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  RUSSIA

REPUBLICAN REFERENCE

Area (sq.km)
17,075,400

Population
145,470,197

Principal 
ethnic groups

Russians 82%
Tatars 3.3%
Ukrainians 2.7%

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

Currency
Rouble

President
Vladimir Putin

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

Update No: 261 - (26/09/02)

The Russians are doing a lot better than in the late 1990s. They have made a remarkable recovery from the 1998 crash. The rate of GDP growth was 8% in 2000 and 5% in 2001, with something similar likely this year. Moscow ended 2001 with a 70% rise in stock market values, ahead of any other bourse world-wide. While the FTSE 100 index has dived this year, the RTS in Moscow has grown 30%, outperforming rivals. Indeed, between October last year and May there was a 140% rise in the RTS index. It has fallen back since May, but remains healthy compared to others.
Of course GDP figures are deceptive and do not indicate the scale of poverty or the base from which recovery came. The country is still plagued with an under-class that is huge, while employment is for dreadfully low wages by Western standards. But even the poor and the really destitute tend to look favourably on Putin, curiously enough. His standing stays around 70% in the pools, an astonishing thing in the circumstances.

Putin's popularity
The reasons for this phenomenon are complex. He is and looks young by politicians' standards in Russia. The comparison with Yeltsin or even Gorbachev is obvious. His martial arts persona impresses people in a country where one million people are bodyguards. The assault on Chechnya looked and was brutal in Western eyes, but has transformed his status in Russia from being a virtual unknown when he was appointed premier in August 1999, to becoming the indispensable man in March 2000, when he was elected president. He looks and is strong to the Russians and a touch of brutality only enhances that impression. So does his pronounced sexism. He has always refused to help in the house, says his wife, and if he dislikes his dinner refuses to eat it and demands another. A real he-man in Russian eyes, and not just male ones either.
Then the economy doing well has greatly helped him. He must be concerned to know how long the good times will last.

Reform to the fore
The moment Putin came in he made it clear that he was a reformer, and one who meant to show by just how much. He embarked upon a series of reforms sector-by-sector.
A murky network of corruption between state officials, including ministers, and middle men in the private sector is exposed and then a new team, supposed squeaky clean, is installed to promote reform.
The oil industry received this treatment last year; the gas one is perhaps due it in the wake of top management changes at Gazprom. The arms exports sector, a nest of dubious practices, has been put under the microscope. So has the minerals sector. And others are doubtless to follow.
Foreigners have been put off by the scale of corruption and chicanery. Even BP became the subject of a dubious deal last year that saw it lose over US$200m in buying shares in Sidanko, although it has subsequently recouped the situation somewhat.

Oil industry opens to the West
The Russian oil industry is leading the way in forging new ties with the West. A spate of appointments to top jobs on Russian firms' boards is under way.
The two largest firms are LUKoil and Yukos. Lord Owen, has been appointed as head of Yukos Oil's International headquarters in London. Lord Owen, as David Owen was UK Foreign Secretary in 1978-79 and for a time the Leader of the breakaway Social Democrat Party, the existence of which assured Thatcher eighteen years in power. He has long had dealings with Russian companies, such as metals firm, Middlesex Holdings, of which he was chairman and Europe-Steel.com., of which he was vice-chairman, and involvement in the Balkans into which Yukos intends to expand. Another centrist UK politician is the ex-head of the Liberal Democrats, Paddy Ashdown, now International High Representative in Bosnia. Whether they are even on speaking terms is another matter. The real foe in politics is always on one's own side.
For the Russian head of Yukos, Mikhail Khodorkovsky, the role of Lord Owen is "to focus on negotiations with European governments and prospective partners and guide the company in its accelerated programme of expansion outside Russia." Yukos is looking to expand its complex web of offshore companies and is seeking a Russia-to-Croatia pipeline. Yukos now has five foreign non-executive directorships and has acquired two big foreign firms in John Brown Hydrocarbons and Davy Process Technology.
LUKoil has been well aware of Yukos' evolution and is going down the same route. It has foreign non-executive directors in Richard Matzke, former Chevron-Texaco vice-chairman, and Mark Mobius, head of the Russian division of Franklin Templeton Investments, the world's largest emerging markets fund.
Another Russian oil giant, TNK International, recently secured Sir Peter Walters as chairman of its recently-created advisory board. He was chairman of BP from 1981 until 1990 and in charge of Smith-Kline Beecham from 1994 to 2000. Also on the TNK board is Sir William Purves, former chairman of banking giant, HSBC, and an ex-president of the General council of British Shipping.
TNK also looked to the US with the appointment of James Harmon, to its supervisory board. He was president of the US Export-Import Bank in 2000 when it extended half a billion dollars in loan guarantees to TNK, a deal opposed by BP.
As Marina Dracheva of Energy Compass says: "Russian energy companies are now striving to outdo one another to show to the world that they are both creditworthy and investor-friendly." They are "eager to tap international financial markets for more cash to feed their appetites for growth and to find strategic investors to fund their global ambitions."
It is not only oil companies that are taking this route. David Herne, a fund manager at Brunswick Capital Management, is on the board of electricity giant, United Energy Systems (UES). His is an independent voice urging greater openness and access for foreign firms in a sector which is in profound need of reform. UES is headed by Anatoly Chubais, who, as a fellow Leningrader in the old days, got to know Putin early on. He brought him to Moscow from St. Petersburg under Yeltsin and in effect created his metropolitan career. This is perhaps why Putin has been slow to put pressure on UES to reform. But Chubais is bright enough to know which way the wind is blowing; his career has been based upon it.

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AGRICULTURE

Russia plans to export 10m tonnes of grain this year

Russia is expected to export about 10m tonnes of grain this year, First Deputy Agriculture Minister, Anatoliy Mikhalev, said at a conference entitled "Large Crop - Big Problems" in Moscow on 4th September, Interfax News Agency has reported.
He said that Russia exported about 5m tonnes of grain in 2001.
Mikhalyov also said that Russia has very good grain export potential in 2002. Canada plans to buy around 12.6m Canadian dollars worth of Russian grain, as it is likely to harvest less grain than usual this year.

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AUTOMOBILES

Japanese Kanematsu signs memorandum with Kamaz

Top managers from Japan's Kanematsu Corp., and Mitsubishi Heavy Industries have signed a memorandum with Russian truck maker Kamaz in Naberezhny Chelny on the completion of supplies, installation and launch of equipment to upgrade engine production as part of the so-called Japanese contract, said Kamaz Acting Deputy General for Corporate Governance and Development, Anton Troyanov. "The main problems with the implementation of the contract were resolved by the parties in December of last year," he said, adding that during their last visit to Kamaz the Japanese delegation reviewed the equipment provided on an earlier contract and the installation work and discussed the current contract. 
Kamaz has received around US$140m worth of equipment and installed US$63m worth, Troyanov said. Remaining equipment to the value of US$16m will be supplied in 2002 and launched in 2003. Implementation of the Japanese contract will be a decisive step toward turning Kamaz into a major engineering company that manufactures competitive products to international standards. With the completion of the contract, Kamaz will have flexible production of high-precision parts for Euro-2 and Euro-3 engines, New Europe reported recently.

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AVIATION

New air traffic regulations


Next year Russian aircraft traffic will no longer comply with air traffic regulations put in place in Soviet times, when on January 1st 2003 Russia cancels the Main Rules of Flights in the Air Space of the Soviet Union. Instead, new Federal Air Traffic Regulations, valid for flights in the Russian Federation's air space, will be enforced. The Russian Mirror has reported.
The regulations have been approved by an order issued jointly by Defence Minister, Sergei Ivanov, Transport Minister Sergei Frank, and Managing Director of the Russian Aerospace Agency, Yuri Koptev.
The Regulations will be informed by government decrees and will be binding for all aircraft flying in the Russian Federation's air space.
So what are the changes compared to the previous version?
First the intervals of so-called vertical separation. Similar Western European regulations envisage that the distance between one aircraft flying over another should be 300m minimum. Russian standards used to be higher, but now Russian requirements will comply with European ones.
The new regulations for flights in the Russian Federation's air space include enhanced air traffic security rules.
Captains of aircraft flying along cross trajectories at the same altitude are charged with securing a safe distance between them. In order to ensure flight security when encountering dangerous meteorological phenomena, malfunctioning equipment, and so forth, the captain of an aircraft has the right to change altitude, reporting immediately to the ground control.
Supersonic flights are not now allowed at an altitude less than 11,100m, with the exception of certain special zones. Those limitations are now applicable, however, to aircraft on missions relating to guarding and defending national borders.
Demonstration flights should be performed at a distance of no less than 200m from any spectators. Over-flights of the visitors' zone are forbidden.
The new regulations also stipulate that flights over Polar areas can be performed only by specially trained crews and specially equipped aircraft.

Russia to launch five space rockets in October

Plans are afoot to launch five space rockets in Russia in October 2002, ITAR-TASS News Agency was told at Rosaviakosmos [Russian Aerospace Agency] and at the Defence Ministry on 6th September.
In accordance with the federal space programme, Rosaviakosmos is planning to launch on 17th October from the Baykonur cosmodrome with the participation of space forces experts, a Proton booster with a European astrophysical observatory on board as stipulated by the Integral programme. The launching is to be done for the European Space Agency.
A piloted Soyuz TM space transport vehicle is to be launched on 28th October by means of a Soyuz booster. It will be used on the International Space Station as a rescue vehicle in case of an emergency.
The Russian Space Forces are planning to effect three launchings from the Plesetsk cosmodrome. A Russian Foton-M space vehicle is to be launched by means of a Soyuz booster on 15th October in keeping with the federal space programme. The sputnik will have on board equipment of the European Space Agency.
It is planned to launch a military-purpose space vehicle by means of a Molniya-M booster on 22nd October. October 29th was fixed as a preliminary date for launching two space vehicles by means of one Kosmos-3M booster: Alsat-1 (scientific research, Britain) [a joint British and Algerian project] and Mozhayets, developed with the participation of scientists and cadets of the St Petersburg Military Space Academy.

Russian booster to launch US spacecraft to moon

The American spacecraft, Trail Blazer, will be launched to the moon on Russia's booster rocket Dnepr. The commercial launch is scheduled for June 2003 from Baykonur cosmodrome, Kazakstan, the marketing director of the Russian-Ukrainian-Kazak company Kosmotras, Vladislav Solovey, told ITAR-TASS News Agency on 11th September.
"The American company TransOrbital indeed is going to use the Russian booster Dnepr for launching to the Moon its first commercial craft," he said.
"In keeping with the contract signed in 2001, Dnepr is to bring to a low orbit a module consisting of the American spacecraft and a solid fuel engine. It is to accelerate the craft and put it on the trajectory of the flight to the moon. And this should indeed become the first launch to the Moon of a commercial unmanned craft," Solovey said.
The Dnepr booster is a conversion of the intercontinental ballistic missile RS-20, which is SS-18 or Satan in the American classification.
Dnepr's power places it between light- and medium-class rockets. It can bring to orbit up to 3,600 kg of payload. The rocket has two successful launches on its record by which six science and commercial satellites were placed in orbit.

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BANKING

Russia to sell stock in 25 banks in 2003 

The Russian government in 2003 plans to sell small packages of shares owned by state-run unitary enterprises in 25 banks, including Sberbank, Vozrozhdeniye, the Bank of Moscow, the Moscow Industrial Bank and Pervoye OVK, Interfax News Agency reported, citing the 2003 privatisation programme appended to the draft budget sent to the State Duma.
According to the programme, 0.017% of the Bank of Moscow, 0.01% in Vozrozhdeniye, 0.95% of the Moscow Industrial Bank, 3.42% of Pervoye OVK, 26 shares (0.0026%) of Sberbank, 0.123% of Svyazbank, 0.025% of Tveruniveralbank, 0.043% of Chelyabinvestbank and 0.07% of Investbank stock are to be sold. The government plans to privatise shares of 628 joint stock companies and 435 federal state-run unitary enterprises. The programme leaves the government free to decide on the conditions and time-frame for privatising shares of Svyazinvest, the Magnitogorsk Metallurgical Plant and Slavneft. Moscow's Central Telegraph is included in the list of communication enterprises to be privatised in 2003. All state-owned shares, accounting for 21.78% of the company's charter capital, are to be sold. In the oil and gas industry, 0.07% of shares in YUKOS, 5.27% minus one share of Slavneft, 0.95% of shares in the Moscow-based East Siberian Oil and Gas Company are to be sold.

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CREDIT RATINGS

Fitch changes outlook to negative for Russia's Rosbank

Fitch Ratings, the international ratings agency, has recently changed the Outlook on Rosbank to Negative from Stable but affirmed its Long-term rating at, 'B-' (B minus). The bank's other ratings have also been affirmed as follows: Short-term 'B'; individual 'D'; and support '5T'.
The negative outlook for the Long-term rating reflects the lack of progress made by Rosbank in improving its performance and developing third party business, and the decrease in its capitalisation in 2001. Rosbank has not fulfilled Fitch's expectations for 2001 and 1H02, with assets growing slowly and related party business still substantial.
Core performance improved in 2001, but continues to be weak partly a result of the low interest rates earned on loans inherited from Uneximbank (Unexim) as a result of the latter's restructuring. The bank's equity/assets ratio fell in 2001 due to the losses reported under International Accounting Standards (IAS). As such, it is not strong when viewed in the light of potentially low loan loss reserves, particularly on the former Unexim loans.
Rosbank's strategy is to focus on large and mid-sized companies in order to grow. However, there has been little evidence of any success in this area thus far and, given the competitive nature of this sector, this goal is likely to remain challenging as is significantly improving profitability. Additionally, an injection of capital would be required in order to ensure and adequate level of capitalisation.
However, Fitch comments that Rosbank's loan book, excluding the former Unexim loans, has been performing and contains lending to some of the more reliable sectors of the Russian economy. The focus on large and mid-sized companies means that the performance of the loan book should not be significantly worsened. In addition, the bank's funding is better structured and has a longer tenor than most Russian banks, although Interros companies continue to provide a substantial share. Furthermore, the consolidation of Rosbank and MFK Bank (MFK) should take advantage of the complementary aspects of the business.
Founded in 1992 as Nezavisimost Bank, Rosbank was acquired and renamed by Interros in September 1998, in effect, becoming the successor to the business of Unexim. Following the completion of a restructuring of Unexim's obligations to its creditors in 2000, Rosbank assumed, through one of its subsidiaries, certain assets of Unexim. Rosbank ranks in the top 10 Russian banks in terms of its IAS equity, has 13 full branches in the regions of Russia and eight subsidiaries, of which three are located outside Russia. At the end of 2001, it employed 2,023 staff. It is an open joint-stock (public limited) company, which is currently c.52% controlled by Interros. Interros is one of Russia's leading Financial Industrial Groups, with interests in the metals, power machine building, aircraft engine manufacturing and agricultural industries. Norilsk Nickel, the world's largest nickel producer, is the group's most significant investment. In 1H02, the shareholders of Rosbank and MFK, Interros' other bank, decided to consolidate the two institutions by transferring most of MFK's staff and business to Rosbank. For further information contact: Alexander Giles or Natasha Page, London. Tel: +44 020 7417 4222

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ENERGY

Iraqi's Sabri examines oil and gas projects in Russia 

Iraqi Foreign Minister, Naji Sabri, during a brief working visit to Moscow, met with Russian Energy Minister, Igor Yusufov on September 2nd. Diplomatic sources said "overall economic ties between Moscow and Baghdad, especially in the oil and gas sector, were discussed." 
Held after Sabri's talks with his Russian counterpart, Igor Ivanov, the meeting wrapped up the programme for contacts between the Iraqi foreign minister and senior Russian officials, sources said.
Russian oil companies are helping reconstruct Iraq's oil infrastructure and are positioned to reap significant benefits in the future. Russia and Iraq also are negotiating a 10-year trade agreement, which envisions new cooperation in oil, irrigation, agriculture, transportation, railroads and electrical energy. Iraqi's ambassador to Russia, Abbas Khalaf, has said the deal is worth US$40bn

Russian gas, oil giants agree to work as partners in Caspian Sea 

Gazprom CEO, Aleksey Miller, and LUKoil President, Vagit Alekperov, signed an agreement of intent on 5th September, according to which the companies will participate in a project to develop the northern part of the Caspian Sea on a partnership basis, Gazprom said in a press release, Interfax News Agency has reported.
"I met with Vagit Yusufovich a little over a week ago and agreed on the preparation of a major agreement. But we can already speak of results from cooperation between the two companies in this area. The pace of the implementation of our strategic tasks indicates a good future for our joint work," Miller said after the agreement was signed.
The press release noted that a protocol to the agreement between Kazakstan and Russia on the division of the sea-bed of the northern part of the Caspian Sea from 6 July 1998 involves the development of the central structure in the northern part of the Caspian by authorized companies from Russia and Kazakstan.

Sakhalin-1 'Viable' 

A Japanese consortium considering a plan to build a Japanese pipeline to deliver natural gas from the Sakhalin-1 energy project, has said that the pipeline would be technically and commercially viable. 
A spokesman for the Japan Sakhalin Pipeline Co. Ltd. said further studies would be made on the project, including whether to set up an operating company. 
He added that a decision on whether to begin construction must be made by next year to meet a date set by Sakhalin-1 project operator, ExxonMobil Corp., which wants to make the pipeline operational by 2008. 
The spokesman declined to estimate construction costs, but said it would be largely in line with Western standards. 

Russian oil giant offers to buy into Polish refinery 

LUKoil President, Vagit Alekperov, held a working meeting with Polish Prime Ministe,r Leszek Miller, in Warsaw, a source in the LUKoil press service told Interfax News Agency.
At the meeting a proposal was confirmed fom the Russian company to acquire, together with Britain's Rotch Energy, 75 per cent of shares in the Polish oil refinery Rafineria Gdanska from the state company Nafta Polska. "Now we are waiting for a reaction from the Polish side," the source said.
As reported earlier, in mid-June the British company Rotch Energy and LUKoil submitted a joint bid to acquire 75 per cent of shares in the refinery. Rotch Energy should own 51 per cent in the Russian-British consortium and LUKoil 49 per cent.
The Polish government announced at the end of August that it would not influence the decision on the privatisation of the refinery by Rotch Energy and LUKoil.
Meanwhile, the Polish oil company Nafta Polska has recommended that the country's Property Ministry sell the shares to the consortium.

New underwater oil terminal completed in northern Russia 

An underwater complex for loading crude oil from the Timano-Pechorskiy oilfield onto tankers is ready for use by specialists of the Murmansk shipping line, an ITAR-TASS News Agency correspondent was told at the shipping line's head office.
According to experts, it is the lack of such a terminal that has so far held back the exploitation of the Timano-Pechorskiy oilfield and the implementation of large-scale projects for the export of Russian Arctic oil to western Europe and America. Now this obstacle has been removed. The new complex will start working at full capacity no later than the end of September.
The new terminal will allow up to 20m t of oil to be loaded practically all year round. The continental shelf-based terminal, which is the only one of its kind in the world, was immediately patented and certified by technical and law-enforcement agencies of the Russian Federation.

US to open its market for Russian energy

The United States seems ready to open its market to Russian energy companies and to up its investment in the Russian fuel and energy complex, if the upbeat signals from a recent visit to Moscow by US secretary of energy Spencer Abraham, prove well-founded, The Russian Mirror has reported.
The key idea running through Abraham's talk's with Russian ministries and at Gazprom and with leading oil company executives was "long-term mutually-advantageous cooperation."
Sector analysts say that strong pragmatic reasons underlie the friendlier approach from the States, not least because the US is the world's largest oil consumer. Its hydrocarbon raw material reserves are shrinking and relations with Middle Eastern countries, the main suppliers of oil to the US, have seriously worsened of late. This has compelled the Americans to look for a new reliable supplier of "liquid gold."
The Americans could ensure their energy safety by importing Russian oil.
For Russian companies, the US market is a market segment that has not been fully studied, but the oil companies are interested in developing it. And it is natural (and more profitable) for a seller to have more buyers.
By moving to a new market, Russia will depend to a far lesser extent on OPEC dictate and, should world oil prices fall, the Russian oil industry will not sustain the considerable losses it did this year as a result of forced export limitation.
For its party, American is hoping that thanks to supplies of petroleum products from Russia, prices for this "liquid gold" might begin to drop.
Russian energy minister, Igor Yusufov favoured a growth in oil supplies to the US. At the same time, he said that most petroleum products, rather than crude oil, should be the focus of exports. New Russian transport infrastructure will need to be built and US investors are prepared to directly participate in what Igor Yusufov called "a top priority." The existing system will soon be unable to cope with growing export demand. Moreover, all Russian main pipelines go to Western Europe. Pipelines to the east have to be built virtually from scratch. Given the country's mutual interest, they can lay pipelines, equip ports and build the requisite infrastructure very quickly indeed.
The most important thing for Moscow is to fix volumes and time-frames for supply of energy resources. A Russian-US oil and gas symposium due early in October in Houston should clarify some of these issues.
As distinct from oilmen, the gasmen are not showing much interest in this raw materials market: it is saturated enough and there is no shortage of natural gas there, a Gazprom spokesman recently told Trud.
At the same time, there are plans to organise supplies of liquefied gas to the US and to build a gas-liquification plant on the coast of the Arctic ocean as part of the project for developing the Yamal peninsula. Methane tankers will haul products via the Northern Sea Route to world markets, including America.
Participation by US investors and specialist companies in the development of the Yamal peninsula and the adjoining areas of water, as well as in extending the Unified System of Gas Supply to the East, up to the Pacific coast, may provide a strategic line of cooperation in the gas sphere.
The implementation of these projects will, of course, mean heavy investments: tentative estimates put a price tag of US$40bn on developing Yamal, while the laying of a pipeline to the east could total a trillion dollars.
As transport systems in the major geological basins of Eastern Siberia are developing, geological prospecting work is being stepped up.
For his part, Mr Abraham said that the USA was prepared to finance the geological prospecting of Arctic shelf oil and gas deposits in Eastern Siberia, in order to find out which of them would be most attractive to foreign investors. 

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FINANCIAL NEWS

Putin proposes commission for integration projects with Belarus

Russian President Vladimir Putin has taken a step that could help defuse the ongoing conflict between Moscow and Minsk over the establishment of a union state and make the discussion calm and diplomatic. The Belarusians have received a proposal to set up a joint commission for discussing various patterns for unification. Putin said this in a letter to [Belarusian President] Alyaksandr Lukashenka which was delivered to Minsk, it was reported by TVS on 4th September. 
Previous difficulties in the process of negotiations stemmed from the huge scale of the task, the letter reads. It will probably take the commission a long time to tackle such an enormous task. For now, Putin is proposing that Lukashenka pool efforts to boost economic cooperation and trade, and to establish a common tax and customs zone. The experts will look at various integration models. Putin mentions three of them in his letter: the complete merger model which offended Lukashenka so much; an association organized like the European Union; and the vague idea of unification based on the existing Union Treaty, as favoured by Lukashenka.

Capital flight from Russia to fall to US$9bn-10bn next year

Net capital outflow from Russia is expected to drop to US$910bn this year from US$16bn in 2001, Deputy Prime Minister and Finance Minister Aleksey Kudrin said at a ministry meeting, Prime-TASS News Agency has reported.
The meeting celebrated the ministry's 200th anniversary and Kudrin used it to praise the government's recent financial and economic performance. He pointed out that inflation has fallen 75 per cent when compared with 1998 and that Russia's gross domestic product (GDP) now exceeds 1997 levels by 24.5 per cent. He said the government's next task is to decrease the tax burden in the short term, by improving the tax-collection system and cutting state spending.

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FOOD & DRINK

SABMiller to wrap up US$60m project in Kaluga next spring

The international company SABMiller intends to complete a US$60m development project at its brewery in Kaluga in May of next year, Interfax News Agency quoted the director General of TransMark, the company's Russian subdivision, Alan Richards, as telling a Moscow press conference. The launch of the new production facilities, the first line of which will go into operation next March, will make it possible to up the enterprise's production capacity from its current 200m litres to 360m litres. Richards noted that the company is working out another two shop-building projects. "If need be, we will start building another two shops," he said, adding that this could take place in two or three years. After those go into production, the enterprise's output would increase to 600m litres of beer per year.
SABMiller ties the development of its Kaluga brewery to its introduction of a new beer label, Tri Bogatyrya, onto the Russian market. This beer is aimed at the so-called normal or regular beer market segment. "We have to get into this segment if we are to become a major player on Russia's beer market," the news agency quoted Richards as saying.

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FOREIGN ECONOMIC RELATIONS

Putin underlines importance of business ties with Germany

President Vladimir Putin called on Germany on 3rd September to be more active in investing money in the Russian economy, ITAR-TASS News Agency has reported.
The Russian head of state said at a Kremlin meeting with Russian managers who had been trained in Germany, that the volume of German investments into the Russian economy tops 6bn Euros, but Germany was only placed only fifth in the amount of direct investments. "You still have something to work on," the Russian leader noted.
The Russian chief executive claimed at the same time that German businessmen, investing in Russia, "pursue a correct policy, calculated over a long perspective." "They are not people who seek to make quick money from us," the president added.
He also pointed to the importance of developing efficient management. For instance Putin thinks it necessary to continue the Russian programme for training managerial personnel, but that it should be improved. "Western managers should also understand under what conditions they will work and what pluses and minuses they will run into," he continued.
"We have many minuses, but there are also many prospects, and they are in reliable hands," he added.
Putin also noted that over 30 per cent of those who underwent practical training in Germany, work at joint ventures. He stated that this is especially important, since bilateral relations should be aimed at developing cooperation.
The president pointed to a record growth in trade turnover between Russia and Germany and regards this figure as justifiable, since Germany is Russia's historic partner...

Iranian, Russian regional officials sign memorandum on developing cooperation

The heads of the regional administrations of Gilan Province of Iran and Astrakhan Region of Russia have expressed the intention to expand trade and economic cooperation, as well as tourism, which would meet the interests both of Iran and Russia, ITAR-TASS News Agency has reported. This desire is reflected in a memorandum on understanding signed by the Gilan governor-general, Masud Soltanifar, and the Astrakhan governor, Anatoliy Guzhvin, in the city of Rasht.
Guzhvin attended the opening ceremony in Rasht of a fair demonstrating the commodities and economic potential of six Russian regions: Astrakhan, Volgograd, Rostov and Penza Regions, Stavropol Territory and the Republic of Mordovia. Products from 56 Russian firms and companies were displayed at the fair, which ended on 13th September.
Under the agreement reached by the Russian and Iranian officials, trade missions will be opened in the city of Astrakhan and in Gilan Province. Joint measures will be taken for the transportation and handling of transit cargoes, as well as goods within the framework of trade between the Russian and Iranian regions divided by the Caspian Sea.
Iran will open its bank in Astrakhan. "This will raise the level of cooperation in the industrial and economic spheres, and will promote the implementation of the project of creating the North-South transport transit corridor," Masud Soltanifar said. "Iran and Russia are among the main participants in the project. Gilan Province and Astrakhan Region are sure to play an important role in it."

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FOREIGN INVESTMENT

Lucent sells stake in SviazStroy-1 Fibre Optic Cable

US Lucent Technologies has sold its 51 per cent stake in Lucent Technologies SviazStroy-1 Fibre Optic Cable Co., a joint venture based in the Russian city of Voronezh. Lucent's Russian division said the sale was part of a worldwide deal under which Japan's Furukawa Electric Co. acquired most of the US company's optical fibre solutions business for US$2.3bn last November. Under the deal, the remainder of this business, consisting of Lucent's stakes in two joint ventures in China - Shanghai Fibre Optic Co. and Beijing Fibre Optic Cable - will be bought for US$225m. 
The sales are part of the US telecommunications equipment manufacturer's restructuring, which has been spurred by its financial troubles stemming from the ongoing crisis on the global telecoms market, Interfax News Agency reported. thanks to proceeds from the sale of its optical fibre business, Lucent's losses in the first finance quarter (October-December 2001) dropped to US$423m from US$464m in the same period a year earlier. However, in the second quarter (January-March 2002), the company's losses rose to US$7.9bn from US$3.24bn a year earlier due to falling sales, and expenditures on acquisitions and restructuring. The first phase of Lucent Technologies SviazStroy-1 (49 per cent), was opened in February 1999.

Moscow clinches 44% of foreign investment in H1

Moscow received 44.4% of all foreign investment in Russia in the first half of 2002, Interfax News Agency reported, citing the state statistics committee data. The Russian capital received US$3.719bn in foreign investment in the half, including US$779.924m in direct investment, US$92.613m in portfolio investment, and US$2.846bn in so-called other investment.
Russia as a whole received US$8.368bn in foreign investment in the half, including US$1.872bn direct, US$199m portfolio and US$6.297bn other.
Other major recipients of foreign investment in this period were St Petersburg with US$498.801m, Tatarstan with US$292.527m, Sverdlovsk region with US$633.233m, Chelyabinsk region with US$312.46m, Omsk region with US$735.82m, and Sakhalin region with US$264.86m.

Irkutsk Region investment opportunities to be presented at second Baikal Economic Forum

Presentation of investment opportunities of the Irkutsk region will take place at the second Baikal Economic Forum, informs the press-service of the forum. Chairman of the Committee on the Irkutsk region economy, Alexander Sukhodolov, says that there's everything in the region that can be offered to the present and future partners. 
In his words, the economic growth in the Irkutsk region for the past 6 months of the current year was 9.7%. The region ranks 13-14th in Russia in the volume of industrial production, 8th in the volume of industrial produce per capita, and 5th in the export volume. It is planned that in 2002 the Irkutsk region economy will attract investments totalling approximately US$$0.5bn. 

European Investment Bank announces expansion of Russia funding programme

The European Investment Bank (EIB) will disburse 100m euros for environmental projects in northwest Russia, Bank President Philippe Maystadt told the press on 9th September, Interfax News Agency has reported.
During his one-day visit to Moscow he met Russian Deputy Prime Minister and Finance Minister Aleksey Kudrin, Economics Minister German Gref and Prime Minister Mikhail Kasyanov.
Maystadt said that the 100m euros will be disbursed after Russia and the EU sign a framework agreement in Moscow, tentatively slated for November. He expressed confidence that Russia and the EU will not have problems signing the agreement and added that the money will be assigned based on a 2001 decision of EU finance ministers.
Maystadt said the sum cannot be increased above the EU mandate. However, in 2003 he expected the mandate to be increased and the bank to start investing in projects in other sectors of the Russian economy.
Maystadt said that at his meeting with Kudrin he reached a preliminary understanding to disburse 40m euros for the construction of a dam in the Gulf of Finland to protect St Petersburg from floods. He added that the EIB may decide to join the project, which is estimated at 400m euros, together with other financial institutions.
The EIB has already decided to assign Russia 60m euros for three projects: a 25m-euro water purification project in St Petersburg, and two similar projects in Kaliningrad Region estimated at 15m and 20m euros. The EBRD and the Nordic Investment Bank are also investing in the construction of the facilities, Maystadt added.

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INDUSTRY

Industry ups pulp, paper and cardboard output

Enterprises in Russia's pulp and paper industry turned out more commodity pulp, paper (including newspaper) and cardboard in January-July than in the same period of last year, New Europe reported.
The Industry and Science Ministry's timber industry complex department said the complex produced 1.31m tonnes of commodity pulp, 6.35% more year-on-year, 2.31m tonnes of paper (3.3%) and 1.39m tonnes of cardboard (10.5%). Around a million tonnes of newspaper was produced, one per cent more year-on-year. "Russia's pulp and paper complex has the possibility to increase by 50% output of newspaper, but many combines cannot work their paper-making machines at full capacity because of a lack demand on the domestic market," the ministry said.
The department sources noted that the increased production was achieved at major vertically integrated holdings, notably Syktyvkar timber complex (Republic of Komi), Arkhangelsk Pulp and Paper Combine, Kotlas Pulp and Paper Combine, Ust-Ilimsk Timbering Complex and Bratskkomplekskholding.
The Nizhny Novgorod-based Balakhna Pulp and Paper Mill (or Volga), one of Russia's largest producers of newspaper, led the way in paper-making, along with Syktyvkar Timber Complex, Kondopoga, Svetogorsk (Leningrad region) and Kotlas Pulp and Paper Combine. "Practically all major Russian pulp and paper combines in 2002 have embarked on 100% use of production capacity," the ministry said.

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MINERALS & METALS

US's Citibank gives US$30m loan to Russian nickel producer

The Russian subsidiary of the commercial Citibank and Russian metals giant, Norilsk Nickel, have signed an agreement granting a US$30m short-term loan for 12 months to Norilsk Nickel, Citibank's chief treasurer, Aleksandr Popov, told Prime-TASS News Agency. 
The loan at LIBOR (London Inter-Bank Offered Rate) plus 3.5 per cent rate is expected to be used for the replenishment of Norilsk Nickel's working capital and for financing non-ferrous metals production and export, Popov said...

Russian government approves plan to modernize metal industries

The Russian government's resolution 1228-R of 5th September 2002, approves measures for the development of the national metallurgical industry for the period till 2010, the government information department has told Prime-TASS News Agency.
The measures will help to modernize the metallurgical industry, to enhance its export potential, to adopt new technologies, and to promote the competitiveness of products in partner industries.
The Russian Ministry of Industry, Science and Technology aims to increase the production of rolled ferrous metal products by 18-20 per cent to 54-56m t, the production of aluminium and nickel by 7-9 per cent, and the production of copper by 10-14 per cent in 2010 as against 2001.

North Russian miners increase gold output

Magadan Region gold-diggers have produced about 22 t of gold since the beginning of this year, or almost 2.5 t more than in the same period of last year. Valentina Blagova, press secretary of the Regional administration, told ITAR-TASS News Agency on 11th September that Severo-Evenkskiy District is in the lead in gold production, with gold-diggers there panning out more than 8,618 kg of gold.
Over the past eight months, the Kolyma refinery received more than 23 t of gold, smelting into bullion 20,714 kg of gold mined in Magadan Region and 2,400 kg of gold received from Yakutia and Chukchi peninsula

New gold-extracting facility commissioned in Russian Far East

A new gold-extracting factory was opened at the Pokrovskiy Gold Mine enterprise on 7th September, RIA News Agency has reported.
The facility will process a million tonnes of ore and extract up to one tonne of gold per year, the Amur Region administration told RIA.
The Pokrovskiy Gold Mine was created in 1999. It extracts gold from ore by leaching. The enterprise produced 2.827 t of gold in 2001, accounting for 21.9 per cent of total production in the Amur Region.


Russian diamond giant secures two-year loan from consortium of banks

Russian uncut diamond monopoly Alrosa has received a syndicated loan worth US$91.5m from a consortium of Russian and foreign banks, the company said on 5th September, Prime-TASS News Agency has reported.
Russia's Ural-Siberian Bank (Uralsib) was the loan's co-organizer. The loan has a two-year duration and an interest rate of 11.5 per cent. The Bank of Moscow and Donau-Bank AG organized the consortium.
Alrosa has sold US$400m worth of uncut diamonds to the world's leading diamond trader De Beers so far in 2002, Vyacheslav Shtyrov, president of Russia's constituent republic and major diamond-producing province Yakutia [Republic of Sakha], told reporters on 31st August, Prime-TASS News Agency has reported...
Alrosa and South Africa's De Beers signed a five-year agreement in December 2001, providing for Alrosa to sell US$800m worth of diamonds on the world market annually.
However, the European Union antitrust commission is not expected to approve the agreement before the end of the year, Shtyrov noted.
In 2001, the company sold diamonds and uncut diamonds worth US$1.738bn including diamonds supplied to De Beers worth US$. Alrosa's cut diamond sales were at US$130.8m.
Alrosa expects to launch a new mining and processing facility in Nyurbinsk in 2003, which is expected to produce approximately US$400m worth of uncut diamonds per year, Shtyrov added. He did not elaborate...
Earlier Russia's Deputy Prime Minister and Finance Minister Aleksey Kudrin said Alrosa might become a public company in the near future. However, there are no exact plans for selling the company's shares yet, Shtyrov noted...
Alrosa's net profit fell 20.6 per cent on the previous year in the first half of 2002 to R3,747m [US$118.5m], according to Russian accounting standards, but was still R871m above target.
Alrosa accounts for 99.7 per cent of uncut diamond production in Russia. The company produces 20 per cent of the world's diamonds in terms of mass and 26 per cent in terms of value

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NUCLEAR ENERGY

Russia to take back spent nuclear fuel from Iranian power station

The Russian Ministry of Atomic Energy has forwarded to the government a draft appendix to the intergovernmental agreement with Iran on building a nuclear power plant in that country which stipulates the procedure for returning irradiated nuclear fuel from the Bushehr plant back to Russia, the ministry's press service has told Interfax News Agency.
"The appended draft agreement was drawn up and handed over to the government this summer," an official from the Atomic Energy Ministry said, noting that the ministry is expecting this document to be included in the text of the agreement by the end of the year.
The ministry has repeatedly pledged that Russia will take back spent nuclear fuel from the Bushehr plant. "Russia will strictly adhere to the principles of the International Atomic Energy Agency, according to which spent nuclear fuel must be returned to the country supplying the fuel," Deputy Atomic Energy Minister, Valeriy Lebedev, said.
After a three-year pre-storage phase in a cooling tank at the Iranian power plant, the fuel will be transported to a mining-chemical combine in Krasnoyarsk Territory, the ministry said, emphasizing that spent nuclear fuel cannot be transported without such preliminary storage. Russian specialists are currently working in Bushehr under a Russian-Iranian contract providing for the installation of one nuclear power unit costing over US$800m.

Russia aims to build new-technology nuclear plant in 2010

Russia in 2010 will build a nuclear power plant with fast-neutron [fast breeder] reactors, at which new non-water technology for the regeneration of spent nuclear fuel will be introduced, Director of the All-Russian Research Institute of Inorganic Materials, Leonid Sukhanov, announced at an international conference on handling spent nuclear fuel in Moscow on 11th September, Interfax News agency has reported.
This technology will make it possible to use nuclear fuel repeatedly after its processing. The matter implies fuel primarily designed for the most promising fast-neutron type of reactors, Sukhanov said.
Russia has become increasingly interested in developing non-water technology for regenerating spent nuclear fuel, which is prompted by new requirements concerning this technology, potential advantages of this method of nuclear fuel reprocessing, and the fact that Russia is working out a fast-neutron reactor Brest.
The nuclear power plant, which is to be built by 2010, will operate a fast-neutron reactor of either the Brest-OD-300 or the BN-800 type, Sukhanov said.
In the future, along with fast-neutron reactors of the Brest type, which use advanced technology and enjoys enhanced security, mini-plants for processing spent nuclear fuel will also be built. Spent nuclear fuel processed by these enterprises should be then used again as fuel for such reactors, Sukhanov said.
Russia currently operates the enterprise RT-1, processing spent nuclear fuel, Sukhanov said. In the next 20 to 25 years, it should build the RT-2 plant to use both water and non-water technology for handling spent nuclear fuel, he said.
Despite the fact that non-water technology has a number of advantages, it is still more complex, which will take some time for these advantages to be put into practice, the scientist said.

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STOCK MARKET

Reuters, Russia's MICEX team up to launch new stock market index

UK financial information provider Reuters plc and Russia's Moscow International Currency Exchange [MICEX] launched a new share index, the RMX, which will include data from Russia's three main trading platforms, the two companies said in a joint statement on 4th September, Prime-TASS News Agency has reported.
"The RMX index includes trades in shares quoted on Russia's leading exchanges - MICEX, the Russian Trading System (RTS) and the Moscow Stock Exchange," the joint statement said.
The index is based on dollar and rouble quotes and includes 32 stocks, which together represent 80 per cent of the total stock market volume.

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TELECOMMUNICTIONS

US-registered company buys up Russian telephone operator from Rostelekom

Golden Telecom, a US-registered telecom and Internet services provider in the CIS and Russia, has completed its acquisition of Sovintel with the purchase of Rostelekom's 50-per-cent share in the company, Golden Telecom said in a press release on 5th September, Prime TASS News Agency has reported.
Sovintel is a fixed-line operator in Moscow and St Petersburg.
The deal was struck in March and the purchase is expected to cost US$4m Golden Telecom shares and US$56m in cash. Rostelekom, Russia's largest long-distance operator, will also gain representation on Golden Telecom's board of directors...
Golden Telecom CEO, Aleksandr Vinogradov, said the company's business has continued to develop despite the downturn in the telecommunication industry outside of Russia. He also said he intends to merge the two companies' operations in order to create a single entity that would be able to increase its leadership in Russian and CIS markets...
Golden Telecom was set up in 1999 by the US' Global TeleSystems Group. Golden Telecom's major shareholders are Alfa-Group (3.6 per cent), Capital International (8.8 per cent), Baring Vostok (7.6 per cent) and Global TeleSystems Group (2.6 per cent)
The company's revenue in 2001 was US$140m.

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TRANSPORT

Railway minister briefs Russian president on upgrading Trans-Siberian


The board of the Russian Railway Ministry has taken the decision to upgrade the section of the Trans-Siberian mainline railway from Ussuriysk to Khasan, Railway Minister, Gennadiy Fadeyev, told President Vladimir Putin during a working meeting on 4th September, ITAR-TASS News Agency has reported.
The project specifies a linking up of the Trans-Siberian and Trans-Korean railways. Fadeyev said Russia's section of 240 km needs streamlining. The minister noted that the railway ministry "will fulfil this work."
He believed that a meeting of all the sides concerned should be held. The Railway Ministry hopes to get guarantees that all cargoes will go along the Trans-Siberian line and "is ready to provide its own guarantees to this effect."
Fadeyev stressed that shipment by sea from South Korea to Europe costs US$2,700 at present. Transportation via the Trans-Siberian railway will be US$500 cheaper and will take 15 days less.

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