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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: 298- (27/10/05)

The Kremlin chuffed; new Ukraine PM visits Moscow
One recent development has pleased the Kremlin no end, the fall of Premier Julia Timoshenko in Ukraine and her replacement by an old-time apparatchik and Kuchma crony, Yuri Yekhanurov. The president sacked her after the administration, gripped by months of infighting, split into two camps.
Russian leaders have met Ukraine's new Prime Minister marking a thaw in relations marred by the Orange Revolution which thrust pro-Western leaders into power in Kiev. Yekhanurov flew to Moscow on October 1st, a week after being confirmed in the post he inherited from Tymoshenko, who led mass street protests alongside President Viktor Yushchenko last year. 
The Kremlin, which backed Yushchenko's rival in last year's election campaign, heaved a sigh of relief at the president's dismissal of Tymoshenko, accused of taking Ukraine out of its traditional embrace with Moscow and evicting Russian business.
Television pictures showed Russian Prime Minister Mikhail Fradkov embracing the new Ukrainian premier. President Vladimir Putin's comments underscored a relaxed atmosphere normally reserved for Moscow's closest allies. "We, in Russia, hope you can help the president consolidate society and cope with negative tendencies in Ukraine's economy," Putin told Yekhanurov. "We hope ... you will be able to maintain the level of cooperation customary for relations with Ukraine in the past few years and give it new impetus."
The air of cordiality strongly contrasted with the cold, pragmatic atmosphere of Putin's two meetings with Yushchenko. 
Tymoshenko's only planned visit to Moscow in March was called off after Russian prosecutors renewed an arrest warrant for the then premier, suspected of bribing Russian military officials in 1990s. The warrant has been lifted.

Kremlin ready to defend Iran and enable it to attack Europe 
Iranian Vice President Gholamreza Aghazadeh visited Moscow in September. The main subject of his negotiations was the upcoming discussion of Iran's nuclear programme by the IAEA. Moscow had more or less decided to support Tehran during the decisive voting at IAEA - support which could cause the Kremlin a lot of problems. 
This is extremely important for the new Iranian authorities. Mahmoud Ahmadinejad swept to victory during July's presidential elections in Iran. However, until now he has been a very obscure figure in the political arena. Tehran's foreign partners have only been able to judge the character of the new Iranian head of state by his harsh statements and the make-up of his cabinet - conservative politicians, who support the active development of a nuclear programme. 
Coming to Moscow immediately put him on the world stage. Now, the world is finally introduced to the new Iranian leadership. Russian diplomats met the new Iranian vice-president as well.
Russia is providing the Iranians with vital nuclear technology at their Bushehr plant. But it is also keen to assist them in constructing another 20 nuclear plants. It is bizarre that the new regime is determined to press ahead with nuclear power when Iran has large reserves of oil. But oil is earmarked for export, the only serious export the country has. So there is logic to it after all.
There must have been another topic on the agenda in addition. Former members of the Russian military have been secretly helping Iran to acquire technology needed to produce missiles capable of striking European capitals. The Russians are acting as go-betweens with North Korea as part of a multi-million pound deal they negotiated with Pyongyang and Tehran in 2003.It has enabled Iran to receive regular clandestine shipments of top secret missile technology, believed to be channelled through Russia.
Western intelligence officials believe that the technology will enable Iran to develop a missile with a range of 2,200 miles, capable of hitting much of Europe. It is designed to carry a 1.2 ton payload, enough for a nuclear device.
Iran's longest range missile to date is the Shahab 3, which with a 800-mile range could hit Israel. The North Korean-Russian deal will allow a new missile to hit targets far into Europe, including Rome, Berlin and much of France. 
The trouble is that neither, Italy, Germany or France are the regime's real enemies. They of course are the Great Satan of the US, the Little Satan of Israel and the Poodle Satan of the UK. Israel they can hit already. The US and the UK are still out of range. 
The whole thing appears futile. But then so was Pearl Harbour and so will be 9:11. People do futile things when they are at the end of their tether; and that is exactly where the mullahs of Tehran, barren of any other ideas, are.

Moscow is losing the war in the Caucusus
Events in the Caucasus are absolutely vital in Russia. Putin came to the presidency on the back of the second Chechen war after the September massacres of 1999 were attributed to Chechen terrorists, for which not a shred of evidence has been provided. Since Shamil Basayev, the leading terrorist has been proud to claim responsibility for even worse outrages, the killing of children at Beslan in September 2004 being just one, yet has never claimed to have perpetrated the 1999 massacres, it seems unlikely the Chechens were responsible. They were the fall-guys, in all probability, for forces wanting to bring Putin to power.
The tragedy in Beslan happened four months after the start of Putin's second term. In fact, he was reborn with this tragedy, and not with his inauguration. Beslan has become a landmark that separates Putin-1 policy from Putin-2.
The Russian authorities learned several lessons after Beslan which Vladimir Putin pointed out in his famous mourning speech. The Kremlin decided not to change just its attitude towards security - it changed all its policies. And it was successful in doing so.
The most important promise Putin made was to adopt "the complex of measures that would unite the country." He meant to replace elected governors with appointed ones. This step made it impossible for the regions to argue with the federal centre. The heads of the local administrations become more compliant, and the ones that did not left their posts.
Another important goal for the authorities after Beslan became the "mobilization of the nation in the face of a common threat." As the president put it: "Terrorists receive the most effective response when they encounter not only a powerful state but also a united civil society." 
This goal was also reached. Opposition in Russia disappeared. Not a single opposition party reacted critically to the way that Beslan was handled. There was no kind of independent commission created.
The opposition totally missed out on Beslan. The past year has proved that the opposition is extinct. Neither the communists, nor the liberals reacted to further political crises like the monetization of welfare benefits, the events in Blagoveshchensk and the North Caucasus. The opposition became a marginal body with the "face" of Eduard Limonov.
One more element illustrating "the organization and unification of civil society" was the final victory over television. Right after Beslan the news in fact died. There were no discussions after Beslan.
Beslan changed Russia not only politically but psychologically as well. Russians started to think that there cannot be democracy and order at the same time. And to get the latter the people should be ready to give up the first. In October of last year, a month after Beslan, according to a poll by the Levada Center, 60 per cent of Russians were ready to sacrifice temporarily "some constitutional freedoms" and 59 per cent agreed with the closure of media that questioned presidential policy. However, 79 per cent recognized that the authorities could not protect them from terrorism.
Beslan did not noticeably lower the rating of the president. However, if the population supports the president, it does not necessarily mean that it is happy with the current situation. According to the polls, in May of this year 43 per cent saw around them increased disorder, chaos and anarchy. In other words, the authorities do not enforce order enough.
The year after Beslan was very successful for the authorities. The Kremlin got everything it wanted. However, it came with some losses. The main problem, which led to Beslan was left unresolved - terrorism in the Caucasus. Before Beslan all the troubling news was coming from Chechnya and rarely from Ingushetia. After Beslan the war spread across the entire North Caucasus.
In September 2004, the people of Beslan went into the streets to demand the resignation of President Dzasokhov. Moscow refused. The authorities thought if the Ossetians were able to remove their president by street protests, tomorrow other Caucasus people would follow their example. And they were right. A month later the crowd seized the Government House in Karachaevo-Cherkesia and demanded the resignation of its president. However, Moscow said "no" again. The Kremlin was afraid that if it gave in, all the authorities in the North Caucasus would be swept away.
It does not mean that the Kremlin trusts the local Caucasus rulers. The now famous secret report of the presidential envoy to the North Caucasus, Dmitry Kozak, describes a pretty bleak picture in the region. 
"The authorities of the North Caucasus republics are detached from society and turned into an enclosed class. The corporate society that was formed in the power structures monopolized the political and economical resources, which serves only their own interests. All the high positions in the republics are occupied by relatives," the envoy told the president. In other words, the Kremlin knows what is going on, but cannot change anything.
By doing nothing Moscow ran itself into a dead end. So far, the main struggle in the region is going against the local authorities. By going against their local presidents and governments, the people of the Caucasus are asking Moscow for help. They hope that President Putin's involvement will change the situation. However, if Moscow were to replace those hated leaders and exchange them for similar ones, the people would start struggling against Moscow.
The power crisis in the region has already created a local civil war. News of conflicts is now coming not only from Chechnya and Ingushetia, but also from Dagestan, Karachaevo-Cherkessk, and Kabardino-Balkaria. Tanks and heavy artillery are attacking houses in the towns of Kaspiysk, Makhachkala, Nalchik and Nazran. Law-enforcement officers are being killed almost every week.
In his "Beslan speech," Vladimir Putin said that he won't let "millions of people submerge into a chain of bloody conflicts like in Karabakh, Pri-Dnestrovie and other tragic places."
However, the reality is that the North Caucasus is sinking more and more into conflict.

Poverty amidst plenty
Russia's oil output is hitting a post-Soviet high. Russian oil output resumed steady growth as it rose for a fourth straight month and added 40,000 barrels per day (bpd) in September to reach 9.53 million barrels per day, a new post-Soviet high, Energy Ministry data showed on October 3rd.
This is at a time of the highest oil prices ever. Oil revenues are soaring and so is the government's take.
Nevertheless, the rewards are not getting through to the general population, but are being creamed off by 'the happy few.' Russian nouveau riche lord it up on the Cote D'Azur and other Western fleshpots, while the great majority suffers from dire poverty. The very population is declining drastically.
Villages such as Polukarpovo, which is halfway between Moscow and St. Petersburg, line Russia's country roads - mute and rotting witnesses to a population collapse that is eating out the heart of the world's biggest country. A climbing mortality rate will see Russia lose some 790,000 people out of a population of 143 million over the next year.
Putin needs to address this issue as a number one priority. Fighting Caucasus terrorists gave him high office and keeps him in power. But he needs to use it to ameliorate the lot of his own people bereft at home. As Goldsmith said in The Deserted Village of the English enclosure movement in the eighteenth century, which saw the peasantry cleared from their plots:-
"Ill fares the land, to hast'ning ills a prey,
Where wealth accumulates, and men decay: 

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BANKING

Vneshtorgbank ups net profit 

Vneshtorgbank's net profit grew 36.6 per cent in September to 8.737 billion roubles, the bank said, Interfax News Agency reported.
Net profit was 6.397 billion roubles at the end of August. The bank said loan interest fuelled the September profits. Vneshtorgbank was Russia's second biggest bank by assets at the end of the second quarter of 2005, according to the Interfax-100 ranking of the country's biggest lending institutions, compiled by the Interfax Centre for Economic Analysis.

Rosbank planning IPO 

Rosbank, one of Russia's biggest private banks, is to be floated by its owner, InterRos Holding, in what will be one of the largest initial public offerings in Russia, The Financial Times reported.
InterRos, which is controlled by oligarch Vladimir Potanin and owns 98 per cent of Rosbank, said it would list the bank in Russia rather than in London or New York where many recent initial placements of Russian companies have taken place. If the flotation goes ahead it will be only the second Russian bank to be listed, after Sberbank, which is majority-owned by the state. It will provide a fillip to the banking sector, which has been battered in recent years by lack of confidence in Russia's fledgling market economy.

Uzbekneftegaz, Gazprom to ink 4-yr gas transit deal 

Russian gas giant, OAO Gazprom, and Uzbek state oil and gas company, Uzbekneftegaz, plan to sign an agreement to transport natural gas through Uzbekistan in 2006-2010, a source in Uzbekneftegaz said recently Interfax News Agency reported.
He said Gazprom CEO, Alexei Miller, was expected to travel to Tashkent shortly for this reason. During his talks with Uzbekneftegaz management, Miller was expected to also discuss the conditions of a contract between OOO Gazexport and Uztransgaz for supplies of Uzbek natural gas to Russia. The Uzbek side was expected to provide Gazprom with information on the results of diagnostics carried out on the gas transport system Central Asia-Centre in Uzbekistan, which is necessary to prepare a feasibility study for its reconstruction. 
It is expected that Miller will be received by Uzbek President Islam Karimov. Uzbekneftegaz and Gazprom signed a strategic cooperation agreement in the gas industry on December 17, 2002. The agreement calls for long-term purchases of Uzbek gas for 2003-2012, Gazprom participation in projects to produce natural gas in Uzbekistan under PSA, and cooperation in the development of gas transport infrastructure in Uzbekistan and the transport of Central Asian gas through the country.

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CREDIT RATINGS

S&P revises Krasnodar's outlook to positive 

International ratings agency Standard & Poor's revised its outlook on the Russian Krasnodar territory to positive from stable, Interfax News Agency reported.
At the same time, the B+ long-term issuer credit ratings on Krasnodar was affirmed, and the Russia national scale rating on the Krai was raised to ruA+, from ruA, the ratings agency said in a report. 
"The ratings actions reflect the rapid economic expansion in Krasnodar, which is resulting in strong revenue growth, as well as the territory's commitment to keep debt at moderate levels in the next two to three years," said Standard & Poor's credit analyst Elena Ershova. "Krasnodar's well-diversified economy and tax base and solid financial performance support the rating." Nevertheless, the ratings on Krasnodar continue to be constrained by its relatively low wealth levels, its high infrastructure needs, and its low financial flexibility, caused by the territory's lack of control over its revenues, the report said.
Krasnodar is Russia's third most populous region, located in the southern part of The Russian Federation (Russia; foreign currency BBB- /Stable/A-3, local currency.

S&P puts Russian Railways' rating on CreditWatch

Standard & Poor's Ratings Services placed its BB+ corporate credit rating on Russian Railways (RZD), the 100 per cent state-owned operator of Russian railroad infrastructure and the country's dominant freight and passenger rail carrier, on CreditWatch with positive implications reflecting the company's improving business profile, S&P said in a statement recently, New Europe reported.
"RZD has benefited from continued growth in national demand for rail transportation, driven by economic development and an improving regulatory framework," said Standard & Poor's credit analyst, Eugene Korovin.
"RZD's operating efficiency is expected to benefit in the medium term from the anticipated transfer of loss-making rail-passenger operations to a directly state-owned company and the gradual replacement of existing cross-subsidies from the freight segment with budget allocations from the state," Korovin said.

Fitch rates Russian bank's subordinated loan 

International Rating Agency Fitch Ratings said it has assigned a long-term B rating to a subordinated loan of Or-ICB SA, a Luxembourg-based special purpose vehicle of Russia's OJSC Industry & Construction Bank (ICB), the company said in a statement, New Europe reported.
The US$400 million 6.2 per cent loan, due 2015 with an interest rate increase in 2010, is to be used solely for financing a subordinated loan to ICB, the document said. ICB is the leading privately-owned bank in northwestern Russia and also one of the top 10 banks in the country with total assets of US$3.6 billion, net loans of US$1.9 billion, and shareholders equity of US$0.3 billion in 2004, the statement said.

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ENERGY

LUKoil makes 1.66bn Euro offer to purchase Nelson resources

OAO LUKoil, Russia's largest oil company, offered to buy Nelson Resources Ltd, a Toronto-listed oil company that operates in Kazakstan, for US$2bn (1.66bn Euro), high-lighting the central Asian country's growing appeal among international oil companies desperate to acquire fresh reserves, the Wall Street Journal Europe reported on October 3rd.
Resource-rich Kazakstan is becoming a hot spot in the world-wide search for oil, especially for countries such as India and China as they scramble to feed their energy-hungry economies.
In August, China National Petroleum Corp, offered to pay US$4.18bn for another Canadian-listed company, PetroKazakstan, which like Nelson, has all of its operations in Kazakstan. Indian rival ONGC Videsh Ltd has said it might also bid for PetroKazakstan.
LUKoil, in which ConocoPhillips owns a stake of more than 10%, had sought to expand its presence in Kazakstan by buying out the remaining 50% of its Turgai Petroleum joint venture with PetroKazakstan.
Nelson Resources said LUKoil had offered to buy 100% of its shares for 2.57 Canadian dollars (1.84 Euro) per share. That would be 27.5% more than Nelson's six-month average trading price. 
LUKoil said the main shareholders in Nelson, which hold about 65% of the company's shares, had agreed to the offer and that LUKoil was negotiating to extend it to minority shareholders at the same price. There might be some resistance form those investors, however.
Analysts said Nelson's principal shareholders are believed to be close to the family of Kazak President, Nursultan Nazerbayev, who has led the Central Asian nation for 15 years and is running for another term in December. The shareholders want cash out before the election to avoid any political uncertainty, the analysts said.
LUKoil is bidding for Nelson while transforming into a global energy company. LUKoil says its overseas projects will increase to 15% to 20% of total output by 2014 from 5% now. Besides its Russian operations, LUKoil is in Central Asia, the Middle East and Latin America, and it sells gasoline in the US.

Gazprom investment plan to increase to 305bn roubles 

Russian gas giant Gazprom plans to increase its investment programme for this year by 43 per cent (by 92.4 billion roubles) to 305 billion roubles, Interfax News Agency reported recently.
The company's press service told the news agency that the company's executive board approved Gazprom's draft financial plan for the year, which was adjusted after the first half to take changes in conditions into consideration. 
The executive board also confirmed a structure for the Gazprom investment programme this year and approved its main indicators, which were adjusted after the first half.
In accordance with the adjusted investment programme, capital investment will be increased by 49.55 billion roubles to 237.45 billion roubles, with financial investment increasing by 42.85 billion roubles to 67.55 billion roubles.
According to the draft adjusted budget total revenue will amount to 1.65 trillion roubles, which is 170.9 billion roubles more than forecasted in the financial plan prepared in March 2005. Total expenditure will amount to 1.792 trillion roubles. Financial borrowing will remain unchanged at 110 billion roubles. The cash surplus in 2005 will amount to 992 million roubles. 
The draft adjusted budget and investment programme will be submitted to the company's board of directors for approval. "The increase in the volume of capital investment was largely due to the need to set up a construction department to ensure the completion of important projects in 2006," the group said. "In addition, the change in the parameters of the investment programme was also due to additional projects, particularly the construction of the Gryazovets-Vyborg onshore section of the North TransGas pipeline, which is to be started in fall this year, and also gas pipelines to Archangelsk and Severodvinsk, and additional expenditure on gasification in the Russian regions."

LUKoil, Conocophillips eye Mazeikiu Nafta stakes 

Russia's LUKoil and the US-based company ConocoPhillips have confirmed their interest in buying 53.7 per cent of shares in Lithuanian oil concern Mazeikiu Nafta, which is owned by YUKOS, and plan to become owners of equal stakes in the concern, Lithuanian Economics Minister, Kestutis Dauksys, said on September 19 after a meeting with a delegation that included representatives from LUKoil and ConocoPhillips. ConocoPhillips owns about 12 per cent of LUKoil and is the Russian company's strategic partner, Interfax News Agency reported. 
In addition, LUKoil and ConocoPhillips are interested in the possibility of buying Mazeikiu Nafta shares from the Lithuanian government. ConocoPhillips managing director for international cooperation Mark Fret-well told Interfax after the meeting that the companies are interested in this opportunity and that if the deal is attractive and mutually beneficial, the companies will start talks to acquire the shares. He said that talks are not yet being held with YUKOS for the sale of Mazeikiu Nafta shares and the price of the shares is not being discussed. Andrei Gaidamaka, head of the investment analysis and investor relations department at LUKoil, said that at the meeting with Dauksys he tried to find out what stake in Mazeikiu Nafta the republic's government plans to sell.

Gazprom, Georgia continue gas talks 

Georgian Minister of Energy and Fuel, Nika Gilauri, met with officials of Gazprom in Moscow recently to reach a final decision on how much Georgia will pay to be supplied by Russian natural gas, Interfax News Agency reported. 
Prior to the meeting both sides have different views on this issue. David Morchiladze, the head of Gazprom's daughter company in Tbilisi Gazexport, said that the prices were already decided at US$120 per 1,000 cubic metres. However, Gilauri said that this decision is not finalised yet as talks are still in progress. Georgia has decided to sign a long-term contract. Gilauri said, "The price that was mentioned cannot be considered final, because we are planning to conclude a three, four or maybe five year contract. And so far neither of the sides can fix the exact price, as it is a much longer process and there are lots of issues connected to each other." 

Russia says market to dictate Kovykta pipeline route 

The route of a pipeline from the Kovykta gas field will be dictated by the market, Russian Economic Development and Trade Minister, German Gref, said, following a meeting in the Irkutsk region discussing regional development recnelty. "My position has not been finally shaped," he said, Interfax News Agency reported.
Very little will depend on anyone's subjective opinion, Gref said. "Kovykta gas will flow to the marketplace. If that place is China or Korea, then good, if it is the domestic market, even better," Gref said.
The minister announced that investments are to be made in the Kovykta project by the holder of the licence to develop the gas field. Gazprom has been offered the opportunity to join the project on a basis of parity on a proposal voiced by Valery Pak, general director of RUISA Petroleum, the holder of the licence. Gazprom has not yet finally shaped its position on its programme to develop Western Siberia, but insists on the "Western route for gas from the Kovykta gas field," said Kirill Androsov, director of the Economic Development and Trade Ministry's Department for the State Regulation of Tariffs and for Infrastructure Reform.
One of the reasons for this is that the initial estimate of potential gas supplies from Sakhalin to Asia and the Pacific has been adjusted upwards considerably, said Androsov. The second reason is that Gazprom sees the Kovykta gas field as an alternative, should gas shortages break out in European Russia in the next few years before gas fields have been fully developed in Yamal.
Gazprom has committed itself to increase gas exports, which will require serious investment in gas production, Gref said. The Kovykta gas field is located 450 kilometres northeast of Irkutsk. Its natural gas reserves are estimated at 1.9 trillion cubic metres. Gas extraction is being delayed, which is believed to be the main violation of the rules of development. The licence to develop Kovykta is held by RUSIA Petroleum, whose main shareholders are TNK-BP (62.42 per cent,) Interros (25.82 per cent) and the Irkutsk Regional State Property Committee (11.24 per cent).

LUKoil to use preferential rights for Turgai Petroleum 

Russia's LUKoil, which owns the oil producer Turgai Petroleum equally with Canada's PetroKazakstan, plans to make use of its preferential rights to buy Turgai Petroleum, LUKoil Vice President Leonid Fedun said in London, New Europe reported.
Speaking at a presentation in London of the Russian company's financial report, Fedun noted that PetroKazakstan was now owned by China's CNPC. The joint venture's founding documents stipulate that LUKoil has preferential rights to buy up Turgai Petroleum and LUKoil has sent notification of this to PetroKazakstan, CNPC and the Toronto Stock Exchange, he said. "Our lawyers have no doubt that we can use the preferential right to buy," he added.
Petrokazakstan Vice President for Investor Relations, Ihor Wasylkiw, said that the company had received LUKoil's notification that it considers itself to have a preferential right to acquire the other 50 per cent of Turgai Petroleum as a result of the deal to sell the company to CNPC. "We replied and said that we did not agree with their position," he said, adding that PetroKazakstan has no plans to sell its stake in the joint venture. Turgai Petroleum is a joint venture between LUKoil Overseas Kumkol BV (50 per cent) and PetroKazakstan Inc (50 per cent) producing oil from the Kumkol field (southwest of Kazakstan). LUKoil has been in court with PetroKazakstan from the start of the year due to several issues involving Turgai Petroleum requiring compensation for losses of hundreds of millions of dollars. Turgai Petroleum produces about 3.5 million tonnes of oil per year.

Rosneft, ONGC considering joint far east projects 

Russian oil company, Rosneft, and India's Oil & Natural Gas Corp. (ONGC) are considering a number of joint projects in the Far East region of Russia, Industry and Energy Minister, Viktor Khristenko, said at a recent press conference. Rosneft and ONGC are holding talks on other projects (in addition to Sakhalin-1, which may be implemented in the Far East region,) Interfax News Agency reported.
He said that the potential for oil and gas cooperation between Russia and India is good. "The experience of ONGC's inclusion as a partner in the Sakhalin-1 project is unprecedented in terms of its length and its volume," Khristenko said. This cooperation is being helped by the good relations between Russia and India. According to the minister, these countries are also considering projects in other countries, in particular to supply natural gas to India from Iran. "Russia is a large supplier of energy and India is one of the largest consumers," Khristenko said. "Our countries have a good chance to discuss opportunities and risks, so that the market is predictable and understandable," he said. Rosneft President, Sergei Bogdanchikov, said at the press conference that the Far East is an area of strategic interest to Rosneft. "And we are interested in expanding the raw material base [in this region]," he said. He said that the company's actions will be decided by specific auctions, and also the start price for reserves being offered for sale. A possible joint project for Rosneft and ONGC may be to participate in an auction for the development of Sakhalin-3 fields. 
However, ONGC Vice President, M. K. Nayyar, said that a decision has not yet been reached on joint participation in this project. "We may take part separately, or together with Rosneft," he said. Sakhalin-1 involves the development of the Arkutun-Dagi, Odoptu and Chaivo fields off the north coast of Sakhalin. Estimated reserves at the fields amount to about 307 million tonnes of oil and 485 billion cubic metres of natural gas. Capital investment in the development of all the fields in the project is estimated at over US$12 billion.

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FOREIGN DEBT

Russia to restructure Cuban debt 

The Russian government has approved an intergovernmental agreement restructuring the US$161.1 million debt of Cuba, Interfax News Agency reported.
The debt will be restructured for 10 years with a grace period, Finance Minister, Alexei Kudrin, said at a meeting of the government. The agreement also sets the debt interest at 5 per cent. The debt was amassed in the second half of the 1990s, Kudrin said. "Yet Cuba and Russia also have the unsettled problem of the US$25 billion debt to the former Soviet Union. Cuba refuses to settle this debt. It says it can also bring forth claims of over US$25 billion," he said.

Russia to repay US$28 bln to Paris Club debt 

Russia is in a position to repay US$3-5 billion of its external debt early, by the end of this year - on top of the US$18.3 billion it has repaid early since January, said Finance Minister, Alexei Kudrin. 
Kudrin's spokesman said Russia will put the idea to its creditors. He added that in 2006, Moscow could repay US$10-15 billion early. The spokesman put Russia's entire external debt at approximately US$100 billion, of which US$28 billion is Paris Club debt that matures in 2030. Russia is ready to pay all of its remaining debt to the Paris Club of creditors at once, but it depends on a decision by the creditor countries, Russia's Finance Minister, Alexei Kudrin, said recently, New Europe reported.
Kudrin was speaking at an investor conference in Moscow. "We would be ready to pay the full sum, but it is limited by other factors," said the minister, quoted by RIA Novosti. He explained that a number of creditor countries have set certain limitations on Russia's full repayment of debt. "Our decision is not the only thing necessary, we also need a decision made by the governments of these states," said Kudrin. He went on to say that a number of creditor countries are interested in receiving revenues from Russian debt on schedule. 
Some countries have issued bonds that are tied to the maturity date of the Russian debt. According to MosNews, Germany issued Eurobonds secured by Russian debt worth US$6 billion, for example.
"Such (situations) demand a special analysis of the possibility to repay this debt (early)," noted the head of the Russian Finance Ministry. 
MosNews reported that at the beginning of 2005 Russia's debt to the Paris Club of creditors amounted to US$43 billion. In May Russia reached an agreement for an early repayment of US$15 billion of this debt. Today Russia's debt to the credit organisation amounts to US$28 billion.

State firms may account for 50% of corporate foreign debt 

Foreign debt owed by state companies may amount to half of all foreign corporate debt by the end of 2006, Alexei Savatyugin, director of the financial policy department at the Russian Finance Ministry, said at a press conference, Interfax News Agency reported.
"State companies are the largest borrowers on the capital market," he said. According to him, the foreign debt of large state corporations currently accounts for over 30 per cent but less than 40 per cent of total Russian corporate debt.
Savatyugin said that the state is not responsible for the debt of state companies, but nevertheless he said that it is necessary to coordinate policy in this sphere.
Meanwhile, the Federal State Statistics Service (Rosstat) reported that core sector growth in Russia slowed to 5.5 per cent year-on-year in January-August 2005 from 7.6 per cent in the same period of last year.
Output in the five core sectors, which are industry, agriculture, construction, transport and retail, increased 5.9 per cent year-on-year in August and was 4.1 per cent higher than in July 2005.
In January-August 2005, output grew 3.7 per cent year-on-year in industry, 2.2 per cent in agriculture, 2.6 per cent in freight, 8 per cent in construction and 11.6 per cent in retail. Growth in the respective sectors in August was 3.4 per cent, 2.4 per cent, 1.6 per cent, 11.6 per cent and 12.2 per cent. As regards next year's federal budget, Russian Deputy Prime Minister, Alexander Zhukov, said it will be balanced even if oil prices halve. The deputy premier's comments were made at the annual meeting of the American-Russian Business Council.
"The budget will be balanced. Even if oil prices halve we will be able to honour all of our external commitments and social undertakings," Zhukov said. He said budget policy had a lot to do with Russia's financial robustness in recent years. He said the budget had been in surplus in recent years not only because oil and gas prices had been high, but also because the government had fundamentally altered its financial and monetary policies and would continue to pursue these policies.
Zhukov said Russia had paid off most of its foreign debt this year. "We'll carry on negotiating a full settlement with creditors next year," he said. Zhukov also said he expected economic growth of 6 per cent annually to be sustained in the next three years.

Moscow and Tokyo to sign package of agreements 

Russian Deputy Foreign Minister, Alexander Yakovenko, said that 10 agreements to expand trade and economic relations are expected to be signed during President Vladimir Putin's visit to Tokyo, Interfax News Agency reported. 
Putin is to go to Japan after a visit to South Korea on November 18-19, where an Asia-Pacific Economic Cooperation summit is to take place in Pusan. No peace treaty is expected to be signed during Putin's visit, "although talks are underway," Yakovenko said in an interview published by Izvestia. But the pace of the talks is slow over disagreements, he said. 
Asked whether the territorial problem is the obstacle, Yakovenko said that, "It is one of the issues raised by Japan." "The peace treaty, as we see it, is a more complex document which is to direct relations between our states toward further comprehensive development," the Russian diplomat said. Yakovenko also said that "progress has made itself felt in inter-Korean cooperation in linking up railways from North and South Korea." "The next step would be to link up the Trans-Korean railway with the Trans-Siberian Mainline," he said. The project is being discussed by Russian, North Korean and South Korean railway experts, said Yakovenko.

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MINERALS & METALS

Norilsk Nickel buys Alrosa gold assets 

ZAO Polyus, the gold mining arm of MMC Norilsk Nickel, has bought stakes in three gold mining assets from Russian diamond miner Almazy Rossii-Sakha (Alrosa), Interfax News Agency reported, citing Polyus. 
Russian gold mining company Polyus paid US$285 million to Alrosa Investment Group for the gold assets in northeastern Siberia.
The company said it had bought 99.2 per cent of OOO AldanZoloto Mining Company, 50 per cent of South Verkhoyansk Mining Company and 100 per cent of OAO Yakutskaya Mining Company. The three companies have licences for gold deposits with total estimated reserves of more than 875 tonnes, according to the Russian classification system.
So far, Polyus has paid US$115 million for the assets, with the total figure expected to reach US$285 million. The acquisition by Polyus, a subsidiary of Norilsk Nickel, comes as the futures price of gold tops US$70 per ounce. The companies mine gold at the Kuranakh, Nezhdaninskoye and Kyuchyus fields in Yakutia.
Norilsk holds a 20.03 per cent stake in South Africa's second largest gold miner Gold Fields (GFI). 
Aldanzoloto GRK is the largest gold producer in the region of Yakutia.
In 2004 its production output reached 4,814 tonnes or 155,000 oz of gold. Nezhdaninskoye is one of the largest gold deposits in the Russian Federation; by mineral base, according to the Russian classification system, it is ranked second in Russia, behind only the largest Russian gold deposit Sukhoi Log in the Irkutsk region. 
These three major gold assets located in the region of Yakutia were purchased by the Polyus group as part of its strategic development plan, which is aimed at the Polyus group becoming one of the top global gold producers, the group said.
"With this acquisition, the company opens a new region for its operations, an area with significant prospects in terms of resources and production growth," Polyus Group CEO Evgueny Ivanov said. 
"We acquired unique assets and made a crucial effort for reaching our strategy's key goal - to create a true Russian international gold major," he added.

Alrosa discusses co-branding with Tiffani, Cartier 

Alrosa, Russia's Yakutia-based diamond monopoly, is discussing the possibility of co-branding with Tiffani & Co and Cartier, Alexander Nichiporuk, Alrosa's president, said at the Russian Luxury Forum 2005 in Moscow. He said the discussions had not yet reached the negotiating stage, but that the sides had indicated they were mutually interested, Interfax News Agency reported. 
Nichiporuk also said that Alrosa and Kristall, Russia's biggest diamond cutting enterprise, had created a joint brand to promote their products on the market. He said, though, that Alrosa and Kristall, which is from Smolensk, were not planning to create a joint venture, because the federal government was thinking about entering Kristall in Alrosa's charter capital as it increases its stake in the mining company.
Alrosa mines 23 per cent of the world's diamonds. Alrosa has registered its ARCOS office in Hong Kong, which will start to sell uncut diamonds within a month Nichiporuk added. Nichiporuk said China was a very promising market.
"They are waiting for us there, and we see demand for our products," he said. Kristall, Russia's biggest diamond cutting enterprise, could help Alrosa when it enters the Chinese market, Nichiporuk said. Kristall already has an office in China. China has the world's biggest diamond cutting industry by capacity and it is the world's biggest market by consumption, Nichiporuk said. He also said Alrosa planned to send an expedition to Africa to carry out geological exploration at sites in Angola and Congo, and that it would spend US$5-6 million on this in 2005, mostly on preparing equipment. Meanwhile, a decision in principle to increase the federal government's stake in Alrosa will be reached by the end of 2005, Nichiporuk said. He said Alrosa's rent payments to Yakutia were the main issue and that the federal stake could not be increased until that has been resolved. Alrosa pays Yakutia about 10 billion roubles a year for the rent of property in the republic. Russian Finance Minister Alexei Kudrin, who chairs Alrosa's supervisory board, has said the issue would be resolved without disadvantaging Yakutia. Kristall of Smolensk is one of the enterprises that could be entered into Alrosa's charter capital to facilitate the increased federal ownership. Nichiporuk said Alrosa would welcome that because it would enable the company to reach its consumers direct, without a go-between.

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