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Key Economic Data 
  2002 2001 2000 Ranking(2002)
Millions of US $ 346,520 310,000 259,600 16
GNI per capita
 US $ 2,140 1,750 1,690 100
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


The defeat of the Russian Empire in World War I led to the seizure of power by the communists and the formation of the USSR. The brutal rule of Josef STALIN (1924-53) strengthened Russian dominance of the Soviet Union at a cost of tens of millions of lives. The Soviet economy and society stagnated in the following decades until General Secretary Mikhail GORBACHEV (1985-91) introduced glasnost (openness) and perestroika (restructuring) in an attempt to modernize communism, but his initiatives inadvertently released forces that by December 1991 splintered the USSR into 15 independent republics. Since then, Russia has struggled in its efforts to build a democratic political system and market economy to replace the strict social, political, and economic controls of the communist period. 

Update No: 283 - (26/07/04)

The Yukos affair
The story dominating everything else in Russia is the Yukos affair, being eagerly watched by investors. It began in late October when masked men from the police kidnapped Mikhail Khodorkovsky, from his plane, the founder part-owner of Yukos, Russia's largest oil company. He has been in prison ever since and is now on trial, along with Platon Lebedev, former CEO of Yukos.
It looks pretty likely that the two men will be put away for years, unless perhaps they give back what they allegedly acquired by fraud in the notorious privatisations of the 1990s. The real sin of Khodorkovsky was of course to cross Putin politically, an unwise thing to do in Russia. Either you have to leave the country, as two other Jewish oligarchs have done, Gusinsky and Berezovsky, or you go to prison, a most unpleasant experience in Russia. His crime was to fund opposition parties and openly express presidential ambitions.
YUKOS produces more crude oil and makes more money, $5bn last year, than any other company in Russia's vast oil industry, but a $7bn mountain of tax bills has brought it to the brink of bankruptcy. 
The firm had until midnight July 7th to pay $3.4bn it owes for 2000 - an impossible task after a court order barred it from selling assets to raise cash. If bailiffs do move in, Yukos would have two months to raise money or the tax ministry would receive assets in lieu of cash. YUKOS could file for bankruptcy protection, but that requires a court ruling. 
But the Finance Ministry has raised the possibility that it may give YUKOS more time to settle the bill, causing its shares to rally. The question is who calls the shots - the sophisticated reformers of the Finance Ministry or the sinister figures Putin has surrounded himself with in the security services, who clearly gave the orders for the arrest of Khodorkovsky and 'strongarm' the ransacking of the Yukos main office in Moscow in early July?
An asset sale scenario by brokerage United Financial Group (UFG) sees the sale of YUKOS's $4.5bn stake in smaller rival Sibneft to pay the $3.4bn charge for 2000, but at a 20 percent discount. 
"The most likely bidder remains (Sibneft owner and Chelsea football club boss) Roman Abramovich," the brokerage said. "We do not read too much into the statement by the Ministry of Industry that ChevronTexaco wants to invest $5-10bn in Russia. In the short term they are likely to be standing on the sidelines." 
YUKOS would then have to sell all its operational subsidiaries apart from core production unit Yuganskneftegaz to meet a $3.4bn tax bill for 2001 and $2.6bn in loans. 
But the firm could sell two other key subsidiaries, Samaraneftegaz and Tomskneft and its Lithuanian refinery and terminal would also go. 
UFG said those asset sales could raise $9-$9.5bn. Many see its final tax bill alone mushrooming to $10bn after audits for 2002 and 2003. 
"The new YUKOS would still be a significant firm, producing more than one million barrels per day, making it Russia's fourth-largest oil producer," UFG said. "It would, however, no longer be calling the shots and setting the tone - that role would once again fall to LUKoil, an altogether more palatable option for the government."

The wider implications for the economy
One thing is for certain. Khodorkovsky's days in charge of Yukos are over. It will henceforward be under the wing of the government. The remaining question is in what form, an issue just pondered.
Is Sibneft to suffer a similar fate? The third largest oil company in Russia, it is in the hands of another Russian Jew, Roman Abramovich, found these days nearer Chelsea in England, whose football club he owns, than in Moscow. Abramovich has had the good sense to remain close to the Kremlin and to have backed away from a merger with Yukos after October, once he knew the way the wind was blowing.
The other bellwether will be the fate of the BP-led jv, TNK-BP, the largest investment in Russia at $14bn, of which BP is responsible for a half. It is being harassed at the moment by absurd behaviour. 
Ludicrously, Russia's secret service is now investigating the venture to discover whether Russia's state secret, the size of its oil reserves have been divulged to foreign nationals. BP employs more than 100 such in the jv. If foreigners are not to be allowed to know what they are investing in, expect no further major FDI into Russia. How would BP have invested $7bn in this joint venture, without knowing what they were buying into?
TNK-BP's Viktor Vekselberg said: "We do indeed have a problem, as everything concerning oil reserves falls into the category of state secret. In particular, the chief executive needs to have access to this information. But by law only a Russian citizen can have access." 

Economic fall-out
There is a heavy price to be paid for having a running scandal, as the government is learning. It can lead to a nasty fall-out for the wider economy. A financial crisis is being aggravated by the Yukos affair. That the most successful company in Russia and easily the favourite with foreign and domestic portfolio investors until the October arrest last year of Khodorkovsky, can be brought to its knees for political reasons bodes ill. 
Foreign direct investment (FDI) was at a record high in 2003 at $19bn, bringing accumulative FDI to $57bn. This year $6.8bn flowed out in the first half, given also higher US interest-rates, reviving the tradition of capital flight which Putin seemed to have reversed. This is turn was behind a crisis in the banking sector, as cash drained out of the system, bankrupting several banks and causing a rush on deposits. 
is evidence that the government is deliberately wanting to weed out some of the smaller banks, with the idea of leaving the sector leaner and fitter. Some 300 of the 1,300 Russian banks have been excluded from a new debt-insurance plan, which is to be financed by drawing on the huge assets of Sberbank, that has one quarter of Russian bank assets. It is likely to take three months for the shake-out to unfold, a stormy period ahead.

The eternal Chechen imbroglio 
Chechnya is a source of great suffering and distress for Russia. The war is a nightmare. So in a different way is the problem of who is to rule it in the future, assuming that it remains under Russian sovereignty, as is now virtually certain. The second Chechen war in a decade after all remains at the heart of the legitimacy of Putin's presidency.
Every Chechen president bar one since 1991 has met a sticky end; and the exception, Aslan Maskhadov, proves the rule in that he has been targeted twice for assassination and barely escaped each time. The first, Dzhokar Dudayev, led a coup and declared independence in 1991. After Russian troops invaded in December 1994 to regain control, his elimination was a number one Kremlin priority. It duly happened in early 1996; he was killed in an air strike when on a conversation on his mobile which Russian intelligence had successfully tracked.
Mashkadov was elected in his place and negotiated a truce and then peace treaty in July 1996 with the late General Lebed, briefly Russia's security supremo at the time. 
He was branded as a terrorist by the incoming Putin regime in 1999 when it launched the second Chechen war after the series of bomb outrages in September of that year, killing 300 or more. In a rigged election in October 2003 a Moscow-backed candidate, Akhmad Kadyrov, became president. He was blown up by rebels at a stadium in Grozny in May. Three months earlier the former separatist president, Zelimkhan Yandarbiyev, had been assassinated in Qatar.
In early July the acting president, seen as a Russian stooge, only narrowly missed being assassinated when his car was almost blown up. Truly an uncomfortable job; perhaps the most dangerous in the world!

Perhaps a saviour emerges
On August 29th a new Chechen presidential election is to be held. The Russians are backing a candidate with virtually no political experience, the Chechen Interior Minister, Alu Alkhanov. This is all in line with their idea of localising and ending the conflict, which they claim is already over. But supporting stooges is always a dubious proposition.
Yet, there is one obvious candidate for them, if not to support, at least to tolerate. Malik Saidullayev, 39 years old, is almost certainly the most popular of the 17 candidates registered for the election. This is not surprising, since as a successful businessman, based in Moscow, he has spent $15-17m over the last four years on humanitarian work in Chechnya, a sum which goes a long way in that part of the world. Until recently, his company, Milan Group, ran Russia's most popular televised lottery, Lotto. It includes a chain of pharmacies, a hair salon and an English-style pub, the Horse and Dog. 
He says in a recent interview to The Times: "I always hated politics and politicians, and even now there is no love between us. But this is a question of life and death, of the future of my republic, my people, my family and me." 
But on current Moscow policy he is the least likely to win. Indeed, he may not be allowed to take part at all, bearing out the truth of the first part of his statement. 
When he attempted to take part in the election last year, he was disqualified on a technicality. A few days before it a Kremlin official visited his office in Moscow; he tried to persuade him to pull out voluntarily. He says: "I told him they should let me run because Kadyrov would win anyway. The guy paused and then he said no, there was too great a risk that I would win."
The reservations that the Kremlin has about him are due to the fact that he is neither radically pro-Moscow nor separatist. He advocates negotiating a truce with rebels and re-establishing the rule of law in Chechnya, but keeping the republic within Russia. He says, almost certainly echoing the vast majority's opinion in the republic: "I don't want to fight anyone, neither Russia nor the rebels. Ten years of war have proved that it is impossible to establish order in Chechnya by force, only by dialogue."
Here is the person to end the whole unfortunate affair. But the Kremlin is being extraordinarily pig-headed. He had to sell Lotto after the TV station broadcasting it threatened to take it off the air. He says that Russian reporters have been warned not to interview him. 
"All I know is that in the last election - as now - I was more popular than all the other candidates put together. If they again impose a figure not acceptable to the people, that person will fail."
The Kremlin has not learnt the lesson of the past; one should always allow the leader of a dependency to have 'opposition face.' Alkhanov is an obvious Russian stooge; thereby likely to be unpopular. Saidullayev has built up terrific political capital by being persecuted by Moscow, where most of his wealth remains in hock. Clearly, the least unacceptable alternative to a stooge. Putin will show himself a fool if he does not surreptitiously go along with him and end the greatest nightmare of his presidency.

Finis to Freedom of Speech
Quite apart from the appalling carnage and devastation, the Chechen war is damaging in that it is a very important reason for the curtailment of free speech and media in Russia. Anyone reporting the conflict honestly can expect condign punishment from the Kremlin.
The last surviving independent political talk show on television, which frequently criticised the Kremlin, notably on Chechnya, has been axed. The show, called tellingly Freedom of Speech, had its last appearance on July 9th on NTV, just four days after its chief was fired. The owner of NTV is Gazprom, the effectively Kremlin controlled energy company which acquired it from Vladimir Gusinsky in 2001, yet another Jewish tycoon who fell foul of the Kremlin and is now an exile and had little choice but to sell.
Freedom of Speech was screened once weekly after the Friday evening news, capturing an audience in the millions. Most Russians rely on television to be informed; there are only three channels that cover all 11 time zones, NTV, Rossiya and First Channel. The last two are owned by the state. In all but name so, it is now clear, is NTV.
Says one anonymous NTV source to the Times: "It's a very bad signal. This means that all the electronic media will be under political control." Or, as Igor Yakovenko, the head of the Union of Journalists, pithily puts it: "Now television viewers can throw away the remote control because all the channels will be the same."
Gazprom sacked Boris Jordan, another NTV chief, last year after Putin criticised the network's coverage of the October 2002 hostage crisis in a Moscow theatre. In June this year NTV itself fired a popular news anchorman, Leonid Parfyonov, and cancelled his show after he interviewed the widow of a former Chechen president assassinated in Qatar by two Russian agents.
The crackdown on NTV is the media equivalent of the Khodorkovsky affair. As Mr Yakovenko says; "There are a few small non-state newspapers, but even they are starting to censor themselves. They don't touch Chechnya, Kremlin corruption or Putin because they don't want to follow in the footsteps of NTV." It is a matter of the Kremlin telling everyone who is boss, whether they are media stars or businessmen. The message is clear; "don't mess with the Kremlin."

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Toyota expands Russian sales plan

Toyota has increased its automobile sales plan for Russia in 2004 by at least 33.3%, Interfax News Agnecy reported recently. 
Toyota now plans to sell via its official dealers and service centres at least 40,000 vehicles this year, Toyota Motor (the company's representative in Russia) said. A company press release reported that there were 21,037 Toyota and Lexus (which belongs to Toyota) vehicles sold in the first half of this year, against 9,182 in the first half of 2003. "On the basis of these results, we can confidently say that our initial annual sales plan will be significantly exceeded and reach at least 40,000 automobiles by the end of this year," Toyota Motor President Tomoaki Nisitani said.

AvtoVAZ ups H1 car production

Russian carmaker AvtoVAZ produced 349,176 cars in the first half of the year, a 9% rise from the same period in 2003, Interfax News Agency reported.
"The targets set out in the car production plan were met by 103.2% in the first six months of the year," the press service said. A total of 45,139 cars were produced for export.

Russia boosts car output 16%

In the first five months of this year, Russia increased automobile production 16.3% year-on-year to 553,875 vehicles, ASM Holding said, Interfax News Agency reported recently. 
ASM Holding, which analyses the Russian and Commonwealth of Independent States (CIS) automotive industries, reported that car production came to 440,297 vehicles, 18% more year-on-year. Truck production was up 14.2% to 84,436 vehicles. ASM Holding specialists think these significant growth figures are partially attributable to the low production numbers of January-May 2003, especially in car-building, where a market-glut crisis had yet to be overcome. Russia produced 29,839 buses in the first five months, 1.2% more than in the same period in 2003.

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Tests of Russia's upgraded sea-based Il-38 aircraft to be completed this year

Joint state tests of the first upgraded Il-38 plane from the Russian Navy's inventory will be over by the end of the year, Viktor Livanov, director-general of the Ilyushin aircraft corporation, said recently, Interfax-AVN Military News Agency web site reported. 
"State tests of the Il-38N plane fitted with the Novella search and sighting system are to end this year," Livanov said. "A large volume of test flights involving considerable naval forces is planned in the framework of the tests," he said. "Only the first Il-38 prototype has been upgraded, but a lot of work on the upgrade of the in-service planes will be done after the state tests," he added. 
Asked how many in-service Il-38s are subject to upgrade, the director-general said: "More than half of the available Il-38 planes, i.e. several dozen aircraft, will be upgraded before 2015." 
The first Il-38N carries new devices that replaced outdated radios and piloting and navigation equipment. The Novella system was designed by the Leninets holding company specially for naval aviation. It is capable of detecting aerial targets at a distance of up to 90km and surface targets at a distance of up to 320km. The system tracks 32 targets on the water surface and above it simultaneously. The asset is used for conducting radar intelligence above, on and under the sea surface, as well as for aerial intelligence and target indication. The Il-38 is designed on the basis of the Il-18D Coot passenger plane. It is powered by four AI-20M engines developing 4,250 hp each. 

Russian Aerospace Agency plans to set up new holding company

A holding company will be set up on the basis of the Energomash research and production association, the world's leader in rocket engine manufacturing, the Federal Aerospace Agency, ITAR-TASS News Agency reported. 
"A number of federal unitary enterprises will join a single integrated structure based on Energomash, including the Voronezh Mechanical Plant, the Chemical Automatics Design Bureau (Voronezh), the Isayev Design Bureau of Chemical Engineering based in Moscow Region, the Fakel [Russ: torch] Design and Construction Bureau (Kaliningrad), the Kirov Carriage-Building Works in Ust Katav (Chelyabinsk Region), the Research Institute of Mechanical Engineering (Sverdlovsk Region), Turbonasos [Russ: turbine pump] (Voronezh) and Ekho [Russ: echo] (Moscow)," an official representative for the Federal Aerospace Agency, Vyacheslav Davidenko, said.
He went on to add that the "unitary enterprises will be transformed into open joint-stock companies 100-per-cent of whose stake will be transferred to the authorized capital of the Energomash research and production association named after Academician Glushko in paying for the joint-stock company's additional shares being purchased by the Russian Federation." 
The setting up of the holding companies "will increase the competitiveness of products manufactured by the Russian space industry on the world market and will also make it possible to attract Russian and foreign investment," the Federal Aerospace Agency said. "Need will make the holding companies optimise their activities. When the enterprises in the sector start counting every rouble and thinking of the way of sensibly allocating it for business, they will not waste funds," the head of the Federal Aerospace Agency, Anatoliy Perminov, said at an Internet briefing.

Joint project with Russia cornerstone of Kazak space programme

The Kazak government and the head of the [Russian] Federal Space Agency (FSA), Anatoliy Perminov, will discuss terms for implementing the Bayterek joint project at a working meeting in Astana, FSA spokesman, Vyacheslav Davidenko, said, ITAR-TASS news agency reported.
"The delegation representing the agency and the Khrunichev State Space Centre will hold talks with Kazak government officials to discuss deadlines, plans and funding for the construction of the Bayterek launching pad for new Angara boosters," Davidenko said.
Kazak Prime Minister, Daniyal Akhmetov, regards the Bayterek project as the cornerstone of the country's space programme. "It will serve as a basis for developing infrastructure, new technologies, machine-building and manufacturing industry, and will help us prepare qualified personnel," the prime minister said.
The joint project for building the Bayterek facility is to be implemented in accordance with an agreement signed between the two countries' presidents - Vladimir Putin and Nursultan Nazarbayev - in January [2004]. The space facility with high level of environmental safety will be built on the base of the Russian Angara pad in the Baykonur cosmodrome.
The FSA said that "in terms of cost and quality the new Angara booster is twice as attractive as similar foreign boosters." Flight tests of the booster are to be conducted in Russia's Plesetsk cosmodrome in the first quarter of 2005.

MIG delivers planes to S Korea

The Russian MIG aircraft building corporation has delivered the first two I1-103 planes to South Korea under a contract to deliver 20 such aircraft, Interfax News Agency reported recently. 
This is the largest contract for I1-103 planes, Director of the Regional MIG Department Sergei Chumachenko told Interfax. Some of the planes will be delivered to help pay Russia's debt and the rest will be delivered for cash. All the planes should be delivered by 2006. Smaller consignments of three or four I1-103 planes were delivered earlier to Latin America and Belarus.

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Gazprom receives investment grade rating for US$1bn debt

Gazprom, the Russian energy group, will have to decide the size and terms of the first investment grade bond to be issued on the international capital markets by a Russian corporate borrower.
The company, which is in the middle of a two-week roadshow in Europe and the US, is expected to issue US$1bn worth of 15-year paper priced at a premium to Russian government bonds.
The issue, if successful, would mark a breakthrough for Russian issuers in the global market. But it comes against a troubled background of upheaval in the country's banking system and the problems of another energy group, Yukos, whose former head Mikhail Khodorkovsky is on trial for fraud and tax evasion.
It comes shortly after Gazprom announced a record 2003 net profit of Rbs159bn (US$5.5bn) though this figure was less than analysts had been expecting. Some were disappointed the cash was not used to reduce its debt.
Gazprom, which supplies one-fifth of the world's gas, has opted for a complex transaction underpinned by revenues from two gas supply contracts with Nederlandse Gasunie and ENI of Italy. Revenues from the contracts will be paid to Gazprom International, a company created for the purpose, which will in turn make a US$1bn loan to Gazprom.
Two leading credit rating agencies, Standard & Poor's and Fitch Ratings, have given Gazprom International a preliminary BBB- rating. This is the lowest investment grade rating available but is three notches about Gazprom's own rating and one notch above the sovereign rating the agencies apply to Russia itself.
An investment grade rating is important because it increases the pool of investors that are allowed to buy the bonds.
The rating agencies liked the fact that the bond would be paid off from the cash flows of a specific contract, which would be protected from default even if Gazprom went bust.
Such securitisation of cash flows is an increasingly popular way of improving the appeal of bonds to investors but it is the first time a large Russian issuer has used it on a cross-border deal. "It may be possible for other Russian issuers to use this method in future," said Kevin Kime, an S&P analyst.
S&P said the rating was also based on the "lengthy historical performance of Gazprom in delivering gas reliably to its western European customers."
In spite of the recent turmoil among Russia's banks, the tone of the market for Russian debt improved recently, creating more favourable conditions for the Gazprom issue.
The price of Russian corporate debt rose in comparison with sovereign debt while Russian sovereigns rose against US Treasuries.
S&P affirmed its BB+ rating of Russia, saying high oil prices supported its financial flexibility, but economic, legal and administrative reforms were "badly needed."
ABN Amro, Merrill Lynch and Morgan Stanley are managing the sale.

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S&P up MTS corporate governance score

Standard & Poor's Governance Services said recently that it raised its corporate governance score (CGS) on the Russian mobile operator to CGS-7+ (CGS-7.5) from CGS-7 (CGS-7.4), owing to a number of improvements in the company's corporate governance practices since the last review in June 2003, New Europe reported.
The rating agency noted that MTS maintains strong overall governance levels due to the strategic partnership between the main shareholders, AFK Sistema and Deutsche Telekom AG (represented through its affiliate).
The improvements in MTS' corporate governance practices over the last year include the combined operational and strategic expertise of both of the company's principal shareholders, which results in rigorous control over management and high standards of transparency, improved public disclosure, and improved board practices, S&P said. The analysts from S&P also identified some weaknesses such as the lack of independent directors on the board and on board committees.

S&P rates Russian Railways BB+, ruAA+

Standard & Poor's Ratings Services said recently it assigned its BB+ long-term corporate credit rating to Russian Railways (RZD), New Europe reported.
The outlook is stable, the agency said in a statement. At the same time, Standard & Poor's assigned its ruAA+ Russia national scale rating to the company.
The ratings on RZD, the 100% state-owned operator of Russian railroad infrastructure and dominant freight and passenger railroad carrier, reflect its monopoly activities, a supportive regulatory regime, and its strategic importance to the Russian government. RZD's credit quality benefits from strong cash flow generation and relatively low debt. Following RZD's recent transformation into a corporation from a ministry, transparency and disclosure remain limited, and the weaknesses of available accounting information are a risk factor.
Similarly, lack of transparency in the partly politicised tariff regime is a weakness, S&P noted. Management and government, however, appear committed to improving RZD's transparency and governance. "Other negative rating factors include: some uncertainty about the future of the rail sector and competition; a high level of expected capital spending; and substantial, primarily tax-related, contingent liabilities," S&P said. RZD's credit quality is also exposed to risks associated with operations in Russia's transitional economy. "We expect that, under the rail reform, RZD will be subject to increasing competition in some of its activities," said Stand & Poor's credit analyst Eugene Korovin.

S&P raises TransCreditBank rating

Standard & Poor's Ratings Services said recently that it had raised its long-term counterparty credit rating on Russia-based TransCreditBank (TCB) to B- from CCC+, and affirmed the C short-term counterparty credit rating on the bank, New Europe reported recently.
"The rating action reflects the privileged position that TCB continues to have in serving the Russian railway sector," said Standard & Poor's credit analyst Ekaterina Trofimova. The rating agency said also that "the ratings on the bank also reflect the positive reform underway in the Russian railway system." In October 2003, the commercial operations of the Ministry of Railway Transport were transferred to a newly created railway company, JSC "Russian Railways" (RZhD). This reorganisation had no impact on the business and financial profile of TCB, which has continued to operate as the main settlement bank for the Russian railways. More than 70% of RZhD's cash balances are held in TCB.
However, the ratings are nevertheless constrained by uncertainties surrounding the outcome of TCB's planned privatisation and by the bank's weak capitalisation and profitability. The ratings also reflect the continued high operating and credit risks inherent in the Russian Banking environment, said S&P.

S&P says YUKOS CCC rating remains on watch negative

Standard & Poor's Ratings Services said in a statement released on June 29th that its CCC long-term corporate credit rating on Russian oil company OAO NK YUKOS remains on CreditWatch with negative implications, after the company lost its appeal on a €3.4bn tax charge related to fiscal 2000, New Europe reported recently.
This now makes the tax charge payable. The rating has been on CreditWatch with negative implications since April 27th, 2004. "The rating and CreditWatch status reflect Standard & Poor's concerns that the loss of the appeal escalates the company's liquidity crisis," said Standard & Poor's credit analyst Elena Anankina.
It also increases the risk of stress scenarios such as an announcement of an event of default by the company or its creditors, whereby debt becomes due and payable (according to YUKOS' loan documentation), the instigation of bankruptcy procedures, the forced sale of core assets (if the court lifts the freeze on the assets), or the effective nationalisation of the company's assets.
The tax claim cannot be met by the company's cash reserves, despite strong cash flow generation in the currently favourable oil price environment, or by selling assets, because the assets of YUKOS' parent company were frozen in April 2004.
The risk of a liquidity crisis adds to uncertainties concerning ownership rights on key cash-generating assets, any additional tax claims relating to other fiscal years, and governance, due to the mounting political pressure on the company.
Standard & Poor's notes that the operating subsidiaries of the company are currently not prohibited from continuing their cash-generative operations or from selling their assets to repay the debt and meet the tax claim. Standard & Poor's believes that YUKOS' future depends wholly on the course of action taken by various arms of the Russian government.
YUKOS faces an unpredictable judicial system and adverse political environment. "In particular, we will focus on whether the government, or YUKOS itself, will decide to file for bankruptcy, or whether a negotiated agreement will be reached, and whether the company will be allowed to sell its assets to repay debt and taxes," added Anankina.
"We will also closely monitor whether the creditors will trigger an event of default and whether the company will legally be able to continue debt payments."
YUKOS recently repaid about €300m of €2.6bn total financial debts; €1.6bn of which is a loan from the company's core shareholders.

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Russia fulfils contract for delivery of over 300 tanks to India

Russia has fulfilled a contract for the delivery of T-90C tanks to India, Igor Ovsiyenko, first deputy director-general of the federal munitions and conventional armaments agency, has said during a video conference from Nizhniy Tagil, where a Russian arms exhibition was held, RIA News Agency reported.
"True, the customer made some critical remarks of a technical nature during the implementation of the contract. This was unavoidable in a situation where such a large contract was being implemented. Nonetheless, everything that has been supplied to India meets the requirements set out in the contract. The contractual obligations have been met in full. The delivery of 310 tanks T-90C to India can be described as the contract of the century," Ovsiyenko said.
He also denied reports by some mass media that Russian engines in T-90C tanks did not satisfy the Indian side, as far as their technical specifications were concerned. "We have never heard anything about this," he said replying to a question from journalists.
Ovsiyenko also said that two large contracts for the export of weapons and hardware had been signed since the opening of the exhibition a day and a half ago. About a dozen business talks were held, whose details are not being announced for commercial reasons.

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New drilling technologies planned for Russian oilfields

The Canadian Tesco [Drilling] company, which specializes in drilling works, and Schlumberger, an international oilfield services corporation, signed on July 13th an agreement to jointly use advanced technology of boring with casing pipes in Russia. The Tesco Drilling company, based in Calgary, Alberta province, Canada, made the announcement, ITAR-TASS News Agency reported.
The agreement stipulates cooperation in the use of the Canadian firm's boring technology in combination with Schlumberger's products and services in Russia and in Mexico.
The Canadian Tesco company, known for its innovative technology for advanced energy industries, is present in the USA, Latin American countries, Europe and the Middle East.
Schlumberger is one of the leading world oil services companies providing services, solutions and technologies for oil exploration and extraction. It has 11 production sites in different Russian regions: Noyabrsk, Nefteyugansk, Yuzhnosakhalinsk, Usinsk, Timano-Pechera and Western Siberia. The corporation opened a scientific and research centre in Moscow in 2002.

Russia boosts oil production on Baltic Sea shelf

A state commission has given go-ahead to the commercial launch of a maritime oil pipeline, which will carry oil from the D-6 (Kravtsovskoye) oil field on the Baltic shelf, 22 km from the Kaliningrad coast, and of the Romanovo coast oil reservoir, ITAR-TASS News Agency reported.
The Lukoil-Kaliningradmorneft [Lukoil-Kaliningrad maritime oil], which is developing the well, told ITAR-TASS that "the go-ahead has been given to begin commercial oil production on a Baltic oil field."
The so-called layer product which is extracted from D-6 will go along the pipeline, running across the Baltic Sea bed, to the Romanovo oil accumulating facility. At Romanovo, gas and water will be separated and the final product will go via a land oil pipeline to the company's terminal at the Izhevskoye settlement, Kaliningrad Region.
At present, high quality oil is extracted from only one 2,300-metre-deep well at D-6. Altogether, 21 oil wells will be drilled at D-6. It is expected to produce 70,000 tonnes of oil at the oil field by the end of this year. The oil field's total capacity is about 10m tonnes, which will keep the oil company busy for 30 years. All the oil will be exported.
At present, Lukoil-Kaliningradmorneft produces 650,000 tonnes of oil annually in Kaliningrad Region. The launch of the new maritime oil field will double the output.

German, Russian companies sign energy cooperation deals

Russian and German businessmen have signed three cooperation deals in the presence of the Russian president and the German chancellor, RIA News Agency reported.
A memorandum on mutual understanding between Gazprom and E.ON AG was signed by the chairmen of the board of the two companies, Aleksey Miller and Wulf Bernotat.
Managers of the Russian Marta company and the German REWE Zentral AG firm signed a framework agreement on setting up a joint venture. 
The chairman of the board of AFK Sistema, Vladimir Yevtushenkov, and the CEO of the Siemens AG company, Heinrich von Pierer, signed a framework agreement on strategic partnership and cooperation. 
After the signing ceremony, Aleksey Miller said that the memorandum envisaged cooperation between the companies both in traditional fields of gas supply and in new fields, including the manufacturing of gas in Russia, participation in gas transport projects, including the construction of the north-west gas pipeline and infrastructure for the sale of Russian gas in Germany and other European countries, and power production in Russia.
Thus, cooperation comprises all the links in the chain from extraction to the end consumer. "No doubt, a new step has been made to boost our cooperation," Miller said.
In turn, Wulf Bernotat described the signing of the memorandum as "a milestone in boosting our cooperation."
This is a qualitatively new step. We aspire to build the project as a whole chain - from extraction to sale, including power production both in Europe and Russia," he said.
Bernotat complained that there was no champagne. He said that if there was some, he would have said a toast "to effective and successful cooperation between our companies."

LUKoil to pump Iraq oil in 2005

Russian utility LUKoil plans to extract the first oil from Iraq's giant West Qurna field next year, the firm's chief executive, Vagit Alekperov, said on June 28th. Alekperov's comments coincided with the UK handover of sovereignty to an interim Iraqi government, Interfax News Agency reported. 
There is no solid proof whether LUKoil had reached agreement with Iraqi officials on its rights over the field, however. LUKoil spokesman Dmitry Dolgov was silent on whether the company had reached an agreement. However he said, "I would assume Alekperov had reason to say we will be pumping oil in Iraq next year." Iraq scrapped LUKoil's €3.7bn deal late in 2002, months before the US-led invasion to topple Iraqi leader Saddam Hussein. It accused the company of failing to meet its obligations to begin work. LUKoil said its hands were tied by United Nations sanctions then in force.

TNK-NP to begin Kovykta production in 2006

Russian-British company TNK-BP plans to start production at the Kovykta gas condensate field in 2006, in line with the conditions of a licence agreement. In response to a request to comment on complaints from the Natural Resource Ministry against the company over violations of licence conditions at the field, particularly regarding the deadline for launching the field, TNK-BP President, Robert Dudley said TNK-BP cannot begin producing gas at Kovykta in 2006, as set down in the conditions of the licence agreement, New Europe reported.
At the same time, in order to export gas the government needs to reach a decision on the construction of export pipelines, he said. Dudley said that TNK-BP and Gazprom set up a working group to discuss Gazprom's participation in the Kovykta project.
However, he said that agreement has not yet been reached with Gazprom that its subsidiary Gazexport will carry out talks with China and South Korea about supplies of gas from Kovykta. He said that the question of the operator for gas sales from Kovykta has not yet been resolved and discussions are ongoing. Natural Resource Minister, Yury Trutnev, said recently that TNK-BP is not meeting licence conditions for the Kovykta field, particularly regarding the launch of the field.
At the last meeting between Gazprom CEO, Alexei Miller, and TNK-BP Managing Director for Production and Technology, Victor Vekselberg, it was announced that Gazexport would join in TNK-BP talks with China and South Korea regarding gas sales. TNK-BP is holding talks with Gazprom on conditions for the gas monopoly to join the Kovykta project, as the latter is the coordinator of a programme to develop and sell gas from oil and gas fields in Eastern Siberia and the Far East. However, Gazprom is not satisfied with a number of points in the feasibility study for the project and is also demanding that TNK-BP resolves disputes with the natural resource ministry over licence conditions. According to a preliminary feasibility study, the first gas will be supplied to northeastern China and South Korea in 2008 - 12bn cubic metres and 10bn cubic metres respectively. From 2013 China will increase gas purchased by another 8bn cubic metres, for the Beijing region.

ChevronTexaco studying long-term projects in Russia

ChevronTexaco is studying long-term investment projects in Russia and will invest US$5-10bn in them, it was reported on July 5th. "ChevronTexaco is still interested in additional big investment in Russia aimed at the long-term development of its energy potential," the company's Public Relations Director, Nikolai Avdulov, said recently, Interfax News Agency reported.
The company does not comment on specific projects or investment opportunities in Russia or other countries, he said. ChevronTexaco head David O'Reilly met with Industry and Energy minister Viktor Khristenko recently to discuss operations in Russia and investment opportunities. O'Reilly said the company is considering investment of US$5-10bn in Russia. "We are guided by profitability, the stability of government, and the integrity of contract terms in all investment opportunities world-wide," Avdulov said.
"ChevronTexaco is a global energy company and naturally studies investment opportunities in many regions in order to help solve the issue of energy supplies to the world market," he said. "So we take every opportunity to hold talks with senior officials in different countries in order to increase the potential for future cooperation," he explained.
"Such an opportunity arose recently," Avdulov said in comment to O'Reilly's meeting with Khristenko. "Since there is interest in long-term cooperation, there are naturally high-level contacts in order to better understand the investment opportunities."
Chevron Texaco projects in Russia include Sakhalin-3. ChevronTexaco and ExxonMobil have invested about US$50m in the project after winning a tender. But a government commission on production sharing agreement annulled the results of the 1993 tender for Sakhalin-3 in late January of this year.

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Russian-Azeri trade on the up, says visiting deputy minister in Baku

Russian-Azerbaijani trade and economic relations "are developing apace," Russian First Deputy Foreign Minister, Eleonora Mitrofanova, said in Baku recently, ITAR-TASS News Agency reported.
"Russia and Azerbaijan have big plans for cooperation in the fuel and energy industry, as well as in transport and transport infrastructure," the deputy foreign minister said at a round-table conference in Baku entitled "The diaspora - Russia's economic potential." She said this was the result of the high level of bilateral relations, the agreement on economic cooperation until 2010 and the smoothly working mechanism of the Russian-Azerbaijani cooperation commission.
Official statistics show that trade between Azerbaijan and Russia grew by almost 50 per cent in January to April 2004, compared with the same period last year, and totalled US$176m.
The round table heard that the major Azerbaijani exports to Russia are fruit, tobacco and alcohol, which make up 50 per cent of trade turnover, while crude oil and oil products make up 12 per cent and cotton 10 per cent.
Forty per cent of Azerbaijani imports from Russia are raw materials, 16 per cent equipment and machines, 12 per cent timber and 10 per cent ferrous and non-ferrous metals.
Experts say that bilateral trade exceeded US$500m in 2003 and could reach a billion dollars by the end of this year.

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Russia to increase credit to foreign countries by US$113m

Russia is to increase its credit programme for foreign states by US$113m, RIA news agency reported.
In autumn this year the Russian Finance Ministry plans to introduce changes to Russia's programme for providing credit to foreign states, Russian Finance Minister, Aleksey Kudrin, told a government meeting. According to him, it is proposed that credit be increased from US$639m to US$752m.
"In 2003 we gave credit worth US$135m to foreign states (this was tied credit). These funds went to Russian companies for the supply of equipment to the states receiving credit," explained the minister. 
"In 2004 it is expected that the forecast for the discharge [of credit] will be somewhat higher than planned. And we intend to introduce these changes into the programme in autumn," he said.
According to Kudrin, basically US$401m in credit will be granted to China for the building of the Tianwan nuclear power station and US$437m to India for the building of the Kulan nuclear power station. 
Moreover, said the minister, it is planned that credit will be granted to Bulgaria for the building of the Kozloduy nuclear power station and also to Vietnam for the construction of a power station.

EBRD approves loan for SUAL

The board of European Bank for Reconstruction and Development (EBRD) has approved allocation of a US$75m loan for Siberian-Urals Aluminium Co (SUAL) for the development of the ZAO Komi Aluminium bauxite deposit, Interfax News Agency reported recently. 
The EBRD office in Moscow told Interfax that the funds would include a US$30m syndicated loan. The total cost of the first phase of the project is estimated at US$300m, with the EBRD allocating US$150m.

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Internet becoming popular

Russia will have 50m internet users by 2010, Telecommunications Minister, Leonid Reiman, said at an economic forum in St Petersburg recently, Interfax News Agency. 
The number of users has increased 35-40% annually over the past four years and currently stands at 14m, he said. An important task for Russia is to encourage IT exports, Reiman said. IT exports should at least triple from 2001 by 2005. Exports are currently considerably lower than they are in countries such as India and Israel, the minister said, Russia has every opportunity to develop its IT export potential, but it requires efficient methods to do so. "First of all, Russian companies require access and promotion on world markets."

Alcatel to equip Vimpelcom

France's Alcatel has signed a contract with Russia's second largest communications operator Vimpelcom for over US$6m worth of equipment for expanding Vimpelcom's Bee Line network in the Urals region, Interfax News Agency reported recently, according to an Alcatel press release. 
Alcatel will ship and launch the integrated Evolium solution, including NSS switching centres, base station subcentres (BSS) and GPRS subsystems for the Bee Line in Izhevsk and the Republic of Udmurtia, Syktyvkar and the Republic of Komi, Kirov and the Kirov region. Putting the Evolium equipment into operation this August will allow Vimpelcom to provide high-speed data transfer, significantly increasing the level now available on existing GSM/GPRS networks, the press release said.

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BasEl: RusAl worth up to US$10bn

Russian Aluminium is valued at between US$8bn and US$10bn by its owners, who are preparing to offer investors shares in the world's third-largest producer of the metal, David Geovanis, managing director at Basic Element, which controls three-quarters of the company, said recently, Bloomberg reported.
Billionaires Roman Abramovich and Oleg Deripaska pooled their aluminium plants into RusAl in March 2000. Deripaska's Basic Element, or BasEl, usually keeps investments for five to seven years, Geovanis told an investment conference in Moscow. "Our goal is to sell out eventually," Geovanis said.
"RusAl will be first to be taken public."
RusAl makes one-eighth of the world's aluminium but is striving to become the world's largest producer of the metal by spending as much as US$7bn in a decade to build new plants and upgrade mills. Pittsburgh-based Alcoa, the world's top aluminium producer, is worth US$27.8bn at current market prices. Aluminium accounts for some US$4.5bn of BasEl's approximate US$8.3bn annual revenue, Geovanis said.
Automotive operations come second, bringing in US$2bn a year, and its insurance and electricity-generating businesses bring about US$500m each, he said.

British investment in gold mine

Russian-British company Highland Gold Mining invested US$28m in the Darasun gold mine in Siberian Chita region, Itar-Tass News Agency reported recently.
Highland Gold manages its assets in Russia through a Rusdragmet company. The total reserves of the Darasun gold deposit exceed 100-ton. The mine's annual output capacity is expected to be more than two tons. The project is planned to break even in five years. The relaunch of the Darasun mine will create 1,500 jobs in the region and will contribute 900m ruobles (US$30m) to local budgets by 2010.

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Nizhnekamskneftekhim and Basell in licence deal

Russian petrochemicals company Nizhnekamskneftekhim plans to sign a licence agreement in July with Basell, a BASF-Shell joint venture, aimed at organising polyethylene output of 200,000 tonnes a year, Nizhnekamskneftekhim Director, General Vladimir Busygin, Interfax News Agency reported recently.
Setting up production is expected to cost US$150m and will be financed with company funds and bank loans, the news service said. Nizhnekamskneftekhim chose Basell out of five participants in a tender held in May 2004. The other bidders included Daewoo Chemical, Univation Technologies and Mitsui.
The Russian company will select a company to carry out a feasibility study and supply equipment for the project by the end of July and sign the pertinent contracts in August, Busygin said. That company is likely to be Mitsui, he added. "We plan to sign all contracts relating to polyethylene before the end of the year," he said. Nizhnekamskneftekhim hopes to begin construction of a polyethylene production plant in 2005 and launch output in 2007.

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Russian northern shipyard testing new deep-sea craft

The Admiralteyskie Verfi shipyard will complete sea trials of the Rus self-sustaining deep-sea craft, being modernized at the shipyard, in the third quarter of 2004, the shipyard's press-service said, Interfax-AVN Military News Agency web site reported. "Major equipment of the deep-sea craft, namely the obsolete navigation system and the sonar, has been replaced with modern devices. Sea trials will be held after the trim device is tested and the external hull is mounted," a press service official said. 
The sea trials will be held on the Baltic Sea in late 2004, while the last stage of the tests will be held in the Atlantic. "However, before the tests begin, it is necessary to equip the SS-750 search and rescue vessel, fit it with the tracking and the data processing systems, as well as test the efficiency of the search and rescue system, mounted on the vessel," the official noted. 
The Rus deep-sea craft was developed in the late 1970s. The craft is designed to search for, examine, and tape underwater targets. The craft is capable of transporting a cargo of up to 200 kg, conducting underwater operations with the help of hand-operated handling system, inspecting and taping sunken ships. The Rus craft, manned by a crew of three, has a weight of 25 tonnes, and the following dimensions: 8x3.9x3.9 m. The craft is capable of sailing at a speed of three knots per hour, while its maximum depth amounts to 6,000 m. The Admiralteyskie Verfi shipyard specializes in manufacturing submarines and surface oil tankers.

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Russian telecommunications satellite put into operation

The Express-AM11 satellite, launched on 27 April, has been put into operation, the Reshetnev applied mechanics research and production association (NPO PM) based in Zheleznogorsk said recently, Interfax-AVN military news agency web site reported. 
"The Express-AM11 telecommunications satellite has been handed over to the customer - the Kosmicheskaya Svyaz [English: space communications] state-owned enterprise - after the successful completion of onboard transmitter commissioning tests. The satellite was built by the Reshetnev applied mechanics research and production association on 25 March and orbited on 27 April," Reshetnev project leader, Yevgeniy Korchagin, said. 
An expert team of Reshetnev, Alcatel Space and Kosmicheskaya Svyaz took two months to perform all measurements and prepare the satellite for operation in orbit, Korchagin said. "Coordinated work of the entire team allowed us to act quickly, and that is why the spacecraft was put into operation as soon as possible," he added. 
Express-AM11 is the second out of five spacecraft designed by the Reshetnev association under a contract with Russian satellite communication operator Kosmicheskaya Svyaz. Its control point is 96.5 degrees East. The satellite will permanently be positioned above central Russia and provide services to Russia, European and Asian countries. 
The Express-AM satellites are designed to provide a set of multimedia services, including TV-broadcasting, telephone communications, data transmission, broadband access to the Internet, as well as for the deployment of communications networks on the basis of VSAT small station technology. 
The satellite's payload module has 30 transponders with a total output rating of over 2,000W. Its service life in orbit is 12 years. The spacecraft was designed in cooperation with leading Russian and foreign enterprises.

VimpelCom acquires 93.5% of Dal Telecom

VimpelCom has completed an acquisition of a 93.5% stake in Dal Telecom International (Dal Telecom), RBC reported recently, quoting the press department of the company. The stake is worth US$73.3m.
Dal Telecom holds cellular licences for a number of the Russian Far East regions, the last remaining area in Russia for which VimpelCom did not have a GSM wireless licence. After the acquisition was complete, VimpelCom Group's licence portfolio covered approximately 136m people, or 94% of Russia's population. Dal Telecom is a GSM-1800 and D-AMPS operator with licences to operate in three Russian Far East regions (the Khabarovsk region, the Amur region and the Kamchatka region) covering a population of 2.7m. Dal Telecom's market share is estimated at 45% in the three regions. Its subscriber base was more than 322,000 (including 268,000 GSM subscribers) as of June 30th, 2004.

MTS to borrow US$500m

Mobile TeleSystems (MTS), Russia's biggest telecoms provider, has asked four Western banks to raise a US$500m three-year syndicated loan to refinance an existing loan and a Eurobond and to finance general corporate needs, a company statement said, Interfax News Agency reported.
MTS noted that the banks involved in the transaction are ABN Amro Bank NV, HSBC Bank Plc, ING Bank NV and Raiffeisen Zentralbank Oesterreich AG. The loan is to be fully guaranteed by the authorised organisers, the company statement read.
ABN Amro, HSBC and ING will be joint bookrunners, and ING will also act as documentation and facility agent. RZB will act as signing agent. MTS and the organisers are readying a syndicated loan, the statement said.
MTS is due to repay a US$200m credit and a US$300m Eurobond that matures in December, MTS is already partially floated on the New York Stock Exchange (NYSE) and has a market value of about US$12.5bn. It has had an association with Deutsche Telekom for more than seven years; this partnership has expanded across eastern Europe.

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