Sale of German Aluminum Company to Russia Raises Security Concerns

United States President Joseph Biden’s European meetings with the G7 and the North Atlantic Treaty Organization (NATO) earlier this month highlighted some of the extant policy differences between the US and its allies despite the positive PR assaults that sought to minimize them. One well-known transatlantic bone of contention has been Germany’s growing economic rapprochement with Russia, particularly its commitment to the Nord Stream Two subsea natural gas pipeline. The US has long perceived this project as a security risk to European allies, but the Biden administration has now apparently chosen to deemphasize it in order to preserve Washington’s working relationship with Berlin (see EDM, May 27, June 10).

Another concern has been the recent acquisition of Germany’s Aluminium Rheinfelden GmbH by the Russian aluminum conglomerate United Company (UC) RUSAL. The corporate takeover has raised broad anxieties that the German firm’s advanced fabrication and design technology could be used to execute Russia’s armaments plans—particularly for potential upgrades to its tank armada.

Aluminium Rheinfelden GmbH was founded in 1898, when aluminum production was launched near Europe’s first riverine hydroelectric power plant in Rheinfelden, on the Rhine River. In 2019, Aluminium Rheinfelden GmbH’s income reached €159 million ($190 million) (RBC, February 11). But its sales were heavily impacted last year by the global business slowdown stemming from the COVID-19 pandemic, forcing the company to declare bankruptcy in September 2020 (Alu-web.de, February 16).

A sale of the aluminum smelter was organized by a court-appointed bankruptcy administrator. The winning bid was submitted by Russia’s UC RUSAL, at a reported price of roughly €13 million ($15.5 million) for the entire company, which has 250 employees and an estimated annual turnover of approximately €110 million ($131 million) (Frankfurter Allegemeine Zeitung, April 8). The UC RUSAL bid won out over a counter-offer made by the EuroAtlantic Group, supported by the former German company owner’s daughter (Südkurier, April 9).

Under Germany’s Foreign Trade Act, the sale of an advanced industrial company with “dual-use” commercial/military technology required the agreement of the Federal Cartel Office and the German Federal Ministry for Economic Affairs and Energy, both of which eventually approved the acquisition in mid-April (Aluminum Insider, April 18). Yet despite the governmental approval of the transaction, questions about the wisdom of allowing the sale have continued to emerge. For example, former Green Party politician and head of the think tank Center for Liberal Modernism, Ralf Fücks, expressed concern that German metallurgical expertise could be diverted to military use: “It would be negligent to deliver security-relevant know-how of a German company to a group that supplies the Russian armaments industry” (Frankfurter Allgemeine Zeitung, March 29). Despite the bland assurances from the German government, the fact that the high-grade Rheinfelden aluminum has potential military applications continued to elicit concerned commentary (Stuttgarter Zeitung, March 19).

The German press noted that the purchase raised apprehension in Washington as well (News.de, March 19). US concerns with UC RUSAL are long-standing, as its founder, Oleg Deripaska, is a member of Russian President Vladimir Putin’s inner circle. In April 2018, Washington imposed sanctions on UC RUSAL, Deripaska, and 23 other Russian citizens and entities “to punish Moscow for its alleged meddling in the 2016 US election and other ‘malign activity,’ ” thus banning US companies from doing business with them (Treasury.gov, April 6, 2018).

UC RUSAL asserts that the sale predated Alu-Rheinfelden’s economic downturn. According to Eric Martinet, the former director for automotive and transportation operations at UC RUSAL and the new CEO of Aluminium Rheinfelden, in 2017 UC RUSAL had already agreed about a takeover with Alu-Rheinfelden’s then-owner, Alois Franke, who died in 2019. However, the purchase was delayed by the US’s 2018 sanctions against Deripaska and his UC RUSAL company, which were lifted the following year, after Deripaska divested his majority share in the company (snanews.de, April 8).The implications of the purchase have roiled Germany’s economic and political circles. The daughter of the Rheinfelden aluminum smelter’s former owner hired former chief detective Klaus-Dieter Matsche from Frankfurt as a security advisor to examine the court-appointed bankruptcy administrator’s sale of the company to UC RUSAL. Matsche commented, “I think one should prevent this company from being sold to Russia now […] the company has 70 patents, including so-called dual-use patents, which can also be used militarily. This knowledge is now flowing to Russia. […] With its decision, the Federal Cartel Office has finally made the Russian group a world market leader in the manufacture of specialized aluminum alloys” (Nachrichten Regional, March 19)

Some Central and Eastern European analysts see the Aluminium Rheinfelden GmbH sale as indicative of a larger issue of German foreign policy becoming subordinate to Russian regional policy considerations—particularly vis-à-vis Ukraine and Europe’s East (Rzeczpospolita, April 11). Whatever UC RUSAL’s long-term intentions are, its acquisition of Aluminium Rheinfelden GmbH adds to the firm’s international portfolio, consisting of enterprises in 13 countries, including two European alumina refineries (in Italy and Ireland), along with an aluminum factory in Sweden (Rzeczpospolita, February 12).

UC RUSAL is the world’s largest aluminum producer outside of China and Russia’s only significant producer of this industrially crucial lightweight metal. As a part of its long-term development strategy, RUSAL plans to increase the production of Rheinfelden’s specialized aluminum alloys up to 30,000 tons per year (TASS, April 16). It seems highly unlikely to presume that—Kremlin ally Oleg Deripaska’s “divestiture” from the company notwithstanding—UC RUSAL is sufficiently free to forestall diverting any Aluminium Rheinfelden output to future Russian military needs.