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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: 267 - (27/03/03)

Economy grows
The Russian economy continues to thrive, but based on a limited range of commodity exports. Russian economists are apprehensive of the narrow focus of advance of GDP, which rose by 5.7% year-on-year in January. Power, fuel, ferrous and non-ferrous metals were the key sectors, based on a buoyant energy industry.
Exports continued to bound upwards, being 31% up in January on a year ago, at US$8.8bn, with a US$4.7bn trade surplus. But how long can the good news last? The war in Iraq is the vital factor here, with far - reaching implications for the world economy. The opposition by Moscow and Paris to the war is natural enough in the circumstances, with both countries hugely extended in Iraq and the Middle East generally.

Tycoons get richer
The oil boom is making some Russian tycoons very rich indeed. Some 18 of them are accounted dollar billionaires according to Forbes. The richest on US$8bn is Mikhail Khordoskovsky, who heads Yukos. He was worth 3.7bn in 2002. Six of the 18 hold shares in Yukos, the second largest Russian oil company and the boldest in opening up and expanding its capitalisation. The second richest man in Russia (and of course they are all men) is Roman Abramovich, another oil magnate on US$5.7bn. Yet another such is Mikhail Fridman, third on US$4.3bn, who has just cemented an alliance with BP on behalf of his company, Tyumen, making the new entity the largest firm in the world.
It was somewhat tactless for Khordoskovsky to say that Russians are now richer than they realise. Some are, but not everyone. Per capita income on average rose by 16% over the last year. But the average is a misleading indicator to what is happening to the man or woman in the street. Precisely the growing wealth of the tycoons gives a misleading picture. Still there has been a general improvement and Russians have hoped that good times will continue. They may be disappointed. A lot depends on the outcome of the war, particularly oil prices.

Oil continues to expand
Nevertheless oil output and exports are going to continue to rise in quantative terms. A huge new deal is afoot to take Russian oil to Japan, always something that Tokyo was eyeing up. China will be involved too and probably Korea. The energy needs of these three are likely to soar and Siberian oil and gas is the logical source. 
By 2010 a new world energy map will be in place, with Iraq joining Saudi Arabia as natural leaders, but Russia having its role in both Europe and Asia by reason of where it is. The plans for two oil pipelines running either side of Lake Baikal and on to Nakhodka, envisage a throughput capacity of 50 million tonnes. At US$5.2bn and US$2.3bn the projects are vast. But even if oil prices drop by a half they are likely to go ahead. Asia just needs extra oil. The knock-on effects on the Russian economy are likely to be profound.

Diversification required
The Russian finance minister, Alexei Kudrun, is planning a three-year programme of tax reform to lighten the load on business. Back in the 1990s it was virtually impossible to operate legally and turn a profit. That is no longer so, but there is great scope for further rationalisation and reduction.
Kudrun says that 2004 will be too early for the real impact to be felt. But that is when things may be turning rough. There may be a slowdown before a new more broadly - based boom emerges

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AGRICULTURE

Hard times ahead for Russian farmers, agriculture minister says

This farming year in Russia will be more difficult than the previous ones, Deputy Prime Minister and Agriculture Minister, Aleksey Gordeyev, said after the 6th March meeting of the cabinet, which discussed additional measures to finance spring field work, ITAR-TASS News Agency has reported.
Harsh weather has destroyed part of the winter crops. About 3m hectares will have to be re-sown. The loss of winter crops is predicted at a level of 20 per cent.
Although agricultural production and labour productivity have increased, farming enterprises' incomes have been down by 60 per cent and profitability by 50 per cent. Gordeyev blames this on growing prices of fuels and lubricants and delayed compensations to farm producers for damages caused by last year's disasters. The damage is estimated at R3.8bn.
Russian Prime Minister, Mikhail Kasyanov, has instructed the Finance Ministry to find funds by April to compensate for R3.8bn of losses sustained by farmers in last year's floods and droughts. 

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AUTOMOBILES

Renault Russia foray

Renault SA said recently that it would invest €230m (US$248.4m) in Russia to make a new car model for emerging markets, the International Herald Tribune reported.
Renault said its investment would fund a new production line at the Moscow plant owned by Avtoframos, a joint venture held 62% by the French automaker and 38% by the city of Moscow. Annual production should reach 60,000 vehicles in two or three years, and the plant will employ up to 2,000 workers, the company said. 
"The investment will be for the production of a car called the X90, which is in the process of development and will be on the market in 2004," Renault's chairman, Louis Schweitzer, said at a news conference in Moscow with the city's mayor, Yuri Luzhkov. The first models are to be built at Renault's Dacia plant in Romania in 2004.
The X90 family sedan, Renault said, is designed for reliability "in countries where infrastructures still vary in quality and climatic conditions are often severe." Renault said the Russian automobile market was growing an average of 10% per year.
Renault's investment follows BP's announcement in March that it would invest US$6.75bn in a Russian joint venture, the biggest foreign investment in the country to date.

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AVIATION

TsSKB-Progress to make 2-3 more carrier rockets in 2003

The TsSKB-Progress design bureau is capable of building an additional two to three carrier rockets this year if proper funding is provided, Interfax News Agency quoted a source in the bureau's management as saying. The need to build additional carrier rockets arose after the recent crash of the US Columbia space shuttle, the source said.
TsSKB-Progress is still working on the International Space Station (ISS) programme and carries out contracts with other foreign partners successfully.
It is supposed to build a total of six rockets for the ISS this year, including four for cargo spacecraft and two for manned flights. One of the rockets lifted off on February 2nd. Another carrier rocket will be made for the Mars-Express international programme. France will cover 50 per cent of the project's costs. 

Russian-European programmes values reach 2.3bn Euro

Russia estimates the price of the programme of cooperating with European aircraft makers at about 2.3bn Euro, Interfax News Agency quoted the first Deputy Director of the Russian Aerospace Agency, Valery Voskoboinikov, as saying.
"We do not profess the idea of isolation or plan to limit ourselves to a national framework rejecting the achievements of world technological progress. Therefore we will work with the European community and American aircraft-makers. The Russian Aerospace Agency has signed corresponding agreements with Boeing and EADS," he said. 
Voskoboinikov named the programme of developing a medium distance plane among promising international projects. "The contest that has not been completed involves three companies: the Myasishchev plant, Tupolev firm and Sukhoi Civilian Aircraft together with Boeing," he said. 

British Airways to switch airports for Moscow flights

British Airways will move its Moscow flights from Sheremetyevo airport to Domodedovo airport starting 1st July, Daniel Burkard, British Airways regional commercial manager for Eastern Europe, said at a press conference on 5th March, Prime-TASS News Agency has reported. 
British Airways will have a dedicated check-in facility at the airport. The company will now start negotiations with Sheremetyevo and Domodedovo officials.
British Airways offers 14 return flights to and from Moscow a week. It does not plan to change in its flight schedule... 
Domodedovo is Russia's most modernized international airport and the only Moscow airport linked with the city by rail.
The airport's passenger traffic rose 73 per cent on the year in 2002 to 6.7m passengers.

High technology in use at plant to make aircraft instruments

New hi-tech aircraft instrumentation is being created in Zelenograd, Moscow Region, Vyacheslav Ivanov, the first deputy CEO of the Legkiye Vertolety Milya (Mil Light Helicopters) production association, told Interfax-Military News Agency on 3rd March. 
"We are in for a real breakthrough in onboard aircraft instrumentation - a state-of-the-art and technology-based avionics system is being created in Zelenograd," he said. 
This light and compact system will alone fulfil the tasks of many familiar aircraft instruments, which may enable designers to get rid of them, he added. 
"Another important advantage of the system will be the price. While right now an artificial horizon alone costs about US$18,000 and all avionics for an aircraft like the Mi-34 Hermit helicopter are estimated at US$40,000-50,000 dollars, the price of the system being created in Zelenograd will be four to five times lower," Ivanov said...

Russian enterprise develops three new helicopters for the domestic market

The first experimental Aktai helicopter designed by the Kazan helicopter plant will be demonstrated at the MAKS-2003 airshow, to be held in Zhukovskiy, outside Moscow, in August.
"The first experimental Aktai helicopter is being assembled at the Kazan helicopter plant. The aircraft is expected to be statically demonstrated at MAKS-2003 in August. It will take to the air in autumn to winter 2003," a competent source in the Russian defence industry told Interfax-Military News Agency on 3rd March. 
He said the plant was participating in the design of three new helicopters: the Mi-38 medium rotary-wing aircraft within an international programme, the Ansat (a passenger capacity of eight to nine persons), and the Aktai (two to three persons). 
"The plant's interest in creating new helicopters is due to the poor supply of Russian-made aircraft of this class able to replace the obsolete Mi-2 Hoplite. The light helicopter market in Russia may be seized by foreign-made aircraft," the source said. 
In his opinion, the difference of the Aktai from its counterparts will be that it will be equipped with the RPD-4265 270-hp rotor-piston engine designed by VAZ [Volga automobile plant], a Russian automotive major. 
"The Aktai research and development now under way at the plant is estimated at US$10m, while the cost of the aircraft will be US$250,000-300,000. The demand in Russia for Aktai-type super-light helicopters is assessed at 400 to 500 pieces," the source added. 
The Aktai has a one-man crew and can carry two to three persons or luggage. The take-off weight of the aircraft is 1,150 kg. The commercial load may be 240 kg inside the aircraft or 300 kg on an external suspension. The maximum speed is 210 kmph and the operational range is 1,060 km.

Kazan helicopter plant to supply Mi-172 to South Korea

The Kazan helicopter plant will supply another Mi-172 with Western-made electronic equipment to South Korea in 2003, Interfax News Agency reported a source in the Russian defence industry as saying. "The Mi-172 will be the second helicopter of the type supplied to the South Korean police. 
The first Mi-172 was transferred to South Korea by a contract signed on December 29th, 1998. It has been in the air for 600 hours without any problems," the news agency quoted the source as saying.

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BONDS

Russian companies line up to issue bonds

Russian companies are planning to borrow a record amount in the international bond markets this year, spurred on by improvements in both the country's creditworthiness and the transparency of corporate accounts, the Financial Times has reported.
Soaring oil prices have bolstered Russia's finances and the government has not had to borrow at all, adding to demand for bonds from corporate borrowers.
Rating agencies report that some 50 Russian companies have sought credit ratings in anticipation of bond issues - more than ever before. But the market's rapid growth has prompted some observers to sound a note of caution.
"The market will continue to develop because that is the only (Russian debt) market that will see new issuance," said Larry Brainard, senior adviser at WestLB. "But whenever a market grows by more than 50 per cent, it's a danger sign - there has to be concern about a bubble being created."
Following BP's landmark deal in February to invest US$6.75bn into a new giant producer to be formed with Tyumen Oil Company (TNK), strong demand for Russian debt allowed Gazprom, Europe's biggest supplier of natural gas to increase its bonds to US$1.75bn from US$1.25bn, making it the biggest launch by an emerging market company.
Total issuance in the first two months of the year reached more than US$2bn - roughly two-thirds of the market's volume in 2002 and twice as much as in 1997, the year before Russia's sovereign debt default, according to Dealogic data.
Russian credit spreads have tightened dramatically recently, building on a rally that has made the country's debt the best performing asset for several years.
The yield spread on seven-year bonds issued by Gazprom last October has narrowed by some 90 basis point to about 170bp over the sovereign. The latest bond has also gained.
Russia's sovereign credit ratings are currently two to three notches below investment grade, and the country's narrowing yield spreads have prompted expectations that it might reach the coveted status in the next couple of years.
The highest rating assigned to a Russian corporate is BB- but most are rated several further notches below investment grade. For the moment Russian international issuers are almost exclusively commodity producers with hefty hard-currency earnings and thus lower credit risk.
Most potential issuers this year conform to this profile, including oil company Sibneft and diamond producer Alrosa, a would-be market entrant.

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ENERGY

Interros plans to sell its stake in RUSIA Petroleum

The Interros holding company plans to sell off its non-core business over the next two years, including RUSIA Petroleum, which develops the Kovykta gas condensate field in Irkutsk region, Interros Director General, Andrei Klishas, said in Moscow. Klishas did not say who the potential buyers might be for the Interros stake in RUSIA.
Interfax News Agency quoted representatives from British petroleum and Tyumen Oil Company as saying that neither company had yet received an invitation to buy the stake. Both companies would be ready to give careful consideration to such an offer if it is received. 
The Kovykta field has C1+C2 reserves of 1.88 trillion cubic metres. To provide for Russian consumer needs and exports totalling 36.9bn cu m a year, and taking into account its own needs, 38-38.5bn cu m will be extracted a year, or 3% of reserves. RUSIA Petroleum's biggest shareholders are BP with 32.95%, Interros with 25.71%, TNK with 29.11% and Irkutsk regional administration with 11.66%.

LUKoil to become sole owner of LUKoil-Perm subsidiary

Russian oil major, LUKoil, is to become the sole owner of the company's LUKoil-Perm, division. Interfax News Agency quoted LUKoil as saying in a news release that its subsidiary LUKoil Overseas Cyprus Ltd had reached agreement with shareholders of OAO PFPG-Energy to buy 100% of the shares in the latter for US$398m. PFPG-Energy owns 27% of the shares in LUKoil-Perm.
LUKoil said the Russian anti-trust ministry had given its consent to the deal, which should be concluded during the first half of 2003.
LUKoil-Perm is the Russian production office of LUKoil-Overseas, which is in charge of all LUKoil's oil projects in Azerbaijan, Kazakstan, Egypt, Iraq and some other countries.
The company said the cost of the acquisition was about US$0.97 per barrel of proven reserves, which is slightly below the Russia average.
LUKoil-Perm develops oil and gas fields in the Perm and Vologda regions, the Khanty-Mansii autonomous district and the Komi Republic. In 2002, LUKoil-Perm produced 8.572m tonnes of oil, 6% more than in 2001.
Net profits were up tentatively 5.7% to 7.93m roubles. This year, the company plans to raise oil production 2.7% to 8.8m tonnes.

Russian oil refining up

Russia's crude refining rose to 14,987,000 t in February, up 4.4 per cent on the year, a source close to the Energy Ministry told Prime-TASS News Agency reported on 7th March. Crude refining stood at 48.4 per cent of the output. Crude supplies to refineries increased to 17,408,000 t, up 18.6 per cent on the year, and consisted of 56.3 per cent of the crude output. The bulk of the extra crude supply was exported bypassing the Transneft system.

BP converts US$420m in bonds

British Petroleum has fully converted US$420m in five-year bonds, secured by shares in Russian oil major LUKoil, into the Russian oil major's ADS, Interfax News Agency reported.
BP Finance distributed an announcement on the early refinancing of US$420m in bonds on January 3rd. By February 10th the owners of the bonds could exchange them for LUKoil ADS, as after this date BP planned to buy back the bonds at face value.

Russian PM says oil transit deal with Ukraine ready for signing soon

The draft of a long-term agreement on the transit of Russian oil via Ukraine will be coordinated by the end of March and then Moscow and Kiev will sign the document, Russian Prime Minister, Mikhail Kasyanov, said on 7th March, Interfax News Agency has reported.
"I hope that this crucial agreement will be finalized over the next few months. It will determine issues regarding oil transit," Kasyanov said after a session of the bilateral cooperation commission.
The document will stipulate the amounts of oil to pass through Ukraine, he said.
The oil transit agreement will be similar to the gas transit agreements that are being implemented, he said.
The next protocol to the agreement on gas transit in 2004 will be signed by 1st July, he said.

Russia to consider Siberia, Far East fields

The Russian Cabinet of Ministers will debate development of oil and gas fields in Eastern Siberia and the Far East as well as construction of pipelines to China and the Pacific Rim countries, Prime Minister, Mikhail Kasyanov, said. In April, the government will discuss the development of oil and gas fields in Russia's north-west, Kasyanov said at the Fuel and Energy Ministry, New Europe reported. 
The government will focus on building new transit systems to export oil and gas, he said. In many instances, there are competing projects for pipeline construction. "It is necessary to unite rather than disperse companies' efforts on the world market," he said.

YUKOS pays Gazprom US$22.5m for 12% of Arcticgas

Russian oil major, YUKOS, has said it paid Gazprom US$22.5m for the 12% of the shares in gas producer, Arcticgas, that it bought in December 2002, New Europe reported recently. 
The deal made YUKOS the sole owner of Arcticgas, YUKOS said in its US GAAP report. YUKOS also spent US$23m on shares in the Eastern Oil Company (VNK), which it bought from minority shareholders, to consolidate 97% of the shares in VNK. YUKOS also handed over 25.58% of the shares in Zapsibgazprom which were held by companies loyal to the oil company for the 12% of Articgas.

Russian State Oil and Gas University and LUKoil sign cooperation agreement

LUKoil signed a cooperation agreement with Russian State University of Oil and Gas named after I.M. Gubkin in Moscow recently. The parties agreed to cooperate in the sphere of specialists' training, organization of research work, improvement of material and technical base of the university, organization of student practical work. 
The university and the company will be developing new forms of cooperation. Thus, the educational institution has assumed the responsibility for organizing regional branches for the training of specialists from the company's subsidiaries; pre-higher education training of entrants, after-university re-training and advanced training of specialists, execution of research works on demand of the company and its subsidiaries. 
LUKOIL will be participating in the working out of additional training plans and programmes of specialists' teaching, and will provide assistance in the organization of probation periods for teachers of the university. The company equipped the university Geological Modelling Centre with modern computer equipment at a cost of 4.5 million roubles. 

North Russian energy system increases electricity export to Norway

The Kola Peninsula energy system and Norwegian companies Tromskraft and Varangerkraft have agreed on an increase in the export of electricity to Norway's northern provinces from the current 650m kWh to 1bn kWh, the management of the Kolenergo power utility said on 5th March, ITAR-TASS News Agency has reported.
To export this amount of electricity a new 132-kV power line will be built in Norway, the existing substations upgraded and the capacity of two Russian hydropower plants on the border river Paz, increased.
The new project called Roselnord, will require tangible investments, which, Kolenergo officials said have already been promised by international organizations and the Council of Ministers of the Barents EuroArctic Region.

Russia pumps money into Far Eastern hydroelectric project

Since the beginning of the year R1.6bn has been received for the construction of the Bureya hydroelectric power station GES, in Amur Region of the Russian Far East, Radio Russia has reported.
The project is being funded under the investment programme of the Unified Energy System of Russia company. A meeting of the operational headquarters for construction of the Bureya GES was told that strict implementation of the funding timetable makes it certain that the programme of pre-commissioning work will be completed. The timetable for construction of the Bureya GES stipulates that the first power unit should be commissioned on 30th June.

Transneft may boost BPS capacity

Russia's oil pipeline operator, Transneft, is prepared to augment the capacity of the Baltic Pipeline System (BPS) from 12m tonnes to 30m tonnes by the end of 2003 or mid-2004, Interfax News Agency quoted Transneft Vice President, Sergei Ter-Sarkisiants as telling a roundtable on the outlook for pipeline transport in Russia organised by the Federation Council. Deputy Energy Minister and Trasneft Director, Vladimir Stanev, said that "preparations are being rounded off" to augment the system's capacity. It is thought the government will authorise the step during the first quarter. The system is intended to transport crude oil from the Timan-Pechora and West Siberian oil and gas provinces. The first 12m-tpy phases to the system, which cost US$500m, went into operation in December 2001. The second stage could cost about US$1bn.

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FINANCIAL NEWS

World Bank chief, Russian ministers discuss prospects for growth

During a one-day visit to Moscow, World Bank President James Wolfensohn discussed problems surrounding stable economic growth in Russia with Finance Minister Aleksey Kudrin and Economic Development Minister, German Gref, the Economic Ministry's press service reports.
They also discussed how to attract foreign investments into Russia and spotlighted world economic trends.
Wolfensohn's visit to Moscow marked the end of his tour of Europe.

Russia records big rise in foreign trade, widening surplus

Russia's foreign trade increased 30.8 per cent year-on-year to amount to US$12.3bn in January 2003, according to information distributed by the State Customs Committee on 12th March, Interfax News Agency has reported.
Trade with countries outside the CIS amounted to US$10.2bn (up 31.4 per cent), while trade with the CIS amounted to US$2.1bn (up 27.7 per cent).
The State Customs Committee said that Russian exports in January amounted to US$9.1bn (up 35.8 per cent), with imports at US$3.2bn (up 18.4 per cent). Consequently, the trade surplus in January amounted to US$5.9bn, compared with US$3.9bn in January last year, including a surplus of US$5.4bn in trade with countries outside the CIS (up from US$3.6bn) and US$500m in trade with the CIS (up from US$300m).

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FOOD & DRINK

Nestle Waters acquires Chistaya Voda

The company Nestle Waters, a subdivision of the Swiss corporation Nestle, has acquired the Russian group Chistaya Voda, the leading supplier of bottled water for home and office in the country, New Europe has reported.
"For Nestle Waters, this acquisition, as well as the purchase in July of last year of another active player on this market - the company Svyatoi Istochnik - is an excellent opportunity to strengthen our leadership position in Russia," the company said in a press release.
Svyatoi Istochnik commands 25 per cent of all market profit and serves 20,000 customers. Chistaya Voda, currently serving over 40,000 clients, in 2001 opened a plant outside Moscow for bottling water and a distribution centre able to serve up to 120,000 customers in the Moscow region. Preliminary estimates put the company's sales last year at more than 15 million Euro. 
Nestle Waters is well known in Russia for its international brands Perrier, Vittel and San Pellegrino, which it has sold for many years through Russian distribution representatives. Its overall sales in 2001 came to five billion Euro.

APK Agros to invest US$10m in meat processor

APK Agros, founded by the holding Interros, said it is planning to put over US$10m into technical re-outfitting and new brand development at the Moscow-based Tagansky Meat-Processing Plant (TAMP). Agros has obtained the controlling stock interest in the plant from MDM Bank, which brokered the deal.
"The acquisition of TAMP is a strategic step by the company in the development and improvement of business in the Moscow Region," Agros President, Dmitry Ushakov, said, reports Interfax News Agency. Agros is set to work constructively with all the plant's shareholders, he added.
The Roskhleboprodukt group, a part of Agros, will manage the enterprise. Last year, it acquired the status of the Moscow administration's general supplier and became the city's authorised supplier of agricultural goods, raw materials and food goods, the company said in a press release. Some meat market experts think that the situation surrounding TAMP remains in doubt. Agros has declined the offer from the company for the controlling stock interest which is for sale.
The holder of that stake is TAMP-Holding, set up by the company's management. TAMP Board of Directors Chairman, Alexander Bazanov, said that a Lyubertsy resident called Kolosov in early February became the owner of a small share in the company, as a result of lengthy court wrangling gaining control of TAMP-Holding and becoming its director. Bazanov said, "The court hearings in the regions were such that TAMP representatives as respondents were not invited to the court hearings, but faced only the striving to fulfil their rulings." He called this "a classic example of the unfriendly absorption of an enterprise." He also said that the plant's management had sent the prosecutor general a letter requesting clarification of the situation surrounding the company, another request to the city administration.
Interest in TAMP stock has been shown by the investment company Aton, which just recently announced its intentions to gather up to 25% on behalf of an unnamed client. "We continue to buy stock, but everything will depend on the client's position, which will be determined in the near future," Aton corporate ties Vice President, Anton Niskin said.
Commenting on the situation, Agros PR Director, Pavel Oliyanchuk said: "The company bought the controlling stock interest in the plant from a solid organisation, such as is MDM Bank. "The bank's reputation was the deciding point when the agreement was done," he added. "Naturally, the deal was subjected to legal analysis."
Agros is one of Russia's biggest funds for direct private investment in agribusiness and the food industry. It has put together a portfolio of projects with high investment attractiveness, that have great potential for growth and take leading positions on regional markets.
Roskhleboprodukt manages the production activities of more than forty companies, among them the Businovsky Meat-Processing Combine (Moscow), the company Smolmyaso, 11 elevators, farms and grain lands of more than 100,000 hectares.

Sun Interbrew to build malting plant in Mordovia

Sun Interbrew, one of Russia's main brewing companies, is planning to build a plant in Mordovia that would produce malt. The press service for the republic's administration has announced that tentative agreement was reached at a meeting between senior Mordovan government official, Vladimir Volkov and Sun Interbrew's general manager, Joseph Strella in Saransk. 
The project is in the design stage and details will be released at a later date. It is thought that the plant will be supplying Sun Interbreweries in Russia. Sun Interbrew and the Irish group Greencore, one of the world's ten top malt producers, have inked a long-term cooperation agreement that envisages increasing the production and quality to meet the growing needs of brewing companies. This year, the Saransk Brewing Company (part of Sun Interbrew) is planning to buy from Mordovan producers 38,000 tonnes of brewers barley, almost triple last year's amount (13,000 tonnes), New Europe reported

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FOREIGN ECONOMIC RELATIONS

Russia, Bulgaria sign series of cooperation agreements

Several important bilateral understandings were signed in Sofia on 2nd March in the presence of Russian and Bulgarian Presidents, Vladimir Putin and Georgi Purvanov.
They include a memorandum of drafting a long-term programme for cooperation in the power industry and a memorandum on further development of Russian-Bulgarian relations in deliveries and transit of Russian gas, ITAR-TASS News Agency has reported.
The sides also signed a programme for scientific and technical cooperation up to the year 2005 between the Russian Ministry for Science, Industry and Technologies and the Bulgarian Ministry of Public Education and Science, a memorandum on cooperation between the Russian Interior Ministry and the Bulgarian Justice Ministry in the sphere of investigation of criminal cases, as well as an intergovernmental agreement on cooperation and exchange of information on observance of tax legislation.

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FOREIGN LOANS & AID

Declared aid to chemical weapons disposal programme at US$400m

Declared international financial aid to the Russian chemical weapons disposal programme amounts to about US$400m, reports New Europe. "The international community is helping Russia eliminate its stock of chemical weapons. The size of the declared, free aid to Russia amounts to about US$400m, or around 10% of the resources it needs to eliminate its chemical weapons," said Alexander Yakovenko, the official spokesman for the Russian Foreign Ministry. He made this comment recently for journalists prior to a visit from Rogelio Pfirter, the director general of the Technical Secretariat of the Organisation of the Prohibition of Chemical Weapons. "Russia is receiving assistance from the European Union, Germany Italy, The Netherlands, Finland, Sweden, Canada, Britain, Switzerland and Norway. The Russian Foreign Ministry is holding intensive consultations with the donor countries on increasing this aid," he said.

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FORESTRY INDUSTRY

Timber industry set to increase product output

Wood-processing enterprises in Russia could top last year's output by 3%, by as much as 6% if the economy remains good, Interfax News Agency reported, the chief of the forestry wood-working and pulp and paper industry department at the Industry and Science Ministry, Boris Bolshakov, was quoted as saying. "I particularly think that 2003 will see production of more than 78 million cubic metres of industrial wood, that is, 3% more than last year," he said. 
This forecast is based on last year's outcome, Bolshakov said. That year saw production growth of 2.4%. "Increased production of wood and paper product in the sector was achieved mainly with higher output of thoroughly-processed goods of 2.4-13% depending on product type. In particular, in 2002 enterprises turned out 3.524 million tonnes of paper (up 2.4%) and 2.397 million tonnes of cardboard (up 9.8%)," he said. Commercial wood output last year was down 4.7% to 79.5 million cubic metres. Bolshakov said the reduction was linked to lower solvent demand on the home market and insufficient stocks of raw material for their production, "mainly in border regions, particularly Karelia."

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FOREIGN INVESTMENT

Finnish companies commit 5 per cent of their investment to Russia

Finnish companies committed 5 per cent of their investments to Russia, bringing their total amount to 150m euros, Finnish Consul-General in St Petersburg Jamsen Kauko has said. He spoke at the international briefing "The strategy and prospects for the development of Finnish-Russian business in industry" held in St Petersburg on 5th March, ITAR-TASS News Agency has reported.
Finland's export to Russia increased by 11 per cent last year, breaking the 1997 record. Seventy-five per cent of exported goods are products of the machine-building industry. In 2002, Russian exports to Finland increased by 5 per cent, mainly electrical power and raw materials.
According to Jamsen Kauko, the development of trade between the two countries has been helped by the new customs rules, continued management reform and the improved investment climate in general.
The consul-general said the main problem in the Russian-Finnish trade was the lack of information about partners.

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MINERALS & METALS

Russia launches large gold refining factory in Siberia

The construction of a large gold refining factory has been completed in Irkutsk Region.
The factory is located in the Lena gold-bearing area in Bodaybinskiy District where gold has been extracted for more than 150 years. "The reserves are slowly waning and gold miners have nothing to do but process the ore," Vladimir Sklyarov of the regional administration, told ITAR-TASS News Agency on 5th March.
Two pilot factories are already operating in the Bodaybo area. They produced about 400 kilograms of gold in 2002. The new factory will process the gold ore extracted at the Zapadnoye field. It is built to turn out two tonnes of gold a year.
The field was named Zapadnoye (Western) because it is located west of the Sukhoy Log deposit, the largest not only in Russia but in the world. According to geologists, it contains 1,100 tonnes of gold ore.

Russian diamond monopoly granted five-year export quota

Alrosa, Russia's Yakutia-based diamond monopoly, has now received a five-year export quota for rough diamonds, a Finance Ministry source has told Interfax News Agency.
A government resolution endorsing the quota was signed at the end of February, the source said.
A different government source told Interfax that Alrosa would be entitled to export US$750-800m worth of rough diamonds in 2003.
"The quotas will not alter significantly in the years that follow. The quotas are based on quantity and are set in carats. Quotas in value terms may alter, depending on the sort of diamonds exported, but such changes will not be significant," the source said. Export quotas measured in carats are classified information.
Alrosa told Interfax it could confirm receipt of the quota, but it said it would disclose details in a press release...
A presidential decree of November last year ushered in the concept of long-term export quotas for rough diamonds. This repealed an earlier decree of 1997, which only permitted annual quotas and a single outlet for export sales.
Alrosa plans to mine US$1.4bn worth of diamonds this year, 1.6 per cent more than in 2002. It is targeting cut diamond sales of US$129.5m, or 11 per cent more.
Alrosa mines about a quarter of the world's diamonds. Alrosa's biggest shareholders are the Russian Property Ministry with 37 per cent and the Yakutia State Property Ministry with 32 per cent.

Pig iron agreement signed

Russia and the United States have initialled an agreement to relax quotas from Russian pig iron, pipe billets and square blanks in Paris, New Europe has reported.
The agreement was reached at a meeting between US Undersecretary of Commerce, Faryar Shirzad and Russian Deputy Minister of Economy Development and Trade, Maksim Medvedkov. According to the draft agreement, the Russian quota for pig iron shipments to the United States this year will go up from 609,000 tonnes to two million tonnes.
Russia would also be able to ship 157,000 tonnes of billets between March 20th and the end of this year and another 105,00 tonnes of billets between January 1st, 2002 and July 12th 2004. The limit on pipe billets and square billets is currently about 40,000 tonnes. The agreement should be signed by March 20th, the ministry said.

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SHIPPING

Leading Russian shipyard to undergo comprehensive upgrade

The Baltiyskiy Zavod shipyard based in St Petersburg has launched a comprehensive upgrade of its production facilities, shipyard directo, Oleg Shulyakovskiy, told reporters on 5th March, Interfax-AVN Military News Agency web site has reported.
"The truth is that there are no normal shipbuilding facilities anywhere in Russia. Nobody is capable of working profitably and building various seagoing ships quickly, without excessive expenses and on a proper quality level," Shulyakovskiy said. In the Soviet times, efforts were focused on the development of shipbuilding facilities in Ukraine, he noted...
After the USSR collapsed, nobody invested anything in the shipbuilding industry for 10-12 years. Global technologies made a huge step forward over this period. In response to a question from Interfax-Military News Agency, Shulyakovskiy said that Baltiyskiy Zavod's reconstruction started with the modernization of the hull-processing shop. Modernization of the hull-assembly section will be the next step. 
"I am 100 per cent sure that we will not be able to withstand competition if we do not make a technological breakthrough now," the director-general said. There are four stages in the reconstruction programme. The first stage is now under way. It provides for commissioning a new hull-processing shop with a roofed steel warehouse and auxiliary facilities and for modernizing the assembly and welding shop.

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TELECOMMUNICATIONS

Golden Telecom posts 2002 net profit of US$30m in Russia, CIS

Golden Telecom, a US-registered telecom and Internet services provider in the CIS and Russia, posted a net profit of US$29.8m in 2002, compared to a net loss of US$39m in 2001, the company revealed on 6th March, Prime-TASS News Agency has reported. 
The company's net profit in the fourth quarter of 2002 was US$13m compared with a net loss of US$29.7m in the fourth quarter of 2001... 
The company said in a press release "the excellent performance of the company was driven by important acquisitions during the year, strong operating results in the various divisions and cost control at corporate level."
The company's total assets were US$435.8m of 31st December 2002, up from US$300.4m as of December 31, 2001, while its liabilities were US$126.1m, up from US$73.6m.
Golden Telecom's charter capital stood at US$307.5m as of 31 December 2002. On 4th March, the Standard and Poor's international ratings agency announced that it had assigned its BB- long-term corporate credit rating to Golden Telecom, with a stable outlook.

Deutsche Tel to sell MTS stake

Deutsche Telekom said on 12th March that it would this year sell a 15 per cent stake in MTS, Russia's largest mobile phone operator, in one of its largest disposals to date but left the size of the proceeds and the exact timing open.
DT, battling to reduce a €61.1bn (US$67.3bn) net debt, said it had reached an agreement with AFK Sistema whereby the Russian investment group would raise its 40.4 per cent stake in MTS to a majority, The Financial Times has reported.
Under the terms agreed, Sistema will have an option to buy 10 per cent of MTS from DT before the end of September, with the price to be determined by MTS's market capitalisation at the time.
DT said it would separately float another 5 per cent in the Russian operator "subject to market conditions." Should the two transactions take place, DT would see its stake in MTS drop from 40.1 to 25.1 per cent.
No financial details about Sistema's "call" option transpired on 12th March, but MTS's American Depositary Receipts closed at US$42.65 in New York on 11th March, putting the value of a 15 per cent stake in the operator at US$637.5m.
People close to DT described the talks with Sistema as tense and said they had repeatedly threatened to collapse because of a steep rise in MTS's share price over the past few weeks.
A spokesman for the German group said it would not reduce its stake in MTS below 25.1 per cent and that Sistema had given DT certain guarantees as a strategic investor, including a right of first refusal on any future sale of shares. News of the agreement left investors in DT cold. Its stock was off 25 cents, or 2.6 per cent, to €9.25 by late Frankfurt trading, having recouped some of its intraday losses.
DT has under-performed its European peers by a substantial margin this year despite having announced €4.4bn worth of disposals since November. The stock dropped more than 7 per cent after it unveiled a record €24.6bn net loss for 2002, largely due to asset write-downs.
Sistema, a sprawling holding group with a diverse portfolio of assets has long been seeking to upgrade its stake in MTS to a controlling packet of shares. MTS has around 7m subscribers and is one of the market leaders in one of the few areas of growth in Russia outside the lucrative export of the country's natural resources.
MTS stock has almost doubled in value since its listing on the New York Stock Exchange in 2000.
Russian telecoms have defied global downward trends as mobile providers have serviced a growing economy filling the gap left by inadequate Soviet-era fixed line infrastructure and aided by a boom in cheap handset technology, much of it imported in the grey and black sectors of the economy. Sistema is planning a US$300m eurobond issue later this year.

Russian group to switch to UK listing

One of Russia's seven regional telecommunications companies is likely to switch an international share listing it planned for this year from New York to London due to concerns over growing costs and regulations in the US, the Financial Times reported on 3rd of March.
Vladimir Rybakin, the general director of Uralsvyazinform, a fixed and mobile operator based in the Urals and western Siberia, said that a listing of up to 11% of his company's shares would probably now take place in the UK because the New York stock exchange was "very expensive."
His comments came amid momentum among foreign companies to reconsider seeking Wall Street quotes in the wake of the tough Sarbanes-Oxley Act introduced in the US last year.
One leading investment banker with several Russian clients said recently that two companies he was currently advising on foreign initial public offerings had decided to avoid New York as a result of Sarbanes-Oxley; one switching to London and another to the domestic market. "People are nervous about signing their name in blood - although they already have to do it anyway," he said.
Late last year, LUKoil, one of the country's oil groups, became the first Russian company to obtain a full listing on the LSE, in a partly defensive move after political lobbying when it was in dispute with the US group Williams over control of a Latvian oil refinery.
There were also suggestions it was concerned that its contracts for future oil development in Iraq could trigger political tensions in the US, although these have recently been annulled by Iraqi authorities.
The LSE has been increasingly marketing itself to foreign companies, with six visits by executives to Moscow in the past year.
Aside from LUKoil, the oil group Tatneft and the gas monopoly Gazprom both have depositary receipts listed in London, and a further nine are unlisted but traded on the exchange's international order book.
Russian companies have been the most traded of emerging market stocks in London over the past few months with volumes accounting for £1.8bn (US$2.8bn) in January alone.

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TRANSPORT

Modernizing of railway on Russia's Sakhalin island under way

A large-scale project to modernize Sakhalin's railways is under way. Over the next five years the constructors are going to replace the narrow-gauge railway with normal-width tracks, rebuild bridges and widen tunnels while traffic on the main lines will continue, Channel One TV has reported. 
Vladimir Voropayev a correspondent for the TV said: "Nearly all the railway lines on Sakhalin were laid before World War II, when the Japanese were in charge of the south of the island. The distance between the rails is 1,067 mm, which is almost one and a half times less than on the rest of Russia's rail network. The cost of moving freight on Sakhalin is almost 900 per cent higher than on the mainland. All equipment has to be individually ordered. For example, Russia has long since stopped producing diesel locomotives for narrow gauges. The locomotives currently in use are over 30 years old. The wagons and carriages are even older...
"Another item of spending will disappear when the Sakhalin railway gets a wider gauge - money and time are currently spent on ferry crossings in Kholmsk. Before normal wagons can leave the mainland for Sakhalin, they have to be moved onto narrow-gauge rolling stock...
"Work on modernizing the main lines has already begun on the section that links two sea ports - Kholmsk and Nevelsk. The first stage is rebuilding the bridges and tunnels. Next year work will begin on digging out new embankments, and after that rails conforming to the national Russian standard will be laid along several hundreds of kilometres. The transfer of the whole of the Sakhalin railway network onto a wide gauge will cost at least 300m roubles. It is planned to carry out the renewal of the main lines over five years, at a rate of at least 100 km per year. Meanwhile, the passengers and freight companies should not experience any difficulties. For the first time in world practice, the move from one railway standard to another will be carried out without halting railway traffic."

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