United Company RUSAL Plc: Continuing Connected Transactions Long-Term Capacity RSE Contracts

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HONG KONG--()--Regulatory News:

United Company RUSAL Plc (Paris:RUSAL) (Paris:RUAL):

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

UNITED COMPANY RUSAL PLC
(Incorporated under the laws of Jersey with limited liability)
(Stock Code: 486)

CONTINUING CONNECTED TRANSACTIONS
LONG-TERM CAPACITY RSE CONTRACTS

 
Reference is made to the announcement of the Company dated 12 November 2013 and the circular of the Company dated 13 December 2013 in relation to the Previously Disclosed E&C Contracts with En+´s Associates.

The Company announces that through the matching process (as further explained below) arranged by the TSA, five Long-Term Capacity RSE Contracts with a term of 15 years were entered into between members of the Group, as buyers (represented by the FSC), and Krasnoyarskaya HPP, an associate of En+, as seller (also represented by the FSC).

Due to inadvertent oversight, the Company did not fully comply with the announcement requirement in respect of the Long-Term Capacity RSE Contracts under Chapter 14A of the Listing Rules in a timely manner. As the Long-Term Capacity RSE Contracts are relatively new kind of capacity supply contracts with a term of 15 years and their terms are not consistent with the terms under the short-term E&C Contracts with En+´s associates or the miscellaneous E&C Contracts with En+´s associates as disclosed in the circular of the Company dated 13 December 2013, the Long-Term Capacity RSE Contracts will be proposed to be approved in a stand-alone resolution at the EGM.

BACKGROUND

Reference is made to the announcement of the Company dated 12 November 2013 and the circular of the Company dated 13 December 2013 in relation to the Previously Disclosed E&C Contracts with En+´s Associates.

The Company announces that through the matching process (as further explained below) arranged by the TSA, the following 15-year renewable-source energy contracts were entered into between members of the Group, as buyers (represented by the FSC), and Krasnoyarskaya HPP (represented by the FSC), as seller (the “Long-Term Capacity RSE Contracts”):

(i) contract between OJSC RUSAL Bratsk and Krasnoyarskaya HPP dated 24 January 2014;

(ii) contract between Joint Stock Company Rusal Novokuznetsk and Krasnoyarskaya HPP dated 24 January 2014;

(iii) contract between Joint Stock Company RUSAL Sayanogorsk and Krasnoyarskaya HPP dated 24 January 2014;

(iv) contract between Boguchansk Aluminium Smelter and Krasnoyarskaya HPP dated 30 June 2015; and

(v) contract between LLC RUSAL Energo and Krasnoyarskaya HPP dated 30 March 2016.

LONG-TERM CAPACITY RSE CONTRACTS

The Long-Term Capacity RSE Contracts relate to renewable sources of energy and were entered into in accordance with the governmental regulations requiring all participants in the electric energy wholesale market to purchase capacity by entering into standard form of contracts. The terms (including the mechanics of price determination and duration of contract being 180 months) of such renewable sources of energy contracts are determined by the Market Council and are published on the website of the Market Council. The terms of the renewable sources of energy contracts are non-negotiable by the parties.

The price of capacity to be sold under the Long-Term Capacity RSE Contracts is determined by the TSA in accordance with procedures established by the rules of determination of the price of capacity of the generating facilities using renewable energy sources, approved by the Resolutions of the Russian Government and the rules of the electric energy wholesale market as follows:

Please see the accompanying document for the full text of the formulas.

The monthly volume of capacity which the seller undertakes to supply and the buyer undertakes to accept and pay for (the “Contracted Capacity Volume”) is determined by the TSA for each month of the capacity supply period in accordance with the electric energy wholesale market regulations, based, among other parameters, on the value of installed capacity of the generating facility of the seller and the number of the participants of the wholesale market for each month. The exact volume of capacity to be supplied and accepted is notified to the sellers and the buyers through the TSA. The overall contractual capacity volume may not exceed the capacity volume specified in a Long-Term Capacity RSE Contract. The sellers cannot require any increase of the Contracted Capacity Volume.

The payment under the Long-Term Capacity RSE Contracts is made in cash via bank transfer in accordance with the procedure and deadlines established from time to time by the electric energy wholesale market regulations then in effect.

The actual monetary value of capacity purchased for the years ended 31 December 2014 and 2015 and the first six months of 2016 under the Long-Term Capacity RSE Contracts was nil, nil and USD0.36 million, respectively.

The FSC facilitates the transactions by matching the suppliers and the buyers. Accordingly, the Group may enter into such Long-Term Capacity RSE Contracts with independent third parties or connected persons only through the TSA/FSC. Given that it is for the TSA to control the matching of the suppliers and the buyers, for these renewable sources of energy contracts, the Group does not take the lead in determining the identities of the counter-parties. Therefore the Company is of the view that the prices under the Long-Term Capacity RSE Contracts are no less favourable to the Group than those offered by independent third parties. Furthermore, the Company believes that the prices and the duration of the Long-Term Capacity RSE Contracts which are based on the above rules and regulations are normal commercial terms given that these terms and conditions are, eventually, prescribed in accordance with the Resolutions of the Russian Government equally applicable to all participants of the electric energy wholesale market and cannot be changed by the parties to the contracts.

THE ANNUAL AGGREGATE TRANSACTION AMOUNT

Pursuant to Rule 14A.81 of the Listing Rules, the continuing connected transactions contemplated under the Long-Term Capacity RSE Contracts and the Previously Disclosed E&C Contracts with En+´s Associates should be aggregated, as they were entered into by members of the Group with the associates of En+, and the subject matter of each contract relates to the supply of electricity and capacity by the associates of En+ to the Group.

REASONS FOR AND BENEFITS OF THE TRANSACTIONS

The Long-Term Capacity RSE Contracts are for supply of capacity produced by qualified generating facilities using renewable sources of energy.

As certain members of the Group are participants in the electric energy wholesale market, if they did not enter into the Long-Term Capacity RSE Contracts, they would be considered to be in breach of the governmental regulations of the electric energy wholesale market. A consequence of such breach is that the members of the Group which are registered as participants of the electric energy wholesale market would be excluded from the list of such participants. If that were the case, such members of the Group would be prohibited from purchasing electricity and/or capacity on the wholesale market and would be required to purchase electricity and/or capacity from the retail market at a higher price, substantially increasing the costs for the Group.

The Directors (including the independent non-executive Directors) consider that the Long-Term Capacity RSE Contracts are on normal commercial terms which are fair and reasonable and the transactions contemplated under the Long-Term Capacity RSE Contracts are in the ordinary and usual course of business of the Group and in the interests of the Company and its shareholders as a whole.

It is expected that members of the Group may continue to enter into new long-term capacity RSE contracts with En+ Associates from time to time on the same terms as described.

None of the Directors has a material interest in the transactions contemplated under the Long-Term Capacity RSE Contracts save for Mr. Deripaska, Mr. Maxim Sokov, Ms. Olga Mashkovskaya and Ms. Gulzhan Moldazhanova, who are directors of En+, which hold more than 30% of the issued share capital of Krasnoyarskaya HPP. Mr. Deripaska is also indirectly interested in more than 50% of the issued share capital of En+. Accordingly, Mr. Deripaska, Mr. Maxim Sokov, Ms. Olga Mashkovskaya and Ms. Gulzhan Moldazhanova did not vote on the Board resolutions approving the Long-Term Capacity RSE Contracts.

LISTING RULES IMPLICATIONS

Krasnoyarskaya HPP is an associate of En+ which is a substantial shareholder of the Company. Therefore Krasnoyarskaya HPP is a connected person of the Company under the Listing Rules. Accordingly, the transactions contemplated under the Long-Term Capacity RSE Contracts constitute continuing connected transactions of the Company.

Due to inadvertent oversight, the Company did not fully comply with the announcement requirement in respect of the Long-Term Capacity RSE Contracts under Chapter 14A of the Listing Rules in a timely manner. As the Long-Term Capacity RSE Contracts are a relatively new kind of capacity supply contracts with a term of 15 years and their terms are not consistent with the terms under the Short-term E&C Contracts with En+´s Associates or the Miscellaneous E&C Contracts with En+´s Associates as disclosed in the circular of the Company dated 13 December 2013, the Long-Term Capacity RSE Contracts will be proposed to be approved in a stand-alone resolution at the EGM.

Details of the Long-Term Capacity RSE Contracts, including the explanation by the independent financial advisor as to why a contract period exceeding 3 years is required and its confirmation that it is normal business practice in Russia for contracts of this type to be of such duration, will be included in the circular on the Proposed 2017, 2018 and 2019 Annual Caps for Continuing Connected Transactions, which is expected to be issued by the Company in the end of September 2016 or early October 2016.

PRINCIPAL BUSINESS ACTIVITIES

The Company is principally engaged in the production and sale of aluminium, including alloys and value-added products, and alumina.

Krasnoyarskaya HPP is a hydroelectric power station.

DEFINITIONS

In this announcement, the following expressions have the following meanings, unless the context otherwise requires:

“associate(s)”       has the same meaning ascribed thereto under the Listing Rules.
 
“Board” the board of Directors.
 
“Company” United Company RUSAL Plc, a limited liability company incorporated in Jersey, the shares of which are listed on the main board of the Stock Exchange and on the Moscow Exchange.
 
“connected person(s)” has the same meaning ascribed thereto under the Listing Rules.
 
“continuing connected transactions” has the same meaning ascribed thereto under the Listing Rules.
 
“Director(s)” the director(s) of the Company.
 
“En+” En+ Group Limited, a company incorporated in Jersey, a substantial shareholder of the Company.
 
“EGM” the extraordinary general meeting of the Company expected to be held in October 2016 in Hong Kong
 
“E&C Contract(s)” electricity and capacity supply contracts
 
“FSC” Joint-Stock Company “Financial Settlement Center”, a wholly-owned subsidiary of the TSA, created for the purposes of determination of cross-liabilities of wholesale electricity market participants, organization of the system of payments and payment guarantees on the electricity wholesale market.
 
“Group” the Company and its subsidiaries.
 
“Krasnoyarskaya HPP” JSC Krasnoyarskaya Hydro-Power Plant, a hydroelectric power station controlled by En+ as to more than 30% of its issued share capital.
 
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange.
 
“Market Council” Non-Commercial Partnership Market Council
 
“Mr. Deripaska” Mr. Oleg Deripaska, an executive Director.
 
“Previously Disclosed E&C Contracts with En+´s Associates” the series of electricity and capacity supply contracts entered into between members of the Group and the associates of En+, as disclosed in the announcement of the Company dated 12 November 2013 and the circular of the Company dated 13 December 2013.
 
“Proposed 2017/2018/2019 Caps for E&C Contracts with En+’s Associates” the proposed annual caps for the electricity and capacity supply contracts with En+’s associates for the three years ending 31 December 2107, 2018 and 2019.
 
“Stock Exchange” The Stock Exchange of Hong Kong Limited.
 
“substantial shareholder” has the same meaning ascribed thereto under the Listing Rules.
“TSA” Joint-Stock Company “Trading System Administrator of Wholesale Electricity Market Transactions”, an authority established by the Market Council.
 
“VAT” value-added tax
  By Order of the Board of Directors of
United Company RUSAL Plc
Aby Wong Po Ying
Company Secretary

19 September 2016

As at the date of this announcement, the executive Directors are Mr. Oleg Deripaska, Mr. Vladislav Soloviev and Mr. Siegfried Wolf, the non-executive Directors are Mr. Maxim Sokov, Mr. Dmitry Afanasiev, Mr. Len Blavatnik, Mr. Ivan Glasenberg, Mr. Maksim Goldman, Ms. Gulzhan Moldazhanova, Mr. Daniel Lesin Wolfe, Ms. Olga Mashkovskaya, and Ms. Ekaterina Nikitina, and the independent non-executive Directors are Mr. Matthias Warnig (Chairman), Mr. Philip Lader, Dr. Elsie Leung Oi-sie, Mr. Mark Garber, Mr. Dmitry Vasiliev and Mr. Bernard Zonneveld.

All announcements and press releases published by the Company are available on its website under the links http://www.rusal.ru/en/investors/info.aspx, http://rusal.ru/investors/info/moex/ and http://www.rusal.ru/en/press-center/press-releases.aspx, respectively.

Contacts

United Company RUSAL Plc

Contacts

United Company RUSAL Plc