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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)

Books on Russia

REPUBLICAN REFERENCE

Area (sq.km)
17,075,400

Population
144,526,278

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: 281 - (27/05/04)

The Chechen War flares up 
The Chechen War is far from being as subdued and contained as Moscow was claiming until recently. The strategy of the Kremlin has been to localise the conflict as much as possible by having pro-Moscow native Chechens take over the Russian cause. In effect the warlord-torn republic is always likely to have continual feuding going on among its different clans, whether the Russians are around or not. War is a way of life for these hardy mountainous people. One warlord may decide to steal a march on his rivals by doing a deal with the Russians.
That is how the first Chechen War started in 1994, as anti- President Dudayev forces flirted with the Russian overlord, only nominal at the time. The war made the Russian dominion briefly a reality once again, ended by a peace treaty in 1996, negotiated by the late General Lebed and the successor to Dudayev, Aslan Mashkadov, which in effect made Chechnya independent. It was agreed that a referendum was to be held in 2001 on whether full independence would follow. This was aborted of course by the second Chechen War in 1999, which still rages.
Fed up with the whole affair as Putin and even more his reformist government must be, they have opted for the localisation option. In October a rigged election saw Akhmad Kadyrov elected president. A former Mufti of Chechnya and then anti-Russian warlord, he decided to throw in his lot with the Russians, convinced after 9:11 that they would surely win. He naturally at once became the target of the secessionist nationalists. Numerous attempts were made on his life. On May 9th one of them succeeded.
This puts the whole Russian strategy in the conflict into question. There is no obvious successor. His son, Ramzan Kadyrov, head of a 4,000-strong militia, called the Kadyrovski, acting as his security force, is only 27, too young to command the respect of the veteran fighters. The brutality of his troops, extreme even by Chechen standards, is also a disadvantage in a position supposed to bring different clans together. The Kadyrovski are even more feared than the Russian troops and Ramzan has earned a reputation for quite exceptional ferocity. 
The Kremlin is obviously toying with the idea of having him succeed his father. Certain Russian generals would deem his ferocity exactly what is required.
Putin played a lightning visit to the republic in mid-May and ordered an increase in police for the region, not troops, indicating his intent to keep the operation in a law enforcement context, not a military one, by adding 1,125 police to its forces. He appointed Taus Dzhabrailov as the Chechen State Council's new chairman, replacing Khussein Isayev, who was also killed, along with five others, in the blast at Grozny's Dynamo Stadium that killed Kadyrov on May 9th.He is the only high-profile Chechen, other than Ramzan Kadyrov, trusted by Moscow and as the more dignified figure will probably be the candidate in elections to succeed Akhmad Kadyrov. Rudnik Dudayev, a former member of the security force s, is another candidate.
There is nothing to be gained in committing more troops. What is really going on is that Moscow is pretending that there is a contingency of Chechens who feel themselves to be Russian. It is to them that power will be entrusted, the Kadyrovs and Dzhabrailovs of this world. This is rather like when the Soviet Union localised the Afghan conflict in the late 1980s, appointing an Afghan stooge in Kabul. The strategy worked for a while and allowed them a not totally undignified exit in January 1989, not the least important event of that momentous year. He was removed, indeed killed in a most brutal way, three years later by mujaheddin forces. His Chechen equivalent has already met his nemesis. Such would seem to be the inevitable fate sooner or later of any successor! 

China is the key to economic success
The economy in Russia is doing extraordinarily well. GDP grew by 6.5% in 2003 and is expected to grow by 5% this year and 4% next year. This has been due not a little to the fact that China has been booming, importing raw materials and energy from around the world, particularly from Russia.
China is the key to the world economy's buoyancy, and above all to that of the Russian economy. Last year China accounted for one third of all the additional demand in the world economy, as much as the US, and of course vastly more than Continental Europe (the full figures are not yet available, but it looks as if the UK added more growth than the entire Eurozone put together). China is the world's second largest economy after the US in real terms and the fifth largest after the US, Japan, Germany and the UK at current exchange rates (it deliberately keeps its currency vastly undervalued to help its exporters).
Its GDP has been growing at 7-8% per annum for years. For how long can it keep it up?
On the answer to that question depends the future of the Russian boom.
For various reasons the authorities in Beijing want to see a slowdown for a while. That is the main reason for expecting a slowdown in Russian growth too in the near future. But both should be temporary.
The Russian stock market, a prime performer throughout 2003, fell off somewhat in April, reflecting concerns along these lines and the fear of fall-out from the assassination of Kadyrov. It should recover soon, once the EU recovers and adds its own contribution to world growth, highly dependent as it is on Russian resources.

WTO and EU beckon
There is clearly a need to diversify the Russian economy away from primary commodities, above all energy, if Putin's objective of doubling GDP in a decade is to be reached. Russia is the largest economy outside the World Trade Organisation (WTO). It needs to join, if the aim is to be attained.
WTO membership is certainly now on the cards shortly. Closer EU-Russia ties were negotiated on May 21st. This was facilitated by coming WTO membership, but also by Putin's agreement that Russia will shortly sign up to the Kyoto Protocol on the environment. The Russians are coming in from the cold.

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AUTOMOBILES

Avtoframos reports higher output


Avtoframos, a joint venture owned by Renault and the Moscow government, produced 290 Renault Symbol cars in the first quarter of 2004, up 27.2% from 228 in the same period of 2003, Interfax News Agency reported recently. 
Avtoframos, which represents Renault in Russia, plans to produce its first samples of the new X-90 at the end of 2004. Prototypes for the X-90, as it is now called, were created in France. The first X-90s to be produced in Russia will not be for sale but for equipment regulation. The next batch will be necessary to improve production quality. The official launch of X-90 production will be in the summer of 2005.

Car imports on the rise

Russia imported 93,800 cars in the first quarter of 2004, up 17.25% from 80,000 in the same period of 2003, Interfax News Agency reported recently. 
"The ratio of cars imported by individuals and companies changed considerably. Companies imported more cars and unorganised trade, or imports by individuals, dropped," an official said in a statement. Companies imported 72,500 cars, up 180%, while individuals imported 21,200, down from 54,500. About 90% of all the imported cars came from Japan, South Korea, Germany and France. Imports of Japanese cars increased almost 300% with Toyota the number one imported-brand.

Skoda to sell more cars

Skoda Auto has established a general importer in Russia to work within Volkswagen Group RUS, a subsidiary of the Volkswagen concern, of which Skoda is part, a Skoda official said, Interfax News Agency reported recently. 
Skoda plans to sell over 7,000 cars in Russia in 2004, he said. Skoda sold 366 cars through its official Russian dealerships in the first quarter of 2004 compared with 1,843 the previous year. Volkswagen set up Volkswagen Group RUS in 2003 to be its general importer in Russia.

Russian car sales surge 17% in Q1

Russia boosted car sales 16.5% year-on-year to 259,638 units in the first quarter of 2004, Interfax News Agency reported on April 30th, quoting ASM Holding, which collates Russian and CIS automotive sector statistics. 
Avtovaz, the country's biggest car maker, sold 179,952 cars, up 13.2% year-on-year. Avtovaz produced 173,859 cars in the first quarter of 2004. GAZ nearly doubled sales to 16,352 cars. It produced 16,352 cars. Sales by Izh-Avto, which produced 18,552 cars, fell 1.2% to 17,218; Kamaz sold 9,138 Oka subcompact cars, up 7% year-on-year, after producing 9,138; UAZ sold 7,980 cars, up 3.8%, after producing 8,456); SeAZ sold 3,838, down 13.7%, producing 3,619. ZAO Ford Motor Co sold 5,242 compared with 3,037. Avtovaz, accounted for 69.31% of total car sales, Kamaz for 3.54%, GAZ 6.3%, UAZ - 3.07%, Izh-Avto - 6.63%, SeAZ - 1.48% and ZAO Ford Motor Co - 2.02%.
Sales of trucks, including chassis, grew 18% year-on-year to 50,181 units. Russia produced 49,462 trucks and chassis in the quarter. The GAZ auto works, which produced 29,019 trucks, also sold 29,019 trucks, up 25.2% year-on-year. Kamaz, which produced 5,864, increased sales 21.6% to 5,864; ZiL, which produced 3,169 trucks, upped sales 20.9% to 3,311 units; UAZ sold 4,999; Ural, which produced 1,356, sold 1,352 trucks, down 5.9%; and Izh-Avto sold 3,904 trucks, up 14.5%, after producing 4,098.

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AVIATION & SPACE

Russia launches telecom satellite

A new-generation telecommunication satellite Ekspress-AM11 is joining the Russian orbital group. A Proton-K booster carrying the satellite was launched from the Baykonur site [in Kazakstan] on 26 April, the press service of the Russian Federation Space Troops said, ITAR-TASS News Agency reported.
Since the launch, the rocket has been successfully tracked by radars of the command and measurement complex. The press service of the Space Communications federal state unitary enterprise says Ekspress-AM11 is the second spacecraft of the new-generation Ekspress-AM family, designed by specialists from the applied mechanics research and production association in the town of Zheleznogorsk, Krasnoyarsk Territory. The satellite is the second of the five spacecraft that the association is building for the Russian satellite communications operator, Space Communications. The new craft differ from their predecessors in that they have a longer service life in orbit of 12 years.
The French company Alcatel-Space is takeing part in the production of Ekspress satellites. All five satellites are expected to be launched before the middle of 2005.
"The Russian orbital group currently includes 12 functioning communication satellites," the Space Communications press service said.

Russia to earmark US$70m for aircraft engine

The Russian state budget will earmark up to 2bn roubles (US$70m) for developing the new Russian-French SM-146 engine, which is to be mounted on the RRJ-family aircraft, while French government allocated lines of credit, Interfax New Agency reported recently.
"The Russian-French SM-146 engine is being developed within the framework of the federal programme 'Civil Aviation Development' in 2002-2010 and until 2015. The state budget plans to allocate up to 2bn roubles (US$70m) with this end in view," said Alexey Zhavoronkov, deputy director general of the Saturn Research and Production Association, director of the SM-146 programme.
"The state has already started financing the programme. The first payment was received as far back as last year. Everything is done in compliance with the civil aviation development programme," he said.
Jean-Pierre Cojan, the French Snecma vice president and general manager, said the French government also supported this project by allocating credits to be paid back. Zhavoronkov said the SM-146 project had been started 2.5 years before. This programme is a joint venture. This project, which is one of the priorities for the Russian aircraft engine-building industry, allows Russia to be integrated in the international division of labour system, and promote a cutting-edge engine in the international aircraft market.
Zhavoronkov said the project promised to be very efficient economy-wise - two thirds of the products are to be exported. The SM-146 is a new engine, featuring high reliability, easy maintenance, and high cost-efficiency ratio. It meets the toughest noise-abatement and pollution requirements.

MiG: Trouble surfaced with Tu-334 aircraft orders

Currently, the Russian aircraft corporation MiG has orders to manufacture 100 Tu-334 aircraft, MiG CEO, Vladimir Toryanin, said recently. Implementation of a programme for creating aircraft of the Tu-334 family stopped due to the financial problems of the corporation, RBC reported. 
"We will not be able to implement this programme by ourselves and that is why we are seeking investors now," Toryanin said. Deliveries of Tu-334 aircraft have been planned for the beginning of 2005. MiG is supposed to create a new system of logistic support for Tu-334 aircraft in service, which will follow modern requirements and will considerably decrease the aircraft's prime cost.
According to MiG's management, the price for the Tu-334 short-range aircraft for Russian air carriers should not exceed US$12.5m to US$13m. Whereas in present market conditions a standard Tu-334 costs US$17m to US$18m. The short-range Tu-334 aircraft can carry 102 passengers, with a range of 3,150km.

Russia, Iran in plane deal

A contract under which a first consignment of the medium range 210-seat, Tu-204-100 passenger planes will be delivered to Iran may be signed in the second quarter of 2004, Lev Lanovsky, chief designer for the aircraft producer Tupolev said, Interfax News Agency reported recently. 
"Talks in Moscow with Hasan Haj Alifard, head of the Civil Aviation Organisation of Iran, covered delivery of the first consignment of five aircraft, but Iran needs an estimated 20 planes of this kind," he said. The planes to be delivered to Iran will be powered by Russian-made PS-90A engines and carry Russian-made avionics designed to meet Iran's needs, Lanovsky said.

Irkut plane-maker buys 75-per-cent stake in Yakovlev Design Bureau

The Irkut corporation recently announced that it had completed its purchase of the Yakovlev OKB [Experimental Design Bureau] Open Joint-Stock Company. It took a year to complete the deal that is unprecedented in the Russian military-industrial complex. According to statements by representatives of both enterprises, a final agreement on the merger was reached in spring 2003. The decision was made public at a Moscow aerospace show in August the same year. However, there had not been a clear-cut merger plan by that time yet, Interfax News Agency reported. 
It was announced that Irkut has acquired a 75.46 per cent stake in the Yakovlev OKB, and that the registration of these securities in the corporation's name has already been completed. In order to raise the funds to pay for the Yakovlev shares, Irkut was the first among Russian defence industry enterprises to effect the initial placement of its own shares on the Russian stock market. The placement of 23.3 per cent of Irkut's shares yielded the corporation US$127m. 
From a technological point of view, the "annexing" of the Moscow design bureau will make it possible, in terms of quality, to increase the scientific and technical potential of the East Siberian company, which was formed in 2002 from the Irkutsk Aviation Production Association (IAPO) - an assembly-line plant with considerable export contracts but without its own design base. Now this gap has been filled.
"The acquisition of the Yakovlev OKB is a logical step when it comes to implementing Irkut's strategy of constructing a vertically integrated holding company capable of providing the full cycle of developing, manufacturing, and maintaining both civil and military aviation technology," Mr Fedorov said.
In addition to Yakovlev, Irkut is launching a further few projects that are new to it. The most advanced of them is the Yak-130 jet-propelled training aircraft, of which the Yakovlev OKB is developing two versions: one with a foreign engine - for exporting; and one with a Russian engine - for the needs of the Russian armed forces. The promise from the Siberian aircraft designers to fund the final part of the work on the Yak-130 laid the ground for the agreement to merge Irkut and Yakovlev. 
"I am sure that the incorporation of Yakovlev OKB into Irkut, as well as the implementation of the Yak-130 aircraft project, will assist in raising the company's value for our shareholders," Mr Fedorov said. Another technically very valuable part of Yakovlev's "dowry" is the OKB's work on an unmanned aircraft. Major aircraft construction firms such as Sukhoi and MiG have not given this area sufficient attention. However, from the standpoint of these military companies, this subject is taking on increasing urgency both abroad and in Russia. Irkut has a good chance of outstripping its rivals.

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BONDS

Gazprom plans first Russian 30-year issue

Gazprom, Russia's largest company, has announced plans to sell bonds maturing in 30 years, which will make them the longest-dated bonds from a Russian company, The Financial Times reported recently.
Investors can sell the bonds back at face value after 10 years. The company has hired Credit Suisse First Boston and Deutsche Bank to manage the sale.
Gazprom is the world's biggest producer of natural gas. The company last year sold US$1.75bn of debt with a 10-year maturity. These are the longest-dated Russian corporate bonds to date and also the biggest single issue.
The new issue will be of benchmark size, which generally means €500m or more.
The company's foreign currency debt is rated Double B- at Standard & Poor's, three levels below investment grade, and one notch higher at Double B by Fitch Ratings.
Moody's Investors Service assigned a Ba1 senior implied rating, one level below investment grade, and a Ba2 issuer rating. The rating outlook was stable, Moody's said.

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CREDIT RATINGS

S & P assigns Wimm-Dann score

Standard & Poor's assigned a corporate governance score to Wimm-Bill-Dann Foods (WBD), the Russian producer of juice, dairy products, and bottled water, the ratings agency said recently. The score reflects a strong corporate governance profile on an international basis of comparison. "Standard & Poor's believes that WBD exceeds typical corporate governance standards in Russia, with an independent majority on the board of directors, rigorous international control procedures, a high level of transparency, and management that is highly cooperative with investors and analysts," said Julia Kochetygova, director of Standard & Poor's Governance Services, New Europe reported.

Moody's upgrades Vympelcom

Moody's international rating agency has upgraded the rating for Russia's major mobile communications provider Vympelcom from B1 to Ba3, the company said in a statement, New Europe reported recently. 
Moody's has also upgraded the rating of notes of participation in the US$250m loan to be repaid in 2005 from B3 to B1. It assigned the (P) B1 rating to the company's US$300m bonds to be placed on the international market in the second quarter of 2004. 
The rating forecast is stable. Vympelcom's upgraded ratings reflect the company's expanding clientele, good financial performance and regional expansion. The Ba3 rating on the Moody's scale indicates that interests and principal payments may be relatively insufficiently safeguarded.

Rosbank gets B- long-term S&P credit rating

Standard & Poor's agency announced recently that it had given Russia's Rosbank commercial bank a B- long-term credit rating and C short-term credit rating, with a sustainable development forecast. The bank received the ruBBB- rating on the Russian rating scale, S&P said in a report, New Europe reported recently.
"Rosbank's ratings reflect its belonging to the strong financial and industrial group of Interros, and good prospects for the development of services for private individuals, which are being promoted by the current merger of Rosbank and the Society of Mutual Crediting (OVK) group, which Interros has acquired recently," the rating agency said. 
"Rosbank's relatively low financial indices, the high concentration of assets and liabilities in certain partners' hands, and risks of merging with such a weak bank as OVK are having a negative influence on the bank's ratings," said Irina Penkina, a S&P credit expert.
Interros acquired the OVK group for some US$200m in October 2003 with the aim of merging it into Rosbank in 2005. The merger will give Rosbank better access to Russia's regional markets and private clients, which will allow to reduce the concentration of corporate bank business. "However, OVK's distributing network is not being exploited to the full and it is operating inefficiently, although it employs over 10,000 staff and the total amount of deposits involved is US$300m," the rating agency said.

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FOOD & DRINK

Glencore to enter Russia

Glencore of Switzerland, one of the leading players on the world sugar and grain market, is to set up a grain company in Russia, Interfax News Agency reported. 
The work of the company will depend on the state of the grain market, the Glencore office in Moscow said. The new company will buy grain on the domestic market and export it and if the market situation hangs, Glencore will switch to import operations. Details about the structure of the new company and planned turnover will be announced soon. Grain market analysts say the company will see turnover of 1-2m tonnes of grain a year. In the 2003-2004 agricultural year, commercial turnover on Russia's grain market is estimated at 42m to 45m tonnes, or roughly US$5.3bn.

Parlamat to invest in Belgorod

Italy's Parmalat, despite its financial difficulties, is to continue investing in its Belgorod dairy plant, Interfax News Agency reported.
Investment would be aimed at installing modern technology and increasing quality control, the source said. He denied rumours that production at the plant would fall and there would be major staff cutbacks. As to whether the company's bankruptcy in Italy will affect the activity of the Russian subdivision, the source told the news agency that both plants in Russia - Belgorod Dairy Plant and OOO Urallat in Sverdlovsk region - are operating normally. Sales volumes in Russia increased from December 2003 to March 2004, the company said.

Stella Artois goes Russian

Sun Interbrew has begun local production of Stella Artois in Russia, just-drinks reported recently. The company announced that the beer will be bottled at its Novocheboksar plant in Chuvashia. Stella had previously been imported into Russia from Ukraine. Sales of the premium lager were up by 114% in Russia last year, the company said. Earlier, Sun Interbrew announced that all of its Russian production and distribution companies, with the exception of its Bavaria Brewery, have been merged into OAO SUN Interbrew, New Europe reported. 

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FOREIGN AID

Russia sending 30 tonnes of humanitarian aid to North Korea

The Russian Emergencies Ministry sent an aircraft with humanitarian aid to North Korea, Interfax News Agency reported on April 26th. 
The aircraft left Moscow for Pyongyang and delivered about 30 tonnes of aid, including 13 tonnes of medicines, 54,000 disposable blood transfusion kits, 60 10-bed tents, 25 30-bed tents and 1,000 blankets, a spokesman for the Emergencies Ministry, Viktor Beltsov, as said. The humanitarian aid was intended for the victims of the Ryongchon railway station blast.

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FOREIGN INVESTMENT

Vestel in invest in Russia

Turkish company Vestel, a major European home electronics manufacturer, plans to continue investment in the Russian market, Interfax News Agency reported recently.
"We have faith in the Russian market's future and will be making new investments in Russia," said head of Vestel's foreign trade subdivision, Turan Erdogan. According to him, Vestel owns production facilities in Russia. In 2003 wholly-owned subsidiary Vestel CIS put into operation the first line at a television assembly plant in Aleksandrov (Vladimir region) making "Vestel" brand TVs.

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FOREIGN LOANS

EBRD to invest €1.3bn in Russian economy this year

The volume of EBRD investments in the Russian economy will be about €1.3bn this year, President of the European Bank for Reconstruction and Development (EBRD), Jean Lemierre, said, RIA Novosti reported recently, 
Last year the EBRD invested €1.1bn in the Russian economy. In the current year and in the near future the bank intends to "move in the south-east direction," to step up its investment activity in Russia, in Ukraine - the countries which show the highest rates of economic growth among the Central European states, the EBRD head said. The driving force behind the economic growth are the reforms carried out in Russia and high prices for energy carriers and raw materials on the world market, he said.

VTB borrows US$300m

Vneshtorbank, the former trade bank of the Soviet Union, said it has agreed to borrow €250 (US$298m) from ING Groep NV, the biggest Dutch financial services company, to finance European imports of goods and services, The Moscow Times reported.
The credit line will be available to cover 85% of import contracts, Moscow-based Vneshtorbank said in a statement on its Web site.

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MINERALS & METALS

Norilsk Nickel profits climb

Norilsk Nickel Mining and Metallurgical company posted a net profit of 17.3bn roubles in the first quarter of 2004, according to a company statement. Net profit climbed 82.2% from the fourth quarter of 2003 and 104.5% from 8.46bn roubles in the first quarter of 2003, Interfax News Agency reported. 
The company attributes net profit growth to increased revenue from the sale of metals and metal goods thanks to favourable metal markets.

MMK profit soars in 2003

Steel giant Magnitogorsk Iron and Steel Works, or MMK, recently said its net profit soared more than five-fold in 2003 as it boosted output to benefit from rising steel prices, The Moscow Times Reported. 
Net income jumped to US$630m from US$115m in 2002. Sales of the country's second biggest steel producer rose to US$3.05bn last year from US$2.07bn in 2002. The company, based near the Ural Mountains, increased steel output 4.2% to 11.5m tonnes. Sales in Russia rose to 55% of output in 2003 from 48% the year before. Sales to Asia fell from 21% to 20% while sales in Europe fell to 9% from 19%.

Alrosa targets higher rough diamond output in 2004

Russia's diamond monopoly, Alrosa, is targeting mine output of US$1.856bn in 2004, Interfax News Agency reported recently, Valentina Potrubeiko, a company vice president, said. 
In a statement, the company said Alrosa's executive board was targeting core mine output of US$1.865bn, core sales US$2.047bn, cut diamond sales US$137.1m and capex 11.6bn in 2004.
Potrubeiko said Alrosa had net profits of 9.6632bn roubles in 2003 and planned to set aside 800m roubles for dividends at 4,000 roubles a share. The dividends are still subject to approval by the company's supervisory board and annual general meeting (AGM). Rough diamond sales were US$1.6973bn or 1.9% above target in 2003 and cut diamond sales US$123.4m. Growth was achieved through increased demand and price growth for rough diamonds during the year. Alrosa's revenues were 56.7523bn roubles in 2003. Alrosa mined US$1.6489bn in rough diamonds last year, 5% above target and US$182.7m more than in 2002. Alrosa spent 1.1468bn roubles on geological exploration last year.

Q1 gold production up 13.6%

Russia increased gold production 13.6% year-on-year to 25.012 tonnes in the first quarter of 2004, the Gold Producers' Unions said, Interfax News Agency reported recently. 
The union said mine production fell 0.9% to 18.899 tonnes, but by-product or incidental gold production increased 50% by 3.013 tonnes and recoveries from scrap or secondary production soared 250% to 3.099 tonnes. Krasnoyarsk was Russia's biggest gold producing region, mining 6.212 tonnes of gold, down 229.7kg year-on-year.

Norilsk Nickel sees 20% drop in market supply this year

Russian metals giant, Norilsk Nickel, recently said it predicts a 20% slide to 250m tonnes in the amount of nickel it planned to put on the market this year compared with 2003, New Europe reported. 
"We plan to produce the same quantity of nickel as last year but our stocks are smaller," which explains a decline in sales expected in 2004, said Anton Berlin, head of market development and analysis at the group.
Norilsk Nickel put 310m tonnes of nickel on the market last year, of which 20% came from its stocks. The group is the world's leading producer of nickel and platinum metals. Nickel prices are at record highs in response to a surge in demand from China, up 80% since April 2003.
Norilsk Nickel will sell all the metal that it produces in 2004, Leonid Rozhetskin, the Arctic mining and smelting giant's deputy CEO, told reporters on April 19th, at the 7th Russian Economic Forum in London.
Rozhetskin said that Norilsk Nickel was conducting a pre-feasibility study for two titanium fields - one in the Tambov region and the other on the Kola Peninsula.
"However we are not thinking of buying any companies that produce titanium and we have not yet reached any decision on entering into the titanium business," he said. In addition, Norilsk Nickel will not need a partner to develop the Sukhoi Log gold field if it wins a contest for the rights to the property.
"We have enough tried and tested technology to develop this field on our own," Rozhetskin said. Norilsk Nickel is the world's largest producer of nickel and palladium group metals, accounting for 18% of the world nickel production, 13% of cobalt, 3% of copper, over 50% of palladium, 14% of platinum and 1.5% of world gold production.
Norilsk Nickel may spend upwards of US$30m on gold exploration this year, according to Vladimir Sovmen, senior vice president of Polyus Gold company, which is a 100% subsidiary of the Arctic mining and smelting giant.
Norilsk Nickel may spend US$3m exploring gold fields in the Krasnoyarsk territory, Sovmen said in a report for the Regional Development Investment Forum.
Apart from Polyus, which is Russia's biggest gold producer, Norilsk Nickel owns 50.6% in the Rudnik im. Matrosova mining company from the Magadan region and 65.87% of Lenzoloto from the Irkutsk region.

Siberian steel plant has new owner

Krasnoyarsk Sibelektrostal [Electric Steel] Combine has a new owner, a closed joint-stock company Krasnyy Yar. The former managing director of the Bratsk Aluminium Plant, Boris Gromov, founded the company together with his sons. Gromov bought the plant out from the Alfa-Eko group, Krasnoyarsk Channel 7 TV reported.
Besides, he bought the enterprise's debts estimated according to some reports at US$7m. The Krasnyy Yar company purchased 66 per cent of the stake, the remaining 34 per cent belong to the [Krasnoyarsk] Territory administration and some minority stake-holders.
Gromov promised to revive production at the enterprise. 

Russian copper giant's profits up more than fourfold in 2003

The net profit of Russia's Urals mining and metallurgical company (UGMK) rose to R2.13bn in 2003 from about R484m, Prime-TASS News Agency reported.
In 2003 sales revenues rose 16.4 per cent on the year to R46.44bn, while sales profit rose 49 per cent to R4.92bn. The company's pre-tax profit amounted to R3.24bn, up from about R982m in 2002.
Last year the company's investments amounted to R3.27bn, 27.8 per cent up on the year 
The company is Russia's second-largest copper producer after Norilsk Nickel, accounting for approximately 40 per cent of Russia's copper output.

Mechel Steel plans ADR issue

Mechel Steel Group - one of Russia's biggest steel and mining companies - plans to issue additional shares for an American Depository Receipt placement, Interfax News Agency reported recently. 
The company said its board decided on April 13th to issue 115m common shares with par value of 10 roubles. A potential buyer is Deutsche Bank, appointed by Deutsche Bank Trust Company Americas, for the ADR placement. Mechel - the core enterprise of the Mechel Steel Group - boosted net profits to 64% to 805.043m roubles in 2003 from 490.976m roubles in 2002 on the back of production growth, a spokesman for Mechel Steel Group told Interfax. Mechel released slightly different financial results in February. Then, it said net profits were 808.283m roubles in 2003 and 590.65m roubles in 2002.

Norilsk discovers platinum in Murmansk

Norilsk Nickel, Russia's biggest mining company discovered a deposit that may contain up to 350 tonnes of platinum group metals (PGM), Sergei Zhabin, head of the Murmansk region's geological service, said, Interfax News Agency reported recently.
Norilsk Nickel subsidiary Kola Mining and Metals company financed the exploration in the Mochegorsk and Pechenga districts, leading to the discovery of a commercial PGM deposit in the Kola peninsula in the Arctic, not far from the Severonikel and Pechenganikel smelters, Zhabin said. Laboratory tests showed that the ore had good flotation qualities and a high recovery level for metals in concentrate, Zhabin said. The overall resources could total 300-350 tonnes of PGMs, making the deposit potentially a medium-sized one. Kola Mining and Metals company aims to finish exploring the site in the next three years. 
Zhabin also said geologists from the Murmansk Geological Expedition recently found diamond crystals 50 metres below ground during drilling near the River Tuloma. The crystals are being tested now, he said. Zhabin said the Murmansk diamond crystals had already caught the attention of Canadian geological company Oriel Resources and two Canadian banks, which are prepared to set a company up in the Murmansk region to prospect for diamonds and invest more than US$2.5m in the exercise.

Russia negotiates rise of steel export quota to EU

Russia and the European Union have reached an agreement to raise the quota on Russian steel delivered to the EU countries, Deputy Foreign Minister Vladimir Chizhov told journalists, Rosbalt reported recently. 
"Quotas which existed for the 15 member nations of the EU cannot automatically be applied to 25 countries. Accordingly, the quotas have to be raised, and that is one of the issues on which agreement has been reached," Chizhov said. Russia hopes to reduce any losses resulting from the EU's expansion to a minimum.
"From the European Union's point of view, the expansion associated with the addition of 10 new member nations will not have a major effect, as their total production is slightly greater than 5% of the EU's total output." He added: "The European Union's population will grow, but not significantly, from 380m to 450m. However, the expansion will have important consequences for Russia."
The existing quota for Russian steel exports to the European Union totals 1.38m tonnes. Russia's steel exports to the 10 East and Central European countries which will become EU members of May 1st total about 500,000 tonnes per year.

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NUCLEAR ENERGY

Russia looks to extend nuclear cooperation with Iran

Russia is interested in extending nuclear cooperation with Iran, said the head of the Federal Atomic Energy Agency, Aleksandr Rumyantsev, ITAR-TASS News Agency reported.
"Russia is interested in the construction of new units at Iran's nuclear power plant in Bushehr," Rumyantsev stressed.
According to Rumyantsev, "Iran has recently been demonstrating complete openness in its relations with the International Atomic Energy Agency (IAEA), and has given IAEA inspectors access to all its installations." "Iran is perfectly entitled to develop its atomic energy sector," Rumyantsev stressed.
Rumyantsev went on to say that "fresh nuclear fuel for Unit No 1 of the Bushehr plant, which was built with the help of Russian specialists, will be supplied from Russia in 2004-2005." The unit is due to be launched next year, he added. Rumyantsev said that the additional protocol on the return of spent nuclear fuel from Iran to Russia "will be signed this year."

Russian nuclear power station closes two generators for repair and maintenance

The third generating unit at the Smolensk atomic power station was taken out of operation on April 26th for scheduled maintenance until 8th June, the station's information and public relations centre said, ITAR-TASS News Agency.
The first generating unit is undergoing a scheduled overhaul that should be completed by the end of October. This means only the second generating unit is currently operating. The radiation level at the atomic power station and surrounding areas is in line with the levels produced by generating units that are functioning normally and does not exceed the permitted levels, the centre said.

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TELECOMMUNICATIONS

MTS to invest US$13m in Krasnoyarsk network

Russian cellular operator Mobile TeleSystems (MTS) plans to invest US$13m in developing its cellular network in Krasnoyarsk territory by the end of 2004, the company's First Vice President, Mikhail Susov, said, Interfax News Agency reported recently.
"By the end of 2004 we plan to install 60 new base stations in the territory and increase coverage and quality in the region," he said. According to him, the company has over 170 base stations in the territory, and two switchboards from China's Huawei Technologies with a capacity of about 400,000 numbers.
MTS has over 180,000 subscribers in Krasnoyarsk territory and the company's share of the territory market is estimated at 30%. The press conference was also used to present the MTS single tariff system, which was due to come into effect in Krasnoyarsk territory from April 27th.
"The launch of the national trademark in Krasnoyarsk territory - this is a step towards implementing a single marketing and financial policy throughout the MTS network," Susov said.
AO Mobile TeleSystems acquired 100% of shares in the charter capital of OOO Sibchallenge in summer 2003. The latter has a licence to provide GSM-900/1800 and D-AMPS standard telecommunications services in Krasnoyarsk territory, Khakasia republic and Taimyr autonomous district.
Mobile TeleSystems (MTS) and Alcatel have signed a framework agreement worth US$50m for equipment supplies, Interfax News Agency reported recently.
The Alcatel equipment will be used to set up MTS networks in 11 Russian regions and to expand the company's network in Ukraine. The equipment will be supplied in stages and the final supplies will arrive in the second quarter 2005.
The company has a network in the Krasnoyarsk territory cities of Krasnoyarsk, Norilsk, Achinsk and Miniusinsk and in the Taimyr autonomous district town of Dudinka. About 2.9m people live in the company's licence zone. MTS, together with its subsidiaries, provides services to over 20m subscribers. The population in the company's GSM licence zone in Russia, Belarus and Ukraine amounts to about 200.6m people.

MTS takes over Kuban GSM

Mobile TeleSystems (MTS), a major Russian mobile phone services provider, now directly owns Kuban GSM, a Krasnodar operator, outright, MTS said in a recent statement, New Europe reported. 
Until recently, MTS owned 52.67% of Kuban GSM directly and Kubtelesot, a wholly-owned MTS subsidiary, owned 47.33%. MTS took over Kubtelesot in September 2003 in a deal worth US$107m. Kubtelesot went into liquidation and Kuban GSM shares were transferred to MTS, the release says.

Megafon quadruples profits

Megafon, one of Russia's biggest communications companies, reported net profit of US$131.04m to US GAAP for 2003, quadrupling its take on the previous year, company Director General Sergei Soldatenkov, Interfax News Agency reported. 
"The company's fund-raising plans include an IPO and Eurobonds," Soldatenkov said. Megafon's goal is becoming the country's second biggest cellular operator.
"We are positioning ourselves in the medium price range, and all our advertising and marketing strategy are aimed at independent people, independence being understood not as a material condition, but as a personal characteristic," Soldatenkov said.
The company's earnings reached US$821.72m in 2003, earnings before interest, taxes, depreciation and amortisation (EBITDA) US$377.63m. Megafon's subscriber list numbered upwards of 7.74m as March ended.
For this year, Megafon estimates it will obtain US$300m in net profits to US GAAP, added company controller Andrei Felyuk. Earnings are targeted at US$1.329bn, EBITDA at US$600m. According to Soldatenkov, "The company has to raise around US$800m of free funds this year, of which half will be ITS own funds and the other half attracted funds."
The company plans US$670m capital investments in 2004. "Right now, the cost of putting in equipment is US$130-180 per subscriber. We are thinking that we will have around 12m subscribers by the end of the year," Soldatenkov said. He noted that Megafon has no plans currently to move into China and get licensed there. The company will get some of this money from a planned bond issue. Before year-end, commercial networks will be launched in all districts of central Russia and Siberia (Krasnoyarsk Omsk, Tomsk), in the Far East (Amur, Kamchatka and Magadan regions, Sakhalin and the Volga region). The company will complete its development of its licensed territory in the Urals and Volga regions, significantly improve coverage quality in the Caucasus, Northwester region and Moscow licensed zones.
Megafon has begun raising long-term and middle-term loan funds of around US$600m. It is doing so with various loans under guarantee of export-crediting agencies destined for procuring network equipment and that will be added to by bank loans in US dollars and roubles, and also with the issue of rouble-denominate bonds for carrying out the company's tasks. Expectations are that loan funds from Russian commercial banks and from the rouble bond market will allow the company to gain access to relatively cheap middle and long-term financing, taking advantage of an excess of rouble resources and stimulating the development of the Russian capital market.
The raised rouble funds will allow Megafon to improve its ratio of assets and liabilities by cutting risk associated with foreign currency volume, the company said. The rouble credit lines will be secured mainly with equipment. The company's licences cover 100% of Russia's territory, and it now has more than 7.3m subscribers.

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TRANSPORT

Russia tests Trans-Siberian cargo train to link Far East with Poland

A new fast cargo train Nakhodka-Brest-Warsaw is ahead of its timetable by 74 km a day.
The press service of the Far Eastern Railway said that the fast train has travelled through Maritime and Khabarovsk Territories and Jewish Autonomous Region along a "green corridor" covering about 1,000 km a day, RIA-Novosti News Agency reported.
The train, which is composed of 50 cargo wagons and a passenger car with armed guards, is to travel from the Pacific Ocean to Brest in 11 days and then it will travel to Warsaw.
This train is a pilot one: the regular service along the new route will be established according to demand, the press service noted.
The new train carrying 50 heavy containers departed from the Nakhodka-Vostochnaya station in Maritime Territory on April 21st. 
The new route was possible thanks to the fact that cargo transportation from Asia to Europe along Russia's Trans-Siberian line was becoming increasingly popular with foreign cargo shippers. The cargo flow along the Trans-Siberian line from Asia [Europe] has tripled over the past three years.
A total of 550,500 tonnes of cargo, including 530,300 tonnes in heavy containers, was shipped along this corridor in the first quarter of 2004 alone. This is an 18.2-per-cent increase (19.9 per cent in heavy containers) year on year.

Urals manufacturer set to dispatch super-robust goods wagons to Russian railways

The world's largest tank manufacturer, Uralvagonzavod, will supply 6,000 new generation open-top goods wagons to the Russian Railways Company, the press service of Uralvagonzavod said recently. 
The value of a one-year contract is over R6bn. Rolling stock is now being assembled at the plant around the clock. The new open-top goods wagons will be more robust than previous models. The use of heat-resistant steel and new technologies made it possible to increase the mileage before maintenance from 160,000 km to 500,000 km. Uralvagonzavod designers are planning to increase the mileage before maintenance to 1,000,000 km.
Uralvagonzavod, located in Nizhnetagilsk, is the main manufacturer of rolling stock for the Russian Railways and the largest tank manufacturer in the world. In mid-April, the plant completed a three-year contract worth US$800m to supply modern T-90S tanks equipped with missiles to India, ITAR-TASS News Agency reported.

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