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Books on Russia
REPUBLICAN REFERENCE
Area (sq.km)
17,075,400
Population
143,782,338
Principal
ethnic groups
Russians 82%
Tatars 3.3%
Ukrainians 2.7%
Principal towns
Moscow (capital)
St Petersburg
Novosibirsk
Nizhni Novgorod
Yekaterinburg
Samara
Currency
Rouble
President
Vladimir Putin
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Update No: 295 - (26/07/05)
The tragedy of Russia in the twentieth century is that, after
a couple of decades of doing rather well (1894-1914), it had two experiences of
involvement in world war and two misconceived, disastrous revolutions. The first
and worst of the revolutions by far was of course the Bolshevik Revolution of
October 1917 (to which the overthrow of Tsardom in February was a mere prelude).
It is too vast an event to be gone into here. Suffice to say, Yeltsin, who
regards Lenin as a political genius to this day, has this verdict to deliver on
the Bolsheviks: "It is a pity they did not try out their ideas first in a
smaller country."
Indeed.
The second was the attempt, insisted upon by the West, to introduce capitalism
and liberal-democracy overnight in the early 1990s by the 'shock therapy' of the
government of Yegor Gaidar, a very decent and intelligent man, yet not up to the
measure of events. But who could have been, so exceptional were their nature?
The truth is that Russia was devastated by what ensued, and by instant mass
privatisation that followed in the mid-1990s. It is far from having recovered
from the 'shock.' A caricature of what had been desiderated ensued - a decidedly
liberal kleptocracy.
A two nations society came about - a handful of super-rich and their hangers-on,
of gangsters and spivs of every hue and description on the one hand and the vast
bulk of the population on the other, sunk in dire poverty. It culminated in the
catastrophe of 1998, when the rouble collapsed and a burgeoning middle class was
wiped out.
True, an economic recovery of a sort has since occurred, with GDP bounding up by
6-7% per annum on official figures in the 2000s. Based simply on buoyant oil and
primary commodity prices and enriching further the nouveau riche, it has not
involved 'trickle-down' effects so much as 'trickle-out' ones. Russia is now a
net exporter of capital by a very large amount (officially $8bn last year, but
almost certainly in fact much more); and rich Russians there are aplenty all
over Western Europe and elsewhere.
But the huge majority of the compatriots they have left behind remain as poor as
ever. That is the rub.
What next?
A historical perspective
There has been a curious turn-around in history. The leaders of the West, the
US, were for long petrified by the prospect of the 'domino effect.' Once one
country went communist, its neighbours would. Communist contagion was in
process, so they deemed. Hence the necessity, it was felt in Washington, for the
Vietnamese War and the rest of it in Indo-China.
Actually the really important 'domino effect' was to unfold in 1989-91. Once one
country went Western in the Warsaw Pact zone, the rest would. The Warsaw Pact
zone of COMECON countries, for all its menacing aspect viewed from not so far
afar, was a very brittle affair, a moribund bunch of statist economies
completely incapable of the international synergy and dynamism of advanced
capitalism. This all led to the dramatic events of 1989 when one after the other
they peeled away from Soviet embrace - the real domino effect if ever there was
one.
The new FSU-style domino effect
Then came 1991. The successor states the former so-called all-union
republics of the Former Soviet Union (FSU) are proving to be prone to the
contagion of Western revolution themselves.
At first they were mostly ruled by former communist apparatchiks, not really
committed to the Western way of life. But three revolutions have recently taken
place across the FSU, which assuredly alarms the hardliners in the Kremlin.
The FSU consists of four zones, plus Russia itself, far larger than all of them
combined. Each of these zones has now had a nodal state amongst it which has had
a pro-Western revolution.
There are the Baltic states, Western before the war, which gravitated
automatically towards the West after 1991, as they had for years past. Lithuania
led the way, its communist party going independent in 1989 and itself declaring
independence from the USSR in March 1990. Independence for all three duly
followed in 1991.
The Lithuanians were certainly inspired by the Poles, their blood brothers and
Roman Catholic co-religionists, Pope John Paul II being no small influence here.
There is something singularly appropriate about the fact that Roman Catholicism
led the way, first to destroy Communism in Poland and the Warsaw Pact world of
Central Europe and then by infection in the USSR itself. Communism, the secular
heresy of Christianity, was to be crushed by Christianity itself - of course in
league with the latter's greatest offspring, the West.
Then there is the Caucasus. Here it was Georgia that was to lead the way,
another Christian state. Ruled for a decade by Eduard Shevardnadze, a key figure
in the transition from communism to capitalism as Soviet foreign minister in
1985-90, it had it's Rose Revolution in late 2003, which will go down in
history. The remaining regimes in the Caucasus in Armenia and Azerbaijan, dire
dictatorships both, have seen the writing on the wall.
Then there are the Slav states of the FSU to the west of Russia. Here came the
mightiest event of all in part-Orthodox Christian, part-Catholic Ukraine, the
Orange Revolution of late last year.
Moldova is already looking westwards, ironically under a reformed communist
party. The third state, Belarus, is anything but reformed, indeed still has a
vile KGB regime in charge, propped up by Russia. It may survive for a long time
due to the sheer ruthlessness of its dictator, Lukashenka. But the writing is on
the wall here too, a fact that he acknowledges by the vehemence of his denial of
it.
Four of the five regimes in Central Asia are still in the grip of former Soviet
apparatchiks, who rule with the same iron fist as in the old days; so actually
is the fifth, Kyrgyzstan. But at least there a genuine revolution has taken
place. The apparatchiks may change their ways.
Does the Kremlin itself have anything to fear?
The answer in the immediate run is NO.
Putin is very much in charge, with a far greater panoply of power than Yeltsin.
Indeed, he is clawing back power by the day.
The governors are to be chosen by the Kremlin, no longer to be elected.
Parliament is now a rubber-stamp of the executive. The media are virtually all
compliant too, totally so in the vital case of television. Unpopular welfare
reforms were passed recently with impunity. There were demos against them; but
the numbers were not that great. The old Russian fatalistic acceptance of
government is prevailing once again.
It is widely known that many of the elected governors rigged the results and are
thoroughly corrupt, a fact that the Kremlin does not mention because it wants a
smooth transition of local power to less corrupt figures without a series of
trials and witch-hunts. The governors will go meekly, knowing that the centre
has the goods on them all right and could oust them by trial and imprisonment,
if it decided to do so. Everyone is accepting the dictates of the Kremlin, in
effect the master and their maestro.
Moreover, there is no obvious alternative to Putin. None of the opposition
leaders is a credible successor figure nowadays. The liberal ones don't count at
all, now not even in parliament, given the new 7% of the vote threshold
required, which they failed to meet in the December, 2003 Duma elections. Such
reformers as do still count are in the government.
The two outsiders who have thrown their hat into the ring, chess genius Garry
Kasparov and former premier Mikhail Kasyanov, do not singly look anything of a
real theat at all. Kasparov for his part openly agrees - and Kasyanov, well
aware of the Kremlin's might, would probably do so privately. Kasyanov is now
"under investigation" a typical FSB reflex or any challenge to Putin,
looking for similarity in his history to nail him with.
Gennady Zyuganov, the communist leader, heads the only major opposition force,
but one much shrunken since December, 2003, when the party's vote was halved to
11%. He is a tired old hack without any ideas. He is dumb enough to keep
intoning Stalin and white-washing his misdeeds, as at the May Day rally in
Moscow just past. Stalin led the people to victory in the war, he says, as if
anyone is likely to forget it. As for the gulag, the numbers killed have been
greatly exaggerated and were 'a mere million' or so.
There are a lot still nostalgic for Stalin in Russia. Well, they can assuage it
by basking in Putin's new strong hand at the tiller. Zyuganov is simply playing
into his rival's hands here. He is a fearfully obtuse fellow and a dull speaker.
The communists should have dumped him years ago. The fact that they have not
reveals an inflexibility which explains why they are never likely to win.
The one strong figure who could have perhaps posed a challenge to Putin and his
entourage was General Alexander Lebed, who died in an air crash several years
ago. He had made the mistake of absenting the key Moscow political arena by
becoming governor of Krasnoyarsk in distant Siberia. Anyway, it is difficult to
see what allies he could have had. Unfortunately, he is out of the race for
good.
The May Day rallies around the country did express mounting popular
disaffection, but not such as to be a serious challenge at all. With more than
three years still to run of his second term, Putin is firmly in the saddle.
The case of Khodorkovsky
There was one man who challenged Putin to his cost. An event has
consequently occurred in Russia with widespread repercussions. That is the fate
decreed for Mikhail Khodorkovsky, one-time oil tycoon, the most successful
capitalist in Russia's history, the founder of its most transparent and vigorous
company, Yukos - but now a jailbird, sentenced for nine years, with his creation
in receivership due to absurd retro-active tax demands, that were constantly
being increased to finish it off.
Nobody doubts for a moment that the affair was fundamentally political from the
outset, even if the Kremlin in the shape of state-owned energy giant, Rosneft,
has helped itself to the core assets of Yukos at knock-down prices in the
process, a gratifying and by no means unimportant side-effect. Khodorkovsky had
the temerity to believe that he could be Putin's successor in the Kremlin in
2008, the year of the next presidential elections, for which Putin on the
constitution is not allowed to stand. That the fundamental reason for his scurvy
treatment is political is shown by the length of the sentence, finely calibrated
by Putin personally one may be sure, nine, not the expected ten, years. His time
in prison since his arrest on October 25th, 2003 is to be included in the term
of confinement. This means he is due to be released in October 2012, just after
the presidential elections of that year in which Putin can theoretically stand
again, if he so decides!
Putin is sending out messages here. One is to Khodorkovsky of a decidedly nasty
nature, to a man that he must know is being kept in appalling conditions. 'You
are to serve nine years and then scram.' But why the seven and a half years in
ignomony and worse torment, instead of eviction out of the country, like
Berezovsky et al? Putin is not a nice man, but probably nice men don't get to be
head of the FSB as he was before becoming premier. Vindinctiveness is his second
name.
But he is also sending a message to the West; 'You will not be able to rape
Russia on my watch.'
Khodorkovsky had the extraordinary idea of linking Yukos with Exxon, the world's
largest company, in the autumn of 2003, without clearing the matter with the
Kremlin. This was after the arrest of his main business associate, Platon
Lebedev, in June of that year. He saw himself as a kind of Russian Rockefeller
figure who could cross over from big business to big politics. He should have
taken on board the fate of his predecessor on this notion, Boris Berezovsky, now
in comfortable exile in Britain, rather than rotting in a Russian jail.
While funding the opposition, to Putin, he hinted at his plan to stand himself
in the 2008 presidential elections. He seemed to think that he was living in the
country of his new friends, Gates et al. Even the US government dare not mess
with the Kremlin! Why should a Jewish tycoon in anti-semitic, anti-oligarch
Russia think he could? Verily, hubris awaiting its nemesis.
The Japanese ruse
The eventual succession problem comes in 2008, for whose presidential
elections Putin is barred from standing by the constitution for a third term. He
has repeatedly denied any wish to alter the constitution here, apparently
sincerely. He may be toying with a very simple expedient, putting his long-time
close friend, Sergei Ivanov, the defence minister (a crucial post in Russia), in
his place, who could have the job for a while, leaving Putin with the option of
another stab at the job later, although he might genuinely not want it.
In the interim he could either have an enhanced premiership, certainly not the
feeble one at present, or take a break. He might genuinely want to spend more
time with his young family; and with his best friend as Russian president, and
having had eight years in the spotlight himself, he would of course remain a
major power-broker. This solution assumes that he can trust Ivanov absolutely.
He almost certainly can. Former KGB colleagues, they know the meaning of total
loyalty.
So did the old rulers of Japan, the shoguns, and then the premiers after the
Meiji Restoration of 1868, who were adept at this kind of thing. Why should he
not take a leaf out of their book?
Whither Putin?
The distinguished Russia specialist, Anatol Lieven, a scion of an ancient
Russian aristocratic family as it so happens, has this to say on the subject:
'A semiauthoritarian present is Russia's best hope for a liberal future.'
"In the West, hostility toward Russian President Vladimir Putin stems
from two beliefs: that Russia should move quickly toward Western-style democracy
and that there is a strong, popular, liberal opposition ready to lead such a
transformation.
"The first is mistaken, the second, pure fantasy. It will take at least a
generation for Russia to build the foundation for a modern market economy and
democracy. It's an uncomfortable reality, but, for the foreseeable future, only
a semiauthoritarian government such as Putin's can keep Russia moving in the
right direction. If Putin weren't there, we'd soon miss him.
"Consider, for a moment, if Putin were to fail. There is no Thomas
Jefferson waiting in the wings. Instead, he would almost certainly be replaced
by a figure and a movement that are just as authoritarian but more nationalist,
more anti-Western, more populist, and less committed to market reform.
"A Putin meltdown is not out of the question. He began his term with the
disastrous decision to reoccupy Chechnya. He may now be moving toward a second
blunder, if there is any truth to rumours in Moscow about a future abolition of
Russia's autonomous ethnic republics. Still, the West should wish him
well."
The impertinent guy among the good-guys
Lieven goes on to say: "Why do so many in the West have such a naive
faith in Russia's prospects for rapid reform? The persistent belief that Russia
will wake up to free-market democracy is rooted in the success of the former
Communist states of Central and Eastern Europe. But the analogy is a faulty one.
Compared to Russia, those countries are small and ethnically homogeneous.
"Russia is a vast fragment of a former empire, and it continues to embrace
large, traditional, and impoverished Muslim populations in the North Caucasus.
The European successor governments could fall back on pre-Communist statehood
and economics. In Russia, Stalinism lasted far longer and was imposed on a far
less developed population.
"The burgeoning nationalism and desire to escape Russian domination in
Central and Eastern Europe impelled these states in the direction of NATO and
the European Union, enabling their governments to push through deeply unpopular
economic and political reforms. In the Soviet Union-with the exception of the
formerly independent Baltic states-the historical, economic, and cultural
background was very different. Placed in the context of most former Soviet
republics, Russia looks better than average in terms of both development and
democracy.
"It is not just the burden of history that makes hope for a rapid
transformation in Russia illusory. The country's dreadful economic decline,
social and moral chaos, and rampant corruption in the 1990s shattered the image
of economic reform and democracy for the bulk of the population. By 1996, long
before the accession of Putin, the combined vote of the liberal parties was
already below 12 percent. Russia's first taste of democracy was bitter, and
fairly or unfairly, those who championed it have been held responsible for
policies that created misery for tens of millions, while grotesquely enriching a
favoured few."
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AUTOMOBILES
GM-Avtovaz to pay out dividends of US$30m
Shareholders of GM-Avtovaz decided to use US$30m to pay out dividends for 2004,
Interfax News Agency reported recently.
This amount, which the board recommended, will be paid in August, Warren Brown,
GM managing director for Russia and the CIS, told Interfax. This is the first
time the Russian-US joint venture will pay out dividends, Brown said. Dividends
will only be paid for common shares. General Motors and OAO Avtovaz own 41.6 per
cent of common shares in the joint venture. The European Bank for Reconstruction
and Development owns 16.8 per cent of preferred shares in the joint venture's
charter capital, the agency reported.
Russia is shining new hub in auto industry
While not known for the quality of its own cars, Russia is fast emerging as a
hub for foreign automotive giants, with Toyota next in line to lay the
cornerstone of an assembly plant in St Petersburg. Attracted by tax incentives
for foreign investment, low costs, a large market and an accelerating economy,
companies like Ford and DaimlerChrysler aimed major projects at the northern
city, which is tipped to become the "Russian Detroit," New Europe
reported.
Toyota will assemble from 50,000 cars a year in St Petersburg from 2007, while
other regions are also drawing interest from overseas. By 2010 the government
expects 10 companies to set up in Russia, in spite of fears about safety of
foreign investments after the taxation assault on the YUKOS oil company.
"Russia is one of the most important growth markets in the world,"
said Jonathan Browning, vice president of General Motors Europe, at last year's
opening of the assembly plant for Hummer off-roaders in Kaliningrad, the first
outside the United States.
Despite bitter opposition from the domestic car industry, which fears a fifth of
its worker may be laid off, the Russian government is considering the removal of
import tariffs on key car components.
This will make the country even more attractive, although companies are not
waiting for ideal terms to move in. DaimlerChrysler CEO, Juergen Schrempp, met
Russian President, Vladimir Putin to personally offer thanks for support of its
estimated US$100m assembly plant project by St Petersburg, the leader's home
city.
The first of an anticipated 25,000 Mercedes vehicles made annually is expected
to roll off the line as early as this autumn.
Under the proposals submitted to the Kremlin by Russia's Industry and Energy
Ministry, foreign carmakers opening plants will be required to turn out a yearly
minimum of 25,000 units. They would also have to buy 30 per cent of parts from
domestic suppliers within six years.
In April, Renault subsidiary Avtoframos opened a US$250m assembly plant in
Moscow to produce its low-budget Logan model.
The French carmaker became the second joint venture in Russia after General
Motors, which makes the Chevy Niva with AvtoVAZ.
Volkswagen is also reportedly planning a factory in Stupino south of the city to
produce 100,000 vehicles a year.
Ford makes 35,000 of its Focus model in St Petersburg and Kia, BMW and Hyundai
assemble at the Avtotor plant in Kaliningrad. Nissan are also looking at moving
into Russia.
But the vehicles are not earmarked for export. As average incomes grow, annual
demand in Russia is expected to rise from 1.76m vehicles in 2004 to 2-2.5m by
2010 on the back of an economy predicted to grow at 7%.
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AVIATION
Aeroflot profit hits US$172m
Aeroflot, Russia's largest airline, said that profit rose by more than one third
last year as passenger and cargo traffic increased, Interfax News Agency
reported.
Net income under international accounting standards rose to US$172m, from
US$127m in 2003, Deputy CEO Mikhail Poluboyarinov told shareholders at the
company's annual meeting recently. The state-controlled airline carried 25 per
cent more cargo last year than it did the year before and flew 16 per cent more
passengers, CEO, Valery Okulov, told shareholders.
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ENERGY
Shell's Sakhalin-2 gas project hit by eight-month delay and US$10bn cost rise
Royal Dutch/Shell, the Anglo-Dutch energy giant, recently said its flagship
Russian gas project would be delayed by at least eight months and cost US$20bn (£11.4bn)
- twice the original estimate, the Financial Times reported on July 15th.
The giant Sakhalin-2 liquefied natural gas project off the east coast of Russia
has been beset by a range of problems, the company said, including the rising
cost of raw materials, a shortage of contractors, Russian inflation and currency
exchange rate fluctuations.
The project had already been delayed by environmental concerns, which forced the
company to re-route a pipeline to avoid whale feeding grounds.
"Unfortunately, it is now clear that the Sakhalin project budget and
schedule were significantly underestimated when it was approved in 2003,
especially given the project's scale, its complexity and the frontier nature of
execution," said Malcolm Brinded, executive director for Shell's
exploration and production unit.
The massive cost overrun will hurt the profitability of one of Shell's most
important new projects and could hit its overall production of oil and gas in
2008.
It also raises questions about whether the company was too optimistic in other
large projects that were approved by the previous management, ousted last year
after the reserves downgrade scandal.
In spite of the delay, Shell stocks rose after the group assured shareholders it
still planned to pay back US$13bn-US$15bn this year through buybacks and
dividends.
Shell has changed much of the management at Sakhalin Energy, the joint venture
company carrying out the project, and is setting up a special academy to improve
management of other large projects in the future.
It will also conduct a review of all big projects to see if earlier cost
estimates were correct. In the light of rising costs, Shell will reconsider its
capital expenditure budget for 2006 and beyond.
Sakhalin-2 is one of the great hopes for Shell as it tries to boost its flagging
production of oil and gas. The company said it now expected its first delivery
of LNG - super cooled natural gas that can be shipped on tankers - in summer
2008 instead of November 2007.
The delay could also hurt Asian countries that depend heavily on LNG for energy.
"Any delay to LNG start-up will worsen what were already predicting to be
an extremely tight Pacific basin market in 2008," said Frank Harris,
vice-president of global LNG at Wood Mackenzie, the oil consultants. "It's
bad news for Asian buyers that already know they will be short of volumes in
2008, particularly Korea."
Shell owns 55% of the Sakhalin-2 project, with the remainder split between
Mitsui and Mitsubishi of Japan.
However, Shell announced an asset swap recently that would see Gazprom gas
monopoly take a 25% stake in the project.
LUKoil and ConocoPhillips create US$500m JV
Russian oil major LUKoil and ConocoPhillips finalised the creation of the
Naryanmarneftegaz joint venture to develop resources in Timan-Pechora
hydrocarbon province in the northwest of Russia, LUKoil said in a statement
recently, New Europe reported.
The Naryanmarneftegaz joint venture is part of a larger strategic alliance
between ConocoPhillips and LUKoil that was formed on September 29, 2004, reports
said.
ConocoPhillips bought just over 11 per cent of LUKoil in the framework of the
alliance and has an option to increase its stake in the Russian oil major to 20
per cent.
ConocoPhillips has a 30 per cent interest in the joint venture, the statement
said. The amount of the transaction involving acquisition of this interest is
500m Euro. The companies will govern the joint venture on 50:50 basis.
Production from the joint-venture fields is expected to be transported via
pipeline to LUKoil's existing terminal at Varandey Bay on the Barents Sea and
then shipped via tanker to international markets, the statement read. The
Varandey terminal's capacity should be increased to 240,000 barrels per day in
2007, with ConocoPhillips involved in designing and financing the expansion.
"We welcome ConocoPhillips's participation in the joint venture and its
help in developing fields in the region, including the South Khylchuyuskoye
field, which is due to go on stream in 2007," the statement quoted Ravil
Maganov, LUKoil's senior vice president, as saying.
He is confident that ConocoPhillips's expertise in the Arctic will complement
and help them to develop the region using the latest technologies with maximum
consideration for the environment.
Non-CIS members to import 43.5m tonnes of Russian oil
Russia will export 43.5m tonnes of oil through the Transneft truck pipeline
system to non-members of the Commonwealth of Independent States in the 3rd
quarter this year, it was reported by New Europe recently.
Russia will supply 4.8m tonnes of oil to Belarus in the 3rd quarter, to Ukraine
- 5.1m tonnes and to Kazakstan - 700,000 tonnes. These figures are contained in
a decree signed by Russian Industry and Energy Minister Viktor Khristenko on the
transportation of crude oil outside Russian customs territory in the 3rd quarter
of the year and also a schedule for transporting and transiting oil outside
Russian customs territory, the ministry said in a statement. According to the
crude oil balance for the 3rd quarter of the year, production would amount to
119m tonnes of oil and unstable condensate, of which 57.8m tonnes will be
transported to Russian refineries.
In the 3rd quarter Russia's refineries plan to produce about 8m tonnes of
gasoline, 14m tonnes of diesel, 12.6m tonnes of fuel oil and 2.3m tonnes of
rocket fuel. Domestic consumption in the reporting period should amount 7.4m
tonnes of gasoline, 6.7m tonnes of diesel, 5.3m tonnes of fuel oil and 2.2m
tonnes of rocket fuel.
Exports outside Russian customs territory are planned at 1m tonnes of gasoline,
7.7m tonnes of diesel, 7.4m tonnes of fuel oil and 200,000 tonnes of rocket
fuel.
Statoil to invest in Shtokman gas field
Norwegian major Statoil, the second after Gazprom in gas supplies to Europe, is
planning more specific activities in Russia, Statoil President, Helge Lund, said
in an interview with the business daily Vedomosti recently.
Helge said Statoil plans long-term investment in Russia due to its geographical
proximity to Russia and the two countries' stable political relations. Russian
and Norwegian companies share a lot in common concerning technologies, Lund
said. The oil major decided to work in Russia believing that it could organise
its activities and overcome risks. Lund said Statoil is ready to invest as much
as needed on the ground to get a 25 per cent stake in the development of the
Shtokman gas condensate field situated on the Russian shelf of the Barents Sea.
The Norwegian project Snohvit in the Barents Sea is the first European project
to produce liquefied natural gas. Its technologies can be used at Shtokman,
which has gas reserves of 3,205.3 billion cubic metres and gas condensate
reserves of 30.98m tonnes.
As Hu visits Russia, Roseneft sign deals with 2 China firms
Russian state-owned oil giant OAO Rosneft signed two separate agreements with
Chinese energy companies during Chinese President, Hu Jintao's, four day visit
to Russia, Wall Street Journal Europe reported on July 4th.
Rosneft and Sinopec Shanghai Petrochemical Co. agreed to create a joint venture
to explore for hydrocarbons off Sakhalin Island in an area dubbed Sakhalin-3.
Last year, Korea National Oil Corp, said it was prepared to invest as much as
US$250m, or about 210m Euro, to explore two prospective areas of oil and gas
reserves nearby. Rosneft said its agreement with Sinopec covers different
reservoirs and doesn't clash with the existing deal with Korea National Oil.
Separately, Rosneft signed a long-term cooperation agreement with China National
Petroleum Corp that also calls for cooperation in offshore as well as an
increase of oil and gas exports to China.
In particular, Rosneft said CNPC hopes to sign a gas-supply agreement this
autumn with the Sakhalin-1 consortium. The group is led by Exxon-Mobil Corp,
with a 30% stake. Rosneft holds 20%, India's Oil and Natural Gas Corp has
another 20% and a consortium of Japanese companies holds the remaining 30%.
The two sides also agreed to study ways to increase oil exports to China.
In February, Rosneft signed a long-term supply contract with China, agreeing to
supply more than 350m barrels of crude oil by 2010. Rosneft purchased
Yuganskneftegaz, a former oil unit of Russian oil giant OAO Yukos.
CNPC was named as a contender for Yuganskneftegaz when the unit was put up for
auction in December, and analysts say CNPC is likely to be interested in taking
a stake in OAO Rosneftegaz, Rosneft's parent company.
In China's most high-profile foray to date, Conoco Ltd has offered US$18.5bn for
US-based Unocal Corp, countering a bid by Chevron Corp.
Gazprom, CNPC praise talks on cooperation
Russia's Gazprom and the China National Petroleum Corporation (CNPC) are
satisfied how the consultations on cooperation between the two companies are
proceeding, New Europe reported recently.
Gazprom CEO, Alexei Miller, and CNPC President, Chen Geng, meeting in Moscow,
praised the implementation of a strategic cooperation agreement between Gazprom
and CNPC. In particular, they pointed to active interaction between the two
sides within the framework of a joint coordinating committee and working groups,
Gazprom said in a statement.
Miller and Chen attached primary importance to natural gas supplies from Russia
to China. "It was a common opinion that the 'Programme for setting up a
unified gas extraction, transportation and supply system in East Siberia and the
Far East with its possible export to the Asian Pacific countries taken into
account' will provide conditions for arranging such supplies on a long-term and
mutually advantageous basis," Gazprom said. Gazprom and CNPC signed the
strategic cooperation agreement in Beijing on October 14th, 2004, during Russian
President, Vladimir Putin's, official visit to China. The agreement provides for
a wide range of areas of cooperation, including the organisation by Gazprom of
natural gas supplies from Russia to China. CNPC is China's largest state-run oil
and gas companies, in which the government holds 100% of interest. It is one of
the leading integrated oil and gas companies in the world.
Russneft buys Geoilbent shares from YUKOS
Russia's OAO YUKOS oil company sold its 34% stake in the small oil company OOO
Geoilbent to OAO Russneft, a source close to the deal said, Interfax News Agency
reported.
"The deal was finalised this spring," the source said. The source did
not disclose the price at which the stake was sold, and when asked why YUKOS
sold this company, he said: "All our recent sales have been made to meet
our obligations to creditors, foreign creditors and the Russian tax
authorities." He said that YUKOS also sold Russneft its stake in the only
producer of submersible pumps for oil production in Russia - the Tatarstan based
OAO Albas. LUKoil subsidiary, OOO Lukoil-Western Siberia, acquired a 66% stake
in Geoilbent from OAO Novatek in June. Two off-shore companies are currently
challenging this deal in the Stavropol territory Arbitration Court. OOO
Geoilbent was set up in December 1991 and is developing the Severo-Gubkinskoye,
Prisklonovoye and Yuzhno-Tarasovskoye oil and gas condensate fields and is
exploring the Yrabor-Yakhinsky and Vansko-Namysskoye licence zones. According to
the Federal State Statistic Service, Geoilbent increased oil production 20% to
916,000 tonnes in 2004.
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EUROBONDS
VTB places US$1bn in Eurobonds
Vneshtorgbank has placed US$1bn worth of three-year Eurobonds, the bank's
press service has said, Interfax News Agency reported.
This issue falls under Luxembourg-based VTB Capital SA's programme for placing
mid-term borrowing instruments totalling US$3bn. The Eurobonds were issued at
face value for 30 years and with a put option for holders exercisable after 10
years. The coupon rate is 6.25 per cent, and the bonds will be listed on the
Luxembourg exchange.
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FOOD & DRINK
WBD shareholders to sell 2 breweries
Shareholders of Russian juice and dairy giant Wimm-Bill-Dann Food Products (WBD)
have decided to completely sell the company's beer business, which currently
consists of Vladivostok's Pivoindustriya Primorye Brewery and Moscow's
Moskvoretsky Brewery, WBD co-founder, David Yakobashvili, said recently. The
shareholders of these breweries are holding talks on their sale with three
companies, one of which is Alfa Eco, part of Alfa Group, Interfax News Agency
reported.
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FOREIGN DEBT
Russia pays part of Paris Club debt
Russia has paid Germany part of the first tranche of a US$15bn early repayment
of Soviet-era debt owed to the Paris Club of creditors, the Financial Times
reported on July 7th.
The payment came on the eve of the G8 summit in Scotland, which was attended by
Vladimir Putin, the Russian president. It is part of a plan aimed at helping the
country mend its creditworthiness following the financial crisis of 1998.
Germany, Russia's biggest Paris Club creditor, has already received a
"significant amount" of the US$13bn that makes up the first instalment
while the majority of other creditors are expected to receive payments by
mid-July, according to a person close to the Paris Club. The second payment of
US$2bn could follow in August.
Russia's early debt payment, made as part of the biggest buy back of Paris Club
debt struck by any debtor country, has realised the prospect that Russia could
pay of its entire debt obligation to the group of sovereign creditors ahead of
schedule.
Russia's Paris Club debts were an estimated US$40bn on March 31st. "It
allows the government to start speaking more concretely about plans for future
buy backs," said Matthew Vogel, head of emerging markets strategy in London
at Barclays Capital. "From the Russian perspective, being a Paris Club
debtor is a sign of weakness."
The possibility that Russia could pursue more buy-back deals represents a
significant turnaround of Russia's global economic standing since it endured a
domestic debt default in 1998 and was forced to devalue the rouble. Surging
prices for oil, Russia's main export, have fuelled a dramatic improvement in its
public finances.
Based on oil price futures, the ratio of Russia's external debt to gross
domestic product could amount to just 7 per cent by the end of 2007, compared
with a figure of 19 per cent at the end of last year. "It would fall under
the rate category of countries with single-digit ratios," said Vogel.
The payment to the group of creditors was drawn from Russia's oil stabilisation
fund which fell from about Rbs955bn at the end of May to about Rbs618bn at the
end of June, a difference of about US$12bn, according to John Bates, senior
analyst at WestLB. "It is clearly a very positive move that they followed
through on what they said they would do," he said.
Moscow-based Alfa Bank added that the early repayment could also help boost
Russian share prices.
Russia-China draft debt deal on
The Russian government has approved a draft agreement with China on the final
settlement of the former USSR's and Russia's debts to that country, the Russian
government press service said recently, Interfax News Agency reported.
Prime Minister, Mikhail Fradkov, signed an instruction that approved the draft
of an intergovernmental agreement that was submitted by the finance ministry.
The draft agreement has been cleared with the foreign ministry, other involved
ministries and agencies, and Vnesheconombank.
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MINERALS & METALS
Severstal, Minmetal sign new supply deal
Severstal signed a new 12-month deal to supply at least 500,000 tonnes of rolled
steel to China's Minmetals, the Russian steel major said in a statement
recently. The deal was effective from July 1. The companies signed their first
deal in the summer of 2001, Interfax News Agency reported.
Severstal shipped around 600,000 tonnes of sections, bars and hot-and
cold-rolled sheet to China between July 1, 2004 and June 30, 2005. "We
expect to further our trade relations with China. Since the Chinese market is
the leading market in Asia and one of the world's most metal-intensive ones, our
presence there and work with consumers remains one of our export
priorities," the statement quoted Dmitry Goroshkov, Severstal's sales
manager, as saying.
VSMPO-Avisma IPO in 2006
The world's top titanium producer, Russia's Verkhnaya Salda Metallurgical
Production Association VSMPO, plans an initial public offering (IPO) abroad in
the first half of 2006, Vyacheslav Bresht, the company's board chairman, said
recently, Interfax News Agency reported.
"It's our strategic goal and we will be following it," he told an
investment conference organised by Renaissance Capital. The IPO will come after
the merger of VSMPO and Avisma is completed, which Bresht said was expected by
July 2005. Bresht said PricewaterhouseCoopers would complete a US GAAP audit of
the company for 2004 by the end of July. He said the audit would be unveiled in
August, then the company would start to prepare for the IPO in earnest. Bresht
also said the VSMPO-Avisma Corporation's board of directors would consist
entirely of independent members in 2006.
Polyus reports 60% boost in gold production costs
ZAO Polyus, the umbrella company for MMC Norilsk Nickel's Russia-based gold
mining assets, said the total cash cost of producing gold rose nearly 60 per
cent in 2004, Interfax News Agency reported.
The company said in a statement devoted to the publication of its international
accounting standards (IAS) audit for 2004 that the total cash cost of mining
gold rose US$78 to US$209 an ounce in 2004. It said costs rose US$32 to
US$165/oz due to lower ore gradings and that placer gold production had become
more expensive at the Lenzoloto unit at US$346/oz.
In addition, the consolidation of Rudnik im. Matrosova in the Magadan region in
the financial reports in the second quarter of 2004 affected the cost of
producing gold, Polyus said. A stronger rouble and higher amortisation costs
related to long-term operating assets, which worked out at US$34 per oz for the
group as a whole, also took their toll.
Norilsk Nickel said in its annual report, which shareholders will vote on at
their AGM, that Polyus boosted IAS revenue from the sale of metals 48 per cent
to US$442m in 2004, mainly because physical sales rose 37 per cent for the first
nine months of 2004 as the financial results of Lenzoloto and Rudnik im.
Matrosova were consolidated, and because the average realised sale price
increased. Gross profit from metal sales rose 8 per cent to US$207m and
operating profit was up 10 per cent to US$175m. But the group's net profit
tumbled 93 per cent to US$8m.
Heineken to buy Stepan Razin
Dutch brewing giant Heineken has submitted an application to the Federal
Anti-monopoly Service to acquire 100 percent of the Russian brewery, Stepan
Razin, Interfax News Agency reported, citing a source in the FAS.
The companies have not commented on this announcement. Analysts estimate the
cost of the future deal at US$120-130m. Stepan Razin is the fifth brewery in
Russia to be bought by Heineken.
MMK steel mill aims to boost domestic sales
Magnitogorsk Metallurgical Combine (MMK), Russia's biggest steel mill, is
looking to increase its domestic sales to 6.5-7.5m tonnes annually by 2010,
Interfax News Agency reported.
The company said domestic sales would depend on the development of the Russian
economy, above all metal-intensive sectors like machine-building, which consumes
32 percent of Russia's metal at present, the pipe industry, which consumes 22
percent, metalware with 12 percent and construction with 30 percent. MMK has
already increased domestic market sales 150 percent to five million tonnes in
2004 from two million tonnes in 1996.
MMK shipped a third of its domestic supplies to the machine-building sector in
2004. Most of the consumption growth in machine building has been driven by the
automotive, industrial and transport engineering sectors. The Russian group sold
576,000 tonnes of steel to the automotive industry - 12 percent of its domestic
sales - in 2004. Pipes and metalware accounted for 23 percent and 16 percent of
MMK's domestic sales last year. MMK plans to sell 10.5 million tonnes of steel
in 2005 - 5.5 million tonnes of it in Russia.
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TELECOMMUNICATIONS
Alfa seeks to create global mobile operator
Mikhail Fridman, the chairman of Russian conglomerate Alfa Group, said he will
hold talks with telecoms companies about the creation of a mobile phone operator
spanning Turkey, Russia and the former Soviet Union, The Financial Times
reported.
Fridman told FT he is seeking to consolidate his telecoms stakes in a single
western company, adding that the sector has become a priority for Alfa, which
also has investments in oil, retailing and banking. "We have now built a
critical mass that will allow us to shape the future of the Russian telecoms
industry," he said.
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