Russia’s richest person strikes deals as sanctions trap other oligarchs

Nickel fender

Canada recently added Potanin to its sanctions list, the first time a Western government has targeted him after invading Ukraine. Leonid Mikhelson, Russia’s second richest person, had also evaded sanctions for more than a month but has since been singled out by Canada and the UK.

Experts say it’s no mystery why Potanin remains largely unscathed: Its Nornickel accounts for around 40% of global production of palladium, which helps reduce pollution from cars, and 20% of high-grade nickel, a metal key in electric vehicles. Any sanctions imposed on the company could backfire on Western governments due to supply shortages and rising prices of key raw materials. Although Potanin does not have a majority stake, his sanction could also affect Nornickel and the industry.

Potanin bought Societe Generale SA’s entire stake in Rosbank PJSC this week.Credit:Bloomberg

U.S. President Joe Biden “can’t say that for all the nickel coming from Russia, we’ll dump it in Boston Harbor,” Jay Newman, a former portfolio manager at Elliott Management Corp., said in a phone interview. . The sanctions “do not target the people whose products we need”.

Still, Biden has taken some steps to rectify the commodity imbalance. He invoked the Defense Production Act on March 31 to boost domestic nickel production and wean the country off “unreliable foreign sources” for critical minerals and metals. About 20% of the nickel comes from Russia, much of it from Potanin’s Nornickel mine, which was once a Siberian gulag.

“Enormous pressure”

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While Nornickel is still distributing its metals under long-term agreements with industrial customers, some of the world’s largest transport companies, including AP Moller-Maersk A/S, have halted bookings to and from Russia. Palladium shipments, traditionally made by passenger planes, had to be rerouted with flights from Russia cut to just a few destinations.

The Finnish company Outokumpu Oyj, one of the largest stainless steel manufacturers in the world, and the German BASF SE, among other things, are distancing themselves from Russian nickel. Outokumpu Oyj said it was looking for alternatives while BASF said it was fulfilling existing contracts but not pursuing new business with Nornickel.

The environmental footprint is also a concern – Nornickel is the world’s largest polluter of man-made sulfur dioxide, according to a 2020 Greenpeace report.

The company is investing more than $4 billion to build sulfur capture and utilization facilities in Norilsk. It’s part of a strategy to “significantly” reduce emissions, a Nornickel spokesperson said.

Biden is “under enormous pressure to sanction anything the Russian can identify, including nickel,” said Michael Klare, author of Resource Wars: The New Landscape of Global Conflict. “It’s going to be a tough balancing act because there are so many valuable materials coming from Russia that are essential to the global economy.”

“The example of Western countries shows that the economies of these countries themselves suffer from the imposition of sanctions against Russia. We need to be wiser and avoid a scenario where retaliatory sanctions hit us ourselves.

Vladimir Potanin

“But people are fiercely angry,” he said. “Sanctions can go far and there will be economic consequences.”

Pragmatic stance

In his few public remarks on the Ukrainian crisis, Potanin alluded to these tensions. He expressed his opposition to the country’s retaliation against international sanctions and warned not to cut ties with foreign companies leaving Russia, instead advocating “calibrated and pragmatic” counter-moves.

Experts say it's a bit of a mystery why Potanin remains largely untouched by sanctions: Its Nornickel accounts for around 40% of global palladium production, which helps reduce pollution from cars, and 20% of high-grade nickel, a key metal in electricity.  Vehicles.

Experts say it’s a bit of a mystery why Potanin remains largely untouched by sanctions: Its Nornickel accounts for around 40% of global palladium production, which helps reduce pollution from cars, and 20% of high-grade nickel, a key metal in electricity. Vehicles.Credit:Bloomberg

“In light of the economic restrictions directed at Russia, there may be an understandable desire to act symmetrically,” Potanin said on Norilsk Nickel’s Telegram channel on March 11. “But the example of Western countries shows that the economies of these countries are themselves suffering from the imposition of sanctions against Russia. We must be wiser and avoid a scenario where retaliatory sanctions hit us ourselves.

Potanin’s fortunes have held up better than most other Russians tracked by the Bloomberg Billionaires Index. His net worth has shrunk by around $100 million since the day before the invasion of Ukraine.

Interros’ redomiciliation to Russia could help protect its assets from potential sanctions, as well as the up to $7 billion divorce petition it is fighting in London. The holding company said it wanted to be a benchmark investor in the Russian Far East, which is why it chose to register in the so-called offshore zone of Russky Island in Vladivostok.

Interros holds most of its assets in Russia and finds it natural to invest from Russia, especially since benefits that were only offered in international offshore havens are available, Potanin said in a statement.

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As for Rosbank, Potanin’s holding company owned it from 1998, before SocGen acquired a position in 2006 and then merged it with other Russian operations.

The deal with Interros came “after several weeks of intensive work,” SocGen said. He expects the deal to close in the coming weeks, pending regulatory approval.

Bloomberg

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