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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: 265 - (28/01/03)

The Russian economy is growing for the fourth year in succession. The events of 1998 are obviously the catalyst of current growth. Devaluation saw catastrophe for wide sectors of the Russian economy, but great opportunity for revival for those who survived. Export-led growth has been the name of the game for the last four years.

Success breeds problems
But problems abound. Russia is no longer able to rely on the benefits that post-crisis factors and the devaluation of 1998 have provided in recent years in order to sustain economic growth. Most macroeconomic indicators will have grown this year as a whole, if not as dramatically as in the record-setting year of 2000, judging by figures for January-November 2002 quoted by the Russian Ministry of Economic Development and Trade in its review for the first 11 months. GDP, for example, grew 4.2 per cent in the 11 months and will grow 4.1 per cent in 2002 as a whole. 
Economic growth will slow down in 2003 for a number of reasons: World market trends for key Russian export commoditities have been worse in the last eighteen months than in 2000 and production costs have increased considerably compared with the immediate post-crisis years. In the course of 2003, there will be practically no scope for sustaining growth with industry and capacity structured as it is. Growth will not accelerate unless structural reforms in the economy are stepped up, the investment and business climate improved, more opportunities created for small business and new enterprises and progressive technologies implemented.

But success there still is
The stock market is doing well. There has been a greater growth in dividends in 2001-2002 than in interest earnings on bank deposits. Indeed, in its ebullience since 2000, the Moscow stock exchange has been the world's premier performer. Certain sectors are still booming. The number of cars has doubled in the last decade. There is a need for a huge programme of road construction because road traffic is surpassing the extent of road capacity. Mobile phone users have more than doubled in 2002.
These are indications of a growing economy, whose dynamism is not always captured by official statistics. The price of mobile phones, for example, is coming down all the time, making it easy to underestimate the boom in the market.
One should not forget that the Russian economy has been a remarkable success story for the last few years. Any government would have been delighted to have its present problems, in a context of undoubted steady growth.

Chechen nightmare
There is one terrible problem in Russia, Chechnya and the awful imbroglio it involves. If the Chechens are really glad to be part of Russia, what is the present conflict all about?
One thing that has to be said in answer is Putin's legitimacy to rule. He was an obscure figure in August 1999, difficult to take seriously as a successor to Yeltsin. Four months later he was indisputably in charge of government and three months afterwards he was elected as president. Why?
Chechnya was the key, as everybody knows. But how? - that is a can of worms preferably left undisturbed. Putin hopes to bring the unseemly business to an end by an election for the presidency of the secessionist province which he will make sure that his stooge wins. There is far too much at stake for there to be an accident - such as the genuine result which was the end of Milosevic in October 2000.

Tackling corruption
In the late 1990s a rather absurd story went the rounds that the World Bank was extending US$600m credit to Ukraine "to combat corruption." Quite how one fights venality by disbursing huge amounts of cash is not so evident. No greater source of corruption exists than when large credits are floating about. As one wit said: "foreign aid consists of taking money from poor people in rich countries and giving it to rich people in poor countries."
Russia, like Ukraine is still a very poor country by Western standards, yet it has some very rich citizens. "By what indirect, crooked ways did I gain my crown," says Shakespeare's Richard III. Ditto for most, if not all tycoons, the princes of modern Russia.
The oligarchs had to use underhand methods to seize the lion's share of state assets in the great sale of the century in 1992-97, engineered by Anatoly Chubais, minister of privatisation. Colossal assets were sold for a song.
Having clout in the Kremlin was what it was all about. The murky environs of Yeltsin's comb was where one could make one's fortune. It was a help if one had been part of either the Sverdlovsk (now Yekatinurburg) group, where Yeltsin did time as mayor in the early 1980s or the Moscow one, where he moved, again as mayor, under Gorbachev. Mayor Suzhkov of Moscow today has largely inherited the latter corps of fixers, middle men and not to put a fine point on it, mafiosa. Pavel Borodin, in flight from Swiss justice, was a key figure here, the Kremlin's Mr Fix-it when it came to construction deals and the like. On his return to Moscow he was received at the airport and greeted as "a great Russian" by no less a figure than Patriarch Alexis II; Goodbye for ever to Switzerland.
Borodin was a key figure, along with Chubais, in bringing Putin from St Petersburg, his home stomping ground, to Moscow, first to be a Kremlin insider, then head of the FSB, the Federal Security Service, demestic successor to the KGB. With that elevation behind one, the next step forward was the premiership, to be followed by the presidency itself. Yeltsin, and his staff knew they had a man of proven discretion in Putin, a man to trust with state secrets.

The St Petersburg crowd to the fore
There is nogainsaying the powerful network in operation here. Chubais himself "went to school" under Mayor Anatoly Sobchak (who is now dead) during the 1980s and forged a bond with Putin that should pay him splendid dividends in his new empire as head of United Energy Systems, Russia's largest utility. It would be naïve not to realise the St Petersburg connection in the entourage of Putin, the new Kremlin insiders of the Yeltsin' period, including Putin himself. There is a strong continuity at the top, as there had to be for everything to be kept "mum."
Like any elite worth its name, the Kremlin crowd, nevertheless, knows how to renew itself. There is a new prominence in the inner circles of the Tamborskaia, the celebrated group of St Petersburg. Figures with long established ties to the inner circles (including politicians in the Duma and city halls) came into their own once Yeltsin gave way in January 2000 to Putin. The brothers Tchernoi, Lev-but above all Mikhail (the 'king of aluminium'), began to pull off spectacular business coups from the spring of 2000 onwards. No coincidence at all. Today one of Mikhail's old partners describes him as "the master of the shadow economy and of Russian politics." Lenin enunciated the dictum (not obviously very Marxist, like a lot of his ideas) that "politics is and always should be in charge." Well, this is still true in Russia.
It is a question of belonging to "the family." Loyalty and discretion are supreme, the ultimate virtues. There is every sign that Putin is keeping to his part of the bargain, that he is abiding by the code "of fealty, trust and honour," which has made him what he is today. The bankers, the industrialists and the big fixers were all intimates of Yeltsin, whose re-election they bankrolled in 1996. They are right behind Putin now, with two exceptions, Vladimir Gusinsky and Boris Berezovsky, two who have fallen from grace and are now living abroad ( Gusinsky in Spain: Berezovsky in London). A figure who has risen in importance is Roman Abramovitch, an old associate of Berezovsky's, who has suffered nothing from his disgrace. 

Indian deal ahead
One country which is a permanent friend and ally of Russia is India. There has never been any difference between them such as is often the case with neighbours or near - neighbours.
The Soviet Union equipped India's military after independence in 1947, as did Russia after 1991. the co - production of aircraft is a common feature of their cooperation in this sphere. An agreement to launch the development of a Russian-Indian aircraft based on Russia's IL-214 is expected to be signed at an air show in Bangalore in February 2003.
The programme is intended to last for five to seven years. A military plane with a capacity of 20 tonnes will be created, and its cargo version for civil airlines; and a passenger liner for about 100 passengers will be built.
Preliminary project consultations got under way in June 2001. Involved are Russia's Irkutsk Aircraft Construction Association (IAPO) and Ilyushin Aviation Complex, and India's Hindustan Aeronautics Limited. This is a risk-sharing project. At the trial production stage, the IL-214 will be made on an equal basis. After the plane's full-scale production is launched, India and Russia will provide one another with technologies and launch individual production.
The project will be financed by both Russia and India (53 to 47 per cent). Russia will not draw budget resources for this purpose. IAPO is already financing the project. "The programme costs may be adjusted, but they are currently estimated at US$352m. Russian-Indian planes will be offered for sale at US$25-30m. Similar planes cost US$60-70m," the source said.

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AGRICULTURE

Russia boosts grain exports

Russia exported more than 12m tonnes of grain in 2002, or 150 per cent more than in 2001, Aleksey Gordeyev, the agriculture minister, said on 17th January, Interfax News Agency has reported.
The number of countries importing Russian grain substantially increased last year, Gordeyev told a news conference in Berlin. Egypt and the Middle East were added to Europe. Russia will keep looking for new markets this year if crops are good, the minister said.
"There hasn't been a situation since 1928 where the supply of grain exceeded the demand," he said.
Last year, Russia produced 86.5m tonnes of grain, compared with 85.5m in 2001...

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AUTOMOBILES

Automakers rev up for Russian market

Vladimir Makhanach saw his first Ford in 1982, while working as a Soviet engineer in Cuba. "They were these great old cars form the 50s, and they were still running," he said. "I've never forgotten that."
Twenty years on, Mr Makhnach was in a showroom in Moscow eyeing a Russian-made Ford Focus built at the company's new US$150m (€146m) plant near St Petersburg. "If they can keep the price right, Ford has a great future in this country," he said.
In Russia, Western automakers such as Ford Motor Co., Dearborn, Michigan, are discovering a hunger for foreign cars. During Soviet times, people waited years to buy a Zhiguli, the small, boxy car based on a design from the 1960s by Italy's Fiat SpA. Communism ended in 1991, and Russia's auto market opened up - but only gangsters, tycoons and Kremlin bigwigs could afford foreign models. Everyone else made do with Russian cars, renowned for being cheap, but also shoddy and obsolete, the Wall Street Journal reported on 23rd December 2002.
Now a middle class, emerging from a three-year economic boom fuelled by high oil prices, can afford more expensive imports. Western luxury cars, jeeps and sport utility vehicles jostle for space with Volgas and Zhigulis - known as Ladas in the West - on Moscow's crowded roads. Sales of new imports have nearly doubled during the past two years.
Multinational car companies see Russia as one of the world's most promising markets. "There are 140 cars per 1,000 people here, compared to 580 in Germany," says Henrick Nenzen, Ford's president for Russia and the Commonwealth of Independent States. He sees potential demand for new cars reaching 18 million units in the next 10 years.

GAZ, Fiat may join forces

Russian automaker GAZ and Italy's Fiat Auto may jointly design and manufacture a D-class car based on the Fiat Stilo, GAZ Deputy Director for Strategic Development, Leonid Dolgov, told journalists, reports New Europe. A GAZ-Fiat working group drafted a project that could be implemented at the Nizhegorod Motors joint venture. The project will be evaluated by Fiat's top management and Ruspromavto, which includes GAZ, Dolgov noted. The project is one of the options for GAZ, he said. If it is accepted, an assembly line with a capacity of 100,000 cars per year will be launched. About US$200m might be invested in the project and the Russian side will provide most of it, he said. Another option envisions production of the GAZ-3115 D-class car, which was designed by GAZ, he said. Investment in the project may reach US$300m, and a line for turning out 100,000 cars per year might be launched, he said. GAZ-3115 samples will be assembled in the near future, he added. GAZ, Fiat and the European Bank for Reconstruction and Development set up Nizhegorod Motors in 1998. The venture has yet to launch production.

Severstalavto, Kamaz to find strategic partner in 2003

Severstalavto and Kamaz plan to decide on a strategic foreign partner in 2003, Severstalavto Director General, Vadim Shvetsov, told a press conference in Moscow, New Europe reported recently. He also said that in 2003 it will be possible to reach major agreements in this area. He remarked that at the start of December Kamaz and Severstalavto signed a strategic cooperation agreement. "If we have a strategic partner, then it will be the same one," Shvestov said, adding that Kamaz "will be together with us at the negotiation table with a possible strategic partner." Speaking about areas of possible strategic partnership with foreign automobile areas of possible strategic partnership with foreign automobile producers, Shvetsov said that it is planned to develop those segments of the automobile market on which the Russian side is present - commercial automobiles and sports utility vehicles and that it is for cooperation in this area of production that a strategic partner is required. 

UAZ to supply assembly kits to Italy

Ulyanovo Automobile Plant plans to supply the Italian company De Tomsao Modena with about 1,300 UAZ-3160 assembly kits, UAZ Director General, Viktor Klochai, told a press conference. In spring 2002 UAZ and De Tomaso Modena signed a protocol of intent for the assembly of the UAZ-3160 sports utility vehicle in Italy. The kits will be supplied to Italy almost fully assembled, but missing their engines. It is planned to sell the UAZ assembled in Italy in Western Europe. Interfax News Agency quoted UAZ Marketing Director, Andrei Dorofeyev, as saying a certificate has already been received of the UAZ-3160 with an engine from Italy's Iveco. However, he noted that the project is a little behind schedule. Severstalavto director General, Vadim Shvetsov, said that at the moment the Italian partners are investing in the project and production is being prepared in Italy. He expressed the hope that the partners would get back on schedule. UAZ is part of Severstalavto.

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AVIATION & SPACE

Aeroflot to replace 21 western-built aircraft over 2 years

Russian flag carrier Aeroflot plans to replace 21 of its 27 western-built aircraft over the next two years in a bid to reduce operating costs and improve services. Interfax News Agency quoted the company as saying it would take advantage of good trends on the aircraft leasing market.
Aeroflot currently operates two Boeing-777-200ER, four Boeing-767-300, 10 Boeing-737-4000 and 11 Airbus A-310-3000. The airline wants to form a more homogenous fleet, one that consists of fewer different makes and models.
It plans to acquire six new A-319 and two new A-320 on 12-year lease from the manufacturer. The contract was signed recently in Toulouse. The eight aircraft have a basic market value of US$313.6m, which is more than half of Aeroflot's entire assets as of US$554m on November 1st last year.
Aeroflot is also preparing to sign a 10-year contract for four new A-319 and six new A-320, and a six-year contract for three Boeing-767-300ER made in 1999-2000 with US leasing company GEDAS. The board authorised Aeroflot Director General, Valery Okulov, to sign the contracts with GECAS and another deal with CFM International, which is a joint venture between Electric and Snecma, for A-320 engines.
The board stipulated that all of the contracts are part of a major deal which shareholders were asked to endorse in a postal vote. Aeroflot should take delivery of the first Boeing-767-300ER in July 2003 and the first new Airbus in September 2003. All of the 21 planes should be delivered by December 2004. Further plans include replacing the two Boeing-777-200ER with two Boeing-767-300ER when the leasing contract for these expires in 2005.

Energomash gets order for more RD-171 engines for Zenit rockets

Science and production association Energomash has received an order for an additional consignment of its ED-171 engines for Zenit-3SL workhorse rockets used in the Sea Launch programme, Interfax News Agency quoted the head of the Energomash information department, Vladimir Sudakov, as saying. "We have in the framework of the Sea Launch international programme for space launches received an additional order for a producing consignment of the RD-171 engine, used in the first stage if the heavy-class carrier rocket Zenit-3SL," Sudakov said. He would not specify the number of engines ordered, but did note that the association has enough capacity to fill the order on time.
Sudakov said this new consignments will be built in a modified version featuring improved specifications. The ecological safety of the acid/kerosene RD-171 is the best in the world for a liquid fuel rocket engine. It incorporates the highest parameters and specifications for engines of this class, he noted. The RD-171 was created around the earlier RD-170, used at RH Energiya for launching Buran space vehicles. The RD-171 has four combustion chambers and thrust of 800 tonnes.
Sea Launch boasts sea-based launching facilities on a floating platform, its own command and retrieval vessel and Zenit-3SL rockets that take off in the Pacific Ocean.

Kazakstan may extend Russia's lease of Baikonur cosmodrome

Russian President, Vladimir Putin, and his Kazak counterpart, Nursultan Nazarbayev, intend to continue discussing the possibility of extending Russia's lease of the Baikonur cosmodrome in Kazakstan and modernising the facilities. A plan to extend the lease was addressed by Putin at the end of the first round of the meeting.
Interfax News Agency quoted Nazarbayev as saying there is no substitute for Baikonur as a cosmodrome in the foreseeable future. "Both countries have been gradually advancing toward the creation of a common economic system," he added.
Russian has been leasing Baikonur from Kazakstan since 1994 for a term of 20 years, annually paying US$115m since 1999 by mutual consent.
The two countries are guided by the space port lease accord with the right to extend it for a certain period. The two presidents signed a memorandum, instructing their governments to enter negotiations on extending the Baikonur lease deadline for up to 50 years. 
As Russia's basic space port, Baikonur allows it so solve tasks for 60-65% on both, the federal space programme and commercial projects.

Russia prepares first Strela launch from Far East space centre

Russia plans to start launching new light carriers Strela from the Svobodnyy cosmodrome in Amur Region, Far East, in the fourth quarter of 2003.
Strela chief designer Yevgeniy Romashenko told ITAR-TASS News Agency on 20th
January that all preparations for the launches are going according to schedule.
Work is under way to build a silo at the cosmodrome for the new carriers and to modernize and repair mobile equipment. "All organizational questions regarding the creation of the launching pad for the Strela have been solved and funding has been secured," Romashenko said.
In his words, "the readiness of the system, which is based on converted strategic intercontinental ballistic missiles RS-18, will depend on funding and the contribution of space forces into the restoration of certain mobile equipment".
"Depending on these factors, the timeframe for the first Strela launch may be changed," he added.
"The rocket system is being created at the Far Eastern cosmodrome for launching small spacecraft: geostationary telecommunication Ruslan-MM satellites and distant earth-probing satellites", Romashenko said.
The Svobodnyy cosmodrome was founded on 1 March 1996. Since then, four Start-1 carriers have been launched there from a self-propelled launcher.

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BANKING

EBRD confirms plans to buy Vneshtorgbank shares

The European Bank for Reconstruction and Development (EBRD) has confirmed its plans to buy a US$300m stake in Russia's Vneshtorgabnk, Russian Deputy Prime Minister and Finance Minister, Alexei Kudrin, told Journalists in Rome, New Europe reports.
"This decision resulted from intensive talks with the EBRD currently being held under the Russian government's programme to privatise Vneshtorgbank," he said.
The EBRD is showing a flexible approach to its participation in the bank's capital and is accepting the scheme of directly purchasing an additional emission of shares, and that of extending a loan to be subsequent restructured into an additional issue of shares. The deal is intended to last for 6-8 months, which is normal for such agreements, Kudrin said, noting that the EBRD was prepared to begin a pre-investment evaluation of the bank immediately after the new year.

Government to improve strategy to develop banking sector

The Russian government made a decision to improve a strategy to develop the Russian banking sector and write up a plan of action to carry it out. The finalised documents must be submitted for the government's consideration by February 15th 2003. First Deputy Finance Minister, Alexei Ulyukayev, made this announcement to the press after the government session.
Cabinet will soon review a bill under which banks would be obliged to disclose information about true owners that are not officially listed among their founders, Interfax News Agency quoted Ulyukayev as saying.
The deputy minister said the bill has already been cleared with a number of ministries and other agencies, and the Justice Ministry is currently analysing its legal substantiation. Ulyukayev said he believes that if banks disclose information about their real owners, it would promote transparency in the Russian banking system.
He also said the banking sector has significantly reduced the delay in its development from Russian economic development on the whole. In 2003, it might even be possible to reach quantitative criteria that were expected to be reached by 2005, according to the strategy.
The capitalisation of Russian banks has already reached 5.1% of GDP, and banking liabilities currently account for 20% of GDP. Among next year's primary goals, Ulyukayev mentioned educing the state's involvement in the banking sector and the creating conditions for equal competition on the financial services market and introduce a set of measures to improve supervision over the banking activity, he said.

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BONDS

US$1.37bn in Eurobonds

Russia will issue US$1.37bn worth of Eurobonds to be exchanged for the first tranche of Soviet-era commercial debt. The Finance Ministry is issuing US$183.8m in Eurobonds maturing in 2010 and US$1.19bn in Eurobonds maturing in 2030 for the exchange, which was completed on December 18th, reports New Europe. In accordance with the terms of the transaction, which took place in Brussels, creditors have received US$171.5m in cash. The exchange of the remaining part of the debt will be continued in 2003. Creditor claims worth US$1.28bn were accepted for this exchange. The Soviet-era commercial debt was formed due to the import operations of Soviet foreign trade organisations, and is the last unsettled category of multilateral Soviet-era debt.

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ENERGY

Russia boosts financing of Kaliningrad power plant project

R2.5bn will be allocated for construction of the TETs-2 [Power Plant No 2] in Kaliningrad, Yevgeniy Chubakov, the plant's managing director, has told the Komsomolskaya Pravda v Kaliningrade newspaper, BNS News Agency has reported.
In 2002, the federal budget allocated R300m and the Unified Energy System of Russia [UES] grid company] contributed R50m for the project, he said. This year UES will pay R2.3bn, and R200m will come from the federal budget. The 2004 plan foresees investment in the amount of R4bn. The total cost of the power unit No 1 is R8.9bn, or some US$280m.
Belarus' Belenerhabud company is in charge of the construction after it won the tender last year, leaving behind Turkish, French, Polish, German and Russian companies. Belenerhabud's contract is worth US$90m.
Moscow's Energomashexport-Power Machines consortium won the tender for supply of equipment for the project that was held in 2002. A sum of R169m will be spent on equipment procurement, Chubakov said.
Power Plant No 2 is a joint stock company, with UES holding 57 per cent of the stock, the Yantarenergo local power provider holding 19 per cent, and the Russian State Property Ministry 14 per cent. The UES share is expected to reach 80 per cent in 2003. The rest of the stock will be controlled by the ministry, with Yantarenergo keeping just 2 per cent.
The power plant's design capacity is 900 MW. The power unit No 1 (450 MW) is to be put into commission in 2005 will not be able to meet the region's demand for electricity. At present, the region consumes 600 MW, with this figure expected to reach 700 MW by 2007. The power unit No 2 will go into operation in 2009, Chubakov said.
The project was launched in 1992. However, things really started moving when the federal Kaliningrad Region development target programme for the period up to 2010 was adopted, with Power Plant No 2 being named as a key project.

EBRD okays US$40m loan for Lenenergo

The board of the European Bank for Reconstruction and Development has approved the allocation of a US$40m loan for Lenenergo, the power company's Director General, Andrei Likhachev, said. The loan will be provided for seven years, with a two-year grace period, and will be guaranteed by the TETs-5 power station, which is under construction in St Petersburg, New Europe reported. Following Lenenergo's reconstruction, the debt will be transferred to the generating company formed on the basis of Lenenergo generating assets. Construction of the power station, which is 70% complete, will require a total of US$60m, said the company's first deputy director general, Kirill Androsov. Company funds will cover a third of this cost. The company's biggest shareholders are Unified Energy System with 49%, E.ON Energie (Germany) with 9.3% and Fortum (Finland) with 7.4%.

Rosneft produces first oil at Colombia's Suroriente field

Russian-Colombian consortium Colombia Energy, in which Rosneft is the Russian partner, has produced its first oil at the Suroriente oil field in the south of Colombia, Rosneft said in a press release, reports New Europe. Planned oil production at the field by mid 2003 mounts to 6,000 barrels per day. As part of the project it is planned to build oil collection and cleansing points, repair infrastructure and also lay a 5km pipeline between Colombia and Ecuador. These projects will require investment of about US$7m over a period of three years. It is planed that oil produced at the field will be transported through the Colombian and Ecuadorian pipeline systems to the Colombian Pacific port of Tumaco. Participants in the consortium began talks with the company petroEcuador to build a pipeline section on Ecuadorian territory. Forecast oil reserves at the Suroriente field amount to about 100 million barrels. It is planned to continue gathering seismic data so as to evaluate reserves more precisely. A consortium including Rosneft (45%) and the Colombian companies Petrotesting Colombia SA (27.5%) and Holsan Chemicals Ltd (27.5%) won a tender in 2001 to develop this field. This year Colombian Energy and the Colombian national oil company Ecopetrol signed a contract to increase oil production at Suroriente and also an agreement on joint activity between participants in the consortium

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ENVIRONMENT

Water greatest threat to 21st century

Moscow Mayor, Yuri Luzhkov, has suggested that plans to direct Siberian rivers to Central Asia be reconsidered, the Russian Mirror reported. He said issues associated with water pose major problems for the 21st century. The Moscow Mayor sent his suggestions to the Russian President, seeking consideration by the government.
The technical aspect of the mayor's proposal suggest at least six per cent of the Ob River's water be diverted by canal from Siberia's Khanty Mansiisk to Kazakstan and Central Asia. He suggested this water be sold to agricultural and industrial producers in Russia, Kazakstan, Uzbekistan and, possibly, Turkmenistan.
The open canal would be 2,550km long, 200m wide and 16m deep. Due to the special landform, eight pumping stations will take the water from the river, consuming 10.2bn kW/h of power per year. Water shortages in past decades threatened nomic development. Under Leonid Brezhnev, in the 1970s and 1980s, the idea of reversing West Siberian rivers to southern USSR republics was considered, but, after careful analysis, in 1986, rejected.

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FINANCIAL NEWS

US$3bn in foreign borrowing for 2004

Russia plans foreign borrowing of US$3bn in 2004 and US$4bn in 2005, Deputy Prime Minister and Finance Minister, Alexei Kudrin, told the press, reports New Europe. A borrowing strategy for this period is being drafted with the aim of raising low-cost funds and replacing expensive borrowing with less expensive funds. "This policy can be carried out more intensively in the management of domestic and foreign debt," he said. Foreign debt payments will total US$14.5bn in 2004 and US$17.2bn in 2005.

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FOOD & DRINK

Food ingredient producers beef up market position

Russian producers of food ingredients are strengthening their position on the domestic market; Interfax News Agency quoted Union of Food Ingredient producers, Alexei Nechayev, as saying. Nechayev predicts that by 2010 Russian producers will have captured 45-50 per cent of the domestic food ingredient market, at least 65 per cent by the year 2015. Right now, the figure is no more than 12 per cent, as Russia imports most of the ingredients it requires. "There was no ingredient sector in the former Soviet Union," Nechayev said. There is virtually no single product that can be made without the use of food additives list emulsifiers, flavourings, thickeners or other ingredients, he said. "This sector, one of the most swiftly developing sectors of Russia's food industry, has until now had no system for calculating production and consumption of food ingredients, or a legislation base, which makes it hard for producers and specialists," he said.
Russian enterprises are now producing mainly flavourings, emulsifiers and baking modifiers. The main consumers for food additives are confectioners and oil and fats industry companies, also enterprises that make ice cream non-alcoholic and low-alcoholic beverages and food concentrates. The country's leading producers are Soyuzsnab (Krasnogorsk), the Leningrad food flavourings plant, the Nizhny Novgorod surfactants plant, Aramros-M (Moscow) and Tereza-Inter (St Petersburg). The enterprise Skorpio will also soon begin operations in the Moscow region.

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FOREIGN INVESTMENT

World Bank to step up small business promotion

The World Bank intends to step up work aimed at promoting the development of small business in Russia, World Bank Country Director for Russia, Julian Schweitzer, told a news conference recently. This work can be done in several different areas, including financial and technical assistance, he said. The World Bank has already begun working on projects and discussing them with the Russian authorities, Interfax News Agency reported. At the same time, it is too early to speak about mechanisms for providing financial assistance to Russian small businesses and about the amount of funds that can be given to banks for this purpose, Schweitzer said.. The World Bank will be able to specify the forms of this work in the next few months, an a decision on projects can be made in the first half of 2003, he said. Schweitzer stressed that the World Bank intends to pay great attention to the development of small and middle-sized businesses in Russia, because small businesses are key to economic growth and innovation.

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INFORMATION TECHNOLOGY

Russian official welcomes source code agreement with Microsoft

Now that Microsoft has given Russia the source code for the Windows operating system, the Russian sector of the Internet global network can be made more secure, particularly when it comes to protection from hackers, ITAR-TASS News Agency. 
This opinion has been voiced by Yevgeniy Karavayeshnikov, head of the main directorate for state bodies' information resources at the Russian Federal Agency for Government Communications and Information [FAPSI]. He told journalists that analysis of the source code, which will make it possible to improve security on Windows-operated information systems, will start in February and the first results are expected by the end of the year.
Karavayeshnikov gave an example based on the security of resources at the directorate which he heads. This sort of work there has already made it possible to reduce the damage caused by hackers from 20 "hackings" a month to two or three a year, even though there are up to 400,000 attempts at it every month. He said that FAPSI specialists had already been able independently to get to know some of the details of the Windows system and noted that, now they had the source code, their task had become considerably easier. Now the experts can work on future Microsoft developments, not just on products which have already become available on the world market, Karavayeshnikov explained.
Under the agreement which has been reached the computer giant will give its Russian partners the source codes for the Windows-XP operating system as well as the very latest Windows Server-2003 which has not yet come onto the market.
The agreement to hand over the Windows source code which was announced was reached within the framework of a Microsoft global programme to increase the information security of state institutions and international organisations. Russia is the first of 60 countries taking part in the programme to announce that such an agreement has been reached.

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MINERALS & METALS

Russian Diamond Chamber's 2002 diamond sales up

The Diamond Chamber of Russia sold 9,600 carats of cut and uncut diamonds worth 10m dollars in 2002, up from 6,008 carats worth US$6.091m in 2001, an official with the chamber told Prime-TASS News Agency on 13th January. 
The Diamond Chamber has been holding trading sessions since 1999. Among Russian companies selling diamonds were Russian uncut diamond monopoly Alrosa and Smolensk-based state cutting companies Kristall and Kristalldiam. 
The main Russian diamond vendors also include Yakut diamond producers Komdragmetall and Tuymaada Diamond. 
the buyers were Russian and foreign diamond-cutting companies. Foreign companies accounted for about 50 per cent of all purchases, with major foreign buyers coming from the US, Belgium and Israel.

New loan steels Magnitogorsk for future success

A US$100m loan deal for Magnitogorsk Iron & Steel Works (OAO MMK) was signed recently, under a three-year facility arrangement with UK-registered Moscow Narodny Bank (MNB). Equal monthly repayments will commence after a 12-month grace period and the loan will be secured by proceeds from MMK steel sales, the Russian Mirror reported.
MMK is the leading enterprise in the Russian metallurgical industry. The loan will be used to expand and develop the enterprise's production facilities and is fully under-written by MNB, Societe Generale and Standard Bank London.
The facility represents the second major borrowing by MMK in the international finance markets in 2002, following its successful debut 100 million eurobond issue in February 2002.
According to Viktor Rashnikov, MMK's General Director, the loan "is evidence of increasing investor confidence in OAO MMK and will further diversify sources of funding, most important for a company that has large reconstruction and modernisation programmes."
Yuri Poletaev, Executive Director Moscow Narodny Bank, noted that the transaction was further evidence of "the increasingly positive sentiment towards Russia."
MMK produces in excess of 11m tonnes of steel per annum and company sales in 2001 were over US$1.7bn. Approximately 45% of revenues come from exports. The company, thanks to US$1bn worth of investment over the past six years, has been actively modernising its production facilities, producing more high quality, competitive products. All aspects of the company's production process have been overhauled, including blast furnaces, oxygen converters and hot strip mills.

Puma confirms viability of Kola platinum project

Canada's Consolidate Puma Minerals has reported encouraging results from the ongoing exploration programme on the East Pansky Property on the Kola Peninsula in northwest Russia. Bema Gold, which owns a 64% interest in Puma, said in a press release that exploration in 2002 has focused on two zones - South Pechempak and Churozerski zones. Results to date have significantly increased the strike length of both zones and confirm their potential to host large, high grade PGE (platinum group elements) and gold deposits. Samples contain grades greater than 10 grams per tonne PGE+Au with results up to 14.83 grams per tonne PGE+Au at South Pechempak and grades greater than 10 grams per tonne PGE+Au with results up to 39.08 grams per tonne PGE+Au at Churozerski.
Assays for this project are performed by the geological institute at Apatity and the Kola Geological Information Laboratory Centre in Apatity. Duplicate samples are sent to SGS Lakefield Research Limited in Canada, reports New Europe.
Based on the encouraging exploration results at the East Pansky Project in 2002 Puma intends to continue an aggressive programme of surface sampling, geophysics and drilling in 2003 to further test the potential of the property. Puma acquired 90% of the interest in Russia's Kola Mining and Geology Co last May.
The Russian Ministry of Natural Resources has said in the past that the eastern section of the Pansky intrusion contains occurrences of low-sulphide platinum-metal ores which are graded at between two and 24 grams per tonne for gold and PGMs. The ores also contain a small amount of nickel, copper and cobalt.
Kola Mining and Geological Company is a limited liability company registered in the city of Apatit (it has no connection with the Kola Mining and Metallurgical Co, which is a subsidiary of mining and smelting giant Norilsk Nickel). The company holds a licence to the East Pana intrusion, but this does not grant it the right to mine minerals it finds

RusAl undertakes a makeover

If Duncan Hedditch, the executive director of Russia Aluminium's smelter, needs any medical care, all he has to do is turn to the 137-person medical staff on site, The Wall Street Journal Europe reported on 3rd January.
But the doctors and nurses are also one of his headaches, Mr Hedditch, who took the job in May, wants to shed the medical centre - he doesn't see orthodontists, gynaecologists and masseurs as a core element of a smelting plant - but he can't just say goodbye to health care that workers might need.
"It's the toothache we need to deal with," Mr Hedditch said.
Mr Hedditch is getting used to such business hazards. Removing them will take time, but his effort is the cornerstone of RusAl's plan to remake itself, to convince the world it has changed, and to fulfil its growth ambitions.
"Our goal is to be No 1," says RusAl's chief operating officer, Alexandre Boulygine. "We have a 20-year horizon."
With annual output of 2.5m tons of primary aluminium, RusAl is about a million tons behind Alcoa Inc. But it has some advantages: RusAl already produces aluminium for less than most global rivals, in large part because of the inexpensive hydropower that drives the smelters. In an industry that some analysts say is headed toward a period of oversupply, RusAl's cost structure puts it in position to be one of the winners.
"They are in the top three," says Julian Kettle, a consultant with Brook Hunt. "They have cash costs of below US$1000 (€952.50) a ton." RusAl also has more room to improve by squeezing out inefficiencies, he said. Hedditch says the number of workers needed to run the smelters is about half the 10,000 currently employed. Western companies, already efficient, won't be able to keep up as RusAl moves down the cost curve, Mr Kettle argues.
James Salter, a consultant at CRU International Ltd in London, summed it up: "You would feel threatened." Salter estimates that smelters globally pay an average price of US$18.10 per megawatt hour for electricity. RusAl says it pays just under US$10. And the company has capacity, with the world's two largest smelters - one at Krasnoyarsk and the other at Bratsk, 550km to the east. In all, RusAl's four smelters have more capacity than Alcan Inc's 15 smelters and almost as much as Alcoa's 28. And in the first nine months of 2002, the four RusAl smelters were producing more than during the year-earlier period.
But RusAl still faces several obstacles. The company's location is ideal for keeping down energy costs, but far from it in most other ways. Neither the raw materials nor the markets are near Krasnoyarsk. RusAl exports about 80% of its production.
"Running smelters in the middle of Siberia is a logistics nightmare," Hedditch said. "Because they are big smelters, they are big logistics issues."
And while Hedditch says he and his wife have had a warm welcome from the people of Krasnoyarsk, a city of 900,000 on the Yenisei River, that is about all the city can offer. The local economy simply lacks the infrastructure that would allow RusAl to contract out for goods and services it doesn't want its own workers to provide. Dentistry isn't the half of it.

Significance of Stillwater deal runs deep

Norilsk Nickel's acquisition of a controlling stake in American platinoids producer Stillwater Mining, has been described by Parlamentskaya Gazeta as not just another case of a large Russian company buying property abroad, but as, the first major example of a Russian company being able, through acquisition, to influence the world market directly, The Russian Mirror reported..
Stillwater is not just the sole palladium producer in the US, it is also the major producer of this group of metals outside Russia and South Africa. Things are far from any platinum-palladium monopoly being established along he lines of a De Beers-style diamonds operation, but Norilsk Nickel, through such a deal, has successfully insured itself against price wars.
Norilsk's acquisition of this particular company could even appreciably improve things in this metals sector, an area which has been unstable recently.
Martin Shakkum, chairman of parliament's committee on industry, construction and high technologies, told the RIA Novosti recently how he viewed the economic significance of the deal: "Norilsk's expansion into the American market will lead to a greater predictability of palladium prices," he said.
Valery Vorotnikov, State Duma Deputy, believes that, "the clinching of the deal not only strengthens the influence of Norilsk Nickel on world platinoids prices, but also raises Russia's prestige as a state. At the end of the day, the modern world is a world of industrial giants and transnational corporations and if some company in Russia takes real steps in this direction, that greatly enhances Russia's ability as a state to influence world economic processes."
Also important is the fact that the given deal serves as an indicator of a large Russian company's desire to maintain a systemic and long-term presence on the American market. This is connected with the fact that Norilsk Nickel, according to Shakkum, "is acquiring a network in the US for selling palladium." Until recently the lack of its own selling network for marketing to the principal consumers of platinoids, particularly those used in the motor and petrochemical industries as catalysts, has been a problem. Now, the new company effectively integrates into the American market. And this is one of the most striking economic results of the policy line aimed at a strategic partnership with the US pursued by President Vladimir Putin.
The deal also emphasises that Russian business is beginning to act according to rules adopted amidst major transnational companies.
In the ultimate analysis, the deal between Norilsk Nickel and Stillwater is not only an indicator of the maturity of Russian business, but also a test for US readiness to fill political declarations on partnership with real content.

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NUCLEAR ENERGY

Russia, Iran to accelerate Bushehr plant project

Russia will speed up construction of Iran's nuclear power plant at Bushehr despite fears abroad that this country may be developing nuclear weapons, the Atomic Power Ministry in Moscow said after top-level meetings in Teheran, reports New Europe.
"There are always concerns (about misuse of technology) but there are laws and international agreements and Russia and Iran are not in breach of these," ministry spokesman, Nikolai Shengaryov, said. "Everything is fully controlled and is exclusively for peaceful purposes," he said, citing monitoring by the International Agency for Atomic Energy (IAEA).
Atomic Energy Minister, Alexander Rumyantsev, met with Iranian Atomic Energy Organisation head, Gholam Reza Agazadeh, to agree on acceleration of the US$800m project at the southern Gulf port of Bushehr.

Tekhsnabexport to seek US cooperation

Russian company Tekhsnabexport plans to try to talk a US organisation into jointly dealing with spent nuclear fuel, Tekhsnabexport Director General, Vladimir Smirnov said, reports New Europe. "Russia's share in the market for the services of dealing with spent nuclear fuel is very small, as by the end of the 90s our country had fortified practically all its positions in that market. Though earlier the USSR had about 35 agreements with countries that were not members of the nuclear club but wished to develop their own nuclear power programmes," Smirnov said. Russia has lost Hungary, Slovakia, the Czech Republic and Finland as historical customers because of "the imperfect character of the former Russian legislation, which interpreted spent nuclear fuel as radioactive waste," he said. "Today Russia provides the service of dealing with spent nuclear fuel only to Bulgaria and Ukraine, and each contract involves such difficulties and obstacles that it is though that these customers will also forfeit."

Japan wants to build thermonuclear reactor using Russian technology

Japan expressed interest in joining Russia's efforts in the international thermonuclear experimental reactor programme. Japanese Prime Minister Junichiro Koizumi, currently visiting Russia, and Russian President Vladimir Putin discussed the issue on 11th January, Interfax News Agency has reported.
"The thermonuclear reactor project symbolizes the importance of bilateral partnership in science and technology," Koizumi said at a forum hosted by the Kurchatov Institute Research Centre on Saturday.
Koizumi expressed the hope that the thermonuclear reactor will be built in the village of Rokkasho in the Aomori prefecture. "If the technology designed in Russia blossoms in Japan, it will be the best outcome of bilateral ties in science and technology," he said.
A Tokamak reactor designed by the Kurchatov institute demonstrates Russia's significant contribution to the project.
He said Tokyo would welcome the resumption of the United States' participation in the project. It would also be beneficial if China and South Korea joined the project, he added.
In 2001, the feasibility study for the project was wrapped up. The site for the reactor is yet to be chosen. "We sincerely want the reactor to be built in Rokkasho, so that we could work together with Russia and other countries," he said...

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SHIPPING

Russian shipyard starts work on two submarines for Chinese navy

The Sevmashpredpriyatiye production association located in Severodvinsk has started to build two Kilo-class diesel-electric submarines for the Chinese navy, a spokesman for the association's management said on 15thJanuary, Interfax-AVN military news agency web site has reported. 
"Having completed preparations, the plant launched the construction of two submarine hulls. The hulls will be built simultaneously. Their construction will have been completed by the end of the year, and installation of components, mechanisms and armament in the submarines will begin," the spokesman told Interfax-Military News Agency. 
Under the contract, eight submarines are to be built for the Chinese navy before 2005. The cost of a submarine is about 200m dollars. According to the Russian mass media, the Rosoboroneksport state-owned arms trader on 3 June divided the order for the construction of eight submarines for the Chinese navy among Russian shipyards in the following way: five submarines will be produced by the St Petersburg-based Admiralteyskiye Verfi, two by the Komsomolsk-na-Amure-based Amur shipyard and one by Nizhniy Novgorod-based Krasnoye Sormovo. 
Unofficial reports say that decision was reconsidered later. In particular, Sevmashpredpriyatiye got the order for the construction of two submarines that were originally to be built at the Amur shipyard. The Kilo-class submarines have the following specifications: displacement 2,300 t, length 72.6 m., width 9.9 m., surface speed 10 knots, underwater speed 18 knots, endurance with the RDP system 6,000 miles, endurance on economic speed with batteries 400 miles, full endurance 45 days, submerging depth 300 m., crew of 52 people, armament - six 533-mm torpedo tubes. In addition, Club cruise missiles may be installed in the submarines.

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TRANSPORT

Russia gets the all clear to transport freight to Europe

The International Road Transport Union (IRU) will allow Russia to transport cargo to Europe in 2003, Russia's Association of International Road Transport Operators said. An appropriate agreement was reached by the association and IRU's leadership in Geneva, the union said. The IRU planned to suspend the guarantee coverage of TIR transport operations in Russia on December 25th, New Europe reported.
Western experts estimate that Russia's European border is crossed by 300,000 trucks on a daily basis, 60% which go through TIR Convention procedures. The TIR Convention was concluded in 1975 and has been ratified by 65 countries. It provides for the transport of freight between the signatory states under the so-called TIR Carnet and without additional customs formalities.
Neatly all transport operations between Russia and the European Union were carried out this way. If cargo carriers violated the customs routes, the IRU acted as financial guarantor.
The Russian State Customs Committee filed several lawsuits against the IRU for violations of the TIR Convention since 1999 and sought the repayment of over US$60m in damages.
In November, the IRU proposed that Russia sign an amicable agreement in exchange for partial repayment of damages, saying that the Russian customs services are not sufficiently struggling against violations of international road transport regulations.

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