UPDATE 1-Norilsk petitions Kremlin for $500 mln tax break

Mon Jan 28, 2013 7:23am EST

Related Topics

* Potanin requests scrapping of export duty

* Kremlin not aware of letter -spokesman

* Analysts doubt Putin to sympathise with plea (Writes through with analysts, background)

By Polina Devitt and Alessandra Prentice

MOSCOW, Jan 28 (Reuters) - Russia's Norilsk Nickel has asked the Kremlin for a tax break worth $500 million a year, a newspaper said on Monday, in a move that drew scepticism from analysts who said the world's top nickel and palladium miner did not need the cash.

Kommersant daily said that Vladimir Potanin, chief executive at Norilsk since an ownership restructuring in December, had written to President Vladimir Putin asking for export duties on metals to be scrapped. Norilsk would not confirm sending such a letter yet, but said it was looking at requesting the measure.

The government-backed deal to end a boardroom feud brought in billionaire Roman Abramovich as a peace enforcer for the Kremlin, reducing the influence of Norilsk's main shareholders, Potanin and his rival, aluminium tycoon Oleg Deripaska.

Sweetening the deal for Potanin and Deripaska, who had been battling for control at Norilsk since 2008, is an agreement to pay $9 billion in dividends over three years, equivalent to half the company's forecast core earnings.

Norilsk spokeswoman Alisa Fialko declined to confirm a letter was send but said: "The question of export tariff cancellation is being considered due to the weak metals market."

Putin's spokesman, Dmitry Peskov, said the Kremlin had not yet received a letter from Norilsk. He declined further comment.

Analysts doubted that special pleading from some of Russia's richest men would be looked on favourably by Putin, but said that the public finances - with a balanced budget and low debts - would nonetheless be able to take any possible hit.

Norilsk benefited from a previous duty holiday in 2009.

"This plea looks a bit greedy and is unlikely to win much support from the government," said Sergey Donskoy, a metals and mining analyst at Societe Generale in Moscow.

"Norilsk is generating steady cash flow and is fully capable of financing itself. It looks like an attempt to boost its financial performance to increase its dividend payouts. It's not likely the government will be willing to hand over any money."

Norilsk shares ticked lower in Moscow after rallying by more than 30 percent since first news leaked out in November that a resolution to the boardroom battle could be in sight. Its equity value now stands at $38 billion.

PRIZE ASSET

Potanin, Russia's fourth richest man worth $14.5 billion according to Forbes magazine, built his fortune through his control over the vast cashflows thrown out by Norilsk, the Arctic miner whose privatisation he orchestrated in the 1990s.

But he is widely seen as having overplayed his hands in the four-year dispute that followed the entry by Deripaska into the business in 2008 in a deal that quickly turned sour as financial markets crashed and Russia's economy slumped.

Potanin's move to the executive suite, say insiders, was a face-saving exercise leaving Abramovich - himself worth $12.1 billion - as the arbiter of relations with Deripaska, worth $8.8 billion as of last March, according to Forbes.

Nikolay Sosnovskiy, a sector analyst at VTB, said industry conditions were better today than they were in 2009, the last time Norilsk was freed from the obligation to pay duties on its metals exports.

"Norilsk are being a bit cheeky and effectively asking the state for money to pay high dividends, but the likelihood of the state paying out is not very high," Sosnovskiy said.

Nickel was the only one of six base metals to lose value last year, its price falling 8 percent due to a sharp drop in demand for stainless steel, particularly in Europe. The metal traded at $17,460 per tonne on Monday at 1121 GMT.

Norilsk, which gets about 90 percent of its revenue from European, Asian and North American markets, paid $779 million in export duties in 2011, its financial results show.

The current export tariff for Russian nickel is 5 percent. For copper it is 10 percent and platinum group metals 6.5 percent.

Once the restructuring is completed, Chelsea soccer club owner Abramovich will own 5.87 percent of Norilsk Nickel, Potanin's holding company Interros 30.3 percent and Deripaska's aluminium firm RUSAL 27.8 percent.

To ensure Abramovich's role as enforcer of the peace, the other two billionaires will give him voting power over some of their shares, bringing his effective voting stake to 20 percent. (Editing by Douglas Busvine and Alastair Macdonald)

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