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Area (


ethnic groups 
Russians 82%
Tatars 3.3%
Ukrainians 2.7%

Principal towns 
Moscow (capital)
St Petersburg
Nizhni Novgorod 


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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: 263 - (26/11/02)

Middle East crisis
With a conflict in Iraq looking very likely; the Americans are about to pounce on any excuse for action, such as the slightest breach of UN resolution 1441.
There has been talk in Moscow of Russia pre-empting all of this by staging a coup in Baghdad to topple Saddam Hussein, using Iraq's officers trained in Russia or the USSR. An assault from outside would be coordinated by Moscow.
This is scarcely a likely scenario. Saddam would have spread the officers so trained around various regiments, while the problem of communications between insurgents in the country and any attacking force and indeed that of the logistics of such a force look quite insurmountable.
Iraq owes Russia some US$8bn in debt. Most of this can be written off as non-functioning. For how can a beleaguered country like Iraq honour its debts?
If Saddam was ousted, then it is possible that a successor regime would look to Russia for assistance in rehabilitating its economy, above all its oil industry. The supposition that US firms would always have the priority is not necessarily the case. Anti-US feeling is running very high in Iraq, natural in a country bombarded by American bombs for over a decade. A tilting of policy towards Moscow would make sense, if, as Washington avers, a genuinely independent and democratic government emerges in Baghdad.
Of course the Americans would call the shots in all sort of obvious and subtle ways, financial and other. But shutting out Russia entirely would not look subtle, indeed would be likely to be counter-productive eventually.
LUKoil has a huge US$6bn stake in the West Kurna field in Iraq, which would need further development. As LUKoil is Russia's largest oil firm in reserves, with a capitalisation of US$13.4bn, it has the financial clout to remain integral to Iraqi oil developments. Its president, Vagit Alekperov, has said that the government has assured him that LUKoil would not lose out over West Kurna whatever happens.

Economic profile 
The Russian economy is at the crossroads. It has been growing at an annual rate of 5 per cent on average in the 2000s, but is now entering a new epoch. Analysts are noticing a decline in the factors favouring high economic growth rates in Russia.
The original impetus to high growth was given by the huge devaluation of late 1998, more than 200%, combined withbuoyant oil prices from 2000 onwards, which have brought the price per barrel to US$30 or over. These effects have petered out in the meantime, though, so the pace of expansion has declined by half to 4-5% in 2001/2002.
Inflation has fallen more slowly than planned over the last few years, remaining at 15% year-on-year, a major reason being administered price hikes for basic services. With two recent cuts in the interest-rate, the central bank has assumed a more active policy.
An export surplus of US$50bn or so per annum has generated reasonable surpluses in 2001-02, but the surplus is declining as the rouble appreciates in real terms. The external debt has decreased markedly in real terms and Russia has become adept at active debt management.
The best performer among world bourses last year, the Moscow Stock Exchange is holding up well. Russia is seen as the great gainer from 9:11, the new number two in the world's oil industry in terms of exports. Its vast resources and prospects are such that it is always going to give a high bottom to the bourse.

Prospects ahead
One question mark over the otherwise optimistic outlook is that 2003 is an election year for the Duma and it might be feared that hand-outs would be the order of the day.
This is in fact unlikely, the reform team of Premier Mikhail Kasyanov and Economic Development and Trade Minister German Gref being extremely responsible in this regard. Anyway, this is only a temporary affair.
The Russian economy is clearly one of the best prospects, if not the best, among those of countries in transition. This is after all exactly what should be the case.

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Growth of agricultural industry

The 12 per cent gross growth of the agricultural industry expected in 2002, corresponds to the inflation rate in Russia and thus does not insure a growth of the budget of the agricultural industry, deputy head of the Federation Council committee for agricultural products policies, Sergey Openyshev, said at the press conference recently. He pointed out that the growth of other Russian industries was about 20 per net.
In his turn, a member of the Federation Council committee for agricultural product policies, Mikhail Korobeinikov, stated that in 2002, imports of agricultural products would be about 50 per cent of the total volume of such products consumed in Russia. In the opinion of senators, this is attributed to the absence of a clear programme for financial support to agricultural producers and the lack of price regulation.

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Ruspromavto, Iveco to form company

Ruspromavto and Iveco plan to form a vertically integrated company with different subdivisions that will produce a wide range of products, said Igor Kaluzhsky, Ruspromavto's executive director. Ruspromavto signed a cooperation agreement with Iveco, part of the Fiat concern, in Turin, reports New Europe. 
Ruspromavto and Iveco will each hold equal shares in the company, which could be registered at the end of 2002-beginning of 2003, he said. The company will produce diesel engines, buses, heavy hauliers and cars. The setting up of a joint diesel production line in Russia is one of the chief successes of the project, Kaluzhsky said. Cooperation in the production of heavy hauliers will be implemented over 3-4 years and for buses over 1-2 years. In about six months the joint company could start assembling Sofin engines at the Gorky Automotive Works, which is part of Ruspromavto, he said. GAZ, where engine production should increase by about 20%, will produce Iveco engines for small trucks and minibuses. 
The first phase of cooperation in diesel engines will involve the purchase of a small volume of engines abroad. The second phase will see the organisation of assembly production and the third complete production of engines at GAZ.

Avtovaz looking for ways to expand sales

Leading Russian carmaker Avtovaz is considering increasing the guarantee period for Vaz vehicles from one to two years, Interfax News Agency quoted the vice president for marketing, sales and maintenance, Vladimir Kuchay, as saying. "Situations such as this always serve as a reason to review certain marketing policy programmes," he said. 
Avtovaz is stopped its assembly line from October 26th to November 9th to shed excess inventory. "We will work with various banks and other financial institutes to finance the dealership network. We plan to expand sales of vehicles on credit, with old automobiles accepted as part of the cost for new," Kuchay said. The company is considering increasing guarantees from the plant to two years and later to three years. The Avtovaz dealership network has around 75,000 vehicles, 50,000 of which have been purchased by Avtovaz sales partners and 25,000 that belong to the plant. "There is approximately 10bn roubles in frozen funds," he said. The rate of sales is about 100-300 vehicles a day below the rate of production. Among the reasons for this, Kuchay noted that duties on old foreign cars were raised just recently, although it had been talked about before. 

GM, Avtovaz ponder Opel venture

US automobile giant, General Motors, and Avtovaz, Russia's largest carmaker, are considering setting up a new joint venture to make Opel engines, said the head of the GM-Avtovaz venture, John Milonas, New Europe reported. 
GM-Avtovas, a general agreement on which was signed by GM, Avtovaz and the European Bank for Reconstruction and Development in the summer of last year, began producing Chevrolet-Niva sport utility vehicles for retail sale. Milonas said the issue of setting up a new venture in the city of Togliatti to make Opel engines could be decided next year. Opel is a division of GM. Milonas said the venture could produce 200,000 engines per year. These engines would be used on the automobiles of the GM-Avtovaz venture, as well as vehicles produced by Avtovaz itself. 
Speaking about GM-Avtovaz's operations at the annual conference on the Strategy of the Automotive Industry in Russia and the CIS, Milonas said the company has already selected 20 dealers. There will be 35 dealers by March 2003 and 97 by the end of the year, he said. 

RusAvtobusProm-Irisbus venture

RusAvtobusProm, a division of Russian automobile holding company, Ruspromavto, that includes four bus plants, and Europe's Irisbus will prepare a feasibility study by the end of this year for setting up a joint venture, RusAvtobusProm head, Sergei Zanozin, said. "I think our shareholders and the shareholders of Irisbus will agree among themselves on consolidation of assets. This process should probably take place next year," Zanozin said at the annual conference on the Strategy of the Automotive Industry in Russia and the Commonwealth of Independent States, reports New Europe. 
Zanozin said the venture, which would be set up in Russia, would develop and produce joint bus models of all classes. Work on the venture is part of a joint project between Ruspromavto and Iveco, he said. At the conference he said RusAvtobusProm's goal in the partnership would be to gain models and designs, as well as management technology. This would make it possible for the company to evolve to a new stage of management, he noted. 
Zanozin also said RusAvtobusProm's Likino bus plant would increase output to 3,000 buses per year within five years. This plant built about 1,500 city buses in 2001.

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Russia, China sign joint programme for civil aircraft development

Russia and China have signed a joint programme of development, production and supplies of civil aircraft. The document was signed during the ongoing international exhibition Air Show China 2002 by the first deputy director general of the Russian aerospace agency, Valeriy Voskoboynikov, and the first deputy chairman of the Chinese committee for defence, science, technology and the defence industry, Zhang Hongbiao. 
"In addition to military-technical cooperation, Russia and China are working actively in the civil aviation sphere," Voskoboynikov told Interfax-Military News Agency. A contract for the supply of 20 Tu-204 planes to China has been signed recently, he said. "It is the first large-scale contract in the civil aviation sphere. We are hoping that civil aircraft supplies will expand," Voskoboynikov stressed.
According to him, working groups will be set up by the end of the year to draft a programme of joint development and promotion of civil aircraft. The programme will cover a period of 10 years, the official noted.

Russian aircraft engine design company invited to set up repair plant for China

Russia's Saturn research and production association has got an official proposal from the Tianli aircraft research and industrial corporation to set up a facility for licensed repairs of engines for Il-76 Candid planes on the basis of a Chinese enterprise.
"During the international aerospace exhibition Air Show China 2002, Saturn got an official proposal from the Tianli company, which is authorized by the Chinese air force, concerning creation of a facility for licensed repairs of engines for planes of this type," Saturn commercial director, Vasiliy Danilov, told Interfax-Military News Agency. The aircraft plant in Xian will serve as a basis for the facility, he said...
Saturn is exhibiting a broad range of aircraft engines for military and civilian planes and helicopters at Air Show China 2002, one of the largest aerospace exhibitions in the Asia- Pacific region. In particular, participants in the show can study specifications of the D30KP2 aircraft engine powering the IL-76 transport plane and its modifications that are operated in China, among other countries. They can also get acquainted with the AL-31F engine for Su-37 and Su-30MKI multifunctional fighters of generation four and beyond, and the RD-600CV turboshaft engine for KA-60 Kasatka and KA-62 helicopters...

Russia, France expand aircraft industry cooperation

Russia and France have signed a protocol on the creation of an engineering centre to expand the range of cooperation by the group of Russian companies, Kaskol, and the Airbus consortium and to exchange experience in aircraft building, ITAR-TASS News Agency has reported.
For Russia, the protocol was signed by Kaskol Group President, Sergey Nedoroslev, and for France, Airbus Chairman, Noel Forgeart.
The centre will work on the most advanced Airbus technologies and standards and participate in current and future programmes. By the end of 2004, the centre will have a staff of 100 Russian engineers. A group of 13 Russian engineers are in Toulouse already to master Airbus standards and technologies.
Airbus last May selected the Kaskol Group as its leading partner in the implementation of the first stage of a programme for cooperation with the Russian aircraft industry.
Airbus developed the programme on the basis of an agreement on partnership between the Russian aerospace agency, Rosaviakosmos, and the European aerospace and defence concern, EADS - the main shareholder of Airbus.
The agreement was signed in Moscow last July in the presence of Russian President Vladimir Putin and his French counterpart, Jacques Chirac. Airbus has a regional office and a technical office for aircraft flight operation. The Airbus-Kaskol centre is expected to begin design and engineering work in the spring of 2003.

Aeroflot buying Boeing and Airbus liners

The negotiations for supplying planes to Aeroflot Airlines by Boeing and Airbus, which were planned within the restructuring programme of the fleet of Aeroflot's foreign-produced jetliners, are in their final stage, general director of Aeroflot Airlines, Valery Okulov, stated at a press conference recently.
According to him, the parties are currently discussing the customisation of jetliners' passenger cabins and technical issues connected with the planes' exterior. According to agreements already reached, the first new planes will be supplied to Aeroflot as early as November 2003. Okulov stated that the restructuring of the foreign-produced fleet would enable the company to save US$80m-85m annually on fuel and leasing payments.
Aeroflot planned to restructure its foreign-produced fleet in order to have a cheaper and more economical air fleet. Aeroflot Airlines has 27 such jet aircraft at the moment. 

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Russian company launches 114km oil pipeline in Irkutsk Region 

Russia's little-known Irkutsk Oil Company has launched an 114km oil pipeline in the northern part of Irkutsk Region, ITAR-TASS News Agency quoted the company's general director, Nikolay Buynov, as saying on 1st November. The pipeline links the Yarakhtinskoye oilfield with the town of Verkhnemarkovo on the Lena River, from which crude oil is transported to the Angarsk and Achinsk oil refineries.
Buynov said the pipeline's daily throughput capacity would be more than 2,000 tonnes of crude. 
Next year, the company plans to build an oil-refining plant in Verkhnemarkovo. The Yarakhtinskoye oilfield's reserves stand at 40m tonnes of crude.

Russian oil refinery to invest US$18m into upgrade in 2003

Russia's Orsknefteorgsintez oil refinery, based in the city of Orsk [Orenburg Region], will invest US$18m in 2003 to upgrade its facilities, General Director Vladimir Pilyugin said on 5th November, Prime-TASS News Agency has reported.
The company plans to spend US$8.2m to reconstruct its oil processing systems in order to lower processing costs and to raise the quality of processed oil. It is not clear how the rest of the money will be spent.
Orsknefteorgsintez is a subsidiary of Onako - 85 per cent owned by the Tyumen Oil Company (TNK) - which has approved the investment plan, Pilyugin added.

Russian company launches 114km oil pipeline in Irkutsk Region

Russia's little-known Irkutsk Oil Company has launched a 114km oil pipeline in the northern part of Irkutsk Region, ITAR-TASS News Agency quoted the company's general director, Nikolay Buynov, as saying on 1st November. The pipeline links the Yarakhtinskoye oilfield with the town of Verkhnemarkovo on the Lena River, from which crude oil is transported to the Angarsk and Achinsk oil refineries.
Buynov said the pipeline's daily throughput capacity would be more than 2,000 tonnes of crude. 
Next year, the company plans to build an oil-refining plant in Verkhnemarkovo. The Yarakhtinskoye oilfield's reserves stand at 40m tonnes of crude.

Tatneft could buy German refinery

The Tatneft oil company is planning to participate in an auction to buy a stake in the Bayer Oil refinery in Germany which is currently owned by British Petroleum (BP). 
The Russian company is also planning to take part in an auction for buying German gas filling stations, the office of Tatar President Rinat Muslimov, told the press recently. It was pointed out that the company is going to obtain a blocking stake in Bayer Oil.

Pipeline to China 

The chief of YUKOS' public relations department said the construction of an oil pipeline between Russia and China is one of the priority projects in Russian-Chinese trade and economic cooperation. 
In an exclusive interview with ITAR-TASS News Agency, Roman Artemyev said that the construction of the 2,400-kilometre pipeline from Angarsk (Irkutsk region) to Dazin (north-eastern China) would cost at least US$1.7bn. At present YUKOS and the Chinese National Oil and Gas Corporation are finishing work on a feasibility study for the project. Construction should begin next summer and be complete by the year 2005. 
According to the project, the pipeline is expected to transport 20 million tonnes of oil a year until the end of the year 2010, after which it would carry up to 30 million tonnes of oil. A new, 114 km-long pipeline has been built in the north of the Irkutsk region in East Siberia that will bring crude oil from the Yarakhtinskoye oilfield the refineries in Angarsk and Achinsk and supply hydrocarbon fuel to the cities of Ust Kut, Kirensk and Bodaibo. The pipeline capacity is over two thousand tons a day. The Company would begin to build its own refinery in Verkhnemarkovo next year. The Yarakhtinskoye oilfield reserves amount to 40 million tons. 

LUKoil, Gazprom sign general strategic partnership agreement for 2002-2005 

Heads of LUKoil and Gazprom - Vaghit Alekperov and Alexey Miller - signed a general strategic partnership agreement for 2002-2005. The document, which determines means of collaboration in the transportation of LUKoil's associated and natural gas through Gazprom's gas transportation system, was written in a joint declaration of the companies. 
In addition, the agreement provides for the development of mutually beneficial collaboration in the sphere of oil and gas prospecting, production, transportation and refining as well as the sale of oil and gas, oil and gas products, chemicals, petrochemicals and generation of electrical and heat energy. In addition, the agreement provides for joint production of oil, gas and energy equipment, together with other machinery, as well as the development of production facilities and infrastructure as well as ensuring all kinds of scientific, technical, information, ecological, social and personnel support. 
The sides agreed on joint implementation of oil and gas projects in the Yamalo-Nenets autonomous area, Nenets autonomous area and in the Caspian region. This includes joint participation in contests and auctions for the right to use land resources in these regions. They stressed their intentions to develop partnership relations in oil and gas production abroad. They have plans to coordinate their foreign and economic activities, research programmes in the oil and gas sphere, environmental projects and other spheres of activities. 

Russia's fourth largest coal concern launches new mine in Siberia 

The fourth-largest Russian coal mining company, Yuzhkuzbassugol (formerly Kuznetskugol), based in Western Siberia's coal-rich Kemerovo Region, has launched a new mine capable of producing 1.2m t of coal a year, a Yuzhkuzbassugol source told Prime-TASS News Agency on 4th November.
The source said Yuzhkuzbassugol spent R37m on building the new mine, which is part of the Kusheyakovskaya group.
The mine has 30m t in proved developed reserves, enough for 25 years of operation, while proven reserves at Kuzheyakovskya total 250m t... In January-September, Yuzhkuzbassugol mined 11.66m t of coal, down 9 per cent on the year...

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Russia to create conditions to up investment over next two-three years

Russia's Economic Development and Trade Ministry plans to create conditions that would lead to increased investment in Russia over the next 2-3 years, Deputy Economic Development and Trade Minister, Arkadiy Dvorkovich, said on 5th November, Prime-Tass News Agency has reported.
He was speaking at a conference on development of the financial market in Russia's north-west. He said that several programmes to attract investment already exist, including the creation of insurance systems, an analysis of the tax base and work to reduce the value-added tax to 15 per cent and the unified social tax to 25 per cent.
Other current programmes include simplifying the taxation system for small businesses and the development of special economic zones.

World Bank comments on Russian economy

The World Bank experts have acknowledged that the Russian economy is largely dependent on the export of raw materials. The super-profits from selling oil do not lead to modernisation of the processing industries, but are spent on extending raw materials' export or on supporting the ineffective state sector. 
The fixed capital investments' growth in 2002 is expected to be about 3.5%, while GDP growth is expected to be 4%. In the first nine months of 2002, investments grew by only 2.5% compared with the 2001 figure, while 60% of them were accounted for by the fuel and energy complex (FEC). Industrial growth in the resource-oriented branches of industry, such as FEC, non-ferrous metallurgy and timber industry, was 6.5%, while in the processing industries it was only 3.3%.

Russia's removal from FATF blacklist a boost for banks

Adoption by the international Financial Action Task Force (FATF), at a meeting in Park, of a decision to strike Russia off the list of countries refusing to cooperate in countering money-laundering will no doubt increase the credibility of Russian lending institutions. That, at least, is the view of the Bank of Russia which welcomed the decision as offering greater scope for Russian financial organisations in their dealings with the world's banking community, The Russian Mirror has reported.
The decision lifts certain restrictions (in particular, the increased requirements for identification and control over transactions carried out by Russian individuals and companies).
The Bank has already begun studying international experience and taken steps to a adapt it to the Russian banking system well before Russia finally created a legislative base for countering the laundering of criminally obtained proceeds. When a federal law "On Countering the Legalisation of Proceeds Obtained by Criminal Means" was made effective from February 1st, 2002, it buttressed this work already done and helped to create in a short period of time a regulatory and legislative base, an effective system of internal controls, and technology for credit institutions to promptly send information to the Financial Monitoring Committee. This information concerned operations involving finances or property that could be linked to crime.
The Bank of Russia has made its information and technical resources available for this purpose, while at the same time protecting the information against unauthorised access. Nikolai Brusnikin, deputy head of the State Duma committee on lending institutions and financial markets, believes that the federal anti-money laundering law which came into effect six months ago has boosted efforts to civilise business activities, although the country is still viewed by many in the West as a zone where operations with tainted money are tolerated. 
The mere adoption of the new law is by no means a ready solution for all the problems, but neither the government nor FATF inspectors doubt that it has set things in motion. Efforts are now being made to let the law with its amendments work in combination with other legal norms.

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Brewery Vena launches 6m Euro bottling line

The St Petersburg-based brewing company, Vena, has put into operation a 6m Euro beer canning line, according to acting Director, Sergei Khudoleyev, reports New Europe. He said that half the cost was paid out of the company's own pockets and the other half with a credit from the European Bank for Reconstruction and Development (EBRD). The line, made by Germany's KHS, has output capacity of 52,000 half-litre cans per hour.
Khudoleyev noted that canned beer has grown to 29 per cent of Vena's overall output, where it was nine per cent in January last year. Director General, Barry Marshal,l said Vena increased overall sales by 19 per cent year-on-year to 102m litres in the first nine months of this year. Beer sales themselves were up 18 per cent (to 90m litres), those of low-alcohol beverages 15 per cent (12m litres). Most of Vena's sales go to four regions - Northwestern, Central and Southern Russia and the Urals, Marshall noted.
Vena brews six different beers, and makes three low-alcohol and one non-alcohol beverage. Its main shareholders are the Danish company Carlesburg and the Scandinavian concern Baltic Beverages Holding (BBH), both of which hold 49.95 per cent of the company stock. BBH has the option to buy Carlsberg's Vena stock starting October 1st of next year.

Danone, EBRD to invest US48m in Russia dairy industry

France's Danone Group and the European Bank for Reconstruction and Development (EBRD) plan to invest US$8m in Russia's dairy industry over two years.
Danone's lending agent in Russia is KMB Bank, Interfax News Agency reported James Dwyer, the head of the company's Russian division, as telling reporters.
The first loans will be issued in the next three months. Three companies specialising in milk production have already been selected as the first loan recipients, he said. The money will be used to buy equipment that will help milk suppliers for two Danone plants in Russia to increase production and improve quality, he said.
This programme is very important for the company, since without it Danone itself cannot grow and develop its business in Russia as it would like, the news agency quoted Dwyer as saying.
Danone, one of the largest dairy companies in the world, sells its products in 150 countries. The company has been in Russia since 1992, and launched local production in 1995 with the construction of a plant in Togliatti. It opened a second plant in Russia in 2000, in Moscow region. Danone's best-known brands on the Russian market are Danissimo, Rastishka, Aktivia, Utrenny and Vitaliniya.

Eksima to launch 2 manufacturing plants in Moscow

Eskima, a multi-profile agriculture company based in Moscow, will launch two plants to produce canned fruit and vegetables and process potatoes in the Kolomensky district in Moscow region (Leninskoye), reports New Europe. The canning plant will have the capacity to output 15m cans a year. It will process 6,000-7,000 tonnes of fruit and vegetables annually, the Kolomensky district administration aid.
Eskima plans to supply products from Uzbekistan for the plant to produce canned apricots, peaches and other fruits and tomato paste throughout the year. Eskima owns a canning plant in Uzbekistan, located in the Fergana valley. The potato processing plant will produce five tonnes of starch a day and 50 tonnes of potatoes will be processed daily or 8,000 tonnes over the season. To partially provide the company with its own potatoes, Eskima has planted potatoes with a high starch content on an area of 100 hectares.
Eskima also plans to increase dairy production at a plant also located on the Leninskoye territory. The plant currently processes 30 tonnes of milk a day. Eskima plans to transfer production from the Cherkizovsky dairy plant and increase output at the Moscow region company to 110 tonnes a day. Later capacity will be raised to 150 tonnes. 

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EBRD to issue US$90m credit to Severgal

The European Bank for Reconstruction and Development's Board of Directors has endorsed a decision to lend SeverGal, a joint venture between Russia's Severstal and the European steel giant Arcelor, set up to build a hot-dip galvanising plant at steel-maker Severstal, with a credit of US$90m, Severstal said in a news release. Igor Tiofeyev, the project manager and a member of the SeverGal board, said the credit agreement would be signed by the end of 2002.
Timofeyev also said that by that time, the foundations for the hot-dip plant would be in place and metal constructions could start to be erected. The joint venture's owners are financing these works.
Timofeyev said the bulk of the investment would be required at the end of the spring and beginning of summer next year, when the equipment would start to be manufactured. It is then that the join venture expects the first tranche of the EBRD credit. 

World Bank approves US$100m credit to modernise tax system

The World Bank has approved a US$100m loan for the Second Tax Administration Modernisation Project for Russia to help assure continuation of a systematic reform and modernisation of the tax administration, the bank said in a press release following a bank board meeting in Washington on October 24th.
The project builds on the success of the first loan of US$16.8m approved by the World Bank's board in 1995, piloting tax administration reforms in Volgograd, Nizhny Novgorod, and Moscow, Interfax News Agency quoted the bank as saying. Improving tax administration is one of the key priorities of the Russian Federation in view of the tax policy reforms outlined in the new Tax Code. 
The project will help to address strategic goals of promoting macro-economic stability, improving the environment for private sector development and strengthening public administration, the bank said. For Russian tax-payers successful implementation of the project will mean more transparency, less queuing, the possibility of e-filing, better access to receiving tax related information and consultations in local tax offices, fair interpretation of tax legislation across the country, easier ways of resolving disputes, and less mistakes made during processing of tax returns, the press release said.
The project will aim to increase administrative efficiency by supporting the development of the functional organisations structure at the headquarters of the Tax Ministry and in regional and local offices; creating Data Processing Centres at the federal and regional levels to streamline date processing.
It is expected to strengthen enforcement capacity by implementing a third-party information system to enable improved monitoring of taxable transactions, and improving collection of tax arrears, as well as to promote professional integrity and skills by establishing a clear code of ethics and conduct, the bank said. Russia joined the World Bank in 1992. Since then, commitments to the country total approximately US$12.8bn for 53 operations.

World Bank to grant US$1bn to Russia

The World Bank will provide up to US$1bn for Russia under proposed projects to span the period until the end of next year, the bank's president, James Wolfensohn, said on 14th November, Interfax News Agency has reported.
The bank planned to release about US$600m before the end of 2002 and as much in 2003, Wolfensohn told reporters during a visit to Moscow.
He also said that, at the request of the Russian government, the bank planned to consider extra loans for Russia of between US$300m and 400m to reform the country's transport infrastructure.
Wolfensohn expressed utter satisfaction with Russia-World Bank cooperation and said the bank was prepared for more help to Russia.
The bank has allocated about US$11bn to Russia for the past decade. It has approved three loans for the country this year for various reforms - US$120m for budgetary federalism and for regional finances, US$100m for the tax service, and US$231m for the treasury.
The bank is also holding talks with Russia to lend US$150m to fight AIDS and tuberculosis, US$140m to modernize the customs, and US$160m to develop the economy of St Petersburg.

EBRD grants US$12m loan to Russian zinc plant

The European Bank for Reconstruction and Development (EBRD) has granted a US$12m loan to Russia's top zinc producer, Chelyabinsk Electrolytic Zinc Plant, the bank said in a statement. 
The six-year loan will finance the construction of a mercury recovery plant and a sulphuric acid plant. The new facilities will help the smelter eliminate mercury emissions and drastically reduce emissions of sulphur oxides.
Under the EBRD environmental action plan accepted by Chelyabinsk, all the plant's processing units will comply with European Union as well as Russian environmental standards by 2005.
The EBRD granted the Chelyabinsk plant a US$15m loan for six years in 2000 to finance the expansion of the smelter's capacity and refine zinc at a higher grade.
The plant, located in the Urals, has an annual capacity of about 150,000 tonnes of zinc. Chelyabinsk said earlier this year it hoped to raise output to 160,000-162,000 tonnes in 2002 from 155,500 tonnes in 2001.
The plant was privatised in 1993 and its majority owner is Swiss-based Euromin, part of the Vitol group of companies.
Chelyabinsk is implementing a major modernisation project, which will up its capacity to 200,000 tonnes of zinc per year. 

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Alrosa to restructure company loans in 2003

Russian diamond monopoly, Alrosa, plans to restructure its current loans in the first half of 2003, company Vice President, Dmitry Novikov, said at a presentation of the company's bonds in St Petersburg. He said that it is planned to replace most small short-term loans with large long-term loans, which will lead to an improvement in the company's financial indicators and a reduction in interest payments. Novikov said that at the moment borrowing amounts to about US$1bn. He said that it is planned to restructure debt only in terms of periods and interest rates. It is not planned to increase the total volume of loans before the end of 2003. 
Novikov also said that if the company receives a five-year quota to export rough diamonds, it will be possible for Alrosa to receive credits on export contracts. "On receiving quotas, the company plans to receive US$500m in the form of pre-export financing and restrict the volume of Eurobonds issued to US$300m," Interfax News Agency quoted Novikov as saying. Speaking of Alrosa's plans to attract long-term loans, Novikov noted that in the fourth quarter 2002 it is planned to attract three billion roubles with a three year-bond issue (18% annual), and a target credit of US$25m for three years at 10% per year. In the fourth quarter 2002 - first quarter 2003 it is planned to receive a syndicated credit (pre-export financing) of US$500m for from three to five years, probably at 6.5% per year, and the second quarter of 2003 it is planned to issue US$300m in three-five year Eurobonds at about 9.5-10% per year.

Russia approves draft accord on diamond cooperation with South Africa

The Russian government has approved a draft agreement with South Africa on cooperation in the development of the national diamond industries, the government's information department reported on 18th November, Interfax News Agency has reported.
The Finance Ministry will now hold negotiations with South African representatives and sign the agreement on behalf of the government upon their completion. Unessential changes and additions to the agreement are allowed, the department said.
The five-year document aims at boosting cooperation in geological surveys, mining, evaluation, the cutting and selling of rough and cut diamonds, and production and selling of jewellery.
A working group with two co-chairmen will be set up to coordinate the implementation of the agreement. Russia and South Africa will name their representatives in the working group no later than two months after the agreement is signed.
The working group will have sessions at least once a year in Russia and South Africa by turn. The co-chairman whose country hosts the session will preside over it. The agreement will enter into force on the day of its signing, be valid for five years and extended automatically unless a party makes a written statement on its wish to quit the accord. The written notification must be sent a year before the five-year validity period expires.
Russia and South Africa signed their first agreement on cooperation in prospecting, mining, processing and dressing of mineral resources on 28th April, 1999.

Government approves draft agreement on steel slab exports

The Russia government has approved a draft agreement to increase steel slab exports to the United States. The agreement was drafted by the Russian Ministry of Economic Development and Trade in conjunction with Russia's leading steel exporters. A government spokesman said the annual quota for shipping slab to the United States would go up with effect from January 1st, 2003. 
The existing agreement on slabs dating back to 1999 sets an annual limit of approximately one million tonnes. At the end of June this year, the United States invited Russia to bring the existing comprehensive steel trade agreement of 1999 into line with the quantity restrictions that Washington had recently introduced. The US department of Commerce as a result suggested that Russia increase slab exports. Novolipetsk Metallurgical Combine (NLMK), Russia's biggest slab exporter, which accounts for about 80% of Russian slab exports to the United States, shipped 311,000 tonnes of slab to the US in 1998, rising to 643,000 tonnes in 1999, 619,000 tonnes in 2000 and 890,000 tonnes in 2001.

Novolipetsk steel partner buys Dansteel

Denmark's Jysk Staalindustri ApS has acquired the Danish Steel Works A/S (Dansteel). The Novolipetsk Metallurgical Combine (NLMK), one of Russia's biggest steel mills, which, with Jysk Staalindustri ApS, co-owns the Stinol AG company, said in a news release that Jysk planned to produce steel at the Danish works in cooperation with NLMK and Russia's Magnitogorsk steel mill. 
The assets include electric furnaces and continuous-casting machines, mills to produce plate, sections and bars, a port and warehouse facilities. Dansteel has the capacity to produce one million tonnes of steel per year. 
NLMK said it could not go into detail about the acquisition. NLMK did say, though, that it would gain the opportunity to export more semi-finished products for processing at Dansteel. Ultimately, this would mean NLMK selling more in the way of value-added products on the Western markets. NLMK is one of Russia's biggest producers of raw steel and roll. It is the country's biggest exporter of slab.

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Minister sees floating nuclear plants as power source for Russia's north 

Floating nuclear power plants in the future will be able to replace thermoelectric ones as energy sources for Russia's northern regions, Russian Atomic Energy Minister, Aleksandr Rumyantsev, told Interfax AVN Military News Agency on 4th November. 
"Russia's needs for floating power generating units with nuclear reactors are huge," Rumyantsev suggested. The minister said that unlike thermoelectric plants, floating nuclear power plants do not require regular fuel supplies. Rumyantsev noted that power generating units of this type may later be installed on Sakhalin, Kamchatka, along the coasts of northern seas and near some major rivers, including the Yenisey and the Ob. He recalled that the first Russian floating power generating unit with a nuclear reactor will be installed at a low-capacity nuclear plant located in the town of Severodvinsk in Arkhangelsk Region. Rumyantsev said the Atomic Energy Ministry is taking steps to involve the United States in this project, which, however, has so far been reluctant to participate. 
According to earlier reports, Rumyantsev approved an engineering design for a floating power generating unit, which was developed by Atomic Energy Ministry enterprises, the Rosenergoatom company and the Russian shipbuilding agency. The unit will have a capacity of 70 megawatts. Rosenergoatom has plans to build two floating nuclear power plants, estimated at US$100m-200m each, at the Sevmashpredpriyatiye enterprise. Construction will take four or five years.

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Metro Cash & Carry opens third Moscow store for 26m Euro

The German company, Metro Cash & Carry, with its same-name subsidiary in Russia, has opened its third store in Moscow costing 26m Euro, the Director General of the Russian division, Herbert Zlabinger, told a press conference devoted to the opening.
The new outlet, located in the southern Moscow area of Chertanovo, boasts overall floor space of 18,400 square metres and a selling area totalling 10,460 square metres, Zlabinger said. Its product line consist of 12,000 different food products and non-food goods like consumer durables. Of the food products offered, 80 per cent are made in Russia, as are 70 per cent of the non-food items. Company plans for next year include opening yet another three stores in the Russian capital and two more in St Petersburg. The company plans to expand into Kazan, Samara, Nizhny Novgorod, Yekaterinburg and Yaroslavl in Russia. 
Moscow already had two Metro Cash & Carry stores that opened in 2001. Overall sales at these two are expected to come to 80m Euro apiece this year. The company's sales worldwide last year weighed in at 25bn Euro, 75 per cent of which was made in countries other than Germany, as the company has 287 trading centres in 23 different countries.

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Russia creates global emergency communications system

The Moscow-based Scientific Research Institute for Radio Communications (MNIIRS) has created a unique system for rescuing ships in distress, lost expeditions, or people attacked by terrorists in any part of the world, whether at sea or in other inaccessible areas, ITAR-TASS News Agency has reported.
The Moscow institute that developed the security system has emerged in the international arena as a participant in the Cospas-Sarsat system, ITAR-TASS News Agency was told on 5th November by the Russian Agency for Control Systems.
As soon as an SOS signal - transmitted via satellite systems - reaches a monitoring station, the coordinates of the emergency are immediately established, along with information on the nationality of the people involved. Afterwards, the SOS signal is transmitted to the nearest rescue station and anyone nearby who might be in a position to help...

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Moscow city government endorses metro expansion plan

The Moscow city government has approved a plan for a subway [metro] system development that will make life much easier for commuters living in the city's remote and fast-growing dormitory suburbs, ITAR-TASS News Agency has reported.
The short-term plan envisions the extension of the metro to the newly developed city districts outside the outer ring road, a motorway that has marked the administrative boundary of Moscow City since 1961.
Dmitriy Gayev, director of Moscow Metropolitan (the name of the organization running the entire metro system), said the metro lines would reach the districts of Butovo, Mitino and Solntsevo as early as next year...
The metro extension project has so far secured around R6.5bn. The city government will provide R4bn and the federal government will pay an additional R2.5bn, as Moscow is a huge transit point for domestic and international passengers, Gayev said.
He indicated at the same time that the Metropolitan needed at least a further R2.5bn to implement the expansion project...

Japan will help build a railway line in Russia

Japan will help build a railway line in Russia's Maritime Territory to transport scrapped submarines, the Press Centre of the Maritime Territorial Administration disclosed in its statement on the results of a Japanese foreign ministry delegation's trip to that region of Russia. 
The Japanese diplomats familiarized themselves with the organization of control over armaments in Russia and with the problems of scrapping them. According to a preliminary agreement, the Japanese side is to take part in the construction of a railway line from the coastal town of Bolshoi Kamen to the Smolyaninovo station, which is approximately fifty kilometres from the former. The "Zvezda" plant, where submarines are being scrapped, is located in that town. 
The Trans-Siberian Railway runs through Smolyaninivo, whence scrapped submarines can be carried to Russian metallurgical plants for smelting or to similar foreign enterprises in the Asia-Pacific region. The Maritime Regional Administration did not indicate the time limits for the construction of the railway line. 

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