Books on Russia
Update No: 297- (29/09/05)
Despite legal limit, hints that Putin envisages a third term
Russia is making a comeback. It is booming while most of the rest of the world
is busting. GDP growth is breaking the records.
The Russians size themselves up against the Americans. They are the only
comparable people, commanding a key continent and the obvious candidates for the
nonce to be Salvador Mundi. There is little doubt that in the abeyance of China
and the EU for the moment being president of Russia is second only to being
president of the US as the top global job.
It is logical, therefore, that the governor of Russia's Novgorod region,
northwest of Moscow, should cite a bit of American history when talking about
Russia's future leadership, a subject that has come to mean the debate on
whether to allow President Vladimir V. Putin to seek election to a third term.
"There was a time in the United States when Mr. Roosevelt was elected four
times," said Gov. Mikhail Prusak, noting that Franklin D. Roosevelt led the
country out of the dark days of the Depression. "I admire Americans for
what they have done for stability and prosperity."
But in talking about Putin, Prusak chose to ignore the fact that, like the USA,
Russia's constitution does not allow for more than two consecutive presidential
Constitutions can be changed, as many of Putin's supporters point out with
increasing confidence. Their calls for an amendment that would permit him to
remain in office beyond the end of his second term in 2008 are becoming more
frequent. After trying to minimize speculation about his intentions, Putin
fuelled the rumours last month after being asked whether he intended to run
"Perhaps I might want to," he answered during a stop in Helsinki,
Finland, "but the constitution does not allow it."
This set the cat among the pigeons all right. The issue is raised whenever he
speaks to a live audience. Putin avoided an explicit answer to the question of
the possibility of a third term as president when answering questions from
Russian citizens in a live television broadcast on September 27th.
Putin reiterated that the constitution should not be changed to allow him to
serve a third term as president. He said that he sees his task as "creating
conditions for the country's long-term development" but not in
"sitting in the Kremlin forever."
However, this disavowal has become something of a formality and is not being
regarded by his many supporters as final. Indeed, Putin ignored part of the
question regarding a possibility of a referendum for what would be his third
term as president. "I'll find my place in the order of things," Putin
said ambiguously, talking about his plans after 2008.
A pregnant remark if ever there was one. Many Russians interpreted it as a
calculated hint of his desire to remain in office and as a shrewd effort to size
up public sentiment. And within days, compliant lawmakers proposed a series of
measures that would allow him to stay.
The scramble of the sycophants
Adam Imadaev, a member of a regional parliament in Russia's Far East,
proposed scrapping presidential term limits. Leonid Markelov, president of an
independent Russian republic west of the Urals, proposed allowing presidents to
serve at least three five- to seven-year terms. Igor Rimmer, a deputy in St.
Petersburg's legislative assembly, more modestly suggested allowing a third
"The problem is that Russia is in a transitional period now, and it would
be wrong to try to change the 'vertical of power,' " said Rimmer, referring
to the tradition of centralized authority. "What Russia needs most of all
now is stability. Putin - he personifies stability."
Putin has likewise in the past pointed to stability as the reason he won't seek
a third term: Only by observing the constitution, he has said, can national
stability be assured.
Putin, as the country's little-known prime minister, became acting president
when the ailing President Boris N. Yeltsin abruptly announced his resignation in
December 1999. Three months later, Putin won a presidential election. Last year,
he easily won a second four-year term, thanks in part to the favourable coverage
by the mostly state-controlled TV networks and the absence of credible
The downside is there
While high oil prices have allowed Putin to claim a measure of economic
success, he has failed to end a brutal war in Chechnya; the Kremlin also bungled
a reduction in pensioners' benefits, bringing thousands of protesters into the
streets of Moscow this year.
There are several scenarios that would allow Putin to remain in power beyond
2008, yet still be true to his word that he won't serve a third term.
He could support a close ally in the next presidential election, a figure who
might then allow him to run the country from behind the scenes. Or Putin could
serve as prime minister after orchestrating an executive branch reform to make
that post more powerful. Or he could campaign to become president of a proposed
new state resulting from the union of Russia and neighbouring Belarus.
"There is not a single one that is risk-free," Masha Lipman, an
analyst with the Moscow Carnegie Centre, said of the possible courses of action,
"and I don't think there is a single one that would keep the legitimacy of
Putin's supporters make this argument: Ensuring democracy in the long term
requires stepping beyond its boundaries now.
Putin hasn't had sufficient time, their argument goes, to carry out reforms.
Nor, his supporters say, does Russia have the stable institutions to support the
democratic principles enshrined in the constitution. "I am very much afraid
that our patriots will elect a new president and we'll have a pro-[nationalist]
leader, which will mean a totalitarian regime in this country," said Prusak,
the governor of Novgorod. "That is why I said I would very much like Putin
to stay for a third term - so that he could strengthen democracy."
Critics say that Putin is not a Western-style democrat and that attempts to keep
him in power should be seen as the forward march of authoritarianism by a
Kremlin determined to tighten its grip on every part of Russian society. The
so-called siloviki - the network of Kremlin appointees with ties to the military
and KGB - will thereby bolster their own influence.
"I think President Putin will secure a third term simply because this is
the authorities' logic," Yuliya Latynina, a political commentator and
radio-show host, told Nezavisimaya Gazeta last month. "Power in Russia is
in essence authoritarian, and there are no other ways to hand over power."
There are precedents in other former Soviet republics for short-circuiting
democracy: In 1999, the rubber-stamp parliament of Turkmenistan, in Central
Asia, elevated Saparmyrat Niyazov to the rank of president-for-life. Last year,
Belarus amended its constitution in a referendum, allowing President Alexander
Lukashenka to run for a once-prohibited third term. Lukashenka hailed the vote
as a victory for the people, while the opposition called the result a sham and
Putin was highly critical of Lukashenka's gambit.
Popular swell for a third Putin term
In a recent poll by the Russian research firm ROMIR Monitoring, 60 per cent
of the people surveyed said they wanted Putin to remain Russia's leader after
2008. Asked whom they would support if he were not running for president,
two-thirds could think of no other candidate; his closest competitor won support
from 4 per cent of those polled. But in a classic contradiction only 28 per cent
said they favoured amending the constitution to allow Putin to run.
Parliamentary support forthcoming
Amending the constitution requires either a referendum supported by more
than half of all registered voters, or the approval by both houses of Russia's
parliament as well as all its regional governments. Putin is believed to have
the parliamentary support needed to make the change.
When Rimmer introduced his amendment in St. Petersburg, Putin's hometown, it won
a less than enthusiastic reception - but not because lawmakers objected to its
content. They do not want to endorse any plan until they learn which one the
"They said, 'Thank you very much, but let's wait until the Kremlin will
decide," said Rimmer, whose proposal is now on hold.
Imadaev, the regional parliament member in Russia's Far East, maintains he wants
only to correct a fundamental contradiction in the law. The constitution grants
Russian citizens the right to elect and be elected to state governmental bodies,
unless they are "legally unfit." Yet the document also prohibits the
president from running for more than two consecutive terms.
"You call it an attempt to amend the constitution," said Imadaev.
"We call it an attempt to observe the civil rights of Russian
Putin: Economic growth in 2005 to be 5.9%, versus 7.1% last year
Russian President Vladimir Putin said on September 27th (that economic
growth this year should hit 5.9% and that real per capita income is likely to
come in at between 8.5%-10%. He put last year's growth rate at 7.1%.
"During the past several years, Russia's economy has been growing at about
7% year on year," RIA Novosti reported him as saying.
This is much higher than what we are seeing in a large number of developed
countries, as well as in economies in transition," Putin said.
To take a longer perspective we turn to the views of a distinguished foreigner.
Russia's economy to develop steadily during the current decade, German expert
Pravda.Ru interviewed one of the most respectable analysts in the world, Mr.
Norbert Walter, the Chief Economist of Deutsche Bank Group
Norbert Walter, enjoys the reputation of one of the most respectable analysts in
the world. A recent report from his research group which gave a forecast on the
development of the world economy before 2020, contradicted to previous
predictions outlined by CIA experts and Goldman Sachs investment group.
It is worth of note that Walter's group suggested not so long ago that the USA
would remain the only superpower in the world in 15 years, whereas the US dollar
will keep the firm position as of the global currency. According to the
forecast, Europe is destined to experience a slow decline, China and India and
their dynamic economies will add their style to the group of three world leading
states. Unfortunately, the group's report did not unveil the future of Russia.
Pravda decided to fill the gap and asked Mr. Walter to briefly outline the
perspective of Russia's economic development for the forthcoming 20 years.
Mr. Walter, what forecast can you give for the development of the Russian
economy during the forthcoming 20 years?
Until the end of this decade the Russian economy will continue to post strong
growth. From 2010, however, this will start to change and the trend will reverse
in 2015: I then see long shadows being cast over Russian growth. Demographic
change will weigh more heavily on Russia than on western European nations.
Russia's share of the world population will decline from 2.4% (as of 2000) to
1.6% in 2025. One particularly problematic issue for Russia is that by 2025 the
number of people aged 15-24 will have contracted by 45%. The economic
consequences of this will start to become apparent in just a few years' time. An
effective education policy will, however, enable Russia at least partly to
mitigate the future lack of skilled persons joining the workforce. Furthermore,
political uncertainty could emerge towards the end of President Putin"s
second term in office in 2008.
How do you estimate the perspectives of Latin American states?
Golden years may actually lie ahead for the Latin American countries, as the
region has worked its way out of economic stagnation. Entrepreneurs in these
countries have developed a global focus and have distinguished themselves by
operating their companies soundly. Moreover, the countries have large reserves
of raw materials, particularly in the agricultural sector, and offer these at
competitive prices in the dynamic markets of North America and Asia. So, the
global appetite for raw materials is bolstering the position of the Latin
Americans. Venezuela's President Chavez and in particular his energy policy do
certainly give cause for concern. The other left-wing governments are pursuing
sound economic policies for the moment. They should be feeding their citizens
less populism and instead espousing the benefits of market-friendly policies.
Stability is essential for long-term growth on this continent, but this is what
Latin American markets lack. The volatile economy reflects this - and is holding
back the upturn.
Goldman Sachs investment group put forward a theory about the imminent
economic upsurge in Brazil, Russia, India and China (BRIC). Do you think that it
is a correct forecast to make?
All the relevant indicators point to strong growth in the BRIC countries during
the next 5 years. After 2010, however, the performance of the individual
countries will start to diverge strongly. Russia will then have to take action
to counteract its loss of human capital. Investment in India in the education
segment, for example, will already bear fruit; Brazil can also call on a large
pool of young members of the workforce. Although China has a very large
population it needs to concentrate by then on making the transition from a
manufacturing sector focus to boosting a skill intense sector including
Where do you see the oil prices in 2020?
Crude oil futures indicate a long-term price of over US$60 per barrel. To date,
however, this forecast indicator has not proved to be accurate. I see the oil
price falling in the coming years. I expect a barrel of oil to cost US$60 in
2006, US$50 in 2007 and US$45 in 2008. After that, however, the price will start
to rise again, I believe. In 2010 the oil price will climb to US$60. Accurately
predicting the oil price in 2020 would no longer be forecasting but
clairvoyance. The oil price, of all things, is extremely sensitive to exogenous
shocks, as we have only recently experienced following Hurricane Katrina. Even I
as chief economist cannot predict how the geopolitical situation will develop,
let alone what natural disasters may occur. So let me just make a supposition:
between 2010 and 2020 the oil price is likely to fluctuate between 50 and 80
dollars per barrel.
Will Russia gain advantage from possible high oil prices in 2020?
Thanks to its oil and gas reserves Russia will definitely benefit from the
anticipated high oil prices. The country boasts an immeasurable wealth of raw
materials. It would be well advised to invest some of that in infrastructure.
This would ensure that all Russians benefit from their country's mineral wealth.
Only this way and with major education initiatives can the country enhance the
transition from a commodity-based economy to a post-industrial society. I doubt,
however, that this monetary advantage will still deliver strong economic growth
in 2020 given Russia's declining labour potential.
How do you envisage Russia's chances against the background of the global
competition with world superpowers, with China and India in particular?
Despite the wealth Russia derives from oil, gas and other natural resources I do
not expect it to be among the leading economic powers in 2020. Economic growth
will be low due to the demographic downturn, as in Japan and Europe as a whole.
In the second decade India will already be growing faster than China. In 2020
the USA will still be the biggest economic power, just ahead of China.
Airbus, Irkut sign A-350 protocol
Airbus and Russia's Irkut Corporation signed a protocol on designing the A-350
airliner, Interfax News Agency reported.
The protocol endorses Airbus's "proposal to share risks with the Russian
aviation industry in designing the new A-350," Airbus told Interfax.
The two corporations will also look at the possibility of designing other future
Airbus planes on a joint basis. Irkut said a working party would be set up to
assess the extent of Russia's involvement in designing the A-350, which is due
to go into production in 2010, and possible involvement in designing other
Russia resumes production of world's largest aircraft
The Aviastar-SP plant in Ulyanovsk, one of the largest enterprises in Russia's
aircraft-building industry, is resuming series production of An-124 Ruslan jumbo
aircraft, the world's largest production airplane, New Europe reported.
The regional government's press service said on August 31, that Valery
Savotchenko, the executive director of Aviastar-SP, made a statement to this
effect at the Meet in 1,000-year-old Kazan exhibition.
The An-124 Ruslan heavy cargo jumbo aircraft has no analogues in the world. The
plane can carry up to 150 tonnes of cargo a distance of up to 5,000 kilometres.
Aviastar-SP has produced 36 Ruslan aircraft in the last 20 years. The
implementation of the project to resume series production of the An-124 aircraft
got under way at the recently held MAKS-2005 international air show, where a
trilateral agreement was signed between Aviastar-SP and the Volga-Dnepr and
Polet airline companies.
The Ulyanovsk plant is expected to produce five aircraft for each company by the
year 2012. Savotchenko said the Ulyanovsk aircraft-building plant was fully
prepared to resume production of Ruslan aircraft. If it is provided with all the
required funds in full, the enterprise will deliver two An-124 aircraft to its
customers within a short deadline. Taking into account the demand for this
aircraft in other countries, a total of 50 aircraft need to be built.
Moody's affirms Udmurtia long-term rating of AA2.ru
International ratings agency Moody's upgraded the long-term rating of
Udmurtia to AA2.ru, New Europe reported recently.
The rating reflects Udmurtia's comparatively developed industrial and tax
potential, low debt and conservative debt policy, and the republic's social and
political stability, it said. The rating is constrained by the concentration of
budget revenue in the oil industry, and anticipated deterioration of the
operating balance due to social welfare reforms and public-sector wage hikes.
S&P raises Bank of Saint-Petersburg rating
Standard & Poor's Ratings Services recently said it raised its long-term
counter party credit and certificate of deposit ratings on Russia-based
International Bank of Saint-Petersburg (IBSP) to CCC+ from CCC. At the same
time, the C short-term counter party credit and certificate of deposit ratings
on the bank were affirmed, New Europe reported.
The outlook is stable. The Russian national scale rating was raised to ruBB from
"The rating upgrade reflects IBSP's improving commercial franchise and
consistent financial performance due to its improving revenue structure,"
said Standard & Poor's credit analyst Eugene Tarzimanov. "The bank also
benefits from the fast-growing Russian economy."
The ratings remain constrained by the bank's still limited customer franchise,
high single-name lending and funding concentrations, its barely adequate
capitalisation, and low core profitability.
With total assets of Russian rouble (RUR) 13.2bn (US$475m) on December, 31 2004,
IBSP ranks among the five largest banks in the City of St. Petersburg, but only
among the top-100 Russian banks.
The bank targets large- and mid-size corporates in St. Petersburg and the City
of Moscow, which is a difficult task given IBSP's limited experience and the
increasingly harsh competitive environment. "The stable outlook reflects
Standard & Poor's expectation that IBSP will be able to further diversify
its customer base in an increasingly harsh competitive environment," said
Moody's rates SUAL BA3 Corporate Family
Moody's Investors Service said it assigned Ba3 Corporate Family Rating to SUAL
International Ltd, Russian integrated aluminium producer. The Outlook is Stable,
the agency said in a press release.
The Ba3 corporate family rating assigned to SUAL International Ltd reflects the
company's integrated aluminium production business model and self-sufficiency in
main raw materials, the company's cost competitiveness and advantageous cash
cost position underpinned by efficient refining and extraction processes and low
cost energy sources, the company's strong technical mining expertise,
experienced and committed management team and its moderate financial policy to
SUAL investments to strengthen its product range include an expansion in the
value-added segment of production.
Europe, US, China eye Russian energy reserves
Russian oil companies and the government are facing a predicament most would
envy: What to do with the excess export revenues due to the high oil prices?
Russia appears uncertain how to use this monetary increase of extra revenues to
stimulate growth in the real sectors of its industry, including the oil sector.
Russia is for the moment more concerned with the allocation of this money than
constructing additional pipelines. "We are thinking that the budget will
probably have US$50-60bn in the accounts by year end and they just have US$2bn
worth of projects to place this money," Natalya Orlova, senior economist at
Russia's Alfa Bank, said, New Europe reported.
"The fact is that our additional export revenues are due to the high oil
prices but there are no efforts made domestically in order to increase the
volumes of export," she said.
Analysts say policymakers need to define a broader oil strategy. "There are
a lot of opportunities such as the pipeline through Murmansk, which was actively
lobbied by Russian companies but was virtually stopped by (state company)
Transneft," Orlova said. "This is clearly preventing Russia from
becoming a very, very important player in the oil market," she added.
For now, the Russian government is using the excess oil revenues to reduce its
debt obligations and based on the budget projections external debt will shrink
to 12 per cent of GDP as of the end of this year.
Constructing new pipelines is now a more pressing issue for the international
community than Russia, the world's second largest oil producer and its biggest
source of gas reserves. With energy supplies tight, a growing number of
countries have their eyes on Russia as a potential long-term supplier of
hydrocarbons. The United States is interested in liquefied natural gas, Europe
in gas and China in oil. This gives Russia a very strong calling card with other
Russian President, Vladimir Putin, will sign an agreement in Germany on
September 8th formalising a deal to build the much-awaited natural gas pipeline
from Siberia to northern Germany, passing under the Baltic Sea, Russian
diplomats confirmed. The pipeline is projected to cost almost US$5bn, and is
part of the larger North European Pipeline that will also eventually deliver
substantial volumes of gas to the United Kingdom.
Meanwhile, Asian oil consumers are interested in an ambitious Russian project
planned by Transneft to build an Eastern Siberian-Pacific Ocean export oil
pipeline with a possible branch to China. The world's longest and most expensive
oil pipeline would run from Taishet in Siberia's Irkutsk region to the town of
Skovorodino to the east near China's border, and from there continue to
Perevoznaya Bay at the Sea of Japan. Oil would be shipped to Japan, South Korea
and even to the United States as it may supply oil to the west US states. The
Russian government plans to allow foreign energy companies to become partly
involved in developing the country's vast oil and gas resources but at the same
time it wants to keep Russia's energy industry under tight control. "For
the Russian government giving a stake to foreign companies above 20 percent is
unacceptable for political reasons," Orlova said.
Gazprom to launch North Transgas pipe in 2006
Russian gas monopoly Gazprom plans to put into operation the first section of
the 140 kilometres long North TransGas pipeline (SEG), which will pass through
the territories of the Volgograd and Leningrad regions, in the second quarter of
2006, the press centre of the Leningrad regional administration said, Interfax
News Agency reported on August 19th.
The gas pipeline will also go through the Tikhvin, Volkhov, Vsevolzhsk and
Vyborg districts of the Leningrad region. It will resolve the problem of gas
supply to the cities and villages of those districts. Currently, gas is supplied
to 60 per cent of their populated localities, but the figure will be brought to
100 per cent in next two years.
Gas will be supplied to all the populated localities in need. The implementation
of the project by Gazprom is connected with the beginning of the development of
the Yuzhno-Russkoye gas field, which is the main base for export deliveries of
natural gas. The building of the pipeline through the territory of the Leningrad
region and the seabed of the Baltic Sea is one of the key projects of Gazprom.
The pipeline will ensure Russian gas deliveries to Europe without its
transportation through the territories of other countries. The pipeline will be
3,000 kilometres long. About 1,189 kilometres of pipes will be laid on the
seabed from Vyborg to Greifswald, Germany.
"In the second quarter of 2006, the first 140-kilometres section of the SEG
pipeline should be put into operation based on Gazprom's plans. This section of
the pipeline's route will run from the border of the Volgograd region along the
territory of the Boksitogorsky district to the compression station in the town
of Pikalevo," a press release from the centre said.
The construction of the pipeline will allow the region to resolve the problem of
the gasification of several communities. The North TransGas pipeline will have
projected capacity of 55 billion cubic metres and is to be launched in 2010.
Gazprom has begun developing the South Russian deposit, which will supply the
North TransGas pipeline.
Proven reserves are estimated at over 700 billion cubic metres. Gazprom is
working with BASF AG of Germany to develop the South Russian deposit and
construct the pipeline.
Other West European companies may also participate in the project.
LUKoil discloses terms of ConocoPhillips JV agreement
Russian giant, LUKoil, disclosed the terms for forming the Naryanmarneftegaz
joint venture with its strategic partner, ConocoPhillips, in its second-quarter
financial report, Interfax News Agency reported.
LUKoil owns 70 per cent and ConocoPhillips 30 per cent of the joint venture,
which was formed on July 1st this year. The company will develop hydrocarbon
deposits in the Timan Pechora oil and gas province.
The report said the deal was closed for a total consideration of 48.489bn
roubles and involves restructuring loans that LUKoil has issued to the
Naryanmarneftegaz limited liability company to finance its operations at the
joint venture's fields, and the provision of additional financing until the end
of 2005. ConocoPhillips will lend Naryanmarneftegaz 13.3bn roubles to refinance
a similar loan issued by LUKoil on April 20th this year. Naryanmarneftegaz will
repay the 9.5bn roubles of the loan facility that it actually used.
LUKoil and ConocoPhillips will, on a joint basis, finance the acquisition by the
Varandei Terminal company of infrastructure at the Varandei terminal from
Naryanmarneftegaz and Varandeineftegaz for a total of 2.489bn roubles and repay
credits issued by LUKoil for that amount on March 24 and 28. LUKoil and
ConocoPhillips will finance capital expenditure at the Varandei terminal in
proportion to their stakes in the joint venture by issuing loans to the Varandei
The loans will be repaid with the proceeds from the tariff which
Naryanmarneftegaz is due to pay in keeping with its obligation to Varandei
Terminal to transport crude oil. Naryanmarneftegaz will remit the payments
directly to LUKoil and ConocoPhillips. LUKoil will have an option for the early
settlement of loans issued by ConocoPhillips, either by allocating funds to
Varandei Terminal or by acquiring the creditor's rights from ConocoPhillips.
The agreement states that if ConocoPhillips does not meet its whole 30 per cent
financing commitment to Varandei Terminal, LUKoil will have the right to provide
that financing instead of its partner, and will be entitled to higher interest.
LUKoil plans to increase the terminal's capacity to 240,000 barrels a day by
2007 with assistance from ConocoPhillips in designing and financing the
Russia to issue US$500m in Eurobonds
Russia plans to issue US$500m in Eurobonds this year in exchange for debt on
which the Soviet Union defaulted following its collapse in 1991. The Russian
Finance Ministry plans to finish issuing Eurobonds for swap for a second tranche
of Russia's Soviet-era commercial debt in 2005, said Konstantin Vyshkovsky,
deputy director of the Finance Ministry's international financial relations,
state debt and state assets department, quoted by Interfax News Agency reported.
He said the final amount of the issue has not been determined, but it is
expected to be US$500m. "Active work is underway and we are planning that
the swap for a second tranche of Soviet-era commercial debt will take place in
2005," he said. Vyshkovsky did not rule out that swap operations could be
continued in the future. Russia's Soviet-era commercial debt came from the
export of goods and services by foreign companies in the former USSR, and the
finance ministry estimates the principle debt at over US$1.7bn. The ministry
exchanged the first tranche of the debt in December of 2002, to the tune of
US$1.28bn. As a result of the exchange, Russia had US$1.374bn worth of Eurobonds
issued, including US$184m in bonds maturing in 2010 and US$1.19bn in bonds
maturing in 2030. There remains unsettled Soviet-era debt to the International
Bank for Economic Cooperation, which stands at 175m Euro. That debt is also up
for turning into Eurobonds maturing in 2010.
FOOD & DRINK
Heineken buys Ivan Taranov Breweries for US$560m
Dutch brewing concern Heineken has reached an agreement to purchase a group of
Russian companies, Ivan Taranov Breweries, Russia's Kommersant daily reported
The sum of the deal is US$560m. A source in Heineken told Kommersant that
Taranov Breweries were chosen for the takeover deal because the owners of other
companies "have asked for too much." Over the last 2 months, the
source said, Heineken has been in active negotiations with several Russian
breweries, Ivan Taranov Breweries, Moscow beer and beverage plant Ochakovo and
Kazan-based Krasny Vostok.
"Ochakovo's management valued their assets at almost US$800m, while owners
of Krasny Vostok asked for almost US$1bn," the Heineken source said.
"Owners of Ivan Taranov Breweries were modest and evaluated their business
Heineken's representative office in Russia refused to confirm the information
about the purchase, but did not deny it either. The press service of Ivan
Taranov Breweries did not comment on the issue either. After buying Taranov
Breweries Heineken's share on the Russian market will reach 15%. The Dutch
concern will almost catch up with Su Interbrew which occupies the second
position on the Russian market with 16.4%.
The market leader is Baltic Beverages Holding which controls 33.5% of all sales.
The situation on the market could be changed considerably after the last large
independent producers - Ochakovo and Krasny Vostok are sold to the international
majors. According to Kommersant, these companies are now in negotiations with
Sun Interbrew and SABMiller which controls 8% of the Russian market.
Paris Club debt repayment complete, early settlement to be very beneficial for
Russia completed an early payment of more than US$15bn of its debts to the Paris
Club of creditor nations recently, Interfax News Agency reported, citing a
finance ministry source.
Russia agreed in May to pay Paris Club creditors 38 per cent of its US$40bn debt
ahead of schedule to cut interest costs as economic growth slows.
Russia paid about US$13bn in July. The last part of the prepayment is US$2bn.
According to the original payment schedule, the traditional day for such
payments is August 20th, but this was a Saturday, and the payment was
rescheduled until the next working day - August 22nd, RBC was told at the
finance ministry. More than US$15bn was paid. Of this amount, US$13bn was
transferred in two tranches on July 15th and July 29th. The money was
transferred to the accounts of 11 creditor countries: Australia, Britain, the
Netherlands, Germany, Denmark, Italy, Canada, the United States, France, Finland
and Sweden. The remaining amount of US$2.3bn was transferred on August 19th and
22nd to another five countries: Austria, Belgium, Spain, Norway and Japan.
"Under agreements reached in May 2005, Russia will have the possibility to
offer creditors such an operation under similar conditions in the future. Work
is currently underway on preparing corresponding proposals," Alexei Kudrin
is quoted in the release as saying.
Early repayment of the debt will be very beneficial for the Russian economy, the
release says. Additional resources will be freed thanks to saving on interest
payments to financial social and economic projects in Russia. The resources used
for early repayment of the foreign debt were paid from the Stabilisation Fund.
"The Russian Finance Ministry will continue the policy of using the part of
the Stabilisation Fund that is over the 500bn rouble minimum set by legislation
only for early repayment of the foreign debt," the release says.
Russia's total debt to the club is US$43bn, half owed to Germany. The entire
obligation is due for clearing between 2012 and 2015. Foreign currency and gold
reserves declined in the seven days to August 19th as Russia made payments to
the Paris Club of creditors.
MINERALS & METALS
Russky Ugol acquires 25% of Zlatoust steel works
The Russky Ugol or Russian Coal Company has bought 25 per cent of Zlatoust
Metallurgical Plant (ZMZ), a special steel producer from the Chelyabinsk region,
Interfax News Agency reported recently, citing a companies' joint statement.
ZMZ, which produces a range of more than 1,000 steels for the defence, chemicals
and aviation industries, sold the shares because it is looking for major
investment in a programme of upgrades that began in 2003, the statement said.
Financial terms of the deal were not disclosed. The Moscow-based ZAO Geolink and
its affiliates owned 88 per cent of ZMZ prior to the deal with Russky Ugol. The
statement quoted Vadim Varshavsky, board chairman of Russky Ugol, as saying the
company, which controls a string of coal and metallurgical assets in various
parts of Russia, was prepared to invest in the plant. "The acquisition
blends in logically with the establishment of Russky Ugol's metallurgical
decision. The favourable investment climate created by the Chelyabinsk region's
authorities also influenced the decision to buy into one of the Southern Urals'
biggest enterprises, Varshavsky said. The Zlatoust plant and Russky Ugol have
"a common approach to preserving the enterprise's unique pro-file, which is
to produce special grades of steel and high-quality alloys," said Mark
Leivikov, chairman of the Zlatoust plant.
Steel giant Novolipetsk plans London IPO
Novolipetsk Steel (NLMK), one of Russia's biggest steel plants controlled by the
country's second-richest man, is planning a possible London listing by the end
of this year, the British Financial Times reported on August 22nd.
The listing could value the company at almost US$8.95bn. People familiar with
the issue told the paper that the company, based in the Black Earth region of
Central Russia, was likely to float about 10 per cent of its equity, although
the Russian market regulator has given it permission to sell up to 25 per cent
outside Russia. MosNews reported on the issue in May, when permission was
granted. The steel company has hired UBS and Merrill Lynch to prepare the float.
Novolipetsk is Russia's fourth-largest steel group but its most profitable. The
steelmaker raised rolled steel production by four percent to 8.6 million tons
It exports more than 70 per cent of its output. Novolipetsk is controlled by
Vladimir Lisin, listed by Forbes Russia this year as the country's
second-richest man after Roman Abramovich, with a US$7bn fortune.
Norilsk plans Russian listing of Polyus shares by April '06
Norilsk Nickel, the world's biggest nickel and palladium miner, plans to list
shares of Polyus on one or more Russian markets by April, and to issue level-one
American Depositary Receipts (ADRs) on an exchange outside the country next May,
Interfax News Agency reported recently.
Polyus currently controls Norilsk Nickel's Russia-based gold assets and
Norilsk's 20% stake in South Africa's Gold Fields, Norilsk wants to register
ADRs of Polyus, its gold unit, by May, the Moscow-based company said in a
Norilsk wants to spin off Polyus to shareholders, creating a company analysts
say would be worth as much as US$4bn. Norilsk will seek shareholders' approval
to spin off the unit, the company said recently. Polyus produced 1.1m ounces of
gold in 2004. It wants to triple output by 2010.
Polyus Gold shares will trade in Russia first, then possibly New York or
Toronto, Polyus President Yevgeny Ivanov said last April. Polyus Gold combines
Polyus, a 20% stake in Gold Fields, the world's number 4 gold producer, and 10bn
roubles (US$352m) in cash, Norilsk said in a statement.
Polyus, the umbrella company for MMC Norilsk Nickel's gold mining assets, is
close to buying a number of gold fields in Siberia for a total of US$285m, said
Denis Morozov, Norilsk Nickel's deputy director general. Morozov said Polyus had
already made an advance payment of US$115m for the fields, which he did not
name, and would become their owner in September. Morozov did not give any more
details about the transaction.
The fields contain 28m Troy ounces of gold, Morozov said. A gold industry source
told Interfax that Polyus might be buying a gold asset from the Alrosa
Investment Group. Alrosa Investment Group did not confirm this and declined to
make further comment. Ireland Celtic Resources, which owns half the interest in
the Nezhdaninskoye gold project in Yakutia, has said the Nezhdaninskoye field
contains 13.9m ounces or 430 tonnes of gold. Ores are graded at 5.5 g/tn for Au.
Celtic has said overall reserves at ezhdaninskoye are 28m oz.
Net profit to international accounting standards (IAS) at Norilsk Nickel MMC in
the first quarter 2005 fell 0.5% year-on-year to US$446m. It adjusted some
indicators. A year ago the company announced that its net profit in the first
quarter 2004 amounted to US$460m, and pre-tax profit - US$635m.
It is likely that the adjustment was carried out due to exchange rate
differences and a re-evaluation of a stake in Gold Fields, according to the news
Norilsk Nickel revenue in the reporting period increased 3% to US$1.63bn, EBITDA
- US$772m. Norilsk Nickel bought 2.51% of national power monopoly Unified Energy
Systems for US$322m in June, Interfax News Agency reported, citing data from