Workers mark stacks of aluminium ingots in preparation for shipping in the foundry at a smelter, operated by United Co. Rusal, in Sayanogorsk, Russia. (Photographer: Andrey Rudakov/Bloomberg)

Sanctions Crisis Risks 60,000 Workers and Putin Needs a Plan

(Bloomberg) -- Two weeks after the U.S. slapped sanctions on Russia’s United Co. Rusal, some workers are starting to worry: will they get paid next week?

As customers, banks and suppliers flee the business empire of Oleg Deripaska that has been targeted by American authorities, there are more than 60,000 Russian workers counting on President Vladimir Putin for a bailout. But there’s no concrete plan, and the clock is ticking on when Rusal will run out of money.

“The Kremlin will help Deripaska, but they haven’t decided on strategy yet,” says Gleb Pavlovsky, an adviser during Putin’s first two terms. “The government has been slow to devise a plan because of the complexity in working around U.S. sanctions, so any official help will likely be discreet.”

Politically, Putin can’t afford to let Rusal fail. The company has operations stretching from Moscow to far-flung towns in the Urals and Siberia. And it’s not just Rusal -- Deripaska owns power plants, dairy farms, grain processors, regional airports and a car factory. Altogether, he employs more than 150,000 people, mostly in Russia. That puts his businesses on par with the global reach of companies like Boeing Co. and Johnson & Johnson.

Sanctions Crisis Risks 60,000 Workers and Putin Needs a Plan

While workers are nervous that the U.S. sanctions will force job losses and factory shut downs, the government isn’t showing signs of alarm, at least not in public. Putin has a track record of saving Rusal in times of crisis, and few expect the Kremlin will let the company go out of business.

Rusal has enough money to cover the next payroll, according to a person familiar with the company. Salaries are processed by several banks, including Raiffeisen Bank, which said last week that it plans to stop working with sanctioned companies. Three Rusal employees, who asked not to be identified, said they’re worried they won’t get paid next week.

Payroll problems may happen first at overseas plants, such as Ireland and Jamaica, because Rusal is prevented from dealing with Western banks, according to a person familiar with the matter.

Deripaska visited Rusal’s plants yesterday in Irkutsk, where the company runs some of its biggest facilities, according to a person familiar with the matter.

"Donald Trump’s sanctions were aimed at Deripaska, but they’ll punish some ordinary people in regions that the Kremlin can’t ignore," said Slava Smolyaninov, a strategist at BCS Global Markets in Moscow.

Bailout Talks

The Kremlin’s rescue effort is trickier this time around because of the severity of the U.S. sanctions, making Deripaska and his companies untouchable to anyone with ties to Western banks. The billionaire is among Putin’s closest allies and built Rusal into a global behemoth by scooping up newly issued worker shares in Siberian smelters in the 1990s.

The government has considered aid for Rusal, but even the biggest state banks are prevented from dealing with the company. Some options may include Deripaska giving up his position as owner and relinquishing assets, though the ideas haven’t been officially considered, according to three people familiar with matter, who asked not to be identified because the talks are private.

A handover of Rusal assets to Russia isn’t under discussion, Dmitry Pristanskov, the head of the state property agency, told reporters in Moscow on Tuesday.

“We’re very attentive to our leading companies -- they have thousands of workers, very important jobs for our country,” Deputy Prime Minister Arkady Dvorkovich said after sanctions were imposed earlier this month, adding that some measures had been discussed in advance.

For Rusal, the sanctions are already starting to bite. Some aluminum output could close within weeks if they can’t access raw materials from overseas, like alumina, two people familiar with situation said.

Sanctions Crisis Risks 60,000 Workers and Putin Needs a Plan

Without a bailout, cities across Russia will start to feel the impact of the sanctions. It will it industrial hubs like Krasnoyarsk and Irkutsk in Siberia and towns, like Nadvoitsi, near the order of Finland, where the local economy depends on a Rusal aluminum plant.

Other economies could also be hit. Rusal owns plants in Sweden, Australia, Italy and Nigeria and local governments are now grappling with the question of how to keep running the factories with the company now under sanctions.

In Nadvoitsi, the plant is still running as normal, according to Mikhail Shestoperov, a local union leader. The government helped rescue the aluminum plant from closing in 2013 and should help again, he said.

“We can’t worry about every trouble,” Shestoperov said. “We’ve been living with troubles since the 1990s.”

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