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Key Economic Data 
  2003 2002 2001 Ranking(2003)
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)

Books on Russia


Area (


ethnic groups 
Russians 82%
Tatars 3.3%
Ukrainians 2.7%

Principal towns 
Moscow (capital)
St Petersburg
Nizhni Novgorod 


Vladimir Putin

Update No: 309  (26/09/06)

BP/Shell's Russian setback spells trouble for all
On September 18th, Russia revoked environmental approvals for the Shell-led Sakhalin-2 oil and gas project, sparking protests from Tokyo, Brussels and London the next day.
Russia's ambassador to Japan said the Sakhalin-2 energy project in Russia's Far East will be completed, though he gave no timing. He is not anyway the most authoritative figure to re-assure foreign investors, although Japan was quick to protest at government level.
Recent events forebode bad tidings for Western oil majors operating in Russia. The latest tightening of the screws on them is, in part, an issue of pride, but also an issue of money and huge oil revenues.
It all harks back of course to the break-up of Yukos and the arrest and imprisonment of its founder and main owner, Mikhail Khodorkovsky. That was an ominous event, whose fall-out could be seen already back then in late 2003. For Yukos was the most efficient and profitable company in Russia. It was Russia enacting Darwinism in reverse. Stalin had done that in extirpating the kulaks in the 1930s, the elimination of the fittest, a disaster from which Russian and Ukrainian agriculture have still not recovered.
The Yukos affair was seen by some as a one-off, due to Khodorkovsky's political ambitions. That is partly true. It clearly was a very political matter, involving the Kremlin putting pressure on the courts to bring in a stinging verdict, totally contrary to proper legal procedure, as were the retrospective tax demands that were deliberately set so high that they could not be met. It was yet another sign of the slide back to authoritarianism of the time.
Putin was sending out the clear message to all and sundry in Russia: "Don't mess with the Kremlin!" Foreigners, it might have been thought, would be exempt from the Kremlin's clutches. Not so, even a major like Shell can face trouble.
Royal Dutch Shell's Sakhalin-2 project operates under a long-standing production sharing agreement (PSA). These are typical of less stable regimes where foreign operators want protection from adverse fiscal changes and terms. Many Russian politicians feel that the oil-fuelled revival of the country's economic and political fortunes since the crisis of 1998 means PSAs are an undesirable anachronism. Cost overruns at Sakhalin-2 have not helped Shell's case, since PSA terms allow for recovery of costs before the government sees a cent from the project.
For Russia to renege on these contracts altogether would be a big step into the unknown. But given that its capital markets have apparently survived the fall-out of the Yukos affair, some politicians may be feeling invincible.

Gazprom to the fore again, ie the Kremlin
More likely, however, is that the pressure is aimed at securing a bigger role for Russia's domestic energy giants, Gazprom in particular. Gazprom was a main beneficiary in the end of the break-up of Yukos, along with Rosneft. Both of them are of course state-controlled concerns, that is the property of the Kremlin, which is clawing back the hugely profitable energy industry. This has full popular approval.
Gazprom has been in painfully drawn-out negotiations with Shell to swap part of an onshore field for a stake in Sakhalin-2. It also knows that Shell can ill-afford delays to its biggest source of production growth to 2010. Meanwhile, ExxonMobil's plans to supply China from its Sakhalin-1 project - also facing bureaucratic hassles - do not square with Gazprom's de facto role as middleman-in-chief for Eurasian gas flows.
That probably also lies at the heart of Gazprom's rumoured interest in buying out the financial investors who own half of TNK-BP, BP's joint venture that holds the license for the massive Kovykta gas field in eastern Siberia. Unlike Shell, however, BP would probably benefit from Gazprom's involvement.
As it stands, TNK-BP cannot monetise a large part of its reserves without Gazprom's co-operation or secure stakes in new projects. BP already uses equity accounting for its stake and, since it has already more than recovered its outlays on the joint venture, the extra risk from partnering with Gazprom is outweighed by the potential benefits. For Russia as a whole, however, given Gazprom's notorious inefficiency, restoring national pride is unlikely to be without cost.

Oh, what a lovely war!
The Russians, like the Soviets before them, are nostalgic for the days when the US was a close ally against a very tangible enemy, Nazi Germany. 
Indeed, Russia and the UK are the only two European counties that still look back with pride to that time. However, there is a difference. For the Russians the Great Motherland War began on June 22nd 1941, when German forces invaded the Soviet Union. 
It decidedly did not begin on September 3rd, 1939, when Chamberlain finally bit the bullet and declared on radio, after the German invasion of Poland on September 1st, that "we are now at war with Germany." 
The Russians, like the Soviets, prefer to draw a veil over the events that took place between these two dates, in which they did not cover themselves in glory, while the British did.

Two titans face up
On August 27th this year, Russian Defence Minister, Sergei Ivanov, and US Secretary of Defence, Donald Rumsfeld, were in Fairbanks, Alaska, for the dedication of a memorial to the Alaska-Siberia Lend Lease programme. The memorial commemorates Soviet and US aviators and support troops responsible for ferrying more than 5,000 American-built warplanes to Fairbanks, where Russian pilots then flew them to the Soviet-German front during World War II.
Ivanov is a very significant player indeed in Russia, Putin's closest colleague from former KGB days and presumed by many to be his chosen successor come 2008, when his second term expires. Rumsfeld is of course known to all, to his admirers the latter-day incarnation of Palmerston, to his detractors the re-incarnation of devilry itself, as was Palmerston in his day.

A new agenda for the two military powers
Ivanov and Rumsfeld discussed ways of adding substance to bilateral military-technical cooperation and the lifting of US sanctions against Russia's Rosoboronexport state arms exporter and Sukhoi Aircraft Corporation. 
But quite another matter was raised.
The international media are discussing the main result of the Ivanov-Rumsfeld talks, namely, Rumsfeld's proposal to replace the nuclear warheads of some Russian and US strategic missiles with conventional warheads. Rumsfeld said the United States is studying the possibility of replacing the nuclear warheads of some inter-continental ballistic missiles with conventional warheads and would like Russia to do the same. 
This proposal can hardly be called sensational because two former US defence secretaries, Harold Brown (1977-1981) and James Schlesinger (1973-1975), suggested a similar concept in their May 22nd 2006 article "A Missile Strike Option We Need", which appeared in The Washington Post. Brown and Schlesinger said the United States should install non-nuclear re-entry bodies on some Trident II D5 missiles aboard operational strategic submarines. Both men said such warheads can destroy terrorists far more effectively than cruise missiles or aircraft bombs. Intelligence reports would make it possible to pinpoint terrorist bases and to promptly launch devastating strikes against them. Such inexpensive, high-precision strikes would not involve any bombers, aircraft carrier task forces or submarines operating in direct proximity to hostile territories. 
Military experts criticized the Brown-Schlesinger proposal and said the installation of conventional warheads on strategic missiles cannot effectively be used against terrorists because the latter long ago abandoned the Tora Bora caves in favour of sprawling megalopolises, such as New York and London. Suffice it to say that British authorities have recently arrested some dozen of terrorists and their accomplices who planned to blow up translantic flights arriving over American cities. One can also recall the recent commuter-train explosions in Madrid. Does this mean that strategic missiles should be launched against European capitals? No, because that would be both dangerous and ridiculous. 
It would seem even less reasonable because nuclear and non-nuclear strategic missile warheads are not only intended to hit military installations, i.e. command centres, headquarters, ballistic-missile bases, as well as other military bases, ports, arsenals and defence factories. Military plans also envision the destruction of vital civilian facilities, such as electric and nuclear power plants, hydropower dams, canals, TV centres, government buildings, basic infrastructure and data exchange networks. 
Although no strategic weapons were used against Yugoslavia and Iraq, their infrastructure nonetheless suffered tremendous damage. Devastating air strikes eventually forced both countries to sue for peace. 
Any nuclear power would be sorely tempted to launch a retaliatory strike after detecting incoming strategic ballistic missiles. Its leaders would have to make a split-second decision because ballistic missiles have a short approach time and because it will be impossible to distinguish between incoming nuclear and non-nuclear warheads in the next fifty years. A retaliatory nuclear strike might to be the only way to stop an all-out ballistic-missile attack involving perhaps nuclear and/or conventional warheads. 
The US is putting a lot of resources behind an ABM system which has so far been shown to have a way to go before being regarded as proof against missile attacks. Although the reports (see Czech Republic) say a decision about where to station the ABMs will not be taken before the Riga meeting of NATO in November, it implies that this is a NATO initiative whilst it seems more accurately to be US unilateralism.
Non-nuclear warheads would make it possible to use strategic missiles more frequently. Until now, such missiles were only fitted with nuclear re-entry bodies and served to deter a potential aggressor. However, conventional warheads are another matter because they can be used in conventional wars. Consequently, "political weapons" would turn into "battlefield weapons" with all the ensuing negative consequences for mankind. A costly and unpredictable cold war-style arms race seems to be the least serious consequence. 
This is why Sergei Ivanov said he doubts whether this is a reasonable idea. "Russia has some misgivings about such preliminary plans. I am not ready to say that Russia agrees to join this initiative," Ivanov told a news conference devoted to the results of his talks with Rumsfeld. 
That was as plain a prosequi non as one could have expected. 


Oh for the lovely Soviet Union!
The Russians are not just nostalgic for the Great Motherland War. They are nostalgic for the USSR, when, one must remember, they dominated nearby, not so nearby and far-off lands - and how!
After 15 years the Russians miss their Communist Party, which actually demurely never called itself by its true name - it was always The Communist Party of the Soviet Union - hypocrisy to the last.
On August 24, 1991 Mikhail Gorbachev resigned as General Secretary of the Soviet Communist Party (CPSU), spelling his demise. Fifteen years ago, the era of the Bolshevik Party, which ruled a vast empire for a long time, came to an end with the disintegration of the Soviet Union. The Party was doomed at the start of perestroika, and the gradual devolution of power to the Soviets (de facto parliamentary bodies) began in 1987. 
The Party launched perestroika and glasnost, and was killed by them. Several landmarks accompanied its final journey: the agonizing renunciation of overt and covert Stalinism; Gorbachev's attempts to find genuine Party ideology in Lenin's writings, which he continued reading even when the nation had given up Marxism-Leninism in all but name; and an actual split in the Party, which became obvious with the emergence of the democratic platform within the CPSU in 1990 and finally, the Orthodox Stalinist Communist Party of Russia. The Party was the backbone of the Soviet Union, its brains and heart. It could not exist without the state, and likewise, the state could not exist without the Party. Together, they lived an unhappy life but died on the same day, as if in a fairy tale - the failure of the coup made the death of both inevitable. 
Gorbachev tried to save the Party. At its last plenary meeting on July 25-26, 1991, the Party decided to update its new program (five versions of this document were drafted by party experts at the state dacha in Volynskoye). Judging by the proposals for the program, it was supposed to look like a routine report by the General Secretary. It was to start with an analysis of the international situation entitled "The Character of Modern Civilization: An Integrated and Interdependent World," and to be followed by an appraisal of the road traversed called "Soviet Society: Historical Experience, the Current Situation, and Development Trends." The third part was to deal with Party ideology. This was the difficult bit, considering that everything was falling apart. But oblivious of reality, the residents of the state dacha were bogged down in Party theory. They wanted to "formulate the Party's attitude to the legacy of Marx and Lenin, reveal the historically motivated, transient and universal components of their teaching, out methodological approaches to the concepts of socialism and communism, ...explain what communism is all about (a society of the future, the goal of the movement, an ideal model, or ideology) and how close we have come to it; and show the differences between our modern views and the prevalent opinions at the start of the century, or even 30 years ago." 
Needless to say, this was a purely academic discussion, which was of no interest to anyone but the General Secretary himself and a handful of Party intellectuals. This Marxist gibberish had nothing to do with the real interests of society, or the processes taking place outside the green fences of the Party apparatchiks. 
The programme was also supposed to have a chapter on a renewed Union of sovereign states. The plenum decided to convene the 29th Party Congress in late 1991 in order to adopt the updated program. However, instead of the Congress, there came the official announcement that the Soviet Union had ceased to exist. 
During perestroika, the Party was the object of universal hatred. But the fifteen years since its collapse have drastically changed public sentiments. 
First, the Party has finally receded into history - it no longer stirs emotion, and its place is in history books. 
Second, Russians' political apathy, cynicism, and fatigue have reached a point where their attitude towards the CPSU has become stunningly positive. According to a recent poll by the Public Opinion Foundation, 51% of Russians consider the CPSU's role beneficial rather than harmful, and a mere 15% hold the opposite view. The same 51% think that it is advisable to learn from the CPSU's experience. No wonder so many Russians are ready to accept a one-party system and a special role for United Russia, and see Leonid Brezhnev, once no more than the butt of humiliating jokes, as the man whose rule was the strongest (after Stalin), and under whom life was at its best. 
The Soviet Communist Party cannot be resurrected. This probably explains its nostalgic appeal to many Russians. In any event, this attitude towards the Party, which was the backbone of the totalitarian system and remained essentially Stalinist until the advent of Gorbachev, points to the fantastic distortion of historical vision. This is further proof of the paradoxical maxim: "History teaches us that its lessons are lost on us..." 

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Audi considering producing its own cars

Audi is considering producing its own cars at a plant Volkswagen is building in Jaluga, Till Brauner, head of Audi Russia, said, Interfax News Agency reported.
Audi is testing such a possibility at the moment, he said. The company is conducting preliminary research on cost benefits, however no concrete plans have been made yet, he said.
Volkswagen is planning to start building its own plant in Kaluga region. The company plans to produce the Polo, Passat, Touareg and Skoda at the plant. The main plant, in the Kaluga region, will produce 115,000 cars a year. Initially, it will assemble the Skoda Octavia, producing 20,000 of these per year. It will start screw-drivering parts in the second half of 2007. Full-scale production, including assembly, welding and painting, will start in the first quarter of 2009.

Peugeot hasn't made final decision on plant

Peugeot has not made a final decision on building a plant in Russia, David Rio, the French car giant's business director for the Middle East and Eastern Europe, said at a press conference in Moscow, New Europe reported.
He said Peugeot is considering opening a plant in Russia, but that the research is not finished yet.
The economic development and trade ministry said recently that a draft investment agreement with PSA Peugeot Citroen has already been sent to profile agencies for agreement. Rio did not comment on this information. No concrete decision has been made and I can't say when that will happen, he said.
Peugeot has increased its sales forecast for Russia to 16,000 cars in 2006 from 12,500 cars, Rio said.

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AIG to open retail crediting bank 

American International Group Inc. (AIG), the world's largest insurance company, is planning to open a bank in Russia that will specialise in the issuing of retail loans, Interfax News Agency reported on September 13th, citing a source in banking circles. 
The company's development strategy envisions the opening of such a bank in the next three years, the source said. "Talks are already being held with the regulator on the opening of a bank, but they're still far from being completed," the source said, noting that the bank would work in the regions in addition to Moscow and St Petersburg. AIG currently provides insurance services in Russia

JP Morgan acquires more than 2% of Bank of Moscow

JP Morgan Bank has acquired more than two per cent of Bank of Moscow charter capital, a JP Morgan representative said. It was reported earlier that the Central Bank registered a report on an additional issue by Bank of Moscow for 560m roubles at par value. The Bank of Moscow raised 2.9bn roubles by placing additional shares in open subscription. The bank placed 5.6m shares with a par value of 100 roubles at a price of 519 roubles per share.

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Biggest European gainer: Russian debt

Russian bonds are producing the best returns in Europe as an oil boom spurs growth in an economy that collapsed after a debt default in 1998, the International Herald Tribune reported on September 11th.
Rouble-denominated government debt has risen 4.8 per cent since Jan. 1st, beating 19 European countries from Germany to Britain, according to indexes compiled by J. P. Morgan Chase.
Turkey was the next best performer, returning 3.1 per cent, while Italy was the laggard, declining 1.1 per cent.
A 7.5 per cent gain in the rouble, to the highest level in almost seven years, is stoking demand for debt. The currency has gained as President Vladimir Putin leads the economy to an eighth year of growth, driven by energy exports.
"The government bond market is a good, safe bet and one we shall certainly be buying into," said Michael Ganske of Deka Investment in Frankfurt.
Russia will benefit from the rally when it sells 10 billion roubles of 9.5 per cent 15-year notes.
Yields have shed about a quarter of a percentage point to 6.62 per cent since the last sale on June 14th. The decline suggests that Russia will save 24 million roubles in annual interest payments.
Oil revenue has helped coffers overflow eight years after Russia defaulted on US$40 billion in debt. Government revenue swelled to 3.46 trillion roubles in the first seven months of the year, from 2.8 trillion a year earlier, the Finance Ministry said.
The decision by Moscow to pay off US$23.7 billion in Soviet-era debt to the Paris Club group of creditor countries prompted Standard & Poor's to raise Russia's foreign-currency rating to BBB+, the third-lowest investment grade.
"It now only takes three weeks for a foreigner to open an account in Russia, when before it took as long as three months," Ganske said. "That means more foreigners are now investing."
Overseas investors now own about a quarter of the 829 billion roubles worth of federal government bonds outstanding, according to Trust Investment Bank, an underwriter of rouble bond sales.
Still, some investors remain wary because Putin's government has consolidated control of the media, seized shareholdings in an oil company and filed criminal charges against rivals.
Bonds are rallying as Russian inflation rate climbs. Consumer prices rose an annual 9.3 per cent in July, more than four times the pace of the euro zone.
"You look at inflation and at first sight it's not great," said Raphael Marechal at Fortis Investments in London, but "Russia is going to attract the capital no matter what because of its surpluses, while the S&P upgrade also freed a whole lot of investors who were previously constrained from investing in Russia.

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RussNeft eyes Zarubezhneft asset

Russian oil company, RussNeft, is holding talks with Zarubezhneft to acquire a number of fields and oil production infrastructure in Ulyanovsk region, a source close to the talks said, Interfax News Agency reported.
According to the source, the negotiations involve assets of RMNTK Nefteotdacha, which is 100 per cent Zarubezhneft owned, in Ulyanovsk region. Nefteotdacha includes the Kyrlov VNIIneft institute, Giprovostokneft, Nizhnevartovsknefteotdacha and Orenburgnefteotdacha. Zarubexhneft refused to comment on this information and RussNeft was not commenting for the moment. Zarubezhneft was restructured as an open joint stick company in October last year, and was included in the list of Russian strategic companies. The state owns 100 per cent of Zarubezhneft.

Slowdown in Russian oil production growth

The pace of growth in oil production in 2009 will fall to 1.4 per cent, according to a report on the main areas of budget and tax policy in 2007 prepared by the Russian Finance ministry, reported Interfax News Agency.
According to the document, oil production in 2006 will amount to 482m tonnes, up 2.6 per cent year-on-year. In 2007 growth in production will start to fall and production will only increase 2.1 per cent to 492m tonnes, in 2008 - 1.6 per cent (500m tonnes) and in 2009 - 1.4 per cent to 507m tonnes. According to Finance ministry forecasts, oil exports in 2006 will amount to 255m tonnes (up 1.2 per cent), in 2007 - 264m tonnes (3.5 per cent), in 2008 - 270m tonnes (2.3 per cent) and in 2009 - 274m tonnes (1.5 per cent). Federal budget revenue from the mineral extraction tax, according to Finance ministry estimates, will gradually fall: in 2006 it will amount to 1.13 trillion roubles, in 2007 - 1.0377 trillion roubles, in 2008 - 906.4 billion roubles and in 2009- 806.1 billion roubles.

Gazprom makes 1st LNG supplies to Japan

Russian gas giant Gazprom supplied its first consignment of liquefied natural gas (LNG) to Japan on August 18th. The company said in a statement that this operation was carried out through the British company Gazprom Marketing and Trading Ltd, which is part of the Gazprom group, Interfax News Agency reported.
Gazprom Marketing and Trading Ltd acquired the LNG from the company Mitsubishi Corporation, which initially bought the gas from Celt (a joint venture between Mitsubishi Corporation and Tokyo Electric Power Inc). The LNG was then supplied to the Chita LNG terminal belonging to Chubu Electric Power Co Inc in a consignment of 145,000 cubic metres (about 92m cubic metres of natural gas) on ex-ship terms. This trading operation between Gazprom and Mitsubishi Corporation represents Gazprom's first step into the LNG market in the Asia-Pacific region. "The Asia-Pacific market is a strategically important market for Gazprom, therefore the company is paying particular attention to gas supplies to this region. Gazprom plans to get a firm foothold on the Asian market both in the area of long-term supplies of pipeline gas, and by developing a relatively new sphere of activity - LNG trade," the Russian company said.

Rosneft's export routes to be dictated by stature

The provision of export routes to Rosneft will be dictated by the capacity of the Transneft system, the practice of previous years and the company's stature, the oil company said in its report for the second quarter, New Europe reported.
According to Rosneft, Transneft cannot reduce exports through the trunk pipeline systems along various routes, the Federal Energy Agency (Rosenergo) assigns oil companies to specific export routes.
In so doing it takes into consideration applications by companies, ownership of refineries in the CIS, the practice of export flows in previous years and the level of supplies reached, and also the administrative resource of a specific export routes.
The legislative base regulating access by oil production companies to the Transneft trunk pipeline system for oil exports is the federal law on the natural monopolies. Article 6 of this law sets down a mechanism for ensuring indiscriminate access to trunk pipelines and terminals in seaports for oil exports, and also establishes the organisations with right of access to these systems.
"The so-called principle of equal access to the trunk pipeline system presupposes the same percentage of oil produced being exported through the Transneft system for all oil companies," The Rosneft report said.
Rosneft exports oil both through the Transneft pipeline system and by rail. At the moment oil exports are carried out on behalf of Rosneft from its own resources (production in Chechnya) and also from the resources of its subsidiary, by acquiring oil from them under purchase and sale agreements, including through RN-Trade, with the subsidiaries' pipeline quota being transferred to Rosneft. Sakhalinmorneftegaz oil exports are carried out through its own pipeline system through the De Kastri terminal.

IEA predicts oil production growth in Russia in 2011

The International Energy Agency (IEA) projects an increase in daily oil production in Russia from 9.75m barrels in 2006 to 10.2m in 2008 and 11m in 2011. The IEA said in a report that this forecast is higher than that provided by the Russian Economic Development and Trade Ministry, which is more conservative. Although the risk of lowering the forecast does exist, especially over possible political instability, net reserve increases will continue over the next 20 years, New Europe reported.
Earlier reports said the economic development and trade ministry predicts an increase in oil production to 495m tonnes in 2007 (10million barrels per day, up 2.5 per cent against 2005) and to 507m tonnes in 2009 (10.3m barrels pre day up 1.4 per cent against 2008). The IEA said the scale of exploration has been growing, too, especially in Eastern Siberia, which is expected to guarantee growing oil exports from Russia over the long term. The main factors that could influence the growth are companies' access to the reserves, the expansion of the pipeline infrastructure, and the tax regime. The agency also said that projected investment in the Russian refining industry will make it possible to process an additional 0.75-1m barrels of oil per day by 2011.

Russia allows independent companies to export gas

Russian agencies have allowed companies independent of Gazprom to export stable gas condensate, a source in one of the profile agencies said, Interfax News Agency reported.
"The economic development and trade ministry sent a letter to the Federal Customs Agency which said that a licence is not necessary to export stable gas condensate," the source said. "After that, FTS sent a telegram to customs agencies stating that condensate can be registered without a licence," the source said. The economic development and trade ministry and industry & energy ministry are deciding on the situation with hydrocarbon gas and liquefied natural gas (LNG) at the moment, the source said. After the Law on Gas Exports entered into force, the Federal Customs Service sent a telegram to regional management in which it pointed out that gas can only be exported with the corresponding licences.

SOCAR to buy 4.5bcm of gas from Gazprom In 2007

Azeri state oil company is planning to buy 4.5bn cubic metres (billion cubic metres) of gas from Gazprom in 2007, SOCAR Vice President, Elshad Nasirov, told reporters. "We told Gazprom the maximum volume of supply is 4.5bn cubic metres for 2007," he said. "But this is a preliminary figure and we will know an exact figure once the contract is signed at the end of the year. By that time, we will have determined our own production volume and gas supplies from the Shah-Deniz and Azeri-Chirag-Gunashli fields," New Europe reported.
"It's importance is that we made this announcement early, so as not to cut supplies later," Nasirov said. Gazprom might not increase gas prices for Azerbaijan in 2007, he said. Gas is supplied based on a contract between SOCAR and Gazexport. Gazexport will supply 4.5bn cubic metres to Azerbaijan in 2006. Azerbaijan started importing gas from Russia at the end of 2000 along the Mozdok-Kazi-Magomed pipeline. Gazexport supplied gas at a price of US$60 per 1,000 cubic metres in 2005 and at US$110 per 1,000 cubic metres in 2006. Most of the imported gas is used for thermal power to generate electricity. Azerbaijan estimates it needs 14bn cubic metres of natural gas a year.

Russia seeks oil and gas pipeline deals with Greece

Vladimir Putin will make Greece a tempting offer to boost its regional role, by becoming a transit hub for Russian oil and gas exports to western markets, the Financial Times reported on September 4th.
The Russian president's three-way talks in Athens with Costas Karamanlis, Greek Prime Minister and Georgi Parvanov, the Bulgarian president, focus on reviving a much-delayed project for a 280km oil pipeline linking the Black Sea with the north Aegean.
First mooted 12 years ago as a means of reducing tanker traffic in the crowded Bosphorus strait, the project hung fire because Russian oil companies declined to make a firm commitment to supply 35-50m tonnes of oil yearly to fill the pipeline.
But Russia's growing ambitions as an international energy supplier brought a policy switch. Gazprom-Sibneft, part of the state-owned gas group, is among several potential suppliers, according to industry analysts.
The project would give Gazprom a direct outlet to the Mediterranean, with oil being shipped across the Black Sea from Novorossiysk to Burgas in Bulgaria and transferred by pipeline to the Greek port of Alexandroupolis.
Greek officials said the three leaders would give a political go-ahead for the 1bn Euro (US$1.3bn) project, which is being developed by Russia's TNK-BP, with the aim of reaching a firm agreement by December.
Shareholdings in Trans-Balkan Pipeline, the project developer, are still being negotiated, with the Russian side insisting on a controlling stake as the oil supplier.
Greek participants are Hellenic Petroleum, the state oil refiner, and Prometheus, a joint venture between Gazprom and Kopelouzos, a private pipeline constructor. Bulgargaz, Bulgaria's state-controlled gas company, which has close ties with Gazprom, would be among the Bulgarian shareholders.
The second item on Mr Putin's agenda is to persuade Greece to double the capacity of a new 300km cross-border gas pipeline from Turkey that will be extended beneath the Adriatic to Italy, to provide an additional route for Gazprom to export to western Europe.
The 290m Euro Greek-Turkish pipeline, due to be completed in October, will have capacity to carry 11bn cubic metres yearly, but would be limited to 3bn cu m yearly until the link to Italy is ready in 2008.
Greece already imports Russian gas from Bulgaria and liquefied natural gas from Algeria to supply a growing domestic market. It plans to further diversify supplies through buying gas from Azerbaijan that would be shipped from Turkey.
Mr Karamanlis's government is under pressure from the US to resist Russia's offer to invest in expanding the Greek-Turkish pipeline and provide gas at competitive prices. With Depa, the Greek state gas utility, due for partial privatisation is not currently prepared to respond to the Russian offer, according to Greek officials.
But in the medium term Greece wants to avoid being excluded from new pipeline networks developed in south-east Europe.
Bulgaria, already a transit hub for Russian gas deliveries to Turkey and Greece, is participating in the European Union-backed Nabucco project, which would supply Azeri gas through Turkey and the Balkans and reduce Europe's dependence on Gazprom.

Russia, Kazakstan agree terms for Orenburg venture

Russia and Kazakstan have agreed the terms of an intergovernmental agreement on cooperation to set up a joint venture based on Orenburg Gas Processing Plant. The Russian governments press service said that Russian Prime Minister, Mikhail Fradkov signed the corresponding directive on August 12th. The Russian Industry and Energy Ministry has been ordered to sign the corresponding agreement on behalf of the Russian government. The Kazak Energy and Natural Resource Ministry will coordinate the implementation of the agreement on the Kazak side. According to the document, authorised organisations from both countries - Gazprom and KazMunaiGaz - will set up a company with equal participation based at Orenburg Gas Processing Plant, New Europe reported.

LUKoil targets 23.8m tonnes of oil in Q3

LUKoil plans to produce 23.8m tonnes of oil in the third quarter, a shade more than the 23.7m tonnes it produced in the second quarter, the Russian oil major said in its financial report, New Europe reported.
The company also plans to produce 2.9 billion cubic metres of gas, compared with just over four billion cubic metres in the second quarter. Planned petroleum product and gas product sales to Russian distributors, not including franchising, are 1.03 million tonnes. Planned investment is US$1.85 billion, more than 70 per cent of which will be spent on exploration and production.

Kuzbassrazrezugol to start coal supplies to Brazil

Russian coal company Kuzbassrazrezugol plans to start coal supplies to Brazil, company Managing Director, Nikolai Priezzhev, said recently, New Europe reported.
He said Kuzbassrazrezugol has already supplied a trial consignment of coal to Brazil. The consignment was aimed at supplying thermal coal to the metallurgy sector, and its volume - "a ship's consignment of about 60,000 tonnes," he said.
He said a delegation from the steel company Arcelor, which owns stakes in two Brazilian companies - Arcelor Brasil and Acesita - visited Kemerovo region recently. "They liked our coal," he said. Speaking about the possibility of signing a contact with Arcelor, he said; "I think that this is realistic, possibly even in 2007. Pre-contract preparations for 2007 are currently underway." The company plans to supply coal from the Vachatsky pit to Brazil. According to the managing director, this coal is of a very high quality, and has an ash content of about five per cent.

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Iran wants broader cooperation with Russia

Iranian Ambassador to Russia, Gholamreza Ansari, said Iran wants to cooperate with Russia in all areas. "We are interested in further cooperation with Russia in all areas," Ansari told local businessmen in Samara recently, New Europe reported.
"Starting any business in Iran, you may be sure your capital will not be lost," Ansari said. "Throughout the 27 years of the Islamic Revolution, Iran has invariably made due payments under contracts with all foreign companies," he said.
Finding reliable business partners is the most important thing, he said, adding that Iran "has no fears regarding political change or wars." An Iranian delegation, in Samara region on a two-day visit, established contacts with the companies Integra-S (intellectual security systems), Meta (motor equipment), Perspektiva (the processing of organic subnstances, including petroleum products), the Kuznetsov Research and Technological Corporation (aircraft engines) and Elektroshchit (electric equipment and electric power plants).

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Oil income helps Russia pay off entire debt to Paris Club 

Russia has paid off the last of its Soviet-era debt to the Paris Club of creditors, a highly symbolic move that underscores how much oil and natural gas revenues have done for the nation's economy eight years after it went into default, the International Herald Tribune reported.
The Finance Ministry said in a statement that it had transferred the last tranche - US$21.6 billion - to the club's 17 members.
Separately, Russia's state-owned foreign trade bank, Vneshekonombank, said it had transferred US$23.7 billion over four days in order to convert the tranche into nine different currencies. The higher figure includes a US$1 billion penalty for early repayment, as well as money for currency fluctuations.
As a result, Russia stands to save US$7.7 billion in interest payments over all from the early retirement of the debt, which the government plans to spend on infrastructure projects. In May 2005, Russia paid back US$15 billion.
The Finance Ministry's statement trumpeted the repayment as the latest sign of Russia's growing economic clout.
"The early settlement with creditor countries was possible thanks to the Russian Federation's growing financial and economic might," the ministry said. Early payment "would strengthen Russia's international authority."
The deal itself was brokered in June - a public relations coup ahead of the Group of Eight summit meeting, to which Russia played host in St. Petersburg in July.
After relying on foreign loans for much of the 1990s and defaulting on its sovereign debt, Russia's finances are in good health, thanks to record prices for oil and natural gas - its main exports.
In the six years since Vladimir Putin became president, Russia has earned hundreds of billions of dollars from oil and natural gas sales.
A budget surplus of US$56 billion is projected for next year and hard currency reserves are the third-largest in the world, after those of Japan and China, at US$277 billion. The economy is growing at a healthy rate of 6 per cent to 7 per cent annually, transforming the once-dour capital into a gaudy, glitzy boom town.
"Eight years ago, the problem was: How do you pay back the debts when you don't have the revenues? Now the question is: How do you spend this money without it being inflationary?" said Roland Nash, an analyst with Renaissance Capital investment bank in Moscow.
"It's a fantastically different problem to the one they had eight years ago," he said. "Who would have guessed they would have this metamorphosis?"
The biggest recipient is Germany, which will also receive the bulk of the US$1 billion premium Russia agreed to pay in lieu of forgone interest, with France, Britain and the Netherlands to share the rest.
The repayment also helps insulate Russia's economy from the impact of oil export revenues, which have increased money supply and driven up the price of property, stocks and luxury goods.
After the sovereign repayment, Russia still has unfinished business dating back to the Soviet era. The Finance Ministry will next month offer to swap US$600 million in debts to commercial creditors into Eurobonds.
Analysts said the repayment had strengthened an already strong case for international ratings agencies to upgrade Russia.
"It's a very symbolic step for Russia as a country," said Zsolt Papp, emerging markets economist at ABN AMRO in London. "It strengthens the case for a ratings upgrade."
Standard & Poor's upgraded its sovereign rating on Russia last year to BBB with a stable outlook. Fitch rates Russia BBB+ and Moody's Baa2, both with stable outlooks.
An S&P credit analyst, Moritz Kraemer, said that the deal by itself would not trigger a further ratings upgrade since considerable downside risks remained on the fiscal and political front.
"Russia may be virtually debt-free," he said, but the risks "are of a different kind, emanating from the political scene and predictability of policy."

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New wave of Russian firms seeks £3bn from UK floats

A fresh wave of Russian companies, including some of the world's biggest metals producers, are preparing to raise more than £3 billion on the London Stock Exchange before the end of the year, The Times reported on August 24th. 
Sual, Russia's second-largest aluminium group, is understood to have stepped up its timetable for a flotation in London and is now expected to debut in early November. It is advised by JPMorgan Cazenove and UBS and its flotation could raise more than £2 billion. 
Chelyabinsk, a zinc producer named after the former industrial powerhouse of the Soviet economy, has hired Credit Suisse to advise on a dual listing in London and Moscow later this year or early in 2007. The company, which accounts for 2 per cent of world zinc production, aims to raise up to US$700 million (£370 million) to finance foreign acquisitions. 
SeverStal, the Russian steelmaker, is expected to announce that it will list in London during November at a price of about US$15 a share. The initial public offering should raise about US$1.5 billion. 
These companies are following the lead of Rosneft, the huge Russian oil group, which raised US$10.4 billion in London last month. Last year Russian companies raised £2.5 billion on London exchanges. 
The flotation of Sual, however, may be delayed by its merger talks with Russia's largest aluminium producer, RusAl. 
The two companies have agreed in principle to merge, and Oleg Deripaska, the oligarch who owns RusAl, met Russia's President, Vladimir Putin, earlier this month to discuss the merger. Mr Putin raised no objection to the deal. 
RusAl is also thought to be moving towards a listing in London. However, a merger would substantially delay the timetable. 
Analysts believe that RusAl has further to go than Sual in moving towards international standards of corporate governance and financial reporting. Sual has been adapting to the Western standard demanded by stock exchanges for the past two years. 
There is concern that Viktor Vekselberg, the oligarch and majority owner of Sual, might not wish to wait for RusAl to catch up. A listing in London would allow him to liquidate some of his paper wealth and transfer assets out of Russia. 
Analysts believe that Sual's decision to step up its own listing timetable is an attempt to force concessions from RusAl and Mr Deripaska. 
A spokesman for Sual said: "We are considering an initial public offering as a strategic option, but I have nothing further to add."

Steel output up 7.6% in 7 months

Russia raised crude steel output 7.6 per cent year-on-year in January-July to 40.94m tonnes, the Federal State Statistics Service (Rosstat) said, Interfax News Agency reported.
Converter steel output rose 7.9 per cent to 24.52m tonnes and electric steel output grew 11.7 per cent to 8.51m tonnes.
Steel production rose 11.3 per cent at Severstal, 8.9 per cent at Magnitogorsk Iron & Steel Works, 12.1 per cent at Novolipetsk Steel (NLMK), 8.9 per cent at Novokuznetsk Iron & Steel Works (NKMK), 5.4 per cent at Oskol Electrometallurgical Combine, 31.4 per cent at West Siberian Iron & Steel Works, but fell 0.2 per cent at Chelyanbinsk Iron & Steel Works, 0.4 per cent at Urals Steel and 4.4 per cent at Nizhny Iron & Steel Works.
Russia raised crude steel output 0.8 per cent to 66.19m tonnes in 2005.

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