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RUSSIA


  
   

 
Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
Millions of US $ 346,520 310,000 259,600 16
         
GNI per capita
 US $ 2,140 1,750 1,690 100
Ranking is given out of 208 nations - (data from the World Bank)

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

  

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: 274 - (29/10/03)

The Kremlin strikes at the oligarch
Russia is in the news for several reasons. The most important by far is the arrest of Mikhail Khodorkovsky, the head of YukosSibneft, Russia's new oil giant and the fourth largest oil company in the world, on Saturday, October 25th in Novosibirsk in Siberia. He has been charged with fraud, forgery, tax evasion and other as yet unspecified financial transgressions and is being detained in Moscow until December 30th when it is planned to put him on trial.
The reason behind the move was patently political, to pander to anti-oligarchic sentiment, which is rife in Russia, ahead of December elections to the Duma, the lower house of parliament, which the Kremlin fear would see a frightful battering for their own supporters in the United Russia bloc. Khodorkovsky is the obvious fall guy here. He has broken the implicit bargain that Putin made on election in 2000 that the oligarchs could enjoy immunity from prosecution for the way they acquired their assets in the 1990s sale of state properties, so long as they kept out of politics. Vladimir Gusinsky of Media-Most and Boris Berezovsky, the eminence grise of the Yeltsin Kremlin, soon fell foul of the new regime and now live abroad, deprived of their Russian assets. Berezovsky has been financing the Liberal Party and speaking out against the regime. Khodorkovsky has been giving funds to liberal opposition parties, the Union of Right-Wing Forces of Boris Nemtsov and the Yabloko party of Grigory Yavlinsky. 
He even has indicated his desire to stand down from the leadership of Yukos in 2008, the very year of the presidential election after the next one in March 2004, which everyone agrees will be a shoo-in for Putin. But Putin cannot stand for a third term. Just like Yeltsin before him, he is thinking long term and is very concerned about his successor. The last person he wants that to be is Khodorkovsky or a Khodorkovsky-backed candidate, such as Nemtsov or Yavlinsky, who has accused him of creating 'capitalism with a Soviet face.' 
Clearly political considerations, indeed the survival of the KGB-manned regime in the Kremlin is at stake. Putin is returning to his political grass-roots in the former KGB, of which the superiors of the FSB agents who arrested Khodorkovsky are the heirs. Politics is in charge in Russia, not economics, as Lenin always said should be the case. The KGB is back.

Economic fall-out
The Moscow bourse, the world's best performer over the last two years, lost 10% of the value of its shares on being re-opened on Monday, 27th two days after the key arrest. The fear is now that there will be a resumption of the capital flight that saw upwards of $200 bn leave Russia in the 1990s and a renewed financial crisis comparable to 1998's when the rouble crashed and the stock market collapsed. 
This is not very likely because the fundamentals are so different. The Russian economy has been growing by 5% on average per annum since 1999, not a little due to the crash and massive devaluation. The high oil prices have been the prime source of growth, still buoyant at around $25 per barrel. Russia has become an attractive place to invest for expatriate Russian funds as well as foreigners.
Western support is taking a concrete form in the shape of conferring investment grade status on Russia, as a result of it being upped two notches and so receiving the rating "Baa3" from Moody's Investors Service, announced on October 8th. Russia seemed to be doing no wrong in certain Western eyes at the time, an incongruous fact in many Russian eyes. 
But will the Khodorkovsky affair spoil the party? That is the question.
It certainly is a most inopportune moment for the Kremlin to have made such a move against Russia's premier oligarch. Having just received the coveted upgrade, the Kremlin has scored a spectacular own goal for the Russian economy, jeopardising Putin's declared aim on election three years ago of doubling GDP in ten years from 2000 to 2010. To comprehend why one needs to understand why there was such euphoria at Moody's new rating.

"Baa3"
These letters followed by a number may seem like abracadabra. They could, indeed, be described, as does the Patriot Dictionary, as 'hocus-pocus,' 'open sesame,' 'hey presto.'
They are the mumbo-jumbo or hocus-pocus employed by Moody's. The investor's services, of which with Standard & Poor's it leads the field, rate countries by a bizarre array of signs. But anyone familiar with them knows that Russia has passed beyond a vital threshold; it now has investment- grade status. Or so it seemed before the fatal event of October 25th!
This appeared an open sesame for tens, possibly hundreds, of billions of dollars in foreign investment. Hey presto Russia; here we come!
Only $7.5bn (or a mere $50 per capita) has come into Russia since 1991, although decisions already taken earlier this year were on stream to change all that (see next section). This is one of the poorest records in the former communist world. But the trickle of money could become a flood as global banks and investment funds move in.
"The scale of this can be huge," two analysts at UBS, Alex Garrard and Al Breach, wrote in a research report published prior to October 25th. "Besides the encouraging signal given to would-be foreign direct-investment investors, banks will likely be reassured to increase internal ratings for the country."
UBS said total developed-world bank claims on Russia were $40.7bn at the end of March, compared with $74.4bn for Mexico before it achieved investment grade in 1999. Three years later, claims on Mexico jumped to $203.8bn, of which $64.9bn came from overseas and $139bn came from local branches of international banks.
"Of course, Russia hardly has any local branches of global banks," the UBS analysts said. "But this shows the scale of potential increases in lending appetite." For equity investors, the prospect was for Russia to move from an emerging market play, where the pool of money for investment globally is $100bn, to being part of the investable universe for funds, estimated at $1trillion. Russian shares hit all-time highs after the upgrade was announced, and the benchmark index also rose, only to pluge right back on news of Khodorkovsky's arrest.
The expectation at the time was that prices of government bonds would also rise. If Standard & Poor's follows Moody's were also to upgrade Russian government debt to investment grade, the country could join investment indexes, which would further widen the pool of money available. Merrill Lynch said that if S&P upgraded Russia, the country would account for 1.6% of the investment bank's corporate/sovereign index. That, in turn, would prompt further buying and a decline in risk premiums, or the difference in yield above US Treasuries.
But this now seems most unlikely, unless the Khodorkovsky affair blows over quickly, which seems improbable. There were already beforehand various reasons to fear a potential downside. Too rapid flows of investment have destabilised some emerging market economies, and Chile notably put restrictions on the inflow of foreign capital.
The Russian prime, minister, Mikhail Kasyanov, said recently that the country's infrastructure would not be able to handle massive capital flows and noted that despite hitting all time highs, the Russian stock market was still thinly traded. There are also concerns about the state of the country's fragmented and badly capitalised banking system, which would not have been able to cope with additional flows. This problem has, however, been put in abeyance by the Kremlin's new move. It is not too great a flow into Russia it now needs to fear, but too great a flight of funds out.
The inflow of foreign direct investment has been lopsided so far, reinforcing Russia's heavy dependence on oil and gas, which leaves it vulnerable to any large decline in oil prices.The last time Russia was hit by an oil price slump, in 1998, it defaulted, and many analysts note the country's newfound fiscal rectitude has not been tested by a drop in oil prices. Nor has it had to face a self-induced crisis of the present magnitude. The Kremlin seems adamantly determined to shoot itself in the foot.

The presidential Chechen election
Life goes on all the same. Events have been occurring right across the vast Russian Federation. The most notable are the elections which took place in Chechnya on October 5th for the presidency, widely assumed to be rigged for the Kremlin- backed candidate.
This is so even in Russia itself where people wonder if their own elections to the Duma are not also likely to be rigged in favour of the authorities. They have memories of an earlier October ten years ago when another way was found by the Kremlin to deal with parliament, a recalcitrant Soviet elected one, namely to shell it into submission at a cost of more than 120 lives.
This had some popular support at the time, but is increasingly looked back upon as a key moment when the Yeltsin regime gulled the public to win back enough support for the re-election of Yeltsin in 1996. The West, however, enthusiastically backed it at the time and still does, as they do the far more popular Putin regime today, even in its 'anti-terrorist' Chechen war.
The Russian candidate, Akhmad Kadyrov, was himself actually a leading rebel eight years ago when the first Chechen War was raging. His change of heart has been due to a conviction that the Chechens cannot possibly win. This has grown since 9:11 and especially the October 2002 Moscow theatre hostage crisis, which was so easily capable of being depicted as an act inspired by international terrorism. Moscow's hard line stiffened further and the war promises to drag on for years with a Russian victory assured, so Kadyrov thinks. He may well be right.
Aslan Mashkadov, the popularly elected president in 1997, was not able to stand, having been branded a war criminal and living in hiding since 2000. With the most popular Chechen candidate out of the way and the centres of cities and towns, and specially the vicinities of polling booths being patrolled by Russian troops, the result was indeed a foregone conclusion. Kadyrov won easily.
Kadyrov may be widely hated as a quisling, who has to go around everywhere with scores of bodyguards and has a private militia in the thousands. But he will be ruling the Russian-controlled areas from now on, as he has in practice for a while. Chechnya looks set to remain Russian for a long time yet, even as the war is far from being won. The Russians continue to win politically, but cannot win militarily in a decisive way.

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AGRICULTURE

Putin welcomes "positive changes" in Russian agriculture

Russian President Vladimir Putin is pleased with changes for the better in the domestic agriculture industry. "Over the last few years, there have been substantial, positive changes in the agroindustrial complex, and a mixed agricultural economy, based on various forms of ownership and management, really is being created," the head of state said at a meeting on the problems of the agroindustrial complex, ITAR-TASS News Agency has reported.
Putin gave a positive assessment to the introduction of new technologies, models of financing and the updating of the legal framework.
"It's important for the Russian countryside to become economically attractive, and for the agroindustrial complex as a whole to lose the image of a chronically depressed sector of the economy," the president stressed.
By way of example, he pointed to the increasing volume of investment. Thus, over the last three years, investment has grown by 13 per cent, the overall turnover of trade in food products has grown, and the food and food processing industries have seen a solid revival.
"Russia's entry onto the world grain market last year is a clear confirmation of the success of the changes," the head of state said.

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AUTOMOBILES

Kia Motora to open new production facilities.

South Korean car manufacturer, Kia Motor Corp, plans to set up new production facilities in Russia with the capacity to turn out 200,000 to 250,000 cars a year, Russian Industry, Science and Technology Minister, Ilya Klebanov, said in St Petersburg recently, New Europe reported recently. 
Talks between the ministry and Kia Motors are at an early stage so Klebanov did not specify the cost of such a project. Kia is looking at two options: either to organise production at the Izhmash plant in Udmurtia or to set up a new plant in Vladivostok. Kia Motors almost doubled first-half auto sales in Russia through official dealers year-on-year to 4,578 vehicles. Avtotor in Kaliningrad already assembles Kia cars.

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AVIATION & SPACE

Russia offers 8% of Volga-Dnepr airline

The Russian Federal Property Fund is selling 7.759% of the shares in the Volga-Dnepr airline, a major freight carrier, New Europe reports. The fund said existing shareholders would have first right of refusal to buy the shares. This right will be passed to the company itself if nobody is interested.
The company is required to notify its shareholders of their priority right to buy. Shares will be distributed in proportion to existing stakes if shareholders exercise that right. Shareholders have from September 5th to November 5th to decide. The property fund will ask 232.447m roubles for the block of 2,095 common shares

Russian aircraft plant in talks with Iran on possible sales

Russia's Tupolev aircraft design bureau has held preliminary talks with Iranian engineers about possible sales of its Tu-204 commercial airliners to Iran, Prime-TASS reported on 9th October, quoting Lev Lanovskiy, the chief designer of the Tu-204 aircraft
Iran intends to buy a major consignment of these planes and "a large delegation is to arrive in Russia this month" to discuss the issue. Tupolev is ready to provide the required number of planes, although it has "yet to agree on the terms and the price with the Iranian side," Lanovskiy said. 
Ulyanovsk-based Aviastar-SP, a subsidiary of the Tupolev aircraft design bureau, is a mass producer of planes under the Tupolev brand. According to an official with the Tupolev aircraft design bureau, Aviastar-SP will have produced enough Tu-204 planes by the end of 2004 and at the beginning of 2005 to start exports to Iran.

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BANKING

Russian, Armenian banks hail cooperation deal as "good example" for CIS

The Association of Russian Banks (ARB) and Union of Armenian Banks (UAB) have signed an agreement on cooperation on 10th October, ITAR-TASS News Agency has reported.
"Armenia is the most important strategic partner of Russia," ARB chairman, Garegin Tosunyan, said. The signed document will help to make the interaction between the banking systems of the two countries more active."
UAB chairman, Samvel Chzmachyan, believes that cooperation will be mutually advantageous. The head of the Armenian Central Bank, Tigran Sarkisyan, in his turn, says: Russian-Armenian relations in the banking sphere "may be a good example for other member-countries of the Commonwealth of Independent States."

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BONDS

EBRD ready to issue US$150m rouble bond

The European Bank for Reconstruction and Development is set to issue a pioneering US$150m rouble bond early next year with a maturity of up to five years, the Financial Times has reported.
Following the initial issue, the EBRD plans to launch a second rouble bond with a longer tenure.
The move represents an important new step for Russia's fledgling capital markets, providing longer-term instruments that will help deepen the domestic bond market.
The rouble market has emerged as a key source of funding for Russian companies after the government's domestic debt default in 1998 and has grown rapidly to total US$3.8bn in size, according to Renaissance Capital.
In the new market, three years is currently the maximum maturity.
Jean Lemierre, EBRD president, said in an interview that the initial bond was likely to be issued in the spring with a three-five year maturity but that his hope was to follow up "rather quickly" with a bond with a maturity of ten years or more. "The purpose is not to make money for us, it's to help borrowers and investors by proving longer maturity and smaller risk," he said. "That is the only way to finance small business and municipalities."
EBRD's bond will hep provide rouble financing for the organisation, which is seeking to expand it lending and equity activities within Russia. The multilateral lender is also planning to raise local money for on-lending to the municipal sector and to small and medium-sized businesses.
However, the move could prove controversial, as conditions in the Russian market mean that the cost of financing will be far higher for the EBRD than if it were to simply raise money abroad. Mr Lemierre, who held talks with Mikhail Kasyanov, the prime minister, said he had received strong support for the programme from the Russian government and the central bank.
He said the bank had supported US$1.3bn in projects this year and was likely to maintain the pace next year.
He agreed in principle to the idea of supporting Russia's current electricity liberalisation programme, through both making loans to the national grid and taking equity stakes in power generation companies as they are broken off and sold at auctions in the coming months.
He reiterated the EBRD's commitment to acquiring a share of up to 20 per cent in the equity of the state-owned Vneshtorgbank, provided it brought closer the completion of a privatisation that would leave more than 50 per cent of equity in private hands within two to three years.

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CREDIT RATINGS

Russian debt rating raised to investment grade

Russia, which defaulted on US$40bn of debt in 1998, has had its foreign-debt rating raised two steps to investment grade by Moody's Investors Service, which cited the government's efforts to cut debt and spending, the Wall Street Journal Europe has reported.
Moody's increased the ratings for Russia's Eurobonds to Baa3, the lowest investment-grade level, from Ba2, putting it on a par with Croatia and Trinidad.
"The upgrades reflect the strengthening of the government's commitment to prudent fiscal and debt management policies" and "significant improvements in debt and liquidity ratios," Moody's said.
The Russian economy is poised to post its fifth straight year of growth, the longest period of expansion since the collapse of the Soviet Union in 1991. It is set to run a federal budget surplus for the fifth consecutive year in 2004. Russia is the world's second biggest oil supplier after Saudi Arabia.
"This is a very, very important vote of confidence," said Jerome Booth, who manages emerging-market debt assets at Ashmore Group in London. "It opens up Russian bonds to a whole new class of investors."
Moody's has upgraded Russia's foreign currency long-term credit six times since the default in August 1998.
The default prompted a wave of asset selling that cost the billionaire George Soros about US$2bn and drove US-based Long Term Capital Management, one of the world's largest hedge funds at the time, to collapse.
The nation's recovery, largely under the leadership of President Vladimir Putin, who was elected in March 2000, has been fuelled by a surge in oil prices that probably will swell foreign-currency reserves to a record US$65bn by the end of the year, Moody's said. Reserves were at US$15bn before the 1998 default, falling as low as US$10.7bn in 1999.
The lifting of Russia's debt rating probably will lower borrowing costs for the government and Russian companies while attracting investors previously prevented from holding Russian bonds because their fund rules stop them buying securities rated non-investment grade, or junk.
"I am sure this decision will create better conditions for Russia's economy," Putin said in Yekaterinberg, central Russia, in remarks broadcast by Perviy Kanal, a state-run national television station.
Russia is still rated below investment grade by Standard & Poor's. The company lifted its debt rating on Russia by one level last December to BB but that is still two levels below investment grade.

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ENERGY

Moscow calls for pipeline partners

Russia's energy minister said he was seeking the backing of "two to three" additional foreign partners to help finance a northern gas pipeline connecting Russia to western Europe, following indications of financial support by the German group Ruhrgas, the Financial Times reported on October 11th.
Igor Yusufov expressed confidence that the 3,000km pipeline - likely to cost at least US$6bn (£3.6bn) - would be built. He had no objection to foreign companies taking significant management stakes in the pipeline, along side the state-controlled Gazprom, in proportion to its construction.
He also indicated Moscow would welcome ExxonMobil taking a large - even a majority - stake in Yukos-Sibneft, in a second sign of the government's openness to foreign investors.
Alexander Medvedev, general director of Gazexport, Gazprom's export arm, said Shell, Total and BP were interested in taking part in the pipeline, which will run from Vyborg in north-west Russia to Germany, with a possible extension to the UK.
However, the companies are believed to be cautious because of the high costs and a preference to avoid infrastructure projects.
Ruhrgas officials confirmed that the company had agreed to help fund a feasibility study, and expressed strong interest in contributing to the construction of the pipeline, subject to a definitive assessment of the project's viability.

EU approves BP-TNK deal as firm goes off-shore

The European Commission gave approval on July 25th for a US$6.15bn cash and equity investment in the Russian oil sector by BP, the RBCC Bulletin reported.
The deal represents about 1.5% of Russia's GDP and gives BP 50% of a company that combines Russia's fourth-biggest oil company TNK with its smaller affiliate Sidanco, of which BP already holds 25%.
The commission said it was notified of the deal on June 26th and examined it under its simplified merger review, used when neither customers nor rivals have complained about a deal.
BP will share the new firm, called TNK-BP, with a consortium of private investment firms made up of Access/Renova and Alfa Group, which is also active in banking, supermarkets and mobile phones.
BP said it would pay US$2.4bn in cash up front and US$1.25bn per year in BP shares in three tranches.
TNK-BP's owners have yet to agree what to do about the firm's 50% stake in Russian oil producer Slavneft, which it bought after the BP deal was struck.
Meanwhile, TNK-BP will be registered offshore in the British Virgin Islands, BP spokesman, Toby Odone, said.

France's Total in joint oil exploration venture with Russia's Rosneft

The French oil firm, Total SA, has unveiled plans to create a joint venture in association with Russian corporation, Rosneft, to develop and exploit an oilfield in the Black Sea. Under a tentative agreement, each party will hold equal stakes in the project. Representatives from the two companies also plan to come to an agreement to develop a large oil and gas field in Krasnoyarsk Territory, ITAR-TASS News Agency reports.

Russia asserts right to oil pipelines running across Belarus

The Russian government has dismissed attempts to cast doubt on Russia's ownership rights to the oil pipelines running across Belarus, Interfax News Agency has reported.
"We cannot even discuss the revision of Russia's ownership rights," Prime Minister Mikhail Kasyaoov told a news conference following a meeting of the Council of Ministers of the Union of Russia and Belarus.
He said the Belarusian authorities had earlier questioned Russia's ownership rights to the Transnefteprodukt pipeline.
Belarusian acting Prime Minister Syarhey Sidorski said that lawyers had submitted documents proposing that the ownership rights to the pipeline be discussed again by the Russian and Belarusian governments.

Russian gas giant to invest US$8bn to cut carbon dioxide emissions

Russia's gas giant, Gazprom, plans to invest approximately US$8bn in a comprehensive programme to reduce carbon dioxide emissions by 2006, the head of Gazprom's gas transportation department, Bogdan Budzulyak, told a news conference 1st October, Prime Tass News Agency has reported.
The company plans to invest 30-35 per cent of the funds in resource-saving programmes, he said. 
Meanwhile, the company's priority is energy conservation in Gazprom's joint venture with Germany's Ruhrgas to complete optimisation of Volgatransgaz' pipeline system, he noted. The optimisations would lead to lower gas consumption in power production, and would reduce carbon dioxide emissions by 440,000 tonnes annually. 
Gazprom plans to reduce emissions of greenhouse gas to 188m tonnes by 2008, and 145m tonnes by 2012, he said.

Russia, North and South Korea agree to build new power line

Russia, North Korea and South Korea have agreed to build an electrical power line from Vladivostok to South Korea, Olga Zhurman reported for Radio Russia.
On 7th October in Vladivostok a seminar began on political issues and a cooperation strategy over energy between South Korea and Russia. At the seminar Yevgeniy Bulgakov, chairman of the committee on the fuel and energy industry of Maritime Territory's administration, revealed that North
Korea had agreed to the construction of the power line across its territory. Talks on this project between Russia and South Korea have been going on for quite a long time. A memorandum on this has been signed by the Vostokenergo company and a Korean electrotechnical research institute.
According to this project, a single energy grid may link not just Russia and both Koreas but China, Mongolia and even Japan as well. It will allow Far Eastern power stations to work at 100-per-cent capacity, which will lead to a fall in tariffs. North Korea is ready to send its experts to learn how to build 500-kV power lines.

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ENVIRONMENT

Moscow mayor resurrects idea of diverting Siberian rivers

Moscow Mayor, Yuriy Luzhkov, has reaffirmed his idea to divert part of the water from several Siberian rivers to Central Asia, arguing that the scheme could earn Russia a good profit, Russian Centre TV reported on 8th October.
Speaking to a gathering that focused on construction projects in Moscow, Luzhkov said: "If we can sell - and I stress the word sell - 25 cubic kilometres [of water] to the countries of Central Asia, then each cubic metre today sells for 20 [US] cents, and that price can only increase. That's US$5bn per year. And yet politicians can be found who don't want such goals to emerge in Russia."

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FINANCIAL NEWS

Russia releases inflation figures for first nine months of 2003

Inflation in Russia stood at 0.3 per cent in September, and 8.6 per cent over the period January-September 2003, according to information Prime-TASS News Agency received on 3rd October from the Russian State Statistics Committee.
The base rate of inflation, which does not take account of short-lived, irregular changes in prices under the influence of administrative or seasonal factors, or factors triggered by events, amounted to 1.1 per cent in September, and 7.3 per cent over the period January-September 2003.
Prices for non-food goods and charges for services to the population rose in September at the same rate, by 0.9 per cent. Prices for food products fell by 0.2 per cent, but, if fruit and vegetable produce are excluded, rose by 1.1 per cent.
In the first nine months of this year, charges for services rose by 19.7 per cent, prices for non-food products rose by 6.6 per cent, and prices for food rose by 6.1 per cent (7.1 per cent excluding fruit and vegetable produce).
Inflation in September exceeded 1 per cent in nine constituent parts of the Russian Federation, with the highest rates recorded in Astrakhan and Belgorod Regions - 2.2 per cent and 1.9 per cent respectively. Inflation in Moscow stood at 0.4 per cent in September, and 8.5 per cent over the first nine months of the year.

Russia writes off over US$11bn of African debt

Over the past 4 or 5 years, Russia has written off over US$11bn of the debt which African countries owe it. In the past year alone the sum was in excess of US$3bn, Russian Deputy Foreign Minister Aleksandr Saltanov has said in an exclusive interview with ITAR-TASS News Agency. He headed the Russian delegation at an international conference on aid to Africa which took place in Tokyo.
Saltanov said that "a very serious factor in our relations with Africa and, as a whole, in stabilization of the situation on the continent is Russia's active participation in peacekeeping operations which are aimed at putting an end to conflicts in a number of states. This refers to Sierra Leone, the Democratic Republic of Congo and other African states where there are still pockets of instability."

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FOREIGN ECONOMIC RELATIONS

North Korean delegation in Russia's Maritime Territory for cooperation talks

A delegation from the North Korean province of Northern Hamhung is discussing economic and cultural cooperation with Russia's Maritime Territory in Vladivostok, ITAR-TASS News Agency has reported. 
Coastal fishing, sea food production, agriculture and tourism have been mentioned as the most promising areas of such cooperation. The sides have also stressed the importance of ties in the fields of culture, education and sport, the press service of the Maritime Territory administration told ITAR-TASS. 
"Maritime Territory borders North Korea and is interested in cooperation with it," Maritime Territory deputy governor, Viktor Gorchakov, said. "Starting from 2001 [when North Korean leader Kim Jong-il visited Russia], the relations between our countries have reached a new level, but their economic potential is still not used in full," he said.

Russia in US$1.5bn jet fighter deal with Malaysia, says envoy

Russia will profit by about US$1.5bn from supplying a large shipment of Su-30MKM multifunctional fighter jets to Malaysia, Russian ambassador to Malaysia, Vladimir Morozov, told Interfax-Military News Agency at the LIMA 2003 international arms show on 2nd October.
"We have made tangible progress in military-technical cooperation with Malaysia. This is a large and very important contract. It is worth approximately US$1.5bn, including the offset programme," Morozov said. It is now important to deliver the jets on time and to open a service centre in Malaysia, he noted.
"We made some mistakes in the past and had some shortcomings, in particular in the supply of spare parts for Malaysia's MiG-29 Fulcrum jets," he said, but these problems have now been solved. "The spare parts have been supplied on time, and there are currently no more claims to Russia," the ambassador said.
Military-technical cooperation is only a segment of multifaceted cooperation with Malaysia, Morozov went on. "Alongside with military-technical cooperation, we are mounting research and technical ties and transfer of new technologies, and developing trade cooperation," he said.
According to him, the Russian-Malaysian annual trade volume grew 2.5 times [by 150 per cent] to about US$500m in the past two to three years. This is Russia's highest trade volume with any ASEAN nation. "Our trade relations have a bright future. We have created a Russian-Malaysian business council which promptly discusses all important issues. All this shows that Russia and Malaysia have entered a new stage of mutually profitable political, economic and trade cooperation," Morozov said.

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FOREIGN INVESTMENT

Amtel to sell a quarter of its stock to foreign investors

Amtel, Russia's biggest tyre manufacturer, plans to sell up to 25% of its stock to foreign investors during the next six months. "I cannot name the investors, but talks with them are in progress," Amtel Holdings Holland BV President, Sudhir Gupta, said at a recent press conference, Interfax News Agency reported. 
Earlier it was reported that Templeton Strategic Emerging Markets Fund would acquire roughly 4.0% of newly-issued shares of Amtel, with an option to buy an additional 2.0% of shares over a period of six months. Templeton, which is an international private equity investor and part of global investment group private equity investor and part of global investment group, Franklin Templeton Investments, has the right to nominate a representative of the investment fund to the Amtel Holdings supervisory board. Gupta said this was of immense importance to the company, which will be gaining its first independent director to watch how the company is being managed and compare it with western management companies. He said Amtel had issued 4% of preferred stock, which could be converted into common stock after three years. During the second stage of the issue, Amtel plans to issue less than 2%.

Bank investment could treble as investors flock to Russia

British experts have estimated that the total annual profit of the investment banks in Russia which amounts so far to only US$500-600m, could treble in the next five years.
Western bankers and businessmen have been paying increasingly more attention to Russia the Financial Times reported. Investors are attracted by its dynamic economic growth (7.2% in the first six months of this year), the increased standards of corporate management and the development of the active stock market, as well as the recent example of the deals by BP with the Russian oil company, TNK.
Russian companies are interested in placing their shares and bonds in the international stock markets, primarily, at the stock exchange of London and New York. The newspaper says that it is expected that next year Russia will issue sovereign bonds to a value of two-three billion roubles.
The Financial Times notes that business-class tickets to Moscow on board British airways jets have been booked for many months ahead and the city's five-star hotels are filled.

EBRD plans to invest 1.3bn euros in Russian economy in 2004

The European Bank for Reconstruction and Development (EBRD) plans to invest 1.3bn euros in the Russian economy next year, unchanged from the amount planned for 2003, EBRD President Jean Lemierre told ITAR-TASS News Agency on 2nd October.
Lemierre was taking part in the World Economic Forum in Moscow.
The bank will invest both in the private and state sectors, including investments at the municipal level, Lemierre said. The bank plans to focus on the banking sector, power industry and agriculture, he said. 

Foreign investment in Russia totals US$50bn - deputy minister

The total amount of accumulated foreign investments in Russia's economy stands at US$50bn, Russia's Deputy Economic Development and Trade Minister Yuriy Isayev said on 10th October, Prime-TASS News Agency has reported.
In the first half of this year, foreign investments in Russia's economy amounted to US$12.7bn, up 51 per cent on the year, he said.
Foreign direct investments (FDIs) in Russia rose 35.5 per cent on the year in the first half, he said, adding that FDIs account for 20 per cent of total foreign investments in Russia, while the remaining 80 per cent is made up of loans and other attracted corporate funds.
About 50 per cent of all investments are concentrated in Moscow and Moscow Region, he noted.
No information on the portfolio investments was provided.

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MINERALS & METALS

Palladium revival to impact global market

Mining and Metallurgical Co Norilsk Nickel, is reporting growing demand for palladium and is forecasting an improvement on the palladium market over the next few years. Palladium rebounded after the price fell to US$140 per ounce, Norilsk Nickel Deputy CEO, Maxim Finsky, said recently, Interfax News Agency reported. "We are seeing growing liquidity, strong interest in this metal from consumers that is being conveyed in a growing number of long-term contracts for delivery," he said. Norilsk Nickel, the world's biggest producer of palladium, has sold all the palladium it produced this year (not including metal used to pay for shares in Stillwater Mining), Finsky said. Norilsk Nickel previously reported a reduction in palladium sales due to the negative price situation.
"We think the palladium market is promising and developing. Furthermore, there is now a very interesting price difference for consumers between palladium and platinum," he said.
Palladium prices plummeted after reaching US$1,100 per ounce in early 2001as major industrial consumers of the metal - mainly the automotive industry - began to switch to platinum, which was cheaper at the time. As a result, platinum prices hit a 23-year high this past summer.
"Consumers began to stop using palladium and switched to platinum. Now the reverse is being seen. But the sharp jump in prices for palladium caused a kind of cumulative effect, after which the market cannot recover for some time. We estimate the consequences of this effect will be fully overcome within the next two years," Finsky said.
The Norilsk Nickel group posted metals sales of US$3.094bn in 2002, compared to US$4.382bn in 2001. The decline is attributed primarily to an 86% drop in palladium sales in dollar terms and 63% by volume. The group's sales jumped to 61.378bn roubles in the first half of 2003, from 34.141bn roubles in the same period last year, and net profits surged to 18.742bn roubles from 10.588bn roubles

RusAl to spend US$2.4bn on Guinean bauxite project

Russian Aluminium (RusAl), Russia's biggest aluminium company, recently said it would cost something like US$2.4bn to put the one-billion tonne Dian Dian bauxite field in Guinea, fully on stream.
RusAl plans to start mining the field by the beginning of next year, Oleg Deripaska, the company's director general, said, Interfax News Agency reported.
The company plans to develop the field on its own, without a strategic investor. RusAl has prepared the site and expanded capacity at the local port to ship the bauxites, but the project is being hampered because the infrastructure, which belongs to an international consortium, is under-developed, Deripaska said.
RusAl signed a preliminary agreement to develop the Dian Dian field under a concession in July 2001 during a visit by the Guinean president to Moscow. Guinea passed a law in February 2002 handing the field over to RusAl under a 25 year concession.
Dian Dian is 350 kilometres north of Conakry in the Boke province and contains about one billion tonnes of bauxites. The ores have high aluminium content and contain little in the way of impurities, and are amenable to an open pit operation.

Russia' Abramovich sells half of his stake in Russian Aluminium to fellow tycoon

Oleg Deripaska's Basic Element holding company (former Siberian Aluminium) has increased its stake in Russian Aluminium from 50 per cent to 75 per cent, Basic Element's press service has said, Interfax News Agency has reported.
Companies affiliated with Basic Element have bought 25 per cent of the shares in Russian Aluminium from Millhouse Capital, a holding company managing the assets of Sibneft oil company's main shareholders.
"The acquisition has taken place in the framework of Basic Element's long-term investment and business development strategy," the press service said. The financial details of the transaction were withheld.
The press service quoted Deripaska saying that "we have always viewed Russian Aluminium as a key element of our business in Russia and are satisfied with the fact that we have managed to increase our stake in it."
"The purchase of an additional package of shares in Russian Aluminium will help us to take another step towards implementation of our plan of making Russian Aluminium a world leader in production of aluminium and alloys," Deripaska said.
After the deal is completed, Basic Element is going to increase transparency of Russian Aluminium. In particular, a coordination council involving foreign experts will be set up, and independent members will be invited to the board of directors.
"The transaction will not change Russian Aluminium's development strategy and the existing plans for attracting investments," Basic Element's press service has said.
Russian Aluminium is one of the world top three aluminium companies, controlling more than 70 per cent of Russian and about 10 per cent of world aluminium production. The company runs the Krasnoyarsk, Bratsk, Novokuznetsk and Sayanogorsk aluminium plants, the Achinsk Alumina Combine, the Mykolayiv Alumina Plant [in Ukraine], the Dmitrov experimental aluminium band factory, the ROSTAR plant, the Belokalitvinskiy metallurgical plant and other enterprises.
In January-June 2003, Russian Aluminium produced 1,268,859 tonnes of aluminium, 3.55 per cent up on the same period in 2002.
Until recently, Deripaska's Basic Element and Millhouse Capital, managing the assets of Roman Abramovich and some other Sibneft shareholders, owned 50 per cent of the shares in Russian Aluminium each. Deripaska is also Russian Aluminium's general director.

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SCIENCE & TECHNOLOGY

Russia, France to expand cooperation in the field of laser optics

Russia and France will carry out joint research work in the field of laser technology and optics. The relevant agreement was signed on 8th October at the opening of the Russian-French laser symposium which was held as part of the exhibition "FranceTech in Russia" held in Moscow, ITAR-TASS News Agency has reported.
Experts in this area from seven Russian and five French laboratories are working at the European research association. The agreement envisages exchange of experts in the next four years.

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TRANSPORT

Russia revives plan to build Siberian railway

It's been decided that the construction of a mainline railway to Yakutsk, which was launched way back in Soviet times but is yet to be completed, will be seen through to the end, RTR Russia TV has been reported. The project has been revived after the levels of water in the Amur and the Lena dropped in the summer of this year, so much so that it jeopardized the delivery of supplies to Russia's Far North. 
The special correspondent for the TV station, Andrey Medvedev, reported from Yakutia that it was Nicholas II who first had the idea to build a railway to Yakutsk. However, he never began it, which, incidentally, came in for criticism in the very first issue of the Bolsheviks' newspaper, The Iskra, on 5th May 1912.
The Communists themselves then tried to put things right where their predecessors went wrong. So the construction of a railway began. Work to build a railway to Yakutsk began in 1985, virtually as soon as the construction of the Baykal-Amur Mainline was over. However, less than half was built. With the collapse of the USSR, the project ran out of money. At present, as a result, most areas in Yakutia are accessible by river transport, by car or by air. There is no railway.
This situation makes it very expensive to bring supplies to Yakutia. Annually, the cost of northern deliveries is put at R8bn, with R4.5bn an allocation from the federal centre. Road and river transport now account for most of the delivery of northern supplies to the republic. The problem is that, because of poor roads, road transport takes far too long to cross the Taiga. As for the River Lena, the level of water in it has dropped very considerably, so much so that it jeopardized this year's northern deliveries. This alone is reason enough that a railway is necessary, Vladimir Yakovlev, deputy prime minister in the Russian government, thinks.
Yakovlev said: "I'll certainly support it, as I have said on a number of occasions. It became particularly obvious when the level of water dropped in the Lena. In general, it is perhaps not the best course of action to sit on our hands until something bad happens."
The Railways of Yakutia joint-stock company has already built a line to the town of Tommot. Back in Soviet times, a bridge was erected here. Now, this unique structure - for not every nation can build a bridge in the conditions of permafrost - is unused. The total cost of building a railway to Yakutsk is R30bn. The leadership of Yakutia plans to attract private finance to do it. As an incentive, concessions will be offered to develop various deposits, of which there are quite a few, along the route which has been chosen for this railway.

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