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Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 433,491 346,520 310,000 16
         
GNI per capita
 US $ 2,610 2,140 1,750 97
Ranking is given out of 208 nations - (data from the World Bank)

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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



Update No: 290 - (10/03/05)

Chechen Leader Aslan Maskhadov Killed 
Chechen rebel leader Aslan Maskhadov has been killed by Russian troops fighting to quell a long rebellion in the mainly Muslim Caucasus region, the Russian army announced on March 8th. The death of Maskhadov, 53, would boost Russian President Vladimir Putin, who built his power largely on a tough line against the Chechen rebels. The armed campaign which Maskhadov led had brought bombings to the very heart of Russia.
"A special operation was carried out by us in the village of Tolstoy-Yurt as a result of which the international terrorist and leader of the rebel group Aslan Maskhadov was killed," FSB Security Service chief, Nikolai Patrushev, told President Vladimir Putin. Tolstoy-Yurt is 20 km (12 miles) north of Grozny. 
Four close comrades of Maskhadov have been detained, Patrushev was shown on television telling Putin. He added that there had been no casualties among Russian security forces. 
Maskhadov's envoy in London, Akhmed Zakayev, said he had no hard information, but he thought the reports were true. This is a situation where the often blurred distinction between a terrorist and a freedom fighter may be discerned.
Moscow blames Maskhadov, who had a US$10 million reward on his head, for a string of deadly operations in Russia, including an attack on a Moscow theatre, a bombing near the Kremlin and an action against a school in the south Russian town of Beslan. At least 326 hostages -- half of them children -- died at the school in Beslan last year, few outside observers connect him with that horrific crime. 
Maskhadov actually condemned the assault on the school, for which his rival, the Islamic extremist, Shamil Basayev, not only claimed responsibility as he had done for the Moscow Theatre massacre, but threatened many more such horrors to come. Maskhadov was the moderate by comparison and did not even demand full independence for Chechnya. He had no Islamic goals but was unquestionably a fervid nationalist opposed to Russian hegemony over his small mountain state. He had negotiated the peace of 1996 when General Lebed was the Russian security supremo. The two agreed to postpone resolution of the status of Chechnya until a referendum in 2001. The outbreak of the second Chechen War in 1999 aborted that. The mysterious explosions in Moscow in 1999 which precipitated the renewed conflict, have been attributed by some as authored by certain Russians, (several accusations have been made but never substantiated), seeking to scuttle that process, which it certainly did. The referendum would of course have been won by Maskhadov's independence party, so the Chechens, who always denied their involvement in the Moscow bombings, (even Basayev who proudly proclaimed his responsibility for the others), never had their chance to achieve independence via the ballot box. 
Although it never took place, the aborted referendum gives Chechnya an unusual status already, namely an international legal profile. This can be said to justify its independence movement lobbying abroad for their cause, as Zakayev does in London. 

Links to al Qaeda
Moscow claims, however, that the Chechens have been going much further than that. It links Maskhadov, and field commander Basayev, to groups that conducted attacks such as the Sept. 11, 2001, attacks on the United States. In the case of Basayev, a fanatic, a l'outrance, the claim is plausible, but not for Maskhadov.
Recently Maskhadov had called for a month's truce, and further asked for talks with Moscow on Chechen demands for independence. The Chechens by and large one-sidedly observed the truce, although the Russians did not accept it, indeed as a response they mounted their attack and killed Maskhadov. The Kremlin insisted that it would not negotiate with terrorists, but with Maskhadov dead, undoubted terrorists in the shape of the Islamicist Basayev, is what they are left with. There was intense rivalry between the mainstream nationalists of Maskhadov and the Basayev Islamic group because they had such different views of the struggle and how to wage it. It is said that the Basayev wing twice attempted to assassinate Maskhadov, who had been elected president of his country during a period of peace, and it must now be a matter of speculation if it was they that betrayed his whereabouts to the Russian special forces. Some critics of Moscow's policies in Chechnya saw Maskhadov as a man with whom Moscow could have negotiated, as General Lebed once did. Why then did Putin reject the possibilities of peace in this benighted country?
Russian leaders, fearing a breakaway by Chechnya could trigger secession moves by other regions in the sprawling federation, have fought two wars in Chechnya. Tens of thousands were killed on both sides in the first conflict from 1994-96. Putin sent troops back into the territory in late 1999 to cement his image as a strong leader ahead of his election as president in 2000. The territory suffered widespread devastation and thousands more were killed. 
Russia has suffered a series of humiliating setbacks in its bid to control Chechnya, including last year's assassination of the Moscow-backed president of the region in a bomb attack. In 1996, Russian special forces killed the first post-Soviet rebel leader Dzhokhar Dudayev. Being Chechen leader is not an enviable role.

The gremlin in the Kremlin
Putin has not been having a good time of it recently and his popularity, once sky-high, is plummeting. He has introduced welfare 'reforms' that have alienated large swathes of the population. By and large they directly affect only the pensioners and the older people, obviously those who will no longer be around for much longer. The measures include the abolition of free public transport and medical treatment for them and the like.
But the man in the Kremlin and his close advisers seem to have forgotten two equally evident points. Everybody knows that they are going to get older themselves one day, while they naturally have a concern for their parents' welfare, especially as the more responsible among them are now going to have to delve into their own pockets to help them out, particularly when they fall ill, as of course many of them are bound to do.
The measures have a sinister aspect about them. So does virtually everything Putin does these days, from continuing the utterly futile Chechen war to abolishing regional elections and curbing the media. Putin is showing fascist tendencies as a parvenu to power, as could have been predicted from his life-long love affair with the KGB, which still exists in all but name in the shape of the FSB he came to head (it was a regular practice in Soviet times to ring the changes on the title of the organisation, the Cheka, the OGPU, etc).
The astonishing thing is how many people nurtured illusions about the man, given the extraordinarily underhand way he came to power and acquired popularity, starting a new genocidal war in Chechnya for no credible reason - except that it would secure his stall in the Kremlin. Moreover, he is the sort of character who would never admit to having made a mistake, unlike his predecessor who admitted that the first Chechen war was exactly that and who openly apologised to the Russian people for his failure to improve their lot when he resigned in 2000 at the New Year. 
Yeltsin must be having second thoughts about whether his choice of successor was so wise after all. Someone who certainly does, and has said so, who had a considerable hand in the matter at the time, is the exiled tycoon, Boris Berezovsky. Bush and Blair must likewise be wondering if their unconditional endorsement of the new man in the Kremlin was really so sensible in hindsight. 
At that juncture the big oligarchs were bent on protecting their ill-gotten gains at all costs, just as Yeltsin desired to protect the entourage around his daughter and other Kremlin intimates from retribution at the hands of the law for corruption and sundry manifest misdemeanours. Neither motive was likely to be conducive to the right candidate for the succession being chosen. Putin was deemed the man to continue the cover-up of the many misdeeds of the 1990s, having proved his discretion amply at the helm of the FSB at the end of the decade.
He has kept his side of the bargain with Yeltsin - but not exactly with the non-Russian oligarchs. He has fallen out with four major oligarchs, all of them Jewish - no surprise at all. Having come to power by initiating what amounts to genocide, to exploit the Russian people's long-held phobia about the swarthy denizens and diasporants of the Caucusus, he then decided that to pander to their entrenched anti-semitism could not fail to enhance his position. These are the actions of a demagogue. 

Losing out in Ukraine
His latest gaffe has been in backing the wrong horse in Ukraine and doing so in a particularly ham-handed way, which may come to haunt him. He has clearly made an enemy of the supporters of the new Ukrainian president, Viktor Yushchenko, even if Yushchenko himself as a seasoned politician understands what it is all about.
Ukraine is no ordinary former republic of the Soviet Union in the near-abroad of Russia. It has by far the largest ethnically Russian population, eleven million, out of forty-nine million, and is right next to European Russia in the east of the country. But it has many other minority ethnicities as well.

The Russian time-bomb
It has generally been assumed that the ethnic Russians in the country are fervently Muscovite, harking back to the days when Ukraine was ruled from Moscow, or indeed St Petersburg. This is not necessarily true. 
Ukraine would be an excellent place to live, if only it did not have a huge hangover from its past association with Russia, notably in Soviet days when many millions were murdered in Stalin's collectivisation of agriculture and his purges. Now it has a chance to begin to disassociate itself from Russia and it is manifestly taking it. For Putin to so speedily endorse a patently flawed electoral result on November 21st in Ukraine, simply because the pro- Russian candidate, Viktor Yakunovich, was deemed the winner was a colossal miscalculation, an eternal reminder to all Ukrainian citizens that the one thing that you can expect out of Moscow is not democracy - but autocracy! 

But Ukraine is the answer
Ukraine could yet become the ideal of what Russians everywhere, whether living in Russia or the world-wide diaspora, aspire for their original homeland - democratic and prosperous; cosmopolitan and Western.
The first precondition of the first part is in the process of being met; the second could surely do so, if the West comes to the rescue; - in which case the third and fourth automatically apply.
The moral is obvious - save Ukraine and one day you save Russia.

Bush, Putin meet and end "Romantic Period" 
On February 24th, Presidents Bush and Putin had the 10th talks between the two leaders so far. Bush said his ''very frank'' relationship with Putin allowed him to raise his concerns about democratic setbacks in Russia, while respecting Putin as ''a decision-maker.'' This was done in a private way so as not to embarrass Putin in public, although this very admission was of course in public.
Bush said after meeting Russian President Vladimir Putin for the first time in Slovenia in June 2001 that he looked him in the eye and got ''a sense of his soul.'' Lately, Bush seems to be having second thoughts and wondering if he saw the real Putin. ''I have some concerns about some of the decisions by Vladimir,'' Bush said in a meeting with German Chancellor Gerhard Schroeder on February 23rd, on the eve of talks with Putin in Slovakia on the 24th. ''Bush in his tenure has gone full circle with Russia, first neglecting a spent superpower, then courting a promising ally in the war against terror after 9/ll, then to disinterest, after Putin opposed the Iraq war,'' Alexander Rahr, Russia expert from the Berlin-based DGAP foreign-policy research institute, said in an interview on the German leg of Bush's tour. ''The price of neglect is Russian embitterment.'' 
Putin was the first foreign leader invited to Bush's Texas ranch, where Bush took Putin on a nature walk and threw a chuck- wagon barbecue in his honour. Since then, Bush has often prefaced criticism of Putin's policies by noting that they like each other and share a devotion to religion. 
Bush and Putin have disagreed over the U.S. invasion of Iraq, over Putin's agreement to help Iran build a nuclear power plant and over his decision to scrap direct election of regional governors and appoint them himself. The talks in Bratislava capped a four- day European trip during which Bush tried to mend relations with critics of the Iraq war and push his agenda of expanding democracy. ''The Russian government must renew a commitment to democracy and the rule of law,'' Bush said in a speech in Brussels on February 21st. 
Both leaders put a brave face on the outcome of the Bratislava meeting on February 24th. Putin said that he was satisfied with the results of the summit in the Slovak capital, despite a clash over Moscow's democratic credentials. "I am satisfied with the meeting and with the results of the meeting," Putin told a news conference following talks with his Slovak counterpart, Ivan Gasparovic. 
Bush warned Putin in the meeting against backsliding on democracy in Russia in what both sides called a frank debate at the Bratislava summit. But he also assured the Russian president he was still a trusted partner of the United States and Putin said his country would not go back on the democratic path it embarked upon when the Soviet Union collapsed 14 years ago. Putin said his frank discussion with Bush was useful although he made clear Russia did not accept being lectured by the West on how to run its affairs. "The meeting was very positive both in terms of its atmosphere and the choice of topics," Putin added. His aides said that in turn, Putin challenged Bush about the US rule of law in relation to Guantanamo Bay, and the sordid events of prisoner abuse in the coalition's military prisons in Iraq. 
Western and Russian civil rights campaigners accuse Putin of restricting democracy by abolishing the election of provincial governors, pursuing a vendetta against the Yukos oil company and tightening the Kremlin's grip on the media. They also fear he is trying to stifle democratic changes across the ex-Soviet bloc, with Russian reluctance to accept free elections in Ukraine often cited as the latest example. 
In addition, its crackdown on separatists in Chechnya has drawn Western criticism, and the European Court of Human Rights has ruled that Russia committed serious abuses, including the torture and killing of civilians in its southern province.
Ariel Cohen, a Russian studies analyst at the Washington-based Heritage Foundation, said: "Putin signalled he's not interested in being lectured like a schoolboy.'' Indeed, he isn't. Putin said that Russia would develop its own brand of democracy without foreign interference. "The fundamental principles of democracy and democratic institutions should be adapted to the realities of Russian life today, to our traditions and to our history,'' he told Slovak media, according to a transcript on the Kremlin Web site. "And we will do this ourselves.'' 

Rumpus over Yukos
The largest shareholder in OAO Yukos Oil Co. has urged the US to block Russia's quest for World Trade Organization (WTO) membership, saying the government pushed Yukos into bankruptcy with its demand for US$28 billion in taxes. The move raised concerns that Putin is seeking to tighten control of businesses. 
A Bush bid to get Putin to ease controls on business and not squelch internal dissent would get a "tart'' response, Yuri Ushakov, Russia's ambassador to the US, told the New York Times in an interview published on February 23rd. Russians don't support some of Bush's foreign policies and are "highly critical of your electoral college system,'' the Times quoted Ushakov as saying in response to questions, by which he meant that only a handful of US states can determine the outcome of a presidential election. 
"There are powerful forces in Russia that are deeply anti- American,'' said the Heritage Foundation's Cohen. "Putin's concern is that if he looks weak, the extreme nationalist forces will work for his removal.'' The US is trying to walk a fine line between expressing displeasure with Putin's recent actions and finding a way to push Russia back toward democracy, a U.S. government official said, speaking on condition of anonymity. 

"Complex Relationship" 
Russia, which overtook Saudi Arabia as the world's largest oil producer last year, wants to join the WTO this year and must agree on membership terms with governments including the US. The US supports Russia's bid to join the WTO as a way to strengthen "the gains of freedom and prosperity in that country,'' Bush said Feb. 21. They have in principle, reached agreement on the area of dual pricing in the energy sector, and made progress in the areas of intellectual property rights and aircraft. On January 31st Russia ceased being one of the IMF's five largest debtor nations by repaying, years ahead of time, its outstanding debt of $3.3bn.
Bush and Putin have been cooperating in fighting terrorism worldwide and in efforts to curb the spread of nuclear weapons, specifically in North Korea, Stephen Hadley, Bush's new national security adviser, told reporters in Mainz, Germany. "It's a complex relationship,'' Hadley said. "We have a very constructive relationship with Russia.'' But Russia has shown little interest in the one-sided temporary cease-fire in Chechnya affected by the Chechen president, as a bid to start to negotiate.
Iran, with Russia's assistance, is pressing ahead with the construction of a heavy-water nuclear reactor, which theoretically could make fuel for a nuclear bomb. Putin said in mid-February that Russia would continue helping Iran on the US$800 million project, dismissing opposition from the US, the UK, France and Germany.
In general the Bush-Putin meeting went off better than expected. Both sides are reliant on good relations with the other. Putin knows that Washington is by far Moscow's most important interlocutor, while the Kremlin is still the main one for any US administration. 

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AUTOMOBILES

Suzuki's 2004 sales in Russia leap 65%


Suzuki saw its automobile sales in Russia jump 65.3% in 2004, Interfax New Agency reported recently. 
The Moscow offices of Itochu Corp, Suzuki's official distributor in Russia, told Interfax that official dealer sales came to 6,685 vehicles last year versus 4,044 the year before and 1,912 in 2002. The SUV Grand Vitara was Suzuki's biggest seller in Russia in 2004, accounting for 50% of overall sales. Second was the company's 'Liana' model car (32% of sales).

GAZ to send Turkey 4,000 automobiles in 2005

Gorky Automotive Works, the Nizhny Novgorod-based automaker GAZ, plans to ship around 4,000 light trucks and buses based on its Sobol and GAZel models to Turkey in 2005 under a contract signed late last November, company press secretary, Sergei Lugovo, said recently, Interfax News Agency reported. 
GAZ already shipped some 100 vehicles in December. Lugovoi said Turkey is particularly interested in Sobol-based light trucks. GAZ is part of Ruspromavto.

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AVIATION & SPACE

Sukhoi records strong 2004

Russian firm Sukhoi, the country's major aircraft producer, posted profit of 45bn rubles (about US$1.6bn) in 2004, the company said in a statement, Interfax News Agency reported recently. 
The share of export products in the total sales volume totalled some 95%, the company said.
Sukhoi's plants mostly manufacture military-purpose products, while the share of civilian output in the total sales volume is about 5%, a Sukhoi official said. In future, the share of civil aircraft will increase, including through implementation of the Russian Regional Jet development project.
According to the official, the company's revenues from independent exports of spare parts and servicing of earlier exported aircraft are growing. "The volume of services provided in 2003 amounted to US$15m. Contracts worth a total of US$135m were implemented in 2004, and our plan is to bring the volume of services up to over US$150m in 2005," he said.
Sukhoi worked on 10 direct contracts on spare part supplies and aircraft servicing in such countries as Algeria, Belarus, China, India and Kazakstan in 2004, the official added.
"Sukhoi expects to get at least 80% of the market of spare parts for earlier supplied Su planes. The market is estimated at US$1bn for the next few years," he said.
According to him, Sukhoi is number 28 on the list of the world's 100 leading defence industry companies posted by Defence News. Experts say the company accounts for 14% of global aircraft production and will account for 16% in 2015.
Sukhoi's products, including licensed and joint production, amount to 25% on the global warplane market.

Moscow wants to create new air carrier

The Russian state-owned Pulkovo, the country's number three carrier, plans to merge with smaller airline Rossiya later this year to form another air carrier, government officials said, RBC reported recently.
Russian Prime Minister, Mikhail Fradkov, is reported to have signed a resolution defining the new status of Rossiya, which carries the president and senior government officials, as well as commercial passengers. The merger is expected to be completed within a year.
The resolution calls for Rossiya to transfer about 30 of its 41 jets to the Kremlin, which will then hire pilots and crews from the airline on a contract basis, the daily said. This scheme will make it possible to cut spending, noted the news service. The new airline, tentatively called Soyuz, will get the remainder of Rossiya's fleet, Pulkovo's 40-plus Tupolevs and Ilyushins, and the licences and routes of both airlines. Pulkovo Airport, St Petersburg's only commercial airport, which currently belongs to the eponymous airline, will be spun off as a separate commercial entity. In the first 11 months of 2004 Pulkovo carried 2.5m passengers, while Rossiya carried 578,000.
Its major competitors, Aeroflot and number two airline Sibir carried 6.3m and 3.5m, respectively. Other details of the proposed deal are not disclosed as yet. Both Rossiya and Pulkovo have acting directors general, and there is no clear indication of who will run the new company.

Space Agency green-lights plan for Q1 launches

The Russian Federal Space Agency has approved a plan for space launches in the first quarter of 2005, agency press secretary, Vyacheslav Davidenko, said recently, Interfax News Agency reported. 
"Seven rockets will be launched in the first 3 months of the year 2005. They will put 8 spacecraft and satellites into circumterrestrial orbits," he said. "Units of the Federal Space Agency and Space Troops are preparing to launch Soyuz, Proton, RS-20 and Cosmos rockets from the Baikonur and Plesetsk spaceports," Davidenko said.

Russia puts US satellite into orbit

The Proton-M carrier rocket put the AMS-12 foreign telecommunications satellite into its designated orbit, Interfax News Agency reported.
The AMS-12 satellite will be used to provide television and telephone communications services, transmit data to a large circle of users, create corporate networks and for other telecommunications purposes. The satellite will be in geostationary orbit at 37.5 degrees West, which will make it possible to serve clients in South and North America, the Caribbean, Europe and Africa.

Russian capital to host next ISS partners session

The next meeting of the space agency chiefs of the participants in the International Space Station project will be held in Moscow, Russian Space Agency spokesman, Vyacheslav Davidenko, said, Interfax News Agency reported.
"At their Montreal meeting, the heads of space agencies of participants in the ISS project (Russia, US, EU, Canada, and Japan) accepted Russian Space Agency head Anatoly Perminov's offer to conduct the next meeting in Moscow," Davidenko said. The ISS multilateral coordination council is working in Montreal at the moment. According to Davidenko, the date of the Moscow meeting has not yet been set.
The space agency chiefs meeting in Montreal were to sign a cornerstone document defining the further fate of the ISS, its construction deadline and operation, as well as the participation of all partners in the project, he said.
Russia intends to raise the issue of modifying the procedure of financing its Progress and Soyuz spacecraft launches, which after the US Space Shuttle tragedy on February 1st, 2003, have been shouldering the burden of supporting the ISS project.

Russian aircraft manufacturer signs major contract

The Nizhniy Novgorod Sokol aircraft construction factory has signed a contract to deliver 45 M101-T multipurpose planes to the Vozdushnyye Transportnyye Sistemy [VTS] leasing company, ITAR-TASS News Agency reported.
The agreement states that the planes will be deivered to the customer by the end of 2007. The first eight planes will be delivered to VTS this autumn, the aircraft factory's press service told ITAR-TASS.
According to Sokol's director general, Mikhail Shibayev, this is the first contract for such a quantity of aircraft signed in the modern history of Russian civilian aircraft construction. Working in partnership with the customer, the factory will create a base for servicing and repairing the M-101T planes and training flight and engineering staff.
In the Volga Federal District this project for building and maintaining modern aircraft for transporting passengers and cargo between regions is seen as crucial. According to Russian president's plenipotentiary representative in the Volga Federal District, Sergey Kiriyenko, the contract "is the first step on the path towards restoring air links between the towns of the Volga district."
The M-101T is the first Russian high-speed multi-purpose aircraft with a turbo-prop engine and pressurized cabin. It can be stationed in unsurfaced and mountain airfields and fly at any time of day or night under the most difficult climatic conditions, as test flights in various Russian regions, central Africa and on the Arabian peninsula have shown.

Russian Burlak engine for IL-76 military aircraft ready for tests

The first new D-30KP-3 Burlak engine to be mounted on the IL-76 Candid military transport aircraft will undergo bench tests in the near future, Interfax-AVN Military News Agency web site reported.
"The engine prototype was submitted for bench tests in late February-early March," the director general of the Saturn research and production association, Yuriy Lastochkin, said at the Aero India 2005 air show.
"Another four engines, also designed for bench tests and development, will have been manufactured before the end of the year," he said. 
A total of nine engine prototypes are expected to be produced for research and development. The last four of them will be designed for flight tests, Lastochkin said.
According to him, the entire programme of D-30KP-3 bench tests will be completed in the first or second quarter of 2006. At the end of the second quarter of 2007 the flight and certification tests are to be carried out.
Lastochkin noted that at the present time the fleet of IL-76s in service with the Russian air force amounted to over 300 aircraft, and that the objective of providing these aircraft with a contemporary and cheap power plant was of paramount importance. "The modernization will make the aircraft operation 1.5 times cheaper due to reducing its fuel consumption and extending the service life. Burlak will be cheap due to the fact that it will use up to 75 per cent of units and components of mass-produced D-30KP-2 engines. Its thrust will also increase," Lastochkin said.
He also said that the Indian air force had expressed its interest in the Burlak power plant. "Given the composition of the national aircraft fleet, this project is of considerable interest to India, while we will be able to expand this engine's market," he said. 

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BANKING

Sberbank sells Moscow bank stake to HVB, Nordea

Sberbank, Russia's biggest savings institution, sold its 2.16 per cent interest in International Moscow Bank (IMB) to the HVB Group's Bayerische Hypo-und Vereinsbank AG and the Nordea Group's Nordea Bank Finland pls, A Sberbank and IMB joint statement said, Interfax News Agency reported.
The parties said Sberbank sold 833 shares to Bayerische Hypo-und Vereinsbank and 917 shares to Nordea bank Finland. HVB now controls 47.402 per cent or 60,358 shares in IMB and Nordea Group has 22.406 per cent or 28,530 shares.

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CREDIT RATINGS

S&P joins peers in upgrading Russia's debt

Standard & Poor's recently raised its credit rating on Russia from "junk" to investment grade in a move that brings S&P into line with the other two leading ratings agencies, the Financial Times reported on February 1st.
It is a big step forward in the rehabilitation of Russia in the eyes of investors after it defaulted on its domestic debt in August 1998.
The upgrade prompted an immediate 8 basis point (hundredth of a percentage point) fall in the yield on the benchmark 2030 sovereign bond.
S&P still has serious concerns about the political risks involved in investing in Russia but the upgrade of the country's long-term foreign currency rating reflects its strong financial position, the agency said.
Russia's one-notch upgrade from double B plus to triple B minus with a stable outlook puts it on the lowest rung of the investment grade category. It widens the range of institutions that can invest in the country's sovereign and corporate debt and cuts the cost of borrowing.
"The upgrade reflects recent, crucial improvements in the government's debt level and external liquidity," said Helena Hessel, S&P analyst. "These improvements are so significant that they now outweigh the serious and growing political risk that continues to be a key ratings constraint on Russia."
Helped by a rising oil price, the Russian government became a net creditor at the end of last year, with a net external asset position of almost 11 per cent of current account receipts, compared with a net debtor position of more than 17 per cent a year earlier.
This was "an important rating consideration in the context of the continued political institutional and structural weaknesses the country faces," said Ms Hessel. "At this point, the financial flexibility afforded by the government more than offsets these other challenges." The Russian government's break-up of Yukos, the oil company, and its pursuit of VimpelCom, a mobile phone company, for back taxes have dented investor confidence.
Tim Ash, emerging markets analyst at Bear Stearns, said the move was long overdue. "The Russia financing position is simply so strong as to outweigh concerns on the political/structural reform front," he said.
But some investors advised caution. John Cleary, chief investment officer at Standard Asset Management, part of Standard Bank, said "My biggest worry is that now that Russia is included in the benchmark emerging market debt indices, there may be indiscriminate buying.
"There are good Russian companies issuing international bonds but there is a lot of dross too. Corporate governance remains a worry in Russia. During the last Russian crisis, many companies that no one had heard of before were issuing debt."
Fitch Ratings raised Russia to investment grade in November after Moody's led the way in October 2003.

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ENERGY

Russia and Uzbekistan push ahead with Central Asian gas transit plan

The Gazprom corporation has signed contracts to transit Central Asian gas across Uzbekistan and to purchase Uzbek gas in 2005, RIA News Agency reported.
A Gazprom press statement said that the contracts were signed during a visit to Uzbekistan by a company delegation headed by deputy chairmen of the board, Yuriy Komarov, and Aleksandr Ryazanov.
"During the visit contracts were signed between Gazprom and the Uztransgaz company for the transport of Central Asian gas across the Republic of Uzbekistan and for the purchase of 5bn cubic metres of gas from Uzbekistan in 2005," the statement said.
The two sides also agreed to expand cooperation in the gas sector between Russia and Uzbekistan in the areas recorded in the Strategic Cooperation Agreement. In particular, they have decided to create joint working groups to step up work on the Central Asia-Centre development project, draft a long-term contract for gas transit across Uzbekistan, and to prepare a production-sharing agreement to develop deposits in Uzbekistan's Ustyurt region.
Uzbekistan's gas reserves are over 6,250bn cubic metres. Its current output is 55bn cubic metres a year, of which 5bn are exported to Kazakstan, Kyrgyzstan and Tajikistan. It started sending gas to Russia in May 2003, 1.27bn cubic metres in that year and about 7bn last year.
The Strategic Cooperation Agreement between Uztransgaz and Gazprom was signed on 17 December 2002 and covers in particular long-term purchases of Uzbek gas for the period 2003 to 2012, a role for Gazprom in developing Uzbek gas deposits on production-sharing terms, the joint development of a gas transit infrastructure in Uzbekistan, and the transport of Central Asian gas across the republic.
Joint work to develop Uzbekistan's gas industry is part of the Central Asia-Centre project on the reconstruction and expansion of existing and also the building of new gas transit facilities in Turkmenistan, Uzbekistan, Kazakhstan and Russia, so that Central Asian gas can be transported across these republics in the amounts required by international agreements.

Russian state oil firm supplies first oil to China

Rosneft has delivered its first oil supplies to China. "The first tanks have already been sent," Rosneft president Sergey Bogdanchikov said in Khabarovsk, ITAR-TASS News Agency reported.
Bogdanchikov said that the company intends to supply 4m tonnes this year in accordance with a trading contract and 8.9m tonnes a year over the next five years.
"Russia and China have signed an intergovernmental agreement under which Russia has undertaken to supply 10m tonnes of oil to China by rail in 2005. From next year supplies will rise to 15m tonnes," Bogdanchikov said. Reserves are large enough to implement the programme, he added.

Moscow and Damascus discuss oil cooperation

Opportunities for Russian-Syrian cooperation in the oil industry will be discussed during a visit to Russia by Syrian President, Bashar al-Asad, the Syrian president told students in Moscow's International Relations Institute (MGIMO) recently, New Europe reported.
"We want to explore and extract oil reserves together with Russian companies," he said. "Syria still hopes that the situation in Iraq will stabilise and that it will be necessary for us to start joint projects with Russia in this country also," he said. The Syrian president said that he plans to sign two fuel and energy cooperation agreements while in Moscow. Al-Asad said, "The setting up of free trade zones between our countries may become an important issue."

Grigoryev says Russia mulling oil branch pipe to China

The Russian government's decision on building an oil pipeline system connecting Taishet in the Irkutsk region, Skovorodino in the Amur region, and Perevoznaya Bay in the Maritime (Primorye) territory does not exclude the possibility of building a branch pipe to China, Sergei Grigoryev, vice president of the state oil transportation company Transneft, said, Interfax News Agency reported.
"What matters above all for us is that a principled decision has been made, and now we will launch a specific feasibility study and begin the construction. A decision on building a branch to China will be made in the course of the project implementation," Grigoryev said.
It is planned to build a railway loading station in Skovorodino, from which oil will be delivered by rail to Nakhodka at the first stage, and this would facilitate to transport oil from Skovorodino to China, Grigoryev said.
"The distance between Skovorodino and China is 50kms, and the construction of this branch will not cost too much," he said.

Bigger LUKoil output helps double 2004 Q3 profit

LUKoil, Russia's biggest oil producer, doubled third-quarter profit by ramping up exports amid higher oil prices, the company announced on January 11th. Net income increased to €1.4bn from €701m, in the year-ago period, LUKoil was quoted as saying by Interfax News Agency. Sales rose 62% to €9.8bn.
LUKoil produces almost a fifth of the oil in Russia, the world's second biggest crude supplier behind Saudi Arabia. The company is diversifying from its west Siberian production base. LUKoil is increasing sales to China, partly replacing YUKOS Oil Co, which is being dismantled by the Russian government in a €20bn tax dispute.
ConocoPhillips, the third largest US oil company, last year bought at least 10% of LUKoil. In late September the Houston-based ConocoPhillips won in the auction for the sale of the LUKoil state share package of 7.6% purchasing it for €2bn and announced the intention to buy 2.4% more. ConocoPhillips even signed an agreement with the Russian Fund of Federal Property (RFFI) that opens the way to bringing the share of the American company in the LUKoil authorised capital up to 20%. The agreement is considered as an example of mutually advantageous cooperation between Russia and the United States in the energy sphere.
US President George W Bush at talks with Russian Defence Minister Sergei Ivanov on January 12th mentioned the successful deal on the purchase of LUKoil shares by ConocoPhillips. LUKoil results are "a nice surprise at the start of the year," said Aivaras Abromavicius, who co-manages €800m in Eastern European funds for East Capital asset Management in Stockholm. According to a survey, LUKoil's profit was greater than the median estimate of €1.13bn. Excise and export tariffs almost doubled to €1.47bn, LUKoil said. The producer raised oil extraction 8.2% to 1.72m barrels a day in the first 9 nine months of 2004. Crude oil exports rose by a quarter to average 925,000 barrels a day in the period, the company said.

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FOOD & DRINK

Cargill to build Tula oil plant

US company, Cargill, has started to build its first oil extraction plant in Russia, in which it plans to invest over US$60m, Interfax News Agency reported.
The company said in a statement that the plant is being built at the Cargill industrial complex in Efremov, Tula region. The plant will have a special bottling line for sunflower, rape and maize oil, and also a line to package palm and coconut oils. Construction should be completed by February 2006. Dominique Le Doeuil, manager of the company's starch and sweetener department in Russia, said that by placing the plant in Efremov, the company will be able to benefit from existing infrastructure and from good relations with the Tula regional administration.

Russia gears up for Guinness beer production in July

The Russian subsidiary of Heineken NV said recently that it will create a partnership with Diageo Plc to produce and distribute Guinness in Russia, AFX News Service reported.
From July 1st, Heineken will become the authorised importer and distributor of the Guinness and Kilkenny brands in Russia, the report said. It will start local production of Guinness Foreign Extra Stout under licence in St Petersburg before July.

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FOREIGN ECONOMIC COOPERATION

Moscow and Damascus boost economic and military ties

Syrian leader, Bashar Assad, and Russian President, Vladimir Putin, signed a raft of documents at the Kremlin recently to revive flagging economic ties and deepen military cooperation, New Europe has reported. 
Projects aim to reverse a slump that reduced the volume of bilateral trade from around US$1bn in 1992 to some 210m in 2004.
Russia will also write off 73% of Syria's debts amounting to US$13.4bn, Finance Minister Alexei Kudrin said after the consultations. In a joint declaration on friendship and cooperation, Moscow and Damascus also agreed to "develop traditional cooperation in the military-technical sphere with consideration of mutual interests and international obligations."
But Syria's acquisition of modern Russian missiles was not a topic, President Assad said earlier, despite Israeli claims that a major arms deal is in the works. The leaders sought new impetus for ties that flourished in previous decades.
"Syria is a country that had special and extremely warm relations with the Soviet Union and with Russia today," Putin told Assad, who arrived in Moscow recently on a 4-day visit.
Flanked by their ministers for foreign affairs, economics and energy as well as military representatives, the presidents discussed terrorism, the conflict in Iraq and the Middle East peace process, in which Assad said Russia "bears a great responsibility" as a sponsor. "Were it not for your position the situation (in the Middle East) would have been entirely different," he stressed.
Israel has been closely watching Russia's relations with Syria in recent weeks after evidence allegedly surfaced of preparations to supply advanced missile systems.
The Russian weapons reportedly included Iskander-E surface-to-surface missiles capable of striking any Israeli target from Syria. However, the Russian government says none of the missiles will be sold to Damascus.
Igla SA-18 shoulder-fired surface-to-air missiles able to destroy planes and helicopters were also part of an arms package, according to Israeli authorities that accuse Syria of supporting terrorists and arming Lebanese Hezbollah guerrillas.

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INFORMATION TECHNOLOGY

Russia should become IT leader by 2010: Reyman

A comprehensive programme aimed at creating a network of Silicon Valley-type centres in Russia to develop information and high technology products for exports is crucial to making the country a leader on the global market for high technologies, Information Technologies and Communications Minister, Leonid Reyman, said, Interfax News Agency reported.
Information technologies account for more than 10% of leading countries' GDP (gross domestic product), while the volume of the global information technologies market stands at US$915bn, making it larger than the world oil sector, Reyman said. Russia accounts for a mere 0.2% of the global market for information technologies, he said.
The 2010 programme will help support high technology companies' efforts to gain access to the global market, remove administrative barriers and step up the drafting of new copyright laws to encourage investments in Russia's information technology sector, Reyman said.
Providing technoparks with a special economic zone status and introducing favourable customs and tax regulations for them will give an impetus to the sector, the minister said.
Among other measures, the programme envisions setting up a university to train personnel for IT companies and financing training courses for teachers, he said. It is also planned to establish a commercial venture fund to finance information technology projects, he said. "The state should show its long-term interest in this area, thus encouraging more investments," the minister said.
A total of 18bn rubles in budget funds will be invested in the programme in 2005-2010, Reyman said. All documents dealing with technoparks will be drafted in 2005, while the first technoparks and the university will be started in 2006-2007, he said. "This programme is expected to raise the volume of Russia's information technology market to US$40bn, bringing high technologies' share of GDP to 5%," he said.
After Russia becomes an IT leader, Western companies will start to sign contracts with Russian IT companies, he said. This will help meet the goal of doubling GDP in 10 years and lower the country's dependence on its raw materials sector, Reyman said.

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MINERALS & METALS

Mechel pays out US$411m for Yakutugol

Metallurgy concern Mechel Steel Group, Russia's fifth largest steelmaker, has acquired a blocking stake of 25 per cent plus one share in Far East coal company Yakutugol through its 100 per cent subsidiary, Little Echo Invest Corp, a Mechel press release said, Interfax News Agency reported.
Little Echo Invest Corp, which is an affiliate of the Mechel steel group, offered 11.577bn roubles (US$411.12m) for the state block of shares, more than three times the starting price set at 3.618bn roubles (US$128.48). The company was transformed into a joint-stock company in December 2002. The company's authorised capital of 4.04bn roubles (US$143.47m) is divided into 3.93m common shares and 113,187 preferred shares with a par value of 1,000 roubles (US$35.51) each.
Yakutugol produces mainly coking coal, but also thermal coal, at open pits and underground mines, according to Interfax. The company's production amounts to 9m tonnes of coal per year and revenue in the first nine months of 2004 amounted to 7.28bn roubles (about US$262.3m). The company's coal reserves, based on Russian standards, are estimated at about 300m tonnes. The company sells mainly in the Pacific region - Japan, South Korea and Taiwan - under long-term contracts.

Russia boosts 2004 11-mo iron ore exports 8%

Russia increased its iron ore exports 8% year-on-year to 17.55m tonnes in January-November 2004. Sources at Rudprom, which unites most of Russia's ore producing enterprises, said that 7.65m tonnes of concentrate had been exported (13.1% up), 8.58m tonnes of pellets (7.6% up), 455,000 tonnes of agglomerated ore (15.4% down) and 871,000 tonnes of iron-content briquettes (3.7% down), Interfax News Agency reported.
14.35m tonnes of iron ore was exported to countries outside the Commonwealth of Independent States, representing 81.8% of all Russia's iron ore exports for the period. That included 6.17m tonnes of concentrate, 7.77m tonnes of pellets and 402,000 tonnes of iron-content briquettes shipped to non-CIS countries. Russia increased production of commodity iron ore 5.8% year-on-year to 88.67m tonnes in January-November 2004.

Usmanov pays out US$1.7bn for iron ore mine

Russian billionaire, Alisher Usmanov, bought Mikhailovsky GOK, the country's second iron ore mine, for US$1.7bn, adding to his Russian steel assets after selling Corus Group shares last year, New Europe reported recently.
Usmanov, a Russian citizen who was born in Uzbekistan, owns majority stakes in Russia's Lebedinsky Iron Ore Mine, Nosta Steel and Oskolosky Special Steel, and a 35% stake in Alinogorsky Iron Ore Mine.
He and Vasily Anisimov, a former owner of aluminium maker SUAL, bought 97% of Mikhailovsky from Boris Ivanishvili, who controls industrial holding group Metalloinvest.
"Mr Usmanov bought Mikhailovsky, he is looking for more opportunities this year too, although everything depends on market conditions and a host of other factors," said Valery Dikevich, Usmanov's Moscow-based spokesman. Credit Suisse First Boston sold a £214m (US$412m) stake in Corus Group on Usmanov's behalf on December 14th.
The bank sold 400m shares at 53.5p each for Gallagher Holdings, his investment vehicle, after Corus shares rose 78% last year.

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TELECOMMUNICATIONS

Moscow Cablecom unveils deal with Columbus Nova

US company, Moscow CableCom Corp, which owns telecoms assets in Russia, announced recently that it completed a US$51m financing transaction with Columbus Nova Capital and its affiliates pursuant to which the Company issued 4,500,000 shares of its newly authorised Series B Convertible Preferred Stock, to Columbus Nova for US$22m, before transaction costs, currently estimated to total between US$3.2m and US$3.5m, New Europe reported recently. 
The company said in a statement that it also issued warrants to Columbus Nova to acquire an additional 8,283,000 shares of Series B Convertible Preferred Stock at US$5.00 per share. In addition, the company's wholly-owned subsidiary, ComCor-TV (CCTV), a Moscow-based hybrid-coaxial fibre pay-TV and internet service provider, received US$18.5m of proceeds from Columbus Nova pursuant to the terms of a US$28.5m 5-year term debt facility. Proceeds from the debt facility will be used to pay loan fees totalling US$612,500, and to pay off a US$4m bridge loan that was extended by Columbus Nova to CCTV to facilitate operational growth in advance of the closing of the financing transaction.

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TRANSPORT

Russian Railways to invest in Eastern Siberian road

OAO Russian Railways plans to invest over 3bn roubles in developing Eastern Siberian Railway infrastructure due to growth in oil transportation, a source in the company's public relations department said, Interfax News Agency reported.
Russian Railways Vice President, Sergei Kozyryev, said that to ensure growing volumes of transportation on the Irkutsk - Petrovsky Zavod section, it is necessary to spend 3.191m roubles on repairing a land bank, including 2.577bn rouble on strengthening the bank at Lake Baikal.
Russian Railways plan to transport 18m tonnes of oil along the Eastern Siberian Railway in 2005, including 3m tonnes through the Naushki border crossing to China, and 5.5m tonnes through the Zabaikalsk border crossing.
Based on preliminary figures, oil transportation is forecasted to increase to 24.5m tonnes in 2006, including 5.5m tonnes through Naushki and 9.5m tonnes through Zabaikalsk.

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