. For RusHydro, the devaluation brought the possibility of electricity export to neighboring China, he said. Before the devaluation, the price of electricity in Russia's eastern edge was higher than in neighboring China. However, because Chinese customers pay dollars for exported electricity, while RusHydro's production costs are fixed in rubles, devaluation of the ruble made export profitable. Zubakin added that although a further devaluation of the ruble would ease pressure on domestic companies, he doesn't expect the Russian government to follow that path. The Russian state owns a 61. 93% stake in RusHydro, whose global depositary receipts were listed in London Monday. Zubakin said that he sees nothing wrong in reducing this stake to 51% in order to attract more investors, but added that such a decision is to be taken by the state.

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