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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: 264 - (01/01/03)

EU grain quotas stem Russian and Ukrainian grain exports
The European Union (EU) is no longer called the Common Market. But inter alia it is a common market all the same. And, as everyone knows, its farmers are well protected from cheap imports. The cost of living of EU populations could be greatly reduced if quotas and subsidies for agricultural produce were scrapped or severely curtailed. But as a recent deal between Chirac and Schroeder makes clear, to the chagrin of Tony Blair, the Common Agricultural Policy (CAP) is to remain intact without any reform until 2007, by which time the first two 'statesmen' know that they are no longer likely to be dependent on their farmers' votes, because they will no longer be facing elections.
It is not only the UK government that is disgruntled with CAP, but the Russian and Ukrainian ones as well. Russia and Ukraine have threatened reprisals against the EU if it goes ahead with plans to staunch the flood of cheap grain from the two former Soviet republics.
Russia's agricultural minister, Alexei Gordeyev, has said that Moscow may resort to "appropriate retaliatory measures," which could include curbs on meat imports from the EU. Ukraine, for its part has threatened to impose quotas on EU agricultural machinery, pesticides and seeds.
The USSR was a net grain importer under Communism, even though Southern European Russia and Ukraine under Tsardom had been the bread-basket of Europe, making the Tsarist empire the world's largest exporter of grain before 1914. Ukraine alone possesses two-thirds of the rich 'black earth,' which is amongst the most fertile in the world.
Russia has seen a huge agricultural revival over the past three years. New investment companies backed by cash-rich oil and metals exports have poured money into the sector, rescuing farms from bankruptcy and vastly improving yields. For the first time in decades, Russia is now producing more grain than it consumes.
Bumper crops have led to an increase in exports. According to the state customs committee, Russia exported 4.1m tons of wheat during the first eight months of 2002, compared with 420,200 tons in the year-earlier period. Mr Gordeyev has said Russia could export as many as 10m tons of grain in the 2002-03 season, out of an estimated harvest of 86m tons.
But European farmers are worried about an influx of cheap Russian and Ukraine grain. The EU has said that it is planning to introduce quotas on imports of wheat from next year, under which 2.98m tons of low- and medium-quality wheat can be imported at a low tariff of €12 a ton, while imports outside the quota would have a €95 tariff. About a fifth of the low-tariff quota - 610,000 tons - would be reserved for the US and Canada.
In announcing the deal, EU Farming Commissioner Franz Fischler said it provided Russia and Ukraine with "reasonable export opportunities that go beyond their average exports in recent years."
Russian officials said they want to export two million tons of grain to the EU in 2003, roughly in line with last year.
Moscow-based analysts said the grain quotas may not hurt Russia, which has been exploring other markets in the Middle East and North Africa. But officials protested the move. "We deem this is a discriminatory measure," Mr Gordeyev said.

What to do about Kaliningrad?
The EU is opening up to the east, including former Warsaw Pact states in Poland, the Czech Republic, Hungary, Slovakia and Slovenia and former Soviet ones in the Baltic states. This will make Russia a neighbour of the EU; indeed it has an enclave, Kaliningrad, between Lithuania and Poland, right in its heart.
Moscow has been insisting on Russians retaining the right to visa-free travel to and from Kaliningrad across Lithuania, about which Vilnius was accommodating. But the EU is not prepared to be so emollient and for good reason. Once Lithuania and Poland are inside the EU, the Russian mob would be right there in the thick of things, unless strict controls are exerted over Russians travelling to and from the enclave.
Kaliningrad is the stolen car capital of Northern Central Europe. Western intelligence agencies estimate that 60 to 70% of cars stolen in Germany end up in the Baltic states or Russia. In a city where doctors earn less than £40 a month, Kaliningrad, the enclave's eponymous capital, abounds with BMWs and Mercedes, whereas in any other former Soviet town Ladas would be the order of the day.
The criminal opportunities of Kaliningrad's location, its unique junction between the EU and Russia, are such that alarm Western law enforcement agencies mightily. "Kaliningrad is probably the biggest hotspot for organised crime in all of Russia, bigger than Moscow," said a senior Western intelligence operative. "The problem is that in 2004 (when Poland and Lithuania enter) it will be sandwiched right in the middle of the European Union."
He added that the problem is far from confined to cars. "It has many ports enabling large amounts of trafficking, be that drugs, guns, cars or people. It does not have to be illegal goods trafficked illegally - it can be legal goods trafficked illegally, like fags or booze. These all generate profits for the gangs."
These facts have been pointed out to Putin and he was ready to compromise on visa-free access for Russians to and fro, in a meeting between Russia and the EU on November 11th. He knows full well the plethora of BMWs and Mercedes on the streets of Moscow were not all bought in its car showrooms; Western intelligence estimates that there are 600,000 stolen cars in Moscow and the city's police recover 120 cars per day which are on the Interpol list of missing vehicles. This may be inevitable for Kaliningrad, but is not acceptable for the capital of Russia. 
In the end a compromise was reached enabling Russians to travel to and from the enclave with 'facilitated travel documents' issued by the Lithuanian government, or visas in other words. The concessions on the EU side are that it will pay for the cost, while FTDs will be free to the Russians, and that the EU is in effect turning a blind eye to whatever the Russians do in Chechnya.
Russia has a problem right around its border, not just in Kaliningrad. The International Road Transport Union (IRU) announced on December 10th that it was suspending the TIR international road freight system for Russia from December 24th. The move threatens chaos at Russia's border crossings.
The IRU is taking this drastic move, it said, because Russia's customs authorities were making the TIR system which allows trucks to pass borders without customs inspections into "an effective tool for protecting organised crime," by trying to reclaim evaded duties and taxes from TIR insurance.
The Russians are likely to comply with tougher conditions at the frontiers. For permanent suspension of the TIR system would make Russia a pariah state, and be an advertisement of welcome to smugglers and gangsters world-wide. 

Buoyant stock market
The buoyancy of the Russian stock exchange is defying the pessimism with which its spectacular rise in recent years has been greeted. It is rather like the US economy, which for a decade kept bounding up and up, as if it had buried the trade cycle.
It hadn't of course. And nor is the Russian stock exchange likely to. But the moment of correction, widely expected, has been delayed and delayed. The market is attracting investors keen to get into equities and fund managers specialising in Russian stocks and shares.
While the leading stock markets of the US, the UK and continental Europe have suffered heavy losses since 2000, the Moscow market has soared. The Russian stock market has risen by 198% in the last three years, compared with a loss of 35% for the FTSE 100, a drop of 34% the continental European Markets and a fall of 50% for Japan's Nikkei 225, while the flagship Dow Jones Index of Wall Street has fallen by 17%.
The Russian bourse has been outperforming its rivals over the past year as well. It has risen by 55% in 2002, while the FTSE has fallen by 19%, continental bourses by 23% and the Nikkei 225 by 11%, while the Dow Jones Index has slipped by 7%.
While the Russian market was the best performer world-wide in 2000-01, it was surpassed by the Romanian market in 2002, which has risen by 115%. The newcomers to capitalism in Eastern and Central Europe are benefiting from the heavy discount with which their bourses and local companies were initially obliged to float their shares. For the hard-pressed investment industry, which has had to put up with a long bear market in the West, Russia and the Central Eastern European markets are a true godsend, providing stunning returns and endless revenues from fund fees.
A series of Western financial firms are promoting funds that invest in Russia and its near abroad. They see all sorts of promising signs in the Russian economy and the present leadership in Moscow. One such is Jupiter's Eastern European Opportunities Fund, whose manager, Elena Shaftan, has had this to say: "Russia has been pushing through significant structural reforms to the taxation, pension and legal systems. It is now reforming the banking sector, state monopolies and the military. These developments are helping Russia to move away from its traditional reliance on oil prices, attract investment and encourage new companies to start up."
Shaftan points out that while share prices have gone up, the rise was from a very low base. She maintains that Russian companies still look very cheap compared with firms in other emerging markets.
There has been a strong correlation between the performance of bonds and equities in a given stock market. The equity market in Russia is lagging behind at present, which indicates that there is time for share prices to catch up.
Another firm bullish on Russia is JP Morgan Fleming Asset Management, which has been managing an offshore fund, Fleming Russia Securities, since 1994. It was up 126% by early December on its starting price.
The firm is relaunching the fund as an investment trust listed on the London Stock Exchange says David Barron of JP Morgan Fleming: "The Russian market is evolving and we felt it was time to open this fund up to a wider range of investors. But we would stress this is a long-term investment. Russia is actively pursuing membership of the World Trade Organisation and in the short term this could create problems for the country's industry - more foreign imports could enter the market. But over the long term it will help to improve trading conditions for Russian companies."
Investors in Russia are wary because they have seen the bull market before - and seen it collapse, namely late 1998, when the rouble lost 75% of its value and share prices tumbled. Inflation soared and the economy lost its lustre for foreigners.
Inflation has fallen from 20% in 2000 to 14% this year. Growth of GDP was 8% in 2000 and 5% in 2001, but from the trough of the depression. Growth at 4-4.5% this year looks good compared with that in Western economies, but the same qualification applies.
These are the reasons why many urge caution as regards Russia. Steven Forbes, director of Alan Street Asset Management, an independent financial adviser, gives his view: "In one sense investors should be pleased that companies are launching funds that enable them to invest directly in Russia. But there is a clear danger that firms are just jumping on the bandwagon, as they did with technology (firms). I would steer well clear of any fund investing solely in Russia." But Forbes does not rule out Russia: "There are opportunities in this market, but the way to get exposure is through more broadly-based emerging Europe funds, such as Jupiter Emerging European Opportunities, or global emerging-markets funds, such as Gartmore Emerging Markets." The Jupiter Eastern European Opportunities fund has more than 40% of its assets in Russia. More broadly-spread funds across emerging markets are Baillie Gifford Emerging Markets and First State Global Emerging Markets, which give China and others high focus.
The more one spreads the risks, however, the less scope for a really spectacular gain. The Fleming Family and Partners are planning the stock market flotation of a Russian gold-mining venture, Jersey-based Highland Gold Mining, for £200m - five times what it was worth six months ago.
Highland Gold Mining includes Russia's fourth largest gold mine, Mnogovernshinnoe and its flotation is intended to raise £22.5m in new cash; it should see the value of the company at more than £200m, which would make it the second-largest business on the alternative investment market. Trading was due to start on December 18th.
But there were immediate signs that the floatation might be blocked by irate institutional investors, who on December 2nd launched an attack on the opacity of the share issue, querying the past financing of the venture and pointing to the way Fleming family associates and friends bought the stock previously for next to nothing. Ernst & Young, the auditor to the issue had qualified its report due to lack of information.
But one of the backers, Lord Daresbury chairman of De Vere Hotels and of Aintree Race Course, a member of the Greenall brewing family, insisted that the new Russian assets justified the inflation of the business's value from £40m in May to £200m today. These assets include two other gold properties, Darasun and Novoshirokinstoye. "This is a completely different animal than you had before," he said. 
Other pluses include cheap electrical power and diesel power for gold mines, cheap labour and low capital costs. The reformers under Putin have helped further by reducing corporation and income taxes and removing export gold taxes. The stock market boom for recent years has certainly been built on the back of political stability and economic reforms under the tough Putin regime. 

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AUTOMOBILES

Russian-Swedish joint venture set up to make buses

Swedish heavy truck and bus maker, Scania, and Russia's Volzhanin bus manufacturer have signed an agreement on the joint production of intercity coaches, Volzhanin's press service said on 3rd December, Prime-TASS News Agency has reported.
The coaches will be manufactured in Russia using Scania's running gear. They will be sold through both companies' distribution networks.
The agreement also envisages the creation of a joint service centre in Russia.

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AVIATION & SPACE

Russia's aviation sector needs cash

The European Bank for Reconstruction and Development is in negotiations with US engine maker, Pratt & Whitney to invest in Russia's Perm Motors in a deal that would give a big boost to Russia's cash-starved aviation sector, the Wall Street Journal Europe has reported.
In addition, the EBRD said it was lending US$50m to the Russian affiliate of Egypt's Sirocco Aerospace International to help finance construction of an export version of the Tupolev 204, one of Russia's newest airliners.
The projects come as Russia's aircraft-building industry struggles to revive after a catastrophic decade. Soviet-made planes once made up 15% of the world's fleet, but a slump in orders and the end of government subsidies led to a collapse in output. An industry that once built more than 150 airliners a year made only eight new passenger jets in 2000.
The EBRD has focused on two of the biggest and strategically most important enterprises in the sector, Perm Motors in the Urals, which makes aircraft engines and industrial gas turbines, and Aviastar-SP in the Volga city of Ulyanovsk, maker of the Tupolev 204.
Both plants have been hard hit by the crisis in Russian aviation. Aviastar, Europe's biggest aircraft factory, has the capacity to build 60 Tu-204s annually, but has made only 35 of the planes since production started in the early 1990s. Perm Motors made 37 units of its most modern aircraft engine, the PS-90 in 1992; this year, it will build only five.
But unlike most players in the sector, both Perm and Aviastar have foreign strategic investors. Pratt & Whitney, a unit of United Technologies Corp, owns a 25% stake in Perm's engine-making facility, PMZ and its design bureau, Aviadvigatel; in 1997 it committed to invest US4125m in the complex, mostly to develop a new, improved version of the PS-90 engine.
Aviastar-SP, meanwhile, is in partnership with Sirocco, which has helped it to develop an export version of the Tupolev, the Tu-204-120, fitted with engines made by Rolls-Royce plc and navigation equipment by Honeywell International Inc. Sirocco signed a contract with Aviasar and its main shareholder, OAO Tupolev, to invest US$280m in the plant.
Pratt & Whitney has been in long-running talks with Russian industrial conglomerate Interros, which announced last spring that it was selling its 26% stake in PMZ and Aviadvigatel. Another shareholder, Teknologii Motorov, which is part-owned by Russia's natural gas company OAO Gazprom, has also expressed an interest in buying the Interros stake.
An EBRD spokesman, Richard Wallis, confirmed that the bank had been in negotiations with Pratt, though he declined to comment on Russian press reports that the two were considering a joint bid for the Interros share. "The EBRD is very interested in participating," he said, adding it was far too early to provide any details.
Pratt & Whitney couldn't be reached to comment. Tom Hajek, the company's vice-president for Russian operations, confirmed in an interview with Russian newspaper, Vremya Novostei, that Pratt was interested in the Interrros stake, but said the deal might be threatened by a 1997 Russian law setting a 25% cap on foreign equity in Russian aircraft companies.
Mr Wallis also said the EBRD will be lending US$50m to Sirocco Aerospace Russia to finance manufacture of the Tu-204-120. He said he expected the loan to be approved by the Bank's board in December.
The Tu-204-120 is virtually the only Russian plane to have been exported over the past decade. Sirocco has leased two to European freight company, TNT, and sold three to Egyptian carrier, Air Cairo. Last year, it signed contracts to sell five cargo models of the plane to two Chinese airlines, with options for a further 10.

Russian space company signs contract to launch US lunar spacecraft

The Kosmotrans International Aerospace Company has signed a contract with the US-based TransOrbital on launches involving Dnepr rocket boosters, ITAR-TASS News Agency has reported.
Kosmotrans Director-General Vladimir Andreyev, and TransOrbital President Dennis Laurie signed the nearly US$20m on 26th November.
The Dnepr rocket boosters will be utilized in America's first commercial programme of small spacecraft flights to the Moon, Andreyev said at a press conference at the ITAR-TASS main office. Laurie said they had chosen the Dnepr for its high reliability. The rocket booster is based on technologies of RS-20 (SS-18 Satan by the NATO classification), the most powerful ballistic missile. It can be used till 2018-2020.
Earlier, Kosmotrans and TransOrbital signed a contract on launching a model of the TrailBlazer spacecraft with a Dnepr. It is planned to launch the spacecraft model to a circumterrestrial orbit on 20 December 2002.
The spacecraft will be launched to the Moon in October 2003 for photographing the lunar surface and the earth's dawn above the Moon, and holding experiments. A landing spacecraft will be delivered to the Moon in the end of 2004. In the future, one or two lunar expeditions will be organized each year. They will have different missions, including the supply of commercial cargo to the Moon, experiments in the interests of NASA and private companies, and studies of the lunar surface.
TransOrbital is the first American company which has obtained permission of the State Department to launch spacecraft to the Moon, and the first private company permitted to take photographs from the Moon and from any point on the way to the Moon, Laurie said.

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BANKING

Foreign trade bank secures largest loan in Russian banking history

Vneshtorgbank, a major state-run foreign trade bank, has received a credit of US$240m from a syndicate of Western banks. A corresponding agreement was signed on 28th November, Interfax News Agency has reported.
Citibank NA and Deutsche Bank AG organized the credit. A total of 32 banks from 13 countries participated in the syndicate, including from the USA, Germany, France, Holland and Japan.
"The size, conditions, number of participants in the syndicate, and geographical location of the participants indicate the growth in the confidence of world financial institutions and investors in the Russian economy and Russian banks," Vneshtorgbank President Andrey Kostin said at a ceremony to mark the signing of the agreement. He noted that the credit would be used to finance manufacturing companies.
This credit is the largest credit received by a Russian bank in the entire history of the Russian banking system, and also the first unsecured credit with a term of more than one year, provided by a group of foreign investors to a Russian bank, since the 1998 crisis.

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ENERGY

LG to invest in Tatarstan

South Korean company LG will be investing US$50-70m or more in petrochemicals giant Nizhnekamskneftekhim (Tatarstan), Nizhnekamskneftekhim Director General, Vladimir Busygin, said during a working visit to the Khanty-Mansiisk, autonomous district. 
Interfax News Agency quoted Busygin as saying the company has signed a protocol of intent, offered specific proposals and set up a working group. The exact amount of investment remains to be seen, he said. "LG and we are looking over the question of building a second line for processing 7m tonnes of oil. There is the matter of processing oil with high sulphur content, that is, oil extracted in the Republic of Tatarstan," Busygin said. LG processes around 30m tonnes of oil a year at its own refineries. Shareholders in Nizhnekamskneftekhim are Tatarstan's state committee for managing state property with 35.2 per cent of the stock, Nizhnekamskneftekhim and Co (15.63 per cent), Tataro-American Investment and Finance (10.04 per cent), the depository company NIKoil (7.27 per cent) and Nizhnekamskneftekhim Holding (3 per cent)

Moscow in new move to sell LUKoil stake

The Russian government has relaunched the sale of its 5.9 per cent stake in LUKoil, of the country's largest oil companies, less than four months after it postponed the sale because of the company's low share price, the Financial Times reported on 3rd December.
Once the country's largest oil company in terms of market capitalisation and production volumes, LUKoil has been overtaken by Yukos.
The government, which has a total stake of 13.5 per cent in the company, is offering 12.5m American depository shares through Morgan Stanley, each representing four ordinary shares. This would still leave it with a stake of 7.6 per cent. The pricing of LUKoil's stake could be announced shortly. 
The deal could generate up to US$800m, based on LUKoil's current share price of US$16.24 equivalent, well above the US$600m targeted by the Russian government in August when the price was US$14.
"Even if the government could sell the shares for about US$15 per share, it would be seen as success," one banker said.
This is the second large sale of government assets announced this year. Six week ago the government launched the sale of its 75 per cent stake in Slavneft, one of the last oil companies still in government hands. The minimum price set for the Slavneft stake is US$1.3bn. 

Russian oil firms plan Arctic port

Four of Russia's biggest oil companies have announced preliminary plans to build a US$1.5bn (€1.51bn) Arctic oil port that could eventually help ease American reliance on Mideast oil by supplying about 10% of US oil imports, the Wall Street Journal Europe has reported.
The announcement comes days after US President George W Bush and Russian president Vladimir Putin pledged during a meeting in St. Petersburg, to strengthen energy ties. Washington, contemplating a military strike on Iraq that could further destabilise an already tense Middle East, is eager to increase oil deliveries from Russia, an increasingly friendly ally that supplies less than 1% of US oil imports.
Plans for the Russian port in the northern town of Murmansk are still preliminary. The companies haven't yet arranged financing or conducted a feasibility study, but they will sign a memorandum of understanding declaring their intentions to pursue the project and committing to supplying crude oil to the port, officials at several of the firms said. The port and a 1,500-km pipeline leading up to it would be ready by 2005 at the earliest and could export up to one million barrels of oil a day. US officials say they hope to gradually increase supplies from Russia.
After a long post-Soviet slump, Russia's oil industry has been on the rebound in recent years, boosting investment and sharply increasing oil output. Production is growing much faster than Russia's ability to export the oil, requiring construction of new pipelines and ports.
A team of US energy officials visited the Moscow offices of OAO LUKoil, the oil giant leading the Murmansk project, during the Bush-Putin meeting in Russia. A LUKoil spokesman said he couldn't comment on whether the presidential summit proved the announcement. But he said warming US-Russian political ties are encouraging the Russian companies' commercial aim to boost exports. "This is a private project, of private oil companies but I think all of our companies are oriented on supporting the Russian government… and activity in the political sphere without doubt helps promote economic ties," he said.
The route across the ice-bound Arctic to the US is considerably shorter than the distance from the Persian Gulf to the US. And unlike the rest of Russia's mostly shallow ports, the Murmansk terminal would be located in deep enough water to handle the kind of supertankers that make trans-Atlantic voyages economical for Russian producers.
The steep cost of the Murmansk project is forcing Russia's normally cutthroat companies to cooperate and share costs for the first time. Oil tycoons who have spent years battling each other for control of Russia's formerly state-owned oil reserves are set to shake hands and sign an agreement at a news conference. Scheduled to attend are Vagit Alekperov, president of LUKoil, Mikhail Khodorkovsky, chief executive of OAO Yukos; Evgeny Shvidler, president of OAO Sibneft; and German Khan, executive director of Tyumen Oil Co.
Together, the firms produce more than half of Russia's daily output of eight million barrels of oil.

Russian pipeline giant opens oil storage facility near Black Sea port

Russian oil pipeline monopoly, Transneft, launched on 9th December a new 100,000-tonne oil storage facility near the major Russian Black Sea port of Novorossiysk, a company representative told Prime-TASS News Agency. 
The second stage of the facility, also capable of storing 100,000 tonnes of oil, is to be launched in March 2003. 
The supplementary storage will allow Transneft to optimise oil supplies to the Novorossiysk oil terminal, especially in the autumn-winter period, when the port often closes due to stormy weather. 
Oil exports via Transneft grew 10.3 per cent on the year in November to 12.66m tonnes, a source close to the Russian Energy Ministry said. 
Since the start of the year, oil exports via Transneft grew 4.4 per cent to 139.523m tonnes.

Gazprom in talks with EBRD

Gazprom, the Russian gas producer, has approached the European Bank for Reconstruction and Development seeking financing and a long-term relationship, as part of an effort to repair its international reputation, the Financial Times reported on 2nd December.
On 29th November, Alexei Miller, the Gazprom chief executive installed last year by President Putin to clean up the company, met senior officials from the bank to discuss financing of future projects including the construction of a gas pipeline across western Europe. The EBRD distanced itself from Gazprom two years ago because of concern about a lack of transparency, asset-stripping and the previous management's connections with related parties.
But following management changes at Gazprom the relationship started to thaw, and the EBRD appears willing to negotiate with Mr Miller, who claimed that all core assets removed under the previous management have been returned to the company, which is 38% owned by the government.
"Under the new management, there have been improvements in terms of transparency and corporate governance, which should further measures be taken in this direction, facilitate cooperation," says the EBRD in its Russian strategy document for 2003/04.
Gazprom is particularly keen for the EBRD to participate in the financing of a northern European pipeline that would take gas under the Baltic Sea through Germany, the Netherlands and ultimately to the UK.
The EBRD's involvement in Gazprom's projects will be seen as an important boost to the credibility of the company and could affect its borrowing costs in the international capital markets.
Mr Miller recently said his company had extensive borrowing plans for next year.
"Gazprom mainly needs EBRD as a sign of approval that the company is changing," one observer said.
Mr Miller said that the extent of Gazprom's borrowing would depend on the company's revenues and on domestic gas prices, which are set to increase next year.
Gazprom sells three-quarters of all its gas domestically at one-fifth of the international price and is lobbying for a 40 per cent price increase for industrial consumers.

Russia on course to bring Soviet-era hydroelectric project on stream

The Unified Energy System of Russia joint-stock company [UES] is confident the first set of the Bureya hydroelectric power station, GES, in Amur Region of the Russian Far East, will be commissioned on time, on 30th June 2003. The UES press service told RIA-Novosti News Agency that this opinion was expressed by the chairman of the board, Anatoliy Chubais, at the quarterly meeting of the operational headquarters for the construction of the Bureya GES. The meeting discussed the course of work and the fulfilment of the financial plan for the station's construction, UES's main commissioning project for 2003.
Anatoliy Chubais stressed that an unprecedented amount of funds, almost R6.5bn, had been assimilated in 2002. The pouring in of concrete is proceeding ahead of schedule. The builders of the station now have to concentrate their efforts on electrical installation work and finishing touches, which are the most labour-intensive processes.

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FINANCIAL NEWS

Russia to ease currency laws

In a bid to lessen state interference in business and to improve the investment climate, the Russian government has approved a law liberalizing the country's draconian currency controls and has promised to remove them all by 2007, the Wall Street Journal Europe has reported.
The cabinet also passed a bill setting up a bank deposit insurance programme, considered a crucial step in restructuring Russia's weak and undercapitalised banking sector.
Government ministers have long been under pressure from business to loosen capital controls which have been in force since the early 1990s but were made tougher after the 1998 financial crisis. Companies must obtain Central Bank permission to carry out a range of capital account operations, and are obliged to convert 50% of all hard currency export proceeds into roubles.
President Vladimir Putin has long criticised he current system, saying it puts Russians at a disadvantage. The controls also have largely failed in their main purpose, combating capital flight: The World Banks says US$17bn flowed out of Russia last year, and US$25bn in 2000.
Discussion of the new bill dragged on for months, with liberal ministers backed by big business demanding all restrictions be lifted while Central Bank and finance ministry officials insisted on retaining some powers to limit flows of "hot money" in a financial crisis. Such a rapid outflow of speculative short-term capital helped bring on the collapse of Russia's financial system in 1998. 
The issue of currency controls is controversial in Russia. Some economists argue that the country's banking system is still too weak to allow for full convertibility on capital accounts. Others say that only full liberalisation will encourage the big flows of foreign-direct investment Russia desperately needs.
Under the new bill, which must be passed by parliament, the proportion of export proceeds subject to mandatory sale will be reduced to 30% from 50%; and businesses will only have to notify the Central Bank of capital transactions rather than obtain permission for them.
But the authorities will retain two levers for a financial crisis. - a requirement that the equivalent of 20% of any incoming investment be deposited for one year, and 100% of any exported capital for two months.
Economics Minister, German Gref, said the Central Bank could only impose such measures in consultation with the government, and only if there were a threat to the stability of the rouble and the Bank's foreign currency reserves. All such controls, including the mandatory sale of export proceeds, would be abolished by 2007, he said.
The government also passed a landmark deposit insurance bill designed to restore Russian's faith in their banking system, badly rocked by the 1998 crash when thousands lost their savings. The bill ends the monopoly of OAO Sberbank, the only Russian bank with a state guarantee on household deposits. Sberbank, which is state-owned, holds about 80% of such accounts.
Under the bill, participating banks will pay a premium into an insurance fund run by ARCO, the state bank restructuring agency. Insurance payouts will initially be limited to about US$3,000, though that figure could rise in line with future economic growth, officials said.
Mr Gref said both bills would be subject to a few technical changes and be submitted to parliament shortly.

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FOREIGN ECONOMIC RELATIONS

Russia suggests converting Soviet debt to India into investment projects

Russia suggests converting "a considerable amount" of the former Soviet debt to India into Russian investment projects in India, the Russian Minister of Science, Industry and Technology, Ilya Klebanov, has told journalists in Delhi. He did not specify the amount of the debt but said that even half of it would be enough for several major projects, RIA News Agency has reported. 
Klebanov went on to add that over the last two or three years, a number of such projects in the sphere of high technologies had been prepared. 
He said there were good prospects for cooperation in metallurgy, the energy sector and the coal industry. 
These projects are currently being developed and the final decision on them is to be taken by the Russian Finance Ministry, Klebanov said.

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INDUSTRY

New investor to bring life to viscose yarn plant in Siberia

The Sivinit, Siberian viscose yarn, plant is undergoing considerable changes in its management, Krasnoyarsk state KGTRK TV has reported. 
New investors have come to the enterprise. A trilateral agreement has been signed between Sivinit, a Yunikorn commodity-export company and the Territory power supplier, Krasenergo. According to the agreement, Sivinit is giving its production equipment to Yunikorn while the latter provides Sivinit with raw materials. Five hundred tonnes of pulp have been already dispatched to the plant. Production is due to resume shortly.

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MINERALS & METALS

British firm advises on US$350m investment in Russian diamonds

It is planned to invest US$350m in the development of the Lomonosov diamond deposit in Russia's Archangelsk Region. The Alrosa diamond giant of Russia and the British Fleming Family & Partners have signed a memorandum on joint financing of the project, the Alrosa press service reported on 3rd December, ITAR-TASS News Agency has reported.
In future members of the consortium may get a share in the Severalmaz [Northern Diamonds] company, which has a licence to develop the diamond deposit. Fleming Family & Partners is a consultant to the investment consortium, which has three members, General Director of the Alrosa Investment Group, Sergey Vybornov, said. Names of the consortium members are not made public.
The Lomonosov diamond deposit, the largest in Europe, is located 100 km north of Archangelsk. Its stock is estimated at US$12bn. The content of jewellery diamonds in the field is higher than in the Yakutia deposits of Alrosa.

Russian, US sign steel slab deal

Russia and the United States have signed a deal on Russia semi-finished steel slab exports to the US. The parties actually signed an amendment to a comprehensive steel trade agreement of 1999. The amendment "enables producers to use up slab quotas in their entirety: Russian steel exporters can now export additionally up to 1.2m tonnes of steel slabs per year to the United States," the US embassy said, reports New Europe.

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NUCLEAR ENERGY

Russia to boost energy cooperation with India

Russia is ready to expand cooperation with India in the field of atomic power, if Delhi adheres to the rules set by the International Atomic Energy Agency (IAEA), Russian Atomic Energy Minister, Aleksandr Rumyantsev, has told ITAR-TASS News Agency in an exclusive interview.
He was a member of the delegation accompanying Russian President Vladimir Putin during his official visit to India. Rumyantsev said that the construction of new atomic reactors in India with the assistance of Russian experts may be discussed during the visit.
The Russian Atomic Energy Ministry [Minatom] is building two reactors at the Kudankulam power plant in India, which was designed by Russian experts, Rumyantsev said.
Minatom exports heavy equipment and reactor vessels to India. The construction of the first reactor of the Kudankulam power plant began in July 2001 and the reactor is to be put into service in 2007.

Russia signs nuclear fuel deal with Czech Republic

Russia's Atomic Energy Ministry signed agreements with Czech organizations for the supply of tens of millions of dollars in nuclear fuel to the Czech Republic, Interfax News Agency has reported. These supplies will serve as payments for the former USSR's debt, Russian Atomic Energy Minister, Aleksandr Rumyantsev, told a news conference in Moscow on 29th November.
Russia also plans to supply hundreds of kilograms of highly-enriched uranium for a research reactor in Poland.

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RETAIL INDUSTRY

Sweden's IKEA plans 5 local stores by 2006

IKEA is planning three new stores in Russia by 2006 but must raise local production before it can make a profit here, the head and founder of the Swedish furniture giant said. "It's no secret we have a certain loss today," Ingvar Kamprad told a news conference. "With high import taxes, we have had to suffer during the first years with a rather too small margin. So we have to increase domestic supplies and volumes so that we can get into the black," the Moscow Times quoted him as saying. Within three years, IKEA should have five stores in Russian with total turnover between US$332m and US$443m, Kamprad said. "That will enable us to find money for more Russian suppliers for the domestic market," the paper quoted him as saying. "Our goal is to furnish millions of homes in Russia and not just for rich people," Kamprad said, adding that the average purchase value in a Moscow IKEA store is about 2,000 roubles (US$63), the same as in Stockholm. 

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SHIPPING

Russia resumes funding for ship-building in Far North

Construction of ships, "frozen" for several years over an end of state financing, has been resumed by the shipyard, situated in Amur Region. Over R100m are planned to be appropriated to the shipyard to complete ships under construction over the next three years, ITAR-TASS News Agency has reported.
A decision on financing was taken by the Ministry of Science, Industry and Technology, TASS learnt at the regional administration on 8th December.
The shipyard has been building a transport ship since 1990. It is 56 per cent ready. According to plans, it will be turned over for operation in 2005. This is the main order for the shipyard.
A decision will be taken by the end of the year to fund completion of a fish-guarding ship (presumably a coastguard ship) which is 66 per cent ready, the regional administration reported. Also, the Russian Defence Ministry plans to invite the shipyard to participate in a tender for building a hydrographic ship.

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TELECOMMUNICATIONS

Rostelecom sees US$50m investment cut in 2002

Russian long-distance provider, Rostelecom, will invest US$80m in 2002, instead of the initially planned US$130m, said Vladimir Androsik, the company's deputy director general and finance director. "Of the planned US$130m, US$50m will be transferred to 2003 and overall capital investment will be around US$150m in 2003. Major projects include increasing the network's access and switchboard capacity, as well as reconstruction of the Moscow-Khabarovsk communications line for Europe-Asia traffic transit," he said. Company restructuring will be completed in 2004, reports New Europe. 
Rostelecom will concentrate on increasing revenue primarily in Moscow, but will not forget other markets, Androsik said. As part of the restructuring, a unified management system for core activities will be introduced at the beginning of 2003. Rostelecom plans to regain its position on the Moscow market in 2003. "We plan to create strong teams and develop strategies and propose that our share of the intercity and international traffic in Moscow will increase," he said.

Russia, China develop telecom cooperation

Russia and China are actively developing telecom cooperation. "We have been actively developing cooperation with Chinese operators within the past two years," Russian First Deputy Minister of Communications and Information, Boris Antonyuk, has told ITAR-TASS News Agency.
Antonyuk was taking part in Telecom Asia 2002, an international exhibition that opened in Hong Kong on 1st December.
The cooperation is being developed between two national telecom operators, Rostelecom and China Telecom, and in the aerospace sphere.
A global corporate system of the Huawei Technologies company is being developed with the use of Russian communication satellites, Antonyuk said. "Cooperation between Russian operators and Chinese manufacturers of telecom equipment is also an important sphere," he added. "There is a joint venture making modern digital telephone stations in Ufa."

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TOURISM

Moscow reports sizable rise in foreign tourism this year

The number of tourists who have visited Moscow this year is 480,000 more than it was last year, Grigoriy Antyufeyev, chairman of the Moscow tourism committee, said at the government session on 3rd December, Interfax News Agency has reported.
Thus the total number of foreigners who have visited Moscow this year exceeds 2m people, he said. In 2001, 1.7 million foreigners visited Moscow, which is 191,000 more than it was in 2000. According to Antyufeyev's information, the income from each dollar invested in tourism is now US$37. "This is the average world figure," he said.

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