Excerpts from Transcript of Meeting with Chairman of the Supervisory Board of Base Element and Chairman of the Board of Directors of RUSAL Oleg Deripaska 2006-08-02 21:57:44 Novo-Ogaryovo President Vladimir Putin: What are your plans for GAZ? [GAZ car-making plant in Nizhny Novgorod] Oleg Deripaska: We have decided to transform the GAZ Group into an international company producing modern cars. If you recall, when the GAZ Group was consolidated it had total sales of $1.2 billion a year. Last year it had total sales of 122 billion roubles (more than $4 billion). The group employs 146,000 workers and the average wage has tripled and now comes to 9,000 roubles a month (around $400). The group has made a number of strategic acquisitions over the last 18 months. It has bought the company in England that produces the Maxus van, and this company is now being used to produce vans that will replace the Gazel model. The Maxus is a modern vehicle and was voted best van in England in 2004. We are making these acquisitions not just to manufacture vehicles for the Russian market. We are also organising production in India, where there is very high demand for these vehicles. The group has also been working very hard on developing diesel-powered technology. Just last week we and the Austrians began testing a new engine that was designed through a leasing programme supported by the Russian Government. This is the first Russian diesel engine in the last 35 years. It meets the Euro-4 emission standards and can be adapted to meet the demands of the Euro-5 standards. Assembly-line production will be set up and the Yaroslavl-based group of plants will begin active production in 2008. Together with the Austrians we spent almost $50 million on research and development alone. The engine has proven so well-designed that we have already received several offers from Indian producers who want to buy a licence to make them. A lot of work has also been carried out at the GAZ Group’s Arzamas plant on creating new military vehicles. A new slow-moving armoured personnel carrier is already undergoing tests this year and we hope that the tests will be successful and that series production will begin. Vladimir Putin: Do you have big orders from the Defence Ministry? Oleg Deripaska: We have orders coming in not just from the Defence Ministry but also big export orders. We are seeing sizeable volumes being confirmed. We are also making sure that production of the Volga car continues, despite the fact that many have already announced its demise several times. Vladimir Putin: But you yourselves announced its demise. Oleg Deripaska: What we said was that if production of the Volga stops, almost 20,000 people would lose their jobs. But we have found a way out. Firstly, by modernising the Volga we have extended its lease of life. Its driving and operating characteristics are better now and there will be demand for it over the next three years. Secondly, we have fully purchased the plant from Chrysler and will begin manufacturing cars under the Volga brand starting from October next year. Vladimir Putin: Where will they be assembled? Oleg Deripaska: They will be assembled in Nizhny Novgorod. We have also made a lot of progress in the area of road-building and road-repair equipment, which is an area we were never much involved in previously. We began looking into this sector three years ago because we saw the high demand there. We have now begun developing production of this kind of equipment at several plants. This goes together with the other investments we have made, including in designing diesel engines. This will enable us to create a new group that offers the full range of road-building and repair vehicles, and this is a sector where sales will be high. Vladimir Putin: What is the situation in the aluminium sector? Oleg Deripaska (shows a booklet): This is what we have achieved over the last five years. We have moved beyond Siberia to practically every continent. We have a presence as a production company in America, Africa and Australia, and of course in Eurasia. Over the next five years we will be working together with RAO Unified Energy Systems [UES] on several major projects. Together we will build energy and metallurgical producing facilities based at the Boguchansk Hydroelectric Power Station. This is the situation following the decision to create a joint company. Vladimir Putin: What will be the investment involved? Oleg Deripaska: Investment will come to $1.8 billion. This covers construction of the first section of the aluminium smelter and completion of the Boguchansk Hydroelectric Power Station. Around $800 million is needed to complete construction of the power station and $1 billion to build the first section of the smelter. Vladimir Putin: And the raw materials? Oleg Deripaska: Together with SUAL we have decided to build an aluminium plant in the Komi Region. This also involves big investment, around $1.5 billion. Our objective is to make production totally independent from supplies. The SUAL facilities that we are now modernising in Africa are also secure in their supplies. Vladimir Putin: In your work on all these projects, what are your impressions regarding work with the administrative structures, with officials? Oleg Deripaska: There are problems getting the necessary approvals. Getting all the approvals is a very complicated procedure. To start a project you need to get, say, 35 different approvals. Some of the regulations are outdated. You end up in a situation where you’re preparing all the project documentation just for the sake of the approval. On the one hand, this has no direct impact on the actual construction work. On the other hand, it takes around seven years for projects of this scale to pay themselves off. This plant (shows the booklet) requires around $1.5 billion. In order to develop this production facility we needed to build a whole new residential district complete with social infrastructure so that people would come and would have everything they need such as kindergartens and schools, the entire infrastructure, in short. So, these are social infrastructure facilities, but at the same time it is we who are building them. The process of handing them over is complicated at the moment because the municipalities have not yet formed the taxation base. We are currently studying the Australian experience and are looking at several projects there. They have several different kinds of investment incentives. For example, if you invest in facilities that will then be used as social infrastructure for the general public you are exempted from taxes. We would like to receive this kind of support.