russia

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  RUSSIA  

 

NEWS REPORT
  
  

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: 260 - (29/08/02)

Almost the entire world economy is in the doldrums. The EU and the US face the prospect of very low growth. Japan is in difficulties. Most of Africa is in very bad shape, and most of South America is not much better. Communist China is almost alone as a beacon of capitalist dynamism!

Russia the exception
Russia is another exception, growing at 8% in 2001 and 5% in 2002. Its stock market has been the high flier among world bourses in the past twelve months, its year-on-year performance being a rise of over 50% in both rouble and dollar terms. The surge was greatest in the obvious energy and primary commodities stocks; but one of them, Gazprom, is still probably under-valued in terms of basic assets. A management shake-up is expected that could change that, the new chairman, Aleksey Miller, being a Putin man appointed for that very purpose.
Accountancy standards are improving, although to say that they are approaching Western levels of vigour and vigilance would be a dubious accolade these days. Russia has of course a poor reputation still for business legislation and practices, but Putin's reform team of Premier Mikhail Kasyanov and Economy Minister German Gref is making a determined effort to improve things here. The removal of communists from key Duma committee chairmanships is helping to facilitate new legislation through parliament.
Nevertheless, the big multinationals are still fighting shy of Russia, seen as mired in crime and corruption. A country with a security industry offering the services of one million bodyguards is not a reassuring place to do business. The big energy majors are investing in Siberia and elsewhere, and elsewhere but major manufacturers and services firms are wary of the Russian scene. Foreign direct investment (FDI) is barely US$10bn, derisory for a nation of nearly one hundred and fifty million, under a quarter of what Poland has received and a half of what the Czech Republic and Hungary have.
While some may cite crime and corruption and others red tape, the above countries and China, host to over US$100bn in FDI, are not exactly without these themselves. There is still a feeling that Russia is the most dangerous place with the toughest and roughest mafia in the world. Putin has been assiduous in combating poor performance in sector after sector of the economy, but urgently needs to make crime-busting and cleaning up the act of the bureaucracy top priorities.

The new pro-Western dispensation
Putin's regime is shaping up after two years as radical in more areas than one. He is forging a partnership with the West right across the board. He has established a rapport with Bush and Blair, while also having an excellent relationship with Schroeder, who might shortly, however, no longer be German chancellor.
Germany has long been a vital country for Russia, its largest trading partne, its biggest creditor and its old foe in war, but now close friend in peace. Putin, as a fluent German speaker and long-time resident of East Germany, knows that emulating Germany is a tough proposition. Being its partner, providing it with energy and materials, in exchange for equipment of all sorts is the present position.
Co-operation with the US, against terrorism is now the cornerstone of Russia's foreign policy. The climate has changed altogether from even the nineties, when Russia was not on side in the Kosovo war, in fact opted for Serbia throughout the decade. 
The hardest part of the new policy concerns Central Asia and the Caucasus where the US is ensconcing itself. But there is the bonus for Putin that his war in Chechnya, very much his creation, is no longer criticised so much by the West, a mixed blessing since it is encouraging him to continue it.
It is for reasons of placating the US that Russia has pulled out of a deal with Iran and decided not to sell it five nuclear reactors in addition to the existing one at Bushehr, built by the Russians in the nineties. Washington is a vastly more important interlocutor than Tehran.
The progress of Russia's rapprochement with the West should be well worth watching. 

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AUTOMOBILES

Isuzu, SeverstalAvto mull joint production agreement

Japanese automobile concern, Isuzu, and SeverstalAvto, a Russian company may agree on cooperation for the possible joint production of light trucks in Russia by the end of the year, Interfax News Agency quoted the deputy head of Nissho Iwai Corp's Moscow office, Takayuki Yabumoto, as saying.
According to Yabumoto, the sides are considering three options for the joint production of commercial vehicles with a freight capacity of three to five tonnes at UAZ (part of SeverstalAvto). Isuzu is holding talks jointly with Nissho Iwai Corp, which represents its interests in Russia, Yabumoto said.
The first option is to produce trucks based on Isuzu designs at the Russian plant, using Russian components in production. The second option involves joint production based on a model developed by UAZ, using Japanese components and technology. Finally, the third option is to develop a joint model for production in Russia, he said. Depending on the option chosen, a decision may be reached to set up a joint venture, he said. 

Ural Auto Works to modernise casthouse for exports

The Ural Automobile Works, a truck maker from Miass, Chelyabinsk region, intends to modernise its casthouse at a cost of 800m roubles to meet its in-house needs and supply parts for automobiles assembled at plants in Europe. Valery Panov, the court-appointed manager at Uralaz, the company which forms the core of the Ural Automotive works, said the project was part of a programme devised by the Base Element (Bazovy element) holding company which calls for investment of 1.5bn-2bn roubles over five to seven years.
Panov said the casthouse modernisation was a top priority. There would follow upgrades at the mechanical assembly and engine divisions. Panov said Ural's future in the run-up to Russia's accession to the World Trade Organisation lay in international cooperation. The company has a partner in Iveco, one of Europe's biggest truck makers. Panov said Ural was seeking to develop long-term corporate relations with Iveco in a mainly marketing-oriented role. Ural exported about 30 per cent of its output in 2001 and expects to export more in 2002. 

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AVIATION & SPACE

Energomash, Lockheed Martin wrap up 50 engines contract

Russia's Energomash aerospace company will supply 50 RD-180 rocket engines to US-based Lockheed Martin in line with their latest agreement, Interfax News Agency has reported, quoting Energomash Director general, Boris Katorgin, as telling a Moscow press conference.
Under an optional contract, 101 RD-180 will be shipped to Lockheed Martin, Katorgin said. Of the 14 engines delivered to the United States, two were installed on rockets that were already launched, he said. The next US rocket powered by a Russian engine will be launched on August 12th, the news agency quoted him as saying. It takes an average of 16 months to assemble an engine, and US representatives conduct quality control at Energomash. Each engine is valued at about US$10m. To facilitate payments, Energomash and Pratt & Whitney set up the RD-Amross joint venture. The state owns 80 per cent of the shares in Energomash.

Russia, Poland sign deal to set up air link to Kaliningrad exclave

Russian Transport Minister Sergey Frank and Polish Deputy Prime Minister and Infrastructure Minister Marek Pol signed a bilateral air link agreement in Kaliningrad on 26th July.
"The agreement permits Poland to draw Kaliningrad closer into the European area, which is important in light of EU expansion. Russian and Polish businessmen should benefit from the integration," Pol told Interfax News Agency.
Frank noted that "this agreement has broadened the bilateral, mutually beneficial dialogue in economy."
Poland's LOT air carrier will conduct regular flights between Warsaw and Kaliningrad, the region's transport department told Interfax. The first flight is scheduled for 2nd August. The capacity of French-Italian ATR-42 and ATR-72 aircraft totals 48 and 64 passengers respectively. The duration of the flight is one hour. Furthermore, a Warsaw-Kaliningrad-Copenhagen air route will probably be launched, the department said.
On the same day, Frank and Pol initialled a draft agreement for the construction of the Kaliningrad-Elblag highway. Elblag is a Baltic Sea port in northern Poland.

Russia has no plans to leave Baykonur launch site in Kazakstan

Russia has no intention of leaving the Baykonur cosmodrome, the Russian president's deputy chief of staff, Viktor Ivanov, told a briefing in Baykonur on 26th July, Interfax News Agency has reported.
"We invest both foreign and Russian money in Baykonur. The spacecraft assembly plants here meet international standards. This involves hundreds of millions of dollars, which also confirms that Russia is not going anywhere," he said.
The Plesetsk and Baykonur cosmodromes perform different functions in launching satellites in line with military, civilian and international programmes, Russian Aerospace Agency Director-General, Yuriy Koptev, said in response to a question. Baykonur will have a role to play for decades to come, he said.
Russia is pleased with Kazakstan's awareness of the need to maintain the Baykonur cosmodrome for Russia, Kazakstan and the entire world, Koptev said.
Russia and Kazakstan are abiding by a 20-year Baykonur lease contract that can be extended, Koptev said. The presidents of the two countries have signed a memorandum telling their cabinets to initiate talks on extending the lease term to 50 years, he said.
Russia has been leasing Baykonur since 1994, paying US$115m a year in rent since 1999.

European Mars probe to be launched on Russian rocket

Russia's Soyuz-FG rocket and the Fregat launcher will bring the Beagle-2 European Mars lander to the red planet at the end of 2003, sources in the Russian office of the European Space Agency have told Interfax News Agency.
The launch will be from the Baykonur spaceport...
The flight model of Beagle-2 will be manufactured by 15 January 2003, and have a weight of 1.5 tonnes. The rocket which will deliver the lander to the departure orbit differs from regular Soyuz rockets by the higher thrust of its first stage engines.
The Fregat launcher, made by the Lavochkin Scientific Centre, has passed flight tests... The Mars lander carries equipment for testing the chemical composition of soil and rocks, as well as for studying the existence of organic life forms, such as micro-organisms, on the planet...

Boeing to help design Russia regional aircraft

Airplane manufacturing giant, Boeing, will actively contribute to the development of a Russian regional aircraft, Interfax News Agency quoted EO Phil Condit as saying during a Moscow-Chicago video conference on the Internet. The first phase of the aircraft development programme will be brought to completion at the end of July he said.
In line with the project, Boeing is helping Russia's Sukhoi and Ilyshin companies study the future market of the aircraft and analyse all of the requirement posed by consumer, the news agency quoted Condit as saying.
Boeing is prepared to increase its contribution to the development of the aircraft, however, he stressed that this should continue to be a purely Russian programme.
Over 10 years of joint work, Boeing have invested US$1.3bn towards the development of Russia's aerospace industry, Condit said. Part of that amount was used in space research, in particular the development of the International Space Station and Sea Launch elements, he added.

Russian military air safety developer offers new system for civilian use

An in-flight active safety system developed in Russia for military aircraft could be adapted for use in the civilian sector, ITAR-TASS News Agency was told by Valentin Sukholitko, the president and chief designer of the developer, the company Russkiye Sistemy [Russian Systems].
A proposal "to test the BASBP ISKL-2 system on civilian aircraft" was sent to First Deputy Transport Minister Aleksandr Neradko, who also heads the State Civil Aviation Service, Sukholitko said. He added that the BASBP system can identify "erroneous actions by aircrew," give "an aural warning of a non-routine situation" and gauge "the correctness and promptness of actions by aircrew to avert such situations." These reasons, collectively known as the "human factor,", account for over 70 per cent of all aircraft crashes.
The BASBP system has been through laboratory, preliminary flight, physiological and ergonomic trials for the Russian Ministry of Defence. It will undergo state trials in September-November this year in a MiG-29UB fighter.

Russia, Australia in talks over space centre deal 

Russia's deputy foreign minister, Aleksandr Losyukov, told reporters on 1st August that Russia and Australia were close to signing an agreement on the construction of a cosmodrome.
Foreign Minister Igor Ivanov said that he had discussed at his talks with his Australian counterpart, Alexander Downer, final steps to sign a treaty on the two countries' cooperation in space.
"That is a very important direction," the minister stressed. "If we manage to reach accords, we have good prospects for cooperation in that modern sphere with Australia as well as with other states," Ivanov emphasized.
Speaking about plans to build a cosmodrome, Losyukov admitted that Moscow and Canberra had been discussing the issue for some time and had difficulties with specific paragraphs of a future agreement. However, the sides have moved forward after a recent visit to Moscow by the Australian minister for industry. "That will be an interesting project," the Russian diplomat stressed.

Russian company to upgrade air traffic control centres

The interdepartmental council for equipping cross-polar and Trans-Siberian air routes and modernising the Unified Air Traffic Control System held a session in Moscow on 8th August. The interdepartmental council found it expedient to appoint the contractor general in projects of upgrading district centres of the Unified Air Traffic Control System to unified districts of air traffic control on the basis of a competition starting from 2003. Only Russian enterprises will be allowed to compete for the contracts. 
In accordance with the council's decision, the volume of imported equipment should not exceed 40 per cent of the total cost of establishing enlarged centres in seven Russian cities, these being Murmansk, Syktyvkar, Tyumen, Rostov, Magadan, Krasnoyarsk and Khabarovsk. 
The session discussed plans for activities aimed at upgrading the system's existing district centres and joint financing of the project by the Transport and Defence ministries. The council appealed to the Russian government asking it to consider the possibility of giving the presidium of the interdepartmental commission in charge of airspace application the right to appoint general contractors and the cooperation of enterprises to handle the upgrading projects. The session was supervised by co-chairmen of the council - the first deputy transportation minister and Air Force Commander Vladimir Mikhaylov.

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BANKING

Russian bank reform could yield genuine change

Fitch Ratings, the international ratings agency, published on 29th July report on the Russian banking system.
The report provides a comprehensive insight into a large number of issues including the structure and characteristics of the banking system, its laws and controlling institutions and the accounting and regulatory framework.
It also focuses on recent positive developments such as the bank reform programme announced by the Central Bank of Russia and the government in late 2001, and recent important changes in legislation, whist providing Fitch's assessment of these changes. The report is available on the agency's web site: www.fitchratings.com.
The Russian banking system remains one of the significant structural weaknesses of the Russian economy. Although the banking sector has recovered to a considerable degree since the August 1998 financial crisis, few changes have, thus far, been made to improve the overall quality of the banking system and the banking sector's intermediation in the Russian economy continues to be very low.
However, the recently approved bank reform programme encompasses potentially far-reaching measures, including a reduction of state participation in banking sector capital (and a corresponding increase in foreign participation), the introduction of international accounting standards, the establishment of a deposit insurance scheme and the tightening of minimum capital requirements. 
A number of steps have been, and are being, taken by the Russian authorities to implement these reforms. Nevertheless, Fitch says that it is likely to be a medium-to-long-term horizon before any material improvement in the quality of the Russian banking system becomes reality. For further information contact Natasha Page, London, tel: +44 (0) 207 417 4312.

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BONDS

Russian Gazprom may decide to postpone additional Eurobonds till 2003

Gazprom may decide not to place an additional issue of Eurobonds this year, Interfax News Agency has reported.
Gazprom executive and director of the company's corporate finance department Andrey Kruglov told journalists on 26th July that due to the current situation on the stock market, placement of the Eurobonds may be postponed until next year.
Gazprom had planned to issue US$400m in Eurobonds this year.
Kruglov noted that Gazprom has no urgent need for funds, and the company does not plan to attract funds at unprofitable terms.
He also said that Gazprom plans to significantly reduce its promissory note programme and stop using promissory notes in settlements with its suppliers.
According to Kruglov, the promissory note programme will gradually be replaced with bonds, to be placed on the Russian market. He said that bonds are a more civilized way than promissory notes for attracting funds on the domestic market. The executive added that Gazprom is currently developing a domestic bond programme.
Kruglov also noted that Gazprom is continuing its programme to gradually replace short-term foreign credits with long-term credits. He said that the company has sufficient reserves to increase the volume of credit financing, as about 30 per cent of all export contracts is being used to secure credits.

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DEFENCE INDUSTRY

Russian arms exporter upbeat about results of Farnborough air show

Russian aircraft-makers have signed several contracts and agreements at the international air show that ended in Farnborough near London on 28th July, Interfax News Agency has reported.
"Russian participation in Farnborough-2002 was marked by the signing of several important documents," deputy head of Rosoboroneksport arms trading company, Viktor Komardin, told Interfax when summing up the results of the show.
He said that Rosoboroneksport and the British Surrey Satellite Technology Ltd signed a contract for launching seven mini satellites from the Russian Plesetsk space centre in 2002-04. The Volga-Dnepr airlines and Perm Engine Plant agreed to implement a programme of changing the engines of Il-76 aircraft. A Russian-German agreement was concluded on setting up a logistical support centre for Kamov helicopters.
In addition talks were held with representatives of over 30 countries, among them England, the United States, France, South Africa, China, Malaysia, India, Jordan, Algeria, Kuwait, Indonesia, Germany and others.
Komardin said the most promising negotiations were connected with advancing Su-30 multirole fighters, upgrading Mi-17 and Mi-24 helicopters and delivering simulators.
He said Rosoboroneksport intends to take a most active part in the next air show in Farnborough in two years time .

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ENERGY

Vneshtorgbank opens credit facilities for LUKoil

Vneshtorgbank has opened credit lines worth US$160m for LUKoil to date, Andrei Kostin, chief executive of Veneshtorgbank, told reporters after the signing of a strategic partnership agreement with the oil major. Kostin said the agreement would make medium and long-term credit lines available to LUKoil group members to finance specific projects. He said that so far, the bank had only issued short-term loans to LUKoil. LUKoil head, Vagit Alekperov, said the first such project, for which Vneshtorgbank would lend US$30m, would be for LUKoil to acquire a network of filling stations in the Chelyabinsk region.
Alekperov said not one Russian bank had yet issued LUKoil with long-term credits. LUKoil will also seek Vneshtorgbank credits for three priority long-term projects to put deposits in the north Caspian, the Timan-Pechora oil-gas province in northern Russia and Tyumen region in Siberia on stream. Alekperov estimated these projects would cost a total of US$5bn. Veneshtorgbank will provide some of the credits on its own and it will broker other credits abroad. 
The bank is also prepared to act as co-organiser for a syndicated credit, Andrei Kostin said. In return LUKoil pledges to direct some of its cash flow through Veneshtorgbank and to recommend the bank for involvement in oil, oil and gas and petrochemical projects in Russia's provinces that LUKoil is devising. LUKoil has been doing business with Veneshtorgbank since 1995, Alekperov said. 
He stressed that the partnership deal signed would enable the bank and LUKoil to dispense with LUKoil guarantees for loans. "Credits will be provided not for the company's guarantees but on the strength of each individual project," Alekperov added. Veneshtorgbank's credit portfolio is currently US$2.2bn. 

US$291m Slavneft buy 

As The Moscow Times reports, Russian-Belarussian state oil company, Slavneft, paid US$29m for a 79.7 per cent stake in regional oil company, Varyeganneft, according to its 2001 financial report under international accounting standards, obtained by Prime-Tass News Agency. The deal was made on April 1st. 
According to the report, Slavneft paid US$177m in cash and another US$$114m in promissory notes maturing in the first quarter of 2003. 
Slavneft's IAS 2001 net profit amounted to 3.654 billion roubles (US$115.73m).

China interested in Evenk Oil

An oil companies' delegation visited the Evenk Autonomous District. According to the press-service of the Evenk Autonomous District, the delegation members were Director General of Slavneft-Krasnoyarskneftegaz Ltd., Viktor Ryabchenko, Deputy Chief Executive Officer of Megion-neftegazgeologiya (oil and gas geology), Rishat Vakhitov, Director General of the Baykitskaya oil and gas exploratory expedition, Sergey Gamov, and also specialists of the China National Oil Gas Exploration and Development Corporation headed by the Vice President of the Chinese State Corporation Huang Yu. 
The aim of the delegation's visit was an estimation of the situation at the fields, and also to study possible investments in exploration and production at the Kuyumbinskoe oil field. In the words of Head of the Baykitsky district territorial administration Vladimir Sturov, members of the delegation gained good impressions from what they saw and they were satisfied with the results of the trip. Continuation of the business cooperation can be expected after executives of the Chinese National Oil Company and Government of the Chinese People's Republic discuss the results of the visit. 

Russia to redistribute oil export quotas in favour of smaller companies

Russian companies are expected to redistribute 700,000 tonnes of oil export quotas in the third quarter of this year, Russian Deputy Prime Minister, Viktor Khristenko, told the press after a session of the government commission which discussed companies' access to oil and petroleum products pipelines, Interfax News Agency has reported.
Khristenko explained this redistribution by the fact that in the second quarter many companies failed to fulfil their export commitments for 2m tonnes.
This resulted from the commitments of companies and the government to cut export deliveries of oil by 150,000 barrels a day during the first six months, Khristenko said.
Out of 700,000 tonnes assigned for redistribution small companies will deliver 250,000 tonnes.
As for the schedule of the third quarter, deliveries to countries outside the former Soviet Union remain unclear, while deliveries to some former Soviet republics will be reduced, Khristenko said.
He said the reason is that as of 1st July, companies delivering fuel to former Soviet republics and other countries have equal access to export pipelines. Thus, for many economic and noneconomic reasons Russian oil companies are no longer motivated to deliver oil to Belarus, for example, he said.
Oil deliveries to former Soviet republics were 500,000 tonnes below the scheduled amount, with 200,000 tonnes less being delivered to Belarus and 300,000 to Ukraine.
Khristenko said that the agencies involved will analyse deliveries to former Soviet republics by 15th August and take an appropriate decision.

Russian investment boss says China ready to go ahead with gas project

China has confirmed the basic premises for the Kovykta project, under which Russia would supply consumers in northwest China with 20bn cu.m. of gas per annum. A statement was made about this to ITAR-TASS News Agency by the director-general of the holding company, Interrros, Sergey Aleksashenko, who was taking part in the fourth session of the Chinese-Russian subcommittee on energy, which has just ended in Beijing.
At the moment it is clear that the Chinese side would prefer that the future pipeline went across the Russian-Chinese border, missing out Mongolia, as is projected by one of the variants, Aleksashenko said. The parties have agreed to speed up the project, and to complete the international economic feasibility study by next year.
Aleksashenko said that the next stage of the project will be to conduct talks on the production-sharing agreement, which will take around a year. The deposit could be brought on line in 2004. The cost of bringing the deposit into production is estimated at US$4.5bn, and the cost of laying the pipeline at around US$2bn.
The development of the Kovykta deposit and the building of a gas pipeline to China, with the possibility of extending it to South Korea and Japan, was one of the most promising Sino-Russian projects of the 1990s. Later, however, China's interest in the project waned, when it switched its attention to native gas resources in the Tarim Basin.

Russia offers support for gas giant's role in Chinese pipeline project

Russian Energy Minister Igor Yusufov told ITAR-TASS News Agency that the Russian government would support Gazprom's participation in building a nearly 4,000-kilometre East-West gas pipeline in China.
Yusufov, who attended a meeting of the bilateral commission for Russian-Chinese energy cooperation, said that the Chinese side understood the importance of Gazprom's participation in the project. "The application of Gazprom's technical abilities in this project is extremely vital for us," the Russian energy minister went on to say. He doesn't rule out that Russia might also get connected to the East-West gas pipeline. "Though I am not aware of China's plans, Russia is ready to offer its gas resources to it. If using them turns out to be possible for China, this is going to be a purely technical matter," he said. 
A 45-year-long contract for setting up the biggest joint venture in China's history was signed in Beijing on 4th July. Russian gas monopoly, Gazprom, as well as the Shell and the Exxon-Mobile companies are expected to participate in the project, which provides for developing the Tarim basin, the construction and operation of a pipeline connecting China's Xinjiang Uighur Autonomous Region with Shanghai, as well as the creation of a single trading company that will sell gas to consumers in eastern China. The Chinese side has estimated that the pipeline will cost US$5.3bn.
China will be able to pump 12bn cubic metres of gas every year when the pipeline is completed. First gas deliveries are supposed to be made to five Chinese provinces by late 2003. The gas pipeline is supposed to be finished by 2005.

Sea section of gas pipeline Blue Flow completed

The laying of the second line of the sea part of the gas pipeline from Russia to Turkey (Blue Flow) along the Black Sea bottom has been completed. The sea section of Blue Flow consists of two lines of 610mm in diameter. The construction of the first line began in September last year and finished on March 31st, 2002. The laying of the second line began in February 2002, and its deep-water part was completed at the beginning of June. For 9 months of the construction of the sea part of Blue Flow, the experts from Saipem laid about 800km of pipes at a depth of 2,150m. These connected the compressor plant at Beregovaya on the Russian shore with the compressor plant near the city of Samsun on the Turkish shore. 
The testing of the first line by the use of a temporary air compressor plant has just been finished. The first line is being cleaned with the help of a piston and the testing of the second line is planned to take place from September till December 2002. 
The construction of the land part of the gas pipeline on the Russian side is coming to an end. 282km out of 305km have been welded. 229km of them are laid in trenches and covered. Reclaiming of land for 114km has been done. Five of the seven passages under rivers have been completed. 
It will be necessary to tunnel under 34 railways and roads, starting with the railway Krasnodar Novorossiysk. The micro-tunnelling under the mountain ridge of Bezymyanny is being carried out. Construction and finishing work at the compressor plant, Krasnodarskaya, is being carried out.
As the press service of JSC Gazprom reports, the gas supply to Turkey along the gas pipeline Blue Flow is to begin in October this year. 

Russian companies to take part in developing Kazak oil, gas deposits

LUKoil has been named the Russian participant in joint development of the Khvalynsk oil and gas deposit in Kazakstan, Interfax News Agency has reported.
Furthermore, Rosneft was named the Russian organization in charge of developing jointly with Kazakstan the Kurmangaz field. The rights for obtaining Russia's 25 per cent stake in the venture were granted to foreign trade organization Zarubezhneft.
Prime Minister Mikhail Kasyanov signed pertinent instructions, the governmental information department told Interfax on 27th July.
The instructions are consistent with the 1998 Russia-Kazakstan agreement on dividing the northern part of the Caspian seabed to implement sovereign rights on resource development.

USA ready to finance oil and gas analytical research in Siberia 

The US Department of Energy is ready to finance the analysis of offshore oil and gas potential of shelf fields in East Siberia, US Secretary of Energy, Spenser Abraham, announced at a press conference in Moscow on 1st August, RBC has reported.
According to the US official, this issue will be discussed at the energy summit to be held in Houston on October 1st and 2nd, 2002. He stressed this analytical research would be an important step in studying shelf fields of East Siberia.
US Secretary of Energy had a meeting with his Russian counterpart, Igor Yusufov, in Moscow and negotiated priorities in the development of Russian-US fuel and energy collaboration. This was the third meeting of the Russian and US top energy officials. The first meeting was held in Moscow on November 28th, 2001 and the second discussion took place in Detroit on May 2nd, 2002, during the summit of G8 energy ministers. 

New coal production capacities to be launched in Russia in 2002

Russia plans to launch new capacities for coal production (7,12 million tons) in 2002. Kemerovo region more than 4.5 million tons, Southern Kuzbass 1.5 million tons, Irkutsk region 1 million tons, Krasnoyarsk territory 320 thousand tons, Primoriye 650 thousand tons. 
Officials plan to provide the means for realization of investment projects in the coal industry on acompetitive basis (up to three years) and the provision of means from the federal budget on repayment of part of the expenses concerned with payment of interest for credits, which were received earlier, according to the press service of RF Ministry of Energy. 
The total volume of new capacities for coal production launched in 2001 was 6.22 million tons (financed from budgetary and non-budgetary sources) - Kemerovo region 4.37 million tons, Primoriye 800 thousand tons, Sakhalin 270 thousand tons. 
The following enterprises were fully financed - JSC Vostsibugol (172.4 million roubles) on construction of a new Murgunsky open-pit mine, JSC Chita Coal Company (600 million roubles) on technical rearmament and purchase of new equipment, JSC Uralugol 80 million roubles

Profitable Siberian mines sold "for a song" in secret deal

A scandal has broken out in Krasnoyarsk Territory. It seems that the authorities are losing control of enterprises which bring in a large income to the local budget. Three large coal mines were literally snatched from under the Territory administration's nose, NTV has reported. The shares of the enterprises were secretly sold for a song - the sum of the deal equals the price of a two-room apartment. According to unofficial reports, the mines were bought by certain off-shore companies which are owned by the mines' previous owner.
The Krasnoyarsk Territory authorities who have a share in the coal companies say that their rights have been flagrantly violated. They learnt about the deal six weeks after it had been done. The members of the Krasnoyarsk Territory Duma will try to restore the status quo ante - they intend to appeal to President Vladimir Putin.
Vyacheslav Novikov, a Russian Federation Council member said: "It will not be difficult to declare the deal invalid. It may take time, but nevertheless it can be seen at the first sight that some norms of our legislation were violated. An investigation is needed, of course, but there certainly is a case for filing a lawsuit."

Russia's first wind farm opens in Kaliningrad Region

Russia's first wind farm has opened on Kaliningrad Region's Baltic coast. It will provide ecologically-clean electricity to part of the western region's resort area, Radio Mayek reported.
The Radio correspondent reported: "High on the coast near the village of Kulikovo, swept by winds from the sea, 21 graceful masts with three-blade propellers wait to be started up. To the applause of those assembled, Regional governor Vladimir Yegorov threw the switch and the whole wind farm came to life. The blades began to rotate and light came on in the houses in the village.
"The Kulikovo wind farm is the first international project between Unified Energy Systems of Russia [which operates the national grid], the Russian Energy Ministry and the Kingdom of Denmark's Environment and Energy Ministry. The wind farm's overall capacity is 5.5 MW. It can generate ecologically-pure electricity to part of Kaliningrad's resort coast. The wind farm is fully automated and functions without service personnel. A computer simply passes the necessary information to a control centre.
Under the Helsinki agreement on protecting the environment of the Baltic Sea from pollution, Denmark has provided all the equipment free of charge. The next wind park, which will have greater capacity and 45 larger turbines, will be built on the shelf, actually in the sea, 45 m off the coast. In this way, Russia's Baltic resorts will be an entirely ecologically-clean zone.

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FOOD & DRINK

Germany's Rudolf Wild to start making fruit drinks

German company, Rudolf Wild, a European beverage market leader, is gearing up to make Capri-Sonne brand fruit drinks in Russia, New Europe has reported. 
Peter Poltz, the man responsible for the project, said it would be implemented together with the Russian company, Nidan Foods, at its plant in Lyubertsy outside Moscow (the agribusiness Belaya Dacha). The building of the roughly US$50m plant is planned for completion this autumn, and test production is to start in December.
"Starting at the beginning of next year, the Russian market will be getting only Capri-Sonne that is made in Russia," Interfax News Agency quoted Poltz as saying. The beverages are currently being imported. Poltz said the equipment for making Capri-Sonne, and also concentrates and packaging material, will come from Germany. The new production facilities will have a calculated output capacity of 12,000 0.2-litre drink packets per hour.
Rudolf Wild was founded in 1931. The company has subsidiaries in a number of Eastern European countries, as well as sales offices in Russia, Ukraine, Bulgaria, Romania, the Czech Republic and other countries. The company Nidan-Ekofrukt was set up in 1992 as an importer and distributor of Hungarian juices, later becoming part of the holding Nida Foods. The latter now has its own plant in Novosibirsk, also packaging its Chempio, Da! And Moya Cemya brand juices at the plants Amtel (Moscow region) Parmalat (Belgorod region) and Sibirskaya Kompaniya (Altai territory). 

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FOREIGN INVESTMENT

Investing in Moscow Oblast

Moscow Oblast is still by far the biggest recipient of foreign investment in Russia, and most investors' first point of entry in the country, The Russo-British Chamber of Commerce Bulletin of July-August has reported.
The capital is developing into a service rather than an industrial production centre and as such many foreign joint ventures are heading for Moscow Oblast rather than the capital itself.
The most popular industries for foreign investment are consumer goods and construction (Mars announced in a April that it is to undertake a US$120m investment in a food producing factory in Stupino). Other major blue chip banks have a presence or operations in the capital and use this as a base for deciding on whether to subsequently target other Russian regions.
Moscow City budget has been in surplus for most of the last decade, and the capital is also the largest contributor to the federal budget, providing around a third of its tax revenues. Problems with the city's banking sector in 1998 caused some serious budget problems for the region, however. By restructuring a number of banks, such as SBS-Agro, Menatep and Rossisky Kredit, and adopting a tight budget policy, the city was able to right the boat.
The main expenditure items in the city budget are community service (20%), construction (20%), healthcare (9%), education (8%) and social policy (6%). The budget was in surplus by 7% in 2000 and is now ranked sixth in the country.
Moscow has continually received around 20-30% of all FDI in Russia, with a typical falloff during and after the 1998 financial crisis. Since the decease of foreign investments was mainly caused by the decline in portfolio investment, the share of FDI increased from 14% in 1998 to 30% in 1999. This indicates the continuing attractiveness of Moscow despite the crisis. The city also received the highest share (42%) of EBRD credits to Russia. In 2000, foreign capital increasingly flowed back to the Russian capital. FDI accounted for 36% of total foreign investment in 2000.
Moscow Region showed a jump of over 850% in foreign investment from US$74.5m in 1987 to US$7908m in 1998. Investment has subsequently slumped by around a third each year since, down to US$290m in 2000. Moscow region planned to attract US$1bn in foreign investments in 2001 according to governor, Boris Gromov.

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FOREIGN LOANS

World Bank lends US$400m to Russia's treasury system modernisation project

Russian Deputy Prime Minister, Viktor Khristenko, and the World Bank's director for Russia, Julian Schweitzer, signed in Moscow on 31st July an accord on a loan to Russia's treasury system modernisation project.
Prime-TASS News Agency cited the Russian Finance Ministry as saying that the US$231m loan is the first tranche of the adaptation loan of US$400m. The Finance Ministry said the goal of the project was the development of the federal treasury necessary for improvement of the monitoring of the state's financial resources.
Not only the World Bank finances the project of treasury modernisation. A significant amount of finance comes from the Russian federal budget.
The project is to be completed by late 2009. It is expected to provide the government with daily information about revenue and payments from the federal budget and economic categories of spending.
The US$231m loan to Russia is for 17 years, with a five-year grace period.

EBRD signs credit accord with Russian foreign trade bank

On 26th July, the European Bank for Reconstruction and Development [EBRD] and Russia's Vneshtorgbank [foreign trade bank] signed an agreement to re-open a credit line for agricultural enterprises, Interfax News Agency has reported.
Under the agreement, Russian companies and Vneshtorgbank clients will be granted rouble and forex loans of up to US$10m for up to 12 months.
The credit line may be increased in the future, Vneshtorgbank said in a press statement.
The loans might be of interest to clients in both the Moscow region and areas that are agriculturally well-developed, the statement reads.
Vneshtorgbank's list of clients includes numerous agricultural firms, including trading and processing enterprises in southern Russia, which is one of the reasons why the EBRD selected Vneshtorgbank to run the project...

World Bank gives US$17m to cease ODC output

The World Bank has approved a US$17.3m grant to modernise the last seven factories producing all of Russia's ozone-depleting chemicals, The Moscow Times has reported.
"The end of ODC production in Russia represents a major milestone in international efforts to eliminate substances destroying the world's stratospheric ozone layer," said Ian Johnson, World Bank vice president for environmentally and socially sustainable development. Ceasing ODC production at the minority state-owned factories was the main requirement for the funds.
The World Bank money will be used to modernise the factories so they produce other chemicals that do not harm the atmosphere, said Vasily Rodionov, environmental specialist with the World Bank's Moscow office. The ODCs, chlorofluorocarbons and halogens, were primarily used in aerosol cans, fire extinguishers, plastic car components and refrigerators.
The donation is the second tranche of an environmental programme approved in April 2001, when the first payment of US$7.41 million was released to the seven factories to begin cutting down ODC production. 
Russia previously was one of the world's largest producers of ODCs. Austria, Denmark, Finland, Germany, Italy, Japan, Norway, Sweden, Britain and the United States contributed to the donation.
Under the 1987 Montreal Protocol, developing countries were expected to freeze emission of ODCs at 1995-97 levels for a year beginning July 1st, 1999. Those countries are now expected to cut production 50 percent by 2005. But Russia and several others countries, including China and India, have been unable to meet deadlines. Developed countries phased out ODC use almost completely in 1996. "When these seven enterprises cease production, Russia will ... meet all international requirements," Rodionov said.
The Perm-based Halogen Chemical Plant, which is minority owned by the Industry, Science and Technology Ministry and produces hydrogen fluoride and fluorinated compounds, will get US$4.6 million, the largest slice of the grant. Other companies partially owned by the ministry are the Volgograd-based Khimprom and Kaustik factories, Altai republic-based Altaikhimprom, Tver region-based ROZ and St. Petersburg-based Applied Chemistry.
The Kirov region-based Kirovo-Chepetsk Chemical Combine is partially owned by the Nuclear Power Ministry. Russia had to meet very tough conditions in order to get the second tranche of the grant, Rodionov said. "One of the most important conditions was to cease production of ODCs for finished goods and to cease exporting and importing these chemicals," he said. Rodionov said ODC production had to be halted completely to prevent illegal trade in the chemicals, which he said was one of the main problems that developed countries were trying to fight under the Montreal initiative. 
"There will be some small amounts of ODC left in order to repair old appliances, which is allowed by international agreement, but this has nothing to do with production," he said. ODCs are still used in some Soviet-era refrigerators and automobile air conditioners.

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FREE ECONOMIC ZONES

Businessmen suggest turning Kurils into free economic zone

Russian businessmen have suggested turning the four Japanese-claimed south Kuril Islands into a free economic zone similar to that in the Kaliningrad region which has existed for several years now. The suggestion came from the Vice President of Russia's Union of Industrialists and Entrepreneurs, Vladimir Shcherbakov, at a meeting in Moscow with a delegation of Japan's Association of Corporate Executives (Keiszai Koyuka), New Europe has reported.
Interfax News Agency quoted Shcherbkov as saying political problems should not slow down the dynamic development of Russian-Japanese commercial relations. "The question of the so-called disputed territories will hardly find its solution within the next five to seven years, but this should in no way adversely affect the development and expansion of our mutually advantageous economic ties," he stressed.
Shcherbakov recalled that the well-known Japanese company, Toshiba, is already operting in the Kaliningrad region, producing up to 60,000 TV sets a month for markets in Russia and the Commonwealth of Independent States. Also flourishing in Kaliningrad are the BMW and KIA car assembly plants thanks largely to the standards federally legislated for this epical economic region, the news agency quoted him as saying. Shcherbakov explained that the region has very low taxes, from which, during the recoup period (up to seven years), investment projects worth over US$1m are totally exempted.
In addition, all exports to the Kaliningrad region intended for production goals are not taxed, Shcherbakov stressed.
The Japanese businessmen showed much interest in this information and, according to delegation leader, Yukahuru Kodama, they intend to familiarise themselves with these proposals in greater detail by distributing copies of them among all Keiszai Koyuka participants.
"The next stage of this promising dialogue between Russian and Japanese businessmen may take place in September in Irkutsk where the traditional Baikal Economic Forum will be held," the President of the Russian Union of Industrialists and Entrepreneurs, Arkady Volsky, announced in his closing speech at the meeting.

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MINERALS & METALS

British bank to finance new Russian gold-processing plant

Peter Hambro Bank, a British company, has apportioned US$10m for the construction of a gold factory at the Pokrovskiy mine in Russia's Amur Region, Interfax News Agency has reported.
The mine is one of Russia's top gold-mining enterprises, Nikolay Goncharik, deputy chairman of the regional environment protection and mining committee, told Interfax on 26th July. Before the factory was constructed, gold was extracted from rocks by using a less efficient leaching technique.
The British company's investments made it possible to commission the factory's first stage on 20th July. By the end of the year, the factory will yield over two tonnes of gold. When the entire factory is commissioned, the output will increase to ten tonnes of gold a year.
Peter Hambro Bank owns 50 per cent of the enterprise's stock.

Russian, EU sign steel trade pact

The Russian Ministry for Economic Development and Trade and the European Coal and Steel Association signed a steel trade agreement in Brussels, the ministry's press service said.
In March 2002 the Ministry for Economic Development and the European Commission initialled an agreement regulating the export of metal products to the European market during the next three years. The agreement provides for a 28 per cent increase in the Russian steel export quota from the beginning of 2002 compared to the 2001 quota of about 840,000 tonnes. In 2003 and 2004, the quotas are expected to rise by another 2.5 per cent annually. If Russian export duties on iron and steel scrap are annulled, the quotas will be further increased by 12 per cent, or proportionally to the decrease in the export duties. Metal products that are not regulated by quotas will not come under quantitative limitations and will be regulated by the agreement on partnership and cooperation between Russia and the EU, signed in 1997, which envisions anti-dumping procedures and protective measures. In 2001 Russia exported 12.6m tonnes of metal, including pig iron, metal scrap, ferrous alloys and iron-containing briquette, to the European Union.

Russia-US rolled steel talks held in Moscow

Russia and the US plan to initial an agreement on Russian cold-rolled steel exports to the American market by 23rd August, Faryar Shirzad, assistant secretary for import administration with the US Department of Commerce told a press conference at the Interfax News Agency main office. 
As Russia has been granted market economy status, negotiations are being held directly with producers, in this case the Severstal, Magnitogorsk and Novolipetsk metal combines, and not with the Russian government, Shirzad said. This is the first time that such issues are being negotiated directly with producers in the history of commercial relations between the US and Russia, he said.
The cold-rolled steel talks are proceeding within the framework of discussions on suspending anti-dumping investigations, and Shirzad emphasized the positive tone of these negotiations.
Russian cold-rolled steel export falls under the protective duties introduced by the USA in March this year. Moreover, the US Department of Commerce suggested introducing additional anti-dumping duties on cold-rolled steel imports in May. The duty rate suggested for Russian suppliers is 137.33 per cent.
Until recently, Russia has been exporting cold-rolled steel to the US under a comprehensive agreement signed in 1999. The limit in 2000 was 340,000 tonnes.

No change in Russia-US uranium agreement planned

The United States does not plan to make any moves to amend the 1996 agreement on Russian uranium fuel supplies to the United States, Faryar Shirzad, assistant secretary for Import Administration within the US Department of Commerce said at a news conference at the Interfax News Agency main office on 26th July.
Russia's market economy status does not call for the abrogation or amendment of the agreement as long as the parties involved are comfortable abiding by it, he said.
The agreement is consistent with the US legislation providing for trade sanctions against countries that don't have market economy status, Shirzad said. The talks in Moscow suggest that the agreement has assured Russia a fairly stable market of low-enriched uranium in the United States.
Shirzad noted that at the talks with the Russian Economic Development [and Trade Ministry] and the Atomic Energy Ministry, an understanding was reached that the agreement's conditions can be renegotiated if need be.

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NUCLEAR ENERGY

CIS countries to build fundamentally new nuclear reactor by 2010

By 2010 the CIS countries will jointly build a fundamentally new type of a nuclear reactor within the Brest-300 project, the director-general of the Dollezhal scientific-research and design institute of power equipment, Boris Gabarayev, said at a meeting of the CIS member states' commission on the use of nuclear energy for peaceful purposes, ITAR-TASS News Agency has reported.
Gabarayev said that they are talking about reactors with the so-called internal safety, which have a significantly less effect on the environment than the modern ones. One of its specific features is that a metal heat carrier is used instead of the water one. The first reactor of this kind is expected to be built at the Beloyarsk nuclear power plant (the Urals). The development of another promising reactor, BN-800, and power plant demonstration units with natural safety precautions is also expected to be completed by 2010.
Representatives of Azerbaijan, Armenia, Belarus, Georgia, Kazakstan, Kyrgyzstan, Tajikistan, Uzbekistan, Ukraine, Russia and the CIS Executive Committee attended the meeting of the commission. The head of the Russian Atomic Energy Minister, Aleksandr Rumyantsev, was elected its chairman.

Tianwan plant to start producing energy in 2004

Russian Atomic Energy Minister, Alexander Rumyantsev said that China's Tianwan nuclear power plant, the building of which is being done by Russian specialists, will start producing electricity in 2004. "The building of the first generating unit is going well, the Chinese are working on it round the clock, and this project will be very rapidly completed," Interfax News Agency quoted him as telling a press conference.
"The quality of the nuclear station's construction is very good," he added. The installation of a second generating unit is also planned, Rumyantsev noted, suggesting that the building work on the second block, in which Russia will also take part, will also be quickly completed. 
Meanwhile Russia continues work on outfitting a nuclear power station in the Indian city of Kudankulam, he said. In March, work on the station substructure was wrapped up. The contract between the two countries for the building of two VVR-1000 nuclear generating units at this plant was signed in Moscow on October 6th last year. India's power station is being built under a Russian project in line with an inter-governmental agreement between India and the former Soviet Union. 

South Korea a potential spent nuclear fuel supplier

South Korea is a potential supplier of spent nuclear fuel to Russia, Russian Atomic Energy Minister, Alexander Rumyantsev, said. "South Korea shows immense interest in spent nuclear fuel shipments," he said. The minister emphasised that Russia's access to used nuclear fuel is impaired as usual. "No one let us into the market," he noted. 
Commenting on the situation with legislative guarantees for the introduction of used foreign nuclear fuel, Rumyantsev said the government was expected to draw up all essential documents regulating the import of spent nuclear fuel in November 2002. "We will be prepared to accept spent nuclear fuel from abroad in November," he stressed. The ministry has already submitted its proposals on the issue.

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SHIPPING

Murmansk shipping company purchases 

JSC "Murmansk shipping company" has purchased 2 tankers of THE strengthened ice class with a deadweight of 17 725 tons each, MMP press-service informed SKRIN. The contract sum was not disclosed. Thus the company has 3 tankers of ice class. 
The tankers are intended for oil and oil products transport in Arctic zone. The tankers will make the shuttle voyage from the ports of Vitino, Varandei, Koguev islands, from Oskaya guba and Yakutia to tanker-storage in Kolsky bay.

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TRANSPORT

Bridge construction starts in town on Russian-Chinese border

The construction of a gigantic bridge has started in the Siberian town of Khabarovsk, Russian Public TV reported on 5th August.
The bridge is to join up the town with the island of Bolshoy Ussuriysk, the ownership of which is disputed by China. The bridge will carry electric power lines and an oil pipeline.
The construction will consist of two pontoon bridges, since the river Amur is more than 700 m wide at this point, and the standard pontoon bridge set is 500 m long. The construction of the bridge is expected to take one month as it is being built and serviced by the railway troops.

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