a free service
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
Update No: 256 - (23/04/02)
The Russian scene is dominated by the Putin regime as it never was by the Yeltsin one. Putin has command of parliament and of the provinces. He decides on
foreign policy and security issues, sacking top brass at will.
The emergence of a strong regime
Two reasons account for this. Firstly, he is genuinely popular, in part because of a youthful charisma and in part due to a booming economy. Secondly, he has
the backing of a political movement, Unity, dominant in the Duma, which Yeltsin never had.
His rule is of course strongly reminiscent of an old Tsar rather than of a modern democratic leader. But it has been ever thus is Russia. He is in the
strong Tsar tradition, while Yeltsin in the end was in the weak Tsar tradition. It will be interesting to see if Putin tries to extend his rule beyond the
statutory limit of two terms in 2008. But that is still six years away.
He has stuck loyally to his first premier, Mikhail Kasyanov, knowing the value of continuity of policy and government. He leaves economic affairs largely in
his hands and those of economy minister, German Gref.
New central bank head
Putin made an exception in March when he urged parliament to sack the head of the central bank, Viktor Gerashchenko, a hangover from Soviet days and deemed in
the early 1990s by Jeffrey Sachs, the US expert on Russia, to be the 'worst central banker in history.' Gerashchenko did, indeed, preside over a
hyperinflation when he applied what could be termed "monetarism à la Russe," the view that monetary expansion tends to curb inflation by encouraging supply
which can then meet demand better. This doctrine he in effect abandoned later. But inflation at 28% per annum in 2002 is still too high. The replacement for
him is to be a deputy finance minister, Sergie Ignatyev, a technocrat who can be relied upon to constrain monetary growth more successfully than Gerashchenko.
Turning to Ukraine
Putin is also concerned to generate growth in Russian-Ukrainian economic relations, which he expressed in a meeting in Odessa in March with the Ukrainian and
Moldovan presidents. Viktor Chernomyrdin, former premier and billionaire head of Gazprom, is the figure to do that as new ambassador to Kiev. Putin chooses
his personnel carefully and then delegates to them, standard business practice. In that he resembles Bush, his opposite number. The question is, why
Chernomyrdin would accept?
The main thing behind Russia's growth in the last two and a half years has been buoyant energy prices, no longer so true of late. The OPEC ministers have been
pleading with the Russians not to export so much, which is putting a downward strain on prices. Russia has agreed to some restraint, but whether it can
deliver it is another matter. The decentralised oil industry is not so amenable to central control as OPEC oil industries tend to be.
GDP growth is likely to come in at 4-5% this year after 7% growth last. But that is quite respectable. The steady turn out of reforms by Kasyanov and co.
should also ensure growth continues in the mid-2000s.
The Chechen war festers
Russia certainly has an effective government at last. But that is offset by the one major black spot, the war in Chechnya which shows no sign of ending. The
ruthlessness and arbitary killing of fighters and civilians alike could yet backfire on its main instigator, Putin. Putin is not exactly a 'nice' man. But
then Russian rulers rarely are. A touch of cruelty earns respect in Russia, as in some other countries. Effectiveness is the valued quality, not
Avtovaz plans to unveil Kalina at the end of 2004
Avtovaz, a major Russian automobile producer, plans to launch VAZ-1118 Kalina cars at the end of 2004 or beginning of 2005, if everything goes as planned,
Board Chairman, Vladimir Kadannikov, said, reports New Europe.
The Avtovaz 2002 budget envisages US$200m to finance the main welding, painting and assembly equipment, Kadannikov added. There will be a new welding line,
painting equipment and a new assembly conveyer, for the Kalina, he noted. Some, if not all, of these automobiles will be produced not instead of the older
models but in addition to the plant's current programme. With the launch of the Kalina "we plan to start off by providing around 900,000 automobiles a year,"
Avtovaz will start producing upgraded rear wheel drive cars, known as the classics, in two or three years. Most of the company's profits will go to
implementing the Kalilna project and straight after that a new engine needs to be developed, he said. A blueprint of the new "classic" car was approved at a
manufacturing council in January. "We hope to make the first sample for the Moscow car show, to show the public and find out how buyers feel about it," he
said. The project is estimated to cost around US$400m. The new "classic" is expected to replace the current rear wheel drive models. Avtovaz produced
767,313 cars in 2001, against 705,571 in 2000. The company is currently working at full capacity. The total price of putting the Kalina into production is
Uaz, Mahindra & Mahindra to finalise JV talks
The Ulyanovsk Automobile Works (Uaz) and Mahindra & Mahindra, a major Indian producer of off-road vehicles and tractors, plan by the summer of 2002 to
complete talks on joint production of off-road vehicles in Russia, said Stanislav Pavlov, PR Director at Uaz and Zavolzhsky Motor Plant, part of the Severstal
auto division, New Europe reported recently.
The companies plan to assemble a joint model in Russia based on a new off-road vehicle, designed by Mahindra & Mahindra, he said. This vehicle is not yet
serially produced. Its parts are produced by well-known firms with plants in India. Severstal is keen for the project to be put into operation but a final
decision has not yet been taken and various issues are still being worked out. The new off-road vehicle could be produced either at Uaz or at a new small
If the project is implemented India will supply assembly kits and the vehicle will be fitted with ZMZ-409 fuel-injection engines. As the project develops
more and more parts will be made in Russia.
AVIATION & SPACE
Energia to launch fewer spaceships under ISS project
Russia will launch five spaceships this year under the International Space Station (ISS) project instead of the six planned, Energia space rocket corporation
President, Yuri Semyonov, said in Baikonur. The craft that will blast off from the Baikonur launch site will include three Progress-series supply ships and
two manned Soyuz TM-series vehicles, Interfax News Agency reported.
Under the original plan, Russia was to launch four supply craft and two piloted ships this year under the ISS programme. Semyonov said the United States was
not building up its participation in the project and this was the reason for the cuts.
Nevertheless, the five ships will be enough to guarantee that all of the Russian and foreign research programmes will be carried out, Semyonov said. The
European partners, who have put enormous funds into the project, are very dissatisfied with the way the American side is handling its commitments, the news
agency quoted him as saying.
"They (the European partners) cannot wait indefinitely to increase the number of the crew working at the station," Semyonov said. The station is currently
capable of accommodating three people simultaneously, while expanding the ISS segments could allow the crew to be increased to six or seven people, which
would make it possible to invite European astronauts to work in the station.
According to Semyonov, it is planned to reach a decision on expanding the Russian segment of the station within the next month-and-a-half to two months, which
would mean that the number of people working in the segment could increase.
Semyonov described discussion of the possibility of transferring piloted Russian space launches from Baikonur to Plesetsk. He noted that the ISS programme,
which will last over 20 years, is based in Baikonur and piloted Russian launches are tied to this space station. However, Samoilov stressed that as part of
the expanded use of Plesetsk, Russia has received the possibility of using modified Soyuz rockets to launch satellites that are currently being launched from
Baikonour using Proton launch vehicles. Russia has rented Baikonur from Kazakstan since 1994.
Russia's Aeroflot puts European airbus on longest domestic route
Russia's leading air carrier Aeroflot has begun to fly A310 airbuses from Moscow to Petropavlovsk-Kamchatskiy. The first such flight on 2nd April took 115
passengers to the Far Eastern peninsula, ITAR-TASS News Agency has reported.
The A310 airbus, manufactured by the European Airbus Industrie consortium, meets all international standards, an Aeroflot spokesman told ITAR-TASS. This is
why it is replacing the Il-62 airliners which Aeroflot has been using on Russia's longest route.
An airbus can fly more than 9,000 kilometres in nine hours to take more than 180 passengers from the Russian capital to the country's easternmost airport. The
company's A310 airliners will henceforth perform four such flights every week, the spokesman said.
Russian-Italian aerospace project gets under way
Implementation of a Russo-Italian aerospace project has started, the press service of the Academician Mikhail Reshetnev Applied Mechanics Scientific
Production Association [NPO PM] said on 3rd April, RIA News Agency has reported.
The plant is based in Krasnoyarsk's neighbouring closed town of Zheleznogorsk and produces up to 70 per cent of Russian telecommunication satellites of
The Italian space agency placed an order for development of a satellite communication system for air flights across the North Pole.
Italy's Alenia Spazio firm and the NPO PM drew up a contract under which the latter plant would design and manufacture spacecraft to be launched on
high-elliptic orbits and the Italian firm would create the necessary electronic equipment for the satellites.
More than 400 flights from North America to South East Asian countries were made along the cross-polar routes last year, and the intensity of such flights is
expected to rise considerably in years to come with flight durations falling by nearly three hours.
Russia's Aeroflot ready for new aircraft noise standards in Europe
The restrictions on flights of Russia's noisy planes in Europe, in effect since 1st April, will not seriously affect the operation of Aeroflot airlines, its
general director, Valeriy Okulov, has said, ITAR-TASS News Agency has reported.
He told reporters that the company "has formed a summer timetable of flights to European cities with regard for the higher noise standards and withdrawn
Tu-134 and Il-86 planes from use on European routes." Sixteen re-equipped Tu-154M passenger airliners and foreign-made planes will be put into operation on
European routes, Okulov said.
However, Aeroflot will have to abandon a small number of Tu-134 routes, in particular, to Dublin and Ljubljana, "as it is unprofitable to put the spacious
Tu-154Ms on them," he said.
The introduction of the new noise standards will affect Aeroflot's charter services for which "noisy" broad-fuselage Il-86s are used...
Russian, Ukrainian airlines to buy Antonov-140 aircraft
About 20 Russian and Ukrainian airlines have announced their plans to buy new Antonov-140 passenger aircraft, ITAR-TASS News Agency has reported.
The press service of the Kharkiv aircraft plant that launched the mass production of these aircraft in 2002 told ITAR-TASS on 1st April that the management
has received nine leasing orders from Ukrainian airlines.
"We have also been contacted by about 10 Russian airlines seeking to buy the An-140, but unfortunately Russia has so far not created an effective leasing
mechanism, and no regional company can afford to buy the new aircraft," the press service said.
The plant can make up to 10 Antonov-140 aircraft per year.
The medium-haul An-140 aircraft was designed by Ukraine's Antonov research and technical complex. Fifty per cent of the parts used in it are Russian. The
aircraft is also to be made by the company Aviakor in Samara. It plans to make the first An-140 in the third quarter of this year.
Tyumenaviatrans buys 49.6% of Domodedovo Airlines
Tyumenaviatrans (TMAT), has bought a 49.6% stake in Domodedovo Airlines, thereby becoming the third largest passenger carrier in Russia, after Aeroflot and
Sibir Airlines. Domodedovo Airlines reported sales of around US$130m last year.
In addition to its passenger airline business, TMAT also operates Russia's largest helicopter fleet and demonstrated a dynamic growth in sales of 61% to
US$136m in 2001, but also a significant drop in operating margins from 24% to 13%, related to a hike in maintenance costs required to bring grounded aircraft
back into service. Its exposure to the highly profitable helicopter business means that the company should be able to increase profitability this year.
According to estimates, the Surgut and Tyumen regional administrations last year accumulated a controlling stake in the company, while around 3% of the stock
is traded in the form of ADRs. The acquisition is considered a very positive move for the company, which will significantly increase its passenger fleet and
mean that it can start servicing the Far East Region. The previous value of US$0.09 per share indicated growth potential of over 50%. However, the latest news
will no doubt increase interest in TMAT, the only listed stock (apart from Aeroflot) in the airline industry.
Russia plans funding for defence sector electronics projects
The Russian Defence Ministry and Control Systems Agency have endorsed schedules of implementation of 26 projects in the sphere of radioelectronic industry
development, the agency's director-general, Vladimir Simonov, told a news conference at the Interfax News Agency's main office on 29th March.
"We will monitor the programmes' implementation closely; we will help the enterprises get money on time and raise extrabudgetary funds for realization of the
programmes," Simonov said in response to a question from Interfax-Military News Agency.
It is impossible to produce any important type of armament without extrabudgetary funds, he stressed. The agency's management believes that development of
information and control systems, elements of precision-guided weapons, and complex systems of intelligence, navigation, electronic warfare and target
designation is the agency's priority in the framework of the state armament programme for 2002.
Almost 300 enterprises of the agency, including over 150 owned by the state, are involved in implementation of the state defence order. Their share in the
state defence order is over 60 per cent, Simonov said.
Russia signs truck, jeep deal with Uruguay
Uruguay has chosen Russian vehicles. During the international air show FIDAE, which took place in Chile, the federal unitary enterprise Rosoboroneksport and
representatives of the Uruguayan government signed a US$10m deal for the supply of 400 vehicles, ITAR-TASS News agency has reported.
Heavy four-wheel Ural lorries, and Ulyanovsk-made jeeps, buses, ambulances and special cars will be shipped to the Latin American country. The Russian side
has been obliged to complete deliveries under the contract by October 2002. Most of the vehicles are intended for Uruguayan UN peacekeepers [in Africa].
This contract reflects a growing trend, apart from traditional export of arms and military hardware, more attention is being devoted to dual-purpose
equipment, the head of Rosoboroneksport's directorate for export, import and special programmes, Igor Sevastyanov, told ITAR-TASS. Several Latin American
countries have shown an interest in Rosoboroneksport's competitive offers, he said. As for the contract with Uruguay, Mercedes and Renault were our main
rivals, he said.
The Russian news agency RIA said on 2nd April that Rosoboroneksport had already supplied 36 lorries to the Uruguayan army in 2001.
Angarsk-Primorski oil pipeline project to cost US$5.2bn
Construction of Angarsk-Primorski territory pipeline to transport Russian oil to countries in the Asia-Pacific Region will cost around US$5.2bn, the head of
the Transneft construction and strategic development department, Anatoly Bezverkhov, said at the project's presentation on April 2nd, reports Interfax News
Of this sum, US$4bn will be needed directly for construction, Interfax quoted him as saying. The project will be funded by Transneft and through state
financing. Currently work on the pipeline is in the pre-project stage. Construction should begin in 2004. The pipeline is expected to transport 50m tonnes
of oil a year. The main resource base for the pipeline will be the East Siberian oil fields, located in the territory of Krasnoyarsk and Sakha.
Transneft has not yet determined the location for an oil terminal. A company task force has looked at six spots proposed by the territorial administration:
Nakhodka, Vostochny Port, Vladimir Bay (Olginsk district), Ust-Sobo-levka (Terneysk district), and the Razboinik and Chazhma bays (in the closed
administrative-territorial enclave Fokino). The company will choose three for further consideration. The area required for the terminal is planned at around
140 hectares, Vanino Port in Khabarovsk, which was expected to be visited by the Transneft task force, has also shown interest in building the oil
terminal. The length of the Angarsk-Kazachinskoye-Tynda-Khabarovsk (leading to the Transsiberian)-Primorski territory pipeline will be 3,800km, the project's
chief engineer, Oleg Ischenko, said. It will pass through Irkutsk region (559km), Butyatia (457km), Amur region (1,422km), the Jewish autonomous region
(313km), Khabarovsk territory (237km) and Primorski territory (488km).
Further corrections will be made to the route. The oil pipeline will have 26 oil pipeline stations, including three in Primorski. Pipes of 1,020-1,200mm
diameter, made in Russian plants, will be used for the pipeline's construction.
Cooperation agreement signed by LUKoil and Republic of Komi
The President of LUKoil, Vagit Alekperov, and the head of the Republic of Komi, Vladimir Torlopov, have signed a cooperation agreement between the company and
the Government of the region.
According to the press service of the oil company, the parties agreed to assist the realization of long-term programmes of the company's subsidiaries in
development of the raw material base, development of new oil and gas fields, construction of new and reconstruction of current objects of production,
transporting and refinement of oil and gas.
Agreement was reached about conducting joint research and technical policy for the introduction of the modern machinery and technologies for the production,
transporting and processing of the hydrocarbon fuel. In addition, the parties confirmed the status of the company as the basic oil producing organisation in
the Republic of Komi.
According to the agreement, LUKoil assumes responsibilities for the continuous supply of gasoline, diesel fuel and other oil products to the wholesale and
retail markets in the Republic. There will also be further development of infrastructure of storage and sale of oil products, including construction of new
and reconstruction of operating filling stations. The company and its subsidiaries will continue work on the elimination of oil contamination and will work
out and put into operation ecological programmes regarding the protection of deposits and of the environment.
The Government of Komi, in its turn, will help LUKoil with its investment activity, in development of the mineral and raw material base and production
In 2002 Sibneft to increase volume of capital investments
During the current year Sibneft will increase the volume of capital investments in exploration, production and refining by more than a third compared with
2001. According to the Company's business plan for 2002 it will be US$686m against US$492m in 2001.
According to the press-service of the Company, the predesigned increase of output in 2002 will be 29.2% (from 20.6 million tons to 26.7 million tons). This
will help Sibneft become Russia's fifth largest oil producer.
Sibneft plans to actively develop production beyond the Noyabrsk region. The Company plans to spend US$137m at the Palyanovskoye and Priobskoye fields
licensed to the Sibneft-Yugra subsidiary. The production volume in 2002 is expected to average 715,000 tonnes. Sibneft will proceed with the development of
the Krapivinskoye field in the Omsk region.
In 2002 Sibneft intends to spend US$637m on exploration and production against US$448m in 2001. This total includes US$160m to be spent on the development of
the Sugmut field, which harbours proven reserves of 122 million tonnes. Sibneft also plans to increase output from the field by 89% to a target of 7.8 million
tonnes from 4.1 million tonnes in 2001.
Sibneft intends to invest US$49m in the modernisation of the Omsk refinery. It is 11% more than the 2001 total of US$44m. The refinery plans to raise the
share of higher margin products in its output slate, while leaving throughput largely unchanged at 13.284 million tonnes.
Sibneft will increase output of A-92 gasoline by 26% to 1.25 million tonnes from 998,000 tonnes in 2001. The Company will reduce the output of A-80 gasoline
from 1.9 million tonnes to 1.7 million tonnes and end the production of A-76 gasoline entirely. The Omsk refinery is to produce 28,000 tonnes of A-98
LUKoil to expand its activity in Volga Federal District
A meeting, devoted to results of the activity and future prospects of LUKoil's enterprises in the Volga Federal District, took place in Nizhny Novgorod on
April 9th. Russian President's Envoy in the Volga Federal District, Sergey Kiriyenko, and Governor of Nizhny Novgorod region, Gennady Khodyrev, attended the
While making his speech at the meeting, the President of LUKoil, Vagit Alekperov, pointed out, that the Volga Federal District was a base region for the
company's activities. Due to the purchase of the NORSI-OIL company in 2001, LUKoil, for the first time in its 10-year history ensured production and refining
balance. The company managed to optimise its organizational structure in the Volga Federal District and achieved a vertical integration of the business
According to the press-service of LUKoil, it was mentioned at the meeting that the company's investments in the region in 2001 amounted to about 15bn roubles
with 11bn roubles spent on oil and gas field exploration activities.
The main targets of company's activity in the Volga Federal District were also defined at the meeting. They are: achieving steady production growth supported
by the company's investments in regional oil and energy industry; ensuring profit growth of both production and marketing; supporting the regional budget and
its social programmes with increasing tax payments; matching production growth and environmental safety programmes.
Special attention will be paid to the modernisation and reconstruction of the Company's regional refineries. LUKoil-Nizhegorodnefteorgsintez's development
programme for the period up to 2005 is aimed at refining volumes increase up to 10 million tons per year, cost cutting and refined products quality
LUKOIL-Nizhegorodnefteorgsintez is planning to expand Company's oil products market in the Volga Federal District by means of the infrastructure development
that will accompany the increase in refining volumes. The feeding capacity of the Nizhny Novgorod via the Ryazan pipeline will also be increased. The economic
efficiency of Second stage of the Andreevka-Almetievsk pipeline is to be discussed.
Environmental safety activities in the region will be carried out in a strict compliance with Russian and international standards.
Social activities will include the further increase of employees' prosperity, including raising of salaries, pensions and medical insurance improvements. In
particular, LUKoil took an obligation to provide non-government pensions to more than 3,000 employees, in a strict compliance with LUKoil pension
Gazprom to discuss operation of gas pipeline Yamal-Europe
On April 4th 2002 a delegation from Gazprom arrived in Poland to carry out a regular round of negotiations regarding the gas pipeline construction
Yamal-Europe. Gazprom aims to discuss with its partner - Polish gas company PGNiG - questions of the gas pipeline's construction being built by
"EuroPolGaz" (Gazprom and PGNiG own a 48% stake in the company) framed by the Russia-Polish Intergovernmental agreement of 1993.
The core question relates to the financing of the construction of 3 compressor stations, which are needed in order to put into operation the first line of the
gas pipeline with a capacity of 33m cm per year. The operation of this pipeline was started in 2000, its transit capacity amounts to 20bn cm per year. In
accordance with the Intergovernmental agreement, the Polish side should provide the financing for the first pipeline amounting to US$350m, but actually has
financed only about US$150m.
Gazprom and RAO UES sign agreement on gas supplies
Gazprom chief, Alexey Miller, and UES head, Anatoly Chubais, have signed an agreement on gas supplies to energy generating enterprises of UES in the second
quarter of 2002, the press service of Gazprom reported.
According to the agreement, Gazprom is to supply enterprises of UES with 26.5 bcm of gas in the second quarter of 2002. This volume, including 3.78 bcm of
gas, which is to be supplied to federal power stations by Mezhregiongaz, will be supplied by Gazprom enterprises and independent gas producing enterprises.
Thus the total volume of the supplied gas in the second quarter of 2002 will be 1 bc more than was planned.
According to the agreement UES is to help Gazprom to get access to the Federal wholesale market of electricity. Wholesale prices for electricity will promote
optimisation of energy supplies of Gazprom's enterprises and will result in decreasing the cost of gas production and transportation.
Gazprom supplied UES enterprises with 140 bcm of gas in 2001. The expected volume in 2002 is about 139 bcm.
Russian gas major enters alliance with Schlumberger
Gazprom and the international company, Schlumberger, are setting up an alliance in the area of production and transportation of hydrocarbon crude, Interfax
news agency has reported.
Gazprom deputy CEO Aleksandr Ananenkov and Schlumberger president, Euan Baird, [the chairman and chief executive officer according to Schlumberger web site]
have signed a memorandum to the effect, the Gazprom statement distributed on 29th Marchsays.
"We are confident that combining the technological potential of our companies will optimise the development of fields, reduce costs and result in additional
profit," Ananenkov said after the signing of the memorandum.
The Gazprom press service said that the sides would prepare a detailed agreement on the technical alliance in the near future. A priority task for Gazprom and
Schlumberger is to implement projects to increase oil and gas production from low-yield wells and also to study the possibility of producing methane from coal
beds in the Kuznetsk basin [in Western Siberia].
First billion cubic metres of gas produced at North-Urengoi field
Nortgas has announced the production of the first billion cubic metres of gas at the North-Urengoi oil-gas condensate field. A foreign stockholder completely
financed the project of Neocomian deposits of the North-Urengoi field.
The core objects of the new complex, the roads and the village have been built, the necessary equipment and materials have been bought, and the building and
assembly jobs are completed. Twenty-four wells have been drilled and production has been carried out at 16 wells. Over 30 contracting organisations took part
in the field construction. The main equipment, excluding test instruments and automation means, was produced at Russian enterprises.
According to the press service, Nortgas plans to produce 4.5bn cubic metres of gas and 1m tons of condensate in the west of the North-Urengoi field in 2002,
and change to the planned production capacity of 5bn cubic meters in 2003. After putting into operation the eastern dome of the field, the production volumes
can reach 10bn cubic metres of gas per annum.
Nis, Gazprom ink deal on natural gas imports
Russian gas giant, Gazprom, and Serbia's state-run oil company recently agreed on a deal for imports of Russian gas amounting to US$81m to the Yugoslav
republic. The agreement, signed in Belgrade, will ensure 765m cu m (23.3bn cu ft) of natural gas for the energy-strapped Balkan nation for all of 2002.
Serbia, which together with tiny Montenegro makes up present day Yugoslavia, has until now relied on the Russian gas monopoly through a number of harsh
winters coupled with energy crisis, AP reported. Dimitrij Vukcevic, deputy manager of Serbia's state oil company NIS, said the deal was able to be realised
once the Serb partner had repaid last year's debt to Gazprom.
However, Serbia is hopeful of upgrading ties with the Russian giant "beyond simple purchases of natural gas," Vukcevic noted. The manager listed several
ambitious energy projects in which the Serbs hope to attract the interest of the Russians. Relations with Gazprom go back many years to when former Yugoslav
President, Slobodan Milosevic signed a pact with the company in 1999. That deal was for the supply of 7.3 million cubic metres (222.5 million cubic feet) of
gas per day to Yugoslavia at a time when its power grid and oil refineries had been severely damaged by NATO bombings. Following Milosevic's ousting in
2000, ties entered a strained phase over the country's debt disputes, leading to Gazprom cutting off supplies. Ties were strengthened following a Moscow
meeting in 2001 between Yugoslav President, Vojislav Kostunica and Russian President, Vladimir Putin, that cleared payments for old gas bills.
World Bank head upbeat on cooperation with Russia
There is no need for the World Bank to render large-scale support to the Russian budget at the moment, said World Bank President James Wolfensohn, who is
visiting Moscow to discuss a new cooperation programme with Russia, Interfax News Agency has reported.
The World Bank is switching to more specific projects in certain sectors, such as education, the medical system and institutional development, in which the
bank could extend relatively cheap and long-term loans together with the know-how, Wolfensohn said in an interview with 'Izvestiya.'
Wolfensohn confirmed that the drafting of a cooperation strategy between the World Bank and Russia has been actively supported by the Russian government.
The cabinet has prepared and authorized its own programme for cooperation with the World Bank in 2002-2004. These issues were on the agenda of a government
session for the first time in the history of the bank's work with Russia. Cooperation programme approved by the government envisages World Bank loans and
guarantees worth up to US$500m a year, Wolfensohn said. The government's decision to continue working with the World Bank in conditions when the budget is
implemented with a surplus shows that the authorities still highly value the established cooperation with the bank, he noted.
Wolfensohn did not deny that there are certain problems in beginning the implementation of authorized projects. However, he said the bank is aware that the
Russian government is taking steps in this direction and hopes that the suspended projects will soon begin to work.
Capital flight from Russia reaches US$300bn
An estimated US$300bn has been taken out of Russia, Interfax News Agency quoted Economic Development and Trade Ministry investment chief, Sergei Bayev as
saying recently. The gap between required and actual investment in the Russian economy could be narrowed if some of the capital that previously left the
country were to return, and if the capital flowing through the shadow economy, estimated at US$100bn to US$150bn, were to be legalised, Bayev told a round
table on Russia's economic strategy.
Investment from all sources currently totals US$50bn to US$60bn annually, he said. "Of course not all this money can go towards investment as a result of
the structural economic reforms now underway, but we hope that 30% to 40% of this money will go into the Russian economy in coming years," the news agency
quoted Bayev as saying. Russia needs more than US$100bn in investment to maintain economic infrastructure at current levels, and at least 30% more than this
in order to improve infrastructure, he said.
One of the Russian government's tasks at present is to stimulate domestic demand, which would create consumer markets, Bayev said. This would help to develop
such sectors as the automotive industry, shipbuilding, aircraft construction and others, he added.
The task facing Russia right now is to "create the same rules of the game for all investors entering the Russian market," Bayev said. Foreign investors
sometimes refuse to invest in manufacturing in Russia because they say the Russian government grants privileges to inefficient domestic producers, he noted.
FOOD & DRINK
Cherkizovsky to tap financial market for US$200m
APK Cherkizovsky, one of Russia's biggest meat-processing holdings, has plans for the next year and a half that include getting US$200m from the financial
market, President, Igor Babayev, said. The money is to be made with a stock market sale of a 25 per cent blocking share package, Interfax News Agency
reported. How to consolidate stock of all the holding's enterprises is under discussion and the blocking package could then be offered to potential
Babayev said a placement programme is being discussed with the bank Morgan Stanley, which owns 15.09 per cent of the stock in one of the holding's
enterprises, AO Cherkizovsky. "For the time being, it is the front-runner, but we have no obligations to Morgan Stanley," he noted.
Cherkizovsky will need a year and a half to implement the programme, he said, noting that the possibility of placing the stock on either the London or New
York Stock Exchange is being looked at. But he did not exclude the possibility that the stock could be offered on the Russian market. The earnings gained
from the placement are destined for strengthening the holding's raw materials base.
Cherkizovsky is looking to invest upwards of US$40m on production, Babayev said. The money will be put into refurbishing its various enterprises, as well as
expansion. In particular, US$16m will be aimed at the reconstruction of meat-processing plants in Ulyanovsk, Belgorod, Penza, Labinsk (Krasnodar territory)
and Salsk. This will allow the nine meat group enterprises to run at full capacity, the news agency quoted him as saying. Babayev noted that the possibility
of acquiring the Buguruslansky meat-processing plant in the Orenburg region, as well as enterprises in the Novosibirsk and possibly in the Far East, is being
looked at. A significant place in the holding's investment plans is occupied by agricultural development and strengthening the raw materials base for
processing enterprises, he said. "We don't want to get into the kind of situation in which livestock diseases abroad shut off shipments of meat to Russia,"
he said, as imported meat makes up around 70 per cent of overall volume of material processed by the holding's enterprises.
The company plans to be developing hog and poultry-raising in the next few years. It aims to put US$25m into poultry this year. This will make it possible
to double production to 30,000 tonnes per year, he said. The acquisition of a hog-raising complex in the Ulyanovsk region able to house 40,000 animals at any
one time is already practically done, he said. Company specialists are in the Rostov region looking at the possibility of buying poultry and hog farms.
Cherkizovsky has nine meat-processing plants, livestock farms in the Penza and Rostov regions and Krasnodar territory, seven poultry farms, some of the Moscow
region's biggest hog farms and meat and dairy complexes, a combined feed plant in the Penza region, a crop farm, a plant that bottles natural mineral water
and more than 20 retail outlets. It provides jobs for 15,000 workers.
The last five years have seen US$450m invested in the holding's development, and its yearly turnover has reached US$500m. Its enterprises turn out up to 500
tonnes of product per day, and it commands 11 per cent of the Russian meat market. Last year saw the holding up product output by 21 per cent to 176,840
tonnes against 145,760 tonnes the year before.
Kaffa Industries builds coffee plant in Moscow
Kaffa Industries, a Russian company, has started building a freeze dried coffee plant in Moscow region in Tomilino, Lyuberetsky district. The project price
tag is estimated at around US$50m, which will partly be funded by the company and partly with loans, Interfax News Agency reported.
The new plant, which should be launched at the end of 2002, will have the capacity to produce 5,000 tonnes of instant coffee a year. Russia only imports
freeze dried coffee at present. Plans to produce instant coffee in Russia have also been announced by Grand, which will build a plant costing around US$20m
in Mozhaysk together with Tata Coffee of India. Research shows that demand for freeze dried coffee in Russia is growing, but world production capacity is
taxed to the limit. Specialists say that it takes up around 15% of the Russian market for instant coffee, the market for which is estimated at 80,000 tonnes
Kaffa Industries also plans to package the coffee in Tomilino at the packaging plant launched in the Autumn of 2001. The plant, which has the capacity to
package 5,000 tonnes of coffee a year, cost the company US$10m. It reached full capacity in February 2002 and packages coffee with the brand name Kaffa
Elgresso. Kaffa Industries was founded at the end of 2000. Research the company has done indicates that the Russian coffee market is one of the most
promising in the country. Various estimates put its yearly growth at 10-15%, but coffee consumption is still extremely low.
McDonald's to open 25 new restaurants in 2002
American fast food giant, McDonald's plans to open 25 new restaurants in Russia in 2002, the company's public relations manager in Russia, Svetlana Polyakova,
told a news conference in Moscow on April 3rd. The cost of opening an average restaurant runs into US$2m, and for a larger restaurant up to US$1.5m, New
Europe has reported.
McDonalds has already opened one new restaurant in Moscow and one in the Moscow region this year, Interfax News Agency quoted Polyakova as saying. Starting
with the summer, the company will move into new regions, she added.
Mc Donald's restaurants will open in Voronezh, Rostov-on-Don, Naberezhniyie Chelny, Kazan and Almetevsk, Polyakova said. Talks are underway on opening them
in Sochi and Saratov she said. Of the 25 restaurants to be built, nearly half will be in Moscow and eight in St. Petersburg, the news agency quoted her as
The company now has 74 restaurants in 23 Russian cities, of which 39 are located in Moscow. Everyday, more than 200,000 people visit McDonald's restaurants,
all of which locations are served by the poultry-processing and distribution centre McComplex in Solntesvo. It was built in 1989 at a cost of US$45m.
McComplex has five production lines making 15,500 buns, 32,000 hamburger patties, 12,500 pies, 2,900 dairy mixes and 550 kilograms of liquid products per
hour. The centre turned out around 50,000 tonnes of product last year, 40,048 the year before.
Roughly 75 per cent of the materials McDonald's uses to make its food comes from Russian suppliers. Among them are a Moscow-based flour producer, a beef
producer in Penza and a milk supplier in Barybino. The company's chicken mainly comes from abroad because the cost is lower, company specialists said.
FOREIGN ECONOMIC RELATIONS
Italy promises assistance to Russian technical projects
Italy will provide assistance to Russian projects in the field of technical cooperation. An agreement to this effect was stipulated in the protocol of
understanding between the Russian and Italian governments for 2002-2004 which was signed in Moscow on 3rd April, ITAR-TASS News Agency has reported. This
assistance will take the form of funding part of expenditure on the Russian side.
Projects include professional management training, privatisation programmes, conversion and reorganization of Russian enterprises...
Russia and South Korea to boost economic cooperation in Maritime Territory
Russian and South Korean specialists discussed prospects for the construction and operation of an international industrial estate in Maritime Territory. They
are working on the city of Nakhodka, ITAR-TASS News Agency has reported.
The administration of Maritime Territory told TASS that the Nakhodka Free Economic Zone lures, as before, businessmen by its advantageous geographic position
as well as by the deep-water port, the only one in Russia's Pacific coast.
Under the project, the opening of the industrial estate will create 2,500 additional jobs. A delegation from South Korea has displayed great interest in
investing money in oil and gas projects on Sakhalin shelf, building a gas pipeline from Siberia to North Eastern Asia, in constructing a railway which will be
linked with the Russian Trans-Siberian Trunk Railway and in unveiling new sea and air routes.
Some 70 diplomats, businessmen, representatives of territories and regions of Siberia and the Russian Far East, as well as South Korean provinces, have been
examining the projects.
Much attention is being given to developing the fish industry, including prospects for boosting cooperation and for creating an international market of marine
products in the South Korean port of Pusan.
Baikal paper and pulp gets green light for World Bank loan
The World Bank will assign US$22-23m for the reconstruction of the Baikal paper and pulp plant, Deputy Prime Minister Viktor Khristenko, told the press after
having attended a meeting between President Vladimir Putin and World Bank President James Wolfensohn on April 4th, New Europe has reported.
The loan will be used to install a closed water system that will not reduce the plant's economic efficiency, Khristenko said. The World Bank will provide the
loan on very favourable terms, he stressed.
In all US$33-35m will be spent on the modernisation of the Baikal plant, Interfax News Agency quoted Khristenko as saying. A delegation of the World Bank
will visit the plant in May, and the project may be launched in June.
Relations between Russia and the World Bank are entering a new phase. Earlier, Russia obtained bridging loans, but now loans will be used for concrete
projects, Khristenko said. He said elements of the Russia-World Bank cooperation strategy for the next three years were discussed during the meeting. A
special document to this effect will be drafted, he noted. The World Bank will allocate US$300-500m in loans to Russia for specific projects within the next
three years, Khristenko said.
Anglo-American buys over 65% of Syktyvkarsky LPK
Anglo-American has bought a stake of more than 65% in Russian forestry company Syktyvkarsky LPK, Interfax News Agency quoted Stan Shulman, a member of
Syktyvkarsky LPK's board of directors, as telling a news conference recently. He said that independent international analysts value Syktyvkarsky LPK's fixed
assets at a little more than US$350m. He said the shares were bought from Russian and foreign investors in the forestry giant.
An Anglo-American division already owned a 20% stake in the company. After the deal for the stake of over 65% is legally formalised, Anglo-American will own
more than 85%. Anglo-American officials have said that the company has invested US$250m in Syktyvkarsky LPK over the past five years, allowing it to double
output of paper last year. Investment this year will exceed US$41m. Anglo-American plans to hold a shareholder meeting on May 30th and replace the Russian
forestry management, the news agency quoted Syktyvkarsky LPK Director General, Mikhail Magii, as saying.
He added that Anglo-American plans to nominate a new Board of Directors and new managers. Asked if he would retain his post, Magii said that he was 100% sure
he would not and not by his own choice. Officials at the industry and Science Ministry said that Syktyvkarsky LPK is one of the most successful forestry
companies in Russia. Syktyvkarsky LPK last year posted a net profit of about US$50m.
MINERALS & METALS
OEMK clinches US$4m loan
Oskol Electrometallurgical Combine (OEMK), one of Russia's biggest metallurgical enterprises, received a US$4m loan in March from Citibank. OEMK said that
the loan, intended to finance current operations, was extended on soft terms, reports New Europe.
OEMK earlier signed short and long term financing agreements with Sberbank, International Moscow Bank, Raiffeisenbank and Vneshtorgbank (VTB) in order to
bolster working capital. The company said that Russian and foreign banks are also providing loans for the US$350m-400m project. Construction of the mill was
begun in the mid-1990s. OEMK management expects the mill to be ready for launch later this year.
Rationalisation under way at major Russian steel firm
The restructuring of the Severstal open joint-stock company has begun. Izvestiya has reported that this process will lead to the separation of the three
areas of the holding company's work, the details of which were given in an interview by Severstal General Director, Aleksey Mordashov, with Izvestiya
correspondent Aleksey Kovalev.
Kovalev asked when the restructuring of Severstal would begin.
Mordashov replied: "The process has already begun. The upshot will be that it will lead to the separation of three areas of the holding company's work, which
we are calling divisions. They are Severstal itself with its metallurgical assets, the raw-material bloc, which will include the mining enterprises, and the
automotive bloc. We are planning to complete the restructuring by the end of the year. The structure of the joint-stock property of each of the holding
companies will be identical and the same as the Severstal current property structure. To put it simply, aside from their current shares, Severstal
shareholders will also get shares in two other companies - Severstal-Resurs and Severstal-Avto. The restructuring will only affect the property structure and
will in no way affect the enterprises' production activity or life; they will remain the same as they were and will answer to the same managers and the
enterprises' management structure will remain the same as it was..."
Kovalev then asked if a managing company would be set up.
Mordashov answered: "Not in formal terms. We are setting up Severstal-Group; this
will be one of the companies owning the shares. It will also be the focus of the central company's main staff. It will not manage the divisions' staff, only
monitor the progress of affairs in the companies on behalf of the owners."
Russian nickel firm to seek syndicated bank loan in West
Norilsk Nickel Mining and Metals Company (Norilsk Nickel MMC) has decided to seek a syndicated Western bank loan using 60,000 tonnes of nickel as collateral,
a company official has said.
"We can't say how much the loan will be worth right now. This will depend on two factors - the market value of the metal when the deal is closed and our
external borrowing requirements," Aleksandr Popov, the company's chief treasurer, told Interfax.
Popov said CS First Boston, ING and Standard Bank would co-organise the loan.
"Hopefully, the deal will be finalized in early May and we have already entered the final stage, with metal being shipped as collateral to Western European
and Asian storage places," reported Popov.
The chief treasurer did not reveal the conditions of the credit deal, citing confidentiality, but revealed that the credit would be "on terms very lucrative
for Norilsk Nickel." The credit's recoup period is three years.
According to Popov, Norilsk Nickel plans to use the funds received on credit "for a number of investment projects concerning production."
Norilsk Nickel is the world's largest producer of nickel, platinum metals, and copper. It exported 177,400 tonnes of nickel and 422,000 t of copper in 2001.
The Interros group holds the key share in Norilsk Nickel.
Armenian government approves Russian diamond deal
The Armenian government on 29th March gave consent to an agreement with Russia on supplies of Russian natural diamonds to the country in the years 2002-2006,
Mary Arutyunian, the head of the governmental public relations service, has said, ITAR-TASS News Agency has reported.
The agreement will be signed in the next few days, she said.
Russia is expected to supply 400,000 carats of raw diamonds annually to Armenia's jewellery producers in the years 2002 and 2003. The supplies will go up to
450,000 carats in the years 2004-2006.
The exports of technical diamonds to Armenia will stand at 400,000 carats this year to grow by 100,000 carats annually in subsequent years.
The Russian government endorsed the bilateral agreement on diamond exports on 21st March. The jewels will be exported by the Diamonds of Russia-Sakha (ALROSA)
company and the state trading company, Almazyuvelirexport.
Russian diamond giant plans small cut in output this year
The diamond mining company, Alrosa, plans to produce US$1,584m worth of diamonds this year. The sale of rough and cut diamonds may amount to more than
US$1,800m, a general meeting of Alrosa personnel was told in the town of Mirnyy on 30th March, ITAR-TASS News Agency has reported.
According to information from Yuriy Beskakotov, Alrosa's press secretary, US$1,665m worth of diamonds were mined in Yakutia in 2001, which was 2.6 per cent
above the production level in the previous year. The sale of the main product ran at US$1,738m, including US$130.8m worth of cut diamonds. The company's
profit from the sale amounted to R19,550m...
SCIENCE & TECHNOLOGY
Russia displays radioactivity detection system
A highly sensitive system used to detect and identify nuclear substances has been presented by the Iron and Steel Metallurgy Research and Development
Institute at the Arkhimed 2002 international exhibition held at the Sokolniki exhibition centre in Moscow, one of the developers of the system Nikolay Valuyev
told Interfax-Military News Agency on 29th March.
Valuyev said that the system had been designed for operational control over cargo, transportation means and luggage in order to prevent illegal transportation
of nuclear and radioactive substances on transportation routes.
The device comprises detection units, photoelectric presence sensors, alarm units and a computer with interface modules. The system boasts unmatched
high-sensitivity characteristics; it is capable of identifying the nuclear composition of the substance and determine the above-background emission power of
The system excels over similar assets abroad in its detection capabilities and false alarm prevention characteristics.
Russian scientists discover new way to forecast quakes, landslides
Novosibirsk scientists have invented a device capable of detecting the slightest of underground fluctuations.
NTV Correspondent Tatyana Lepkina reported that scientists of the Novosibirsk Mining Institute have designed a device allowing people to register the
slightest fluctuations of rock movements.
The creators of the multi-channel optic and electronic deformometer [the name of new device] said that it can detect fluctuations in geological plates that
normal seismic monitors do not cope with - either they do not display anything or they give an off-scale reading.
The discovery of the so-called deformation waves is the basis of the new invention.
The device is deployed in a shaft at a depth of up to 20 metres. When a rock moves, the monitor's position in relation to the drill rod changes. The signal
indicating this is received by a special reading unit and is later deciphered.
Scientists say that the new device can help study in detail deformations in the zone of an earthquake, shocks or explosions. Thus this information will help
forecast both natural and technical earthquakes.
Viktor Oparin, the head of mining geophysics laboratory at the Novosibirsk Mining Institute said: "This is a model which helps us understand what happens in
the zones [of deformation] and how large earthquakes happen."
Specialists say that the deformometer will be widely applied. Its various modifications can be used in mining to prevent landslides and to diagnose problem
zones when underground stations, bridges and other facilities are being constructed.
Russian defence works invents new heating system
Presenter Aleksey Sukhanov on Russian NTV reported that a unique heating device has been invented at the Obukhovo plant in St Petersburg. It can be moved
from place to place and used both in big towns and in ice-houses. The developers of the project say the invention will be useful for rescue workers.
The mobile heating plant weighs only 12 tonnes and can heat a residential area of several apartment houses. The designers say that this mini-heater is unique.
Yevgeniy Rodin, senior engineer with BSK energo said: "If an area is left without heating, this device can be supplied to deal with the emergency. The
heater can be promptly delivered and switched on."
The St Petersburg designers have tried to integrate various Russian enterprises' products into a single whole. Among the potential buyers are the railways and
children's homes in Moscow. There are orders coming in from depressed areas in the Far East and Chuvashia. The St Petersburg inventors say that they can
provide Russian and foreign rescue workers with such mobile heaters. The coal-fired compact heater could be used for polar explorers. The heaters can be
delivered to permafrost zones by air.
The workers at the old military Obukhovo plant hope that producing such non-traditional heating sources will enable the specialists not only to pay off
arrears but also to invest in new high-tech production processes.
Vietnamese company to repair Russian ship
Representatives of Russia and Vietnam have signed a contract on repairing Russia's rescue ship Igor Maksimov in Vietnam. The contract is worth US$553,000.
The local press reports that work on servicing the ship assigned to Sakhalin's port will be carried out by the Vietnamese ship-repair company Songthu,
ITAR-TASS News Agency has reported.
Igor Maksimov is one of the two rescue ships which are part of the fleet of the joint Russian-Vietnamese oil extracting enterprise Vietsovpetro situated in
the south of Vietnam.
Before, repair works to the ships belonging to the joint venture were carried out in ship-yards of North Korea and other countries. Now an agreement reached
with the Songthu company will make it possible to considerably lower the costs on maintaining its fleet, the press notes.
Russia to sell state shares in telecoms firms this year
The Russian government has approved a list of eight telecommunications companies in which federally-owned stakes are to be sold off this year, the government
information department said, Interfax News Agency has reported.
These include a stake of 25 per cent minus two shares in Russian telecommunications holding company, Svyazinvest (following the company's restructuring),
22.06 per cent of Kursk Region Elektrosvyaz, 22 per cent of Yamal Elektrosvyaz, 20 per cent of Svyaz in Bratsk (Irkutsk Region), 12.31 per cent in Svyazinform
Penza Region, 7.11 per cent of Chelyabinsk Svyazinform, and 5 per cent of Svyazist in the Novosibirsk Region town of Barabinsk.
The government has also approved a list of wholly state-owned federal unitary communications companies that will be reorganized into open joint-stock
companies this year. These will be Krasnoyarskservis and the Tver Computer Equipment and IT Company.
Siberian underground railway project under-financed
At the current rate of investment, the underground railway system in the Siberian city of Krasnoyarsk will open in 20 years rather than seven, Krasnoyarsk
commercial Afontovo 9 TV reported.
In a news report on 20th March, the TV said the municipal authorities were allocating R3 million [US$100,000] a year when R50 m was needed.
Territory administration chief finance officer, Anton Mikhalev, confirmed the low investment figure, adding: "It is more important to pay wages to teachers
Long-distance rail travel in Russia to be more comfortable
Russian railway men have begun work to upgrade comforts for rail travellers, who will soon have showers, microwave ovens, refrigerators and satellite
telephones at their disposal when travelling across the vast expanses of the country.
A source in the press service of the Railways Ministry told ITAR-TASS News Agency that the long-distance trains would be the first to be modernised. One
renovated train is already running on the Moscow-Vladivostok line that takes seven days to cover.
As the long trip is tiring, more convenient ergonomic berths-cum-seats have been installed in two types of its sleeping cars. The wagon-lits cars are equipped
with video-players and video cameras are installed in the passages connected to the display screen in each car's conductor's compartment. Each compartment
door can be blocked.
This kind of equipment is due to be installed on all long-distance passenger trains. They will also be fitted out with devices that will feed data regarding
the status of all links and details to the main train computer. Any malfunction will be immediately reported to the nearest railway station where specialists
will replace the faulty details.
INVESTMENT BACKGROUND REPORTS
Our analysts and editorial staff have many years experience in analysing and reporting events in these nations. This knowledge is available
in the form of geopolitical and/or economic country reports on any individual or grouping of countries. Such reports may be bespoke to the specification of
clients or by access to one of our existing specialised reports.
For further information email:
Considering an investment or a trip to any newnation? First order our Investment Pack which will give you by e-mail the last three monthly
newnation reports and the complete worldaudit democracy check for the low price of US$12. The print-out would be a good companion to take with you. Having
read it, you might even decide not to go!
To order please click here:
Investment background report