Bogoslovsk Aluminum Smelter needs modernization and electric subsidy for recovery - Rusal

Aluminum production at the Bogoslovsk Aluminum Smelter (BAZ) in the Sverdlovsk region cannot possibly be brought to the break-even point just by modernizing it, without lowering the tariff for electricity, Russian aluminum company UC Rusal, which owns the smelter, said in a statement.

"BAZ's production costs cannot be reduced to the point that the smelter would reach the break-even point exclusively by substituting equipment for more modern tools and using new technologies. This is precisely why Rusal has turned to and is turning to energy companies and authorities of all levels with the request that aluminum production in the north of the Sverdlovsk region be provided with a tariff that would be beneficial to all parties," the statement said.

As reported, Rusal has decided to slash its capacities by 275,000 tonnes of primary aluminum by 2018. By the end of this year, thanks to high electricity tariffs and low global metal prices, there are plans to draw down capacities for producing 150,000 tonnes of primary aluminum at four plants, including BAZ.

Last week, Sual Partners, which owns 15.8% of UC Rusal's stock and represents the interests of Viktor Vekselberg and his partners, said that it thinks the aluminum giant's decision to shut a number of smelters down was misguided. It rebuked the top management of Oleg Deripaska's company for their reluctance to modernize the smelters.

At the moment, the cost of primary aluminum production at BAZ, which receives electricity from Vekselberg's IES Holding, is $2,477 per tonne. That is roughly 30% higher than the price for this metal on the London Stock Exchange (LSE) - $1,879 per tonne on September 3.

If the electricity tariff is brought down, Rusal is willing to build a new electrolysis facility at BAZ for $1.4-$1.5 billion, instead of decommissioning, Rusal's Government Relations Director Oleg Vaytman said on Friday, August 31.

After Rusal voiced its plans to shut down electrolysis production at BAZ, the Sverdlovsk region created an extraordinary commission to identify the realities at the smelter and to look into the options for resolving the situation, aiming to retain personnel and develop production.

BAZ produces aluminum and alumina and also specializes in alumosilicic and aluminum-magnesium alloys, which are used in machine and aviation building, as well as in protecting objects from corrosion (tread alloys). BAZ utilizes bauxites from the Severouralskoye field.

Last fall, Rusal commenced a gradual shutdown of electrolysis baths at the inefficient sections at BAZ. In December, after a government intervention, a number of measures were developed to stabilize the loss-incurring enterprise's operations, one of which was Rusal's purchase of the Bogoslovsk Combined Heat and Power Plant from IES Holding and the construction of the Novo-Bogoslovsk CHPP under a capacity supply contract. Rusal was supposed to modernize BAZ, built in 1944, by 2016, which envisaged maintaining production volumes at a level no lower than in 2011. However, the parties were unable to agree on the parameters of the deal due to differences over the appraisal of the Bogoslovsk and Novo-Bogoslovsk CHPPs.