Norilsk Nickel, the world’s largest producer of Nickel and Palladium contributes an estimated 2% to Russia’s GDP. It is worth an estimated $32 bn. It has two core shareholders –  Interros controlled by Yeltsin-era oligarch Vladimir Potanin and RusAl controlled by relative newcomer  Oleg Deripaska. In June it paid out 40 bn rubles ($1.3 bn) in dividends - 50% of its net profits.

Since Rusal bought a 25% stake in the company from Potanin’s former partner Mikhail Prokhorov in April 2008 the two have been vying for control of the giant and its smelters.

Deripaska wants the money

Today the company is sitting on $14.3bn cash in its bank accounts.

Potanin wants Norilsk to use the funds to buy back shares while Deripaska wants it paid out in bigger dividends, according to a July 14 report by Alfa Bank.

Before the recent meeting in Norilsk with the two oligarchs, Putin was reported by the RIA Novosti as saying, “"I do not care which of the shareholders has a controlling stake or in what proportion. The main thing is that they solve the problems of the company."

To Putin’s mind the problems are reinstating taxes on the company’s exports and protecting the city of Norilsk and its 150,000 inhabitants which are dependent on the company. That means cleaning up the company’s pollution emissions not only in Norilsk which is on the northern edge of Krasnoyarsk territory but also on the arctic Kola Peninsula in Murmansk region.

Norilsk-Nickel operates three of the biggest polluters in the Barents Region which Russia shares with Norway, Findland and Sweden; the smelter in the town of Nikel, the pellets factory in the town of Zapolyarny and the nickel and cobber smelters in the town of Monchegorsk. The emission of sulphur dioxides (SO2) and heavy metals far exceeds the critical level for nature, and the size of dead taiga forest around the plants are severe.

At the roasting plant in Zapolyarny and the smelter in Nikel the total emission of sulphur dioxide (SO2) was near 100 thousand tons in 2008. That alone is about five times more than Norway’s total sulfur emissions. In addition come the company units in Monchegorsk, further south in the Kola Peninsula and its operations in Norilsk and nearby Nadezhda at the base of the Putaran mountains.

Norway wants clean air

In November last year the Norwegian Government Pension Fund excluded Norilsk-Nickel from its investment portfolio because the Fund’s council of ethics said the factories are afflicting environmental damages which clashed with the Pension Fund’s guidelines.

In April 2010 Russian after meeting in Oslo, President Dmitri Medvedev and Norwegian Prime Minister Jens Stoltenberg agreed that the cross-border pollution from the nickel-production in Pechenga on the Kola Peninsula must be reduced to a level not harming health and environment.

Putin’s first intervention in the feud ended in a truce, as the company and its core shareholders became embroiled in the financial tsunami spreading from the US sub-prime earthquake. In an agreement brokered by the Russian government in November 2008 Potanin and Deripaska agreed each of their holding companies will have four seats on a new Norilsk Board of Directors and in addition, both companies were to ensure the election of Mr Alexander Voloshin to the Board and his further appointment as the independent Chairman of the Board of Directors. Voloshin, a former Kremlin Chief of Staff, acceptable to both core shareholders and a pro-business political heavyweight was seen to be the Kremlin’s powerbroker keeping the rivals in check.

CEO earned $14.8mn last year

Before the truce, a new CEO of Norilsk Nickel was proposed by Potanin and accepted by the board. Vladimir Strzhalkovsky was appointed in August 2008. A former head of the Federal Tourism Agency he had previously served alongside Prime Minister Vladimir Putin in the Leningrad branch of the KGB, before Putin joined the St Petersburg administration of Mayor Anatoly Sobchak.

Strzhalkovsky, although not having metallurgical experience, has proven himself an able administrator, and RIA Novosti reported that he earned $24.8 mn in salary and bonuses last year – his first in the job - on the back of turning the company round from a net loss of $555 million to a net profit of $2.651 billion. He achieved this by dramatically slashing operating costs by 30%. When he was hired in 2008 as general director he negotiated an increase in the post’s salary by 30% to $400,000 per month and the annual bonus was also raised from 59 million rubles to US$ 3mn according to RIA Novosti.

The 2008 truce was blown out of the water by the company’s Annual General Meeting of June this year. Rusal saw its board directors reduced to three while Interros kept its four. In addition Voloshin lost his place on the board and was replaced  as chairman by Vasily Titov,  Deputy President and Chairman of the Management Board of VTB Bank who was elected as an independent director to the Norilsk board.

Deripaska created a furore. He alleged Norilsk management were in collusion with Interros and Independent Directors Gerard Holden and Brad Mills called for the company to make public "in full detail as soon as possible" the voting results and procedures from the company's annual general meeting in a letter to Norilsk's board.

Into the courts

Rusal took the dispute to court.

Rusal announced the filing of a request for arbitration against Interros in the London Court of International Arbitration.

In its claim Rusal said it believes that Interros has breached a commitment between UC RUSAL and Interros agreed in November 2008 in respect of OJSC MMC Norilsk Nickel, which aimed to restore fair market value of Norilsk Nickel to benefit all shareholders, to ensure a balanced Board of Directors of Norilsk Nickel and to create clear and transparent mechanisms to ensure the independence of the Board of Directors.

According to this commitment, Rusal and Interros agreed to ensure the election of an equal number of representatives from both companies to the Board of Directors of Norilsk Nickel. In addition, both companies were to ensure the election of Mr Alexander Voloshin to the Board and his further appointment as the independent Chairman of the Board of Directors of Norilsk Nickel.

The recent election to the Board of Directors at the AGM of Norilsk Nickel shareholders held on June 28th 2010, upset these aims. As a result of voting at the AGM, only three representatives of UC RUSAL, two independent international directors and 5 representatives of Interros were elected to the Board of Directors of Norilsk Nickel, Deripaska’s company claimed.  Mr Alexander  Voloshin, for whom Rusal voted in accordance with the agreement was not elected to the Board of Directors.  Voloshin, a former presidential chief of staff, had been chairman as a compromise figure.

Interros has not yet provided UC RUSAL with information about how they voted in the election.

UC RUSAL intends to restore balance to the Board of Directors of Norilsk Nickel and to defend its rights in accordance with the commitment.  Independent directors of Russian miner OAO Norilsk Nickel backed a request from major shareholder United Co. Rusal PLC for an external investigation into the company's board elections, calling for a new board.

Rusal has also filed a suit in the arbitration court of Krasnoyarsk following Norilsk Nickel’s failure to hand over ballot papers after the nickel producer’s AGM at the end of June. Rusal wants to examine the ballot papers for possible violations by Norilsk’s management, but Norilsk has failed to provide the papers, the aluminium producer claims. “Once Rusal has received access to the voting ballots and identified violations, they intend to seek protection of its shareholder rights.

The Siberian arbitration court has set a preliminary hearing date of September 16. The court has involved Russia's Federal Financial Markets Service (FFMS) in the case, a court official said.

On August 16, RusAl, said in a statement that Norilsk Nickel management had violated article 91 of the law On Joint Stock Companies and had not provided RusAl with AGM vote ballots.

RusAl has filed a request to the FFMS to check the AGM results and accused Interros of ruining the parity and the board of directors of a vote fraud.

Nickel in turn, has asked the FFMS to check results of the AGM and confirm the lack of violations.

The board of Norilsk has set Oct. 21 as the date for its extraordinary general meeting, when shareholders will vote on whether the current board should be removed, and if so, who will make up the new board.

Putin wants to reinstate tax on nickel and copper

Putin has ordered the world's largest nickel producer Norilsk Nickel and the Russian government to agree an efficient nickel and copper export duty mechanism.

"We have an idea for working out a flexible formula like we did with oil - the tax burden fluctuates in line with international prices. But we should examine the formula itself. It must be correct and efficient," Putin told a meeting on the development of the city of Norilsk and Norilsk Nickel on Tuesday.

"If a formula is not worked out in the nearest future... I will have to agree with my colleagues' proposals, which shareholders may not like."

Putin said that the government had supported Norilsk Nickel by abolishing nickel and copper export duties when world prices for the metals slumped.

"The market has stabilized, world prices are at a high enough level to guarantee profitable operation for the company. This is why the issue of adjusting duties is back on the agenda," Putin said.

Regarding pollution, the company must modernize its polluting way or production, or risk considerably higher fines, said Putin.

The company and the federal environmental watchdog Rosprirodnadzor have concluded an agreement on reduction of pollutant emissions over the next three years.

However, that agreement covers the company’s plant in Norilsk in the territory of Krasnoyarsk, and not the production plants in Nikel and Zapolyarny in the Kola Peninsula border area close to Norway.

President Medvedev assured the Norwegian premier in April that a Russian working  group with representatives from four different ministries and the Norilsk-Nickel comp0any would be  established to ensure progress in tackling the pollution. The working group will report directly to Russian first-deputy Prime Minister Viktor Zubkov.

Also Russia’s Accounting Chamber will take a closer look at the emission from the nickel-production in Pechenga, reports said at the time.

During the meeting with management in Norilsk Putin implied opposition to Deripaska’s requests to Norilsk to to pay out 115% of last year’s profit in dividends.

He was reported to have said, "Following the year's results, a decision was made to pay a dividend: It represented — attention — 50 percent of income," according to the government's web site.

Putin rattled off a list of other global miners' dividends: Swiss-based Xstrata paid 7.6 percent of its net income, Britain and Australia's Rio Tinto offered shareholders 18 percent. Australia's BHP Billiton paid out 38.2 percent of profit, and Kazakhmys paid 6.6 percent, he said.

Deripaska’s claims that Potanin and Norilsk’s management headed by Strzhalkovsky were ganging up on him were given substance by a mysterious initial refusal for his private jet to land at Norilsk airport last week. The airport is controlled by the company.

Norilsk Nickel industrial plant in the Arctic