Oleg Deripaska meets journalists in Davos

As the World Economic Forum in Davos came to its conclusion Oleg Deripaska met with journalists to share his views on the current state of the aluminium industry, the Russian economy and his business interests.

Selected quotes

Current situation in the global aluminium industry

"Today we must totally forget the good old times with high prices on commodities and deficit in supply. We should get rid of any expectation that state institutions will solve the situation in the markets, be it financial, credit, insurance or trade. We should understand that structural changes have taken place in the economy and in the long term these changes will lead us to totally different situation".

"In the near term we will face overproduction in the system and excess capacity for almost every commodity including aluminium, alumina and main raw materials for aluminium production, which will lead to further overproduction. International credit markets will find it difficult to give a fair valuation of companies from the primary sector, whose value recently dropped 5 to 8 times. Trade financing is getting harder to arrange due to the growing appetite of banks, difficulties of adequately assessing and insuring consumers' risks, and potential sales shocks that major consumers of commodities - automakers, transport machinery and construction sector - may encounter".

"On the one hand, for the next five years we are looking at a period of cheap energy resources. But on the other hand, access to these resources will be restricted due to national interests. In the aluminium industry, qualified intermediaries, trading houses, will get a growing share and will assume "risks of the last mile" while selling products to small customers. More pressure is expected from the environmentalists; and carbon emissions will be taxed higher. The role of aluminium producers - China, the Middle East and Eastern Siberia - as dominant players on the market, will also change".

"2011 will see a deficit of alumina, including sufficient deficit in the Atlantic region. Taking into account the rate of cuts in aluminium production, in two years stocks will be relatively low. However, due to the weak demand and high initial stocks, by the end of this year the metals exchange price on aluminium will stabilize at $1600 and subsequently increase an additional $100 per annum. Direct relationships between the main aluminium producers and consumers based on long-term contracts will play an increasingly important role. Share of spot contracts for companies which are not vertically integrated will drop to around 20%. The model of vertical integrated companies will be seriously tested. As a result, dramatic disintegration of downstream facilities may take place, which will positively influence competitive supply to consumers".

Economic situation in Russia

The Russian government has chosen the right tactic to overcome the crisis:

• Stabilizing financial markets and depreciating the ruble in line with the balance of current accounts
• Started a serious analysis of the situation at the regional and sector level, and the problems of key employers (more than 330 companies)
• Announced a tightening of credit spending
• Continued to aggressively combat inflation and refrained from plans to increase tariffs of natural monopolies
• By devaluing the ruble, it gave manufacturers time to recoup losses
• Using guarantee mechanisms, it will rebuild domestic financial market
• Preparing to launch mechanisms for renewed economic growth through providing large scale financing for infrastructure and housing projects, subsidizing interest rates for purchases of domestically produced durables
• Announced tax and financial stimulus for small and medium-size business
• Relieving social tension proactively by providing assistance to the unemployed
• Creating retraining programs for the unemployed
• Stimulating the process of import substitution, especially in food production

Rusal

"Rusal shareholders have not given up their plans to hold an IPO. They continue to consider the IPO as an important instrument to finance the company's development. From a technical standpoint, Rusal is 100% ready for the IPO. As soon as markets re-open and recover we will be prepared to make a decision. We are reviewing two potential platforms for the placement: one in Europe and one in Asia.

"Currently, the main issue for Rusal is to reach agreement with the banks on long-term debt restructuring. Negotiations with the banks started in late December 2008 - that includes all banks, both foreign and Russia's Vnesheconombank. We expect that within a month we shall receive a clear signal from banks regarding our position. I am sure that no bank will lose money it gave to Rusal to finance its commercial operations or to buy shares of Norilsk Nickel. One should understand that this debt has primarily emerged because Rusal bought Norilsk Nickel shares at their peak price - at that time they cost $14Bn approximately. Our debt can be partly converted into long-term financial instruments. When the financial standing of the company is improved, these may be converted into Rusal's shares should the creditors and the government so wish".

"Rusal's key task today is to optimize its main production capacities and supplier base, to become more technologically efficient and environmentally safe, by way of introducing the instruments of the production system that have been recently created and tested in our major plants and companies. Our aim is that only the facilities which enable Rusal to rank among the world's top 10% aluminium producers by cost efficiency will be kept operational by the end of the first half of 2009. This can guarantee our sustainability regardless of low prices for this metal".

Position of Rusal as a blocking shareholder of Norilsk Nickel

"As a shareholders of Norilsk Nickel, we understand the concerns the government has with regard to the situation in the mining sector. We also understand its concern about maintaining social and economic stability in the regions where the company' operates, in the light of potential decrease of tax revenues due to the fall of demand and prices. We are also clear about the government's aim to guarantee the long-term development of the Russian Federation by stabilizing supply of alloys to Russia's steel producers, who provide for the machine-building sector. However, following our meetings at various levels in the capacity of a shareholder of Norilsk Nickel, we also appreciate that the government wishes to protect the interests of minority shareholders and to make both the company and the mining industry as a whole more attractive to investors".

"We of course understand that various ideas of creating a united company will be discussed by the Board of Directors of Norilsk Nickel and that an independent committee created by the Board will consider different merger options. International investment banks will be invited to assess the long-term benefits of potential merger options, primarily for the shareholders. We do not separate our interests from the interests of other shareholders. Currently Rusal is not considering the possibility to participate in the capital of this project with its assets, so our main interest is a medium and long-term value maximization of our share in Norilsk Nickel".

The economics of Norilsk Nickel are now stable. Ruble devaluation and anti-crisis measures implemented by its management will help the company become one of the most cost-effective companies in its sector. Shareholders can already expect dividends in the middle of the fourth quarter 2009. This will prove once again the attractiveness of the company for shareholders. We are very sorry that chaotic statements in the media became a factor that depressed the value of its shares. When the smoke has cleared and investors understand that there is no risk for them, we will see fair value of the company re-emerge, as it should not be so low given the quality of Norilsk Nickel assets and the current situation at the markets where its key products are traded."