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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: 299- (28/11/05)
Reshuffle of government
There has been a reshuffle in Russia, which portends important developments.
Dmitry Medvedev, chief of the presidential staff, and Sergei Ivanov, the
Minister of Defence, certainly Putin's closest political allies and both close
friends, have been made deputy premiers, Medvedev as first deputy premier. His
job has gone to the governor of the energy-rich Tyumen region, Sergei Sobyanin.
He now occupies one of the most powerful posts in Russia, always able to have a
word in the president's ear.
This reshuffle greatly enhances the standing of the two new deputy premiers in
the government, because the premier, a complete mediocrity, is an obvious
caretaker. It is a strong indication that Putin is grooming one or other of them
to be his successor.
The succession issue
There is no more important matter of state than how succession at the top is to
be handled. Putin made a close study of Yeltsin's deft use of presidential power
to sack the premier and appoint a new one, of which he was the ultimate
beneficiary.
Technically, the parliament can veto the appointment, but it is a rubberstamp
body and would never do so. The president can in effect choose his successor.
The strategy seems to be as follows. The present colourless premier, Mikhail
Fradkov, an ex-tax policeman, carries on taking the blame for unpopular reforms
until closer to the elections to parliament in 2007 and to the presidency in
2008, when he is replaced by one of Putin's two closest cronies. Either of them
would readily give Putin an amnesty on stepping down, and others in the inner
circle as well, who are more likely to need it. In other words this move
suggests that, Putin is going to step down in 2008, but assured of a still
prominent role in political life.
Medvedev, only 40, is already one of the most powerful men in Russia. He is
chairman of Gazprom, the energy giant. A former lawyer, he met Putin in St
Petersburg in the early 1990s when the then future president was Mayor Anatoly
Sobchak's right-hand man. Putin's links with Ivanov, who is 52, go back much
further to the 1970s, when they were both KGB operatives in East Germany
fighting the good fight against capitalism in the Cold War.
A logical political scenario presents itself, Ivanov takes over in 2008 and the
younger man, Medvedev, in 2016, when he would still be only 51. The Russians are
master chess players and like thinking ahead.
There is something to be said for listening to the advice of a master
chessplayer. One of the greatest ever, if not the greatest ever, is Garry
Kasparov, who has retired from the game to concentrate on politics, and has let
it be known that he is standing for the presidency in 2008.
He is chairman of Committee 2008 Free Choice, focusing on the 2008 presidential
elections in which Kasparov will stand as leader of the United Civil Front of
Russia. He is also contributing editor of the Wall Street Journal Europe, in
whose issue of November 18-20 appeared the following article under his name.
Democracy, Russian style
"In typically secretive KGB fashion, Russian President Vladimir Putin
abruptly named a pair of his closest associates - Defence Minister Sergei Ivanov
and Kremlin chief of staff Dmitry Medvedev - to deputy prime minister positions.
In the power corridors of the Kremlin, Medvedev is typically portrayed as a
liberal dove while Ivanov is said to be a hawk, but these distinctions mean
little, while the fact that they are Putin's cronies means everything.
In a democracy, such a cabinet shuffle would reflect a battle between interest
groups and a change in the direction of policy. In Putin's Russia, we should not
waste time reading meaning into Byzantine palace intrigues. The changes have
nothing to do with how best to run the country; there will be no change in
direction. Everything is about trying to find the best combination to keep
Putin's clique in power.
Many of those sceptical of accusations that Russia is backsliding on democracy
seem to be waiting for a dramatic event that will make it obvious to one and all
- tanks rolling through the streets of Prague or at least rolling over a few
protesters in Red Square. Opposition forces and human-rights groups are met with
yawns when they produce laundry lists documenting the Kremlin's systematic
whittling away of democratic institutions. The Putin regime realised that as
long as their machinations are kept under the radar - and the tanks are kept in
North Caucasus - the interest level of western leaders will remain at vague
concern at worst.
This attitude is often accompanied by deluded attempts to look on the bright
side, as when Bill Clinton recently spoke with Mikhail Gorbachev in Washington
DC and made a positive comparison of Russia's democracy today versus the USSR in
1985. Gorbachev himself is on board with Putin these days. Perhaps he's envious
at seeing the Kremlin regain the authoritarian grip he wasn't able to maintain
while desperately trying to put a human face on the communist monster. If
flattering comparisons are to be made, why not skip 1985 and instead go back to
the years of Stalin's Great Terror?
I would prefer a more relevant comparison, one between 2005 and 1999. In the
past six years there have been countless steps backwards on the path of civil
rights in Russia. The trend has steadily accelerated as the Kremlin's confidence
increases in the face of the West's apathy. President Bush continues to signal
his willingness to buy into Putin's concept of "Russian-style
democracy," a breed that would scarcely be recognised by the Founding
Fathers.
Those looking for symbols instead of examples of Russia's turn from democracy
need look no further than the yard in front of the Moscow police headquarters,
where a bust of Felix Dzerzhinsky ("Iron Felix"), founder of the first
communist secret police, appeared recently. His towering bronze likeness was
pulled down by jubilant crowds in Lubyanka Square in August 1991. Now he's back-
albeit in a smaller form and less prominent location - without a comment,
fitting for a man and a current administration who prefer their deeds to be done
quietly.
A rosy picture of the Russian economy is being painted by some analysts.
Unfortunately, it's an oil painting. The GDP is being kept afloat by record-high
oil prices while just about every segment of the industrial infrastructure is
falling apart.
More accurate evaluations surprisingly surface from within the Russian
administration. Prime Minister Mikhail Fradkov didn't inspire confidence with
this recent statement: "Our wagon is without wheels, but during the trip we
will put wheels on it and make round wheels from the square ones, but it is not
simple because we don't have roads yet either."
Putin economic advisor Andrei Illarionov, demoted earlier this year for making
comments critical of Kremlin policy, warned of a return to "the state
dominating the economy," comparing the current situation to 1929, when
Stalin put an end to private enterprise in the USSR. Deputy Prime Minister,
Alexander Zhukov, went on television to say that the state had more money that
it knew what to do with, news that came as a shock to those living in the
impoverished regions distant from the luxuries of Moscow's innermost Garden
Ring.
The mechanisms of government are now so crippled, and the grey economy is so
close to black, that money is siphoned off the moment any investment is
attempted, so few attempts are made. There are no longer any open channels to
use the oil cash windfall to improve the lives of average Russian citizens. The
sclerotic corruption prevents capital from circulating to the extremities, or
anywhere other than inside the head.
Eventually a stabilisation of energy prices will cause a fatal stroke.
We still hear some of Putin's foreign fans saying that, despite these
irregularities, Russia is a good place to make money. That is only the case,
however, if you are willing to do what is necessary to be on intimate terms with
the Kremlin. Oligarch Roman Abramovich (disguised as the Governor of Chukotka)
once sold his company Sibneft to Yukos for a percentage of Yukos stock and ready
cash in the range of three billion dollars. As a subplot during the Yukos saga,
Abramovich, a friend of Putin's, managed to regain control of his company
through the courts, of course without returning the purchase price. Now 72% of
his company has been bought by Gazprom for over US$13bn, a healthy cut above
market value. It doesn't take business genius to sell the same company twice in
Russia; you just need to have good business partners, who can guarantee the
right court decisions. That's the best way to make money in the wild, wild East.
The case of jailed Yukos billionaire Mikhail Khodorkovsky continues to serve as
a bellwether. Even though he has been sent, against all modern precedent, to a
Siberian jail in the furthest reaches of the country, the government has not
relaxed its persecution of everyone related to his case. Another major Yukos
shareholder, the seriously ill Platon Lebedev, was sent to a prison north of the
Artic Circle. And now that the prosecutors are harassing and attempting to
disbar the Yukos lawyers, keep in mind that the Russian court system currently
boasts a conviction rate of over 99%.
Khodorkovsky might have been able to avoid all this trouble, according to
Kremlin stooge Sergei Markov (disguised as a political scientist). He suggested
that all Khodorkovsky need have done was turn over most of his assets, and
promise not to use the remainder to support any agenda contrary to that of the
government.
Ordinary taxpayers who haven't done anything to threaten the Kremlin aren't
faring any better. The latest regulation from the Duma boldly discards the
presumption of innocence, if only in matters of taxation. The money disappears
from your bank account first and it's up to you to prove the state must pay it
back. Who says former Communists can't learn fiscal efficiency?
In 2000, after Putin came to power in exactly the sort of backroom deal we are
hoping to prevent in 2008, he promised to establish a "dictatorship of
law" in Russia. So far we have the former at the expense of the latter. The
consequences of this transformation may only seem relevant to Russians today,
but a Russia with a disintegrating economy and no respect for the rule of law
will soon make our problems yours."
There's good stuff happening in Russia, too
Headlines in the Western press are pessimistic about Russia's commitment to
democracy. The arrest and conviction of Mikhail Khodorkovsky, the takeover of
NTV, constitutional reforms that replace elected regional officials with
appointed governors, vague assurances from Vladmir Putin that while he would not
run for a third term in 2008, he would not disappear from Russian politics - all
paint a portrait of sharp retreat from the Yeltsin era, reports Jonathan F.
Fanton in The Boston Globe. He is president of the John D. and Catherine T.
MacArthur Foundation, which has been active in Russia since 1992, making a
20-year, US$100 million commitment to building a robust system of higher
education and to strengthening the country's intellectual life.
But the picture in Russia is more complex. Leaders in higher education and civil
society have a more nuanced story to tell.
Changes underway in higher education are a good indicator of the deep
transformation taking place in Russia. Private universities are gaining strength
and state universities are being encouraged to modernize by opening themselves
and their curriculums to the West.
For instance, cutting-edge science is being conducted at 16 research and
education centres across the country. Affiliated scientists have produced
thousands of publications. In the past year alone, more than 70 patents have
been filed and 16 new enterprises have been started. Nine other campuses host
centres for advanced study and education in the social sciences. They are
building a cadre of policy experts that advise the government on issues like
sustainable economic development, migration and ethnic diversity, human rights
and the rule of law and healthcare.
At the national level, the Ministry of Education and Science is bringing Russia
into the "Bologna process," which is creating a Europe-wide higher
education area. University systems in 40 countries will have a common framework
for undergraduate and graduate degrees, transferable credits, shared standards
for academic quality and mobility for students and faculty.
The isolation of Russian intellectual life is over. Although much more must be
done before Russia's universities fully recover from years of neglect and
repression, the progress is real. These developments in higher education do not
square with the image of Russia moving backward into isolation and suspicion of
the outside world. No government bent on long-term authoritarian control would
promote Internet connectivity, faculty and student exchanges and the adoption of
a Western model of higher education.
The number of civil society groups is growing, and there is positive movement on
fundamental issues. To be sure, the situation in Russia is paradoxical. On high
profile cases of political sensitivity, the Kremlin interferes with the judicial
process, is willing to use force to put down demonstrations and violates civil
rights in the pursuit of terrorists.
Yet Russia has begun to improve prison conditions. A new criminal procedures
code is making incremental improvements in the justice system. And a broad
network of human rights groups across the country is working undeterred, often
helping the government reform itself.
For instance, the INDEM Foundation is developing a registration process at
police stations in 15 precincts in Moscow and Kazan. Because most instances of
police torture occur during the first hours spent in custody, booking detainees,
logging the charges against them and other procedural improvements are an
important step for combating abuse.
To monitor the police and the courts, human rights ombudsmen are at work in 31
of Russia's 89 regions, and there are plans for significant expansion. An
umbrella organization of the ombudsmen is developing a common, automated system
to register complaints and track their disposition.
A USAID/Russia project on legal reform has helped more than 1,000 judges attend
training seminars in the United States and has been building a database of
Russian court decisions to enhance consistency and strengthen the judicial
system.
Russia is at a critical crossroads. There is no question that Putin is
tightening his grip on various sources of power - political, economic, media.
But so far, he has allowed civil society to grow, scholars to pursue their work,
and niche media to criticize the government.
The West needs to be open to a more nuanced view of Russia's progress while
continuing to criticize the backward steps that Putin takes. This is a moment of
paradox and new voices that requires patience as the country's fragile democracy
takes root.
Why do we welcome these robber barons to Britain?
Russia matters to the West for more reasons than one. It is receiving a
flood of Russian money and immigrants, nowhere more so than in London, as the
following article attests.
The mayor of London is backing a campaign to entice Moscow's oligarchs to bring
their ill-gotten gains to his city, (reports Tristram Hunt in The Guardian).
For a politician who once suggested that capitalism was responsible for more
deaths than Hitler, Ken Livingstone is in the midst of a monstrous U-turn.
Backed by "real enthusiasm from the mayor's office," the tourism
quango 'Visit London' is engaged in a determined campaign to attract Russia's
super-wealthy. Advertising in high-end lifestyle magazines and running press
junkets to the West End, marketing chiefs have their eye on the spending power
of the Muscovite nouveaux riches. Livingstone's weakness for oligarchs is in
danger of turning Britain's capital into the Sun City of the 21st century.
The commercial ties between England and Russia have a proud pre-history. In
1553, the Muscovy Company, England's first joint-stock enterprise, was set up to
trade cloth for Russian furs. Elizabethan entrepreneurs made numerous trips to
Ivan the Terrible's court at Moscow while Russian merchants began to arrive in
London in large numbers from the later 17th century. Famously, in 1796, Peter
the Great toured London incognito to pick up architectural and planning tips for
his new city of St Petersburg.
During the following two centuries, London also provided a refuge for Russia's
intellectual elites and political dissidents. Alexander Herzen made the capital
a base for anti-tsarist propaganda. The anarchist Michael Bakunin exploited the
city's freedoms to agitate for European revolution. In 1907, London hosted the
congress of the Russian Social Democratic party, complete with Lenin, Trotsky
and Stalin.
Now, in place of intellectuals and radicals, Britain has become an offshore
depository for Russia's robber barons. Those who plundered the natural wealth of
the crumbling Soviet Union during the 90s "privatisation" have
ploughed their ill-gotten gains into London life. Money that should be in
Russian pension funds, public salaries and supporting infrastructure is paying
for private schools, chauffeurs and chefs in southern England. It is estimated
that Russia has 27 billionaires and hundreds of paper millionaires. Most, it
seems, are making their homes in London. Indeed, when the future history of the
capital is written, the early 21st century will surely be known as "the
Russian epoch."
Their spiritual leader is Roman Abramovich, the oil and aluminium billionaire
and owner of Chelsea football club. He is joined here by his former business
partner, Boris Berezovsky. Equally at home flitting between Surrey and the City
are the mineral billionaire Vladimir Potanin, metals magnate Oleg Deripaska, and
oil and gas speculator Chalva Tchigirinski. Given that so much of Russia's
wealth was given away to these oligarchs by the Boris Yeltsin administration, it
is appropriate that Tatyana Dyachenko, daughter of the former president, and her
husband Valentin Yumashev have also made London their base.
What attracts these people is a witches' brew of favourable tax planning, the
financial services sector, and a stable of corporate law firms for the endless
litigation that pursues them. They also like the history and heritage of Britain
along with high society's no-questions-asked approach to fabulous new money. The
traditional defence of Britain as tax haven is the trickle-down argument. All
boats will rise as the riches of the super-wealthy gently percolate. But aside
from international footballers, top-flight libel lawyers and fine sushi
restaurants, it is hard to see what greater good the money is doing - not least
since the chancellor has steadfastly refused to reform non-domicile tax law.
Where are the businesses, cultural patronage or charitable institutions from
this new Russian community?
More important, the riches that the south-east's service economy is siphoning
off represent a grotesque theft of assets from the Russian people. The 90s saw a
legal ram raid of Russian resources that sent life expectancy and GDP rates
plummeting. What was billed as free-market economics was in fact a quick-fire
sale of a nation's wealth to a handful of well-positioned state apparatchiks.
Gas, oil and minerals were flogged off at rock-bottom prices to Kremlin cronies.
And like South Africa's Sun City during the 80s, London is growing fat off these
immoral earnings with absolutely no regard for their provenance.
During his time in office, Mayor Livingstone has been as much concerned with
foreign policy as city politics. But when it comes to the oligarchs, he is
curiously silent. If London is to be a world city, then it should have regard as
to which parts of the world are picking up the tab.
The Russian government is reconsidering one key matter of foreign policy
themselves. Generally, the main principle of their policy can be summed up as
resist Western encroachment in the Near-Abroad; make allies in the Middle-Abroad
wherever possible and selectively in the Far-Abroad.
They are here following what can be called the Kautilya principle, after the
geopolitical thinker of the Mauragupta empire in the Punjab in the third century
BC, who enunciated this idea himself. Indeed, he did more than that - he
practised it as its chief minister.
Moscow is realising that an exception should now be made as regards its Iranian
policy. Hitherto, it had wooed Tehran by selling it nuclear technology for its
plant at Bushehr. Now it is having second thoughts. If Iran is developing
nuclear weapons, whom could it be targeting? Not Russia for sure. But somebody,
perhaps Israel in a lightning first strike and the world would be a different
place! Moscow hardly wants to go down as having facilitated this, not out of any
love for the Israelis, but because it would damage its relations with the West
deeply and the Pandora's box of nuclear weaponry woul dhave been opened, with
barely imaginable consequences. Hence the reaction indicated in the following
article.
Russia Frustrated With Iran
By George Jahn, The Associated Press
Russia is increasingly frustrated with Iran's reluctance to reduce international
fears about its nuclear agenda and that anger is helping the United States and
other nations seeking to refer Iran to the UN Security Council, diplomats said
on November 17th.
Most recently, the diplomats said, Iranian officials told the Russians on the
previous day that they would not resume uranium conversion -- only to restart
the process a few hours later.
The move to restart conversion was expected. Still, with Iran under
international pressure to reduce concerns that it seeks full control of the
uranium enrichment process to make weapons, Russia and other countries would
have welcomed a decision not to resume conversion.
Senior Iranian officials told their Russian counterparts just that on November
16th, saying a re-launch was postponed for "technical reasons," the
diplomats revealed, agreeing to speak on condition of anonymity.
The Russians interpreted that as a signal that raised hopes of an easing of
tensions a little more than two weeks before the 35-nation board of the
International Atomic Energy Agency met in Vienna on November 24th to consider
possible Security Council referral.
The Iranian officials later told the Russians that conversion had restarted,
further eroding the Russian goodwill needed by Tehran to deflect the U.S. and
European push for Security Council involvement, the diplomats said.
A European official speaking from outside Vienna said the reversal -- coming
soon after Security Council head Igor Ivanov had briefed senior European Union
officials about Iran's readiness to compromise -- embarrassed and angered the
Russians. The situation remains tense on all sides, but still it is felt to be
amenable to negotiation
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BANKING
Russian bank to borrow US$1bn
A loan for Russia's state-owned Sherbank carrying a record-low interest rate
margin has been doubled in size to US$1bn as western banks continue to clamour
for Russian assets, the Financial Times reported on November 11th.
The loan to Sberbank, which dominates Russia's financial sector, will be the
largest unsecured syndicated loan to a financial institution in the region, said
ABN Amro, which arranged the deal with HSBC. It is its first syndicated
borrowing in seven years.
The desire of western banks to enter the region has drastically reduced the cost
of borrowing, leading to questions over whether lenders are relaxing their
standards too much.
The Sberbank loan will pay Libor plus 55 basis points, a new low for a Russian
borrower in the syndicated loan market. This compares to Libor plus 150bp for a
loan to Gazprombank near the beginning of this year and more recently Libor plus
90bp for a loan to Vnesheconombank.
Alexander Kiselevitch, director of capital markets for ABN in the region, said,
"It's fair to say people are looking for assets. In that sense banks are
becoming very keen to lend in emerging markets. But Russia is still giving an
adequate risk-reward margin for investment grade borrowers."
Bookbuilding for a US$500m loan to Sberbank was launched on October 11th, but
quickly attracted US$1.4bn in demand from 42 banks, ABN said. Mr Kiselevitch
said a number of banks new to Russia had come forward, including some US banks.
Recently Moody's, the rating agency, upgraded Sberbank's senior unsecured debt
to A2 from Baa2. The agency said that the outlook for Russian banks was
positive.
DnB NOR buys 97.3% of Monchebank from Rosbank
Norwegian banking group DnB NOR ASA said it is buying 97.3 percent of the
Russian bank Monchebank for US$21 Russia's Rosbank, Interfax News Agency
reported.
The bank, which has its headquarters in Murmansk, has 180 employees and has
cooperated with DnB NOR for several years. Under the selling agreement, the
Norwegian side will receive all Mochebank's business, its staff and its branch
network in four cities on the Kola Peninsula, noted Interfax.
"The acquisition of Monchebank will give us a sound position in an area
with exciting prospects once the large oil and gas fields in the Barents Sea are
due for extraction," said DnB NOR's CEO Svein Aaser. Monchebank has 3,000
corporate clients and around 50,000 retail customers in Murmansk. Monchebank
charter capital amounted to US$9.811 million on October 1, 2005, with total
assets at about US$72 million, said Interfax. The bank's equity totals around
US$10 million, and annual operating profits have been just above US$1.5 million
in recent years. The acquisition of Monchebank needs to be approved by both
Norwegian and Russian authorities. Looking ahead, DnB NOR said that even though
Monchebank is a small regional bank, it has all the necessary licences to engage
in banking throughout Russia. "In addition to sound operations in the
Murmansk area, which we will develop further, the acquisition of Monchebank will
give DnB NOR immediate access to the Russian banking market," Aaser said.
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CREDIT RATINGS
Fitch upgrades MDM Bank and MDM Holding one notch to BB-
International rating agency Fitch has raised the long-term rating of MDM Bank
and MDM Holding GmbH one notch from B+ to BB-, with stable long-term outlooks,
the agency announced recently.
The bank and the holding's short-term, individual, and support ratings were
confirmed at previous levels.
The upgrade is due to substantial improvements in the bank's corporate
management and risk management procedures, and the reduced concentration and
volume of operations with affiliates, the agency said. The long-term, national
long-term, short-term, and individual ratings also take into account the bank's
careful approach to risk, sufficient liquidity, stable profitability from its
main operations, high-quality assets, and good capitalization.
Negative factors are potential volatility in the bank's revenue due to its
securities operations, and substantial risks taken on from affiliates (although
such risks are limited to 10% of total assets).
Fitch analysts said the ratings might go up in the future if the bank improved
profitability, continued to reduce the volume of operations with affiliates,
strengthened risk and corporate management procedures, and continued to
diversify operations and its client base.
A drop in the ratings would be caused by a substantial worsening in the quality
of assets, which would push capitalization down and reduce profits.
MDM Holding GmbH is the MDM banking group's holding company. MDM Bank, one of
the 30 largest banks in Russia in terms of assets, is the major element of the
group.
Moody's increases Transneft's ratings
Moody's Investors Service has upgraded the ratings of OAO AK Transneft following
an earlier decision by Moody's to upgrade Russia's long-term ratings and
foreign-currency country ceiling to Baa2, with a stable outlook, the agency said
in a statement. Ratings affected are as follows: long-term local currency issuer
rating upgraded to A2 from Baa1; and long-term foreign currency issuer rating
upgraded to Baa2 from Baa3. The outlook on both ratings is stable, the statement
said. At the same time, Moody's Interfax Rating Agency affirmed Transneft's
Aaa.ru national scale rating. As a government-related issuer (GRI), Transneft's
ratings are assigned in accordance with Moody's GRI rating methodology. The
inputs into Transneft's ratings are as follows: Russian Federation local
currency rating of Baa2; baseline credit assessment of 4; low default
dependence; and high support, New Europe reported.
Moody's assessments of Transneft's baseline credit risk, default dependence, and
government support remain unchanged at this stage. The ratings upgrade therefore
solely reflects the impact of the sovereign ratings upgrade, as applied through
Moody's GRI rating methodology. OAO AK Transneft, headquartered in Moscow, is
the world's largest crude oil transportation company in terms of pipeline length
(as of March 31, 2005 approximately 48,500 km) and volume transported (450
million tonnes in 2004), the statement said.
Moody's raises Russia's rating to Baa2
Moody's Investors Service has raised Russia's foreign-currency country ceiling
for bonds and the foreign- and local-currency rating of bonds of the Russian
government to Baa2 from Baa3 to reflect a confluence of factors, including a
very rapid and significant buildup in the government's foreign currency and oil
stabilization fund reserves, the agency said in a statement. In addition,
Moody's also raised the ratings of ministry of finance tranches V, VI, and VII
to Baa2. The foreign-currency bank deposit ceiling was raised to Baa2 from Ba1.
The short-term foreign-currency country ceiling, the foreign-currency country
ceiling for short-term bank deposits, and the short-term local-currency issuer
rating of the Russian government were all raised to P-2 from NP. The outlooks
for all the ratings are stable. The country guideline for local currency
obligations of the Russian Federation remains at A1, the statement said. In
addition to the pickup in oil revenues, the rating upgrades reflect the Russian
Federation's prudent fiscal policies, stable politics, and an exhibited
commitment to pay (and in some cases, pre-pay) outstanding debt, said Moody's.
Russia's liquidity and debt ratios have improved dramatically in a relatively
short time period. Although fiscal policies have loosened in 2005 and may well
be marginally looser in 2006, Russia should continue to experience no difficulty
in making timely debt payments over Moody's three-to-five-year time horizon, the
statement said. This holds true even in the unlikely event of a drastic,
downward correction in commodity prices. While the current account and budget
may not run surpluses in the next two to four years as large as the current
surpluses, foreign-currency and oil-stabilization reserves will likely continue
to grow substantially, providing the necessary means to easily service
government debt, said Moody's.
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ENERGY
Itera to invite CNPC, Indian firm to develop Kalmykia fields
Russian independent gas producer NGK Itera is holding talks with China National
Petroleum Corporation (CNPC) and a large Indian oil and gas company concerning
the development of gas fields in Kalmykia, Kalmykian president Kirsan
Ilyumzhinov said at a meeting in the Interfax central office. "Itera is
participating in the development of 11 fields in Kalmykia 'and is inviting a
large Indian oil company and China's CNPC," he said. "Talks to attract
foreign investors are underway, but we are not commenting on the pace of these
negotiations," Itera press secretary Yevgeny Ostapov said. Ilyumzhinov said
that on September 1 Yugneftegaz started to drill "one of the deepest wells
- with a depth of 5.5 km, and has already drilled 2.5 km." It was reported
earlier that Itera was considering the company Oil India Limited as a partner
for the joint purchase of shares in Saratovneftegaz from TNK-BP. Itera set up
the Yugneftegaz joint venture with the Kalmykian government in 2003 to explore
and develop fields in the republic. The venture owns licences to explore 11
fields with reserves of about 300 billion cubic metres of gas. Itera plans to
invest over 100 million Euro in exploring fields in Kalmykia over five years,
Interfax News Agency reported.
Russia to build Chinese nuclear, thermal power plants
Russia is ready to build all the nuclear and thermal power plants China needs,
Prime Minister, Mikhail Fradkov, said at a press conference following
negotiations with Chinese State Council Premier, Wen Jiabao. "We are ready
to build all nuclear power and thermal power plants here," he said.
"We can do that."
He also said that Russia would meet this year's commitments in oil deliveries to
China. Russia supplied 5.8 million tonnes of oil to China by rail in 2004 and
about eight million tonnes will be delivered this year, New Europe reported.
"We will meet our commitments," Fradkov said. Oil cooperation never
stops, he said.
"We are not waiting for anything but working in real-time and coordinating
the specific proposals of companies," he said, referring to the possible
construction of an oil pipeline extension from the East Siberia-Pacific route to
China. The project will be assessed and proposals will be made with due
consideration of economic and technical details, he said.
Gazprom to complete Sakhalin-2 deal by August
Russian gas giant Gazprom plans to complete an asset exchange deal with Royal
Dutch Shell enabling it to join the Sakhalin-2 project by August 2006, Gazprom
Deputy Chairman and Gazexport General Director Alexander Medvedev said recently
in Washington, New Europe reported.
"It is no secret that Gazprom is holding talks about joining this project.
Gazprom and Royal Dutch Shell in July signed an agreement about exchanging
assets. According to the agreement, Gazprom receives 25 percent plus one share
in the Sakhalin-2 project and Shell receives a share in the Zapolyarnoye
Neocomian field. And when the deal has been completed we will together start
supplying liquefied natural gas from the Far East to terminals in North America
and the Far East," he said.
Gazprom plans in early spring 2006 to complete detailed commercial negotiations
with a preliminary list of potential partners in the development of the Shtokman
gas condensate field in the Barents Sea. The companies on the list are: Hydro,
Statoil, Total, Chevron and ConocoPhillips.
LUKoil board approves Timan-Pechora plan
Russian oil major LUKoil plans to increase oil production in the Timan-Pechora
region to 22-23 million tonnes by 2015, from 12.3 million tonnes at present, the
company said in a press release after a board meeting in Usinsk recently, New
Europe reported.
The board of directors specified the recovery of the commercial oil reserves as
a priority in Timan-Pechora region, which should increase by at least 120
million tonnes of oil within the period from 2005 to 2010, as well as increasing
oil production output to the level of 22-23 million tonnes per year by 2015, the
statement said.
Total investments in Timan-Pechora province by 2015 may reach 197 billion
roubles. The company expects 31 new fields to be put into development in
Timan-Pechora province by 2015.
At the meeting it was noted that in the period from 1999 to 2004 five new fields
were discovered in Timan-Pechora oil province, with 13 fields put into
development and eight fields prepared for development in this period. The
Varandey oil terminal was also launched on the Barents Sea, and a joint venture
was set up with ConocoPhillips to develop fields in the northeast part of the
province.
According to a Miller & Lents audit, as of January 1 LUKoil proven oil
reserves in Timan-Pechora oil province amounted to 3.892 billion barrels. It was
stated at the session that oil production in Timan-Pechora province nearly
doubled during the period from 2000 to 2004 to reach 11.7 million tonnes. The
company plans to produce 12.3 million tonnes in the province in 2005.
They also decided to develop a project to increase the capacity of the Varandey
oil terminal to 12 million tonnes per year, to be commissioned in 2007, the
statement said.
Meanwhile, LUKoil board of directors, as part of a strategic development plan
for 2005-2014, has set as a target that growth in hydrocarbon reserves should be
30 percent higher than production.
The company said in a press release that the board of directors discussed the
main items in the LUKoil draft budget and investment programme for 2006 and a
development plan for 2006-2008 at as meeting in Usinsk.
When drawing up the draft plans steps were included to achieve the main tasks in
the strategic development programme for 2005-2014.
Growth in hydrocarbons reserves is expected to be 1.3 times higher than
production to ensure the company's stable development in the forward-looking
period, the statement said. It has not been possible to find out from the
company's press service by what date this target should be reached. The company
plans to use its own and borrowed funds to implement these projects "while
at the same time maintaining the high financial stability of the LUKoil
Group," the press service said.
The high results planned for 2006-2008 have made it possible to consider a
future increase in dividends to shareholders compared with 2004-2005.
Rosneft to ship oil to China through Kazakstan
Russia's state-owned oil producer Rosneft has applied to transport 1.2m tonnes
of oil to China through Kazakstan in 2006, Sergei Yevlakhov, vice president of
the Russian oil pipeline monopoly Transneft, announced in London. Russian crude
could be pumped to Kazakstan via the Omsk-Pavlodar pipeline, a Tatneft spokesman
said, Interfax News Agency reported.
This year in July, Rosneft, which had bought the YUKOS oil company's subsidiary
Yuganskneftegaz, the main supplier of oil to China, and China's National China
Petroleum Corporation (CNPC,) signed an agreement on long-term cooperation in
exploring opportunities to increase Rosneft oil supplies to China. Rosneft said
it would consider using the Atasu-Alalashankou and Taishet-Skovorodino
pipelines.
Rosneft currently ships oil to China by railway from regions bordering on China
under a deal to supply 48.4m tonnes to that country until 2010, inclusive, on
condition of advanced payment. Rosneft plans to export 4m tonnes of oil to China
in 2005. First crude will be filled into the Kazakstan-China (Atasu-Alashankou)
oil pipeline on January 1st, 2006.
The Russian oil company LUKoil has shown interest in shipping oil through this
pipeline from Kazak oil field it owns.
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FOOD & DRINK
China, Russia aid Coca-Cola recovery
Coca-Cola recently provided more evidence that it is returning to health
when it beat Wall Street earnings expectations for the fourth consecutive
quarter, the Financial Times reported on October 21st.
Delivering some of his most upbeat comments since taking charge last year,
Neville Isdell, chief executive, declared the turnround "on track" and
said the company's performance was improving around the world. "I am
satisfied with our progress to date," he said.
Double-digit volume growth in developing markets, such as China, Russia and
Latin America, was at the heart of Coke's 37 per cent increase in net profits.
Surging sales of non-carbonated brands, such as Powerade sports drink and Dasani
bottled water, also helped offset continued decline in demand for fizzy drinks
in the health-conscious US and western Europe.
However, Mr Isdell warned that "considerable work" remained to be done
in several struggling markets, including Germany, the Philippines and India.
"There will be some bumps along the road as we manage our way through to
that goal of sustainable growth," he said.
Net profits were US$1.28bn, or 54 cents a share, compared with US$935m, or 39
cents, in the same period last year. Analysts had expected, on average, 53 cents
a share.
The results included a net charge of 3 cents a share related to asset
write-downs in the Philippines.
Revenues were up 8 per cent at US$6.04bn, from US$5.6bn last year.
Mr Isdell, a company veteran, is attempting to lead Coke out of a long period of
sluggish growth and erratic management, during which time its rival PepsiCo has
been performing strongly.
He has aimed to stem decline in the flagship cola brand by launching more
sugar-free versions of the drink in North America, while at the same time
strengthening the company's portfolio of healthier non-carbonated beverages.
Coca-Cola was slower than PepsiCo to respond to the trend away from sugary fizzy
drinks but is gradually catching up.
Global beverage volume increased 5 per cent, helping the company maintain its
share of the global non-alcoholic beverage market following recent declines.
Non-carbonated beverage volume grew 13 per cent while water, which is measured
separately, was up 21 per cent. Carbonated soft drink volume was up 2 per cent
globally, including 2 per cent growth in the flagship Coke brand. But increased
investment in marketing and product innovation failed to prevent a further 1 per
cent decline in fizzy drinks in North America.
Mr Isdell also sounded a note of caution saying: "We are monitoring the
potential impact of energy costs and macro-economic trends on consumer sentiment
and disposable income."
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FOREIGN INVESTMENT
EBRD plans to invest 1.1-1.3bn Euro in Russia in 2006
The European Bank for Reconstruction and Development is planning to invest
between 1.1bn and 1.3bn Euro in Russia in 2006, according to preliminary
estimates, EBRD President Jean Lemiere said during the World Economic Forum in
Moscow, New Europe reported.
The level of financing is close to this year's volumes, he said, adding that
investment targets were the same as before, namely small and medium-sized
businesses, the banking sector and leasing companies. In Lemiere's opinion, more
investments have been flowing into Russia. "I see more investments and more
people ready to invest," he said.
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MINERALS & METALS
Severstal takes majority stake in steel project in US
Severstal, a large Russian steelmaker, is taking a majority stake in an
US$880-million US venture that will make steel sheet for automobile bodies and
will be closely watched by the global steel industry, MosNews reported, citing
the Financial Times.
Such a large investment in the US by a Russian company is highly unusual. The
project will also put the spotlight on 20-year-old German technology for making
steel from scrap metal that has never delivered steel to the high quality
required for the exposed parts of vehicles.
The new venture pits Severstal against Nucor Steel, America's second-biggest
steelmaker, which has considerable experience with the German technology but
reckons it is not sufficiently advanced to meet the needs of the carmakers. John
Correnti, a US steel industry veteran, is the driving force behind the project,
based in Columbus, Mississippi. He is chief executive of SeverCorr, a joint
venture in which he and other investors hold 20 percent, with Severstal
accounting for the rest.
The venture should start making steel in late 2007. Correnti said that the new
plant - construction of which has started in recent weeks - is within 250 miles
of 14 car plants in the southern US and run mainly by non-US companies such as
BMW, Honda, Daimler-Chrysler, Toyota and Nissan. "At the moment these
plants - making four million cars a year - have to ship their sheet steel either
from plants in the northern US or from Japan or Europe," Correnti was
quoted by the paper.
"I estimate we will be able to cut up to US$100 a tonne from these plants'
shipping costs by having a steel mill making steel of the correct quality and
which is (physically) much closer." For Severstal, the project is an
important part of its effort to expand in the US
The company, which until now has produced virtually all its steel in Russia,
last year raised a stir through its US$286 million acquisition of Rouge
Industries, a struggling steelmaker near Detroit that makes all its steel using
blast furnaces, an acquisition MosNews reported earlier.
MMK to boost steel exports to EU in 2006
Magnitogorsk Iron & Steel Works (MMK) could increase exports to Europe in
2006, Viktor Rashnikov, the company's chairman of the board, said recently,
Interfax News Agency reported.
He was commenting on two signed agreements under which Russia could increase
exports of metal products to the European Union to 2.2 million tonnes in 2005
from 1.8 million tonnes in 2004, MMK's press service said. Quotas are also
expected to be increased by 2.5 per cent in 2006 to 2.27 million tonnes.
The agreement will be in force until December 31, 2006, or until Russia joins
the World Trade Organisation (WTO) if that takes place earlier. MMK is Russia's
biggest exporter and exports approximately half of its products - 51 per cent in
2004. MMK increased metal exports to Western Europe to 17 per cent of total
exports in 2004 from 13 per cent in 2003.
Norilsk Nickel to build port in Murmansk by 2008
MMC Norilsk Nickel intends to build a port capable of handling 2m tonnes of
cargo by the end of 2007, the Arctic mining and smelting giant said in its
corporate magazine, Interfax News Agency reported.
This will give the company total independence from its transport partners after
the middle of 2008.
"Ships from Norilsk have to dock at Murmansk, Arkhangelsk and Kandalaksha.
We plan to build one base port, and our ships will sail on one route from
Dudinka (in Norilsk) to Murmansk. This will cut shipping time and enable us to
carry more freight. We will be able to store and process coaster cargo and
prepare export cargo for shipment," the article quoted Alexei Tyukavin,
head of Norilsk Nickel's recently established Murmansk Transport Branch, as
saying. Norilsk Nickel will be able to cut the cost of preparing cargo for
exports and the cost of shipping that cargo, Tyukavin said. The creation of the
company's own infrastructure is "the only way out of the situation that has
emerged," he said. "The company currently uses the services of the
Murmansk Shipping Company.
"However the shipping company does not plan to build any more ships, and
its existing fleet is ageing and will be decommissioned in a few years,"
Tyukavin said. And Norilsk Nickel calculates it will be cheaper to build its own
fleet and port than to use the services of another shipping company.
It is anticipated that the designs will be finished by the end of this year and
that construction in Murmansk will begin early 2006.
Norilsk Nickel did not say how much it plans to invest, but it did say that this
would be a state-of-the-art cargo terminal. The company has estimated that it
could cut transport costs 25%-30% if it stops leasing ships from other companies
and uses its own vessels. Norilsk Nickel needs 4 or 5 modern ice-class ships in
all.
Finland's Kvaerner Masa-Yards Inc is building a container ship capable of
carrying 14,500 tonnes of cargo at a cost of 70m Euro.
This will be the first in a possible series of ships which will replace the
SA-15 dry cargo ships built at other Finnish yards in the 1980s and which have
operated on the Arctic shipping route for the last 20 years. The new ship will
be tested in March 2006.
SUAL mulls US$300m Eurobond in 2005
Russia's number 2, aluminium producer SUAL Group is thinking of issuing US$300m
in Eurobonds as early as this year, said Iosif Bakaleinik, senior vice president
of SUAL-Holding, reported Interfax News Agency.
"The likelihood that we issue (the Eurobonds by the end of 2005) is more
than 50%, but a more definite decision on the timing will depend on the state of
the market," Bakaleinik said. Bakaleinik also said that SUAL's investment
programme for 2006 had not yet been finalised, but requests for some US$300m had
been received. "Some of them might be granted, but some might have to wait
until later, the discussions are under way. The (final) amount may be
lower," he said. Moody's Investors Service has affirmed the global scale
rating, namely the Ba3 corporate family rating, of SUAL International Ltd (SUAL),
the agency said recently in a press release. Concurrently, Moscow-based Moody's
Interfax Rating Agency assigned the Russian number 2 aluminium producer an
Aa3.ru national scale rating. The outlook on the global scale rating remains
stable.
According to Moody's and Moody's Interfax, the Ba3 global scale rating reflects
the company's global default and loss expectation, while the Aa3.ru national
scale rating reflects the standing of the company's credit quality relative to
its domestic peers.
Headquartered in Moscow, Russia, SUAL is a leading manufacturer of primary
aluminium with 2004 revenues of US$2bn (70% from export activities).
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