Norilsk Nickel's unions clash with oligarch

By John Helmer, Asia Times, 23 January 2003

MOSCOW—For the first time ever, Russian workers are threatening to strike in a dispute union leaders directly blame on the tactics of the oligarch who controls the shareholding of Norilsk Nickel. For the first time also, the unions are demanding that corporate transparency include disclosure of the oligarch's perquisites, including the salaries paid to senior management, stock options, bonuses tacked to movements in share prices, and other forms of compensation.

Wealth, the French novelist Gustave Flaubert once quipped, is a substitute for everything, even reputation. But even Vladimir Potanin and Mikhail Prokhorov, the dominant shareholders of Norilsk Nickel, have begun to appreciate that for the share value and creditworthiness of Norilsk Nickel to appreciate, their personal reputation will not suffice; nor the briefings that they provide selected international bankers and analysts. The attack by their workforce also comes as Prokhorov's senior executives cannot agree with board members on a planning document the company promised to release six months ago, and whose release has been postponed several times already. Called the Plan to 2015, the company strategy is dismissed by union leaders as just a collection of declarations, which is not concrete.

But among senior executives and directors of the company, the document has become the focus of a dispute between officials and shareholders over recent deals that have gone unexpectedly wrong. On Monday, two trade unions of Norilsk Nickel's Transpolar affiliate, which represent about 80 percent of Norilsk Nickel's 62,000-member production force, threatened in Moscow that if the management of the company will continue to violate the collective agreement signed with the unions, and fails to start negotiations with the trade unions over the three main demands that were posed, the unions may start strike action.

Norilsk Nickel is Russia's largest mining enterprise, the world's largest nickel producer, and rival to South African miners in the production of platinum and palladium. Speaking at a press conference, union officials said that their demands include indexation of salaries in accordance with Russia's inflation rate; and maintaining longer vacations for workers working in hazardous conditions. The unions are demanding a wage rise to match last year's 14 percent inflation. The workers are also demanding that the Norilsk Nickel management resume funding for the mine and workplace safety service responsible for job safety conditions.

There have been 26 deaths in mine or smelter accidents at the company in the past two years, according to the unions. The last major strike at Norilsk Nickel was in 1989, union sources say. Since then, however, threats of strikes, backed by the support of regional legislatures and the federal parliament, have forced the company to remove executives criticized by the unions; and also to abandon announced plans for plant closures on the Kola peninsula. If implemented, a strike by Norilsk Nickel workers would be the first by the workforce of an oligarch-controlled company in Russia since President Vladimir Putin took office in 1999.

Valery Melnikov, chairman of the Federation of Trade Unions of Norilsk Nickel, said The strike [threat] is very real. He sharply attacked Prokhorov, the chief executive of the company, who was one of the founding shareholders, with Potanin, of the group that seized control of Norilsk Nickel in 1996. Potanin is generally labelled one of Russia's oligarchs; he describes Prokhorov as his closest business partner at Norilsk. Prokhorov headed Uneximbank until it defaulted on its obligations in 1998, and went bankrupt. He then took over Norilsk Nickel from Alexander Khloponin, who went on to become governor of the Taimyr region, and late last year, the Krasnoyarsk region.

According to Melnikov, Prokhorov has practically destroyed the mechanisms for social partnership which existed when Khloponin was head of the company. He has stated on numerous occasions that he doesn't need a trade union at Norilsk Nickel, unless the unions take orders from the management, and will report on what has been done afterwards. Melnikov says that Prokhorov is the first negative example at the company of ice-cold managers who act without restraint.

Melnikov added that although in the past, there were tense situations at times between the trade unions and the management of the company, the team of Khloponin was wise enough to discuss the problems at negotiations table. In addition to his union post, Melnikov is a deputy of the Krasnoyarsk legislative assembly and a potential candidate for the mayor of Norilsk.

Norilsk Nickel managers accuse him of bandying the strike threat to improve his election chances. Melnikov says that with the election of Khloponin as the governor of Krasnoyarsk and the preservation of control by Norilsk Nickel over Taimyr, the region has turned into a preserve of Norilsk Nickel.

Asked to comment on a company plan to compel the Krasnoyarsk region to spend the company's tax payments in the Norilsk region, Melnikov replied, I don't think that in this situation there will be any redistribution of finance in favor of Norilsk industrial region. While under Lebed the budget of Norilsk city was Rb8.6 billion [$320 million] per year, it decreased down to Rb6.8 billion last year. This year, already under Khloponin, it decreased further down to Rb5.4 billion.

The contraction of government welfare spending is one of the triggers of the labor action. After protests from Norilsk city that it is impossible to live on such a budget, Melnikov said, an additional sum of money was allocated for Norilsk, but only as a credit from Norilsk Nickel. So we will have to consider what will be the actual situation of Norilsk this year. Nikolay Kryuchkov, chairman of the union organization of Norilsk Nickel's affiliate on the Kola peninsula, the Kola Mining and Metallurgical Company (KGMK), said on Monday that although we will not participate in the strike action, we are in solidarity with the demands of unions in Norilsk, especially concerning indexation of salaries. I wouldn't say that the situation in KGMK is better in general. But concerning the situation of the trade unions [in Kola] and the attitude towards them from the management of KGMK, it is better. At least the general director of KGMK discusses things with us.

A report by Renaissance Capital, a Moscow investment bank, issued last week, said, We expect much more in terms of cost control to be achieved over the next few years. Cutting the labor force, the report said, has been the biggest fundamental structural improvement to the cost base since privatization in 1996. At that time, the total workforce was 129,000. By 2004, the report says the company expects to be down to 52,000.

Melnikov said that while over the past several years the workforce has decreased, productivity at Norilsk Nickel's plants increased by 2.3 times and is 14 times higher than average in Russia. Still, he added, the company has practically stopped implementing social programs, such as the program for financing departure of people from the Norilsk region. It hardly does anything about modernization of production, and it tries to cut down costs through transfer of the labor force outside of the company.

According to Melnikov, the company plans to keep only mining and concentration workers in the company, while the rest of the workers employed by the company will be transferred outside of the company, as it gets rid of non-core affiliates. Besides that, the unions are outraged by the introduction of censorship in the regional media, which prevents adequate reporting about the problems of the company.

At Kola, Kryuchkov said, the company has yet to raise the salaries of the Kola workers to the level they were before the 1998 crisis—a target already achieved at Norilsk. But there has been no union demand for a wage hike at Kola, Kryuchkov said, because for us it was more important to put forward the demand of preserving production facilities on Kola peninsula. After we got confirmation from the management of the company that production facilities on the Kola peninsula will operate at least until the year 2030, we will now proceed with other demands.

Mikhail Shinko, chairman of the united trade union committee of miners and deputy chairman of the Association of Trade Organizations, the second of Norilsk Nickel's unions, said the current conflict has arisen because the management of the company unilaterally has stopped observing the collective agreement and ignored decisions of the three trade union and labor collective conferences that were held last year. The latest trade union conference on December 24 decided that the trade unions should start collective dispute procedures. Russian labor law gives the management five days in which to respond to the union claims and start negotiations. If it fails to do that, the union officials said they have the legal right to strike. One union official said that a strike could begin as early as next week. Shinko said we are giving the company one last chance.

According to Melnikov, whether or not strike action will start depends, not on the fact that management starts negotiations with the trade union, but on whether any results will be reached. According to Renaissance Capital, the management is already planning for nickel output to fall this year from 223,000 tonnes in 2001 to 217,000 tonnes. This reflects a shift in the ore mined and in the nickel grade; copper output is planned to grow from 474,000 tonnes to 478,000 tonnes. The forecast for palladium output is for a rise from 2,949,000 ounces to 2,979,000 oz. As news of the strike threat hit the market, nickel jumped in price by $276 per tonne, while platinum rose $9 an ounce, and palladium $3 an ounce. If the price gains are sustained, Potanin and Prohkorov will be able to count a gain of more than $50 million to the company's sales revenues for this year.

While the wage bill for Norilsk Nickel isn't clear, and a 14 percent wage increase for part of the workforce far from agreed, it looks like the strike threat could make more money for Potanin and Prokhorov than they may have to give up in lost output and cost increases.