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  RUSSIA

REPUBLICAN REFERENCE

Area (sq.km)
17,075,400

Population
145,470,197

Principal
ethnic groups

Russians 82%
Tatars 3.3%
Ukrainians 2.7%

Principal towns
Moscow (capital)
St Petersburg
Novosibirsk
Nizhni Novgorod
Yekaterinburg
Samara

Currency
Rouble

President
Vladimir Putin

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Background:
The defeat of the Russian Empire in World War I led to the seizure of power by the communists and the formation of the USSR. The brutal rule of Josef STALIN (1924-53) strengthened Russian dominance of the Soviet Union at a cost of tens of millions of lives. The Soviet economy and society stagnated in the following decades until General Secretary Mikhail GORBACHEV (1985-91) introduced glasnost (openness) and perestroika (restructuring) in an attempt to modernize communism, but his initiatives inadvertently released forces that by December 1991 splintered the USSR into 15 independent republics. Since then, Russia has struggled in its efforts to build a democratic political system and market economy to replace the strict social, political, and economic controls of the communist period.

Update No: 259 - (25/07/02)

Russia is very much in the spotlight. It is of course a crucial player on the world stage, the heartland of Eurasia and the new frontier of the world's energy industry. Since February Russia has been producing as much oil as Saudi Arabia, 7.4 million barrels per day or 340m tons per year. But Russia, itself a big consumer, has under one fifth of Saudi Arabia's colossal reserves of 250bn barrels mostly for export.

Oil to the fore
Oil has been the reason for the economic boom in Russia, with GDP growing 8% last year, and probably about 5% this year. The buoyant world oil prices in the early 2000s helped a lot here. The government is well aware that Russia cannot remain a one commodity economy, especially as oil almost certainly cannot be produced at its present high level for very much longer. It is only possible now because their oil industry is operating at full capacity, whereas the Saudis have plenty of spare capacity.
Much more investment is needed and here some of it needs to be foreign. BP has at last bought Sidanko for US$365m, a controlling stake. Two oil men from the US have been appointed to the board of LUKoil a welcome development , Mark Mobius, of the Templeton Fund and Richard Matake of Chevron, Texas. This will enable Russia's largest oil company to begin to match Yukos, which, has five foreigners on its board and many foreign managers. It was revealed in June that its boss, Mikhail Khodorkovsky is worth US$2.6bn, making him the richest man in Russia, although the real worth of some senior Gaxprom shareholders, presently not known, might run him close. This was ahead of a listing of Yukos on the New York or London stock exchanges this autumn.

The communists and land reform
The government has been tackling the problems of the economy sector by sector. Last year it was the oil industry, earlier this year the arms export sector (over the last year Russia was the world's leading exporter of arms) and now it has initiated a land reform programme, which may mark a watershed in the whole Russian reform programme.
The government succeeded in sidelining the communists in late spring by having them debarred from several key chairmanships in select Duma committees. The communists then split with some remaining communist chairmen refusing to resign at the behest of their leader, Gennady Zyuganov. This was also true of Duma Speaker, Gennady Selyenev, who now heads the dissident 'Selyenev faction.'
Sidetracking the communists may have been deemed necessary to push through new legislation on land reform which they and their Agrarian Party allies had always blocked beforehand in the Yeltsin years. As it turned out, various amendments have heavily qualified the relevant bill.
The fundamental fact remains that Russians can buy and sell land for the first time for more than seventy years. This was possible under Lenin's New Economic Policy, initiated in 1921. But Stalin ended it in 1929, leading to his disastrous collectivisation of agriculture.
The two most significant amendments are directed against foreigners and predatory tycoons. Foreigners cannot own but can lease land for 49 years (long before which, however, a change in law could come allowing them ownership too), while no one can own more than 10% of any single region. Tycoons are to be kept down, even if not out.
The implementation of the law is another thing from its enactment. Certainly the local barons, regional governors and bigwigs, will be able to deflect the way in which land reform unfolds in their patch. But a start has been made. In certain of the more progressive instances forward-looking governors, as in the south in the fertile 'black soil' regions, could push through the reform in genuine hopes of improving the lot of the people.
For land reform now gives peasants the chance to become kulaks again, the well-to-do and sometimes rich farmers whose land Stalin collectivised in 1929-34, with disastrous consequences. From being the breadbasket of Europe before 1914, Russia in its Soviet guise ended up being the world's largest importer of gain by the 1970s and 1980s.
Now again farmers will have an incentive to work hard and establish themselves and their families as property-owners.
Of course nothing is likely to happen overnight. But the land bill of 2002 could yet mark the turning-point for Russia. No country can have an advanced economy unless it can solve the agrarian question. For Russia with all so much land to have been importing half its food in the 1990s, at least until the 1998 devaluation, was a disgrace and an indictment of decades of Soviet mismanagement.

Banking reforms now needed
If the energy sector and the arms export sector were top priorities for reform, then agriculture was certainly next to be highlighted. But as a corollary, there is now an urgent need to put bank reform high on the agenda. Land reform is unlikely to work without a range of banks, some agrarian banks, some more general, prepared to finance investments in agriculture.
The state and collective farms had a certain logic to them, 'cradle to grave' security for the peasants, all of them, the lazy and dull as well as the more enterprising. But this led to chronic under-investment, poor productivity (yields being less than one quarter of those in Western Europe), poor returns, and so wages. Now the more resourceful peasants will be able, at least in certain regions, to own land which they can use as collateral to obtain loans and to invest in new machinery. But where are the banks to provide the loans? 
They do not yet exist. The EBRD and other international bodies need to become involved to set up a chain of agrarian banks across Russia. Existing banks are rickety short-term affairs to finance quick-profit ventures in energy, raw materials, arms and the like, anything with a swift pay-off. The words of Oliver Goldsmith in 'The Deserted Village' are relevant here: "Ill fares the land, to hastening ills a prey, Where wealth accumulates and men decay."
This was said of the Enclosure Movement in Eighteenth Century Britain, when rich landowners gobbled up the lands and commons of the peasantry. The UK had a sort of collectivisation from above by the richer farmers, the super-kulaks of the day. This was harsh and brutal, but it worked, having a Darwinian edge to it, the 'survival of the fittest.' Stalin's collectivisation was anti-Darwinian, the elimination of the fit, no recipe for abundance for anyone.
The land reform bill gives Russia a chance to put this sorry history behind it. In such a vast country it is sure that it will be variously implemented. European Russia will experience a very different tempo to Siberia, immemorially wedded to conservative ways and plagued by a restricting climate inimicable to agrarian choices. But nothing could improve its chances of success better than a thorough banking reform. The next sector on the reforming agenda.

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AUTOMOBILES

Premier signs off new plan to develop Russian car industry


Russian Prime Minister Mikhail Kasyanov on 18th July signed off a plan to develop the Russian car industry for the period until 2010, the government's information department has told journalists, Interfax News Agency has reported.
The concept provides for complete unification of import customs duties on all cars, irrespective of their age. A single import customs duty of 25 per cent will be levied on new cars, on cars which are between three and seven years old, and on cars which are more than seven years old. This duty will be charged over the next seven years. But in the future it may be reduced.
The main goal of the plan is to integrate the Russian car industry with the international automobile industry, to stimulate the production of cars meeting world environmental and safety standards, to create new production facilities and to encourage competition.

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AVIATION & SPACE

Russia's Aeroflot set to renew its Western-made aircraft


On 15th July, Aeroflot's board of directors approved a plan to renew its fleet of 27 Western-made aircraft, Interfax News Agency has reported, quoting Aeroflot's public relations department.
The details of the plan were not disclosed, but a source in the company's management told Interfax that the company intends to replace its 27 aircraft by leasing medium-range A-320 planes from Airbus Industrie and long-range Boeing 767s.
The board told director-general Valeriy Okulov to sign protocols of intent and continue talks with the manufacturers. The management has until September to draft a final programme for the replacements...

Air France to use Krasnoyarsk airport as transport hub

Air France plans to use the Krasnoyarsk airport, which is operated by Krasnoyarsk Airlines (Krasair), as a transport hub, Interfax News Agency reported. The Russian airline said an agreement in principle had been reached with Air France on the use of the Siberian airport, and a contract is to be signed in the near future. "We expect a profit of several tens of millions of roubles from this collaboration," the news agency quoted a Krasair spokesman as saying. 
Setting up a link between Krasnoyarsk and Charles de Gualle airport in Paris would give residents of Siberia and the Far East a direct route to Europe, Krasair said. Krasair plans to modernise the airport and bring it up to international standards. The project and cost estimate is being developed by Air France. A model of the modernised airport will be unveiled at the second Siberian aerospace show in Krasnoyarsk in December 2002. 
Krasair, one of Russia's top five airlines, carried 1.03m passengers last year, 42% more than in 2000. Passenger turnover rose 33% to 3.418bn passenger-kilometres, and cargo turnover grew 26% to 385.768m tonne-kilometres. Sales jumped 40% in 2001 to 3.428bn rubles. Krasair carries 90% of all Krasnoyarsk territory passengers and cargo on national routes.

US$29.9m to Volga-Dnepr for plane development

Russian airline, Volga-Dnepr (Ulyanovsk), and the International Finance Corporation (IFC) have signed an agreement to grant the Russian company a credit of US$29.9m. The credit is being granted for 10 years to complete the construction of an An-124-100 plane at the Aviastar plant in Ulyanovsk.
The total investment being provided for Volga-Dnepr consists of an IFC credit of US$16.9m and a syndicated credit of US$13m, with participation from the Dutch financial development company Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden NV.
According to Volga-Dnepr management, receipt of the credit indicates trust in the company on the part of international financial institutions. "This is the first precedent in the history of Russian civilian aviation when the IFC has provided financing to a Russian airline to expand its fleet," Interfax News Agency quoted Volga-Dnepr Vice President for Strategic Management, Sergei Shklyanik, as saying.
It was noted at the signing ceremony that this event was preceded by a multilateral analysis of the financial condition of Volga-Dnepr by IFC specialists and qualified experts from foreign consulting companies. Volga-Dnepr accounts for 52% of the world market for super-heavy and large freight. The company has a fleet of nine An-124-100 Ruslan planes and one Il-76.

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BANKING

Russian premier calls for urgent reform of "crippled" banking sector

Russian Prime Minister Mikhail Kasyanov has emphasised the need to begin reforming the banking sector this year, Interfax News Agency has reported.
"Our banking system is crippled and fails to meet the needs of the economy and industry," Kasyanov said at a news conference in Kaluga.
However, the banking sector is a key element in economic modernisation, he said. Ideally, companies should borrow funds from banks and upgrade their production facilities, he said.
Furthermore, financial market regulations should be addressed, he said. "When the financial market is discussed in Russia, speculators are meant. However, it is through this market that financing is channelled to industry," he said.
"Time was lost in reforming these spheres and it must be made up for," he said.

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BONDS

Russia to issue US$1bn in Eurobonds next year 

Yet another US$650m may be attracted as tied credits from foreign governments and banks, in particular from the World Bank. Yet, this does not mean starting new projects, as the loans would go towards continuing current projects, Kudrin explained, Interfax News Agency has reported. 
He did not report the issue date for the Eurobonds, stressing that the government would use this measure only as the last resort.

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ENERGY

First batch of this year's oil from Russian Pacific field reaches Korea 

The Primorye, a mammoth Russian tanker, today brought this season's first oil produced on the Sakhalin sea shelf to the South Korean port of Ulsan. ITAR-TASS News Agency has reported.
The 102,000 tonnes of oil delivered to South Korea from the Vityaz oil-pumping enterprise come from the Piltun-Astokh oilfield in the Sakhalin Bay of the Sea of Okhotsk. According to the press centre of the Far East Shipping Company, the Primorye tanker will perform about ten voyages to take over 1m tonnes of oil from the Vityaz enterprise to South Korean and Japanese ports during this year's summer and autumn, which is the oil-producing season on the Sakhalin sea shelf.
A total of 1.2m tonnes of hydrocarbons are to be produced on the Sakhalin sea shelf this year.

US$800m for Russia from LUKoil stock 

The Russian government will reap at least US$800m from the sale of 5.9% of the stock in oil major LUKoil, Interfax News Agency reported.
The price tag of US$660m announced by economic Development and Trade Minister, German Gref, is lower than government expectations. Alfa Bank analyst, Konstantin Reznikov, said that "in the current conditions, the government is pleased with anything over US$660m, and the current market price of this packet is in the neighbourhood of US$820m."

Russian oil giant to launch monthly shipments of crude to US 

After the success of its first oil shipment to the United States, Russia's second-largest oil company will now send tankers carrying 270,000 tons of crude to US shores every month, Yukos officials have said, AP World Politics has reported.
A tanker loaded with 200,000 tons of Yukos oil arrived in Houston in early July, and US officials hailed the delivery as a step toward reducing dependence on the Middle East for energy.
Yukos President, Nikolai Bychkov, said that based on the success of the first shipment, the company would send 270,000 tons of oil to the United States every month from now on, the Interfax News Agency reported.
He did not say where the future shipments would be sent or who would buy them. The first shipment was bought by Exxon Mobil Corp., and another unidentified buyer, according to Yukos vice president, Mikhail Brudno.
Yukos' American venture is too small to make an impact on the US markets so far, analysts say. And the company lacks the deep-water ports and other infrastructure for large-scale, regular shipping to the U.S. destinations.
But the symbolism of the move is important. It was formally announced after US President George W. Bush and Russian President Vladimir Putin promised to boost energy cooperation during a Moscow summit. And it comes amid efforts by Russia's aggressive young oil companies to expand by offering Americans an alternative to Persian Gulf oil.

US$20m loan to Russo-Finnish venture reflects high environmental standards 

The European Bank for Reconstruction and Development and Germany's HypoVereinsBank have co-arranged a US$200m loan to SeverTEK, an equal partnership between Russia's biggest oil producer, LUKoil, and Finland's state-controlled Fortum energy group to develop an oilfield north of the Arctic Circle. 
HypoVereinsBank has underwitten half of the loan, which will be further syndicated to a consortium of international banks.
The deal offers an alternative structure to Russia's Production Sharing Agreements (PSAs) and the EBRD hopes it will create a new model for cooperation between Russian and western energy companies, said Kevin Bortz, Director of the EBRD's Natural Resources Team.
A successful combination of foreign and Russian technology should achieve significant cost savings and underline yet another benefit of foreign-local partnerships in the Russian oil industry, Mr Bortz added at a signing ceremony in Moscow.
The six-year deal is the biggest that the Bank has led for Russia's onshore oil sector since a US$150m working capital loan to LUKoil signed two years ago. 
The loan will be used to finance drilling and the construction of a pipeline and other infrastructure needed to bring on-stream SeverTEK's largest field at South Shapkino in the Timan Pechora basin, 70 km north of the Arctic circle. 
The field has proven plus probably reserves of 164m barrels of oil. The estimated cost of the project is US$355m. Fortum and LUKoil will equally provide technical and marketing support, with Fortum, which has show considerable commitment to "green technologies" in the energy sector, providing a special focus on environmental issues.
LUKoil, which has significant other activities in the region, will bring unique local knowledge and expertise to the project.
Under the Environmental Action Plan to which Fortum and LUKoil have committed, steps will be taken to minimise the project's ecological impact and protect the permafrost environment.
For further information contact Richard Wallis, EBRD, tel: +7095 787 1111, or e-mail: WallisR@mos.ebrd.com.

Ruhrgas, Gazprom and LUKoil talk gas production

German gas concern, Ruhrgas, is to hold talks with Russian gas monopoly, Gazprom, and oil major, LUKoil, and a number of other Russian oil companies on the possibility of cooperating in gas production territory, Interfax News Agency reported Ruhrgas CEO and Gazprom board member, Burckhard Bergmann as saying. 
He did not name the other oil companies in question and noted that the project under discussion involves supplies of gas to the domestic Russian market. He also said that Ruhrgas has increased its share in the Gazprom charter capital, to about 5.3%, as a result of the purchase of additional shares by the joint venture, Geros Gas. He confirmed plans by the German company to increase its share to 8-9 per cent. Speaking of the consortium recently set up by Russia, Ukraine and Germany to transport Russian gas, Bergmann noted that the German Chancellor Gerhard Schroeder personally informed him of this agreement. He said that the German concern is ready to participate in the agreements reached and noted that this participation has political support. "We are ready to do this. However, we are at the start of the journey," he stressed.

Shell, Exxonmobil and Gazprom sign pipeline deal

Russian gas monopoly Gazprom, Shell China Exploration and Production Company Ltd and US major, ExxonMobil, have signed a framework agreement to set up a joint venture with PetroChina and Sinpoec to implement a project to build the West-East Trans-China gas pipeline.
According to the agreement, Gazprom, Royal Dutch/Shell Group and ExxonMobil Corp received 15% each in the project. The Chinese side in the project, represented by PetroChina, will retain 55% initially, but at the stage of building the pipeline and subsequent sale of gas, 5% of this share will be transferred to Sinopec.
The framework agreement establishes conditions for implementing the project, and includes a production sharing agreement for the development of the gas field and conditions for the pipeline joint venture and for the sale of gas through a unified trading company.
The project will last for 45 years and involves production of gas in the Tarim basin, construction and use of a 4,000km gas pipeline and sale of gas in eastern China.
Initially it is planned to transport 12bn cubic metres of gas along the pipeline, which may be increased to 20bn cubic metres in the future. "The joining of efforts between PetroChina and the largest oil and gas corporations in the works - Gazprom, Shell and ExxonMobil is a guarantee of the successful implementation of the project," Interfax News Agency quoted Gazprom Deputy CEO, Alexander Ananenkov, as saying.
At the end of June representatives from Gazprom, Shell and ExxonMobil signed a memorandum of mutual understanding on the formation of an international consortium for the gas pipeline project. The pipeline will be 35% financed by participants in the project in proportion to their shares and 65% will come from loans, an informed source in Beijing said.
Total investment in the Trans-China, will amount to US$5.3bn, with the Chinese company investing about US$2.75bn. PetroChina considers that the profitability of the project will be 12% after tax, the news agency quoted the source as saying.
The project involves the construction of a gas pipeline from Xinjiang province to Shanghai. The pipeline will be 4,000km in length and have a capacity of 12bn cubic metres of gas per year. The supply fields for the project are located in the Tarim oil and gas basin in western China and the target market includes four provinces in Eastern China and the city of Shanghai. In the future the pipeline will serve as a basis for setting up a unified Chinese gas supply system.

Russian and Japanese officials consider possibility of gas exports to Japan 

Konstantin Pulikovsky, Presidential Envoy in the Far Eastern Federal District, met with a Japanese delegation that represented the Japanese association on trade with Russia and states of Central and Eastern Europe, RBC has reported.
At the meeting on 4th July, Pulikovsky, officials of the Russian foreign ministry and the president of the Japanese association, drew up the results of the delegation's visit to the Far East. The parties considered a number of questions concerning perspectives of cooperation between Japan and Russia on a regional level, possible Russian energy exports to Japan, in particular gas exports, construction of a pipeline through the Far Eastern region and cooperation in such industries like machine building, textile and food, the Vostok-Media news agency reported citing the press service of the Presidential Envoy.

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ENVIRONMENT

Russia to spend R42bn on toxic waste disposal by 2010

Russia will spend about R42bn by 2010 to deal with the problem of toxic industrial waste, ITAR-TASS news Agency has reported. Some analysts estimate the amount of toxic waste of industrial origin in the country's territory at 139m tonnes.
The chief of a department at the Natural Resources Ministry, Amirkhan Amirkhanov, told a news conference on 10th July that R400m would be disbursed from the federal budget and R10bn from the budgets of individual member territories. The rest will come from extra-budgetary sources.
The biggest producers of toxic chemical waste are Kemerovo Region (13 per cent), Krasnoyarsk Territory (13 per cent) and Chelyabinsk Region (11 per cent).

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FOOD & DRINK

French CECAB mulls Rostov canning plant construction

France's CECAB might be going to build a canning plant in Russia's Rostov region, Rostov Deputy Agriculture and Food Minister, Vladimir Sulimenko said. CECAB representatives met with ministry management to go over the possibility of building such a plant, New Europe reported recently.
CECAB is planning to build a plant for the processing of corn and peas able to turn out 40,000 tonnes of product a year. The project price tag has been put at roughly US$10-20m.
Sulimenko noted that the French are prepared to supply all the equipment and machinery for the enterprise, as well as provide seed, crop chemicals and harvesting equipment to raw materials suppliers. As many as twenty regional farms could get involved in the project, he added.
Sulimenko said the potential investor would in the near future be looking at the possibility of growing grain at farms in the Bogayevsk, Semikarakorsk and Veselovsk regions of the Rostov region. A CECAB delegation would then visit the Krasnodar and Stavropol territories.

EBRD close €82m syndicated loan to Russia's Vena

The European Bank for Reconstruction and Development is lending €82m to one of Russia's leading premium beer producers, St Petersburg-based AO Vena Brewery, to complete an extensive expansion programme and restructure its balance sheet.
Reflecting strong foreign investment interest in the sector, €38m of the loan has been syndicated to commercial banks Danske Bank A/S, Raiffeisen Zentralbank Osterreich AG and Nordeabank Finland PLC.
Vena, an affiliate of Baltic Beveraes Holding AB (BBH), a joint venture of Carlsberg Breweries A/S and Hartwall AB, brews its own leading premium brand, Nevskoye, as well as the Tuborg brand under licence from Carlsberg Breweries A/A.
Hans Christina Jacobsen, the EBRD's Director of Agribusiness, said that with the famous Nevskoyve brand, as well as the support of a strong international sponsor, the EBRD and commercial banks, Vena is well positioned to thrive in the competitive Russian beer market.
Lorenz Jorgensen, the EBRD's Director of Syndications, said that the successful syndication of the loan was evidence of the growing appetitive for well-structured credits in Russia when backed by the EBRD.
The EBRD was at one time a shareholder of Vena, owning a third of its share capital from 1997 to 2001. Barry Marshall, General Director of Vena, said his company is happy to see the continued involvement of EBRD in the new role of credit provider.
For more information contact Richard Wallis, EBRD, tel: +7095 787 1111; email: WallisR@ebrd.com.

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FOREIGN ECONOMIC RELATIONS

Moscow reaffirms intent to boost ties with Iran

Russia will continue to expand ties with Iran, Foreign Ministry spokesman, Alexander Yakovenko, told a briefing recently. "We intend to develop ties with Iran on a mutually advantageous and pragmatic basis," Interfax News Agency reported.
Russia is not the only country broadening ties with Iran, he said. "Its turnover with European states has been consistently on the rise. Iran is a large country that plays an important role on a regional level," he added.
When asked about US complaints concerning Russia-Iran ties, Yakovenko replied that "Russia has always strictly complied with our international commitments."
Russia repeatedly declared its readiness to discuss US concerns on a bilateral basis, he said. "If the United States has concerns, we have special channels for discussing these suspicions," the news agency quoted him as saying.

Russia, Vietnam seek closer ties

Moscow is satisfied with the growth of trade and economic contacts with Vietnam, Deputy Prime Minister Viktor Khristenko has said, ITAR-TASS News Agency has reported.
He told reporters after a meeting with his Vietnamese counterpart, Nguyen Manh Cam, on 9th July that trade between the two states increased 32 per cent in the first five months of this year as compared to the last year's figure, to US$272m.
"This is a joyous fact, and we hope that this tendency has a sustainable character," Khristenko said.
As for a settlement of Vietnam's debt to Russia, he said the first bidding for delivering Vietnamese goods to Russia, in clearance of the debt, will be held in September.
Khristenko and Nguyen Manh Cam also signed an intergovernmental agreement on the training of Vietnamese citizens at Russia's higher education centres. Vietnam will pay US$8m for this programme, also in repayment of the debt.
The deputy prime ministers discussed cooperation in the fuel and energy sector, in particular the prospects of the joint venture Vietsovpetro, and the situation in the electricity sector.
Khristenko said he hoped that Vietnam would use Russia's US$100m loan for its electricity industry this year.
The next round of Russian-Vietnamese talks will be held at the end of this year, when Khristenko and Nguyen Manh Cam will chair a regular meeting of the intergovernmental cooperation commission.

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FOREIGN LOANS

IFC to open US$10m credit line for St. Petersburg's Industry & Construction Bank

The International Financial Corporation (IFC), part of the World Bank, has signed an agreement with St. Petersburg's Industry and Construction Bank (Promstroybank, or PSB) for the opening for the latter of a US$10m credit line for the term of 5 years, according to the Russian bank's press service. The money will be used to replenish the bank's circulating assets and for the mid-term financing of medium and small size companies that have accounts with the PSB. These client companies are based in Kaliningrad, the Krasnodar Territory, Moscow and other places in Russia and specialise in furniture production, meat processing, printing, etc. 
According to Mikhail Oseyevsky, the First Deputy Chairman of the Board of Directors of the PSB, the opening of this credit line is a new sign of the renewed trust for Russia's banks on the part of international financial institutions. Edward Nasim, Director of the Department of Central and Eastern Europe and the head of the Moscow office of the PSB, said support for medium and small business played a certain role in assuring the stable economic growth of Russia and increased employment for the following years. 
The objective of the PSB in Russia is investing in promising private companies. Since the corporation was founded in 1956 up to this day, the PSB has issued over US$31bn worth of loans out of its own funds and organised syndicated loans for a total over US$20bn to 2,636 companies in 140 developing countries. As of the end of the year 2001, the corporation's investment portfolio was worth US$14.3bn. 
As of December 31st, 2001, the positive balance of St. Petersburg's Industry and Construction Bank came to US$121m. The bank has 48 offices in 17 regions of Russia and, as of April 1st, 2002, 67 corporate and 618 individual clients.

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INFORMATION TECHNOLOGY

Silicon Valley Russia

Twenty-five per cent of chips in calculators and watches assembled around the world have been produced in Zelenograd, a satellite town of Moscow. Now a state electronic development programme is giving Russia's Silicon Valley the chance to make a new breakthrough, the Russian Mirror has reported. 
"Soviet calculators are the largest in the world," ran the joke at the expense of Soviet achievements in the field of electronics. At that time, mass consumer goods were a secondary concern; the most important thing was the country's defence.
The joke about calculators, as well as the "Made in USSR" label disappeared following the collapse of the Soviet Union, although it seemed at one time that the whole electronics industry was about to follow them. But Russian producers have managed to have the last laugh.
The Itogi weekly reports that the first step towards implementing the State Programme is federal budget financing for the construction of a 0.25-0.35 micron chip production module at the Angstrem factory in Zelenograd.
The facility forms part of the Rossiiskaya Elektronika (Russian Electronics) holding which, in turn, is controlled by the Russian State Control Systems Agency. The nearby Mikron plant is its main rival. Between them these two facilities export approximately two-thirds of their production. Main export items, primarily to China and South Korea, are 0.8-2 micron chips. "The Americans and Europeans have abandoned this market sector, but the demand is still high," says Yevgeny Gornev, Mikron's Deputy Scientific Director.
Apart from watches and calculators, Russian products are used in computer accessories, such as keyboards and power units, as well as various forms of household equipment. Their high quality and relatively low prices are their main selling point. Russia exports semi-finished goods, i.e. non-assembled chips. Technologically, crystal production is usually considered the most sophisticated and labour-intensive stage of chip production. At the same time, chips produced by Mikron cost just one cent. The price skyrockets by about ten times following assembly in China. Mikron's management is therefore determined to start selling finished products in the near future. Russian producers want to challenge the Chinese on their own soil, and start to rent their production facilities to take advantage of a relatively cheap labour force. At present, domestic consumption is practically limited to defence orders. Weapons electronics is far more prestigious and technology-intensive production. Russian electronics for military equipment has the highest degree of reliability of all.
According to Angstrem officials, hardware started malfunctioning following market liberalisation when components were purchased abroad. Purely civilian products may seem absolutely identical to military ones, but chips for vacuum cleaners and missiles are totally different. For instance, US, Japanese and EU industries have already reached the level of 0.1 micron and are striving to reach the 0.045 micron level, while the best Russian achievement is only 0.8 micron.
Nevertheless, Zelenograd experts are doing their best to find their own place on hi-tech markets. One of the most promising projects is to develop and start producing polymer screens, which are highly likely to replace liquid crystal and, probably, traditional electronic ones. Polymer screens have higher resolution, they are brighter, consume less energy and are more reliable than their liquid crystal rivals. Another project is to produce high-frequency chips with sophisticated semi-conductor joints.
"We are lagging behind the West not in terms of technology, but in terms of investments," is the cry from Zelenograd specialists, who urge the state to help them because private business seems in no rush to invest in Russian high technologies.

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MINERALS & METALS 

Russia and EU sign steel trade agreement

The Russian Ministry for Economic Development and Trade and the European Coal and Steel Association signed a steel trade agreement in Brussels on 9th July, the Ministry's press service told Interfax News Agency. 
In March, 2002, the Ministry for Economic Development and the European Commission [the legal successor of the European Coal and Steel Association, whose term expires on July 23, 2002] initialled an agreement regulating the export of metal products to the European market during the next three years. 
The agreement provides for a 28% increase in the Russian steel export quota from the beginning of 2002, as compared to the 2001 quota of about 840,000 tonnes. In 2003 and 2004, the quotas are expected to be increased by another 2.5% annually. If Russian export duties on iron and steel scrap are annulled, the quotas will be further increased by 12%, or proportionally to the decrease in the export duties. 
Metal products that are not regulated by quotas will not come under quantitative limitations and will be regulated by the agreement on partnership and cooperation between Russia and the EU, signed in 1997, which included anti-dumping procedures and protective measures. 
In 2001, Russia exported 12.6 million tonnes of metal, including pig iron, metal scrap, ferrous alloys and iron-containing briquettes, to the European Union. 

Alrosa gains US$60m syndicated loan

Russian diamond monopoly Alrosa will receive a two-year syndicated loan of US$60m at 11% annual interest, Senior Vice President, Fyodor Andreyev, said. The loan is being organised by Vneshtorgbank subsidiary Russian Commercial Bank AG (Zurich), reported New Europe. Alrosa plans to use the money to finance mining and exports of rough diamonds. 
The loan agreement was signed in Moscow by VTB President and CEO, Andrei Kostin and Alrosa President, Vladimir Kalitin. The loan was syndicated by a consortium of Russian and foreign banks, with the VTB group providing the bulk of the loan. The co-organisers were Gazprom-bank and International Investment Bank, the lead managers were VTB subsidiaries Donau-Bank AG (Austria) and East-West United Bank SA (Luxembourg), and the manager was Ost-West Handelsbank AG (Germany).

Norilsk plans major PGM contracts for Q3

Norilsk Nickel Mining and Metals Company (Norilsk Nickel MMC) plans in the third quarter to sign platinum-group metal (PGM) supply deals with a number of the world's leading automotive companies, Interfax News Agency quoted deputy chief executive, Leonid Rozhetskin, as saying. 
Rozhetskin said Norilsk Nickel plans in the near future to sign PGM supply contracts with all the world's leading automotive companies. "There are fewer than 10 such companies and we are targeting them all," he said. Rozhetskin also said long-term contracts for between three and five years would be signed. "We are prepared to supply those companies not only with palladium but with other PGMs, if they so wish. We have long-term quotas to export platinum and palladium, and a one year quota only for rhodium," the news agency quoted him as saying. Norilsk Nickel is currently producing 45% of the world's palladium and 10% of the world's platinum, Rozhetskin said. Last year, according to Norilsk Nickel, world palladium output was about 150 tonnes, but world palladium consumption was 250 tonnes. "This year, we except palladium consumption to fall to 220 tonnes, but we still expect our metal to be in demand," he said.

Severstal to boost exports to China

Severstal, one of Russia's biggest steel mills, said it plans to increase exports to China by 30%. Officials from Severstal Export GmbH, the company's foreign trading arm, signed a new one-year partnership deal with China's Minmet during a visit to China. The Chinese company will receive a total of 450,000-480,000 tonnes of metal per year. The shipments cover all types of metal produced by Severstal. 
When signing the deal, which entered into effect on July 1st, understandings were reached on a higher preferential price for the whole range of steels, which will give Severstal a competitive advantage over other Russian steel mills. Minmetals, the Chinese government's agent for metal exports and imports (the state owns 90% of the company) has also pledged to provide full support and assistance in all issues pertaining to trade disputes and restrictions. Severstal and Minmetals signed their first deal in the middle of last year. Since then, Severstal has shipped 350,000 tonnes of metal to China. "We are seeking to strengthen trade relations with China. Since China is the leading market in East Asia and one of the world's most metals-intensive markets, a presence on that market and working with its consumers will be one of our foreign trade organisation's tasks," Interfax News Agency quoted Dmitry Goroshkov, Severstal's sales manager as saying. He noted that the Chinese market was growing rapidly.

SUAL to consolidate assets into new holding

The SUAL group, Russia's second largest aluminium producer, plans to bring all of its companies together into a new vertically integrated holding company by the end of 2003 with the aim of launching an IPO, SUAL spokesman, Aleksei Goncharov said. "This should be a vertically integrated company representing the full production cycle, from mining raw materials to production of primary aluminium and its processing," Goncharov said. "As soon as SUAL creates such a holding, tentatively called SUAL International, we will be infra-structurally ready for an IPO," he said.
The SUAL group is a collection of aluminium companies controlled by SUAL Holding. SUAL is the world's fifth largest producer of alumina. SUAL, the aluminium and alumina division of SUAL Holding, includes the Irkutsk, Uralsky, Bogoslovsky and Kandalaksha aluminium Smelters. Sual produced 602,000 tonnes of aluminium and 1.7m tonnes of alumina last year, respectively 1.2 per cent and 3.18 per cent more than in 2000, New Europe reported.

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NUCLEAR ENERGY

Russian atomic energy minister outlines cooperation with China

Russia is going to continue construction of nuclear power plants in China and other Asian countries, Atomic Energy Minister Aleksandr Rumyantsev said.
Rumyantsev, on a visit to Beijing with a delegation of nuclear experts, told ITAR-TASS News Agency on 8th July that Russia would take part in bidding for building the third and fourth phases of the Tianwan nuclear power plant on China's eastern coast. He said two units of the Tianwan station nearly complete. Heavy equipment is being installed at the first unit and construction work is nearing completion at the second. "We are fulfilling all obligations and our Chinese colleagues are asking us to speed up the tempo in all directions. We are trying and it is all going well," Rumyantsev said. "Our installation work and construction are going very well and I think we shall win the tender for construction of the third and fourth phases of the Tianwan nuclear power plant," he forecast. China "much needs the development of the energy sector and, after all, only nuclear energy can satisfy all needs of this Asian giant," Rumyantsev said... 
Rumyantsev is to attend a meeting of a Russian-Chinese commission on cooperation in the nuclear energy field. The meeting is part of preparations for a regular meeting of the two countries' prime ministers in August...
Rumyantsev said "conceptual things" related to construction of a new enrichment plant would be discussed during his visit... He said Russian technologies are used in construction of this experimental reactor. He cited as an example of the reliability of the technologies the accident-free operation of Russia's Beloyarskaya nuclear power plant during twenty years. Construction of the fast-breeder reactor is China is to be finished in 2004-05.
Rumyantsev called the cooperation of Russian and Chinese nuclear experts in the field of fundamental physics successful.

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SCIENCE & TECHNOLOGY 

Moscow aims to put man on Mars by 2015

Russia is planning to put a man on Mars by 2015, in what Academician, Anatoli Grigoriev, an expert in medico-biological problems at the Academy of Sciences, termed a "high-risk expedition" which would "blaze the trail," the Russian Mirror has reported.
The Russian space agency announced that Russian and American experts were already working on plans to visit the Red Planet. This follows reports of ice being discovered under the surface by NASA's Odyssey spacecraft.
Speaking to reporters on July 5th, Academician Grigoriev said that the international expedition would mean an 18-month mission for a crew of six.
Grigoriev thought that the crew would be all-male because only men had spent over 170 days in what he termed the "hostile environment of zero gravity." 
Dr Valeri Polyakov spent 483 days aboard the Mir space station, roughly the time required to fly to Mars and back. Speaking at Stellar City on July 8th, Yuri Onufrienko, who spend 196 days aboard the International Space Station, returning to Earth in June, expressed a willingness to join a mission to Mars.
"Any human flight in space is a preparation for inter-planetary flights," the cosmonaut said. Two members of the projected team of six would actually land on the Martian surface, according to Russian space agency officials.

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SHIPPING

Russian nuclear sub Belgorod being built to replace the Kursk

Vladimir Pospelov, the director-general of the Russian Shipbuilding Agency, has expressed confidence that the place of the lost nuclear submarine Kursk in the battle formation of the Russian navy will be taken by the Belgorod, a submarine of the same class under construction on the slips of the Sevmashpredpriyatiye shipyard, Krasnaya Zvezda, has reported.
"The sum of R2bn needed to finish the missile platform is not excessive on a state level," Pospelov said in an interview with the Interfax-AVN agency. He said that the ship was estimated as 80 per cent ready. According to the calculations of shipyard specialists, if the funds are allocated, it will take roughly two years to complete the submarine.
A representative of the shipyard said that the nuclear submarine missile cruiser Belgorod, project 949a (code name Antey, or Oscar-2 in the NATO classification) was started in July 1992. Financing of the construction of this multipurpose nuclear submarine was virtually halted three years ago.

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