Russian capitalists vie to reunite Soviet industrial monoliths: Ukrainian and Russian companies are rediscovering ties from the old Gosplan days

Handsome, single, and extremely rich, Oleg Deripaska, 32, chairman of Russia's giant Siberian Aluminium Group, is described as “one of Europe's most eligible bachelors”. But last month, Mr Deripaska put together a marriage that could have profound implications for his country and Europe as a whole. His company bought an alumina-making plant in Ukraine, setting the stage for a number of Russian-Ukrainian deals. Yesterday, as Russia's President Vladimir Putin met Ukraine's President Leonid Kuchma in Kiev, the talk was of business: joint projects, Russian investment, and Ukrainian debts. Ukrainian and Russian businessmen agree there are many more deals to come involving the two countries: “For Russian business, there are no more attractive countries for investment than Ukraine,” said Andrei Kostin, chairman of Russia's Vneshekonombank, one of Russia's largest banks. Russian and Ukrainian relations have often been strained following the latter's independence from Moscow in 1991. But while the governments don't always see eye-to-eye, Russian and Ukrainian businessmen are finding much in common. “Russians don't have the kind of money to invest that western companies do, but they can use the system much more skilfully,” said one banker. Meanwhile, financial pressures are driving the Ukrainian government to privatise swathes of state-controlled industry, while simultaneously, Russian businesses are looking to expand after a decade of consolidation. Last year, Russian industrial production grew 9 per cent. “They don't have enough room (in Russia),” said Ihor Solntseva, acting director of Credit-Dnipro bank in Ukraine. “Things have gotten tight. I think that's the main reason they are moving into Ukraine.” Ukraine contains roughly a third of the old Soviet Union economy, along with many of the elite military industrial complex factories, which used to be connected to Russian factories in huge technological chains overseen by Gosplan, the state planning agency. Mr Deripaska said of his company's recent purchase: “This deal is the first step towards creating a powerful aluminium concern on the foundations of Russian- Ukrainian enterprises.” “The processes of globalisation in industry have made it necessary to re-cement these ties which once bound Soviet industry together.” Siberian Aluminium is already in talks with various rivals in the Russian aluminium industry to form a giant integrated aluminium concern, linking raw material producers to aluminium smelters to end-users. It made its alumina plant purchase in a consortium with Ukraine's Pivdenmash factory, which used to make nuclear missiles, and now makes satellite rocket boosters. The respected Moscow weekly magazine Ekspert said: “The discussion is not about simply creating an aluminium monopoly, rather on the material rebirth of various parts of the old Soviet Gosplan, only this time not state-owned, but under private ownership.” In addition to Siberian Aluminium, Russia's oil giant Lukoil has been eyeing the Oriana petrochemical complex in western Ukraine, and recently bought a 25 per cent stake in the Odessa refinery, bringing the total stake to 89 per cent. Alfa-Bank, one of Russia's largest financial-industrial concerns, bought 76 per cent of Kyivinvest Bank in February, the first Russia-Ukraine bank merger since the devaluation of the rouble in 1998. Itera, a Jacksonville, Florida-registered gas-trading company which has major Russian interests behind it, imported one third of Ukraine's gas from Russia last year, and is in talks to form a joint venture with Naftohaz Ukraini, Ukraine's state gas utility. Meanwhile, the tactics on display by Russia's businessmen are reminiscent of infamous Russian privatisations which took place largely for the benefit of a few insiders. Russia's oligarchs built their empires on a controversial scheme called “loans-for-shares” starting in 1995, in which businessmen used government debts as a way to acquire Russia's state enterprises very cheaply. Now Russian businessmen are looking to use Ukraine's considerable energy debt to Russia as cheap but effective leverage into the most lucrative enterprises. Mikhail Kasyanov, Russia's acting prime minister, has even suggested swapping energy debts for shares in Ukrainian enterprises. Ukrainian officials insist that they will not give away their country's assets to Russia in exchange for debts. Mr Deripaska argues, however, that greater business ties between the two countries could only bring mutual benefits: “This deal means that we have made the transition from a strategy of survival to a strategy of development for both Ukraine and Russia.”Copyright © The Financial Times Limited