Russia En+ may swap Montenegro smelter stake for debt

MOSCOW, May 26 - The Russian owner of Montenegro's biggest exporter, Kombinat Aluminijuma Podgorica, will consider giving up a stake in the aluminium producer in exchange for the government assuming part of its debt, a company executive said. En+ Group, controlled by indebted billionaire Oleg Deripaska, said the KAP aluminium plant and associated bauxite mine must reduce its workforce by over 60 percent and cut its electricity costs by 37 percent in order to become profitable. "We are prepared to discuss the acquisition by the Montenegrin government of a stake in KAP on condition that the government splits a significant part of the debt with us," En+ Group General Director Vladislav Solovyov told Reuters. Kombinat Aluminijuma Podgorica, or KAP, accounts for half of Montenegro's export revenues but is running at a loss due to high operating costs and a slump in the price of aluminium, which has lost two-thirds of its value since peaking last July. Deputy Prime Minister Igor Luksic said in televised comments this month that the government wanted to take control of KAP, the largest industrial enterprise in the ex-Yugoslav republic. The company defaulted last year on tax, duties, VAT and other payments to the state and plans this year to halve aluminium production to 60,000 tonnes. [ID:nLC346234] "The company's key strategic task is reducing the cost of producing aluminium, which is defined by the excessively high cost of electricity and overstaffing," Solovyov said in comments emailed to Reuters on Tuesday. "Without a long-term solution to these two fundamental problems, the plant cannot break even, no matter who its owner is," he said. JOB CUTS, CHEAPER POWER En+ Group, part of Deripaska's Basic Element company, also controls United Company RUSAL, the world's biggest aluminium producer but also among the most indebted, having run up debts of $16.8 billion. Solovyov said KAP could be profitable should it hold the cost of producing a tonne of aluminium at close to $1,600 a tonne. The metal is trading around $1,440 a tonne on the London Metal Exchange, down from last July's all-time peak of $3,380. To achieve this, it would have to cut the workforce at KAP and the bauxite mine in Niksic to a maximum 1,500 from 3,900 currently. The price of electricity would also need to drop to 22 euros per 1,000 kilowatt hours from 35 euros, he said. "The possible closure of KAP and the firing of all its workers would lead to social problems, and it's important not to let this happen," Solovyov said. "Negotiations with the Montenegrin government continue. Our positions have moved significantly closer in the last two weeks and we hope to find a mutually beneficial resolution in the near future."