December 24, 2019
Gregory Barker: We will be closer to the assets going forward
The En+ Group effectively turned a new page in its corporate history in 2019. Now the group has a unique governance scheme for Russia - without a domineering shareholder and a loyal majority on the board of directors. The board chairman, Lord Gregory Barker, is convinced that the changes adopted in the framework of the plan he devised to get the company removed from the U.S. sanctions list will ultimately do the company and its shareholders good, irrespective of the deal with OFAC. Lord Barker told Interfax in an interview about the work of the new En+ board, dividends and long-term strategy.
Q.: Are you happy with how the new board approached its role this year? Were there any serious debates?
A.: I‘m incredibly impressed with the resolve, vision and unity of the board. We have a clear set of objectives; to be the world‘s leading fully integrated producer of hydro power and low-carbon aluminium, the most innovative and the most competitive. And we have a clear strategy on how we are going to achieve that and the board is united around that strategy.
I think if you were to sit at our board meetings, you would be impressed by the contributions, positive contributions of every single member.
Q.: How has the redomiciliation of En+ Group affected the corporate governance of the Group? Are you planning to hold a board meeting in Kaliningrad?
A.: The biggest tangible change is that our board meetings are now held in the Russian Federation and our next meeting will be in Siberia. We will be closer to the assets going on forward. In terms of the issues of governance there are some small, technical differences, but fundamentally the principles of governance and transparency are the same ones that we committed to when we listed on the London Stock Exchange and the Moscow Stock Exchange. These strong principles remain intact. What‘s important to note is that all the subsequent steps that we‘ve taken to improve corporate governance even further, have been good for the company and good for independent shareholders.
Q.: The board has instructed the management to review the strategy of coal assets. When are you expecting the feedback from the management?
A.: This is very much work in progress, we are regularly updated on the progress. But it is too early to make some announcements at this point in time.
As we recently said, as we forge ahead into a low carbon world, the sale of our coal assets is just one of the options. We are determined to become carbon-neutral by 2050 and our strategy is increasingly aligned to reach this goal.
Our focus is to create products ready for the new low-carbon economy. In our industry this will only be possible when your production line is supported very efficient power generation as well as innovation in the production process itself.
Q.: While coal assets don‘t seem to fit in your new low-carbon strategy, hydropower plants on the contrary are ideally placed. With this in mind are you thinking of expanding your HPP portfolio? Are you considering consolidating the BEMO project by acquiring the Boguchany HPP from RusHydro?
A.: We consider hydro to be the best power resource, especially in terms of the energy transition from fossil fuels. With this in mind, we are already working on a small HPP project in Karelia. Moreover, we have developed a pipeline of small HPPs projects with a compulsory installed capacity of over 200 MW. Their implementation is now being discussed with, among other, government officials.
Moreover, to date we completed the feasibility studies for the construction of the Nizhneboguchany HPP (660 MW, Krasnoyarsk territory), Telmam HPP (450 MW, Irkutsk region). However, it is up to the state to include those projects in stimulus programs. Ultimately, there can be many ways to support the construction of new HPPs - subsidies for loans or tax exemptions among them.
With regards to BEMO - we are happy with the current composition of our joint venture.
Q.: Rusal is yet to resume dividend payments. Could this impede payment by En+ of dividends for 2019?
A.: The two segments‘ dividend streams are not interdependent andEn+ Board could recommend payment of dividends even in the absence of dividends flow from RUSAL.
As mentioned earlier this year, the board is still undecided on the 2019 full-year dividends but we are committed to returning, as soon as it is prudent to do so, to the long term dividend policy outlined at our IPO. The board currently anticipates that dividend payments may be resumed following publication of the company‘s full year 2019 financial results, subject to general market conditions and the group deleveraging targets.
Q.: Media speculated that Chinese investors were in talks with VTB (MOEX: VTBR) to acquire the bank‘s share in En+. Is the board aware En+ shares could potentially change hands?
A.: This is not a matter for the company, but for its shareholders.
Q.: En+ Group in the last couple of months actively raised its voice in the global aluminium industry. Do you see traction of your initiatives by industry peers?
A.: Without doubt, En+ is now leading the debate on the future of the global aluminium industry. This is an exciting time for those big industrial companies committed to being part of the solution to dangerous man made climate change. I see real traction with stakeholders in the market, with other progressive users of our products, such as electric vehicle manufacturers but particularly with forward looking investors. We want to see much faster progress in our sector towards a low carbon future, that starts with accurate disclosure and measurement, hence my calls for transparency of carbon content in aluminium. In 2020, we could see real change in our sector. I want to see carbon content specified on the trades of the London Metal Exchange, which is the benchmark market for aluminium globally. Practically nobody opposes this in principle, but still many of the largest producers and users of aluminium are dragging their feet for one reason or another , rather than coming forward to support this proposal.
The recent climate conference in Madrid just reinforced our view that the aluminium sector can‘t simply move at our own speed, we have to move it to an external agenda, consistent with what the UN scientists are telling us. There are science-based targets on carbon reduction, which must be met in order to avoid dangerous global warming. Earlier this year Russia ratified the Paris agreement, which enshrines those targets, that was a huge and welcome step forward. However, It is clear that at the climate conference next year in the UK, global climate targets may have to be tightened even further. So big business everywhere has to step up and take a lead.
Big global industrial companies such as ours have a responsibility to show that their action on climate change is as equally ambitious and urgent as the plans that are being adopted by leading economies around the globe.
En+ Group is very proud to play a leadership role globally on this issue and I expect us to continue to set the pace for large industrial companies. I very much hope that other companies will join us in this endeavor, because it is pointless unless others follow. We will be discussing this at greater length at the World Economic Forum in Davos next month.
Q.: ESG is a hot topic for the investment community and ESG investment is becoming lucrative. Is there a risk that ESG will gradually turn into another means of just driving up the value of stock?
A.: It a serious question. Creating classifications of social worth may have its ups and downs, but it is really critical to differentiate real impactful investments from those just dubbed ESG for the sake of driving up the value of the stock.
Health and safety of the workforce must be paramount but the environment is no longer a secondary consideration either.
Take our company, En+ , it has a long and successful track record of implementation of decarbonizing initiatives. Take our ‘New energy‘ HPP modernization program. That started in 2007. Today we already see the results of the project - in 2018 alone we produced 1.6 TWh of additional clean power and avoided 1.8 mt of CO2 emission. So our ESG focus is embodied in real action.
Another example - just a couple of hours ago at the Russian office of the United Nations we‘ve signed an agreement with the Institute of Ecology and Evolution of the Russian academy of science to launch ENquiry - our own laboratory, aimed at fighting the problem of plastics in Baikal.
We‘ve been conducting researches on plastics in the Baikal for quite some time already and I must say the results are depressing: the world‘s largest lake is seriously affected by plastic contamination. Given Baikal‘s magnitude the scale and gravity of the problem can hardly be overestimated, that is why we are jointly taking actions with local authorities and NGOs to fight the plastic problem.
We are doing so not for the sake of some ESG ratings, but because we really care about the regions where we operate. I think this should be the driving force behind ESG investments - to drive meaningful, impactful positive change. I hope that it is still early days for green investments and in the medium-term the industry will learn to differentiate financing options.
Q.: With this in mind are you considering green bonds?
A.: I would say so, especially after the recent success of the RUSAL five-year $750 million Sustainability Linked Pre-Export Finance facility.
We are very fortunate to have a very innovative finance team, in my view the best in the business, and we will certainly evaluate this option next year, depending on market conditions.
Q.: Speaking of which: with the prospects of a trade deal between U.S. and China and a bit more clarity on Brexit perspectives, analysts look at markets with renewed confidence. We are heading for a spike in aluminium?
A.: The recent developments are, indeed positive for markets and global sentiment, which per se can be vital for investment decisions. Some analyst even predict that financial markets are set for a "risk asset melt-up" in the first quarter of 2020. Aluminium, on the other hand is seeing some production surplus due to China expansions and market‘s been very tough.
On the other hand, aluminium is at the forefront of sector investment opportunities due to rising CO2 costs & steeper cost curves for producers reliant on fossil fuel grid-power. Thus, aluminium pricing is seeing early signs of product differentiation based on CO2 intensity of production - with positive implications for renewables reliant producers such En+ Group. In my view this long term differentiation is going to grow much faster than many people think.
Q.: December is usually the time to set the targets for next year. How do you see 2020 for En+ and what will the company will look like next December?
A.: Taking into consideration costs pressures and the current price of aluminium, we have developed a resilient strategy for 2020. Main focus: keep a strong lid on costs and expenses. However, we are still forging ahead with our long-term investments in our Russian assets including the new smelter and the upgrade of our hydropower plants.
So while we are cautious about the short-term prospects of the sector, we remain long-term optimistic about the huge potential of this great company and the extraordinary potential of the aluminium industry which is now a vital building block of the new low-carbon economy.
The future for low-carbon aluminum is particularly exciting and I think it is now only a matter of time before we see the creation of a completely new asset class and that highly carbon intensive aluminium, produced with coal-fired electricity will diverge from clean aluminium, made from sources of clean energy like hydropower.