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RUSSIA


  
   

 

In-depth Business Intelligence

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

  

Update No: 286 - (28/10/04)

The USSR comes back?
Russia is undoubtedly moving rapidly back to a form of dictatorship, moreover one without a collective leadership, as in post-Stalinist communism. It is akin to Stalinism, if without the gulag.
Only akin to Stalinism, however, because it is based on a private market economy, not a full-fledged, state-owned economy and totalitarian society. Oligarchs have a measure of independent power, but woe-betide them if they cross the interests of the state, as Khodorkovsky, former head of Yukos, well knows in his prison cell for over a year. The churches are independent of the state, although its pensioner, but don't count politically. An ardent nationalism prevails with the cult of personality of a dominant leader, totally in charge of the party. All of this is more reminiscent of fascism than communism, indeed of Nazism, rather than Stalinism. The proclivity to war in each case, dressed in the name of national defence, is striking here.
Of course Putin is no Hitler or even Mussolini. The Chechen War can be much more legitimately portrayed as national defence than Hitler's attack on Poland, when various incidents were faked on the frontier.
Nevertheless the fact that the comparison can be made at all is an alarming fact. 
Putin has introduced plans to personally appoint regional governors, to ensure 'approved' MPs are appointed to parliament only according to the proportion of votes their party gets, and for the Kremlin to appoint judges. 
Masha Lipman of the Carnegie Moscow Centre says: "Once you have opted for this system rather than one with checks and balances, there's nowhere you can stop." 
Subsequent developments have borne out this prediction in a sinister way. The prosecutor's office, charged under the constitution with the safeguarding and observance of the law in Russia, has introduced a number of amendments to the criminal code. Henceforward the penalties for being found guilty of terrorism or corruption will be far more severe. This would be generally acceptable to society, although there is widespread cynicism about corruption which permeates the ruling structures of Russia and it is believed that apart from occasional 'sacrificial lambs' amongst minor officials, little is likely to change. The Kremlin, after all, has been the role model for national corruption.
But the office has also abolished the fundamental principle that a person is innocent until proven guilty, in the case of those accused of terrorism or corruption. If accused, one is guilty unless one can prove one's innocence. Immured in a prison cell, how can the accused possibly prove their innocence? Defence lawyers? They can obviously be bent or bemused by further charges should the original ones not stick, on the principle of no smoke without fire.

Shades of totalitarianism!
Even a selective abandonment of the principle that one is innocent until proven guilty is a sinister development to a most marked degree. It indicates a mind-set totally at variance with Western conceptions of justice and the rule of law. Putin, who has approved the new amendments, has come out in his true colours.
Potentially nobody is innocent any more. Anyone the Russian security services choose to pin anything on can be found guilty. 
The government is preparing an 'anti-terrorist' inquisition, an 'anti-terrorist' terror, on the back of Putin's rampage as he exploits the Beslan tragedy for his own ends. Disinterested in ruling democratically, he is building a police state on the Soviet model with himself at its head.
Any concept of the separation of powers is to go. The legislature is to come under the heel of the executive. At present, senior officials have to relinquish their party posts in order to serve in the government. On October 13th, the Duma rushed through a bill that permits senior members of the government to hold leading roles in a political party.
The move comes amid widespread speculation that the Kremlin is trying to find a way to let Putin remain as leader after his second term expires in 2008 without having to amend the constitution to allow presidents to serve a third term. 
One popular theory being discussed is that the Kremlin could create a parliamentary republic in which Putin becomes leader of United Russia, and prime minister, and a loyal figurehead is appointed to the weakened post of president. 

The one-party state with satellite parties
An original feature of the new one-party state is that it will tolerate other smaller parties, but only as satellites. Actually even this is not so original, In Poland and Hungary agrarian parties were tolerated under communism, so long as they toed the dominant line.
Russia is to persist in having more than one-plus-one, but very much under the dispensation of the Kremlin.
The Kremlin is increasing its stranglehold over political debate in Russia by getting pro-presidential deputies to introduce laws making it harder for smaller political parties to register. It also plans to increase the role of key officials of the president in party politics. 
Pro-Kremlin MPs on October 14th proposed a bill that would change the rules for registering political parties. 
According to the bill, a party can only be registered if it has at least 50,000 members nationwide. 
Previously, a party needed more than 100 members in half of Russia's 89 regions, but it will now need 250 members in every region - and more than 500 in half of them. 
The bill was proposed by three parties which dominate the Duma: the pro-Putin United Russia party, the equally loyal Liberal Democratic party and the nationalist Rodina party. Together they command at least 296 of the 450 seats in parliament - more than enough to pass the law. 
Parties who do not satisfy the new rules will be denied registration and have to exist as "social organisations". This would impact primarily upon the smaller parties, such as Yabloko. Its politics are popular among the 20% of the population considered liberal, but it failed to gain enough votes to win any MPs during December's elections.
Political analysts said the new rules allowed the Kremlin to decide which parties could exist. 
Ms Lipman says that the number of parties in parliament would "now be up to the Kremlin minders. If they decide they want just two parties, and that one of those is liberal, then they can have a liberal party."
Rodina, one of the proponents of the bill, was created by the Kremlin just months before the last parliamentary elections and has just less than 40,000 members. A spokeswoman says the party would not be affected by the bill as it anticipated having 4 million members by the end of 2005. 
It was the fifth major change announced since the Beslan school siege last month, in which 344 people died. All have the same import - the establishment of a new one-party state, with satellite parties there for show. 

Implications for the economy
The first signs of what this all portends or the economy are not encouraging. Yukos is to be sold off at a price far lower than its estimated worth. The company will be effectively ruined and minority holdings destroyed.
"At least now the motive for the attack on Khodorkovsky is clear: it wasn't just a political attack, it was an economic attack," Robert Amsterdam, the Canadian lawyer who is part of the international defence team for Khodorkovsky, said. "This isn't bargain basement; this is theft. It's breathtaking for a state to engage in conduct like this," he added 
Of course the population at large regards the manner by which Yukos and other firms of the oligarchs were acquired as having been daylight robbery. For the state to steal them back is entirely appropriate. But the international investment community will be less forgiving, from their prospective this kind of behaviour makes Russia an economic rogue state where FDI is simply unsafe.

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AGRICULTURE

Russia has potential to produce 110-120m tonnes of grain a year - minister

Russia is expected to export about 8m tonnes of grain in the 2004-05 marketing year (July-June), Agriculture Minister, Aleksey Gordeyev, said, confirming an earlier forecast. In 2003-2004, Russia exported around 5.85m tonnes of grain.
The minister said that the government planned no restrictions on grain exports this season. In January 2004, Russia imposed a special export duty on wheat to discourage exports. The duty was lifted in early May. The increase in exports is expected on the back of increased grain output, which is expected at about 76m tonnes this year, up from 67.2m tonnes in 2003. Gordeyev said Russia's output of milling grain would be twice as high as its annual consumption.
"We are enjoying a very good harvest this year," Gordeyev said. The minister said that Russia has the potential to produce about 110-120m tonnes of grain per year, and to export about 20-30m tonnes of it. "The task is to modernize our agriculture, and reach these production levels within the next five years," Gordeyev said.

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AUTOMOBILES

Russian company supplies jeeps for Afghan police

The Ulyanovsk car manufacturer [UAZ] has signed a deal with the Afghan Interior Ministry on supplying 3,000 modern UAZ-Hunter vehicles, ITAR-TASS News Agency reported. 
A total of 1,500 four-wheel drive vehicles have already been dispatched to Kabul. The second batch is expected to go to Afghanistan before the end of the year. The vehicles will be used by the local police.
"The contract with the Afghan Interior Ministry is one of UAZ's major export contracts this year. We hope to develop partnership ties with other state departments in that country," director-general of the company, Viktor Klochay, said. 

Toyota, Nissan, Lysva may form JV

Toyota and Nissan are thinking of forming a joint venture with Russia's Lysva metals plant to produce automobile sheet, Vladimir Ganzhin, director general of the Lysva plant, said recently, Interfax News Agency reported.
Ganzhin said the Lysva plant would host the joint venture. He said investment in the project would be around 400m roubles. He said the parties had reached a preliminary agreement to form the joint venture, which would likely be a joint stock company. He said Castrip of the United States intended to take part in the project as equipment supplier, as did Russian car giant, Avtovaz. "Castrip representatives plan to visit Lysva in October to continue talks. It is expected that representatives of Toyota and Nissan will also take part," Ganzhin said.

Renault to bid for Avtoframos JV

The City of Moscow has decided to sell 26% of the Avtoframos joint venture which it formed on a 50:50 basis with Renault at an auction, reported Interfax News Agency recently. 
A source at City Hall said Moscow Mayor, Yury Luzhkov, had signed a resolution authorising a public auction for 224,593 shares in Avtoframos, starting price 715m roubles. The proceeds from the sale will go into the city's budget. Renault plans to bid in an auction for 26% of Avtoframos, which is currently a 50:50 joint venture between the French car maker and the City of Moscow.

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AVIATION & SPACE

Russia successfully tests latest Tu-204-300 long-haul passenger airliner

Russia's latest Tu-204-300 airliner has been tested successfully on a long-haul flight from Moscow to Vladivostok, RTR Russia TV reported.
The new aircraft can cover a distance of up to 10,000km without refuelling and it meets all European standards. Chief designer, Lev Lanovskiy, told an RTV correspondent that the aircraft "is very close to meeting the requirements set out in Chapter 4 of the International Civil Aviation Organization, which is to come into force in 2006." The new aircraft will therefore be able to land at European airports, the correspondent said in conclusion.

Russia, Algeria sign space cooperation agreement

Russia and Algeria have outlined the areas of cooperation in space exploration, the official spokesman for the Russian Federal Space Agency (Roskosmos), Vyacheslav Davidenko, said in Algeria, ITAR-TASS News Agency reported.
Roskosmos deputy head, Georgiy Polishchuk, and General Manager of the Algerian Space Agency, Azzedine Oussedik, signed an agreement on mutual understanding and cooperation in space technologies and their application.
The agreement envisages cooperation in distant earth probing and in creating telecommunications and navigation systems. The Algerian side also intends to use all the capacities of the Russian space industry to launch their spacecraft and to set up and use infrastructure on the ground. The document also mentions joint scientific research, personnel training and handover of technologies. "The sides agreed it is necessary to sign a framework agreement on the peaceful use of space as soon as possible," Davidenko said. 
In total, there are plans to launch seven microsatellites to monitor the earth to minimize damage caused by floods, forest fires, earthquakes, volcano eruptions and other natural disasters. Russian rocket carriers will launch all satellites.

Russia to send spacecraft to Mars moon in 2009

Russia is planning to launch a spacecraft to one of Mars' moons as early as 2009, the nation's Federal Space Agency announced. 
"The Federal Space Program is currently developing the Phobos-Grunt project, the flight is planned for 2009," the agency's director, Anatoly Perminov, said, Interfax News Agency reported.
The value in these types of unmanned spacecrafts, Perminov said, is that they can obtain scientific and technical information crucial for planning manned flights to other planets.
Moreover, the mission will help gather information about planets in the Solar System, including potential resources that could one day be used by the crew.
As for manned flights to other planets, Perminov said, they can be made real only through international cooperation in both scientific development, and financing. 
International cooperation is one of the leading factors, according to him, that will determine how soon man will set foot on other planets. 

MiG to play central role in Russian aircraft building

The MiG company will play a central part in the national aircraft building corporation, Boris Aleshin, head of the Federal Agency for Industry, said during the ceremony of introduction of a new leader of the company, Aleksey Fedorov, held recently.
"MiG's role will be one of the most important in the future national corporation," Aleshin said. He added that it is hard to overestimate MiG's experience in building light combat fighters. According to him, the company cannot be referred to as a single structure now, and therefore much should be done to make it a real corporation. He added that the decision to see up a national corporation does not mean that the brand of MiG will be lost, Interfax-AVN Military News Agency web site, reported.
"A single company is being formed to ensure better competitiveness of Russian aircraft in international markets," he said. Fedorov added that the new leadership would step up the process of transforming the state-owned structure as MiG is now into a joint-stock company whose 100 per cent of shares will be owned by the state. "The transformation is inevitable and it will surely result in a number of changes in the management of the corporation," Fedorov added.

Russian Be-200 amphibious aircraft successfully tested in Italy

Russia's Be-200 amphibious aircraft has successfully completed tests in Italy, director-general of the Beriyev design bureau, Viktor Kobzev, said in the run-up to the company's 70th anniversary. "The aircraft showed good results in extinguishing real fires," he said.
In the course of 40 days the Be-200 aircraft put out three major fires, spending over 80 hours flying including over some mountainous areas. "The tests showed that the aircraft can be successfully used in conditions which exist in Italy and supplied to other countries," Kobzev said, ITAR-TASS News Agency reported.

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BONDS

Demand for Norilsk Nickel's Eurobonds exceeds US$1.8bn

Norilsk Nickel issued US$500m in bonds, with a yield of 7.125%, maturing on September 30th 2009, New Europe reported recently.
Morgan Stanley and Citigroup were the issue managers. The bond issue was four times oversubscribed. The issuer is Norilsk Nickel Finance Luxembourg SA, registered in Luxembourg.
The demand for Eurobonds issued by Russia's mining giant Norilsk Nickel has exceeded US$1.8bn, a source in banking circles told Interfax on September 17th.
"The demand is very big, and since the company has no intention of issuing more bonds than was originally planned, the yield on the bonds is expected to be near 7.125%," said the agency's source.
Standard & Poor's ratings agency assign a BB rating to the issue; Moody's Investors Service - Ba2. Norilsk Nickel is the world's largest producer of nickel and platinum group metals. The company is responsible for 18% of world nickel output, 13% of cobalt output, 3.0% of copper output, more than 50% of palladium, 14% of platinum and 1.5% of gold.
The funds that will be raised from the issue are to be used for Norilsk Nickel's corporate needs. Norilsk Nickel is the world's largest producer of nickel and palladium, and one of the largest producers and platinum, copper, gold, and cobalt.

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CREDIT RATINGS

Moody's in surprise lift for Russia

Moody's Investors Service recently surprised bond markets by raising the outlook on its credit ratings for Russia from stable to positive citing the oil-rich country's strong economy.
Moody's rates Russia at the lowest investment grade category of Baa3, one notch higher than either Standard & Poor's or Fitch Ratings, which have Russia in the highest junk grade. A positive outlook means that the next move in the rating is likely to be up.
The move by Moody's contrasts with concerns about the Kremlin's lack of progress with economic reforms raised by Andrei Illarionov, president Vladimir Putin's economic adviser, in an interview with the Financial Times on October 7th.
It also shrugs aside worries about property rights reawakened by the government's campaign against Yukos, the oil company that is lurching towards bankruptcy because of back taxes.
"This outlook change follows several years during which the Russian government has experienced exceptionally strong macroeconomic fundamentals," Moody's said, noting that prudent fiscal policies had fuelled strong growth in Russia's foreign currency reserves.
Following the financial crisis of 1998, the government has been careful to stash away an unprecedented windfall from record high prices for oil, the country's main export.
Russian central bank's foreign currency reserves have risen to record high of US$95.1bn and the government's oil stabilisation fund is expected to near Rbs600bn (US$20.5bn) by the end of the year.
Russia has halved its government debt since its US$40bn domestic bond default six years ago. Moody's expects debt to fall to 25 per cent of gross domestic product by the end of this year.
Vincent Truglia at Moody's said: "It is not a rating on a government's economic programme or the transparency of corporate governance. It's a rating about the government's ability to pay its debt."
Prices for Russia's sovereign bonds rose following the announcement. The 30-year dollar-denominated bond rose 0.7 points to 97.688 leaving the spread over US Treasuries down 8 basis points at 213bn.
Robin Evans, head of emerging market debt trading at Commerzbank said: "With oil about US$50 a barrel, it's hard to argue with Moody's."
In spite of Russia's strong public finances, the country's bonds have been under performing other emerging market debt. This is partly because Germany's controversial Aries deal to repackage Russia's bilateral debt into trade-able securities last summer has raised concerns of further similar transactions. Russia has about US$43bn of bilateral debt, according to WestLB.

S&P upgrades MMK steel combine to BB-

International rating agency Standard & Poor's said it raised its long-term corporate credit rating on Russian steel company Magnitogorsk Metallurgical Combine (MMK) to BB- from B+, reflecting the company's strong operating and financial performance in 2003 and the first half of 2004. The outlook is stable. The rating agency said in a news release that the Russia national scale rating on MMK was raised to ruAA-.
"The company's strong performance is supported by favourable conditions in the global steel industry and the Russian domestic steel market," said Standard & Poor's credit analyst Elena Anankina. "In Standard & Poor's view, MMK's strong profitability, cash flow generation, and solid liquidity help offset the uncertainties presented by the expected privatisation of the government's 17.8% (23.8% voting) stake in the company."
The ratings on MMK reflect the company's strong financial profile and low cost position. This is offset by the risks of its position as a landlocked commodity producer operating in a transition economy and in a cyclical industry. By June 30th, 2004, the company had a strong net cash position, with US$1.4bn of cash compared with US$623m of total debt. Standard & Poor's expects MMK to retain a competitive cost position, curb working capital outlays, and benefit from the gradual development of the domestic steel market, New Europe reported.
The ratings and outlook are based on the assumption that the potential privatisation will not lead to any significant deterioration of MMK's financial profile or alter its demonstrated strategy of investment in modernisation. Although the company is not necessarily expected to keep the current capital structure in the future, Standard & Poor's believes that large cash balances provide MMK will some protection against cyclical risks, capital expenditure needs, and privatisation uncertainties.
Magnitogorsk Metallurgical Combine (MMK), Russia's biggest steel mill, boosted net consolidated profit to International Accounting Standards (IAS) 70.6% year-on-year to US$524m in the first half of 2004, reported Interfax recently, citing a company financial statement. Revenue grew 46.5% to US$2.166bn. Net profit grew 67.8% year-on-year to US$319m in the second quarter. Revenue was up 53.6% to US$1.298bn.

Fitch affirms MDM Bank's ratings

International rating agency Fitch Ratings has affirmed the ratings of Russia's MDM Bank and MDM Bank Holding GmbH at Long-term B+, Short-term B and Individual C/D, Interfax News Agency reported recently. 
The outlook is stable. The Support ratings have been affirmed at four and five respectively. MDM Bank's National rating has also been affirmed at A(rus), the agency said in a statement.
MDM Holding GmbH is the holding company of a group of banks and securities, leasing and real estate etc. companies known as MDM Financial Group (MDM), of which MDM Bank with its operating subsidiaries is the most significant component, accounting for 84% of group assets and 69% of operating revenues in 2003, the statement said.
The Long-term, Short-term and Individual ratings of both entities reflect the high, albeit declining, concentration levels on both sides of MDM's balance sheet and the volatility of its revenue streams earnings, arising from its securities trading activity. They also take into account its periodical willingness to take significant exposures to related parties, although this is capped at 10% of assets.
However, they also consider MDM's good performance track record and adequate liquidity and capitalisation, the statement said. Market risk has historically been well-managed but, at times, the bank's appetite can be moderately high. Although MDM's customer funding is concentrated, the diversity and maturity profile of MDM's funding base has been improved through various capital market issues and the bank has historically managed its liquidity relatively conservatively.
MDM has been less aggressive than many other Moscow-based banks in attracting retail deposits, and its net outflow of retail was relatively modest during the mini-crisis of June/July 2004. MDM is well-capitalised. MDM's main activity is commercial (including retail) banking and investment banking. In addition to MDM Bank (one of Russia's 10 largest banks), the group includes the much smaller MDM Bank St Petersburg, MDM Bank Urals and Latvian Trade Bank, the statement said.

Tatneft remains on Creditwatch negative

Standard & Poor's Ratings Services said recently that its B long-term corporate credit rating on Russia-based oil company Tatneft OAO remains on Creditwatch with negative implications, New Europe reported. 
"Tatneft's Creditwatch status will be resolved once Standard & Poor's obtains clarity on certain of the group's corporate-governance practices and when Turkish court decisions on the Tupras deal, involving Tatneft, are known," said Standard & Poor's credit analyst, Tatiana Kordyukova. "Standard & Poor's will also require submission of 2003 US GAAP accounts, which are still in the process of being audited. Greater clarity about the company's corporate structure and strategy will also be sought when resolving the CreditWatch status," the statement said.

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ENERGY

Russian premier discusses oil projects in Kazakhstan

Russia and Kazakstan are to begin the joint development of the Kurmangazy oil deposit in the near future. Russia and Kazakstan will sign a production-sharing agreement by the end of the year. This was stated by Premier, Mikhail Fradkov, after talks in Astana with Kazak Prime Minister, Daniyal Akhmetov, RTR Russia TV reported. 
According to the premier, work is currently under way to prepare other projects for the extraction and transit of oil. The talks also dealt with joint projects in the sphere of industry and high technologies, in particular cooperation in space. Mikhail Fradkov discussed the results of the talks between the two countries' prime ministers with Kazak President Nursultan Nazarbayev.

Russia reports growth in oil exports to CIS

Oil exports from Russian companies to countries in the Commonwealth of Independent States (CIS) rose 4.5 per cent on the year to 30.263m tonnes, according to data released by Russia's Industry and Energy Ministry recently, Prime-TASS News Agency reported.
In September, oil exports from Russian companies to CIS countries increased 16.8 per cent on the year to 3.422m tonnes. 
Russian companies' oil supplies to Belarus refineries rose 57.5 per cent on the year to 1.397m tonnes in September.
Russian companies' oil supplies to Ukraine's refineries fell 0.25 per cent to 1.644m tonnes in September. No other data was available. 
In 2003, oil exports from Russian companies to CIS countries increased 9.1 per cent on the year to 38.630m tonnes.

Russia's oil shipments via ports grow by 25.2 per cent in January-September

Russia's oil shipments through seaports increased 22.5 per cent on the year to 9.280m tonnes in September, Prime-TASS News Agency reported.
The figure includes 3.718m tonnes of oil shipped out via the Black Sea port of Novorossiysk, 424,800 tonnes via Tuapse, also on the Black Sea, 4.047m tonnes via the Baltic Sea port of Primorsk, 609,400 tonnes via Ukraine's Odessa, 79,900 tonnes via Ukraine's Yuzhnyy port and 400,900 tonnes via Lithuania's Butinge.
In January-September, Russia's oil shipments via sea terminals reached 85,352 million tonnes, 25.2 per cent up on the year.

Russian Rosneft oil company agrees to merge with Gazprom gas giant

The Rosneft oil company fully supports the owner's decision to set up a large national oil-and-gas company, Interfax News Agency reported. 
According to a report by the company's press service, this was stated in a letter which the president of Rosneft, Sergey Bogdanchikov, has sent to Russian President Vladimir Putin.
The letter also stresses that "the decision complies with the tendencies that could be observed in the world oil-and-gas industry and in the global economy in the past few years," and with "the national security and the strategy for the development of the oil-and-gas sector in Russia."
Rosneft fully supports the Russian government's decision to merge the company with the Gazprom open joint-stock company, "with which there were no contradictions and there are none at present," the company says. 
Rosneft and Gazprom have a long history of cooperation in implementing large-scale joint investment projects, such as the use of the Prirazlomnoye and Shtokmanovskoye deposits, the oil company says.

Russian, Venezuelan oil companies to launch joint production venture

Russian LUKoil and Venezuelan state-run Petroleos de Venezuela S.A. (PDVSA) will create a joint oil production venture in the Eastern Venezuela Basin and in the region of Lake Maracaibo, LUKoil's press service said, ITAR-TASS News Agency reported.
A Venezuelan state delegation headed by Vice-President Jose Vincente Rangel met with LUKoil first vice-president Ravil Maganov in Moscow on 5th October to discuss the prospects for cooperation in the oil production sector based on the mutual understanding memorandum signed by the two companies in December 2003, the agency reported.

Khabarovsk seeks to reroute planned pipeline. 

Khabarovsk Governor Viktor Ishaev has proposed that a planned pipeline designed to carry oil from Irkutsk to Asian countries end in his region rather than Primorskii Krai, ISN website reported.
Earlier, Japan and China had fought over the pipeline route, each seeking the most reliable supplies for themselves. The struggle seemed to be over last summer when the Russian government settled on the "northern route" sponsored by Japan from Angarsk to Nakhodka in Primorskiy Krai. The "southern route," linking Siberia to the Chinese city of Daquin, was discarded despite severe pressure from Beijing.
Ishaev argued that though the pipeline should head to the Pacific, it should run to Khabarovskiy Krai's Tatarskiy Bay (ports Vanino and Sovgavan') rather than Primorskiy Krai's ports of Perevoznaya or Nakhodka. Supposedly this alternative would reduce the economic and ecological costs of the project.
Ishaev obviously wants to bring the economic benefits from the pipeline to his region. He has already raised the issue during a meeting with Japanese Minister of Economy, Trade and Industry, Seiti Nakagawa, during his recent visit to the Far East. Ishaev has also requested that Transneft include Khabarovsk into the feasibility study it is currently conducting for the project. Ishaev's proposal may gather support in Moscow, in particular from state-owned oil producer Rosneft, which maintains an oil processing plant in the Khabarovskii Krai city of Komsomolsk-na-Amur.
Japan has yet to change its official position - that the pipeline should go through Primorskiy Krai - in light of the new circumstances. Certainly, Japan may use this internal development to its advantage by expanding its bargaining power vis-a-vis Russia.

Russia, South Korea prepare gas agreement

Russia and South Korea are preparing to sign an intergovernmental gas cooperation agreement, Interfax News Agency has reported. 
The Russian Industry and Energy Ministry said in a press release that this issue was discussed during Russian-Korean consultations in Moscow recently.
Participants at the meeting from the Russian side included representatives from the Industry and Energy Ministry and Gazprom, and from the Korean side - from the Commerce, Industry and Energy Ministry, the Foreign Affairs and Trade Ministry, the presidential committee for eastern and northern regions and the Korean gas company Kogas.
During the consultations, special attention was paid to developing gas export pipeline systems in Eastern Russia, the main principles of Russian-Korean gas cooperation, and also a mechanism for agreeing candidates for authorised organisations from the Russia and Korean sides. The sides discussed signing a protocol of intent between the Russian Industry and Energy Ministry and the Korean Commerce, Industry and Energy Ministry.
Korea and Russia have been holding talks to prepare an intergovernmental gas agreement since May 28th this year. Russia submitted a draft agreement to Korea at the start of September 2004.
Kogas, along with BP and China National Petroleum Corporation, is in a consortium to develop the Kovykta gas condensate field in Irkutsk region. The main markets for this gas will be Korea and China. 
A Gazprom representative said that gas supplies to South Korea will be possible as part of an intergovernmental agreement, and only from a unified gas supply system.

Rosneft signs memorandum with Korean oil company

A memorandum of mutual understanding between Rosneft and Korean National Petroleum Corporation, signed in Moscow recently, deals with the development of two oil blocks in Kamchatka and Sakhalin, Rosneft President, Sergei Bogdanchikov, said, New Europe reported. 
He said that these projects "are comparable in scale with the Sakhalin-1 and Sakhalin-2 projects. "Bogdanchikov said that the first stage of work on these projects will take two and a half years and will involve investment of US$250m. He said that about US$150m will be invested in geological exploration in Kamchatka and about 100m in Sakhalin.

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FOOD & DRINK

EBRD to finance Danone growth

The European Bank for Reconstruction and Development will participate in a capital increase planned for OOO Danone Industria that will help finance expansion plans, allowing the company to more than double annual production to 310,000 tonnes by 2007, the RBCC Bulletin reported.
The additional investment of up to €17.5m will enable the EBRD to maintain its stake in the company at the existing level. The EBRD initially invested US$21m in the company in 2001. The transaction is part of a US$100m regional facility under which the EBRD has so far committed US$74m for equity investments in five Danone projects in Russia, Bulgaria, Romania and Poland.
Danone Industria, the Russian dairy sector subsidiary of France's Danone group, started production in Russia in 1995. It operates two dairy plants whose combined capacity today is 120,000 tonnes a year. The new project will allow Danone to expand the area from which it collects milk to 10 new regions west and south of Moscow, as well as introduce new products onto the Russian market.
Danone Industria is Russia's second largest producer of yoghurt.

Interbrew expands in beer-thirsty Russia

Interbrew, the Belgian group which was recently expected to become the world's largest brewer, took full control of Russia's second biggest beer group for €530m in shares in August. By buying out its joint venture partner - family controlled SUN Group - Interbrew, maker of Stella Artois and Beck's, consolidates its position in the rapidly expanding Russian market behind market leader Baltika, which is owned by BBH, a joint venture between Carlsberg and Scottish & Newcastle, the RBCC Bulletin reported.
In return the Khema family, which started SUN Brewing in Russia in 1992, will receive a 3.4% stake in an enlarged Interbrew following its €9.2bn cash and shares acquisition of Brazilian brewer AmBev. InterbrewAmBev will control 14% of the world beer market.
Nand Khemka, an Indian national who has run brewing operations in Russia for more than 40 years, will take a seat on the InterbrewAmBev supervisory board but will not be given voting powers.
Russia, the second fastest growing beer market, behind China, has seen sales more than double in six years. Drinkers have been switching from vodka to beer as incomes rise and western consumer trends are adopted. Russian beer consumption averages 92 pints a year, only half as much as in Germany. But with sales volumes of 74m hectolitres last year - expected to rise to 80m this year - Russia could be overtaking Germany as Europe's largest market by 2006. Baltika, which dominated a thriving beer market in the absence of competition throughout the 90s, has recently struggled to maintain market share in the face of a host of rivals - particularly SUN after it joined forces with Interbrew in 1999.

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FOREIGN ECONOMIC COOPERATION

Russia, Nigeria set to step up cooperation

Russia is in favour of stepping up trade and economic relations with Nigeria. The Russian Foreign Ministry's information and press department said that Russian Deputy Foreign Minister, Yuriy Fedotov, made the statement during a meeting with Nigerian President, Olusegun Obasanjo, which took place as part of the visit by the Russian deputy foreign minister to that country, RIA News Agency reported.
"Much attention was paid during the meeting to topical issues of bilateral cooperation, including ways to step up trade and economic relations with Nigeria," the Russian Foreign Ministry said.
Yuriy Fedotov and Olusegun Obasanjo pointed out that the intergovernmental Russian-Nigerian commission for trade, economic, scientific and technical cooperation was expected to become an important tool for stepping up the volume of business partnership between Russia and Nigeria.
The sides stressed that Russia and Nigeria had unused potential as regards cooperation in the investment, military-technical and cultural spheres.
During the talks Fedotov and Obasanjo also highly praised the current nature of political dialogue and constructive mutual understanding between Russia and Nigeria on the international scene, the coincidence of the two states' approaches towards methods of solving key issues of the present day, and their adherence to the idea that the norms of international law must be strictly observed and that the UN should play a central coordinating role.

Ukraine, Russia cooperating on WTO entry

Ukraine and Russia are constantly coordinating their actions on joining the World Trade Organization (WTO), according to Ukrainian Prime Minister, Viktor Yanukovych. He was speaking about the results of a meeting with Russian Federation Prime Minister, Mikhail Fradkov, ITAR-TASS News Agency reported.
According to Yanukovych, "the issue of coordinating our countries' entry into the WTO is constantly within our field of vision." He added that "there is understanding on this issue" at the level of working groups. Yanukovych noted that trade between Russia and Ukraine had increased by 35 per cent in the recent past and "we are confidently heading towards the volume of trade and economic relations that we defined in the programme for joint relations."
For his part, Prime Minister, Mikhail Fradkov, announced that a session of several working groups would take place in the next few days at the level of experts, who are to complete work on a number of remaining issues. The Russian prime minister confirmed Russia's readiness for close cooperation and coordination with Ukraine on WTO entry.

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FOREIGN ECONOMIC RELATIONS

Russia-China trade turnover

Trade turnover between Russia and China may amount to US$60bn to US$80bn by 2010, trade representative in China, Sergei Tsyplakov, said, Interfax News Agency reported. 
The Russian official said: "This year the volume of our trade with China may reach US$20bn. Considering this development the Chinese side is raising the issue of increasing bilateral trade turnover to the level of US$60-80bn by 2010…According to Chinese experts the volume of trade will grow at an annual pace of no less than 20%." According to official data Russia's imports from China have grown by 59%, while the country's exports increased by 27.5%. The Russian trade representative also noted that at present Russian-Chinese cooperation in the investment sphere is looking up.

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MINERALS & METALS

Russian government decides to sell state stake in major steel plant

The auction for the 17.84 per cent state-held stake in Russia's largest steel smelter, the Magnitogorsk Metallurgy Plant (MMK), will take place before the end of the year, the Russian government's press service said, Prime-TASS news agency reported. 
The resolution was signed by Russia's Prime Minister, Mikhail Fradkov, on 30th September. According to the resolution, MMK is to be added to the government's privatisation plan for 2004, the press service said. 
On 29th September, Deputy Economic Development and Trade Minister, Andrey Sharonov, said that while the government expected to sell the Magnitogorsk Metallurgy Plant before the end of this year, the budget would receive the funds from the sale in 2005. 
Russia's Economic Development and Trade Ministry estimates federal budget revenue from MMK privatisation at more than R8bn. 

Norilsk Nickel's IAS net profit up 4.2 times in Q1

Russia's Arctic smelting giant MMC Norilsk Nickel net income calculated under international accounting standards grew 4.2 times to US$460m in the first quarter of 2004, compared to the first three months in 2003, the company said recently. Metal sales provided US$1.583bn in revenue, a 40% year-on-year increase, Interfax News Agency reported.
"The main reasons for the revenue growth were increased average quarterly metal sales prices and the inclusion of the Stillwater company financial results in the report for the first quarter of 2004. In the first quarter of 2003, the Stillwater results were not consolidated," the release said. Cost of metals sold increased 1.5% in the first quarter to US$693m.
Cash operational expenses dropped 2.8% to US$557m this first quarter from US$573m in the first quarter of 2003. Gross profit was up 97.3% year-on-year to US$890m for the first quarter, core business profit 193% to 621m. The income before taxes increased by 3.4 times to US$635m.
The report said subsoil resource extraction taxes increased US$14m to US$32m in the first quarter of 2004, because of increased actual ore extraction volume and the introduction of a new pollution tax on Kola Mining and Metals and the company's sub-Arctic branch. Other expenses for the quarter dropped 16% to US$72m. The company attributed this advance in the revenues to higher metal prices and the inclusion of the results of Stillwater Mining in the financial statements for the first quarter of 2004.
Norilsk has increased its capital spending plan for 2005-2006, now intending to spend US$829m in 2005 and US$822m in the following year, the company's first-quarter report to international accounting standards said. The company had earlier reported in its IAS report for 2003 that it intended capital spending of US$801m in 2005 and US$794m in 2006. For the nine months ending December 31st, 2004, the company plans US$531m in capital expenditures.
The report does not say whether this includes spending on Norilsk Nickel's gold-extraction assets. Yield on US$350-US$500m in Eurobonds issued by Arctic smelting giant MMC Norilsk Nickel will at placement be an annual 7.0-7.5%, a source in banking circles told Interfax, citing a representative from one of the issue's lead managers. This source said the Eurobonds will most likely be placed at 7.25% and in the amount of US$500m. "If everything is normal on the market, US$500m in Eurobonds is likely to be placed," he said.

SUAL post 2.4bn roubles H1 net profit

SUAL, Russia's second biggest aluminium company, had net profit to Russian Accounting Standards (RAS) of just over 2.4bn roubles in the first half of 2004, Alexei Prokhorov, public relations department manager at the SUAL Holding, said, Interfax News Agency reported.
Revenue was 17.9bn roubles, Prokhorov said. "Revenue and profit in the first half of 2004 were considerably higher than in the same period of last year," Prokhorov said. He said profit had grown primarily on higher prices for SUAL's core product primary aluminium on commodity exchanges.
Increased prices and sales on the domestic and external markets generated an additional 1.66 roubles in revenue for SUAL, Prokhorov said. Higher profit this year also enabled SUAL to modernise its alumina refining capacity and to dispense with tolling, by which the company would smelt alumina for foreign partners and ship the finished metal back.

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NUCLEAR ENERGY

Russia says work at Iranian nuclear plant to be completed on schedule

The completion of the construction and the commissioning of the first power generating unit at the Bushehr nuclear power plant in Iran, which is being built by Russian specialists, "will take place as scheduled," ITAR-TASS News Agency reported.
The Federal Agency for Atomic Energy (Rosatom) said that this "was announced at a meeting in Moscow between the head of the Russian atomic energy agency, Aleksandr Rumyantsev, and representatives of the Iranian Atomic Energy Organization."
According to Rosatom's official representative, "at the meeting the sides discussed technical issues connected with completing the construction of the power generating unit, as well as the supply of nuclear fuel from Russia to Iran to physically start the unit and for its further work."
In addition to this, Rosatom noted, "at the meeting the sides also coordinated issues connected with Rumyantsev's working visit to Iran, which is scheduled for the second half of November." 
In Tehran "it is planned to discuss matters of further bilateral cooperation in the sphere of peaceful use of nuclear energy, including Russia's possible participation in the tender for the construction of the second power generating unit at the Iranian nuclear power plant in Bushehr."

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TELECOMMUNICATIONS

Alcatel's Russian sales up

French telecommunications company Alcatel will see sales reach €500m in Russia in 2004, board chairman and chief executive director, Serge Tchuruk, said recently, Interfax News Agency reported.
Alcatel sales in Russia were only US$60m in 1996. These figures are proof of the enormous growth of Alcatel, Tchuruk said. Alcatel equipment is used in more than half of Russia's regions. The company estimates, based on 2003 results, that Alcatel is the leader on Russia's telecommunications market in delivering communication equipment for the network's infrastructure, for fixed communication systems, payload for Russian communication satellites and also for mobile communication systems and optic transport networks. French telecommunications company Alcatel and AFK Sistema, one of Russia's largest financial-industrial groups, signed a contract worth more than US$5m to set up platforms to provide modern multimedia services in Moscow.

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TRANSPORT

Venezuela to purchase 40 combat helicopters from Russia

Venezuela plans to purchase 40 combat helicopters from Russia in the near future, Venezuelan Vice-President Jose Vicente Rangel told reporters on 5th October following a meeting of a Russian-Venezuelan intergovernmental commission, Prime-TASS News Agency reported. 
Venezuela plans to purchase the helicopters in several lots, with the first 10 helicopters to be supplied in 2-3 months time, Rangel said. 
Russian Deputy Prime Minister Aleksandr Zhukov also participated in the meeting, which took place in Moscow. No details about the cost of the deal were provided.

Russians, North and South Koreans to discuss railway link in Beijing

For the first time a trilateral meeting of representatives from North Korea, South Korea and Russia is to be held in Beijing, at which "transport managers will sit at a round table together with staff from the three states' foreign ministries," the head of the Russian Railways company, Gennadiy Fadeyev, said at a video conference recently. He was talking about prospects for a Europe-Korean Peninsula transport corridor, ITAR-TASS News Agency reported.
Fadeyev hopes that "specific steps will be worked out" to implement the project to connect the Trans-Siberian and Trans-Korean railways because "this is indisputably a beneficial project from the economic point of view and the matter is now one for the politicians."
Fadeyev said that in Russia the 240km section of the Far Eastern railway from Vladivostok to the Khasan border station is being modernized. The North Korean side has acquainted itself with the feasibility studies of the projects.

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