Rusal proposes production cut to put Boguchansk onstream

United Co Rusal plans to cut 500,000 tpy of aluminium production elsewhere to support the launch of two smelters in Siberia and generate interest in the Boguchansk hydro power plant.

Rusal has made a proposal to the Russian government about cutting production at other smelters to bring new output onstream, the spokeswoman said.

“We need this proposal to be approved by the government before we work on the financing [for the power plant],” the spokeswoman told MB, without commenting further.

Rusal will be the main user of hydro power from the 3,000 MW-power facility.

More customers for Boguchansk's power will follow it once it has launched initial production of 300,000 tpy at the Boguchansk and Taishet smelters, the conmpany said.

“The proposal is the only efficient solution securing the load of the [Boguchansk] power plant capacities and supporting creation of new jobs as well as the launch of new high quality aluminium production facilities,” a Rusal spokeswoman told MB.

“We hope to secure demand for the electricity if the smelters are launched on time.”

Instead of delaying the full launch of the Boguchansk smelter to 2012, Rusal now proposes that it starts production on time in 2010 but at a reduced level.

Aluminium prices have dropped to around $1,500 per tonne from highs of $3,300 last year.

Due to the fall in demand for aluminium since August, Rusal has cut production at its smelters by 700,000 tpy, bringing total production to 3.9 mln tpy.

The heavily indebted company, owned by Oleg Deripaska, plans to cut an extra 500,000 tpy of production by closing environmentally unsound and high-cost smelters, the company said.

“Given the current market conditions we don’t want to be launching new capacity…this is why we have suggested the cut,” the spokeswoman added.

The 600,000 tpy Boguchansk smelter is 20% complete while the construction at Taishet is at 50% and is expected to produce 750,000 tn at full production.

“In order to secure demand for the [Boguchansk] hydro power plant…the Taishet aluminium smelter will sign a direct long-term agreement [for a minimum of five years].”

“RusHydro should provide guarantee for uninterrupted supply of electricity to the Taishet aluminium smelter regardless [of the launch of the] electricity network and the completion of…the hydro power plant,” the spokeswoman added.

Rusal and RusHydro are 50:50 joint partners in the Boguchansk complex with both companies funding the smelter, while state owned RusHydro, will act as guarantor when lenders are approached to finance the completion of the power plant.

With around $12 bln of debt, Rusal is renegotiating $7 bln it owes to international lenders under a two-month standstill agreement that comes to an end early next month.