Books on Russia
Update No: 306- (29/06/06)
The Yankee schoolmaster scolds in vain
The relationship between the US and Russia is fundamental to world politics. It
is also vital to the politics of each nation, but much more so for Russia than
its opposite number, now the only superpower left.
Yet Dick Cheney is quite wrong to think that he can hector Moscow into
acquiescence with Washington's wishes and Western norms. He upbraided the
Russian government in early May from the vantage-point of the Baltic states for
its transgressions against liberal norms and civilized values. He does not
realize that, as Rock Brinner (son of Yul Brinner) puts it: "It is not
through badgering that the United States can influence Russia, especially at a
time when the moral influence of the Bush Administration has completely
Indeed, one can see why, when his next port of call was Kazakstan, where he
praised its president, Nursultan Nazarbayev, for his progressive policies, a
ruler who has his main opponent in prison whose two remaining political rivals
were professionally murdered within a few days of the recent presidential
election, after the media circus had left town, and who exercises as tight a
control over parliament, the media and public life in general as the Russian
leader. Naturally oil was the chief topic of discussion and its transportation
via the Caspian Sea by-passing Russia.
The image of the West on the slide
It is not just Cheney who is viewed with disfavour right now in Russia. The
West's standing in general is no longer what it was.
As Andrei Grachev, former adviser to Gorbachev, puts it: "The
"West" was never a purely geographical notion for Russian Westernisers,
whether the democratic intelligentsia that traces its origins to the times of
Peter the Great or the reformers who entered politics on the wave of Mikhail
"The West was a political program - not one by which Russia was meant to
catch up with developed countries by borrowing their traditions and their way of
one by which it would be transformed into a member of a universal democratic
"Gorbachev's idea of a "Common European Home" envisioned uniting
Russia with European history and Western civilization, whose geographical
borders would stretch from Vancouver to Vladivostok. He held out the promise of
a shared future.
"It was the launch of this project, which required an internal democratic
revolution and liberation from the totalitarian regime, that led to the opening
to the West and eventually the end of the Cold War."
But now, the IMF and other Western forces are held responsible for the disasters
of the 1990s that followed that mighty event, 'shock therapy,' the highly
dubious privatisation of the mid-1990s and the collapse of the rouble in 1998
that wiped out the middle class. These are deeply resented by the population at
Among the elite there are grudges of a more geopolitical kind. As Grachev puts
it: "The hasty expansion of NATO; the unilateral U.S. withdrawal from the
ABM treaty; the American military bases along Russian borders from the Baltic
states and Poland to the Caucasus and Central Asia; the active support for
"orange revolutions" with a distinct anti-Russian flavour - all these
methodical steps by the American administration, regardless of their motivation,
have been seen in Moscow as elements of a strategic "containment" of
Russia, as a revamped version of the old policy of 'rolling back Communism.'
While Gorbachev was seen as a Western stooge and Yeltsin as a Western dupe,
Putin is regarded as a true Russian patriot who can deliver on his promises. He
has had the great quality that Napoleon prized in his generals - luck. He took
over in 2000 just when everything was going Russia's way in the world market,
above all the soaring price of oil. He is indubitably genuinely popular,
re-elected by 70% in 2004. Current polls put him even higher.
The temptation to change the constitution and stand again in 2008 must be very
great. But he is apparently resisting it.
Les Colombes-des-Eglises option
It is possible that he is reasoning that he is young enough, barely 50, to
retire from the scene for four or eight years and then come back for another
four or eight years in 2012 or 2016 when he would still be younger than most of
his predecessors on coming to supreme power. There is nothing in the
constitution that precludes a third term for a president, only a consecutive
He might well reflect on the great career of De Gaulle here, a titan of modern
times. De Gaulle was 55 when he voluntarily vacated power in January 1946 (he
did not want to be the French leader who accepted Marshall Aid to rehabilitate
France after the war, an inevitable, but humiliating business in De Gaulle's
De Gaulle was widely regarded as finished in the early 1950s. But, as he had
presciently foreseen, the regime of parties under the Fourth Republic was
bankrupt and would be quite unable to cope with the problem of Algeria, which
only he could resolve. He came back in triumph in 1958; and on his own terms.
The Fifth Republic was born the next year.
Nothing so dramatic is likely to happen to Putin. But he is a man with a sense
of history, modelling himself on Peter the Great, To splice the Petrine
tradition with the Gaullist one might appeal to his sense of destiny.
After all, running Russia must be one of the most onerous jobs in the world. If
no great mishap occurs between now and mid-2008, he would depart, trailing
clouds of glory. He could then have a well-earned rest, bring up his adolescent
daughters until their coming of age and return a refreshed man for another stab
at it, after due reflection on his mistakes first time round. He would of course
be a marvel, celebrated around the world. The many critics of Russia's slide
away from democracy, including ourselves, would have to reconsider our approach.
He must know that the Chechen War is a disaster - but one he needed in very
murky circumstances to come to power. It is excruciatingly difficult for him to
end it for that very reason; it was the source of his original popularity and
legitimacy. He no longer needs it. But how to extricate Russia from it without
losing face? Let somebody else do so. Then he can duly make a triumphant
This is highly speculative of course. But it squares with his behaviour and
apparent equanimity at the prospect of losing power.
But, if this scenario is correct, it is of the utmost importance who succeeds
Power struggle unfolds for the succession
A power struggle is developing that is widely being interpreted as being
over the succession. A key post in Russia is that of the prosecutor-general's.
The holder of it since 1999 has been Vladimir Ustinov. The prosecutor has been
obliged by Putin to resign, which he duly did in early June, only a week after
he had promised to disclose "new so-called high-profile criminal
cases" involving government corruption.
Political figures and analysts outside the government split over the meaning of
Ustinov's departure. Some suggested that Ustinov had done little to combat
corruption seriously, while others said his blunt remarks about corruption might
have been seen as about to do too much. It can be one, or the other, but not
"The motive behind this sacking is political. The president is establishing
a balance of power between opposing clans" ahead of legislative elections
in 2007 and presidential polls in 2008, the liberal daily Gazeta said. "In
the coming six months, there will be changes affecting all branches of
According to a source close to the Kremlin quoted by business daily Vedomosti,
"the prosecutor's recent statements about corruption were political and the
president wasn't keen on a close alliance" between Ustinov, the top Putin
aide Igor Sechin and Moscow Mayor Yuri Luzhkov. "Ustinov's departure is the
start of a series of other moves within the corridors of power," Vedomosti
Ustinov presided over the country's most prominent prosecutions, including that
of Mikhail Khodorkovsky, once the chairman of Yukos Oil and the richest man in
Ustinov also oversaw controversial investigations into Russia's worst accidents
and terrorist attacks, including the accidental sinking of the nuclear submarine
Kursk and hostage seizures at a Moscow theatre in 2002 and a school in Beslan in
Olga Kryshtanovskaya, a sociologist who has written extensively about the
Kremlin hierarchy, said that Ustinov was "practically stupid" to speak
openly about the extent of criminality and corruption in Russia, though Putin
himself has also denounced those aspects of his country in public statements.
"Putin had been doing everything he can to improve Russia's image,"
she said in a telephone interview. "He didn't want the image of a country
where the mafia is in charge of everything."
She and others attributed Ustinov's departure to a struggle among Putin's cadre
of advisers, one that waxes and wanes as speculation mounts over whom Putin will
anoint as his successor.
Ustinov was widely regarded as a hawk among the Putin advisers from security and
Another faction is made up of aides who are viewed as comparatively liberal and
who are aligned with a Putin protégé, Dmitri Medvedev, who is now both the
first deputy prime minister and the chairman of Gazprom, the state-controlled
In a research note, Goldman Sachs said, "The departure of Ustinov is an
important victory for liberals in the government," and cited "what
appears to be an ongoing power struggle behind the scenes."
Chechen leader slain
Meanwhile the utterly futile Chechen war continues. The unofficial president
of rebel Chechenya, a leader of their mainstream non-islamist wing (in
distinction to Shamil Basayev), Abdulkhamid Saidullayev, has been killed in a
special operation, officials in the Moscow-backed Chechen government said on
Russian media said Saidullayev was killed in a "special operation"
that took place in the Chechen city of Argun, east of the Chechen capital Grozny.
Chechen Prime Minister, in Russia's puppet government, Ramzan Kadyrov,
characterised the killing of Saidullayev as a major success in the Russian fight
against Chechen fighters, Interfax News Agency said. "They have been dealt
a decisive blow from which they will never recover," he was quoted as
The Kremlin-backed Chechen president, Alu Alkhanov, hailed the reported killing
of Saidullayev. "He was never any kind of president," Interfax quoted
Alkhanov as saying.
The small mountainous republic of Chechnya has been ravaged by conflict since
1994, with just three years of relative peace after the first war between
Russian forces and Chechen fighters ended in August 1996 and the second broke
out in October 1999.
At least 100,000 civilians and 10,000 Russian troops are estimated to have been
killed in both wars, but human rights groups have said the real numbers could be
Thousands of refugees from war-torn Chechnya live in battered tent camps in
neighbouring Ingushetia and refuse to return home because of continuing
Russia's policy in Chechnya has worked out: kill the moderate leaders and
thereby strengthen the hand of the extremists so that the war can be continued
indefinitely. It should never be forgotten that there are a lot of people in the
Russian armed forces and attached to them making a lot of money out of the war.
War material keeps disappearing, which can always be explained away in a
This was pointed out by the late lamented General Lebed, who negotiated the end
of the first conflict in 1996 with Aslan Mashkadov, the only person to have been
elected president in a reasonably fair election. It is convenient for many in
the Kremlin and the armed forces that Lebed met his end in a helicopter crash in
deepest Siberia a few years ago.
Saidullayev, thought to be in his mid- to late-30s, was chosen in March 2005 to
succeed Maskhadov, after he was also killed by Russian special forces. Chechen
fighters said at the time that Saidullayev was Maskhadov's hand-picked successor
as commander-in-chief and political leader of their movement.
Akkhmed Zakayev, a former minister in Maskhadov's Chechen government who now
lives in exile in Britain, described Saidullayev at the time as "a very
balanced, very responsible person who enjoys wide authority among the
But pro-Moscow authorities in Chechnya dismissed Saidullayev as nothing more
than a front for Shamil Basayev who became after Maskhadov's death the
undisputed leader of an estimated 1,000 to 5,000 active Chechen fighters.
Basayev is a consummate fanatical Islamist, responsible for many terrorist
horrors. He has boasted of many an outrage, but never claimed the series of
outrages in 1999 that set off the second Chechen War so very, very conveniently
for Putin (his popularity was on 2% in August of that year, but soared by
Christmas; he was duly elected president in March 2000). Famously, allegations
outside of Russia (of course), were made that it was Putin supporters that were
responsible for the 1999 Moscow bombings to create the backlash that indeed did
see Putin convincingly win the presidency.
Before his assassination, Maskhadov had said Basayev would be put on trial for
masterminding the hostage siege in Beslan, which killed more than 330 civilians,
once fighting between Chechen fighters and the Russian army came to an end.
Maskhadov, who was elected president in Chechnya's only free presidential poll,
had admitted that he disagreed with Basayev in targeting civilians as a means to
combat the Russian occupation. That is why Moscow had to eliminate him, perhaps,
as many suspect, his whereabouts were betrayed by the Basayevites. It would
never do to have a moderate Chechen leader.
VTB still to receive offer to sell its IMB share
Russia's Vneshtorgbank (VTB) has not yet received any concrete offers to sell
its share in International Moscow Bank, Interfax News Agency reported, citing
VTB Chairman Andrei Kostin.
A regional meeting is currently underway in Krasnodar dealing with the
development of Vneshtorgbank's regional business. Vneshtorgbank (VTB) is
planning to buy banks in Azerbaijan, Kazakstan and Belarus by the end of this
year, added Kostin. Vneshtorgbank plans to approve a concept for developing its
foreign banks in Asia and Europe in June, Kostin told journalists.
He said the concept for developing VTB subsidiaries abroad would be approved in
parts. He said VTB plans to put together an application to open a bank in China
in the near future, and work is being carried out simultaneously to set up a
joint bank with Vietnam. Kostin said that this work should be completed by the
end of the year.
Regarding plans to develop business in Western Europe, Kostin said VTB hopes to
set up a large banking holding company in Western Europe, headquartered in
London, with the working title VTB-Europe.
"This issue is currently being studied in great detail by oversight bodies
in European countries," he said. He also said that over the next 12 months
VTB plans to increase the number of its foreign subsidiaries from 11 to 20.
Moody's announces new ratings for 7 banks
Moody's Investors Service published on May 29th the results of an examination of
financial institution ratings in Russia in light of the revision of its rating
methodology for assigning foreign currency country bond ceilings, the agency
said in a press release, New Europe reported.
In November 2005, Moody's published a Request for Comment, entitled
"Revised Policy with Respect to Country Ceilings." Based on supportive
market responses, Moody's decided to revise its methodology for assigning
foreign currency country bond ceilings.
The revised methodology resulted in upgrades to the foreign currency bond
ceilings of a number of countries. The higher ceilings reflect Moody's view that
in many countries, even if the government were to default on its own foreign
currency debt, the probability of a foreign currency moratorium is less than 100
Most of the foreign currency debt and foreign currency issuer ratings that are
now being upgraded were previously constrained at the old foreign currency debt
ceilings. This constraint reflected Moody's earlier view of the risk that such
obligations could be captured by a foreign currency payments moratorium in the
event that the government defaulted on its own foreign currency debt.
Following the upgrades, a number of these ratings (those below the new foreign
currency debt ceiling of the domicile of the issuer or its parent bank) are no
longer constrained by this risk.
Other ratings are being upgraded to the new ceiling but remain constrained by
the moratorium risk still reflected in the revised ceilings. The latest rating
actions have no impact on any foreign currency deposit ratings. The revision to
Moody's methodology applies only to the foreign currency ceiling for bonds and
notes. Existing foreign currency country ceilings for bank deposits are not
Moody's foreign currency bank deposit ceilings will continue to be more directly
related to government foreign currency bond ratings, reflecting the risk that a
freeze on foreign currency bank deposits is more likely to be imposed in the
event of a government bond default even in the absence of a generalised foreign
Fitch rates Russian Agriculture Bank's Eurobond programme
Fitch Ratings has assigned RSHB Capital S.A.'s (RSHB) new US$1.5 billion limited
recourse program of loan participation notes a final Long-term rating of BBB
(for senior notes with maturities in excess of one year) and Short-term F3 (for
senior notes with maturities of less than one year), Interfax News Agency
reported, citing the ratings agency.
Fitch has also assigned a final Long-term BBB rating to the US$700 million 7.175
per cent issue due May 2013, which was the first under the programme, the
release read. The program is to be used solely for financing loans to Russian
Agricultural Bank (RAB), which is rated Issuer Default (IDR) BBB, Short-term F3,
Individual D/E, Support 2, and National Long-term AAA(rus). A Stable Outlook is
in place for both the IDR and National Long-term ratings. RSHB will only pay
noteholders amounts (principal and interest) received from RAB under the loan
S&P raises Evraz group, Mastercroft ratings to BB-
Standard & Poor's Ratings Services raised its ratings on Russian steel
company Evraz Group S.A. and its core subsidiary Mastercroft Ltd. to BB- from
B+, the ratings agency said in a press release, New Europe reported.
This follows the strong profitability and cash flow generation posted by the
group in 2005, its demonstrated progress in group consolidation, and successful
integration of recently acquired assets, the release said. At the same time, the
ruAA- Russia national scale ratings on Evraz and Mastercroft were affirmed. The
outlook is stable. "The rating action reflects another year of profitable
and cash-generative consolidated operations, following the group's consolidation
of its trading operations in 2004 and mining assets in 2004-2005," said
Standard & Poor's credit analyst Yelena Anankina. In 2005, group EBITDA was
US$1.8 billion (28 per cent margin) and free operating cash flow (FOCF) was
US$709 million (compared with US$326 million in 2004). Although Evraz's strategy
remains acquisitive, the group has avoided overly large and risky transactions,
focusing on acquiring moderate-size assets. Evraz has been successful in
integrating its targets, as illustrated by the acquisitions of Vitkovice Steel,
Palini e Bertoli, and a stake in Yuzhkuzbassugol in 2005.
Rosneft will press ahead with US$10bn IPO
Rosneft, a Russian oil group recently confirmed that it was pressing ahead with
an initial public offering to raise US$10bn in spite of turbulent market
conditions, kicking off the official countdown to one of the most controversial
transactions in Russian corporate history. The company's "intention to
float" announcement received a boost from the first-quarter earnings
showing net profit rising 10.8 per cent to US$802m, according to US GAAP.
Peter O'Brien, Rosneft's chief financial officer, said the offering was likely
to raise approximately US$10bn. This will mainly cover the US$7.5bn of debt
which Rosneftegaz, the state entity which owns Rosneft, raised last year to buy
10.7 per cent of Gazprom. The rest of the money will go towards covering
substantial capital gains taxes owed by Rosneftegaz following the share sale,
and other taxes.
Rosneft is planning to list on July 14th, just one day before the G8 nations
hold their summit in St Petersburg, according to people familiar with the
preparations, though they said the timetable was still fluid. They said the
roadshow to investors would start on June 26th, when the company's prospectus is
also expected to be published.
The offering by Rosneft, which some analysts say could be valued at between
US$70bn and US$80bn after the flotation, will be a challenge to bankers pricing
the shares, not least because of the recent volatility in the global stock
The IPO is also being dogged by the controversy over the acquisition of
Yuganskneftegaz, Rosneft's main asset, acquired in a forced auction from Yukos,
the company built by Mikhail Khordorkovsky, the jailed Russian oligarch. Some
investors have expressed concerns that the IPO raises serious legal and
corporate governance questions.
The size of Rosneft's IPO has already been cut down from what was originally
mooted to be up to US$20bn. Mr O'Brien said the size was scaled down in March
because the company was generating enough cash as a result of higher oil prices
than nine months ago.
He added that the company also had an option to sell 400m additional shares. The
proceeds would go towards capital expenditure, further debt reduction and new
However, some analysts said the real reason stemmed from investors' concerns
about the political and legal risks attached to the company.
"It will be a tough sale," said one. "There has been a lot of
criticism of Rosneft, and investors want a discount, but the government does not
want to sell Rosneft cheaply."
Gazprom to build 4-5 floating drilling complexes
Gazprom plans to build 4-5 floating drilling complexes by 2010, Alexander
Mandel, general director of Gazflot, Gazprom's operator on the Russian
continental shelf, said, Interfax News Agency reported.
Construction will be carried out as part of a Gazprom programme calculated for
the period up to 2010, which envisions the construction of specialised floating
"We need to build our own specialised fleet because we aren't working in
standard conditions. The temperature here is virtually 30 degrees below zero
everywhere and there are ships in the world that are restricted by temperatures
of minus 20, that is we can't rent a ship anywhere in the world. And not one
ship can resemble another because each one is set up for certain specific tasks.
Therefore, various platforms will be built - extraction and complex platforms
that will carry out certain tasks for constructing fields and developing
them," Mandel said. In total, the programme envisions the construction of
20-30 floating facilities of different classes, including tankers to transport
oil and gas and so-called gas carriers, in addition to towboats and ships for
the transportation of loose materials and other floating facilities.
"We will place orders everywhere. We have an enterprise in Russia, in
particular there is the Zvyozdochka plant in Severodvinsk Plant, there is a
shipbuilding plant in St Petersburg, the Baltiisky Shipbuilding Plant. Orders
for high-technology ships of the gas carrier type will be placed abroad and
we'll try to build the rest in Russia," he said.
North-West Oil, Nord Oil to set up JV
Russia's North-West Oil Group and Nord Oil International of Canada plan to set
up the joint venture Northwest, which will contain their main oil assets in
Russia, North-West Oil Group Vice President, Yulia Sozina, said, Interfax News
The companies signed an agreement on May 9th 2006 stating that North-West Oil
would own 59% of the venture and Nord Oil - 41 per cent. Northwest will include
North-West Oil Group-Saratov and Neftegazenergo, which are owned by North-West
Oil, and Nord Oil Samara, Nord Oil Product and NANA A, which are owned by Nord
Northwest assets will be worth about US$1.25 billion, Sozina said. North-West
Oil Group reported on its website that North-West Oil Group-Saratov owns
licenses to produce oil at the Goryuchkinskoye, Stepnovskoye,
Severo-Vasnetsovskoye and Kalininskoye fields, and licenses to explore the
Shalinskoye license area in Saratov region.
North-West Oil Group assets that will not be included in the joint venture
include a license for Surgut Seven licence area (Khanty-Mansii Oil Group -MOL),
at which seismic work is being carried out.
Nord Oil owns licences to explore and produce oil at the Kammunarskoye,
Krasnosamarskoye and Yemelyanovskoye fields in Samara region. Production at
these fields is expected at 2.3 million barrels in 2006 and 7.6 million barrels
Gazprom eyes cooperation with TNK-BP for Udmurtneft
Gazprom may consider global cooperation with TNK-BP if it receives Udmurtneft
"for free or at a symbolic price," Gazprom Deputy Chairman, Alexander
Ryazanov, said, New Europe reported.
"So far the results (of the TNK-BP tender to sell Udmurtneft) are not
known. We gave our proposals, which I consider to be rather good from the point
of view of project cost," he said. "If TNK-BP gives Udmurtneft for
free or for a symbolic price, then other issues can be considered. But for now
the price is purely a market price, so we cannot talk about any global
cooperation. They sell and we buy as a buyer," said Ryazanov, who is also
president of Sibneft. Gazprom, which is keen to develop its oil business,
recently acquired a controlling stake in Sibneft.
LUKoil, Gazprom could boost their presence in Colombia
Russian oil companies LUKoil and Gazprom are planning to expand their presence
in Colombia, the Russian Industry & Energy Ministry said in a press release.
This was announced at a meeting of the Russian-Colombian Commission on Trade and
Scientific Cooperation from May 15-16 in Moscow. "In discussing the
prospects for mutual action in the oil and gas sectors, the parties agreed to
discuss expanding cooperation with Russian companies, including between LUKoil,
Ecopetrol and the National Hydrocarbon Agency to jointly implement new projects
on search and exploration in Colombia," the release read, New Europe
Agreement was also reached during the meeting that Gazprom would present an
offer to Colombia to develop bilateral cooperation in estimating Colombia's raw
materials base, the development of oil fields, building oil refineries and
producing liquefied natural gas (LNG). In April 2006, eight companies, including
LUKoil, ExxonMobil, BP, Chevron, made it into the final part of a competition to
take part in a project organised by Colombian state-run Ecopetrol to develop
heavy oil fields.
The winner of the competition will be announced in July and will take part in
exploratory work over 17,000 kilometres that are thought to contain up to three
billion barrels of oil.
Ecopetrol accounts for about 60 per cent of the 526,000 barrels of oil a day
produced in Colombia. Colombia's Meta province can produce up to 200,000 barrels
Ecopetrol is holding another tender for the right to work at the Tibu field on
the border with Venezuela. Vintage Petroleum, LUKoil, Brazil's Petrobras and
Burlington Resources of the US have won the right to take part in the tender.
The project is estimated at US$200 million and envisions the use of new
technology to produce additional amount of oil from existing fields. The results
of the tender will be announced in June or July.
LUKoil Overseas and Ecopetrol signed a contract for the Condor block on April 7,
The block area amounts to 3,089 square km. The share of LUKoil Overseas in the
project is 70 per cent, and Ecopetrol - 30 per cent. LUKoil Overseas Colombia
Ltd. is the operator of the project.
Gazprom said that it was interested in diversifying its business by entering
Asian and Pacific Rim countries, the Middle East, Central Asia, and Central and
Firtash expands into Russian gas production
Dmytro Firtash, the secretive Ukrainian partner of Russia's state-run natural
gas company Gazprom, is expanding into gas production in Russia, the Financial
Mr Firtash, who has been a partner of Gazprom since 2004 in RosUkrEnergo, the
company that controls the supply of Central Asian gas across Russia, was
recently appointed chairman of Askrakhan Oil and Gas, according to officials in
Russia's Astrakhan region, which straddles the Volga river delta on the north
bank of the Caspian Sea.
Independent gas producers in Russia are obliged to sell on the Russian market
but Mr Firtash's partnership with Gazprom is allowed to export gas. RosUkrEnergo
is currently the only company besides Gazprom that is allowed to export gas from
Astrakhan Oil and Gas owns rights to a medium-sized gas field with an estimated
220bn cubic metres of reserves about one-ninth the size of the giant Kovytka gas
field in Siberia controlled by the British-Russian joint venture BP-TNK.
Astrakhan's previous owners were reluctant to invest because of Russia's low
domestic gas prices and the field's relatively high development costs, which are
due its depth and high sulphur content, according to Valery Nesterov, an analyst
at Russian broker Troika Dialog.
Russia has come under increasing pressure from the US and European governments
to ease its restrictions on exports by independent gas producers in order to
spur greater investment and increase Russia's overall gas production. However,
the Russian government and Gazprom have said Gazprom will not give up its
monopoly on gas pipelines or on gas exports.
In a recent interview with the FT, Mr Firtash argued that RosUkrEnergo helped to
increase the security of gas supplies to Europe and said he wanted to develop
that role by investing in gas production, storage and pipelines.
Foreign debt falls to US$75bn in Q1
Russia's foreign debt fell by US$1.3 billion to US$75.182 billion in the first
quarter of 2006, Interfax News Agency reported.
Total government debt dropped by 84.848 billion roubles to 2.992 trillion
roubles. Russia's foreign debt fell after it paid off US$826.7 million in loans
from foreign countries and US$141.5 million from international financial
organisations. Russia also paid off US$314.2 million in foreign bonds in the
first quarter, the report says. The foreign debt accounted for 69.8 per cent of
total government debt on April, down from 71.5 per cent on January 1. Market
debt - Russian government securities denominated in foreign currency - grew to
51 per cent of total foreign debt from 50.5 per cent. Non-market debt - loans
provided by foreign governments, international financial organizations, foreign
commercial banks and companies to Russia - fell to 49 per cent from 49.5 per
Paris Club ready to hold talks with Russia
The Paris Club of Creditors is ready to hold talks with Russia on early
repayment of part of its debt, a finance ministry official said recently,
Interfax News Agency reported.
The Club decided to start talks with Russia on early repayment of part of its
debt, he said.
"The creditors have only discussed our offer so far and confirmed that they
are ready to hold talks with us," the source said. He also said that
multilateral talks with Russia could start in June already during the next Paris
Club meeting. The Paris Club said in May 2005 that Russia could pay off US$15bn
early of its total debt of US$40bn.
Kudrin said in February 2006 that Russia intends this year to pay off US$11-12bn
ahead of schedule to the Paris Club creditors.
Kudrin said Russia's creditors were not enthusiastic about early repayments but
that Russia expected to be able to make them all the same because of problems
with the budgets in those countries. "We're confident of reaching an
agreement," he said.
Kudrin said that US$11-12bn was practically all the Soviet-era debt that Russia
could repay ahead of schedule to the Paris Club. Germany has issued its own
notes for six billion Euro of the debt, and that debt must be paid as per the
schedule, he said.
Kudrin said Russia expected to repay the debt on the same terms as in 2005, that
is at face value. Russia should settle in full with all Paris Club creditor
nations except Germany and possibly Switzerland, which rejected early debt
payments in 2005.
Direct foreign investments in Russia double in Q1
Direct foreign investments in the Russian economy grew 100 per cent in the first
quarter of 2006, Interfax News Agency reported, citing Russian Economics
Minister, German Gref.
He attributed the rise to the good dynamics on the stock market. Gref said that
oil prices grew approximately 20 per cent, from US$47.5 a barrel in April 2005
to US$65 this year. This is putting serious pressure on the monetary policy of
the government, he said. Gref also reported a decline in inflation. He said that
prices grew 0.3 per cent in the first 22 days of May. The economic development
ministry estimates that inflation will remain at 0.4 per cent until the end of
May. If inflation continues to slow down, the figure for the year won't exceed
9.3 per cent, Gref said. As for GDP, it went up 6.5 per cent in April and 4.1
per cent in the first four months of the year. The respective figures last year
were 5.7 per cent and 5.2 per cent, Gref said. "In general, we are
following the 2005 pattern, but the dynamics is positive," he added.
EBRD to double investments in Russia
The European Bank for Reconstruction and Development announced recently it would
double its investments in Russia over the next five years to assist the private
sector and attract funds for the country's infrastructure projects, MosNews
Jean Lemierre, chairman of the bank said the increase in funding would rise from
US$1.4 billion in 2005 to more than US$2.6 billion starting this year until
2010. These increases do not include the bank's loans and equity stakes, which
will rise from US$5.5 billion this year to an estimated US$9.7 billion by 2010.
"Our main priority is the infrastructure," Lemierre said. "There
is a massive need for investments in roads, airports, ports - but also in the
power sector and electricity grids. On the municipal level, there is a need for
investments in urban transport, water, wastewater, district heating. The
infrastructure will be the focus of our activities, but by also mobilising the
private sector," he was quoted as saying. The increased funds for Russia,
as well as the Western Balkan nations, will be diverted from the East European
countries that joined the European Union two years ago. Under President Vladimir
Putin of Russia, the huge windfalls from energy prices have gone not into
infrastructure but into a Stabilisation Fund, used primarily to repay some of
the US$40 billion Russia owes to the Paris Club group of creditors.
Russian-Chinese trade may surge to US$40bn in 2006
Trade turnover this year between Russia and China may reach US$40bn, Kong
Lirong, foreign investment department chief at the Chinese National Development
and Reform Commission, said recently, New Europe reported.
At a meeting with a delegation of Russia media organisations in Beijing he said:
"In the first quarter of 2006 Chinese foreign trade grew 25.8 per cent.
Given the special relationship between China and Russia we can assume that this
year trade between the two countries will grow more that 30 per cent. Thus, it
may reach US$37-40bn." In 2005 bilateral trade jumped 27.1 per cent,
MINERALS & METALS
Uralelektromed boosts Q1 earnings 330%
Uralelektromed, the flagship enterprise of Urals Mining and metallurgical
Company (UMMC), boosted net profit 331 per cent year-on-year in the first
quarter of 2006, New Europe reported.
The company, which specialises in refined copper and precious metals, said net
profit was 918.241m roubles in the first quarter of 2006. Uralelektromed had net
profit of 213.039m roubles in the same period of last year.
Net profit in the first quarter of 2006 was 77.57 per cent higher than the
517.107m roubles posted in the fourth quarter of 2005.
The company said this was because it increased sales of its own products, and it
benefited from a rise in LME copper prices and price growth for precious metals.
Uralelektromed's assets grew 23.35 per cent during the quarter to just over
4.85bn roubles due to an increase in the value of fixed assets, higher
inventory, work materials and incomplete construction and a reduction of
long-term and short-term debt on loans.
The company's charter capital is 5,071,415 roubles, consisting of common shares,
par value one rouble each. UMMC was the biggest shareholder with 80.92 per cent
at the start of 2006.
Uralelektromed, capacity 350,000 tonnes of refined copper, has been part of UMMC
since 1999. Uralelektromed's main production site is in the city of Verkhnaya,
Pyshma, Sverdlovsk region. Uralelektromed also has a polymetals branch in
Kirovograd, a nonferrous alloy branch in Verkh-Neivinsky, the Raduga packaging
branch in Verkhnaya Pyshma and Safyanovskaya Med mining branch in the city of
Rezh, Sverdlovsk region.
SUAL plans US$1.5bn smelter in Russian Far East
SUAL-Holding plans to build an aluminium smelter that could cost in excess of
US$1.5 billion in Russia's Far East, Vasily Kiselev, the number two Russian
aluminium company's vice president, said on the sidelines of the Third Economic
Forum in Krasnoyarsk, Interfax News Agency reported.
Kiselev said the company planned to identify four potential sites with
electricity supplies close at hand for the smelter in July. He said new
hydroelectric dams in the region might be used. They include the Bureiya,
Nizhnaya Zeiya, Nizhnaya Bureiya and Southern Yakutia plants. "The
smelter's capacity will depend on what energy is available," Interfax
quoted him as saying.
"For the time being we're looking at 300 tonnes per year and we made a
pre-contractual inquiry to the hydro-generating company, the regional and
federal authorities in the autumn of last year to allocate generating capacity
for the smelter," Kiselev said. Kiselev told the forum that a similar
smelter was being planned for the Urals as well. He said the Urals plant would
differ from the Far Eastern one in that it might have power generating capacity
of its own. For the time being the plans are for the smelter to be located close
to the Troitskaya GRES power plant in the Chelyabinsk region, and talks on
allocating capacity are in progress with the OGK-2 generating company.
Norilsk Nickel increases revenue 9% in Q1
MMC Norilsk Nickel boosted non-consolidated revenue to Russian accounting
standards nine per cent year-on-year in the first quarter of 2006 to 43.712
billion roubles, the Arctic mining and smelting giant said in a press release.
The company has said it had a net loss of 22.63 billion roubles in the period,
New Europe reported.
Net profit was 15.34 billion roubles in the first quarter of 2005. The company
attributed the losses of the first quarter of 2006 to the cancellation of some
of its shares.
Norilsk Nickel has reduced its charter capital by 11 per cent to 190,627,747
shares, par value one rouble each, after cancelling approximately five per cent
that it purchased from shareholders who did not vote or who voted against
spinning its gold mining assets off, and 5.8 per cent purchased during a
buy-back. Mikhail Prokhorov, the Norilsk CEO, and Vladimir Potanin, head of the
Interros holding, are the biggest beneficiaries with 27.39 per cent each.
It increased net profit to International Accounting Standards (IAS) 11.6 per
cent year-on-year in the first half of 2005 to US$974 million. The company's
dividend policy calls for 20-25 per cent of annual IAS net profit to be paid to
shareholders, but Norilsk paid 28 per cent or 69.4 roubles a share for 2004.
Polyus to spend US$368m on exploration to 2010
The board of directors at Polyus Gold approved a programme of geological
exploration costing US$368 million to 2010 and the plans for developing the
Verninskoye gold field in the Irkutsk region, Russia's number one gold producer
said in a statement recently. The board also reviewed the draft version of the
company's financial statement for 2005 and gave its approval on Polyus Gold's
budget and business plan for the year 2006, New Europe reported.
Chairman of the Polyus Gold board, director general of MMC Norilsk Nickel,
Mikhail Prokhorov, said "the meeting demonstrated a high level of
involvement of all the directors into the decision making process and their
commitment to promoting Polyus Gold as a world class public company." The
company has almost completed the comprehensive and costly exploration of the
Natalkinskoye deposit in the Magadan region.
Polyus is also conducting or planning to conduct exploration or further
exploration in the Krasnoyarsk territory - at the Olimpiada, Blagodatnoye,
Titimukhta, Olenye and Tyradinskoye deposits, and in Irkutsk region - at the
Chertovo Koryto, Mukodekskoye and Verninskoye deposits. Pervenets, a unit of
Polyus subsidiary Lenskaya Gold Mining Co., completed open-cast mining at the
eponymous deposit in 2003. The deposit can be developed further with deep mining
and by developing the nearby Verninskoye deposit.
Lenskaya general director Yury Loshakov said earlier that the Verninskoye mining
complex, with annual capacity of five tonnes of gold, would come on stream in
2008. He estimated the cost of the project at 2.8 billion roubles.
Lenskaya, which was set up in 2004 to manage gold mining projects in the Irkutsk
region, acquired 74 per cent of Pervenets in early 2005. OJSC Polyus Gold was
formed in March 2006 as a result of the spin-off of MMC Norilsk Nickel's gold
mining assets. Polyus Gold is the leading gold producer in Russia. The group's
asset portfolio includes 20 hard rock gold deposits located in Krasnoyarsk,
Irkutsk, Magadan, Yakutia and Amur regions of Russia.
The company produced 1.1 million ounces of gold in 2005.