For current reports go to EASY FINDER

RUSSIA

 

In-depth Business Intelligence

Books on Russia

REPUBLICAN REFERENCE

Area (sq.km)
17,075,400

Population
143,782,338

Principal 
ethnic groups 
Russians 82%
Tatars 3.3%
Ukrainians 2.7%

Principal towns 
Moscow (capital)
St Petersburg
Novosibirsk 
Nizhni Novgorod 
Yekaterinburg 
Samara 

Currency 
Rouble

President 
Vladimir Putin

Update No: 297- (29/09/05)

Russia recidivus

Despite legal limit, hints that Putin envisages a third term
Russia is making a comeback. It is booming while most of the rest of the world is busting. GDP growth is breaking the records.
The Russians size themselves up against the Americans. They are the only comparable people, commanding a key continent and the obvious candidates for the nonce to be Salvador Mundi. There is little doubt that in the abeyance of China and the EU for the moment being president of Russia is second only to being president of the US as the top global job.
It is logical, therefore, that the governor of Russia's Novgorod region, northwest of Moscow, should cite a bit of American history when talking about Russia's future leadership, a subject that has come to mean the debate on whether to allow President Vladimir V. Putin to seek election to a third term. "There was a time in the United States when Mr. Roosevelt was elected four times," said Gov. Mikhail Prusak, noting that Franklin D. Roosevelt led the country out of the dark days of the Depression. "I admire Americans for what they have done for stability and prosperity." 
But in talking about Putin, Prusak chose to ignore the fact that, like the USA, Russia's constitution does not allow for more than two consecutive presidential terms. 
Constitutions can be changed, as many of Putin's supporters point out with increasing confidence. Their calls for an amendment that would permit him to remain in office beyond the end of his second term in 2008 are becoming more frequent. After trying to minimize speculation about his intentions, Putin fuelled the rumours last month after being asked whether he intended to run again. 
"Perhaps I might want to," he answered during a stop in Helsinki, Finland, "but the constitution does not allow it."
This set the cat among the pigeons all right. The issue is raised whenever he speaks to a live audience. Putin avoided an explicit answer to the question of the possibility of a third term as president when answering questions from Russian citizens in a live television broadcast on September 27th.
Putin reiterated that the constitution should not be changed to allow him to serve a third term as president. He said that he sees his task as "creating conditions for the country's long-term development" but not in "sitting in the Kremlin forever."
However, this disavowal has become something of a formality and is not being regarded by his many supporters as final. Indeed, Putin ignored part of the question regarding a possibility of a referendum for what would be his third term as president. "I'll find my place in the order of things," Putin said ambiguously, talking about his plans after 2008.
A pregnant remark if ever there was one. Many Russians interpreted it as a calculated hint of his desire to remain in office and as a shrewd effort to size up public sentiment. And within days, compliant lawmakers proposed a series of measures that would allow him to stay. 

The scramble of the sycophants
Adam Imadaev, a member of a regional parliament in Russia's Far East, proposed scrapping presidential term limits. Leonid Markelov, president of an independent Russian republic west of the Urals, proposed allowing presidents to serve at least three five- to seven-year terms. Igor Rimmer, a deputy in St. Petersburg's legislative assembly, more modestly suggested allowing a third four-year term. 
"The problem is that Russia is in a transitional period now, and it would be wrong to try to change the 'vertical of power,' " said Rimmer, referring to the tradition of centralized authority. "What Russia needs most of all now is stability. Putin - he personifies stability." 
Putin has likewise in the past pointed to stability as the reason he won't seek a third term: Only by observing the constitution, he has said, can national stability be assured. 
Putin, as the country's little-known prime minister, became acting president when the ailing President Boris N. Yeltsin abruptly announced his resignation in December 1999. Three months later, Putin won a presidential election. Last year, he easily won a second four-year term, thanks in part to the favourable coverage by the mostly state-controlled TV networks and the absence of credible opponents. 

The downside is there
While high oil prices have allowed Putin to claim a measure of economic success, he has failed to end a brutal war in Chechnya; the Kremlin also bungled a reduction in pensioners' benefits, bringing thousands of protesters into the streets of Moscow this year. 
There are several scenarios that would allow Putin to remain in power beyond 2008, yet still be true to his word that he won't serve a third term. 
He could support a close ally in the next presidential election, a figure who might then allow him to run the country from behind the scenes. Or Putin could serve as prime minister after orchestrating an executive branch reform to make that post more powerful. Or he could campaign to become president of a proposed new state resulting from the union of Russia and neighbouring Belarus. 
"There is not a single one that is risk-free," Masha Lipman, an analyst with the Moscow Carnegie Centre, said of the possible courses of action, "and I don't think there is a single one that would keep the legitimacy of the institution." 
Putin's supporters make this argument: Ensuring democracy in the long term requires stepping beyond its boundaries now. 
Putin hasn't had sufficient time, their argument goes, to carry out reforms. Nor, his supporters say, does Russia have the stable institutions to support the democratic principles enshrined in the constitution. "I am very much afraid that our patriots will elect a new president and we'll have a pro-[nationalist] leader, which will mean a totalitarian regime in this country," said Prusak, the governor of Novgorod. "That is why I said I would very much like Putin to stay for a third term - so that he could strengthen democracy." 
Critics say that Putin is not a Western-style democrat and that attempts to keep him in power should be seen as the forward march of authoritarianism by a Kremlin determined to tighten its grip on every part of Russian society. The so-called siloviki - the network of Kremlin appointees with ties to the military and KGB - will thereby bolster their own influence. 
"I think President Putin will secure a third term simply because this is the authorities' logic," Yuliya Latynina, a political commentator and radio-show host, told Nezavisimaya Gazeta last month. "Power in Russia is in essence authoritarian, and there are no other ways to hand over power." 
There are precedents in other former Soviet republics for short-circuiting democracy: In 1999, the rubber-stamp parliament of Turkmenistan, in Central Asia, elevated Saparmyrat Niyazov to the rank of president-for-life. Last year, Belarus amended its constitution in a referendum, allowing President Alexander Lukashenka to run for a once-prohibited third term. Lukashenka hailed the vote as a victory for the people, while the opposition called the result a sham and Putin was highly critical of Lukashenka's gambit. 

Popular swell for a third Putin term
In a recent poll by the Russian research firm ROMIR Monitoring, 60 per cent of the people surveyed said they wanted Putin to remain Russia's leader after 2008. Asked whom they would support if he were not running for president, two-thirds could think of no other candidate; his closest competitor won support from 4 per cent of those polled. But in a classic contradiction only 28 per cent said they favoured amending the constitution to allow Putin to run. 

Parliamentary support forthcoming
Amending the constitution requires either a referendum supported by more than half of all registered voters, or the approval by both houses of Russia's parliament as well as all its regional governments. Putin is believed to have the parliamentary support needed to make the change. 
When Rimmer introduced his amendment in St. Petersburg, Putin's hometown, it won a less than enthusiastic reception - but not because lawmakers objected to its content. They do not want to endorse any plan until they learn which one the Kremlin supports. 
"They said, 'Thank you very much, but let's wait until the Kremlin will decide," said Rimmer, whose proposal is now on hold. 
Imadaev, the regional parliament member in Russia's Far East, maintains he wants only to correct a fundamental contradiction in the law. The constitution grants Russian citizens the right to elect and be elected to state governmental bodies, unless they are "legally unfit." Yet the document also prohibits the president from running for more than two consecutive terms. 
"You call it an attempt to amend the constitution," said Imadaev. "We call it an attempt to observe the civil rights of Russian citizens." 

Putin: Economic growth in 2005 to be 5.9%, versus 7.1% last year
Russian President Vladimir Putin said on September 27th (that economic growth this year should hit 5.9% and that real per capita income is likely to come in at between 8.5%-10%. He put last year's growth rate at 7.1%. 
"During the past several years, Russia's economy has been growing at about 7% year on year," RIA Novosti reported him as saying.
This is much higher than what we are seeing in a large number of developed countries, as well as in economies in transition," Putin said.
To take a longer perspective we turn to the views of a distinguished foreigner.


Russia's economy to develop steadily during the current decade, German expert says

Pravda.Ru interviewed one of the most respectable analysts in the world, Mr. Norbert Walter, the Chief Economist of Deutsche Bank Group 

Norbert Walter, enjoys the reputation of one of the most respectable analysts in the world. A recent report from his research group which gave a forecast on the development of the world economy before 2020, contradicted to previous predictions outlined by CIA experts and Goldman Sachs investment group. 
It is worth of note that Walter's group suggested not so long ago that the USA would remain the only superpower in the world in 15 years, whereas the US dollar will keep the firm position as of the global currency. According to the forecast, Europe is destined to experience a slow decline, China and India and their dynamic economies will add their style to the group of three world leading states. Unfortunately, the group's report did not unveil the future of Russia. Pravda decided to fill the gap and asked Mr. Walter to briefly outline the perspective of Russia's economic development for the forthcoming 20 years. 

Mr. Walter, what forecast can you give for the development of the Russian economy during the forthcoming 20 years? 

Until the end of this decade the Russian economy will continue to post strong growth. From 2010, however, this will start to change and the trend will reverse in 2015: I then see long shadows being cast over Russian growth. Demographic change will weigh more heavily on Russia than on western European nations. Russia's share of the world population will decline from 2.4% (as of 2000) to 1.6% in 2025. One particularly problematic issue for Russia is that by 2025 the number of people aged 15-24 will have contracted by 45%. The economic consequences of this will start to become apparent in just a few years' time. An effective education policy will, however, enable Russia at least partly to mitigate the future lack of skilled persons joining the workforce. Furthermore, political uncertainty could emerge towards the end of President Putin"s second term in office in 2008.

How do you estimate the perspectives of Latin American states? 

Golden years may actually lie ahead for the Latin American countries, as the region has worked its way out of economic stagnation. Entrepreneurs in these countries have developed a global focus and have distinguished themselves by operating their companies soundly. Moreover, the countries have large reserves of raw materials, particularly in the agricultural sector, and offer these at competitive prices in the dynamic markets of North America and Asia. So, the global appetite for raw materials is bolstering the position of the Latin Americans. Venezuela's President Chavez and in particular his energy policy do certainly give cause for concern. The other left-wing governments are pursuing sound economic policies for the moment. They should be feeding their citizens less populism and instead espousing the benefits of market-friendly policies. Stability is essential for long-term growth on this continent, but this is what Latin American markets lack. The volatile economy reflects this - and is holding back the upturn.

Goldman Sachs investment group put forward a theory about the imminent economic upsurge in Brazil, Russia, India and China (BRIC). Do you think that it is a correct forecast to make? 

All the relevant indicators point to strong growth in the BRIC countries during the next 5 years. After 2010, however, the performance of the individual countries will start to diverge strongly. Russia will then have to take action to counteract its loss of human capital. Investment in India in the education segment, for example, will already bear fruit; Brazil can also call on a large pool of young members of the workforce. Although China has a very large population it needs to concentrate by then on making the transition from a manufacturing sector focus to boosting a skill intense sector including services.


Where do you see the oil prices in 2020?

Crude oil futures indicate a long-term price of over US$60 per barrel. To date, however, this forecast indicator has not proved to be accurate. I see the oil price falling in the coming years. I expect a barrel of oil to cost US$60 in 2006, US$50 in 2007 and US$45 in 2008. After that, however, the price will start to rise again, I believe. In 2010 the oil price will climb to US$60. Accurately predicting the oil price in 2020 would no longer be forecasting but clairvoyance. The oil price, of all things, is extremely sensitive to exogenous shocks, as we have only recently experienced following Hurricane Katrina. Even I as chief economist cannot predict how the geopolitical situation will develop, let alone what natural disasters may occur. So let me just make a supposition: between 2010 and 2020 the oil price is likely to fluctuate between 50 and 80 dollars per barrel.

Will Russia gain advantage from possible high oil prices in 2020? 

Thanks to its oil and gas reserves Russia will definitely benefit from the anticipated high oil prices. The country boasts an immeasurable wealth of raw materials. It would be well advised to invest some of that in infrastructure. This would ensure that all Russians benefit from their country's mineral wealth. Only this way and with major education initiatives can the country enhance the transition from a commodity-based economy to a post-industrial society. I doubt, however, that this monetary advantage will still deliver strong economic growth in 2020 given Russia's declining labour potential.

How do you envisage Russia's chances against the background of the global competition with world superpowers, with China and India in particular? 

Despite the wealth Russia derives from oil, gas and other natural resources I do not expect it to be among the leading economic powers in 2020. Economic growth will be low due to the demographic downturn, as in Japan and Europe as a whole. In the second decade India will already be growing faster than China. In 2020 the USA will still be the biggest economic power, just ahead of China.

« Top

AVIATION

Airbus, Irkut sign A-350 protocol 

Airbus and Russia's Irkut Corporation signed a protocol on designing the A-350 airliner, Interfax News Agency reported.
The protocol endorses Airbus's "proposal to share risks with the Russian aviation industry in designing the new A-350," Airbus told Interfax. 
The two corporations will also look at the possibility of designing other future Airbus planes on a joint basis. Irkut said a working party would be set up to assess the extent of Russia's involvement in designing the A-350, which is due to go into production in 2010, and possible involvement in designing other Airbus planes.

Russia resumes production of world's largest aircraft 

The Aviastar-SP plant in Ulyanovsk, one of the largest enterprises in Russia's aircraft-building industry, is resuming series production of An-124 Ruslan jumbo aircraft, the world's largest production airplane, New Europe reported.
The regional government's press service said on August 31, that Valery Savotchenko, the executive director of Aviastar-SP, made a statement to this effect at the Meet in 1,000-year-old Kazan exhibition.
The An-124 Ruslan heavy cargo jumbo aircraft has no analogues in the world. The plane can carry up to 150 tonnes of cargo a distance of up to 5,000 kilometres. Aviastar-SP has produced 36 Ruslan aircraft in the last 20 years. The implementation of the project to resume series production of the An-124 aircraft got under way at the recently held MAKS-2005 international air show, where a trilateral agreement was signed between Aviastar-SP and the Volga-Dnepr and Polet airline companies.
The Ulyanovsk plant is expected to produce five aircraft for each company by the year 2012. Savotchenko said the Ulyanovsk aircraft-building plant was fully prepared to resume production of Ruslan aircraft. If it is provided with all the required funds in full, the enterprise will deliver two An-124 aircraft to its customers within a short deadline. Taking into account the demand for this aircraft in other countries, a total of 50 aircraft need to be built.

« Top

CREDIT RATINGS

Moody's affirms Udmurtia long-term rating of AA2.ru 

International ratings agency Moody's upgraded the long-term rating of Udmurtia to AA2.ru, New Europe reported recently.
The rating reflects Udmurtia's comparatively developed industrial and tax potential, low debt and conservative debt policy, and the republic's social and political stability, it said. The rating is constrained by the concentration of budget revenue in the oil industry, and anticipated deterioration of the operating balance due to social welfare reforms and public-sector wage hikes.

S&P raises Bank of Saint-Petersburg rating 

Standard & Poor's Ratings Services recently said it raised its long-term counter party credit and certificate of deposit ratings on Russia-based International Bank of Saint-Petersburg (IBSP) to CCC+ from CCC. At the same time, the C short-term counter party credit and certificate of deposit ratings on the bank were affirmed, New Europe reported. 
The outlook is stable. The Russian national scale rating was raised to ruBB from ruB+. 
"The rating upgrade reflects IBSP's improving commercial franchise and consistent financial performance due to its improving revenue structure," said Standard & Poor's credit analyst Eugene Tarzimanov. "The bank also benefits from the fast-growing Russian economy."
The ratings remain constrained by the bank's still limited customer franchise, high single-name lending and funding concentrations, its barely adequate capitalisation, and low core profitability.
With total assets of Russian rouble (RUR) 13.2bn (US$475m) on December, 31 2004, IBSP ranks among the five largest banks in the City of St. Petersburg, but only among the top-100 Russian banks. 
The bank targets large- and mid-size corporates in St. Petersburg and the City of Moscow, which is a difficult task given IBSP's limited experience and the increasingly harsh competitive environment. "The stable outlook reflects Standard & Poor's expectation that IBSP will be able to further diversify its customer base in an increasingly harsh competitive environment," said Tarzimanov. 

Moody's rates SUAL BA3 Corporate Family 

Moody's Investors Service said it assigned Ba3 Corporate Family Rating to SUAL International Ltd, Russian integrated aluminium producer. The Outlook is Stable, the agency said in a press release.
The Ba3 corporate family rating assigned to SUAL International Ltd reflects the company's integrated aluminium production business model and self-sufficiency in main raw materials, the company's cost competitiveness and advantageous cash cost position underpinned by efficient refining and extraction processes and low cost energy sources, the company's strong technical mining expertise, experienced and committed management team and its moderate financial policy to date. 
SUAL investments to strengthen its product range include an expansion in the value-added segment of production.

« Top

ENERGY

Europe, US, China eye Russian energy reserves 

Russian oil companies and the government are facing a predicament most would envy: What to do with the excess export revenues due to the high oil prices? Russia appears uncertain how to use this monetary increase of extra revenues to stimulate growth in the real sectors of its industry, including the oil sector. 
Russia is for the moment more concerned with the allocation of this money than constructing additional pipelines. "We are thinking that the budget will probably have US$50-60bn in the accounts by year end and they just have US$2bn worth of projects to place this money," Natalya Orlova, senior economist at Russia's Alfa Bank, said, New Europe reported. 
"The fact is that our additional export revenues are due to the high oil prices but there are no efforts made domestically in order to increase the volumes of export," she said.
Analysts say policymakers need to define a broader oil strategy. "There are a lot of opportunities such as the pipeline through Murmansk, which was actively lobbied by Russian companies but was virtually stopped by (state company) Transneft," Orlova said. "This is clearly preventing Russia from becoming a very, very important player in the oil market," she added.
For now, the Russian government is using the excess oil revenues to reduce its debt obligations and based on the budget projections external debt will shrink to 12 per cent of GDP as of the end of this year.
Constructing new pipelines is now a more pressing issue for the international community than Russia, the world's second largest oil producer and its biggest source of gas reserves. With energy supplies tight, a growing number of countries have their eyes on Russia as a potential long-term supplier of hydrocarbons. The United States is interested in liquefied natural gas, Europe in gas and China in oil. This gives Russia a very strong calling card with other countries.
Russian President, Vladimir Putin, will sign an agreement in Germany on September 8th formalising a deal to build the much-awaited natural gas pipeline from Siberia to northern Germany, passing under the Baltic Sea, Russian diplomats confirmed. The pipeline is projected to cost almost US$5bn, and is part of the larger North European Pipeline that will also eventually deliver substantial volumes of gas to the United Kingdom.
Meanwhile, Asian oil consumers are interested in an ambitious Russian project planned by Transneft to build an Eastern Siberian-Pacific Ocean export oil pipeline with a possible branch to China. The world's longest and most expensive oil pipeline would run from Taishet in Siberia's Irkutsk region to the town of Skovorodino to the east near China's border, and from there continue to Perevoznaya Bay at the Sea of Japan. Oil would be shipped to Japan, South Korea and even to the United States as it may supply oil to the west US states. The Russian government plans to allow foreign energy companies to become partly involved in developing the country's vast oil and gas resources but at the same time it wants to keep Russia's energy industry under tight control. "For the Russian government giving a stake to foreign companies above 20 percent is unacceptable for political reasons," Orlova said.

Gazprom to launch North Transgas pipe in 2006 

Russian gas monopoly Gazprom plans to put into operation the first section of the 140 kilometres long North TransGas pipeline (SEG), which will pass through the territories of the Volgograd and Leningrad regions, in the second quarter of 2006, the press centre of the Leningrad regional administration said, Interfax News Agency reported on August 19th.
The gas pipeline will also go through the Tikhvin, Volkhov, Vsevolzhsk and Vyborg districts of the Leningrad region. It will resolve the problem of gas supply to the cities and villages of those districts. Currently, gas is supplied to 60 per cent of their populated localities, but the figure will be brought to 100 per cent in next two years.
Gas will be supplied to all the populated localities in need. The implementation of the project by Gazprom is connected with the beginning of the development of the Yuzhno-Russkoye gas field, which is the main base for export deliveries of natural gas. The building of the pipeline through the territory of the Leningrad region and the seabed of the Baltic Sea is one of the key projects of Gazprom. 
The pipeline will ensure Russian gas deliveries to Europe without its transportation through the territories of other countries. The pipeline will be 3,000 kilometres long. About 1,189 kilometres of pipes will be laid on the seabed from Vyborg to Greifswald, Germany. 
"In the second quarter of 2006, the first 140-kilometres section of the SEG pipeline should be put into operation based on Gazprom's plans. This section of the pipeline's route will run from the border of the Volgograd region along the territory of the Boksitogorsky district to the compression station in the town of Pikalevo," a press release from the centre said.
The construction of the pipeline will allow the region to resolve the problem of the gasification of several communities. The North TransGas pipeline will have projected capacity of 55 billion cubic metres and is to be launched in 2010.
Gazprom has begun developing the South Russian deposit, which will supply the North TransGas pipeline. 
Proven reserves are estimated at over 700 billion cubic metres. Gazprom is working with BASF AG of Germany to develop the South Russian deposit and construct the pipeline. 
Other West European companies may also participate in the project. 

LUKoil discloses terms of ConocoPhillips JV agreement

Russian giant, LUKoil, disclosed the terms for forming the Naryanmarneftegaz joint venture with its strategic partner, ConocoPhillips, in its second-quarter financial report, Interfax News Agency reported.
LUKoil owns 70 per cent and ConocoPhillips 30 per cent of the joint venture, which was formed on July 1st this year. The company will develop hydrocarbon deposits in the Timan Pechora oil and gas province.
The report said the deal was closed for a total consideration of 48.489bn roubles and involves restructuring loans that LUKoil has issued to the Naryanmarneftegaz limited liability company to finance its operations at the joint venture's fields, and the provision of additional financing until the end of 2005. ConocoPhillips will lend Naryanmarneftegaz 13.3bn roubles to refinance a similar loan issued by LUKoil on April 20th this year. Naryanmarneftegaz will repay the 9.5bn roubles of the loan facility that it actually used.
LUKoil and ConocoPhillips will, on a joint basis, finance the acquisition by the Varandei Terminal company of infrastructure at the Varandei terminal from Naryanmarneftegaz and Varandeineftegaz for a total of 2.489bn roubles and repay credits issued by LUKoil for that amount on March 24 and 28. LUKoil and ConocoPhillips will finance capital expenditure at the Varandei terminal in proportion to their stakes in the joint venture by issuing loans to the Varandei Terminal company.
The loans will be repaid with the proceeds from the tariff which Naryanmarneftegaz is due to pay in keeping with its obligation to Varandei Terminal to transport crude oil. Naryanmarneftegaz will remit the payments directly to LUKoil and ConocoPhillips. LUKoil will have an option for the early settlement of loans issued by ConocoPhillips, either by allocating funds to Varandei Terminal or by acquiring the creditor's rights from ConocoPhillips.
The agreement states that if ConocoPhillips does not meet its whole 30 per cent financing commitment to Varandei Terminal, LUKoil will have the right to provide that financing instead of its partner, and will be entitled to higher interest. LUKoil plans to increase the terminal's capacity to 240,000 barrels a day by 2007 with assistance from ConocoPhillips in designing and financing the expansion.

« Top

EUROBONDS

Russia to issue US$500m in Eurobonds 

Russia plans to issue US$500m in Eurobonds this year in exchange for debt on which the Soviet Union defaulted following its collapse in 1991. The Russian Finance Ministry plans to finish issuing Eurobonds for swap for a second tranche of Russia's Soviet-era commercial debt in 2005, said Konstantin Vyshkovsky, deputy director of the Finance Ministry's international financial relations, state debt and state assets department, quoted by Interfax News Agency reported.
He said the final amount of the issue has not been determined, but it is expected to be US$500m. "Active work is underway and we are planning that the swap for a second tranche of Soviet-era commercial debt will take place in 2005," he said. Vyshkovsky did not rule out that swap operations could be continued in the future. Russia's Soviet-era commercial debt came from the export of goods and services by foreign companies in the former USSR, and the finance ministry estimates the principle debt at over US$1.7bn. The ministry exchanged the first tranche of the debt in December of 2002, to the tune of US$1.28bn. As a result of the exchange, Russia had US$1.374bn worth of Eurobonds issued, including US$184m in bonds maturing in 2010 and US$1.19bn in bonds maturing in 2030. There remains unsettled Soviet-era debt to the International Bank for Economic Cooperation, which stands at 175m Euro. That debt is also up for turning into Eurobonds maturing in 2010.

« Top

FOOD & DRINK

Heineken buys Ivan Taranov Breweries for US$560m

Dutch brewing concern Heineken has reached an agreement to purchase a group of Russian companies, Ivan Taranov Breweries, Russia's Kommersant daily reported recently. 
The sum of the deal is US$560m. A source in Heineken told Kommersant that Taranov Breweries were chosen for the takeover deal because the owners of other companies "have asked for too much." Over the last 2 months, the source said, Heineken has been in active negotiations with several Russian breweries, Ivan Taranov Breweries, Moscow beer and beverage plant Ochakovo and Kazan-based Krasny Vostok.
"Ochakovo's management valued their assets at almost US$800m, while owners of Krasny Vostok asked for almost US$1bn," the Heineken source said. "Owners of Ivan Taranov Breweries were modest and evaluated their business in US$560m."
Heineken's representative office in Russia refused to confirm the information about the purchase, but did not deny it either. The press service of Ivan Taranov Breweries did not comment on the issue either. After buying Taranov Breweries Heineken's share on the Russian market will reach 15%. The Dutch concern will almost catch up with Su Interbrew which occupies the second position on the Russian market with 16.4%.
The market leader is Baltic Beverages Holding which controls 33.5% of all sales. The situation on the market could be changed considerably after the last large independent producers - Ochakovo and Krasny Vostok are sold to the international majors. According to Kommersant, these companies are now in negotiations with Sun Interbrew and SABMiller which controls 8% of the Russian market.

« Top

FOREIGN DEBT

Paris Club debt repayment complete, early settlement to be very beneficial for Russian economy

Russia completed an early payment of more than US$15bn of its debts to the Paris Club of creditor nations recently, Interfax News Agency reported, citing a finance ministry source. 
Russia agreed in May to pay Paris Club creditors 38 per cent of its US$40bn debt ahead of schedule to cut interest costs as economic growth slows.
Russia paid about US$13bn in July. The last part of the prepayment is US$2bn. According to the original payment schedule, the traditional day for such payments is August 20th, but this was a Saturday, and the payment was rescheduled until the next working day - August 22nd, RBC was told at the finance ministry. More than US$15bn was paid. Of this amount, US$13bn was transferred in two tranches on July 15th and July 29th. The money was transferred to the accounts of 11 creditor countries: Australia, Britain, the Netherlands, Germany, Denmark, Italy, Canada, the United States, France, Finland and Sweden. The remaining amount of US$2.3bn was transferred on August 19th and 22nd to another five countries: Austria, Belgium, Spain, Norway and Japan.
"Under agreements reached in May 2005, Russia will have the possibility to offer creditors such an operation under similar conditions in the future. Work is currently underway on preparing corresponding proposals," Alexei Kudrin is quoted in the release as saying.
Early repayment of the debt will be very beneficial for the Russian economy, the release says. Additional resources will be freed thanks to saving on interest payments to financial social and economic projects in Russia. The resources used for early repayment of the foreign debt were paid from the Stabilisation Fund. 
"The Russian Finance Ministry will continue the policy of using the part of the Stabilisation Fund that is over the 500bn rouble minimum set by legislation only for early repayment of the foreign debt," the release says. 
Russia's total debt to the club is US$43bn, half owed to Germany. The entire obligation is due for clearing between 2012 and 2015. Foreign currency and gold reserves declined in the seven days to August 19th as Russia made payments to the Paris Club of creditors. 

« Top

MINERALS & METALS

Russky Ugol acquires 25% of Zlatoust steel works 

The Russky Ugol or Russian Coal Company has bought 25 per cent of Zlatoust Metallurgical Plant (ZMZ), a special steel producer from the Chelyabinsk region, Interfax News Agency reported recently, citing a companies' joint statement. 
ZMZ, which produces a range of more than 1,000 steels for the defence, chemicals and aviation industries, sold the shares because it is looking for major investment in a programme of upgrades that began in 2003, the statement said. Financial terms of the deal were not disclosed. The Moscow-based ZAO Geolink and its affiliates owned 88 per cent of ZMZ prior to the deal with Russky Ugol. The statement quoted Vadim Varshavsky, board chairman of Russky Ugol, as saying the company, which controls a string of coal and metallurgical assets in various parts of Russia, was prepared to invest in the plant. "The acquisition blends in logically with the establishment of Russky Ugol's metallurgical decision. The favourable investment climate created by the Chelyabinsk region's authorities also influenced the decision to buy into one of the Southern Urals' biggest enterprises, Varshavsky said. The Zlatoust plant and Russky Ugol have "a common approach to preserving the enterprise's unique pro-file, which is to produce special grades of steel and high-quality alloys," said Mark Leivikov, chairman of the Zlatoust plant.

Steel giant Novolipetsk plans London IPO 

Novolipetsk Steel (NLMK), one of Russia's biggest steel plants controlled by the country's second-richest man, is planning a possible London listing by the end of this year, the British Financial Times reported on August 22nd. 
The listing could value the company at almost US$8.95bn. People familiar with the issue told the paper that the company, based in the Black Earth region of Central Russia, was likely to float about 10 per cent of its equity, although the Russian market regulator has given it permission to sell up to 25 per cent outside Russia. MosNews reported on the issue in May, when permission was granted. The steel company has hired UBS and Merrill Lynch to prepare the float. 
Novolipetsk is Russia's fourth-largest steel group but its most profitable. The steelmaker raised rolled steel production by four percent to 8.6 million tons last year. 
It exports more than 70 per cent of its output. Novolipetsk is controlled by Vladimir Lisin, listed by Forbes Russia this year as the country's second-richest man after Roman Abramovich, with a US$7bn fortune.

Norilsk plans Russian listing of Polyus shares by April '06

Norilsk Nickel, the world's biggest nickel and palladium miner, plans to list shares of Polyus on one or more Russian markets by April, and to issue level-one American Depositary Receipts (ADRs) on an exchange outside the country next May, Interfax News Agency reported recently. 
Polyus currently controls Norilsk Nickel's Russia-based gold assets and Norilsk's 20% stake in South Africa's Gold Fields, Norilsk wants to register ADRs of Polyus, its gold unit, by May, the Moscow-based company said in a statement.
Norilsk wants to spin off Polyus to shareholders, creating a company analysts say would be worth as much as US$4bn. Norilsk will seek shareholders' approval to spin off the unit, the company said recently. Polyus produced 1.1m ounces of gold in 2004. It wants to triple output by 2010.
Polyus Gold shares will trade in Russia first, then possibly New York or Toronto, Polyus President Yevgeny Ivanov said last April. Polyus Gold combines Polyus, a 20% stake in Gold Fields, the world's number 4 gold producer, and 10bn roubles (US$352m) in cash, Norilsk said in a statement.
Polyus, the umbrella company for MMC Norilsk Nickel's gold mining assets, is close to buying a number of gold fields in Siberia for a total of US$285m, said Denis Morozov, Norilsk Nickel's deputy director general. Morozov said Polyus had already made an advance payment of US$115m for the fields, which he did not name, and would become their owner in September. Morozov did not give any more details about the transaction.
The fields contain 28m Troy ounces of gold, Morozov said. A gold industry source told Interfax that Polyus might be buying a gold asset from the Alrosa Investment Group. Alrosa Investment Group did not confirm this and declined to make further comment. Ireland Celtic Resources, which owns half the interest in the Nezhdaninskoye gold project in Yakutia, has said the Nezhdaninskoye field contains 13.9m ounces or 430 tonnes of gold. Ores are graded at 5.5 g/tn for Au. Celtic has said overall reserves at ezhdaninskoye are 28m oz.
Net profit to international accounting standards (IAS) at Norilsk Nickel MMC in the first quarter 2005 fell 0.5% year-on-year to US$446m. It adjusted some indicators. A year ago the company announced that its net profit in the first quarter 2004 amounted to US$460m, and pre-tax profit - US$635m.
It is likely that the adjustment was carried out due to exchange rate differences and a re-evaluation of a stake in Gold Fields, according to the news service.
Norilsk Nickel revenue in the reporting period increased 3% to US$1.63bn, EBITDA - US$772m. Norilsk Nickel bought 2.51% of national power monopoly Unified Energy Systems for US$322m in June, Interfax News Agency reported, citing data from Norilsk.

« Top