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: 275 - (01/12/03)
The situation in Russia is highly paradoxical. On the one hand the economy is performing very well at a time when the world economy is not doing so well, even if there are now welcome signs of recovery from the doldrums in the US and the EU. Russia was given the prized accolade of Baa3 status for its bonds and implicitly its economy by the rating agency, Moody's Investors Service, in early October.
With a fiscal surplus, a reduced foreign debt around 21% of its $412bn GDP, rates of growth of 6-7% annually since 1999, a trade surplus of $45bn in 2003 and a renewed interest in the country by foreign investors, with $7.7bn net capital flowing into Russia in the first half of the year, the new rating, conferring investment grade status on the country for the first time, seemed thoroughly justified. Russia was increasingly seen as a success story, even if the World Bank in its annual report warned that the success was unduly premised on high oil prices. The real test would come when they fell.
The Yukos affair
In fact the test has come much sooner, thanks to the arrest on October 25th of Mikhail Khodorkovsky and the freezing of his assets or those under his wing in Yukos, 44% of its shares, later reduced by the public prosecutor to 39% to exclude outside investors. The Moscow stock market fell heavily on the announcement and has not really rallied since. Net capital outflows totalled $2.4bn in the third quarter.
A massive question mark hangs over the Russian economy, which subsequent acts by the authorities have done nothing to dispel, particularly the submission for investigation by local officials of drilling licenses given to Yukos in the very different conditions of the late 1990s. Foreign oil companies are naturally apprehensive that they might be next on the list.
Why did Putin do it?
Putin might well have thought that things were going so well for Russia on the economic front, at least short-term, that he could risk bold moves under consideration for some time. The build-up to the elections to the lower house of parliament, the Duma, on December 3rd gave an ideal pretext to do them, acceptable to Western opinion.
The jailing of Russia's leading tycoon is obviously popular with the public. The ratings of the pro-government bloc, United Russia, immediately leaped up by 4% in the polls. It now stands at 30% compared to the communists' 23%, a marked change on May, when it only had 9% to their 22%. The other three important parties have remained in single figures, the Liberal Democratic Party of Russia on 7% and the other two, Yakoblev and the Union of Right Forces on 5-6%, just above the 5% threshold for representation on the party list. The pro-government forces and their allies on most bills, the LDPR and the Agrarian Party, should enable the government to obtain a majority in the next Duma, with perhaps 250 deputies on whom they can rely, on key occasions. It will remain a rubber-stamp of the Kremlin.
The extraordinary thing is that Khodorkovsky has been funding the two other opposition parties, Yakoblev and the Union of Right Forces, in direct violation of the pact made at Putin's accession that the oligarchs stay out of politics in exchange for their enrichment in the notorious sale of state assets being left in obscurity. The last thing the other moguls want is for their role in 'the sale of the century' in the mid-1990s to be revisited by the public prosecutor, as the affairs of Yukos now are. Hence their only tepid support for Khodorkovsky in his ordeal.
He also made it clear that he had long term designs on the presidency itself, declaring his intention to disengage from Yukos altogether in 2007, on his forty-fifth birthday, in time for the presidential election after next in 2008, when Putin's second term expires. He is not allowed by the constitution to stand for a third term. Khodorkovsky behaves as if he has never heard of 'the territorial imperative' of Konrad Lorentz, the German anthropologist, whereby animal behaviour involves males disliking those encroaching on their territory. If this applies even to lions, it most assuredly does to 'the lambs' of the Kremlin.
Then there is the little matter of taxation, at whose minimisation Yukos had shown itself adept, as had Sibneft before their recent merger. Yukos paid an effective income tax rate of 13% last year and Sibneft 12%, well below the statutory rate of 24%, thanks to deft exploitation of tax loop-holes. These are now to be stopped as of January 1st. this will make the recent sort of dividend pay-out of $2bn, of which $730m was earmarked for Khodorkovsky himself, by Yukos no longer possible. The post-tax returns of BP and others are likely to be hit too. The oil companies are perceived as having had an easy ride for too long.
In fact action against the oligarchs has been urged on Putin for some time by many in the Duma and in the public at large, not to speak of his own entourage.
Democracy, so lauded by the West, is here a source of the problem for the Putin regime. For all its new authoritarianism in stifling the media and fixing elections in its favour in Chechnya in early October, it faces more or less free elections in Russia itself. Free speech and free association have given rise to 80 nationalist parties and organisations. Hate-mongering demagogues now abound, who make Zhirinovsky, the ranting victor of the Duma elections ten years ago, look like a mild populist by comparison. Draft 'renationalisation' bills are being constantly debated in the Duma. In this ugly climate the official campaign against the oligarchs has been resumed before the upcoming elections with the choice of a new target in Khodorkovsky and his financial empire.
Behind the scenes
Of course Putin's behaviour is governed by more than just personal considerations for his own future to curry favour with the electorate. He is acting in the current situation in the interests of a powerful constituency, that of the old KGB hands, of which he is one himself. The Putin presidency has seen a massive comeback by the 'chekists' or the 'siloviki,' as they are now known. A coalition spanning the Federal Security Service (FSB), the domestic successor to the KGB, the military and the police has become the dominant force in Russian politics and the economy in the 2000s. The trend began a decade beforehand under Yeltsin, with the proportion of siloviki rising twelve fold in the period since then within the political system
According to a brilliant piece of research by Olga Kryshtanovskaya, Russia's leading sociologist, the proportion of siloviki in the top echelons of power has increased from 4.8% in 1988 under Gorbachev, when the old Soviet security structures and the armed forces were strictly subordinate to the political leadership, to 58.3% in the middle of Putin's first term. More than half of Putin's informal politburo consists of people from the former KGB, whereas Gorbachev's actual politburo was composed of Soviet-style politicians, some of whom, it is true, had graduated to their Kremlin eminence after an apprenticeship in the KGB in the provinces, such as Gorbachev himself and Eduard Shevardnadze, the former Soviet foreign minister and now president of Georgia.
Both were of course reformers, as were many KGB personnel in those days. The KGB, indeed, in its Brezhnevite prime had those with a wide range of opinions from Reaganites to diehard communists or Soviet patriots. These days it is different. The more independent-minded KGB officers left for the private sector in the early Yeltsin years when the KGB was formally disbanded. Between 1991 and 1993 some 300,000 KGB operatives left the service to join the private sector as security personnel, some 20,000 or so ironically working for the firms of the oligarchs, such as Yukos. Today the diehard Soviet types are left holding the fort.
"We are witnessing the restoration of the power of the KGB in the country, from the regions to the top of the Kremlin," she avers. This is most marked in the provinces, where five out of seven presidential representatives are former KGB or military men. Each presidential representative has a staff of 1,500 people, of whom 70% have links to the security services or the army.
The influence of the siloviki has been spreading from the FSB and the army to the economic ministries, media and telecommunications and is penetrating every corner of social life. Four out of twelve deputies in the ministries of economic development, industry and telecommunications are linked to the special services. "These people have not really left the special services, but have been seconded to the government." This represents a drastic improvement in their fortunes.
There is one cynical interpretation of current developments that is widely prevalent. According to this viewpoint, Putin's appointees are likely to favour ideas of state-dominated industry for ideological and self-interested reasons. They are likely to be disgruntled that they missed out on the opportunity to share out the riches of Russia's natural resources among their clientele, as Yeltsin's did before them, receiving fabulous kickbacks in the process. Hence the relish at the prospect of turning on the oligarchs and going 'back to basics.' If the assets of the first privatisation can be renationalised, what a field day would open up for a second sell-off, with a new class of beneficiaries!
Kryshtanovskaya has a different view. She says: "The siloviki are a very homogenous group in terms of their social status and mentality. They think they act in the interest of the state and their aim is for Russia to be feared again. They would rather be in Putin's team than take a bribe." The oligarchs, by contrast, have acted against the state's interests, by their reckoning, and should be squeezed out of the country or crushed. "They call it patriotism and statesmanship. The trouble is that the notion of a strong state is inseparable in their mind from fear, " she adds.
Putin is not likely to go along with this programme in anything like its entirety. But a power struggle is unfolding in the Kremlin all right between the reformers loyal to the Yeltsin- era dispensation and the siloviki. The head of the presidential administration, Alexander Voloshin, has resigned in protest at the arrest of his old ally, Khodorkovsky. He was a key intermediary between the Kremlin and the Family. His successor, Dmitry Medvedev, an old protégé of Putin's from St Petersburg, has also surprisingly expressed reservations about present developments. The prime minister, another intimate of this nexus in the mid-1990s, Mikhail Kasyanov, has done the same. Putin himself as the former official in charge of foreign investment in St Petersburg must have reservations of his own.
But the temptation to make an example of Khodorkovsky is proving paramount. This thorn in Putin's flesh has to be removed, while the move finds resonant echoes of support in both the inner councils of power and among the population at large.
Playing to the gallery
For populist reasons as well as raisons d'etat, then, Putin is trying to distance himself as much as he can from the tycoons, and so the record of the Yeltsin years as well, without undermining Russian business, the emphasis being on its Russian character. He can now point to his having seen off two moguls in 2000, namely Gusinsky and Berezovsky, and a third in Khodorkovsky, who, after being incarcerated for months in a cell with three other prisoners, is unlikely, the Kremlin must be hoping, to want to hang around Russia even if he is released next year. These three magnates are all Jewish. The only non-Jewish Russian mega-tycoon, Vladimir Potanin, a son of the Soviet elite who became banker to Russia's new government departments, has never been targeted. Yavlinsky has accused the Kremlin of creating a 'capitalism with a Soviet face.' Actually Putin is also tapping into an older Russian tradition, 'capitalism with an anti-semitic face,' such as led Tsarist police to connive at pogroms in the 1900-10s. Khodorkovsky is easy enough to depict as almost a caricature of a scheming Jewish tycoon, bent on taking over Russia and ready to use any devious tricks to succeed.
This is the great unmentionable in this whole affair. Chubais, as head of the largest Russian utility, UES, and as the leading light in the Russian chamber of industrialists and businessmen and its current spokesman, would not want to put the matter in this light. Nor would any other of its Jewish participants, only too well aware of what a can of worms they would be opening up in the process. Nor of course would Putin or any government spokesperson for the same reason. Nor, indeed, any of his Western backers, such as Bush and Blair. But the incipient campaign against the oligarchs to woo electoral support has the whiff of a government-inspired pogrom for all that, such as ensued in the 1910s just before and after the assassination of Pyotr Stolypin, the great reforming prime minister of the time, by a Jewish fanatic in 1911, shot like Lincoln in a box at the opera house. Putin is fishing in troubled waters all right.
The anti-semitic slant to the campaign against the oligarchs has been evident from the outset. The Jewish widow of Andrei Sakharov, the renowned physicist and Soviet dissident, namely Yelena Bonner, talked of the "obvious anti-semitic coloration of the campaign against Gusinsky and Berezovsky" when she was addressing a UN conference in 2001. She was unusual in doing so at the time; but then neither she nor her husband were exactly mealy-mouthed.
Today members of the Duma talk of 'the rootless cosmopolitans' and 'the foreigners in our midst.' Everybody in Russia knows who is meant. But Westerners are understandably more squeamish or slow on the uptake.
Six of the seven biggest oligarchs are Jewish in origin, Abramovich, Berzovsky, Gusinsky and Khodorkovsky, plus Piotr Aven, head of the Alfa conglomerate, and Mikhail Fridman. Of these six the first three already live abroad with excellent connections to Israel. The UK newspaper, Business, in its November 2/3 issue, revealed that Khodorkovsky has transferred control of his $7.5bn stake in Yukos, with full voting rights and the right to receive dividends to Leonid Nevzlin, a billionaire and an oligarch, former president of the Russian Jewish Congress and also a big shareholder in Yukos, who moved to Israel in September. To add to the confusion, the Sunday Times, also of the UK, has revealed that Lord Rothschild has emerged as a key figure in the battle for control of Yukos. But its claim that the voting rights and so forth have been transferred to the UK financer has not been confirmed by his office. Lord Rothschild's role in the charity organisation, Open Russia Foundation, set up by Khodorkovsky, is important, as is that of Kissinger and other distinguished Jewish figures in the West. He also appears to have a participation in the Menatep Group, based in Gibraltar, in which Khodorkovsky has placed control of his personal fortune. What is significant is that, whatever their exact roles, his most trusted allies are Jewish, a fact that will not be lost on Russian observers of the saga.
The wonder boy of the Far North
The sort of tycoon who is in far more favour is Alexei Mordachov, the patron of Severstal Group, based in Cherepovets in the Far North 500 kilometres north of Moscow. He has come on by leaps and bounds in the last few years, but is still only 38. Unlike the other tycoons, he did not make his fortunes out of the 'sale of the century,' but rather out of a brilliant student career (being 'the best pupil' of his Leningrad professor at the time, a certain Anotoly Chubais, of more recent fame, a student in Austria and an MBA of the University of Northumbria in Newcastle, explaining his fluency in German and English), followed by diligent ascent within the local hierarchy. He became head of the steel works on which the city's livelihood depends.
He established Severstal two years ago, which has branched out into mines, ports and automobiles, making it the employer of 70% of the population in the locality. His active employment policy and philanthropy have made him very popular in the region. He is very much in with the Kremlin, a true Russian, but long familiar with the West. A dark-haired, handsome and imposing figure, articulate in his own language as well as foreign ones and a quick thinker on his feet, he is being touted as a future premier or even president of Russia. This is the sort of figure Putin is more likely to be thinking of as his eventual successor, not the likes of Khodorkovsky, although naturally it is early days yet.
Russia's conventional weapons firms envisage major output hike
Enterprises of the Russian Conventional Weapons Agency are capable of increasing their output fourfold by 2010, Aleksandr Nozdrachev, the agency's director general, told Interfax-Military News Agency on 11th November.
"If the trends in the Russian defence industry, which have held true for the past 3.5 years, are maintained, the Russian Conventional Weapons Agency will increase its production output fourfold by 2010," Nozdrachev said in response to the question as to whether enterprises of the agency were capable of a twofold increase of gross domestic product.
The director general said that in 2003 the conventional weapons industry enterprises would increase output by about 16 per cent. At the same time, according to Nozdrachev, the civil products sector is playing an increasingly greater part in the total output of the agency. "At the present time the civil product share of the agency accounts for over 60 per cent and it is mushrooming at a considerable rate," Nozdrachev said.
According to him, the civil product output increase at enterprises of the Russian Conventional Weapons Agency is provided by contracts of the Transport Ministry, downstream and construction industries, as well as public utility services.
SeverGal JV receives first tranche of EBRD credit
SeverGal, a joint venture set up by steel makers Severstal and Arcelor to produce steel for the automobile industry, has received a first tranche of US$10m in credit from the European Bank for Reconstruction and Development (EBRD), Severstal said in a press release, Interfax News Agency has reported.
The partners signed the deal on a US$90m seven-year credit to finance construction of a hot-dip plant on February 11th, 2003 in Paris.
Ivan Nefedov, Severstal's general director, said the first tranche would be used to pay equipment suppliers and the general contractor. He said the second tranche was expected towards the end of this year or early next year
Kamaz to invest 4.5bn roubles in 2003-2005
Russian truck maker, Kamaz, recently developed a business plan that includes investment of 4.5bn roubles in 2003-2005, according to a company investment memorandum on a Kamaz-Finance rouble bond issue amounting to 1.2bn roubles, New Europe reported.
Capital investment in 2003 should amount to 1.138bn roubles, in 2004 - 2.033bn roubles and in 2005 - 1.336bn roubles. One of the largest Kamaz investment projects is to create a range of four-wheel drive vehicles with axle capacity of six to eight tonnes (basic model - KAMAZ-43114), with improved consumer qualities. This project should be implemented in 2002-2006 and spending on the project in 2004-2005 is planned at 951m roubles. Another large investment project is the production of a range of vehicles with increased freight capacity and axle capacity of 10-12 tonnes (basic model - KAMAZ-6520). Investment in this project in 2004-2005 is planned at 1.111bn roubles and the project is being carried out in 2002-2006. Kamaz also plans to produce bus chassis, with an investment of 435m roubles.
Price tag of Togliatti auto project over US$60m
The total cost of a project to set up an automobile industrial park in Togliatti is estimated at US$60-80m, Avtovaz Chairman of the Board, Vladimir Kadannikov, said in Togliatti, Interfax News Agency reported.
The Avtovaz board of directors decided last year to support the establishment of the automobile industrial park. It is planned that this work will be carried out by ZAO Automobile Industrial Park. Avtovaz's partners in the project include Germany's Ferostaal and the largest Avtovaz shareholder, All-Russian Automobile Alliance. David Herman, former General Motors vice president, was elected as the company's CEO. Kadannikov said that the industrial park would be rented out under long-term contracts with foreign and Russian automobile component producers. It is planned that foreign companies will open up joint ventures, subsidiaries or branches in the park. The first contracts will be signed in November 2003, Kadannikov said. He said that the company would be developed in three stages. During the first stage 10,000 square metres of production space on Avtovaz territory will be marked out and later the park will be expanded: the second stage will involve an expansion to 33,000 square metres and the third stage - to 87,000 square metres
SOK Group to invest in better automobile lighting production
SOK Group plans to invest over US$20m over the next three years in developing the production of automobile lighting, Viraly Yurchenko, director of the group's lighting technology division, said recently, New Europe reported.
He said the group contains three Russian lighting plants: AO Avtosvet, AO OSVAR and OOO DZS. The Italian producer AV-EL, a supplier to Fiat, also joined the group this year. SOK also plans to set up a joint venture to produce lighting technology. The German company HELLA is a potential partner. SOK and HELLA are already implementing a joint project to produce headlights and supply them to
AVIATION & SPACE
Russia, India to cooperate in designing new transport aircraft
Russia and India are jointly developing a new multipurpose transport aircraft, Aleksey Fedorov, president of the Irkut research and production association, told ITAR-TASS News Agency.
Participating in the project, which is part of the Russian-Indian long-term military and technical cooperation programme, are Hindustan Aeronautics Ltd [HAL] on the Indian side and the Irkut corporation and the Ilyushin aircraft design bureau on the Russian side. "HAL has been working on the development of a transport aircraft for over a decade. We have made certain progress in this field too. This is why, having evaluated the existing results of development and prospects for designing such an aircraft for the national air force, we decided to combine our efforts," Fedorov said.
He said that the project, estimated at R300m to 350m, would be financed on a parity basis, which is a new phenomenon in Russian-Indian cooperation in the aircraft industry. The production of a prototype of the aircraft at the HAL and Irkut factories for endurance and static tests is scheduled for 2006, and its maiden flight is set for 2008.
Fedorov believes that the two countries have attained a new level of relations, namely they are moving on from the seller-buyer relationship to mutually beneficial co-production arrangements.
Energomash extra shipment of rocket engines to US
The Energomash Corp is preparing contractual documents for an extra shipment of RD-180 engines for Atlas rockets to the United States, the company said recently. "We have supplied 16 engines under the first contract, which stipulates the delivery of 18 RD-180 engines for Atlas rockets to the United States. It was later decided to enlarge the shipment to 29. Contractual documents on the extra shipment of 21 engines were being prepared. In the end, the contracts will total 50 engines," Vladimir Sudakov, head of the Energomash information department said, Interfax News Agency reported.
All in all, the United States wants to buy 101 RD-180 engines designed by Energomash, according to a statement of intent, Sudakov said. Energomash is an international leader in the production of liquid - fuel rocket engines with a large capacity for military and civilian needs. It has designed engines for the Vostok, Voskhod, Soyuz, Proton, Energia, Zenith and some other rockets.
Ulyanovsk aircraft plant secures contracts for ten Tu-204-300 aircraft
The total number of confirmed contracts for producing Tu-204-300s equals 10 aircraft, Lev Lanovskiy, chief designer of the Tupolev JSO, told Interfax-Military News Agency on 31st October.
"The new Tu-204-300 aircraft generated considerable interest among Russian air carriers. The total number of solid contracts on producing Tu-204-300s equals 10 aircraft, which is sufficient to employ production capabilities of the Ulyanovsk aircraft plant to the full extent," Lanovskiy said.
He said that the first Tu-204-300 transport would be delivered to the Ilyushin-Finans Leasing Company in October 2004. After that the customer will hand the aircraft over to the Transaero air carrier for further operation. "Test flights of the Tu-204-300 are to be resumed in December 2003. At the present time the first prototype is at the Aviastar plant, which is fitting it with required control instruments and refining the aircraft to meet certification requirements," the chief designer said.
He also said that the aircraft had carried out three flights with a total flying time of about nine hours so far. The flight tests programme envisions 100-120 flights. The total cost for conducting flight tests and certifying the aircraft will equal about R150m-200m (US$5m-6.7m). "The issue of budget funding, provided by the Russian Aviation and Space Agency is being settled," he said. The Transaero air carrier is leasing four Tu-204-300 aircraft for 15 years for a total of about US$100m.
Transaero also has an option to procure another six similar aircraft for a total of at least US$200m. The Tu-204-300 differs from the Tu-204- 100 baseline aircraft in its shorter fuselage, the reduced number of passenger seats (from 210 down to 160), and the increased range of up to 9,200 km, while the cost of the aircraft remained the same at US$25m-27m.
Russian experts unveil new space tourism, freight vehicle
Specialists of Moscow's MAI aviation institute at the opening on 3rd November of the Aviation and Space Exploration international show held a presentation on a unique spacecraft project which is capable of transporting passengers and cargo at altitudes from 100 km to 200 km and at a speed of up to 30,000 kph.
The modular spacecraft is equipped with rocket engines. It can be used to deliver cargo to low near-Earth orbits and for space tourism.
"Flight tests of a scale model on a scale of 1:25 have been successful and confirmed that the geometry and the construction of the sub-orbital spacecraft are correct," Russian Academy of Sciences academician Ivan Obraztsov, one of the scientists involved in the project and a scientific project leader at the institute of applied mechanics, told RIA Novosti News Agency.
If the project is implemented, it will cost about US$300 to deliver one kilogramme of payload to an altitude of 200 km for a one-stage version and about US$100 for a two-stage version, Obraztsov said.
The spacecraft is 75 metres long. Its launch weight is about 180 tonnes. It is planned that it will be powered by liquid-fuel jet engines using a mixture of liquid hydrogen and oxygen.
"The primary stage of the spacecraft will be equipped with six RD-701 rocket engines constructed by the Energomash scientific research and production association, their net specific thrust standing at 120 tonnes," Obraztsov said.
The spacecraft is round in shape. In a way it resembles a flying saucer with two tail pylons. The front part of the body will accommodate the crew or cargo. The rear part is for the rocket engines. The spacecraft can be piloted by a crew or travel in unmanned mode.
Possible tourist versions of the spacecraft will be able to ensure a comfortable flight over enormous distances for passengers numbering from six to 1,000 at an altitude of about 100 km and at a maximum speed of 30,000 kph. The overload will be minor, similar to that produced during a trip in a high-speed lift.
"According to estimates, a flight from Moscow to New York will take 50 minutes, to Tokyo 53 minutes and to Sydney an hour and six minutes," Obraztsov said.
VTB, Evrofinance ready to discuss BCEN-Eurobank, MNB shares
Vneshtorgbank (VTB) and Evrofinance are ready to discuss their proposals on the purchase of shares in BCEN- Eurobank and Moscow Narodny Bank at a National Banking Council session or parliamentary hearings, VTB and Evrofinance said in a joint press release, Interfax News Agency has reported.
The announcement has been made because discussions have started on the Central Bank withdrawing from the capital of the two Russian banks abroad, the release says.
VTB and Evrofinance have submitted a proposal to the Central Bank on carrying out a public tender for the CBR shares in BCEN-Eurobank and Moscow Narodny Bank and are ready to take part in such a tender in accordance with the terms set by the NBC and government.
"We believe that only absolutely transparent and legitimate market procedures for buying the Central Bank's stake in the capital of the Russian banks abroad can be the basis for their further successful operation in the banking environment in France and Britain. We officially and publicly announced our interest in acquiring shares in BCEN-Eurobank and Moscow Narodny Bank because we do not doubt our readiness to participate in a public tender," the release says.
"An element of public discussion is that already there are distorted and unprofessional interpretations of the essence of our proposals and various expert valuations."
German company steps up exploration in Russia's Caspian Sea sector
Wintershall AG starts prospecting for oil in the Russian part of the northern Caspian Sea, offshore from Dagestan, in an area of 8,000 sq.km. An exploration well is expected to be drilled in 2004-05, ITAR-TASS News Agency has reported.
"Two promising geological structures have already been identified in the area," Bernhard Schmidt, a Wintershall AG board member, has told ITAR-TASS.
The exploration in the Caspian Sea has been made possible by the acquisition of a 70 per cent share in Megatron, a Russian exploration company, which has exclusive rights for oil prospecting in a number of areas in the Caspian Sea.
Fluor Daniel to prepare system for LUKoil Iraqi field
US engineering company, Fluor Daniel, is creating a system for Russia's LUKoil to develop fields in Iraq, LUKoil Vice President, Leonid Fedoun, said recently, Interfax News Agency reported.
He said that LUKoil has had a long working relationship with Fluor, which is currently involved in work at the Western Qurna-2 field.
Fluor Daniel is one of the largest international consulting companies involved in design, technical support, construction and servicing for the oil and gas sector. Earlier LUKoil held talks with the Fluor Corp regarding the provision of engineering and construction services at the port of Vysotsk, and also to take part in financing the project. Fluor Daniel has also prepared a programme for the development of a LUKoil refinery in Nizhny Novgorod in 2005-2010.
A consortium containing LUKoil (68.5%), Zarunezhneft (3.25%), Mashinimport (3.25%) and the Iraqi Oil and Gas Ministry signed a production sharing agreement for the development of the Western Qurna-2 field in March 1997. The PSA was valid until 2020. Spending on the development of the field, with preliminary reserves of 20bn barrels of oil, is estimated at up to US$6bn. The sanctions put in place after the Gulf War, prevented LUKoil from carrying out oil projects in Iraq.
The Iraqi side announced last year that the contract for the Western Qurna-2 field had been torn up because LUKoil failed to meet its conditions. LUKoil considers that it has a good chance of retaining the contract to develop the West Qurna-2 field and is waiting for the establishment of a legitimate national authority in Iraq to hold talks on implementing the project.
Kovykta feasibility study signing set for November 14th
Russia Petroleum, China National Petroleum Corp (CNPC) and Korea Gas Corp (KOGAS) planned to sign an international feasibility study for the Kovykta field in Irkutsk region on November 14th in Moscow, a source at Russia Petroleum said, Interfax News Agency reported.
He also noted that it was planned to confirm the feasibility study documents at a meeting of a special working group on November 12th in Irkutsk.
The study involves supplies of gas from the Kovykta field to China (15-20bn cubic metres per year). According to specialists, the project will cost US$12bn to implement, including US$7bn to build a gas pipeline to the Chinese border. The project will pay for itself in 14 years. Confirmed C1+C2 reserves at the Kovykta gas condensate field amount to two trillion cubic metres.
The largest shareholders in Russia Petroleum are BP - 33.39%, TNK - 29.03%, Interros - 25.82% and the Irkutsk region state property committee - 11.24%. The gas pipeline may be launched by 2008.
Russian gas giant opens new oil refinery facility in Bashkortostan
A new facility for processing petroleum products has opened in Bashkortostan. The production was launched with assistance from the country's major monopoly, gas giant, Gazprom. The plant uses exclusively Russian technology and meets all the applicable international standards, NTV has reported. The company forms part of Russia's major petrochemical and oil refining complex, Salavatnefteorgsintez. The total investment in the project has already exceeded R5bn.
Aleksandr Ryazanov, deputy chairman of the Gazprom executive committee said: "We are satisfied with our relationship and think that it is developing quite fruitfully, which is further demonstrated by today's commissioning of this facility. As you know, its construction began 10 years ago but in effect the work was mostly done over the last 18 months."
Italian company gets right to re-export Russian gas
Russian President Vladimir Putin has said that Russia has given the Italian Eni gas company the right to re-export gas to third countries, Interfax News Agency has reported.
This was done taking into consideration the aspiration to liberalize the energy market, Putin said at the news conference held after the Russian-Italian talks in Rome.
EU to participate in North TransGas pipeline financing
The European Union is to participate in a project to finance the construction of the North TransGas pipeline, European Commission Director General for Energy and Transport, Francois Lamoureux, said recently. The EC official stressed that the North TransGas pipeline would be a priority in cooperation between Russia and the EU.
Russian Deputy Prime Minister, Victor Khristenko, announced that the EU plans to participate in financing the North TransGas pipeline project in June. "Speaking concretely about the North TransGas pipeline, I can say that the European Union, after talks, is ready to participate in financing a multilateral feasibility study for this route. Europe is counting on Russia and Russia is counting on Europe as its long-term strategic partner, this is how it is, Khristenko said.
The North TransGas pipeline project will make it possible to link the Russian and Baltic gas transportation network with the European network. The pipeline will go through the Baltic Sea, from Vyborb to the German coast.
In December 2000 the European Commission assigned TEN (Trans-European network) status to the North TransGas pipeline. The total cost of the North TransGas pipeline is estimated at US$5.7bn. The volume of gas to be transported through the pipeline will be finalised in the near future and its capacity may be increased from 19.7bn cubic metres planned earlier to 30bn cubic metres per year. The Nadym-Pur-Taz region will initially serve as the raw material base for the pipeline, and later - Yamal, the Ob-Taz basin and the Shtokman field. It is planned to start gas supplies through the North TransGAs pipeline in 2007, and to reach full capacity in 2009.
Moscow to set up energy network, wants controlling stake in local power supplier
Moscow does not expect to have any problems with its heating supply. Moreover, Muscovites may start paying less in heating bills soon, Centre TV in Moscow has reported.
All of Moscow's power generation facilities will be united in a new energy network. The announcement was made on 11th November at a session of the municipal government. An overall mechanism for this transformation should be prepared by the end of the year. However, some details of it are known already at this stage. For example, instead of large plants, local small heat and power generation stations will be built. They will be able to supply heat and power to new residential areas and to individual houses. In addition, they will allow residents to pay less for heating in their flats.
Viktor Kudryavyy, Russian deputy energy minister said that Moscow is the first region to have - in terms of its energy consumption and capacity - surpassed the 1989-90 level. The energy sector is becoming a constraint on the development of the city's economy. And until the city becomes a co-owner of a blocking, controlling stake in the local energy supplier, Mosenergo, the issue will probably never be resolved.
The acting Moscow mayor, Valeriy Shantsev, said that with the help of the new structure "we intend to keep our finger on the pulse of who and how, down to an individual consumer, is supplied with gas."
By the end of 2010, the Moscow city government intends to increase the city's power generation capacity by more than 20 per cent and in future to receive a controlling block of shares in
Russia posts big rise in foreign trade surplus in first three quarters of 2003
Russia's foreign trade surplus rose to US$55.6bn in January-September, up 28.7 per cent on the year, the State Customs Committee said on 11th November, Prime-TASS News Agency has reported.
Foreign trade turnover rose 23.8 per cent to US$134.8bn in this period.
In January-September, Russia's total exports rose 25.2 per cent on the year to US$95.2bn, while total imports increased 20.5 per cent on the year to US$39.6bn.
Meanwhile, Russia's exports to non-CIS countries amounted to US$80.8bn, up 24.2 per cent on the year, while exports to the CIS totalled US$14.4bn, up 31.1 per cent on the year.
Russia's imports from non-CIS countries stood at US$30.3bn, up 18.4 per cent on the year, while imports from CIS countries were at US$9.8bn, up 28.1 per cent on the year.
Trade with the European Union accounted for 35.8 per cent of Russia's trade turnover, down from 37.2 per cent in the respective period last year, while trade with CIS countries accounted for 17.5 per cent, up from 16.7 per cent last year.
However, in October, the Economic Development and Trade Ministry estimated Russia's foreign trade surplus at US$39bn in January-September. According to the ministry's data, Russia's exports totalled US$80.7bn in the period, an increase of 23.3 per cent on the year, while imports were at US$41.7bn, up 21.8 per cent on the year.
Russia's total foreign trade turnover rose 22.8 per cent on the year in January-September to reach US$122.4bn.
Russian government lowers duty on oil exports
Customs duty on crude oil exported from Russia will be reduced to US$31.2 per tonne from 1st December 2003. Duty on oil products is being lowered to US$28.1 per tonne, ITAR TASS News Agency has reported
This decision was taken by the government commission for protective measures in foreign trade and customs tariff policy, journalists were told at the commission.
The current rate of export duty on oil is US$33.8 per tonne, and on oil products - US$30.4 per tonne. A government resolution changing the duty rates will be signed no later than 10 days before they come into force.
The commission clarified that the new rates will remain in force until 1st February 2004.
FOREIGN ECONOMIC RELATIONS
Russian-Japanese economic cooperation improving
Japanese Ambassador to Russia, Issei Nomura, thinks that the level of Russian-Japanese economic cooperation is not being fulfilled to its full potential but believes the situation is improving, Interfax News Agency has reported.
"Against the background of a good rate of growth in the Russian economy and growing interest in Russia on the part of the Japanese business community, the situation has been improving," he told Interfax.
Cooperation is expanding most rapidly in the energy field with the Sakhalin projects advancing and consultations on the construction of the Pacific oil pipeline well underway, Nomura said.
He would not comment on the possible impact that the controversies surrounding the Yukos oil company may have on Japan's interest in developing oil fields in the Russian Far East, in particular the Angarsk-Nakhodka project.
"Since the project may benefit both countries, we are continuing to actively work on it, above all by holding expert consultations," Nomura said.
The issue of the oil pipeline is bound to be high on the agenda of Russian Prime Minister Mikhail Kasyanov's visit to Japan scheduled for mid-December, he said.
The process of consultations between experts on specific cooperation in the project must be intensified in the run up to Kasayanov's visit to Japan, Nomura said.
Russia's economic strategy in the period leading up to 2020 provides for the construction of an Angarsk-Nakhodka pipeline which would pump 50 million tonnes of oil a year. A branch off to Daqing, China is to have a throughput of 30 million tonnes of oil a year.
Two versions of the pipeline's route, both a northern and a southern version, are currently being considered.
In the northern option, the pipeline would run along the Baikal-Amur Railroad. The oil transport company, Transneft, has completed a feasibility study of an Angarsk-Kazachinksoye-Tynda-Skovorodino-Khabarovsk-Bukhta Perevoznaya pipeline. The branch off towards China could be made in the area of Tynda.
The southern option, which is supported by the Yukos oil company, provides for a branch off towards Zabaikalsk and Daqing.
The Russian Cabinet has yet to make its final decision on which route would be more suitable.
The interview with the Japanese ambassador will be available in full on Interfax's website www.interfax.ru on November 11th.
Russia and Israel to work on cooperation in construction
Israel is interested in the presence of Russian companies on its construction market, Israeli Transportation Minister, Avigdor Lieberman, said on 5th November at a meeting with Gosstroy [State Committee for Construction, Architecture and Housing Policy] chairman, Nikolay Koshman, ITAR-TASS News Agency has reported.
"We imagine Russian companies will be taking part in the most promising tenders - the development and construction of a railway network, which currently has investment of at least US$8bn. One project is to build a 17-km tunnel on the Tel-Aviv - Jerusalem railway. Another two tenders are to build highways linking the west and east of Israel," the minister explained. Lieberman also sees as realistic the participation of Russian companies in building water and irrigation facilities, of which Israel "has great need."
For his part, Nikolay Koshman noted that Russia's Gosstroy is prepared to provide Israel with the technology for building metro tunnels. "The Transstroy corporation now has this 21st-century technology," he said.
"At the same time," Koshman continued, "we are interested in mortgage issues, advanced housing construction technology and Israel's experience in this area."
The chairman of Russia's Gosstroy and Israel's transportation minister agreed to set up a working group to work out and specify the sides' exact interests in developing cooperation in construction.
Israeli premier calls for boosting mutual investments with Russia
Israeli Prime Minister Ariel Sharon said on 4th November that his country was ready to step up investments in Russia, but at the same time he called on Russians to invest in the Israeli economy, ITAR-TASS News Agency has reported.
At a meeting in Moscow with the head of the Russian government, Mikhail Kasyanov, he said that "Israel is a convenient country for investments. We have no limits on bringing in capital and taking it out," Sharon stressed. In his view, Russian entrepreneurs are not likely to face a language barrier either, as most Israelis speak Russian.
Kasyanov said that the Russian side was seeking to continue developing economic relations between the two countries. "The time has come now to give a new dimension to our cooperation in this field," the Russian premier said. He voiced the hope that by the end of the current year trade turnover between Russia and Israel will total US$1.2?1.3bn.
The Israeli prime minister is on a three-day working visit to Russia. He has already held talks with President Vladimir Putin and Foreign Minister Igor Ivanov.
Trade links with Russia won't be hit by EU entry says Czech president
The Czech Republic's impending entry into the European Union will not have an adverse impact on its relations with Russia, according to Czech President Vaclav Klaus. He was speaking to students and lecturers at the Financial Academy [which is attached to the Russian Federation government], according to ITAR-TASS News Agency.
"Despite the fact that we are now very busy with our forthcoming membership of the European Union, I always emphasise that this does not mean that we would like to 'disappear' somewhere in Europe," Klaus said. "It does not mean our trade and economic relations with other countries of the world, including with Russia, should change in some way after EU entry," he added.
Replying to a question about how intensive cooperation between Russia and the Czech Republic in the economic sphere is going to be after EU enlargement, Vaclav Klaus said that trade is carried out not by nations or countries, but by individual enterprises and individual businessmen. "I am not interested in who exactly is going to be developing trade between the Czech Republic and Russia - it will be our countries' individual firms and corporations and they must make sure they derive a benefit from the development of these relations," the president said. "I have always spoken in favour of the removal of all types of trade and economic barriers between countries imposed from above, and I would not like to 'organise' trade in some way," he added.
Russian economics minister pledges better conditions for foreign investors
The Russian government intends to "seriously liberalize" the country's financial market for foreign investors, German Gref, head of the Ministry of Economic Development and Trade, said about the results of the 11th November government sitting, ITAR-TASS News Agency has reported.
The minister said that this decision was dictated, first of all, by the need to ensure appropriate conditions for Russia's joining the World Trade Organization. As regards foreign investors, Gref clarified that it's mainly a question of eliminating the so-called "discriminating norms" which are currently in effect on the Russian financial market.
EBRD backs reform of Russian road sector
The EBRD is lending Russia US$290m to build key sections of major new roads in St Petersburg and the Russian the Far East. The loan is part of the Bank's continued support for road-sector reform in Russia, including efforts to encourage greater private-sector involvement in the road network and require those users that put the greatest pressure on the system to contribute directly to the cost of its upkeep.
The loan, signed in London by EBRD President Jean Lemierre and Russian Transport Minister Sergei Frank, is the biggest made by the Bank since it was founded in 1991 and brings total EBRD lending for the Russian road sector to US$519m.
The Russian Federation is the official borrower of the 15-year loan, while the project will be implemented by the State Road Administration, Rosavtodor, which is headed by Igor Slyunyaev, First Deputy Minister of Transport. Rosavtodor is responsible for construction of the two roads, the St Petersburg by-pass and the 2,165-km Chita-Khabarovsk road in the Russian Far East. The latter runs parallel to the Trans-Siberian railway.
A key aim of the Bank's road projects is to help remove bottlenecks and thus stimulate economic growth, Mr. Lemierre said, underlining the Bank's long-term commitment to the development of Russian infrastructure and the transport sector in particular.
Last September, the EBRD lent Russia US$229m to finance construction of other sections of these strategically important roads, which will allow heavy traffic to avoid the centre of St Petersburg and create the first all-weather road link to the Russian Far East. These two roads will benefit in equal measure from the EBRD's follow-up loan.
For more information contact Richard Wallis, EBRD, Moscow - Tel: +7095 787 1111; E-mail: email@example.com
Investment makes up 21% of EBRD loan portfolio
Investment in Russia accounts for 21% of the European Bank for Reconstruction and Development's (EBRD) loan portfolio, or US$5bn, Tatiana Yembulaeva, the director of the EBRD office in Yekaterinburg, said recently. The EBRD is expected to invest US$1.3bn in Russia in 2003, which is more or less the same level as 2002, she said at the third Urals investment forum, which took place from October 23rd-24th in Chelyabinsk. The private sector received 60-65% of EBRD investment. The Bank plans to invest over four billion roubles in different projects in Russia over the next few years, New Europe reported.
Tatar major set to help small oil businesses in IT development
The Tatneft open joint-stock company will help the republic's small oil companies introduce new information technology. The company will do so in answer to an appropriate request by the Neftekonsortsium closed joint-stock company that unites over two dozens of companies, Tatar-Inform News Agency has reported.
The companies badly need a single data bank to be set up and to ensure information security. All the levels of the Tatneft management use new information technology. The issue was discussed at a seminar held in Almetyevsk. Alongside the representatives of the small companies, Tatneft managing director, Shafagat Takhautdinov, took part in the seminar.
MINERALS & METALS
Ferrous metal exports increase 35% in Q1-Q3
Russia boosted ferrous metal exports 34.5% year-on-year to US$7.8bn in the first nine months of 2003, due mainly to price growth on the world market, reports Interfax News Agency.
Exports to the Commonwealth of International States (CIS) grew 30% to US$1.3bn and exports to the rest of the world 35% to US$6.5bn, an official at the ministry of industry and science as saying.
Prices on exports to countries from outside the CIS averaged 10% for iron ore and concentrate, 20% for coke, 38% for pig iron, 12% for ferroalloys, 25% for semi-finished steel products and 40% for flat roll, the official said. Exports of value-added products also grew, with increases of 2.5% for hot-rolled sheet, 10% for cold-rolled sheet, 45% for coated sheet, 25% for steel pipes and 30% for industrial metal-ware.
Meanwhile, the value of Russia's non-ferrous metal exports increased 1.5% year-on-year in January-September 2003 to US$5.5bn.
The increase was largely due to higher prices, he said. Export prices went up 33% for nickel, 9% for copper and 1% for primary aluminium, according to early figures, he said.
Midland Resources buys Krasny Oktyabr
Britain's Midland Resources Holding Ltd recently acquired Krasny Oktyabr, a major stainless steel producer from Russia's Volgograd region, New Europe reported. Krasny Oktyabr said in a press release that the UK firm bought the mill from companies associated with Russia's Flora investment group. Those companies owned all the shares prior to the deal.
Midland Resources owns 42% of Zaporozhstal, a top Ukraine steel mill, and unconfirmed reports say it owns large stakes in Zaporozhkoks and Luhansk Pipe Mill.
Trans-Siberian Gold plans to raise £10m in Aim float
Tran-Siberian Gold (TSG) planned to make its market debut in mid-November to become the latest Russian gold mining company to join Aim, The Financial Times reported.
TSG, which has about 3m ounces of gold in resources hopes to raise £10m to finance its two projects in central and eastern Russia.
Russia, which is one of the largest repositories of oil and natural gas, is also one of the largest unexploited regions for mining gold.
Other companies breaking into the Russian mining sector - including Highland Gold Mining, Celtic Resources and Peter Hambro Mining - are listed in London.
The indicative price for the initial public offering is about £1.60-£1.80 a share which would give the group - which currently has 17.9m shares in issue - a market capitalisation of about £42m. TSG's strategy is to acquire and develop a portfolio of quality in Russia. The company has raised approximately US$17.6m (£10.4m) in equity from institutional and other investors since it was founded three years ago.
TSG's second project is in Veduga in Siberia.
Jeremy Marshall, the group's non-executive chairman, is the former chief executive of BAA and De La Rue. The managing director is Jocelyn Waller, a former managing director of Avocet Mining and Peter Burnell, one of the non-executive directors, has previously served as director for Anglo American.
Collins Stewart is the broker managing the IPO.
Russia set to take part in Chinese nuclear power plant projects
Russia is ready to take part in the construction of the third and fourth power units of the Tianwan nuclear power plant, Valeriy Kurochkin, Atomstroyeksport general representative in China, told ITAR-TASS News Agency on 3rd November.
"The construction of the first two 1m-kW units of the Tianwan nuclear power plant is going according to the schedule approved by both sides. The first reactor should be commissioned in the first half of 2004. An active phase of start-up and commissioning works has already started. The second unit is to be commissioned in 2005," Kurochkin said.
"China is launching large-scale construction of new nuclear power plants. Our company will take part in forthcoming tenders is order to continue cooperation at new sites," he added.
The Chinese government plans to build over 20 new nuclear power plants by 2020.
Proton to launch Arab telecom satellites
International Launch Services (ILS), a joint venture between Russia and the United States, recently signed a contract with the Arab Satellite Communications Organisation (ARABSAT) to launch ARABSAT 4A and ARABSAT 4B satellites aboard Russia's Proton rocket. "EADS Astrium will produce the satellites on the basis of the Eurostar 2000+ unit. The first launch of a Proton with a Breeze-M booster unit is scheduled for the end of 2005, and the second launch is scheduled for early 2006," a representative of the Khrunichev Aerospace Centre said, Interfax News agency reported.
This is the seventh contract for a Proton launch IKS has signed in 2003. The Khrunichev Aerospace Centre is the designer and manufacturer of the Proton rocket and the Breeze-N booster unit. ILS handles all commercial launches of Protons.
Protons are the main cargo spaceships for the Russian space programme, which is being used in the interests of the Defence Ministry and commercial launches of satellites. The Breeze-M booster unit increased the useful load to six tonnes or delivery to a geo-transfer orbit and 3.2 tonnes for delivery to a geo-stationary orbit. ILS launches satellites aboard Russia's Proton-M rockets and the US Atlas rocket. ILS is made up of the American Lockheed Martin Corp and Russia's Khrunichev Centre and Energia Aerospace Corp. ILS has made 27 commercial launches of Protons and Protons-M since 1996. ARABSAT provides the Arab world with satellite communications and broadcasting services. It designs develops and manages a satellites system and offers international-standard telecom services to Arab countries.
Russian railway tunnel nears completion, after 30 years of construction
The final stage of construction work, laying of the railway tracks, has begun in the Severo-Muyskiy tunnel on the Baykal-Amur railway [BAM]. In almost a month's time regular train traffic will start here, RTR Russia TV has reported. At the moment, trains moving along the BAM have to follow an almost 70-km-long detour.
According to specialists, there is nothing like this structure anywhere else in the world. The 15-km tunnel is Russia's biggest. It is also the fifth longest in the world. Its construction began in the mid-70s.
New bridge over Yenisey links Krasnoyarsk Territory and Khakassia
A new road bridge over the Yenisey, linking Khakassia with Krasnoyarsk Territory, has been opened, the Russia TV channel reported.
The bridge has taken five years to build. It is part of a new road which bypasses the Khakass capital, Abakan.
The old metal bridge over the Yenisey, which linked Khakassia, southern Krasnoyarsk Territory, the Republic of Tyva and Mongolia, could not cope with the volume of traffic, and furthermore, is in an "unsatisfactory" condition, Khakassia's minister of transport and road building Petr Volkov said. Vehicles could only move in one direction, taking it in turns to cross the bridge.
The new 350-metre-long bridge presented the builders with some difficulties. It took them a long time to drill foundations for bridge supports on the rocky Krasnoyarsk bank.
Once the opening ceremony was over, construction of the second stage of the bridge resumed. Completion of the second stage is scheduled for 2004.
So far, few people have realized that the new bridge is available to use. But once word gets around, traffic flows will build up.
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