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: 272 - (29/08/03)
Electoral battle looms ahead and decides everything
There is a mighty contest under way in Russia; and it is a sign that democracy might not yet have
been submerged. A lot of people are cynical about the Russians, deeming them incapable of democracy. It has been said of the Germans before now, of the South Americans and the Turks. Yet they all now have democracies of an enduring kind that have in some cases survived grave tests.
The big problem for any democrat in Russia is that no realistic party to the process can offer an immediate improvement; indeed the outlook is patchy at best. The Russians had a bit of luck with the dramatic rise in the oil price; that luck is holding up as is the oil price.
Capitalism may be the best system; but in recalcitrant circumstances it takes time to work. Why should the generations to be sacrificed vote for it.
The regime versus the oligarchs
There is a Marxist dictum that still has some force: the state is the executive committee of the ruling class. The big riches in Russia over the years since the collapse of communism have been made by those with a special relationship to the state. Boris Berezovsky is a notable instance, having been a close crony of Tatiana, Yeltsin's daughter. A shared background in mathematics and physics gave them a healthy regard for each other's brains. Vladimir Gusinsky was also a big player close to the Kremlin at one time, notably in organizing and financing the re-election of Yeltsin in 1996. But both soon fell out with his successor, Putin. Both are in exile.
The most recent generation of oligarchs had a similar pedigree. Indeed Roman Abramovich, the oil (Sibneft) and aluminium (RusAl) tycoon got his break from Berezovsky. The other magnate dominating the Russian scene today is Mikhail Khordorkovsky, who is in the process of merging Sibneft into his own parent entity, Yukos, Russia's second largest oil company once the deal goes through. These two certainly did have close contacts in the Kremlin. But the very concern of Khordorkovsky to be a presence on the political stage by funding various parties in the run-up to December's elections to the Duma is earning him the hostility of certain Kremlin insiders. Hence the rumpus in July, in which his partner at Yukos, Lebedev, was arrested, and his own offices raided by balaclava-helmeted security police, ostensibly seeking evidence of wrongdoing.
The oligarchs need to understand that they are better off once they have made their billions if they do not interfere in politics. Or at least only in the most orthodox manner, backing the "party of power," United Russia. Khordorkovsky's error was to give money to several independent parties, including, it is rumoured, the communists. That was a grave solecism. Abramovich has also had political ambitions; but they have been confined so far to being governor of Chukotka in the Far East - no threat to anyone.
In fact the evidence is that Abramovich is moving out of Russia, selling up his 50% stake in RusAl, the country's largest aluminium group. He has bought Chelsea Football Club in the UK for US$150 million, and spent another £75 million on buying players. With houses in the US and the UK, he is becoming international, like his old mentor, Berezovsky.
Foreign investors alarmed
The Yukos affair is giving alarm to foreign investors, notably BP, who are in a big deal with Yukos. There is a risk that people will be put off the Russian market, which until the investigation was doing remarkably well. The problem is that a populist attack on the oligarchs could see a mass exodus of them out of the country. Berezovsky; Gusinsky; Abramovich; who next? Even now there appears to be early indicators of a mass flight of capital out of Russia, as in the first years of post-communism. The fear of the oligarchs is what motivates this reaction.
The Nasdaq Stock Market and the Yukos ADRs have performed remarkably alike so far. The prosecution is putting Russia's flagship company in the dock, inevitably scaring off investors. The Kremlin insiders are not renowned for their acumen at economic management, at least not those in the security arm of the state.
The Prime Minister, Mikhail Khasanov, tried to reassure the markets and indeed the oligarchs in late July by saying that there would be no review of the privatisation process, which certainly would prove to be a can of worms, if ever there was one. The heat is likely to subside once the elections are over. Nobody really thinks that the communists have a chance. The governing bloc's best weapon here is two-time loser Gennady Zhuganov, the communist leader, who is a wooden speaker and has no perceptible charisma at all. The shrewd investor should be ready to invest in a big way just before the results are known.
One thing that is reassuring is that Putin has stayed faithful to his team of economic reformers, led by Khasanov and German Gref, the trade and economy minister. Yeltsin was ringing the changes so often by the end that investors had no sense of stability, especially after the crash of 1998. Putin does not have Yeltsin's problems and can be expected to romp home in the presidential race next year in the spring.
The one smouldering issue which could be around for years yet is the Chechen War. The authorities are trying to make out that it is over, bar for a mopping up operation. But this is obviously not true. A sinister development for anyone wanting peace is that there is now a new phenomenon in evidence, female suicide bombers, usually widows of fighters slain by the Russians. The death toll has been running at 100 a month recently. The theatre hostage crisis in Moscow last October has started a new trend here.
There is now an enormous well of bitterness on both sides. The government policy is to pretend that "terrorism" accounts for everything and that the bulk of the Chechens are happy to remain part of Russia. Terrorists there certainly are in Chechnya; but as far as the vast majority of the Chechens are concerned they are the Russian soldiers who perpetrate the most appalling atrocities on civilians no doubt often under the influence of narcotics or drink.
Putin cannot back down since his very legitimacy is at stake. His extraordinary popularity came about due to the war waged since late 1999, even if buoyed up now by other factors. But there is another can of worms here, involving the massacres in Moscow and elsewhere in September of that year. Blamed on the Chechens not a single independent observer now thinks that that is the truth. The authorities quietly dropped the search for culprits on May Day, a public holiday in Russia. If Tony Blair cannot find the weapons of mass destruction in Iraq, Putin and his henchmen cannot find the Chechen terrorists responsible for the September massacres. The war will drag on for years.
Russia looks to increase grain-export capability to Iran
Transport Minister, Sergey Frank, has reaffirmed the intention to establish a stable transport corridor for exporting grain to Iran, Interfax News Agency has reported.
"Russia has the potential to export 2-3m tonnes of grain per year to Iran," Frank said at a meeting in Moscow on 6th August. However, the handling capacity of Russian and Iranian ports should be increased and more vessels of the river-sea type are needed, he said.
"Russia has begun building grain terminals at the Caspian ports of Olya and Makhachkala. Four or five large Russian companies working on the grain market have expressed interest in these projects," he said.
Deputy Transport Ministers Chingiz Izmaylov and Nikolay Smirnov, Iranian Ambassador to Russia, Gholamreza Shafe'i, the general director of the Razgulyay grain company, Aleksey Ivanov, and representatives of shipping lines operating on the Volga River and the Caspian Sea attended the meeting.
Ivanov said that the group of companies Razgulyay-Ukrros intends "to actively participate in investing in the grain projects on the Caspian."
Russian government to assist delivery of Volga cars to Iraq
The Russian government is ready to provide political backing to the GAZ vehicle plant to implement the contract with Iraq for the delivery of a large consignment of Volga cars to that country. This is what Russian Deputy Prime Minister Boris Aleshin has told journalists, Interfax News Agency has reported.
"We intend to support our exporters with regard to Iraq and Afghanistan," Boris Aleshin said.
For his part, head of the Gorkiy Vehicle Plant [GAZ] Aleksey Barantsev told journalists on 5th August that before the end of this year GAZ would deliver 486 Volga cars to Iraq.
He said that the contract for delivering Volgas to Iraq, which was signed by the previous Iraqi regime, "is on the move again." "Before this year ends we will dispatch cars that have already been manufactured under this contract," the GAZ head said.
Rostselmash, Kamaz sign cooperation agreement
Rostselmash, part of Novoye Sotrudnichestvo trade union, and truck maker Kamaz signed an agreement on general cooperation, Interfax News Agency reported Knostantin Bankin, the union's president as telling a press conference after the signing. He said that the agreement involves partnership on a wide range of issues. These include protecting the domestic market from imports, and cooperation and joint promotion of products abroad. As part of the agreement, Kamaz will supply engines for a new combine harvester model to Rostselmash, loosely named Don-XXX, and will supply engines for other models in the future. Kamaz Director General, Sergey Kogogin, said that "production of diesel engines is one of the main and most serious problems in Russian machine building, and Kamaz solves this problem quite successfully."
Kogogin said that Kamaz has invested US$190m over two years in modernising its engine factory, which has become a separate plant. The majority of the equipment has already been installed and the rest is being installed, Kogogin said. He explained the company's interest in cooperation with Rostov combine makers by saying that the company is striving to "increase its market for sales of production and wants to see more clearly the outlook for sales."
AVIATION & SPACE
Russia develops new fuel control system for TU-334 airliner
Tekhpribor, a St Petersburg-based aircraft instrument producer, has developed the SUIT-334, a new fuel indication and control system for the Tu-334 medium-range [passenger] airliner, Oleg Petrov, the company's chief executive officer, told Interfax-Military News Agency on 8thAugust.
"The SUIT-334 is a new-generation system employing detector sensors and electrical thermal fuel level sensors. The flight safety of the Tu-334 depends on how reliable this system is," he said. He said the first Tu-334 equipped with the SUIT-334 had been taken out of the assembly facilities at the Aviant [state aviation] plant in Kiev, Ukraine, earlier in August. According to Petrov, the systems developed by Tekhpribor provide optimal fuel mass distribution in flight to facilitate manoeuvring. In addition, the systems control land fuelling, monitor the navigation fuel amount and check the operability of the elements of the fuel system. In addition to the SUIT334, the firm has developed the SUIT-148 for the An-148 medium-range airliner. Tekhpribor is developing a SUIT fuel control and indication system for the RRJ, Tu-414, and the AS-211 future aircraft, Petrov said.
Boeing and RTI-Systems to cooperate
Boeing and RTI -Systems Concern of Moscow, Russia, have negotiated some areas for potential future technological cooperation, reports the Russian Mirror.
The two companies have agreed to pursue some joint analysis of radar systems, including missile defence. Any plans will be subject to approval by the United States and Russian Federation governments.
"The signing of this Memorandum of Understanding by Boeing and RTI Systems is an outgrowth of the statements by Presidents Bush and Putin and is one more positive demonstration of the changed relationship between our countries," said James Evatt, senior vice president and general manager, Missile Defence Systems for Boeing. "RTI Systems is recognised for its technological expertise and we look forward to a long and mutually beneficial relationship."
RTI Systems, headquartered in Moscow, is the leading radar company in Russia with significant expertise in radar technology for missile attack warning, space monitoring, anti-missile and aerospace defence systems. It has more than 50 years experience and developed all the existing ground radar systems and complexes for ballistic missile and space defence in Russia.
Boeing Integrated Defence Systems is a US$25bn business with its HQ in St Louis and is NASA's largest contractor
MVK, KVZ helicopter plants to buy Eurocopter's Euromil stake
Moscow's Mil (MVZ) and Kazan (KVZ) helicopter plants will buy Eurocopter's 33.3 per cent stake in Euromil on a 50:50 basis, Interfax News Agency quoted Kazan Helicopters Director General, Alexander Lavrentiev, as telling the press, New Europe has reported. Euromil was established to design and produce the Mi-38 multipurpose helicopter.
The Kazan and Moscow Helicopter plants received an official proposal from Eurocopter on the price for the stake and draft agreements about the sale. Moscow's Mil, Kazak Helicopters and Eurocopter own equal stakes (about 33.3 per cent each) in Euromil, which was established in 1994. Lavrentiev did not say what the parameters of the deal were, but he said face value of all Euromil shares was just US$66,000.
Eurocopter has had to pull out of the project because of the law regulating aviation development, which limits the stake of a foreign shareholder in aircraft construction companies to 25 per cent, he said. The reduced share in Euromil is in line with corporation intentions, as it was done by "right hand" authority in project management, he added.
Lavrentiev and Eurocopter's pull out from the joint venture would not affect the timing for realising the project for designing and building the Mi-38.
From now on, he said, the corporation will work with Euromil on the basis of agreements and retain its function of supplier of avionics for the helicopter, as well as "The right to sell this product on the market."
As to the Mi-38's price tag, he expressed optimism that the price would match those for Western analogues of the Mi-17, which KVZ currently produces. The Mi-38's price, he said, "will make it possible to sell it on any market."
Partners in the Mi-38 project-Eurocopter, MVZ, KVZ and engine supplier Pratt & Whitney, have invested US$500m, KVZ's share coming to around US$80m. KVZ, which will be serially producing the new helicopter, has already assembled a prototype. Expectations are that in late August or early September, it will undergo flight testing so that it can be certified in 2005.
The Mi-38 is being created under a major international programme. It will replace Mi-8/17 and Mi-6 helicopters. The R&D cost is estimated at US$400-500m. In the design is a family of Mi-38s with different names and engines. The base model can haul five-six tonnes and it is possible to increase that to seven-eight tonnes. It will be equipped with two 2,500 horsepower Pratt & Whitney turbine engines. Maximum flying weight is 15.6 tonnes, top speed 285 kilometres per hour, flight ceiling 5,500 metres and range 810 kilometres.
Larger oil exports under examination at upcoming Russian-US energy meet
Participants in the second Russian-US energy meeting will focus on increasing exports of Russian oil and liquefied gas to the United States, US Ambassador to Russia, Alexander Vershbow, said recently, New Europe reported.
The meeting will be held in St Petersburg in mid-September. Other topics will include off-shore oil and gas projects around Sakhalin, the large scale export of liquefied gas from the island to the United States, and an increase in exports via northwestern pipelines and Murmansk, Vershbow told a press conference in Yuzhno-Sakhalinsk recently. Russia is pursuing the right path of reforms, which should attract more foreign investment and promote the country's economic growth, he said.
The first Russian-US energy meeting took place in Houston in October 2002. Economic Development and Trade Minister, German Gref, US Energy Secretary, Spencer Abraham, and Trade Secretary, Donald Evans, attended the meeting. They agreed to begin Russian oil supplies to the US national reserve.
TNK shareholders mull approving deals to raise US$1bn
Shareholders of Tyumen Oil Co planned at an extraordinary shareholders meeting on July 31st to approve to two US$500m loans from Sidanco and Sborsare Management. The loans are being raised ahead of the completion of the TNK-BP deal, the company said in a statement, Interfax News Agency reported. "In this way all the funds will be accumulated at TNK. However, it is not certain that we will take these loans," a company official said.
TNK, which is in the process of merging with British Petroleum, is waiting for approval from anti-monopoly bodies in Russia, Ukraine and the European Union to complete the deal and to elect a board for TNK-BP. The TNK board has called several extraordinary shareholders (Alfa Group and Access/Renova, AAR) announced the establishment of a new oil company that received the name, TNK-BP.
Total to avoid alliance with Russian group
Total, Europe's third-largest listed oil company, recently indicated it was likely to steer clear of a full-scale alliance with a Russian oil group in favour of investing on a project-by-project basis, the Financial Times reported on August 8th.
The decision marks a strategic shift for the French group, which has been linked to recent discussions with Russian companies.
It comes as Total and other international oil companies are facing increased pressure to formulate a strategy in the country following the historic deal BP, the UK-based company, struck with TNK earlier this year. But the BP deal and the merger of Yukos and Sibneft, two Russian energy companies, have reduced the scope for rival groups to secure a large foothold.
"I can confirm our priority is to develop business (in Russia) based on specific projects," said Robert Castaigne, chief financial officer. He said Total was not pursuing anything in particular at present.
Mr Castaigne said the company's refineries in Europe had been impacted by the recent continental heatwave, with activities of rivals downstream could also be curtailed. He said the heat forced some of Total's refineries to reduce operations. "There is a negative impact on the segregation of products. The biggest impact is that we have to cool the products after the toppings and before entering storage."
He was speaking following the company's second quarter earnings announcement. Total's net profit rose 8%, significantly less than its rivals who report in dollars and were therefore less affected by the exchange rate change.
Net profit excluding non-recurring items rose from €1.63bn (US$1.85bn) to €1.77bn in the three months to June 30th. Net earnings per share up 13% at €2.52 (€2.23), were boosted by the company's share buy-back programme.
The results, which were primarily helped by stronger oil prices, were slightly higher than analysts expected. Sales fell from €26.4bn to €24.4bn.
Mr Castaigne said the dollar's 18% drop against the euro in the first half of this year took €1.2bn off Total's earnings and helped push capital expenditure down 28%. He expected capital expenditure to remain about even during the next three years. Meanwhile, production rose 5% over a year ago and Total expects to meet its returns target for 2005.
US to make oil loan guarantees for Russia
The US government has announced a decision to make guarantees for a long-term US$130m lending programme for a project to build an oil product terminal for Russian oil gaint, LUKoil.
US Under Secretary of State, Alan Larson, made the announcement at a meeting in Moscow with Russia's First Deputy energy Minister, Leonid Tropko, and Deputy Energy Minister, Oleg Gordeyev. Larson said the US government planned to support Russian corporate projects to build up the infrastructure for the export of crude oil and oil products. Issues raised at the meeting included projects to develop the sea shelf off Russia's Sakhalin island, the Caspian Pipeline Consortium and legislation on law and natural gas. Special attention was paid to oil transport security.
Interfax News Agency quoted Gordeyev as saying programmes to prevent and remove oil spills are very costly and called for global efforts to solve the problem. LUKoil plans to put part of an oil product terminal in Vysotsk, near St Petersburg, into operation in November this year. The terminal would be used to export the output of the Perm, Nizhny Novgorod and Ukhta oil refineries to Western Europe and the United States.
Russian, Austrian oil firms sign long-term agreement
Russia's Yukos and Austria's OMV announced on 13th August the signing of a long-term agreement on oil supplies, OMV said in a statement, Interfax News Agency has reported.
According to the conditions of the agreement, Yukos is to build a 60-km pipeline between Bratislava and Schwechat, connecting the Schwechat oil refinery, near Vienna, with the Transpetrol pipeline. The pipeline will have a capacity of 3.6m tonnes per annum and should be built by the end of 2005. Investment in the project will amount to 28m euros. The capacity of the pipeline may be increased by building new pumping stations.
According to the statement, over 10 years, beginning in January 2006, Yukos will annually supply up to 5m tonnes of oil to the refinery, which has a capacity of 9m tonnes per annum.
The price of this oil will be based on existing contracts between Yukos and oil refineries in this region.
Yukos plans to increase supplies to Europe by using the capacity of the Slovakian pipeline company Transpetrol, of which it owns 49 per cent. The Transpetrol system will make it possible to supply oil to the Croatian port of Omisalj, through the Druzhba-Adria system.
Sakhalin company signs US$40m contract with foreign investor
The Sakhalin Energy company has signed a US$40m contract on rendering services for the term of five years with the Sakhalin Shelf Service joint-stock company. The contract envisages providing premises and equipment in the Sakhalin western sea port run by Sakhalin Shelf Service, the press service of Sakhalin Energy told ITAR-TASS News Agency on 12th August.
A separate agreement on providing a labour force for Sakhalin Shelf Service for the term of 30 months and the possibility of its prolongation for the same period is in the final stage of completion. The agreement is estimated at US$16m.
Sakhalin Shelf Service has begun preparations for the second stage of implementing the Sakhalin-2 project in advance and has modernized the harbour facilities of the port which used to be known as the Kholmsk fishing port. The deepening of the bottom was carried out during this summer, so that the port can receive large cargo ships now. The British-Dutch Royal Dutch Shell company as well as the Japanese Mitsui and Mitsubishi corporations are shareholders of Sakhalin Energy.
Japan makes pipeline route condition of oil investment in Russian Far East
The Japanese government has announced that it is ready to invest US$14bn to implement oil projects in the Russian Far East, the governor of Maritime Territory, Sergey Darkin, said at a news conference following his visit to Tokyo.
Olga Zhurman reported for Radio Russia that according to the governor of Maritime Territory, it is planned to allocate US$5bn for the construction of an oil pipeline from Angarsk to ports in Maritime Territory. Japan is ready to invest a further US$7bn on oil exploration in eastern Siberia. Another US$2bn would go to finance social projects in the Russian Far East. The Japanese are also ready to finance the construction of an oil refinery in Maritime Territory.
The Japanese are ready to do all this if the oil pipeline to be built from Angarsk will go to ports in Maritime Territory rather than to China. If the pipeline's destination remains in Russia, then the economic benefits will be such as to allow Maritime Territory to do without federal subsidies by 2008.
However, according to Darkin, Japan is worried about the lack of information on oil deposits in eastern Siberia and a lack of transparency regarding the financing of the pipeline's construction.
Interfax News Agency said that Darkin had reported that the two sides plan to prepare a feasibility study for the pipeline project by December 2003.
Russia's gas giant improves bid for stake in Lithuanian gas concern
Russia's Gazprom has now offered to buy a state-owned 34 per cent-stake in the Lithuanian gas utility Lietuvos Dujos for 100m litas [US$33,000], Lithuanian Prime Minister Algirdas Brazauskas said on national radio, Interfax News Agency has reported.
On 11 August, the Russian gas giant improved its original bid for the shares, which was 80m litas.
Brazauskas said the main reason for selling the shares was "to have constant, increased gas supplies at stable prices and to go on influencing how the gas is priced."
Brazauskas said that during the sale process, a separate agreement would cover the price of gas.
He also said that the shares could be signed over to Gazprom in the coming weeks. The prime minister said Lithuania would like 70 per cent of the gas consumed by the country to be supplied via Lietuvos Dujos.
The Lithuanian press reports that Gazprom has offered 91m litas and a bonus of 9m litas provided Lithuania does not regulate the price of gas delivered to major consumers.
Earlier reports said the government hoped to receive 116m litas, the same amount as Germany's E.ON Energie and Ruhrgas paid for an identical stake. Gazprom initially offered 80m litas, but the government wanted more.
Presently, the Lithuanian government controls 58.36 per cent in Lietuvos Dujos, and Germany's Ruhrgas and E.ON Energie holds a 35.49 per cent stake.
Gazprom, Wintershall set up joint gas production venture
Russian gas giant, Gazprom, and Germany's Wintershall signed a framework agreement and founding documents recently in Moscow on the establishment of the joint venture, Achimgas, to develop the first experimental section of the Achimov deposits in the Urengoy gas and condensate field, Interfax News Agency reported.
The company is expected to produce about 200bn cubic metres of gas and 40m tonnes of condensate during the entire development period (43 years). When production gets underway, output is planned at about 8.3bn cubic metres of gas and 2.8m tonnes of condensate a year.
Investment in the project is about US$700m. Taking into account that work is to take place in a region with well developed infrastructure, the pilot phase of the project of about US$90m will be financed by Wintershall. This phase includes detailed engineering and experimental work. If it is successful, industrial development of the field will begin.
Gazprom investment will be made through profits generated by the project itself. The joint venture will sell all the gas it produces to Gazprom. The price of the gas will be determined according to gas prices on the border with Germany and in Yamal-Nenets autonomous region. The partners will operate on a 50:50 basis.
"This project will enable one more step to be made toward industrial operations at much harder to develop natural resource reserves. We see it as a model of interaction with foreign partners for such projects," Gazprom CEO, Alexei Miller, said at the signing ceremony. As has happened before, Wintershall and its Russian partners take on the role of pioneers, this time in natural gas production, Wintershall CEO, Reinier Zwitserloot said. Consultations about the joint venture began in 1998. Wintershall has advanced technology for gas production in difficult geological conditions. The Achimov deposits are at a depth of 3,150-3,800 metres and have a much more complex geological structure than Cenomanian and Valangian deposits currently developed.
Gazprom and Wintershall plan to produce 8.3bn cubic metres of gas at the Urengoy gas condensate field in 2008, Zwitserloot told the press. The first well will be drilled in 2004 and if results are good, it will be followed by another six, he said. If the pilot phase of the project is successful, industrial operations will begin in 2008. An additional 80 wells will be drilled. This will enable production of 8.3bn cubic metres of gas and about 3m tonnes of condensate. During experimental work, the partners plan to produce 1.3bn cubic metres a year, Alexander Ananenkov, a Gazprom deputy chairman, said.
Toshiba beaten as Russians return to Aswan after 35 years
The Russian power engineering concern Siloviye Mashiny (Power Machinery) has won a tender for the reconstruction of the twelve hydro generators on the Aswan dam, the Russian Mirror reported recently. Bidding in a consortium with Voith Siemens Hydro Power, the duo beat off competition from Alsthom and Toshiba. Eletrosila hydro generators were installed on the Aswan dam back in the 1960s and 70s. Each generator had a 175MWt capability.
The first of those Soviet-made beasts is now 35 years old. The reconstruction programme is expected to last six years, with two hydro generators being reconstructed each year. The Egyptian government has secured a €85m credit for the project from Kreditanstalt fur Wiederaufbau.
Russian firm signs deal to equip Vietnamese power station
Silovyye Mashiny, a Russian manufacturer of equipment for power plants, and Vietnam's Song Da state-owned construction corporation have signed a contract for delivery of equipment and services for the Sesan-3 hydropower plant in Vietnam, the Russian company's press service said on 6th August, Interfax News Agency has reported.
The contract, worth more than US$61m, will be financed by a state credit to be issued by the Russian government, the press service said.
Silovyye Mashiny will be responsible for designing, producing and supplying equipment to Vietnam, as well as monitoring its installation and the start of operations.
This hydropower plant will be built for the Electricity of Vietnam state-owned energy corporation. Song Da has been chosen as the contractor.
Silovyye Mashiny has been authorized by the Russian Finance Ministry to provide supplies and services under an agreement signed between the two countries' governments, envisioning a Russian government credit to finance the construction of hydropower plants in Vietnam.
This is the Russian company's second major energy deal in Vietnam, after a contract for the delivery of equipment for the Uong Bi thermal power plant signed in June.
Russia moves slowly over Kyoto Protocol
With the US having abandoned the Kyoto protocol, the global warming treaty's fate now hinges on Russia, which is dragging its feet in what some see as an attempt to extract greater economic rewards before ratifying, The Wall Street Journal Europe reported on July 16th.
Never known for its commitment to the environment, Russia now finds itself at the centre of the climate-change debate. The Kyoto treaty, which would limit emission of greenhouse gases that may cause global warming, becomes law only when ratified by nations producing 55% of 1990 emissions levels. Russia is the only hold-out that could bring it into force.
Prime Minister, Mikhail Kasyanov, promised last year that Russia would ratify the protocol. But Moscow now says it is disappointed by the paltry sum it would earn by selling its spare emission quotas to Europe and Japan, the treaty's main backers. Some of Russia's top climate scientists, meanwhile, are openly questioning whether the treaty will stop global warming.
"Russia is not against the Kyoto protocol…. but there are no particular economic incentives for Russia to ratify it," Mukhamed Tsikanov, deputy minister of economics, said in an interview. "We hope our partners will move from political talk to economic action."
Russia's position reflects the more assertive, economics-focused foreign policy Vladimir Putin had been shaping since taking office. But Moscow's stalling has irritated European Union officials, who say future political and economic integration with Europe will depend on Russia embracing stronger environmental protections.
If Kyoto Protocol is ratified by Russia and nearly every other industrial nation, it could put pressure on future US administrations to relent and join. The Bush team bowed out in 2001, saying emissions cuts would harm the US economy.
The economic stakes are big for Russia, too, thanks to a quirk in timing. The Kyoto protocol would require signatories to reduce production of carbon dioxide and methane to 1990 levels - the last year Soviet factories chugged along at full speed before communism collapsed. Since then Russia's industrial output and its production of greenhouse gases have dropped by about a third, leaving Moscow with spare emissions quotas to sell to countries wishing to exceed their limits.
At one time Moscow expected to make billions of dollars selling these credits to the US. But with the US on the sidelines, Russia stands to earn much less. Tsikanov insists Russia isn't simply being greedy; he says it wants to invest the money in new energy-efficient transportation systems and power stations. Russia has asked Japan, Canada and the EU for assurances that they will buy its quotas before those of other developing states, but has been told that such deals can be negotiated only after Russia ratifies the treaty, the deputy minister said.
The debate underscores the difficulties Russia and Europe face as they attempt to find common ground for closer integration. "there is no way the EU can agree to a common economic space with a country like Russia if there are no shared environmental standards," says an EU official. He adds that he feels Europe answered all of Russia's economic concerns at a climate-change conference in Morocco last autumn.
Several European delegations have visited Moscow in recent months hoping to spur the Russians to action, but Prime Minister, Kasyano, has yet to schedule an official government discussion of the protocol's merits. Government approval is needed before the treaty can be submitted to the legislature for ratification.
"There is a clear sense that the Russians are keenly aware of their key position at the moment and wish to use it to leverage to the maximum," says the EU official. "What they are after is money."
Natalia Olefirenko, an activist in Greenpeace's Moscow office, says she has heard reports that American officials are pressing Russia to ditch the treaty so that Washington won't be isolated in its opposition. Tsikanov denies this, but says Russia itself has raised the possibility of working out a more attractive bilateral agreement with the US. So far, though, the Americans don't seem interested, he says.
A US State Department official says Washington hasn't lobbied Russia about Kyoto. "We think nations should independently evaluate whether ratification of the Kyoto Protocol is in their national interest," the official says, adding that the US is working bilaterally with Russia and other industrial nations on developing various technologies to reduce global warming.
Several Russian scientists have publicly criticised the treaty, saying it will do little to stop global warming. While they don't appear to have great influence on the government's position, they could drag out the debate, says Ms Olefirenko of Greenpeace.
Sergei Kurayev, an ecologist at the Russian Regional Environmental Centre, says he expects Russia to ratify the treaty if only because the protocol falls under the auspices of the United Nations, whose authority Moscow has sought to bolster, to offset what it sees as US unilateralism.
Russia to build new chemicals disposal plant
The general director of the Russian Agency for Munitions, Viktor Kholstov, told a special news conference in Penza on 12th August that a plant for processing toxic chemicals will be built in Russia's Penza Region soon, ITAR-TASS News Agency has reported.
One of Russia's seven chemical weapons arsenals is located in the Leonidovka village near Penza, where 17.2 per cent of all Russian chemical weapons are stocked.
Kholstov said that all toxic chemicals would be destroyed in the place where they are permanently stored. The construction of a plant worth nearly R6bn will be launched in 2004 and will be finished in two or three years. The plant's employees and the residents of the adjacent territories will receive all social allowances in accordance with the existing laws.
The plant will use the method of reducing the toxic level of hazardous chemicals to the toxic level of conventional chemical waste through low temperature. The processed chemical mass will not pose a threat to anybody.
Industrial output growth lower than CIS average
Russia posted industrial growth of 6.7% in the first five months of 2003, slightly below the Commonwealth of Independent States average, which was 7.0%. Industrial growth was highest at 18.2% in Armenia, the CIS Interstate Statistical Committee said. The committee reported growth of 17.5% in Moldova, 11.8% in Tajikistan, 11.7% in Ukraine, 9.5% in Kazakstan, 8.3% in Georgia and 7.6% in Azerbaijan. Growth was also 5.3% in Belarus and 4.7% in Kyrgyzstan. The committee did not give figures for Turkmenistan or Uzbekistan. GDP in the CIS averaged up 7.0% also in the period, with growth of 13.8% in Armenia, 10.4% in Tajikistan, 9.4% in Azerbaijan, 7.3% in Ukraine, 4.45% in Belarus and 3.3% in Kyrgyzstan. Russia's economy grew 7.2%, Kazakstan's 10.6% and Georgia's 4.4%.
Russia posts soaring foreign investment
Foreign investment in Russia totalled US$12.66bn in the first half of 2003, up 51.3 per cent year on year, the State Statistics Committee reported on 13th August, Interfax News Agency has reported.
Foreign direct investment totalled US$2.53bn, or 20 per cent of the total, and was up 35.3 per cent from the first half of 2002. Investment of US$862m went into capital (6.8 per cent, an increase of 8.7 per cent), US$862m was in loans received from foreign co-owners (6.8 per cent, up 12.7 per cent) and US$798m was other direct investment (6.3 per cent, up 170 per cent).
Foreign portfolio investment amounted to US$38m (0.3 per cent of the total, down 81.1 per cent on the first half of 2002), including US$36m in stocks and shares, down 67.3 per cent, and US$2m in company debt instruments, down 98.1 per cent.
Other investments amounted to US$10.91bn (79.7 per cent of the total and up 60.2 per cent year on year), including US$1.57bn in trade loans (12.4 per cent, up 94 per cent) and US$8.44bn in other loans (66.6 per cent, up 56.3 per cent).
Most of the foreign investment in the first half came from Germany (US$3.14bn), Britain (US$2.05bn), Cyprus (US$1.57m), Virgin Islands (US$1.06bn), Switzerland (US$643m), the Netherlands (US$692m), the USA (US$458m) and France (US$406m).
FOOD & DRINK
Danone increasing dairy production in Russia
Russian plants under the French company Danone Group's umbrella, turned out 38,069 tonnes of dairy product in the first half of the year. Danone's Russian subdivision press service said the company's Tolyatti plant, opened in 1995, turned out 4,497 tonnes of dairy product in January-June.
Interfax News Agency reported the service as saying the production of dairy product in Tolyatti in the first virtually corresponds with January-June of last year. During the reporting period, the enterprise produced 51% of its overall output last year.
Danone's plant outside Moscow (Chekhov region), opened in 2000. There were 44,061 tonnes of dairy product produced in Chekhov last year, 27,130 tonnes the year before. "So, we are outstripping the pace this year," the service said. Including imports, Danone sold 67,000 tonnes of product in Russia last year, 30% more than the year before. The company commands 6.8% and 15.8% of the country's market in terms of volume and price, respectively.
At present, aggregate production capacity at the two plants comes to roughly 80,000 tonnes of finished product annually. The director general of the Russian sub-division, James Dwyer, announced earlier that plans for this year include the acquisition of two new lines, one for each plant. The French company is continually reducing dairy product imports into Russia, while exports increase.
The company's Russian plants shipped around 7,000 tonnes to Belarus, Kazakstan and Ukraine last year, 130% more than the previous year. Exports are predicted to increase 30% this year.
FOREIGN LOANS & DEBT
Russia writes off US$35bn in debt to underdeveloped countries
Russia in the past five years has written off US$35bn of debt incurred by the world's poorest countries, Deputy Prime Minister and Finance Minister, Alexei Kudrin, said. Russia, the USSR's successor, has historically been the largest creditor of impoverished countries, he said. Out of the US$35bn of debt written off over the past five years, US$5.5bn is official assistance to impoverished nations. Russia is the third-largest donor in terms of volume and the leader in terms of the ratio of the volume vs. GDP, he said.
As a G8 member, Russia is actively working out decisions to resolve global tasks, including the eradication of poverty. Some US$50bn per year is channelled to support impoverished nations, he said. The international community proposed to earmark the same amount for eradicating poverty. Britain has suggested a system of attracting financing; however, it was not approved.
Brains drain back from the West
It seems that the problem of the brain drain, which used to worry the Russian authorities concerned over the massive flight of local IT workers to the West, is now going into reverse, according to a survey by one of the major recruitment agencies operating in Moscow, the Russian Mirror reported recently.
Skilled computer and IT specialists are now 'flowing' back to Russia, according to Kelly Services' analysts who believe that many skilled IT workers are now returning home following long periods working abroad. This process, which started recently, will not stop until at least 2005, they say.
The demand for technical consultants and business analysts has risen by over a fifth inside Russia over the past six months, and the demand for IT services has jumped by 40%, the Kelly analysts claim. The demand for consulting, programming and providing services has also increased noticeably.
According to Kelly Services, specialists return home for two main reasons. First, they are more in demand in connection with an overall economic recovery in Russia and the development of the IT sector. Salaries rise in this sector - system administrators and chief technicians can earn as much as US$2,000 - US$2,500 a month now, while consultants who work on installing large systems can get up to US$10,000 a month. Secondly, Russian programmers are losing jobs abroad because of a downturn in the US and Western European hi-tech industries. Whichever of the two factors is more important, the results will be positive for Russia.
With an estimated one in twenty IT jobs now outsourced offshore, often through cheap call centres in the developing world, there is undoubtedly a recession hitting the industry. Just recently, Californian software firm Siebel Systems announced a cut of 9% of its workforce (490 jobs) and plans to move some operations overseas.
Russia has joined countries such as India and countries in Southeast Asia as a new 'cheap' location.
MINERALS & METALS
Yakutia to auction eight gold deposits in October
The Natural Resources Ministry in Yakutia will offer rights to eight gold deposits (three ore, four placer gold and one gold and silver) at auction on October 28th, Interfax News Agency quoted the auction committee as saying.
Bids will be accepted for consideration after payment of a participation fee of 40,614 roubles by September 20th. The auction is open to companies and individuals, including foreigners. The main condition for potential investors is to begin development (geological study or production) by the second quarter of 2004. Successive bids are to be increased by 10 per cent of the starting price for rights to each deposit. The biggest deposit to be auctioned is Mezhsopochnoye in the Aldan district.
Mezhsopochnoye has reserves of 2.677 tonnes of C1 and C2 category gold, 380 kg of P1 and 5.75 tonnes of P2. Silver reserves are estimated at 3.65 tonnes C1 and C2 category and 240kg of P1. The licence for Mezhsopochnoye will be allocated for 10 yeas with the right to geological exploration and production. The exploration term is set as 5 years and production is slated to begin in 2007. The starting price is set at 7.17m roubles. Regular payments per square kilometre of area have been set at 248 roubles during exploration and 10,125 roubles during production.
SUAL begins work on Komi Aluminium feasibility study
The SUAL group has launched work on the bankable feasibility study for its Komi aluminium project, which calls for the construction of an alumina-aluminium complex in Russia's Komi Republic. SUAL said that a joint venture of SNC-Lavalin International Inc and Hatch Associates has been awarded the contract to perform the initial phase of the bankable feasibility study (BFS) for the project, following a tender process in May 2003 and consultation with potential strategic partners for the project, New Europe has reported.
Work on the initial phase of the BFS has begun and is focusing on a brownfield bauxite mine expansion and the construction of a new alumina refinery, SUAL said in a press release. The second phase of the BFS will be awarded in the near future and will address the construction of a new aluminium smelter in the Komi Republic.
The Komi Aluminium project foresees annual production of bauxite at the Timan mine being expanded from the current 1.0m tonnes to 6.5m tonnes per annum, to satisfy the needs of the proposed new alumina refinery. The refinery, with a production capacity of 1.4m tonnes of alumina per annum, will be built near the town of Ukhta and will be integrated with its own dedicated aluminium smelter, SUAL said.
Vladimir Kremer, director general of Komi Aluminium and a member of SAUL's Board of Directors, said the combination of "SNC-Lavalin and Hatch is perfectly suited to SUAL's needs regarding the Komi Aluminium project." The venture "combines the process design expertise of Hatch with the project management and execution abilities of SNC-Lavalin." "There are many similarities between the Komi Republic and northern Canada," said Pierre Ranger, a senior vice-president at SNC-Lavaline Aluminium Division. "SNC-Lavalin's experience of working in remote northern regions will be a great asset on this project."
Robert Francki, managing director of Hatch Light Metals Division, said: "Hatch's alumina refinery specialists technology team combines the best in practical experience with advanced computing techniques to achieve optimised Bayer process flow-sheets for each bauxite deposit."
Russian investor seeks to sell 50% stake in aluminium firm
Roman Abramovich, a major shareholder in Russian industry, is seeking to sell his 50% stake in Russian Aluminium, one of the world's largest producers of primary aluminium, according to an individual with knowledge of the matter, the Wall Street Journal Europe reported on 12th August.
The attempted sale of the shares, which the individual estimated are valued at about US$2.5bn (2.2bn Euro), coincides with mounting government pressure on big business, although the individual said he wasn't certain whether that had played a role in Mr. Abramovich's decision. Spokesmen for Mr Abramovich and Oleg Deripaska, his main partner in Russian Aluminium, declined to comment on whether Mr Abramovich's Russian aluminium shares were for sale.
Some investors say they would interpret Mr Abramovich's sale of the metals shares as a sign of mounting risks in Russia. Investor confidence was shaken in July by the arrest of oil billionaire Platon Lebedev, a move that many Russian businessmen believe was politically motivated. Federal prosecutors have charged Mr Lebedev with fraud and denied any political subtex. Mr Lebedev denies wrongdoing.
Mr Abramovich called the arrest and other legal moves against oil company, OAO Yukos, "disturbing" but denied persistent speculation that he plans to sell all of his assets in Russia which also include stakes in the oil and food industries.
"Trust has been undermined. Trust in the government, trust in institutions," Mr Abramovich said in remarks made on August 5th and released by his spokesman. "However, this will be forgotten quickly…. In the end it will all work out OK," he said. "We are selling some thing and buying other things in Russia," he added.
Mr Abramovich and some other Russian businessmen bought their assets from the state during the mid-1990s in privatisation auctions still tainted by allegations of corruption. The bargain-basement sales had become tacitly accepted under President Vladimir Putin, helping create stability and economic growth.
Many businessmen see the recent legal moves against Yukos as a threat to this stability. Mr Abramovich also owns a majority stake in OAO Sibneft, an oil company that plans to merge with Yukos. Russia's antimonopoly ministry is to approve or deny the merger shortly, a ruling that investors say will help show whether Yukos's troubles will spread to other companies.
Mr Abramovich bought England's Chelsea football club for about US$100m in June, helping fuel speculation he might be unloading Russian assets and seeking investments overseas.
Russian physicists designing small-town nuclear power station
Nuclear scientists at the Energy Physics Institute in Obninsk are working on what may become the world's first-ever nuclear-reactor-equipped boiler bringing thermal power to residential areas, the institute's General Director, Anatoliy Zrodnikov said, ITAR-TASS News Agency has reported.
The yet-to-be built boiler will be able to heat the whole of Obninsk, which has a population of 100,000. Replacing one boiler burning natural gas will save R50m annually. If the project receives support and federal financing, a pilot unit may go operational in five years' time.
Zrodnikov said researchers are capable of offering a variety of nuclear-reactor-equipped boilers - from 10 megawatts to 70 megawatts - to be used in big cities and small towns.
Nuclear reactor boilers may begin to be used in the utilities sector of closed research centres run by the Atomic Energy Ministry and Defence Ministry that badly need independent sources of thermal energy supply. The use of such units in remote northern regions may prove very helpful, making it unnecessary to build up the reserves of costly heating oil.
Zrodnikov said such small reactors, if they are ever built, must remain government property.
Bank lends to new hypermarket
The Savings Bank of Russia is financing new nationwide hypermarket chains RosMart and MosMart, Andrei Kazmin, bank president recently announced, the Russian Mirror reported.
The Savings Bank lent US$13m over five years for the construction of an initial hypermarket opened on the Yaroslavi Highway, in Moscow's north.
Blueprints are ready for another Moscow-based hypermarket, on the Dmitrov Highway, to open next February or March. Savings Bank managers are examining the proposal and intend to lend a further US$22m.
The bank is weighing prospects for another ambitious credit line, exceeding a hundred million dollars, to finance the national RosMart chain, added Mr Kazmin.
The Hypercentre corporate group intends to set up a hundred hypermarkets all over Russia, with a projected five-billion-dollar overall turnover, if the Savings Bank backs the plan, said Mikhail Bezelyansky, Hypercentre president.
Altogether, six hypermarkets are set to open in Moscow and another two in St Petersburg within this and next year, he hopes.
Shipping company clinches deal for 4 tankers from South Korea
Shipping company, Novorossiiskoye Morskoye Parokhodstvo (Novoship), will get four Aframax-class tankers from South Korea in 2005-2006, Valery Palii, aide to the Novoship president, was quoted as saying by Interfax News Agency recently.
Palii noted that the contract was signed by the chiefs at Novoship and Hyundai Heavy Industries of South Korea. The contract envisions the first tanker (deadweight 105,400 tonnes) being delivered in February 2005, the second in September that year, the third in November and the fourth in January of 2006. Palii emphasised that this project falls under a programme for rejuvenating the Novoship shipping fleet.
The project will make it possible for Russia's second largest shipping company to increase its fleet of Aframax-class tankers to 14.
The new vessels will carry oil from the port at Murmansk to points on the Baltic Sea. Palii noted that the cost of the deal has not been disclosed, but Interfax learned the market cost of one such tanker is US$50m.
INVESTMENT BACKGROUND REPORTS
Our analysts and editorial staff have many years experience in analysing and reporting events in these nations. This knowledge is available in the form of geopolitical and/or economic country reports on any individual or grouping of countries. Such reports may be bespoke to the specification of clients or by access to one of our existing specialised reports.
For further information email:
Considering an investment or a trip to any newnation? First order our Investment Pack which will give you by e-mail the last three monthly newnation reports and the complete worldaudit democracy check for the low price of
US$12. The print-out would be a good companion to take with you. Having read it, you might even decide not to go!
To order please click here: