Alro’s Russian owners let on that they might shut down Alro ten years after taking it over for $11.5 million. In this interval, the owners made a profit of 2 billion lei (EUR450 million) and collected dividend worth RON1.3 billion. The rumors, which baffled the stock market, could be part of the psychological war waged between Alro’s shareholders and the state with cheap energy on the table, as state-owned hydropower producer Hidroelectrica has ceased deliveries towards Alro citing the drought.
Tiberiu Nagy, vice-president of union confederation “Cartel Alfa” Olt, said earlier this week that, in bilateral meetings with Alro’s management, the unions were informed the unit was to close by March, as it was responsible for losses for the refinery in the last quarter of 2011. The management has not released further comment since then.
The unions’ statements might seek to determine the authorities to take action and allow Alro to cover its entire energy needs. Turkish-owned Azomures and Ioan Niculae, head of Interagro, have also used such strategies of intimidation in recent years, threatening closures in an attempt to determine the state to provide cheap gas or subsidize the purchase of chemical fertilizer by farmers. Niculae is now being investigated by anti-organized crime agency DIICOT, for “undermining the national economy.”
In Alro’s case, complete shutdown of all the refinery’s units is for the first time on the table since its privatization in 2002. The company has not yet published all its results for the fourth quarter of 2011, cited by the unionists, nor has it confirmed this information.
In the first nine months, Alro posted net profit of RON222 million (EUR50.8 million), 69% higher than in the same period of 2010, over high aluminum prices in the first half. Later in the year, however, the price of aluminum fell sharply (from $2,600 per ton in April to $2,000 per ton in December), affecting Alro’s margins.
Alro’s major concern is still the lack of energy from Hidroelectrica, which should cover 75% of the refinery’s consumption. According to Alro’s management, Hidroelectrica has delivered only 40% of the contracted quantity, citing force majeure, as hydropower production has been severely affected by falling water levels and drought. Lack of power forced Alro’s management in October to close one of the six primary aluminum production units and announce this would affect 10% of its output. Unionists say Alro has already closed 20% of its operational units and is preparing to shut down the entire plant.
In December, Alro bought small energy packages on the OPCOM market for around RON250 per MWh, twice the price it pays to Hidroelectrica. However, when thermal power producer Rovinari put 0.86 TWh up for sale on the OPCOM market for RON221-223 per MWh in December, there was no interest in the offer.
Last year, Alro bought energy from Hidroelectrica for an average price of RON112.5 per MWh; its contract, valid until 2018, is for deliveries of 3 TWh per year. Alro is the largest energy consumer in Romania and Hidroelectrica’s top client.
In previous years, the cheap energy provided by Hidroelectrica allowed Alro to post significant profits. For instance, in 2007, it posted net profits of RON436.3 million (EUR125 million), and in the first nine months of 2011, net profits climbed 69%, to RON222.4 million, thanks to rising prices and demand on the aluminum market.
Alro’s contract with Hidroelectrica stipulated that the price of energy would be set according to the price of aluminum on the London stock market, ensuring that Alro’s profit margin was safe with respect to evolutions in the price of the metal.
Russian billionaire Vitaly Machitski took over Alro in 2002, when they bought a 10% stake from the state for $11.5 million. They already owned 40% of the stock and later increased their stake through capital hikes, thinning the state’s interest. Alro’s privatization is one of post-Revolution Romania’s most controversial, as the state earned very little from the sale of one of its most profitable companies.
Machitski’s Vimetco group then bought aluminum processor Alprom (absorbed into Alro) and alumina producer Alum Tulcea, which they upgraded. More than 3,000 people are employed by the Vimetco’s plants in Slatina and Tulcea.
Most of Alro’s profits went to the majority shareholder, which has recently concentrated its investments in China.
Alro is the main aluminum producer in Romania and southeastern Europe, the single shareholder of Alum Tulcea, a calcined alumina producer with an output of 550,000 tons per year, and of Vimetco Extrusion, which churns out 20,000 tons of extruded products per year, unionists said. (EUR1=RON4.3627)
(English version by Radu Bostan)