The establishment of a joint aluminum plant with the United States in the Krasnoyarsk Territory and the resumption of aluminum supplies are beneficial to both sides. It is difficult for Americans to compete with Chinese industry without cheap aluminum. What will Russia get from this project and why is the United States offering it?
President Vladimir Putin suggested that the United States consider setting up a joint aluminum production plant, for example, in the Krasnoyarsk Territory. According to the president, there were plans to organize aluminum production in this region back in Soviet times. Aluminum production requires a lot of energy, and a hydroelectric power plant can be built in the Krasnoyarsk Territory, which is a cheap, environmentally friendly source of this energy.
The project will be "capital intensive" and, according to preliminary estimates, will cost about $ 15 billion, the president noted.
In addition, Russia is ready to resume aluminum supplies to the United States. "In 2017, we supplied 15% of aluminum to the United States. If a decision is made to open the market, we could sell 2 million tons to them," Putin said.
As for the project, it was clearly not a priority in Soviet times. "During the Soviet period, the implementation of such a large-scale project could be difficult due to a combination of economic, political and technological factors. First, relations between the USSR and the United States during the Cold War era precluded the possibility of close industrial cooperation. Secondly, the priorities of the Soviet economy were focused on domestic projects and the military-industrial complex, rather than on aluminum exports to capitalist countries. In addition, building a plant from scratch required huge investments, which in a planned economy could be used for other purposes, such as energy development in Siberia or space exploration. Technological limitations, especially in the field of "green" energy, also played a role: in the USSR, the emphasis was on large hydroelectric power plants, but their integration with export-oriented production was probably not considered a priority," says Pavel Sevostyanov, acting State Councilor of the Russian Federation, Associate professor of the Department of Political Analysis and Socio-Psychological Processes at the Russian University of Economics to them. Plekhanov.
"The aluminum market in Soviet times was concentrated on neighboring CIS countries, which caused demand to be significantly lower, and there was enough current production capacity," adds Vladimir Chernov, analyst at Freedom Finance Global.
The construction of a hydroelectric power plant primarily for the aluminum plant project is quite logical, since electricity accounts for about 30% of the cost of aluminum production, and the hydroelectric power plant is capable of producing cheap electricity.
Prior to the termination of aluminum supplies to the United States, Rusal exported more than 0.5 million tons per year there. Will Russia be able to increase exports four times? "Russia is able to increase supplies to 2 million tons, especially given the introduction by the European Union of the 16th package of sanctions (introduces a ban on imports of Russian primary aluminum). This will allow redirecting European supplies to the United States. Some of the volumes could be withdrawn from China.
Deliveries to the USA are more profitable for Russia in terms of profitability than for our Asian partners.",
– says Oleg Filippov, Director of Programs at the Institute of Management of the Presidential Academy.
In his opinion, the joint venture project is beneficial to Russia both for political reasons and for economic reasons, since investments in Russian industrial enterprises are the key to partnership relations between the countries.
For Russia, partnership with the United States is not only an investment ($15 billion), but also an opportunity to integrate into Western value chains, Sevostyanov notes.
A joint project with the United States will require the lifting of sanctions against Russian aluminum, plus it is beneficial for Russia to master high technologies that the United States can bring to this project, Chernov notes.
"For the United States, this is cheap aluminum for their industry. If Trump wants to boost American industry, as he constantly insists, then they will have to buy even more imported aluminum, they don't have enough of their own.
Aluminum is needed in many industries – in mechanical engineering, aircraft construction, shipbuilding, electrical industry, construction, etc. Secondly, this cheap aluminum can help the United States in the fight against China, as it will reduce the cost of final aluminum products," says Oleg Filippov.
Why did Russia propose this project specifically to the United States, and not to the EU or China? "The choice of the United States, rather than Europe or China, is related to current geopolitics. Europe, which is imposing sanctions, is not the best partner right now, and China, being a competitor in aluminum production (60% of global output), is hardly interested in supporting Russian exports. The United States, which is striving to diversify supplies, is an ideal candidate," Pavel Sevostyanov notes.
At the same time, it cannot be ruled out that Russia will now be ready to build relations with American businesses according to such mutually beneficial schemes: they say, if you want to receive our products at attractive prices, then invest in joint ventures on our territory and get a joint product at a delicious price. After all, this way the partners' responsibility to each other increases, which is not bad in case of new turbulence between the countries, for example, with a change of president.
"The withdrawal of foreign companies from joint projects with Russia turned out to be quite profitable for the Russian Federation, since the shares of foreign shareholders were bought out at a significant discount, so it is quite possible to allow a joint venture with the United States during the period of establishing economic and political ties," says Chernov.
For example, the shares of Western oil giants in Russian projects were sold to Russian owners, but neither ExxonMobil nor Shell received a ruble. All the money was transferred to special type C accounts, meaning, in fact, it went to the state, and it will decide what and in what amount the Western oil companies will receive, and whether they will receive at all.
However, Chernov is confident that Russia will maintain its desire for full independence and continue accelerated import substitution in the country in order to reduce dependence on foreign partners, because their departure was still unpleasant.
Olga Samofalova
