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RUSSIA


  
   

 
Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
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

REPUBLICAN REFERENCE

Area (sq.km)
17,075,400

Population
144,526,278

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

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

Currency 
Rouble

President 
Vladimir Putin

  

Background:
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: 282 - (30/06/04)

The Kremlin tightens its grip
The Kremlin is taking a series of measures to assert itself in Russia's public sphere. The most high profile one is the court case against Mikhail Khodorkovsky, the jailed former head of Yukos. This is supposed to be an independent judicial case brought by the public prosecutor. But no-one doubts its political provenance. It is being accompanied by a massive pressure on Yukos to pay back taxes, some US$3.5bn for 2001, which threaten to bankrupt it, especially as claims for subsequent years have yet to be specified.
There is a certain absurdity in all this in that Yukos is after all the best run company in Russia. If it has tried to avoid tax payments, then who hasn't in Russia or elsewhere? It may have been more successful in this regard than others, being more efficient. But this is not the real crime at all.
It was of course Khodorkovsky crossing the Rubicon in trespassing on the Kremlin's political turf, that spelled the foolhardy billionaire's doom. He put MPs on his payroll, who lobbied against higher taxes on oil companies. He indicated a desire to seek the presidency some time soon, breathing right down Putin's neck. And then to cap it all, even after the arrest of his CEO, Platon Lebedev, he began serious negotiations to turn over a large part of the company to ExxonMobil, the largest US company - without the authorisation of the Kremlin, as if he was living in America and dealing with the likes of his new pals, Dick Cheney and Bill Gates. He has had plenty of time in his prison cell to realise that he is not!

Four scenarios for Yukos
There is no doubt that Russia is at the crossroads and that what happens to Yukos, Russia's flagship private enterprise company, will indicate what happens to all. The stock market is agog.
Putin tried to calm the situation a few days after Khodorkovsky's trial opened on June 16th by saying that it was not the government's intention to bankrupt Yukos. But this could happen all the same if events get out of hand. If the market shies away from its shares, where is it going to get the billions from? To cut back on investments would be just a slow way to suicide. There is no reason to suppose that Putin understands market economics and even more is that true of the siloviki, the old KGB hands, he has surrounded himself with nowadays.
But, if this is the worst case scenario what about others?

A-The most optimistic hypothesis
There is an agreement between the parties, in which it is agreed to a sharing out of assets, with the state taking the lion's share, say 44%. This would give everyone something to be happy about, while mollifying foreign investors.
Menatep, the current holder, of the majority of the shares, would have be to relinquish its dominant holding in Yukos, as would Menatep's eminence gris, Khodorkovsky. 
There is a massive price likely to be paid for this solution, excellent as it would be on 'political' grounds. To appease the siloviki and the nationalists, it is only too likely that a sinister figure from the past, 'the worst central banker in history,' would make a re-appearance, Victor Gerashchenko. He would replace Simon Lukes, a Russian American oilman with an excellent understanding of the job.
Further positive reflections are that Yukos has at least US$1bn in assets that the government were unable to freeze, being unaware of their whereabouts and that the buoyancy of global oil prices have probably earned it another US$1bn, yet to be accounted for.
Possibly, Putin might show magnanimity and allow Khodorkovsky a haven abroad, in surrender for nearly all the Russian part of his US$15bn fortune, accumulated in the scams of the 1990s.

B-Another possibility; personal responsibility
Let us suppose that Khodorkovsky and his associate Lebedev are found guilty of crookery and fiscal evasion on a grand scale. This would incriminate the individuals concerned, but not the company. It could still survive as a viable entity on the stock exchange. 
Yukos could survive as a repository of savoir-faire and productivity levels on a par with the Anglo-Saxon majors. It earned a profit of US$3bn in 2002, one reason why it fuelled a massive increase in the Russian stock market in 2002-03, a fact that cannot be unknown to Putin. 
This is doubtless why the Russian president is trying to disassociate the fate of the former head of Yukos from that of the company itself in his latest remarks.

C-Third solution; bankruptcy with liquidation 
Bankruptcy still looms large as a possibility when one is being hounded by the state in this fashion. One just has to ask oneself where the other main shareholders are concentrating their attention these days - on getting out.
If there are figures in the Kremlin determined to finish Yukos off, this is their golden opportunity. Of course there are such, with an eye to picking up the pieces afterwards for a song. They plan to do to Yukos something akin to what Khodorkovsky did to acquire it, but in reverse as regards the statute of ownership, bringing it back largely into public hands, but with certain privileged private owners all the same. The oil industry's equivalent of Gazprom in other words.
But is this what Putin wants for Russia? 

D-Last scenario; bankruptcy without liquidation
This outcome could take many forms. The most probable would be an augmentation of capital to repay the tax bill. Assets could be sold on the market or be transferred directly to the state. Menatep, the holding company with 59% of the shares, would simply transfer its stock to the Kremlin forthwith. Some deal to release Khodorkovsky and Lebedev would doubtless be a quid pro quo.
The role of the foreign minority shareholders, who own one quarter of the shares of Yukos, would need to be clarified. At all events the ball is certainly in the hands of the government. But if it wants to persist in attracting foreign investment, which rose by US$19bn to US$57bn last year, it had better watch its step and accommodate some participation of foreign investors in the process.

Control over Gazprom consolidated 
The government has consolidated its control over Gazprom at June 25th's annual meeting. The chairman, Alexei Miller is a close ally of Putin, totally devoted to his strategy of strengthening government control over Russia's energy industry. The position of two outside directors has become weakened to the point where their continued membership of the board is in question.
Burckhard Bergmann, the head of the German group, Ruhrgas, and an outside director, has sought votes from Gazprom and the state, after EON, his parent company, reversed its strategy of building its stake to 10%. Instead it plans to maintain the current level of 6.43%, below the 7.7% threshold needed last year to win election to the board.
The standing of the Russian maverick, Boris Fyodorov, who vowed to battle for reform of the archaic gas giant, has been gravely weakened. Fyodorov, who is chairman of the Moscow brokerage house, United Financial Group, has lost one of his principal backers, Sovereign Asset Management, a secretive Monte Carlo-based investment fund, which is believed to have sold most of its holdings in Gazprom.
Since other Gazprom shares are widely held by institutions and individuals who rarely vote, the changes risk making both men more dependent on support from the state and Gazprom management itself. 
Gazprom is strengthening its position once again in the oil industry. In early June Gazprom and other companies closed a deal for US$100m to repurchase a controlling stake in Stimul, a former subsidiary in Southern Russia, from Victory Oil.

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AGRICULTURE

Russian spring wheat and grain sowing up on this time last year

Russia's large farms, which account for 90 per cent of domestic grain production, had planted spring wheat on 11.7m hectares by 1 June, or 4.7 per cent more than by the same date last year, the Agriculture Ministry said recently. This constitutes 95.2 per cent of the targeted area, Prime-TASS News Agency reported. 
Large farms have planted spring grain on 25.7m hectares, almost unchanged on the year. But small farms and individual farmers have increased the area. As a result, the spring grain area totalled 31.1m hectares as of 1 June, or around 500,000 hectares more than a year earlier, the ministry said. 
Grain crops are expected to be planted on around 34m hectares this year, or 2m more than in 2003. 
The Agriculture Ministry expects the grain harvest this year to be around 73-76m tonnes in bunker weight, which corresponds to around 67-70m tonnes in clean weight. Last year, Russia's grain output declined to 67.2m tonnes in clean weight, down from 86.6m in 2002.

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AUTOMOBILES

Russian plant starts assembling US off-road vehicles


An assembly line producing US Hammer off-road vehicles has recently started work at the Avtotor plant in Kaliningrad, ITAR-TASS News Agency reported.
An agreement on assembling the off-road vehicles in Kaliningrad was signed with General Motors in August 2003. The first Kaliningrad-made Hammer was displayed at the Moscow auto show a month later.
Since then, the car manufacturers have done a lot of work: staff have been taken on and trained and the production facilities have been set up. An assembly plant equipped with state-of-the-art technology has been set up to produce the popular off-road vehicle in the Kaliningrad suburb of Aleksandr Kosmodemyanskiy.
Avtotor's management said that almost 700 vehicles will be produced at the plant by October.

Automobile fleet to double to 60m by 2020

Russia's car fleet will double by 2020 to a total of 60m vehicles, a senior official at the Ministry of Transport and Communications, Alexander Kolik, said recently, Itar-Tass News Agency reported.
"By 2020, the number of automobiles in Russia will exceed 60m, and currently there are 30m cars in the country," Kolik said.
By that time eight in 10 Russian families will be actively using the automobile, he said. He also said that the number of cars in Russia was growing at an annual rate of 7-10%.
"Automobile transport accounts for only 12% of cargo traffic in Russia, whereas in the European section of the country that figure totals 40%, and in external trade more than 60%," Kolik said. He added that the total length of traffic jams on roads leading into Moscow and St Petersburg was 1,500 kilometres. Currently one in two Russian families have private cars, in contrast to Western Europe's rate of 1.5 cars per family.

Nissan to develop business in Russia

Japanese automobile company Nissan Motor plans to expand its business in Russia, company Vice President, Patrick Pelata, said, Interfax News Agency reported.
Regarding the possibility of setting up assembly production in Russia, Pelata said that various possibilities are being studies to help expand the company's activities on the Russian market. Meanwhile, a source in the Nizhny Novgorod government told journalists that Nissan is considering setting up assembly production on Russian territory, possibly in Nizhny Novgorod region, said the news service. A Japanese delegation also visited AO Gorky Automobile Plant and met with company management. 
Meanwhile Ford Motor Company is looking at the possibility of producing commercial vehicles at its Ford Motor Company plant in the Leningrad region town of Vsevolozhsk, but now is not quite the time to decide, reported Interfax recently, quoting Ford's brand manager for commercial vehicles in Russia Gennady Baranov. "Producing the Ford 'Focus' remains a priority for the Leningrad region plant," said Ford's PR manager, Oksana Khartonyuk. 
Dealers are now taking orders for cars to be built in October, she added. "Ford's plant in Russia could produce several models, and we are always studying the possibility of expanding the model line for production in Russia, but we are concentrating on the Ford Focus for now," Khartonyuk said. The Ford plant in Russia opened in 2002 and builds the Focus. Ford Motor Company plans to sell 1,121 of the cars in Russia this year as opposed to last year's 665. The conservative forecast for 2005 has Ford increasing commercial vehicle sales 30% in Russia, Baranov said.

Avtovaz exports climb 6.6%

Avtovaz, Russia's largest car producer, increased export revenue 6.6% in 2003 to 10.917bn roubles or 10% of total sales from 10.238bn roubles 11% of sales in 2002, the company's quarterly report stated, Interfax News Agnecy reported. 
Avtovaz had export revenue of 3.187bn roubles in the first quarter of 2004. The main buyers of Avtovaz products on the foreign market in the first quarter were Ukraine, Kazakstan and Azerbaijan, Germany, Greece, Syria and Lithuania. There are more than 12m Avtovaz Lada cars on the world market, including 8m in Russia.

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AVIATION & SPACE

Domodedovo passenger traffic high

Moscow's Domodedovo airport has shown the world's highest passenger traffic growth rate, the press service of the East Line group said, Itar-Tass News Agency reported recently.
"On the list of the 110 biggest airports of the world Domodedovo's passenger traffic was above 40%. Shanghai's Pudong airport was second, with 34.2%, and Jakarta's Sukarno-Hatta, third with 33%. According to Airports Council International (ACI) Domodedovo is in the top 10 airports in Central and Eastern Europe. Last year about 9.4m passengers used Domodedovo's services.

Aeroflot ready to join SkyTeam

Russian flagship carrier Aeroflot will end years of talks soon by officially agreeing to join the SkyTeam international airline alliance during Air France Chairman Jean-Cyril Spinetta's visit to Moscow, both companies said recently, The Moscow Times reported.
"Aeroflot will signal the choice it has made in terms of its appliance in favour of SkyTeam," AFP quoted Spinetta as saying in Paris. One Aeroflot official said, on condition of anonymity, that the company might not become a full-fledged member of the alliance for six months or more, because once it agrees to join it will take time to harmonise booking systems and other matters with the SkyTeam members.
It means that Aeroflot will no longer consider joining the rival Star Alliance, led by German giant Lufthansa, the paper said. SkyTeam, which is led by Air France and unites six airlines, including Delta of the United States and Italian flagship carrier Alitalia, serves 500 cities in 110 countries. By comparison, the 15-member Star Alliance flies to 678 destinations in 126 nations. Aeroflot, which flies to 65 foreign destinations in 42 countries, carried 5.8m passengers last year.

Russian factory to modernize anti-submarine planes for Indian navy

The Motorostroitel ["Engine Builder"] plant at Samara is to modernize the Indian navy's Tu-142 planes. The enterprise's press service said the managing director of the plant, Igor Shitarev, and the naval attaché at the Indian embassy, Muralidharan, who met in Samara, discussed modernization and use of the Samara aero engines which are fitted to India's Tu-142 planes, ITAR-TASS News Agency reported.
Most of the Tu-142 anti-submarine strike aircraft in India's possession have reached the end of their engine life and need modernization. The Samara plant overhauls about 15 engines for Indian aircraft every year. The Motorostroitel open joint-stock company is one of Russia's biggest enterprises for the manufacture of aircraft and rocket engines. Its main area of activity is the production of a wide range of hi-tech military, civilian and dual-purpose products. Tu-95, Tu-142, Tu-22 and Tu-160 planes are fitted with Samara engines.

Orders for Russian MiG products double in last 12 months

The stock of orders of the Russian MiG aircraft-building corporation has almost doubled over the past year, MiG Director General, Valeriy Toryanin, said at the corporation's presentation to State Duma members held in Moscow, Interfax-AVN Military News Agency web site reported.
"A year ago, the total of the corporation's orders was US$1.4bn, while now it has increased by almost double to US$2.6bn," Toryanin said. He also said that there is a demand for effective combat aircraft in the international market, which MiG is ready to satisfy. 
"We receive more and more customers every day, wishing to acquire new modifications of the MiG-29 Fulcrum. This trend makes us confident that we will be able to make our plans come true, where both military and commercial programmes are concerned. We are not going to quit the Tu-334 or MiG-110 programmes," Toryanin said. 
According to MiG's plans, "the stock of orders will increase to US$6bn by 2008." Among MiG's current customers are 25 countries from all over the world, including Slovakia, the Czech Republic, Ukraine, Poland, Kazakhstan, Malaysia, India, Yemen, Thailand and some others. 
MiG's manufacturing capabilities allow the company to fulfil almost any contract as they are designed to manufacture 200 MiG-29s annually. At present, only 35 per cent of the capabilities are utilized, producing other aircraft as well as fighters. According to specialists, the potential built into the MiG-29 by its designers provides for deriving a whole family of new aircraft from it. Currently, in addition to the basic version of the fighter, the MiG corporation offers clients its cutting-edge modifications, including the MiG-29K/KUB, MiG-29M/M2 and MiG-29SMT. The corporation has exported 6,289 combat aircraft to foreign countries in the past. Today it has a great market opportunity in supporting their airworthiness and modernizing them.

New radar tested on Russian Ka-52 helicopters

Installation of the Arbalet radar in the Ka-52 helicopter (Russian codename Alligator) expands the helicopter application range and boosts its combat efficiency, Sergey Mikheyev, president and chief designer of the Kamov helicopter-building company, said. 
"We believe that installation of the Arbalet radar in the Ka-52 is a new promising workstream that ensures the helicopter's round-the-clock combat application in any weather," Mikheyev said, Interfax-AVN Military News Agency web site reported. 
The radar's installation causes serious technical problems that have to be taken care of, he said. "But it must be done because the helicopter's combat efficiency will increase dramatically thanks to the radar," he stressed. 
According to Mikheyev, the first Arbalet prototype is undergoing flight tests aboard a Ka-52. The Arbalet radar was designed to discharge a great number of navigation, reconnaissance and weapons control tasks in adverse weather. Arbalet is capable of providing the helicopter crew with data on ground and air-based targets regardless of weather conditions by day or night, thus expanding the capabilities of employing guided and unguided weapons.
The most important feature of the Arbalet radar is its ability to detect ground obstacles and provide the crew with terrain data, which will make a low-level flight or a flight in alpine terrain considerably safer. A special meteorological mode would allow thunderheads to be detected on time, and their degree of danger to be assessed.

Algeria to buy 50 Russian MiG-29 aircraft - radio report

Algeria is to buy a large consignment of military aircraft from Russia. It is planning to buy 50 MiG-29 aircraft, Ekho Moskvy radio reported. The value of the deal is US$1.5bn. The new aircraft will replace outdated models that were sold to Algeria by the USSR.

Russia developing light military transport aircraft

The flying prototype of the Il-112 light military transport plane will be created in 2006, Lt-Gen Viktor Denisov, commander of the Russian military transport aviation, said, Interfax-AVN military news agency web site reported.
"The Air Force command has considered and approved technical requirements for developing a light plane. The flying prototype of the plane is to be created in 2006," Denisov said.
The new aircraft will replace AN-24 Coke and AN-26 Curl planes in the military transport aviation's inventory. It is being developed by the Ilyushin design bureau jointly with the Yakovlev design bureau, Denisov said. According to him, the plane's maximum cargo capacity has been increased from four to six tonnes. "The overload variety will have it boosted to eight tonnes," the commander stressed. He added that the plane's maximum weight will not exceed that of the AN-26, i.e. 21 tonnes.

Gas giant gets first of big Kamov helicopter order this summer

The first Ka-226 Hoodlum light utility helicopter of the Orenburg-based Strela association will be delivered to Gazprom this summer, Interfax-AVN Military News Agency web site reported.
"The first Ka-226 of the batch ordered by Gazprom from the Orenburg aircraft building association was delivered to the customer in June. The second one will be assembled in July," a source in the Russian Defence Industry said. 
According to him, the Ka-226AG helicopters (AG stands for Gazprom Aviation) are being manufactured under an agreement providing for 22 rotary-wing aircraft to be delivered with an option for additional 18 helicopters. "Two choppers will be delivered in basic configuration," the source added.
He also said that there were plans to use the first two aircraft to practise this helicopter's operation and maintenance, develop infrastructure and train specialists. "The Ka-226AG version slightly differs from the basic variant with its avionics. The customer requested additional equipment to be installed for particular tasks," the source said. According to him, the aircraft will boast a new set of equipment developed by the avionics scientific research institute. This set has already been used on the Mil design bureau helicopters, and the developer wants to adjust it for Kamov choppers. "For instance, Ka-226AG's avionics will allow it to fly under severe icing conditions," said the source. He added that the first Ka-226AG prototype would be assembled in late 2004.

Plans set out to boost Russian satellite navigation system

Russia's Glonass satellite navigation system will have 18 satellites in orbit by 2006, and 24 by 2010, the Interfax-AVN Military News Agency web site reported.
Under a contract with Russia's Federal Space Agency, seven satellites are to be built, to supplement the system over the next 18 months, an industry official told the agency.
"We have signed a contract with the Federal Space Agency to produce seven serial satellites. As soon as the contract is implemented, which should happen before 2006, the orbital group will number 18 satellites. This is the minimum strength required for the Russian Glonass navigation system to be operational," Viktor Khosenko, department head at the Applied Mechanics Research and Production Association, said.
He added: "The organic system that will be able to satisfy the requirements in accuracy and authenticity numbers 24 satellites. We are to build them before 2010."
The expense will be considerable, he went on to comment, with Glonass's expansion to 18 satellites costing R3.5bn (US$120m), and twice that for 24 satellites in orbit.
In his comments on the development of Galileo, Europe's equivalent satellite navigation system, Russia, he said, needed to hurry if it wanted to make full commercial use of its system. The task, he said, is to "preserve Glonass as the second satellite navigation system in the world", after the USA's GPS. "Unless we manage to deploy Glonass as soon as possible, i.e. before Galileo enters service, there will be much less demand for our system. Only the military will use it in this case," Khosenko said.
There are approximately 100 Russian satellites currently in orbit, with "almost 60 of them" operated by the military, a report for parliament by the Russian Space Forces said. "The condition of Russia's satellites and prospects for their development were discussed at a session of the State Duma's defence committee in the city of Krasnoznamensk. The main aim of the session was to study the overall condition of the Space Forces, prospects for their development, and possibilities for improving the forces' financial and legislative base," said the report.

Russian company to develop and launch five communication satellites

The Reshetnev scientific and production association of applied mechanics is implementing a contract on development and launch of five Ekspress-AM satellites. "Currently we are developing five satellites, Ekspress-AM1, AM2, AM3, AM22 and AM11 under a contract with the Kosmicheskaya Svyaz company," Yevgeniy Korchagin, chief of the association's projects management directorate, supervising the Ekspress-AM programme, said, Interfax-Military News Agency [AVN] reported. 
He also said that the Russian Communications Ministry and the Federal Space Agency are clients under the programme. "The agreement defines specifications, terms and points where we are to take the satellites," said Korchagin. 
He maintained that Russia has a total of 24 registered points in the orbit, 22 of which are occupied by satellites of the association. According to him, the association launched the first Ekspress- AM22 satellite on 29th February last year, while it began operating on 6th March. "Usually it takes six to eight months for a satellite to pass tests and start operation. In this case we managed to do it in two and a half months," he said. The second Ekspress-AM11 satellite was launched on April 27th. Currently, its acceptance tests are under way. "In the near future we are likely to provide the customer with the report on whether the satellite's specifications meet the required ones," said Korchagin. He added that the first satellite was made in record short time, only 27 months after the contract had been signed. "Our company is the only one in Russia possessing the technologies to develop spacecraft with service lives of over 10 years. For instance, the Ekspress-AM has a service life of 12 years, " he said.

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CREDIT RATINGS

S&P says Russia is on the upgrade path


Standard & Poor's announced recently that Russia is on course for an increase in its credit ratings to investment grade as more government revenue from higher oil prices improves its ability to finance debt, The Moscow Times reported recently.
S&P in January increased the rating on Russia's Eurobonds by one step to BB+, one level short of investment grade, the paper said. Moody's Investors Service on October 8th, 2003 raised Russia's ratings by two levels to Baa3, its lowest investment grade.
Many investment funds are prevented from buying so-called junk bonds that are rated below investment grade. "I wouldn't want to speculate on timing, but certainly with what we are seeing at the moment, things are moving in the right direction," said Konrad Reuss, S&P's managing director for sovereign ratings in Europe.
Russia this year overtook Saudi Arabia to become the world's biggest oil producer, as crude trades at record prices of US$41 per barrel, up 40% from a year ago. The country's fuel-led economy expansion has wooed investors back since the government defaulted on US$40bn of treasury debt in 1998, the paper said. "If this windfall from oil prices is managed prudently, used to strengthen public finances, and spent on education and infrastructure, it could underpin a further improvement in the credit," Reuss said.

S&P affirms Arosa B ratings, outlook stable

Standard & Poor's Ratings Services affirmed its B long-term corporate credit rating on Russian diamond mining company, Alrosa Co Ltd, and its B senior unsecured debt rating on related entity, Alrosa Finance SA, following a review, adding that the outlook is stable, New Europe reported.
"Alrosa has maintained its solid position in the relatively stable diamond industry, with rich reserves and lucrative sales to the South African diamond giant, De Beers," said Standard & Poor's credit analyst, Elena Anankina. "The ratings are constrained, however, by Alrosa's significant leverage and high capital investments, which limit free cash flow generation."
Alrosa has accumulated significant debt to finance its ongoing heavy capital expenditures, which are essential to maintain and increase production levels in coming years. Alrosa needs to continue investing in new open pits and switching to underground mining because its largest Udachny pit - which represents about one-half of the company's total output by value - is already about 500 metres deep, S&P noted. The rating agency also said the company managed to reduce in the last quarter of 2003 its debt from US$1.4bn to US$1.2bn.
"The company has started to recover from its recent decline in production: a full year of underground production at the company's international mine and the commissioning of the Nyurba open pit in 2003 helped to offset the closure of Mir, Alrosa's largest open pit, in 2002," S&P said.
Alrosa is expected to continue with its sales to De Beers while gradually diversifying its exports. It is also expected that the final ruling of the European Commission regarding its objections to the trade agreement between Alrosa and De Beers will not trigger any significant pressure on Alrosa's business and financial profiles. In the mid to long term, the ratings will be largely driven by changes in the fundamentals of the diamond industry, which is gradually becoming more competitive, and by the company's progress in its capital expenditure programme, the rating agency added.

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ENERGY

Power Machines eyes Indian deal

Russian industrial holding Power Machines will supply turbines for a power plant which is to be built in India, Itar-Tass News Agency reported recently. 
The holding signed a US$250m contract with India's National Thermal Power Corp, said the news service. The Russian company will produce steam turbines and service equipment for the plant's three power units each with an output capacity of 660 megawatts. This is the first time in 15 years that a Russian industrial holding was able to put forward such a large tender in the power industry. 
Other bidders who participated in the tender alongside Power Machines included unspecified Japanese and French companies. Power Machines is Russia's leading producer of equipment for power plants of different types. The holding's largest shareholder is Interros Holding, owned by Vladimir Potanin.

LUKoil seeks Polish partners to transport crude to Europe

Russian oil major LUKoil is offering Polish oil-pipeline operator, PERN, and Polish fuel terminal, Naftoport, major deals to help the Russians transit oil to Western Europe, LUKoil Polska Executive Director, Nikolai Ivchikov, said recently, New Europe reported.
LUKoil has also approached Polish Baltic-Sea drilling company, Petrobaltic, with an offer to carry oil from the Baltic shelf to the Gdansk sea port on LUKoil tankers. "We presented our proposal to the treasury (which owns both PERN and Naftoport) to sign a direct contract for transit of oil to Western Europe. We are interested in providing our crude oil to the open market, transmitting it in cooperation with PERN and Naftoport," Ivchikov said.
"We also made an offer to Petrobaltic to carry its crude from the Baltic shelf to Gdansk on our top class tankers and Petrobaltic has expressed its interest. We additionally plan to invite Petrobaltic to drilling operations," Ivchikov said.
The ownership of the potential partners for LUKoil is subject to change in the near future. Petrobaltic has been assigned by Polish planners to the nation's number two refining group, Group, while Naftoport is scheduled to become part of a to-be-established integrated logistics operator ZOL.
PERN has estimated that the amount of oil transported abroad through its network will increase to 10m tonnes in 2004, after nearly doubling to 7m tonnes in 2003. PERN continues investing to increase its oil transport capacity.

US oil company to supply Russian region with gas from Sakhalin

The US ExxonMobil expects to annually supply about 4.5bn cubic metres of natural gas to Khabarovsk region from the Chayvo deposit on a licensed area of the Sakhalin-1 project from 2005, the Khabarovsk region administration said recently, Prime-TASS News Agency reported.
The first natural gas consignment is to be supplied in time for the winter heating season of 2005-06. The supplies are expected to last until 2009, the official said. The relevant agreement was signed by Khabarovsk region's administration and ExxonMobil. The Sakhalin-1 project is an oil and gas development on the northeast shelf of Sakhalin Island. The Sakhalin-1 project envisages development of the Chayvo, Odoptu and Arkutun-Dagi oil and gas fields, whose combined resources total 310m tonnes of oil and 485bn cubic metres of gas.
In addition to Exxon, which operates and holds 30 per cent in the project, the Sakhalin-1 consortium members include the Japanese company Sakhalin Oil and Gas Development Co. Ltd with 30 per cent, India's ONGC Videsh Ltd with 20 per cent, and two Russian companies, Sakhalinmorneftegaz-Shelf, a subsidiary of Rosneft-Sakhalinmorneftegaz, with 11.5 per cent, and RN-Astra, a subsidiary of Russian national oil company Rosneft, with 8.5 per cent.

Russian firm agrees to start Turkish pipeline project in 2005

Russia's state oil pipeline monopoly Transneft and Turkey's Anadolu group are to begin construction of the Kiyikoy-Ibrikhaba [Black Sea to Aegean] oil pipeline along the European coastal area of the Bosporus Strait in 2005, Transneft President, Semen Vaynshtok, said, Prime-TASS News Agency reported. 
The two companies have just started a feasibility study for the pipeline's construction, he said. 
The pipeline's capacity is to amount to 50-60m tonnes per year by 2007, Vaynshtok said 
Since the Turkish authorities made the decision to close the Bosporus Strait to oil tankers at night, oil companies have been losing US$12 per tonne of fuel, but the construction of the new oil pipeline should help to solve this problem, Vaynshtok said.

Russian gas giant sees Blue Stream route as best for exports to Israel

The Blue Stream [Russia-Turkey under the Black Sea] natural gas pipeline is the most promising route to export Russian natural gas to Israel, Russia's natural gas monopoly, Gazprom, said, Prime-TASS News Agency reported. 
Gazprom's CEO, Aleksey Miller, was on a three-day visit to Israel to hold talks with the representatives of Israel's energy companies and the country's political leaders on issues regarding exporting Russian gas to the country.
Israel plans to increase the share of natural gas used in the country's power supplies from its current level of less than 1 per cent to 25 per cent by 2025. To achieve its goals Israel intends to cooperate with Gazprom in constructing natural gas facilities and infrastructure in Israel. 
In particular, Israel plans to construct a natural gas pipeline through the Mediterranean, distributing networks and new electric power plants, using natural gas.

Russia plans to begin gas supplies to Mexico in 2007 - Putin

Russia is planning to begin supplying liquefied natural gas [LNG] to Mexico in 2007 and to generally help Mexico establish a gas industry, Russian President, Vladimir Putin, said at a joint news conference with Vicente Fox, ITAR-TASS News Agency reported.
"There are plans to launch in 2007 a large enterprise in the Far East which will liquefy natural gas. There are talks already under way on LNG supplies to the USA and Mexico," Putin announced. Fox, in turn, stressed that Mexico would like to get Russian help in building gas-processing plants.
Russia could begin LNG supplies to Mexico in 2005-2006 as part of the Sakhalin-2 project, the president of the Russian union of oil and gas industrialists, Gennadiy Shmal, said.
He said that the "design capacity of a LNG plant which is under construction on Sakhalin is 10bn cubic metres, while the total volume of supplies on long-term contracts does not currently exceed 40 per cent of that figure." "The Mexicans, who are now importing 30 per cent of all the gas which they consume from the USA, are very interested in this project. In addition, they are prepared to let Russian companies build facilities for storing fuel, LNG-processing plants and also a network of pipelines," Shmal noted.
He said that these issues will soon be discussed during a visit of Mexican businessmen to Moscow. "Recently, we received relevant proposals from Mexico and are now studying the possibilities for developing cooperation," he said.
Shmal also noted good prospects for a partnership between Russian and Mexican oil industries.
He, in particular, stressed Mexico's interest in buying Kamov helicopters for transporting specialists from the mainland to offshore deposits. "Representatives of the Kamov company together with ourselves are now promoting Russian helicopters on the promising Mexican market and are expecting to obtain in the near future a certificate which will enable us to work in that country," Shmal noted.

Russia's East Siberian Gas Company tenders gas pipeline from Kovykta to Irkutsk

Russia's East Siberian Gas Company has announced a tender to build a natural gas pipeline from the Kovykta gas condensate field in Irkutsk Region, a senior official with the East Siberian Gas Company said, Prime-TASS News Agency reported.
The result of the tender is to be announced in August. Construction work is planned to start in the autumn.
The 550km long pipeline is to stretch from the Kovykta field via the towns of Sayansk, Angarsk and to the city of Irkutsk. 
The initial exploration of the field, including pipeline construction, requires over US$600m .
The East Siberian Gas Company was established in March 2004 by Russian-British TNK-BP and the administration of Irkutsk Region on a parity basis. At the moment, the Kovykta field has proven reserves of 1,900bn cubic meters of natural gas.

Russo-British TNK-BP, Gazprom in gas export joint venture

Russian-British oil major, TNK-BP, and Russia's natural gas monopoly, Gazprom, intend to establish a joint venture to export natural gas from the Kovykta gas condensate field [Eastern Siberia], the managing director of TNK-BP, Viktor Vekselberg, said, Prime-TASS News Agency reported.
Gazprom's export arm, Gazeksport, expects to take part in negotiations between shareholders of the Rusia Petroleum company and South Korea's Kogas and China's CNPC, potential buyers of gas.
Rusia Petroleum has a licence to develop the Kovykta field.
The Kovykta project envisages development of the Kovykta gas condensate field in Irkutsk Region, with proven reserves of 1,900 billion cubic metres of natural gas, and the creation of a single system for natural gas production, transportation and supplies in Eastern Siberia and the Russian Far East.
But Vekselberg said TNK-BP will not unite its assets with those of Gazprom for development of the Kovykta project, though TNK-BP acknowledges Gazprom's participation in the project as a partner.
Gazprom's deputy chairman, Aleksandr Ananenkov, said recently that Gazprom did not see any benefit in joining the Kovykta project at the moment.

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FOREIGN ECONOMIC RELATIONS

Serbia-Montenegro favours closer economic ties with Russia


Foreign Minister of Serbia-Montenegro, Vuk Draskovic, has spoken in favour of Russia's involvement in privatising facilities in the energy, banking and tourist sectors of Serbia-Montenegro. He said this at a meeting with Russian Security Council Secretary, Igor Ivanov, ITAR-TASS News Agency reported. 
"We would like to develop cooperation with Russia in the construction of gas and oil pipelines," Draskovic said. "It is necessary to expand Russia's involvement in privatising facilities in the energy, banking and tourist sectors," the minister said. He stressed that Russia should be granted, "equal conditions to those enjoyed by Western companies." "This should be done very quickly," the minister said. 
Draskovic said the two countries should coordinate cooperation at the level of bilateral relations which have taken several centuries to develop. "Russia and Serbia-Montenegro must develop their economic, political, humanitarian and other relations and coordinate them with the level of relations which exist between our peoples," Draskovic said. The minister noted that these relations "are older than Russia and Serbia-Montenegro, and they never depended upon any regimes."

Russian, Norwegian foreign ministers discuss economic cooperation

Moscow has noted Norway's serious interest in economic cooperation with Russia, Russian Foreign Minister, Sergey Lavrov, said at a news conference after talks with Norwegian Foreign Minister, Jan Petersen, RIA news agency reported.
Lavrov said Norwegian companies were actively investing in the manufacturing sector of the Russian economy, including the high-tech sector.
"We want to take part in the joint exploration of the Barents Sea," Lavrov said. The countries will develop cooperation in Spitsbergen projects. The minister added he was talking about fisheries.
Asked by Norwegian journalists about prospects for the Murmansk-New York project to export Russian oil to the USA, Lavrov said: "The project is in line with existing cooperation projects." He said he would pay special attention to economic issues during his visit.
After talks with the Norwegian foreign minister, Lavrov went for a meeting with the Norwegian prime minister, Kjell Magne Bondevik.
Lavrov, ended his visit to Norway with a meeting with the management of the diversified industrial concern Norsk Hydro, ITAR-TASS news agency reported.
Purchases in Russia account for about 50 per cent of the company's entire trade turnover, which has reached the record level of US$1.2bn. The meeting took place on the Troll C oil rig, which is located on the North Sea shelf.
In the morning Sergey Lavrov had meetings in the Storting, the Norwegian parliament, in Oslo. On the way to Bergen with his Norwegian counterpart, Jan Petersen, the Russian foreign minister discussed topical international problems and bilateral relations, including economic issues.
"Norway's role in implementing a multilateral nuclear programme for Russia" occupied a special place in Lavrov's talks, the official Russian Foreign Ministry spokesman, Aleksandr Yakovenko, said. The diplomat thinks the experience of Norwegian assistance in salvaging the Russian nuclear submarines withdrawn from the Northern Fleet has been successful.
Amongst international topics, the situation regarding a settlement of the Iraq problem was given a great deal of attention. Lavrov thinks it is "premature to put a new Iraq resolution to a vote." "For that there must be a consensus," he stressed. He said that "Russia is now holding active consultations with the USA, France, the UK, China and other UN Security Council members," Lavrov said. "Now everybody has agreed on the control date for the handover of sovereignty to Iraq, 30 June," he pointed out. "It is important that the new government should be legitimate in the eyes of the Iraqis." "The composition of the interim Iraqi government has now been announced," the Russian foreign minister said. "We are studying the reaction in Iraq and beyond."

Russian, Polish presidents discuss relations, trade

Polish President, Aleksander Kwasniewski, will visit Russia in September 2004 at the Russian president's invitation. "Thank you for inviting me to visit Russia in September, I have enough time to prepare for this visit and make it productive," he said at a meeting with Vladimir Putin in Caen, France, ITAR-TASS News Agency reported.
The Russian head of state called for greater cooperation with Poland after it joined the EU. "It would be wrong, it would be a big mistake, if we lost what we have," he said. "One of our key tasks is to do our best to maintain the level of mutual relations in connection with Poland joining the EU."
Putin admitted that bilateral trade is not balanced enough because of "rising fuel prices." "But rather than cutting deliveries from one side, we should increase them from the other (Poland)," the Russian head of state said at the meeting with the Polish president.
Putin described last year's trade turnover between Russia and Poland as "record-breaking". "Trade turnover amounted to US$6.3bn, a rise of 26 per cent," the Russian leader said. 
Putin said that he was happy about the meeting with his Polish counterpart Aleksander Kwasniewski. "First of all, I would like to thank you for making this meeting possible. We have not met for quite some time," the Russian head of state said.
He recalled that he had met Kwasniewski in Kaliningrad a year ago. "Since then our relations have shown positive trends: trade turnover is growing and political dialogue is making good progress," Putin said. 

Russian, Tajik leaders line up agreements on bases, borders

At their meeting in Sochi, Russian President Vladimir Putin and Tajik President Emomali Rahkmonov, reached accords on the main parameters of a whole series of agreements between Tajikistan and Russia, RIA News Agency reported.
"Accords were reached on the main parameters of a whole series of agreements, making it possible to regulate the issues in Russo-Tajik relations that currently remain open," presidential aide Sergey Prikhodko told journalists.
"First, there is the question of Tajikistan's debt to the Russian Federation. It has been agreed that part of this will be invested in major investment projects in the power-engineering sphere which are being carried out or will be carried out in Tajikistan," Prikhodko said.
"It has been agreed that the Nurek space tracking centre is to be handed over to Russia," the presidential aide announced.
"Third, land for the deployment of a Russian military base in Tajikistan and also areas which are currently being used for military test ranges for the armed forces of the Russian Federation will be handed over for use by Russia free of charge and without any time limit," Prikhodko said.
"The scheduled work to hand over to the Tajik side the sectors of the border which are currently guarded by Russian border troops will be continued," the presidential aide said. He pointed out that this scheduled work was being carried out in accordance with a 1993 intergovernmental agreement.
"The format of our border presence will change: by mutual agreement an operational group of Russian border troops will be set up there and will work together with Tajik colleagues to counter drugs trafficking, prevent any possible infiltration by fighters and tackle other tasks agreed with our Tajik partners," Prikhodko added.
"Tajik President Emomali Rahkmonov asked Vladimir Putin to extend by a year, that is up until 2006, the period previously agreed on for [the protection of] the border sector (the Tajik-Afghan sector). This request will be reviewed by the working groups which are currently operating," Prikhodko said.
"It has been agreed that once these and other agreements, including agreements in the humanitarian sphere relating to migration legislation, are ready, we shall start preparing for Vladimir Putin to make an official visit to Tajikistan in the foreseeable future," Prikhodko added.

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FOREIGN INVESTMENT

Russian group to invest up to US$200m in Georgia over three years


The Industrial Investors group intends to invest up to US$200m in Georgia over three years, chairman of the association for the protection of investors' rights and Business Russia co-chairman, Sergey Generalov,said, RIA News Agency reported.
He said the holding group, which already owns shipping assets (the Far Eastern Sea Shipping Company) is interested in particular in buying the ports of Poti and Batumi.
Furthermore, the group intends to increase its stake in the Zestaponi ferroalloy works in Western Georgia to gain overall control of it. Last year the holding group bought a blocking shareholding in this former Soviet industrial giant.
Generalov said the stake would be increased within three to four months.
The holding company is also in talks with the Georgian government about buying the Chiatura mining and processing works which extracts ferromanganese ore for the metal works in Zestaponi.
"The Chiatura works is undergoing a bankruptcy procedure. We are discussing sale options with the (Georgian) government," Generalov said. "In July, the (Georgian) government is to choose what to do with the enterprise - sell shares and restructure its debts, or let it go bust and sell," he explained. 

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INDUSTRY

Electrolux to build washing machines in Russia

Sweden's Electrolux Group holding is to build a plant in the Russian city of St Petersburg to produce washing machines, St Petersburg's deputy governor, Yuriy Molchanov, said at a conference. The investments in the construction are expected to amount to 70m euros, Prime-TASS news agency reported.
The plant is to cost 9m euros to build. The relevant agreement was reached between the representatives of the company and St Petersburg governor Valentina Matviyenko. According to Molchanov, the plant is expected to be launched in January 2005 and is to produce washing machines under the Electrolux and Zanussi brands. Electrolux is to build the plant on the site of another St Petersburg plant. 
During the first stage Electrolux is to import assembly units for the plant but later will use assembly units made by Russian manufacturers. The Swedish company is now considering 150 Russian companies that could provide assembly units for the plant, Molchanov said. The plant's capacity at the first stage is to amount to 250,000 washing machines a year but in two years the company plans to increase the plant's capacity to a million units a year, Molchanov said. Electrolux said that the plant's annual capacity is to amount to 150,000 washing machines.
Analysts say that launching a production unit in Russia will enable Electrolux to strengthen its position on the Russian market and to lower production and logistics costs.

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INFORMATION TECHNOLOGY

Elbrus, UniPro programmers secure Intel working contract


Intel has clinched a deal with Russian software and hardware developers, Elbrus, and UniPro, about bringing some of their programmers on board, Interfax News Agency reported recently. 
Under the deal, aside from Nizhny Novgorod and Sarov, the US-based company will now be doing R&D in St Petersburg and Novosibirsk. Intel also will be expanding its scientific and research work in Moscow.
The deal envisions access to several intellectual property rights. The financial aspects of the agreement, done through the Intel Capital subdivision for corporate strategic investment, have yet to be announced. Plans are that the deal will be wrapped up in 90 days following receipt of all necessary permits from regulatory agencies and completion of the legal conditions, said the news service. Intel has been working to build a scientific-research structure in Russia since 1992. In the spring of 2000, the company opened an R&D centre in Nizhny Novgorod that works in close cooperation with teams of programmers in Sarov and Moscow. These specialists work jointly to create computer software and software for wireless communications, graphics, multimedia and mathematical support for doing technical and business calculations.

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MINERALS & METALS

Aluminium exports climb


Russia increased aluminium exports to countries outside the CIS by 65% in the first quarter compared with the year-ago period, customs officials said recently, New Europe reported. 
Russia exported 1.2m tonnes of aluminium to non-CIS countries, officials said in a statement. Nickel exports fell 4.3% to 56,700 tonnes. Exports of rolled steel totalled 2.3m tonnes, officials said. Copper exports declined 26% to 78,000 tonnes. Russia is the world's biggest nickel miner and second-largest aluminium producer, behind China. Russia raised crude oil sales to countries outside the CIS by 18% to 49.2m tonnes (3.96m barrels per day), officials said.

Norilsk Nickel records 92% rise in Q1 export revenues

The export revenues of Russia's largest metals producer Norilsk nickel increased 92% on the year in 2003 to 122.2bn roubles (US$4.2bn), according to the company's quarterly report released recently.
In 2003 exports accounted for 90.8% of the company's sales, Itar-Tass said. Export revenues amounted to 37.5bn roubles in January-March this year, the share of exports accounting for 89.4% of total sales.
The company's total revenues rose 53.2% to 135.3bn roubles last year. The company's revenues from sales on the domestic market fell 59.39% to 7.5bn roubles. Norilsk Nickel earnings up 40% to 41.96bn roubles in the first quarter, news agencies reported recently. World's major nickel and palladium producer Norilsk Nickel widened its three-month earnings by 39.8% on year to 41.96bn roubles, according to the company's report.
Prime cost increased by 21.9% to 19.98bn roubles. Net profit doubled to 17.3bn roubles, gross profit was up 55% to 24.98bn roubles, sales profit totalled 21.88bn roubles, up 46.4%, pre-tax profit increased 88% to 22.29bn roubles. Short-term payables widened 14.4% to 30.01bn roubles at end-March, long-term receivables increased by 31% to 763.52m roubles and short-term receivables grew to 35.55bn roubles (up 5%).
Norilsk Nickel, the supplier of half the world's palladium, will sell all the metal it produces this year, Interfax quoted Antonne Berlin, Norilsk's head of analysis and market development, as saying. Analysts expect Norilsk to produce about 80 tonnes of the metal, used to clean car exhaust fumes, this year. All information on the company's stocks and production is classified as state secret, Bloomberg financial news agency reported.
Palladium reached a 19-month high in the first quarter as China's surging economy drove up global demand for metals and other commodities including oil and coal, Bloomberg said. Norilsk also produces 20% of the world's nickel and 14% of its platinum.
Those metals reached 14- and 24-year peaks, respectively, in the first three months of the year.

Yevraz's subsidiary gains US$72m in Q1

Yevrazholding Group, Russia's largest steel producer, said its Zapadno-Sibirsky Metallurgichesky Kombinat subsidiary boosted first-quarter profit by 138% as steel prices rose, New Europe reported recently.
Zapsib's net profit rose to 2.1bn roubles (US$72m) from January to March from 882.3m in the same period last year. Revenue rose to 10.4bn roubles from 7bn roubles. Zapsib is the mill Yevrazholding uses to secure its 8.875% Eurobond, due in 2006. Its other core mills are Nizhny Tagil iron and steel plant and Novokuznetsk steel plant.
Zapsib's 2003 profit rose six-fold to 4.75bn roubles on rising metal prices. Nizhny Tagil made a profit of 4.2bn roubles in the same period, up from 1.8bn roubles in 2002. Novokuznetsk reported a profit of 352m roubles, without giving year-ago figures. The three mills, all in Siberia, account for about a fifth of Russian steel production between them.
Yevrazholding, which also owns iron ore and coal mines, said last year it is shifting sales to Russian market and plans to buy an Asian steel processing plant to avoid import quotas and tariffs on crude steel it faces in countries from the United States to China.

Alcoa picks up two large Russian aluminium facilities

Alcoa Inc and the Russian aluminium concern, RusAl, recently announced an agreement under which Alcoa will purchase RusAl's controlling interests in two aluminium fabricating facilities in Russia, dpa reported recently.
Alcoa announced the purchase on May 6th, but did not release terms of the deal, which is subject to regulatory approval. The two facilities are in Samara and Belaya Kalitva, and the transactions were expected to be completed by June 30th. The two fabricating facilities will serve the Russian market and customers in Europe, Asia and the Americas, Alcoa said in its statement.
The deal is believed to be worth several hundred million US dollars. RusAl does not release financial results for its production units. The move is an important step by foreigners into a sector that recently had a reputation for criminality and bitter ownership deputes.
Alexander Bulygin, RusAl chief executive, said the agreement was a vote of confidence in the Russian economy. It comes as Alcoa is increasing its worldwide presence in an effort to maintain leadership of the aluminium industry against a threat form Montreal-based Alcan. "While we saw much promise in these two plants, we felt that to truly prosper they needed to be part of a company with a strong international downstream base," Bulygin said. The Samara facility, located about 800 kilometres southeast of Moscow, makes cast, forged and flat-rolled products for the transport, packaging and other industries. The Belaya Kalitva facility, located about 500 kilometres south of Moscow, makes cast, forged and flat-rolled. Alcoa, based in Pittsburgh, Pennsylvania, had revenue in 2003 of US$21.5bn. The company's products are used in aerospace, automotive, packaging, building and construction and commercial transportation.

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