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  RUSSIA

REPUBLICAN REFERENCE

Area (sq.km)
17,075,400

Population
148,100,000

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 January 2002

The Russians are benefiting from the world crisis no end. After an initial panic on September 12th-14th when he vainly tried to prevent Central Asian states from allowing US troop deployment on their territory, Putin has made the best of a bad job and gone in wholly with the US anti-terror campaign. Bush now sees Russia as a crucial ally for the US, which it is.
Everything is on the negotiating table, arms reductions, NATO enlargement, security co-operation and energy. On the economic front Russia may suffer in the short term from the general global slowdown. This means in its own case, GDP growth coming in at 5% in 2001 after 8% in 2002. But in the medium to long term its economic future looks bright.
It is as clear as could be that Russia, along with Kazakstan and Turkmenistan, are to be the new strategic energy suppliers to the West to give an alternative source of supply to what looks like an increasingly unreliable one in the Middle East. The smouldering Arab-Israeli conflict and the aftermath of the successful initial stage of the anti-terrorist campaign cast a shadow over Middle Eastern suppliers.
Russia is a real energy giant. It has 49 billion barrels of oil of proven reserves, with 99 bn barrels of possible reserves (for comparison Iran, the world's number two after Saudi Arabia, has 90 bn and 110 bn respectively). In the fossil fuel of the future, natural gas, it has 48 trillion cubic metres in proven reserves, nearly one half of total global reserves. In other words it is the Saudi Arabia of gas and now the second largest oil exporter (4 million barrels per day to Saudi's just over 7m barrels) in the world. Veritably, a colossus to be reckoned with.
There were earlier times when the US was trying to limit Western, particularly German, dependence on Soviet gas supply. Now Washington is encouraging a big increase in dependence on Russian oil and gas, already underway before 9:11. As the swing producer Russia is the foil to OPEC in world energy markets. It is doubtful that OPEC will ever again be able to hold the world to ransom over energy.
Putin wants Russia to be seen as more than just an energy-cum-primary commodities titan. He wants it to become the venue of foreign investment on the Chinese scale - US$50bn per year. Russia is attracting a tenth of that and most of it in the energy sector. Russia needs to make itself far more foreign investor-friendly. It is not an easy task. Much of whether a country is friendly to investors is outside the remit of the government, the habits of the population, their educational level, their proclivity to misbehaviour of all sorts, the extent of the criminal underworld, etc. Russia is rather a poor option here, except for its educational levels which are high. Institutional corruption, in the marrow of the Russian bane however, is a matter where the government must clear up to have international credibility.
In other matters, the government can nudge Russia in the right direction. It is negotiating its entry into the WTO. At present 80% of goods imported into Russia require customs certificates as compared with 16% of goods imported into the EU. Russia no longer needs this sort of protectionism after the drastic devaluation of 1998. Significantly in the WTO, it could have to open up to full competition - banking in particular, where cronyism and corruption is rife could enormously benefit by the advent of western banks.
There are a host of other ways in which Russia could become more investor-friendly, including a top to bottom overhaul of the legal system. Putin was appointed the man in charge to encourage FDI into St. Petersburg in the early 1990s by the reforming mayor of the time, Anatoly Sobchak, since deceased. But he has not lost his zeal to welcome Western investors to Russia. Further developments can certainly be expected. 

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AGRICULTURE

Moscow to bid for wheat supply to Iraq


Russian deputy Agriculture Minister, Nikolai Dolgushin, said his country would share in the bidding, invited by the Iraqi government, for the supply of food-grade wheat to Iraq in 2002, New Europe reports.
Until now Russian companies have only re-exported Canadian, Argentine and Australian wheat to Iraq, he told an international roundtable on economic co-operation between the two countries.
Dolgushin has asked the Iraqi government to maintain for Russian companies a quota of 500,000 tonnes of food-grade wheat in the next, 11th, phase of the UN aid programme for Iraq, an amount equal to that re-exported during the 10th phase that lasted five months and ended recently.
He has also suggested signing a long overdue bilateral agreement on co-operation in agriculture.
In addition to foodstuffs such as sugar and wheat, Russia could supply farm machinery, equipment, fertilisers and veterinary products and provide training in its higher educational institutions.

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AUTOMOBILES

GM-AvtoVAZ sign contracts


The GM-AvtoVAZ joint venture has signed contracts on equipment supplies for all its divisions, AvtoVAZ said, New Europe reported recently. AvtoVAZ, General Motors and the European Bank for Reconstruction and Development signed an agreement, on the formation of the joint venture in the Summer of 2001. The company will consist of various divisions, including painting, assembly, support and dispatch. The assembly division will be launched on September 23rd 2002, when the first Chevy-Niva, which is based on the VAZ-2123 comes off the conveyer. The painting division will be launched on March 30th 2003, and then AvtoVAZ is planning to start manufacturing Chevy-Nivas for export to Europe, Asia and Latin America in 2003. The company later plans to make Chevy-Niva pick-up trucks and vans. It may also produce the Opel-Astra.

Kamaz to increase sales 38% in 2002

Russian automaker Kamaz (Naberezhny Chelny, Tatarstan) plans to boost output and sales to 23.9bn roubles in 2002, 38.15% over the target for 2001. The forecast was made at a meeting between Tatarstan's cabinet ministers and Kamaz managers recently in Naberezhny Chelny, Interfax News Agency quoted Nail Galiullin, the head of the Kamaz public relations centre, as saying. 
The company's draft business plan for 2002 envisages output of 23.9bn roubles in current prices, including 24,000 trucks and 40,000 cars, the news agency quoted Kamaz Director General, Ivan Kostin, as saying. Kamaz's share of the market should reach 47.3% and truck exports should reach 4,000. The business plan was submitted to the Kamaz board of directors in December, Kostin said. Kamaz plans output and sales of 17.3bn roubles in parts and 1.6bn roubles in other products. Kamaz is expected to account for over 46% of the truck market in Russia and the Commonwealth of Independent States in 2001. Output per employee per month should total 32,000 roubles by the end of the year, compared with 21,000 roubles at the beginning of the year, and the average wage will reach 4,000 roubles.

Automobile factory Ural brings production in line with Euro-2 standards

Automobile Factory Ural has produced its first vehicle, which conforms to Euro-2 requirements. According to the factory's press service, the Ural 44202-41 truck, which is equipped with an Avtodizel motor, is intended for use with various semi-trailers on all types of roads. The weight of transported cargo can reach 20 tons. 
The factory is continuing to upgrade its facilities to manufacture in accordance with new standards, tuning technologies and training personnel. The first batch of serial vehicles that meet international environmental standards will be produced on the main assembly line of the factory by the end of December.

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AVIATION & SPACE

Russian and Japanese companies sign contract to build two satellites


The Russian company, Space Communications, and the Japanese company, NEC, have signed a contract to jointly manufacture two satellites. 
The satellites will be built at the Zheleznogorsk-based Academic Reshetnev Research and Production Association of Applied Mechanics, which manufactures almost 70 per cent of all Russian satellites for a variety of purposes. 
The Association's press service reported that the Siberian producers of telecommunications satellites will build two cosmic series type Express-AM. The contract agreement states that the Japanese will manufacture new retransmission systems, while the Siberians will make the satellites themselves and organise the launch. The two Russo-Japanese satellites are scheduled to be launched in 2005. 
Earlier the Academic Reshetnev Research and Production Association successfully concluded a similar joint project with the French firm, Alcatel.

Sukhoi chief's medium-rang strategy

The call to find the funds for new research and development and new foreign partners for Sukhoi holding company was made by Mikhail Pogosyan, head of Russia's leading war-plane manufacturer, the Russian Mirror has reported.
Pogosyan is sure that the company is moving in the right direction. The state will no longer leave local aircraft factories to their own devices, particularly in view of the horrendous events of September 11th. 
Demand for combat hardware and warplanes can fluctuate widely, so Pogosyn thinks that his company should be looking also to civil aircraft and produce "regional" or medium-range passenger planes.
Russian planes will find competition hard in the airline market that caters for larger aircraft. The Americans and Europeans have this market more or less sewn up. However, medium-range (4,000-5,000 km) planes seating fewer than 100 passengers have a real future and Pogosyan's company could carve out a niche here.
"Our factories won't be deprived of their earnings," he pledges. "However, part of all profits should be used to develop state-of-the-art aircraft.
"One gets the impression that the federal budget is not going to make available the R&D funds to the tune of the necessary millions of dollars.
"Moreover, foreign clients are demanding to deal with only one legal entity responsible for warplane deliveries, warranty and post-warranty support, and for subsequent modernisation too."

New Russian aircraft to be fitted with US engines

The new Russian Tu-214 medium-range aircraft will be fitted with engines from the Pratt & Whitney company, Nail Khayrullin, director-general of the Kazan-based Gorbunov aircraft production enterprise, told Interfax-Military News Agency on 10th December. 
Earlier the aircraft was supposed to be fitted with NK-93 engines with a thrust of 20 tonnes, developed by the Kuznetsov SNTK joint-stock company, instead of the current PS-90, produced by the Permskiye Motory joint-stock company. At the same time the NK-93 engines cannot be mounted on the aircraft because they are undergoing flight tests at present. 
According to the deputy director-general of Kuznetsov SNTK, Leonid Shirkin, in spite of those tests the NK-93 engine can still be mounted on the aircraft for it is two to three times cheaper than the Pratt & Whitney one. The new aircraft will be adapted to the US engine no earlier than the NK-93 one completes tests in 2002. 
Currently there are 10 NK-93 engines made but their tests are complicated due to financial problems.

Lufthansa asks Aeroflot to consider Star Alliance

Lufthansa is holding talks with Aeroflot on a proposal for the Russian flag carrier to consider joining the global Star Alliance network, of which Lufthansa is a member, a source from Russian aviation circles said. Aeroflot continues to work on joining the SkyTeam airline alliance and Lufthansa's proposals are not specific enough, Interfax News Agency reported.
The Lufthansa office in Moscow confirmed that the talks were taking place. However, the office said the main subject under discussion was the minimisation of negative consequences from the global economic growth slowdown for the airline industry, and the problems of a drop in passenger volume between Russia and Germany, as well as possible steps to overcome the current situation. Lufthansa did not comment on the information about discussions involving Star Alliance.
Lufthansa has a long history of partnership with Aeroflot. The Russia and German airlines have various joint companies. For the past ten years Aeroflot has been a partner of the company Lufthansa Technik and 23 of its planes (11 Airbus A310-399, 10 Boeing 737-400 and 2 Boeing 777-200) are included in the Lufthansa Technik full technical support programme. 

Makeyev to help launch ESA experimental satellites

Russia's Makeyev state missile centre in Chelyabinsk region will take part in the launch of experimental satellites for the European Space Agency (ESA).
The centre has signed an agreement with ESA and the European Aeronautic Defence and Space Company (EADS) to use the centre's research and technical resources and the Volna launch vehicle to put experimental ESA satellites into orbit, Interfax News Agency reported recently. The parties have also concluded a commercial contract for theoretical work on the programme.
Makeyev's successful completion of this contract will open the door to further co?operation with ESA and EADS on the development of experimental satellites and a series of launches in 2003-2004, a spokesman was quoted a saying.
Makeyev, the developer of new sea-based missile complexes and programmes to modernise the core systems of missile complexes, also works on a programme to extend the service life of submarine-based ballistic missiles.
The Volna launch vehicle is a converted version of the RSM-50 ballistic missile.
Makeyev works with the Zlatoust Engineering Plant (Chelyabinsk region), which makes missile bodies and other missile components. EADS was formed in July 2000 by Aerospatiale Matra of France, Dasa of Germany and CASA of Spain. It has an annual turnover of about 22.5bn Euros

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CREDIT RATINGS

Moody's raises ratings


International rating agency Moody's has upgraded Russia's foreign currency country ceiling for bonds to Ba3 from B2, New Europe reported recently. The rating agency also raised the foreign currency bank deposit ceiling to B1 from B3. Finance ministry bond tranches VI and VII have had their ratings raised to B1 from B3, while finance ministry tranches IV and V have been raised to B3 from Caa3. Federal loan bonds (OFZs) were upgraded to B1 from B3. All ratings carry a "stable outlook." The Russian economy has experienced a period of rapid economic growth, combined with impressive fiscal consolidation and prudent monetary policy. President Vladimir Putin's administration has brought political stability, a determined approach and an improved commitment to debt servicing. Ba is the fifth out of nine grades and implies the issuer does not have a very stable financial standing and has a low probability of making debt payments. A deposit ceiling at the B level also implies a lack of payment guarantees. The rating hike came two days after Russia redeemed its Eurobonds issued in 1996. The current rating on the Moody's scale is only one position lower than the rating before August 1998.

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DEFENCE INDUSTRY

New software gives boost to Russian missile systems


The Lyambda+ integrated software complex created by the Raspletin Almaz research and production enterprise has helped reduce the term and enhance the quality of development of the new S-400 Trieumf surface-to-air missile system, an Almaz official said on 10th December, AVN Military News Agency web site has reported. 
Lyambda+ was specially designed for projecting elements and components of radio-electronic equipment operating in the SHF and EHF bands, Pavel Batov, deputy head of the SHF systems automated projecting system in the Almaz enterprise, told the News Agency. In particular, it was used to design elements of the SHF section and the phased array radar of the S-300PMU-1 and S-300PMU-2 Favorit surface-to-air missile systems.
Lyambda+ was also used to design multi-elemental systems constructing directional patterns of antennas of naval radars, SHF elements of satellite television systems, components of radio-electronic equipment designed and produced by enterprises of the Energiya missile and space corporation, as well as a phase shifter of the phased array radar of the Zaslon system installed in the MiG-31 Foxhound interceptor. 
According to Batov, Lyambda+ makes it possible to analyse the characteristics of a detail and work out its optimal parameters at the projecting stage yet before a sample is created. Any configuration of elements and components of radio-electronic equipment can be analysed very quickly and on a new quality level. These factors help reduce expenses and the time needed for designing a weapon or a complicated civil-purpose radio-electronic system, Batov said.

New noiseless submarine undergoes final trials

The latest Russian nuclear submarine, Gepard (Cheetah), built at the Sevmash shipyards in Severodvinsk, has begun its final trial runs in the White Sea, after which, all being well, the submarine will be turned over to the navy, the Russian Mirror has reported.
Construction of the 971-class Gepard multifunctional nuclear cruiser began at the Sevmash yards in 1991 during the visit of Vladimir Putin, then prime minister, to the Arkhangelsk Region.
According to NATO's classification, the 971-class sub is called an Akula-2 (Shark-2). The Gepard is more compact than the Kursk submarine (built at the Sevmash shipyards in 1994) but is of better technical specification and offers much better firepower.
With a length of 110.3 metres, width of 13.6m and water displacement of 12,770 metric tonnes, Gepard can dive to 600 metres and move at a speed of 33 knots underwater. It has a crew of 73 and can remain underwater for 100 days. It is armed with 24 nuclear-tipped cruise missiles with a range of up to 3,000 km.
Sevmash news secretary, Raisa Elimelakh, admits that the trials show that the new sub does have a few problems that need ironing out, including a communication antenna malfunction. The submarine will also undergo a thorough inspection at the testing lanes of the White Sea naval base, where various acoustic measurements will be made. But at this moment in time, Russia's pet cheetah is state-of-the-art as far as noiseless submarines go.

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ENERGY

UES prepares proposals for power generating creation


In the framework of the first phase of the reformation of the country's energy sector, Unified Energy Systems of Russia (UES) has worked up proposals for the creation of generating company for the country's electricity wholesale market. According to a statement the UES media relations department issued on November 20th, the creation of 10 companies that unite 48 electric power stations is envisaged. The statement said the proposals have been submitted to the economic development and trade ministry, the chairman of the board's committee for reform issues, David Herne. The proposals are to be considered at an upcoming reform committee session, a board meeting and confirmed by governmental resolution in the end. Unified Energy Systems has worked out the criteria for the formation of the generating companies for the electric energy wholesale market, proposals limiting the companies' opportunities to manipulate market prices, for ensuring equal start-up conditions for them and for the reliable functioning of the country's electrical energy complex.

Russian gushers lure US oil workers

After spending 30 years in the oil industry, most recently by roaming across Europe and Africa, in the year 2000 Mr Mach joined Yukos oil Co., the second-largest Russian producer, as president for production and exploration, the International Herald Tribune reported on December 6th.
His motivation, he says, is straightforward, even if his metaphor is a bit twisted: "It's the same reason Bonnie and Clyde robbed banks," he said. "This is where the oil is."
For anyone interested in oil, Yukos is now the right place to be. Its rapidly growing output is driving a steadily rising flow of Russian oil at exactly the moment that the Organisation of Petroleum Exporting Countries, wrestling with a glut, is seeking to curb world oil production to prop up falling prices.
Like several other Russian oil companies, it has attracted Western production experts to help it realise its ambitions to become a major international oil company, planning to lift output by 2005 by about one-third, to 1.6m barrels a day. That would exceed Alaska's production and would equal about 8 per cent of America's current oil needs.
All of this helps explain why Moscow had been reluctant to reduce exports by more than a token amount. But Russian officials and executives from several private oil companies, including Yukos, finally agreed recently to reduce oil exports by 150,000 barrels a day starting from January 1st 2002.
Despite the pledge to cut output, the growing Russian capacity to produce oil is bound to create further headaches for OPEC in the years ahead. Behind the renewed Russian power in the world energy market is a turnaround at Yukos and other companies that have been assembled from chunks of the giant Soviet oil industry.
Yukos itself was in a state of collapse when its current owner, Mikhail Khodorkovsky, took it over in 1995. Soviet planners, bent on getting oil out of the ground as quickly as possible, had shown little regard for the long-term consequences of their techniques. New fields were pumped full of water, and fields were heavily drilled, often to their detriment.
"The whole system was built around an incorrect philosophy," said Jeffery Karfunkle, an American who heads strategic and capital planning at Tyumen Oil Co., the fourth-largest Russian producer. "They had a limited set of tools. They got good at drilling wells. The Soviet attitude was, 'Let's go - drill more metres!' People got orders off Lenin for that."
But when the Soviet Union collapsed in 1991, disrupting lines of supply and financing, having so many wells backfired. Existing fields were pumped too rapidly, and by the late 1980s, there were few resources for major new exploration or development. The once-mighty Soviet oil industry shrank by a third.
Chaos soon engulfed Russian oil. As the government lost control, managers of oil companies - still all owned by the state - began doing business on the side.
The confusion continued into the mid-1990s, when the government began to privatise the oil companies. The politically connected Mr. Khodorkovsky, now 38, snapped up relatively young fields for a fraction of their value.
When oil prices collapsed in 1998, owners such as Mr Khodorkovsky finally began to take an interest in production, not just trading. Yukos enlisted help from the Western oil-services giant, Schlumberger Ltd, to improve production.
Enter Mr Mach. A former executive of Schlumberger, he trained about 1,000 Yukos employees in production enhancement and installed 500 computers to aid in the task.
The result was powerful and immediate: an 11 per cent rise for Yukos in oil output in 2000 from the previous year. None of that, says Mr Mach, was through new drilling. The company changed the way it repaired wells, fixing the best first.
For Yukos, much of the production surge is still ahead. The company owns the northern section of the vast Priobskoye field in Siberia - a reservoir with 3.4bn barrels of oil. The field is producing 150,000 barrels a day and should be pumping several hundred thousand a day in five years, Mr Mach said.
Despite the allure of big untapped fields, foreign companies have been wary about entering Russia. The lack of set tax rules for multibillion-dollar projects has discouraged many from doing business here. Instead, Russian companies have brought in service companies such as Schlumberger and poached executives from their ranks.
Still, Russia has changed a lot from the days when owning an oil company was a license to steal. And with several producers determined to expand, Americans such as Mr Mach are increasingly in demand.
"In the next 50 years there are three areas that will be players - deep water, the middle East and western Siberia," Mr Mach said. "It's an oily basin, not slim pickings like Oklahoma.

CIS Alliance of oil producers and exporters to be created as distinct from OPEC

Azerbaijan supports Kazakstan's initiative on creation of an alliance of CIS's oil producers and exporters as distinct from OPEC, President of Azerbaijan's State oil company Natik Aliyev told journalists. He said, CIS producers and exporters of oil are to stick to a well-coordinated policy. 
Earlier, during his meeting with RF President Vladimir Putin, Kazakstan's president Nursultan Nazarbayev suggested the creation of an alliance of oil and gas exporters. Azerbaijan, Turkmenistan and Uzbekistan are expected to join the alliance. In Nazarbayev's words, the new alliance is to become a counterbalance to OPEC in the oil and gas spheres; Russia is to be the key figure in it. 
Kazakstan produces about 27-30 million tons of oil every year; 2/3 of the amount is exported. Azerbaijan's oil production is expected to come in at 14.5 million tons in 2001; 8.3 million tons will be exported. Azerbaijan's oil production is expected to increase to 50 million tons by the year of 2010, and a large part of it will be exported.

LUKoil to purchase stake in state Greek oil company

LUKoil and the Greek company Latsis Group are to participate in a tender for a 23% stake in the state oil company Hellenic Petroleum, President of LUKoil, Vagit Alekperov, declared in an interview with journalists in Athens. 
According to him, 70% of this stake will belong to LUKoil and 30% to Latsis. The cost of Hellenic Petroleum was estimated at US$1.6-1.8bn. The second round of the tender will be held in February 2002, Alekperov added.

TNK and NIS (Yugoslavia) sign contract for oil delivery

Tyumen Oil Company (TNK) and the Yugoslavian State company, NIS, have concluded a contract for the delivery of Russian oil to Yugoslavia. The contract provides for the delivery of 660,000 tons of oil within six months, starting with January, 2002 . The contract can be automatically prolonged to the end of the year. 
TNK will make the deliveries. Raiffeisenbank (Austria) is the financial agent for the contract. 
According to the press-service of TNK, this contract is the first experience of direct collaboration of a Russian oil producer with a Yugoslavian oil company. 
First Vice-President of TNK, Davor Shtern, said that the conclusion of this contract would let the company develop the East European market and lay the basis for the further mutually beneficial strategic collaboration with NIS. 

Gazprom grants US$73.5m in loans to Sibur

Gazprom executives decided to release RUR2.2bn (about US$73.5m) in loans to the Siberian-Ural Petrochemical and Gas Company (Sibur) in order to clear the debt of its subsidiary, which fell due on December 3rd. 
According to Natalia Selivanova, spokesperson for the head of Gazprom, this amount of money will be granted to Sibur under the security of its liquid assets. Information about the term of the loan is not available so far. 

Start up imminent at Russia's first geothermal station

The Kamchatka peninsula is rounding off work to put into operation the first power unit of the Mutnovskaya geothermal power station. It will be Russia's first station generating power with the use of terrestrial energy. The station is to produce the first 25 MW of power by 20th December, ITAR-TASS News Agency has reported.
The main powerhouse and auxiliary buildings of the station are ready for operation even now. The work to assemble the first turbine of the station is 80-85 per cent complete.
Two wells were prepared to feed steam under pressure to turbines. The assembly and tuning-up of generating equipment are nearing completion.
Power engineers who will operate the station underwent training in Moscow, St Petersburg and Germany, at the Siemens company supplying equipment for the station. According to specialists, the commissioning of the first turbine by the set date is quite feasible.
The station is to achieve its design capacity of 50 MW in March 2002 when the second turbine is put into operation.
Construction and preparation for work of the station are under constant control of the management of the Unified Energy Systems of Russia power company.
According to the company's chairman, Anatoly Chubais, the start of its operation will help the fuel and energy complex of the peninsula to pull out of the crisis state, since the station will cut considerably the need for bringing expensive fuel to Kamchatka from the mainland.

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FINANCIAL NEWS

Russian bank complains over EBRD blacklist


Alfa Bank, Russia's largest privately owned bank, has protested to the European Bank for Reconstruction and Development for allegedly unfairly putting it on a blacklist of companies with which the EBRD will not do business, the Financial Times reported on 12th December.
Peter Aven, the bank president visited the EBRD's London headquarters and lodged a complaint with Noreen Doyle, the EBRD's first vice-president.
Alfa Bank said Mr Aven also presented the EBRD with documents from Russian official bodies declaring Alfa to be innocent of any wrongdoing. The EBRD declined to comment.
Mr Aven said before the meeting the EBRD had every right to refuse to do business with companies as long as it has good reasons. He insisted that there were no such reasons in Alfa's case and the EBRD's decision was harming Alfa.
He added that the EBRD appeared to be basing its decision on unsubstantiated claims of wrongdoing published in the Russian "yellow" or gossip press. "All this kompromat (compromising material) is published about everybody, including ourselves," said Mr Aven. "But there are Russians and Russians. Not all are mafia."
Mr Aven challenged the EBRD to disclose the evidence on which it was acting or embrace Alfa Bank in its activities. As the largest private bank in Russia, Alfa was a natural partner for the EBRD, he said.
The dispute dates back to the 1998 Russian financial crisis, when the EBRD suffered heavy losses on loans to Russian banks, though not Alfa Bank. In the aftermath it introduced a policy of limiting its investments in banking to foreign-owned banks, state-owned banks and regional banks.
Alfa Bank belongs to Alfa Group, a group with interests in oil, telecoms and retailing as well as banking. It is headed by Mikhail Fridman, one of Russia's wealthiest men, who is also Alfa Bank's largest shareholder. The EBRD has significant ties with the group, including a stake in Golden Telecom, a telecoms company controlled by Alfa Group.

Russia pushes claim to expand economic zone in Arctic

Russia has ended the first stage of consultations with Arctic states on the extension of its exclusive economic zone in the Arctic region, and intends in the near future to send an application to the United Nations Commission for the borders of the continental shelf, an official of the Russian Ministry of Natural Resources told ITAR-TASS News Agency.
A month ago experts from the ministry at the official presentation in the Russian Foreign Ministry submitted evidence of researches testifying that the bed of the Russian sector of the Arctic Ocean adjoining Russia, judging by its geological origin, is the continuation of the continent, and therefore in compliance with the UN Convention must belong to the Russian Federation. This is a matter of an enlargement of Russia's exclusive economic zone in the Arctic Ocean by 1.2m square kilometres...

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FOOD & DRINK

BBH buys 49.95% of Vena


Baltic Beverages Holding (BBH) has bought a 49.95% stake in the St Petersburg brewery Vena, New Europe reported recently. BBH has acquired half of the 99.9% ownership stake in the St Petersburg-based brewery, which is currently owned by Carlsberg, Vena Executive Director, Sergei Khudoleev, said. Carlsberg increased its stake to 99.9% after buying 33.3% of shares from the European Bank for Reconstruction and Development in a recent deal. BBH has an option agreement to buy the rest of the Carslberg-owned Vena shares from and after October 1st, 2003. Hartwall and the Danish company Carlsberg Breweries, own BBH on a 50-50 basis. It was formed to work on the Russian, Ukrainian and Baltic beer markets. Vena was formed in 1992 on the basis of a plant founded by Austrian and Prussian entrepreneurs in 1872. Total sales increased 56% year-on-year in 2000 to 63.4m litres, including a 72% increase in beer production to 50.8m litres.

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FOREIGN ECONOMIC RELATIONS

EU to help Russia, China shape up


Russia's seven-year drive to join the World Trade Organisation (WTO) is speeding up, with top trading nations preparing to hand Moscow their market-opening requests, European Union officials said recently. "Russia will know what is expected of it (in WTO entry negotiations) by the end of 2001," said EU trade spokesman, Anthony Gooch. Once the demands were in, WTO working groups on Moscow's accession could pick up speed in Geneva, Gooch said, New Europe reported recently.
Russia's drive to join the WTO - which now counts China and Taiwan as members - is expected to top the agenda when European Trade Commissioner Pascal Lamy visits Moscow. Lamy and EU External Relations Commissioner, Chris Patten, will also participate in a first meeting of a high-level EU-Russia working group on forging a so-called "common European economic space."
Officials said that while WTO accession would open up Russian markets, the focus on the European "economic space" was on upgrading Russia's regulatory framework and bringing Russia's economic structures closer to the EU. With up to 12 central and eastern European states set to join the EU, officials said it was imperative that Russian businesses started meeting EU standards.
Moreover, Lamy is heading for China to offer increased EU help in implementing Beijing's new WTO obligations. Gooch said recently that Lamy would use his visit to Shanghai and Beijing to underline Europe's readiness to help China meet its WTO commitments. EU technical help has so far focused on aiding China's efforts to upgrade domestic patent protection legislation and liberalise financial regulations.
China signed up to join the WTO at the agency's ministerial meeting in Doha, Qatar, on November 10th, ending 15 years of often painful negotiations.

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FOREIGN LOANS

EBRD seeks long-term co-operation


The European Bank for Reconstruction and Development (EBRD) is looking forward to working with Russia long-term in the area of electric energy, the bank's First Vice President, Noreen Doyle, told the press on November 21st. Doyle noted that she really respects the things Unified Systems of Russia (UES) CEO, Anatoly Chubais, is doing. Doyle and Chubais have discussed a financing scheme for restructuring the country's electric energy sector. Doyle announced that the Bank is looking over the possibility of playing a financing role in the projects together with strategic investors if the projects prove quite promising, though final decisions will be made after feasibility studies are done. Doyle said the estimated US$50bn in investments the country's electric energy sector needs in the coming ten years is not overstated. Chubais expressed his confidence that funds would be found. "EBRD's participation is extremely important for UES, since it will enable the participation of other private investors," Chubais said.

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INDUSTRY

Shtern Cement gains controlling stake in Savinsky


Shtern Cement, a major Russian cement producer, has acquired a controlling stake in the Savinsky Cement plant in Arkhangelsk region, Shtern President, Vladimir Shternfeld, said. Shtern Cement plans to invest US$3-4m this winter on the Savinsky Cement Plant, he said.
The plant has the capacity to produce one million tonnes of cement a year and this will be increased to two million tonnes. Shtern Cement will also acquire a controlling stake in the Vorkutinsky Cement Plant in an agreement with the Komi administration, Shternfeld said.
Shtern Cement is already making material provisions and handling sales at the plant, which has the capacity to produce 400,000 tonnes of cement a year, reports New Europe. Shtern Cement will have acquired the controlling stake by March 2002. Shtern Cement has acquired a controlling stake in Moscow's Asfaltovo-Betonnyi Plant Number 3.
Shtern Cement owns controlling shares in several shares in several large plants, including Maltskov Portlandcement in Bryansk, the Lipetsk and Mikhailovsky cement plants in Ryazan, Peskovsky Plant of Construction Materials in Moscow region and Bryasnkprombeton.
The company has two cement elevators and various cement solution and cement packaging lines for storage and sales in Moscow. The company wants to own ten cement plants and also needs to acquire slate and other plants that are essential to cement production, Shternfeld said.
Shtern Cement invested US$5.3m in January-September 2001 on equipment for its plants, he said. The company plans to boost production 28.3 per cent year-on-year in 2001 and produce a minimum of 6.8 million tonnes. Production totalled around five million tonnes in 1999. Shtern Cement aims to bring production up to 15 million tonnes in 2003.

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INFORMATION TECHNOLOGY

HP PCs to be second-sourced in Russia


Hewlett-Packard (HP) has announced the start of production in Russia of personal computers under its own brand name. Assembly will be carried out in co-operation hardware company, Aquarius, reports the Russian Mirror.
The project was launched more than a year ago with the aim of increasing sales of HP equipment on the corporate market, as well as for seeking lucrative government orders.
An assembly operation in Russia will help to respond more flexibly to clients' requirements and to shorten delivery times.
Aquarius views its participation in the joint project as the beginning of work in a new area, apart from producing computer equipment under a joint trade mark, the company will now be assembling computers under the HP brand. The Russian project presupposes manufacture of an entire range of PCs.
Quality control will match ISO 9001 and ISO 9002 standards and, of course, also HP's own company standards.
The quality control system at Aquarius is integrated into a similar system at HP's plant in France. Integration is effected through a dedicated channel by means of special e-link software. The system issues "assembly specifications" for every computer and checks the quality. 
Computers made in Russia are expected to be competitive and much will depend on configuration, delivery time and other commercial parameters. The contract between HP and Aquarius provides for the supply of components, PC assembly and marketing the report added.

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MINERALS & METALS

Norilsk Nickel won't reduce metal output in 2002


Norilsk Nickel Mining Metallurgical Company does not plan to reduce production of nickel, copper or cobalt in 2002, the press service of the company's Arctic Division said. "Norilsk Nickel does not have plans to reduce production, there are only plans to maintain output at the current level," Interfax News Agency quoted the company spokesman as saying.
Dzhonson Khagazheyev, the director general of Norilsk Nickel's Arctic Division, gave a special address to workers recently. "We have decided to sustain levels of output so as to safeguard each and every employee," he said. "We have found ways to do this. Contractors have given us more time to pay our bills, and our partners more time to pay off debts. I have put a moratorium on all procurements until the end of the year, not a rouble will be spent. We have nearly got the missing funds together. The current crisis would have been hard to anticipate. But we are even prepared for this. And we will get by because we have the lowest metal production costs in the world," Khagazheyev added.
Commenting on media reports that Vladimir Petrov, deputy director general of the Arctic Division had said Norilsk Nickel intends to reduce production of nickel, copper and cobalt by at least 10 per cent in 2002, the press spokesman said Petrov had been misinterpreted. "Petrov did indeed meet with division bosses and discuss plans for 2002. But he spoke only of a possible adjustment of original production plans, and certainly not a reduction in output," the spokesman said.
Norilsk Nickel MMC produces more than 20 per cent of the world's nickel and more than 10 per cent of its cobalt, 3.1 per cent of its copper, about 60 per cent of its palladium and 20 per cent of its platinum. In the first half of 2001, the Arctic Division, which produces more than 80 per cent of the company's metals, raised production of nickel six per cent, copper eight per cent and cobalt 10 per cent compared with the same period of 2000.

Siberian aluminum group may acquire controlling block in Chelyabinsk coal company

The Siberian aluminum group may acquire a controlling block in the Chelyabinsk coal company. Chelyabinsk Administration is examining the possibility of a partnership with "SibAl" in the coal industry, because Russia's energy company has not yet accepted a decision about acquiring a controlling block of shares in the new joint-stock company, which will be created based on Chelyabinskugol. 
The question of acquiring the controlling block of shares in Chelyabinsugol should have been examined on November 30th 2001 but was postponed to December 14th. The Regional administration is insisted on investing by the core shareholder RR250m in the company's technical re-equipment and pay out RUR 250m on the workers salaries and should increase annual solid fuel turnover to 5m tons.

Russian, Canadian aluminium firms sign cooperation deal

Russian Aluminium (Rusal) and Canadian company SNC-Lavalin on have signed a cooperation memorandum, Interfax News Agency has reported
Russian Prime Minister Mikhail Kasyanov, on a visit to Canada at the time, was present at the signing ceremony in Montreal.
In addition, SNC-Lavalin International Inc. contracted to undertake a feasibility study for the construction of a second unit at the Sayany Aluminium Smelter, which belongs to Rusal.
"Implementation of the project would make it possible to build up the production capacity of the Sayany Aluminium Smelter to 660,000 from 400,000 tonnes of primary aluminium a year, which, given the current prices on the London Metal Exchange, would increase Rusal's sales by more than US$350m a year," said Rusal Deputy General Director, Aleksandr Livshits, who signed the memorandum on behalf of his company.

Russian diamond company under pressure to find sales partner

In the days ahead, Russia, which accounts for a quarter of the diamonds mined in the world, faces a difficult task - it must finally choose a partner for the sale of this precious product. But it is virtually certaint right now that a contract with De Beers, the traditional purchaser, will not be signed before the end of this year, 'Izvestiya' has reported . Analysts believe that Russia is in a difficult position and will find it very hard to accomplish the government's set task of increasing the diamond sector's profitability. The prospects for the development of the situation are depressing at the moment.
In early December the diamond market was in ferment. First Alrosa announced preliminary agreements with De Beers whereby it would like to sell diamonds worth US$4bn (Russia produces diamonds worth US$1.6bn a year) through that corporation during the period of operation of the next commercial agreement. That would mean shutting out other purchasers who wanted to take advantage of the end of the current treaty between Russia and De Beers to enter the Russian market as well. However, the government expressed dissatisfaction with Alrosa's plans and the diamond company was instructed to continue negotiations.
According to Izvestiya's information, the Finance Ministry's dissatisfaction stemmed not only from the stated sales volume - it emerges from this that all the stones destined for export would have to go via De Beers (the government is continuing to insist on a reduction in the annual export volume). Quite recently observers claimed that De Beers's plans also include the aim of reducing purchases from Russia, but now they believe that the corporation has found another way of working with Russia: lifting the restrictions. Under the current contract, De Beers can purchase diamonds worth at least US$550m from Russia but no more than 26 per cent of the total world sales volume. 
In 2000, which was a notable year, De Beers sold stones worth US$5.6bn. Meanwhile the corporation received diamonds of different sizes and quality - ranging from US$80 per carat; but stones worth US$200-400 per carat were already being sent to Russia to be faceted. Not all the details of the negotiations between Alrosa and De Beers are being disclosed, but according to Izvestiya's information De Beers would now like to be able to sell whatever quantity and quality of diamonds it wants.
The commercial agreement for the sale of diamonds via De Beers has aroused quite a lot of criticism. The criticism levelled at Russia is that it does not enter the market independently and for this reason it has spent all this year actively looking for alternative customers. The greatest interest has been shown by the Israeli entrepreneur Lev Levayev who now has his own diamond cutting facility in Russia. Representatives of Australia's BHP also came for talks with Alrosa, but the deterioration in the world economic situation and the decline in demand for diamonds caused them to tread warily. After the news that the negotiations with De Beers were going to continue, diamond dealers throughout the world showed increased interest again.
Russia's problem is that since the start of this year it has been obliged to start selling diamonds. These precious stones bring in approximately 15 per cent of the Russian budget's foreign currency revenue, which is of no small importance at a time when world oil prices are falling, especially since diamond prices are not susceptible to such rapid change as prices for oil. Therefore, Alrosa's task is that it has to reach agreement without fail. The only question is - with whom. The dealers who are now showing increased interest realize that it is very easy to obtain more favourable conditions for themselves from Russia right now.
Meanwhile, analysts believe that De Beers is not going to wait forever while Russia works out a coordinated position (even if accords are finally reached they will still require EU approval). It has certain obligations to its siteholders (customers). Georgiy Arinson, a specialist in diamond market financial questions, believes that De Beers can now begin looking for alternative sources of diamond purchases, in particular in Angola and Sierra Leone.

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NUCLEAR ENERGY

Russia looking to build nuclear power stations abroad


Russia hopes to build nuclear power plants in Finland, Vietnam, Egypt and Kazakhstan. Preliminary negotiations are under way, but contracts may be signed in approximately five years, Atomstroyeksport General Director Viktor Kozlov told ITAR-TASS News Agency on 7th December. Atomstroyeksport is a subsidiary of the Russian Atomic Energy Ministry.
The four countries have asked Russia for information about its atomic energy industry and possible construction of nuclear power plants abroad. The information has been supplied, and the possible clients are considering it...
Larger exports to the world atomic energy market support domestic producers, because 80 to 90 Russian plants are taking part in the production and supplies of equipment for nuclear power plants under construction abroad. The price of one nuclear power plant is US$1.5bn on the average. "The technical servicing of power plants also brings stable revenues," Kozlov said.

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SCIENCE & TECHNOLOGY

Oil alchemy combats greenhouse effect


Russian professor, Yevgeni Gorlov, claims to have solved one of the greatest mysteries of nature and created an artificial kind of oil in the laboratory, the Russian Mirror reported recently. The professor filled the kettle with tap water and common carbon dioxide, inserted his special catalyst, heated the mix to 40 degrees Celsius, and the resultant boiling solution turned to black oil.
Subsequent analysis corroborated the mixture as oil, the professor, who is also deputy head of the Institute of Fuel, claims. When it burns the liquid yields almost as much energy as standard motor fuel.
Gorlov's colleague, a scientist from the Belorussian Academy of Sciences, Yaroslav Polushkin, did much of the spadework, selecting the catalyst from a range of "accelerants" tested.
Polushkin's idea was to change the climate by using carbon dioxide waste from factories and power plants. His idea was to pump it into special reactors that he had invented, then "bubble" it through the water with the catalyst. Oil could then be collected afterwards, along with another by-product; oxygen.
The impetus for the technology is not particularly the fact that Russia is short of oil and gas, but rather the necessity to combat the serious problem of global warming and the greenhouse effect.

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SHIPPING

Northern Russian shipyard builds tugboats for Holland


The Northern Machine Building defence plant in Severodvinsk (Sevmash), which mostly builds nuclear submarines, has built ten tugs for the Dutch company, Damen. The ships built in Russia were loaded on the Dutch freighter Graniberg and shipped to Rotterdam, ITAR-TASS News Agency was told by Sevmash spokeswoman, Raisa Elimelakh.
Sevmash deputy director, Oleg Korotkov, said that the Russian plant had been cooperating with the Damen company for around ten years. Around forty-nine tugs have been built on contracts signed with the company, and six more ships are on production lines, Korotkov said.
Civil ship-building accounts for approximately 30 per cent of the overall industrial potential of Sevmash. It has also signed contracts for the construction of two oil tankers and a series of fast ferries.

Vostochny port requires US$120-150m in investments.

The building of several terminals at Vostochny Port will require US$120-150m in investment over the 4-5 year period, director general of Severstaltrans the major holder, has said. 
In the short term the building of the oil base with 7m t/y in capacity will be launched along with the liquefied gas refining, fertilizers processing terminal and third stage of coal terminal. 
When the terminals are put into operation, the cargo processing at the port will be doubled from the current 14m ton.

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TELECOMMUNICATIONS

US$600m price tag for Megafon mobile project


Investment in construction of cellular networks throughout Russia under the Megafon brand name will total US$600m over the next three years, said Leonid Rozhetskin, the president of LV Finance, one of the investors in the project.
"This year we invested more than US$100m in construction of the Sonic Duo network in Moscow," Interfax News Agency reported him as saying at a news conference recently. The operational recoupment period for this project should be two years, he said.
Andrei Mikhailenko, the head of Telecominvest, which is the driving force behind the Megafon project, said Megafon networks should be launched in the Urals in the first half of this year.
Megafon, a national project being implemented by St Petersburg holding company, Telecominvest, with the aim of uniting its subsidiary GSM operators under a single brand, now includes Northwest GSM, Sonic Duo, Mobicom-Kavkaz, Mobicom-Novosibirsk, Mobicom-Khabarovsk, MCC-Povolzhye, Uralsky GSM and Mobicom-Kirov. Megafon operators hold licences in 68 Russian regions that are home to 122 million people, or 80 per cent of the country's population.

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TRANSPORT

Russian government orders Sakhalin bridge feasibility studies


The Russian government has instructed the Ministry of the Railways to conduct comprehensive feasibility studies for a future railway line from Selikhino, near Komsomolsk-na-Amure, to Nysh on the island of Sakhalin and a bridge across the Nevelskiy Strait. The government's resolution was signed by Prime Minister Mikhail Kasyanov on 10th December, Interfax News Agency has reported.
Simultaneously the Railways Ministry must draw up investment proposals. The experts' council will study the findings and present them to the government for consideration before 1st February 2002...
Railway Ministry analysts have been insisting on laying a 600-km railway line, including an 8km-long bridge across the Nevelskiy Strait. Construction will take four to eight years, according to various estimates.
The island of Sakhalin may eventually be connected by a railway line with Japan. This would complete a stable transport corridor from Japan to Europe through Russia and make cargo delivery several times faster and far less costly, as compared with the current shipping costs.
The government has also instructed Russia's State Committee for Construction to specify a general plan for the development of communities and towns on either side of a future railway and draw up a scheme of urban development in the Far Eastern Federal District that would incorporate the possibility of opening a new transport corridor.

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