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RUSSIA


  
  

 

In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 433,491 346,520 310,000 16
         
GNI per capita
 US $ 2,610 2,140 1,750 97
Ranking is given out of 208 nations - (data from the World Bank)

Books on Russia

REPUBLICAN REFERENCE

Area (sq.km)
17,075,400

Population
143,782,338

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



Update No: 303- (27/03/06)

Putin's reign has coincided with a pick-up in the Russian economy. But this is primarily due to buoyant energy prices on world markets. Even if these continue into the medium term, there are various disturbing long-term trends.

Demographic catastrophe unfolding in Russia
The most important of all is that Russia's population is projected to decline by about 1 million people per year over the next couple of decades. This means that it could be halved by 2075, or even by 2050, if the rate of emigration continues to rise, and if disease, notably AIDS, remains rampant.
The number of abortions is higher than that of live births. No greater indication of the despair afflicting a broad swathe of the population could be manifest. People fear to bring children into the ravaged country that is Russia.
This point is not quite appreciated abroad. The media talk of Russia's economic boom and new-found oil wealth. But as in Saudi Arabia only a very small section of society benefits. It is much more a question of 'trickle-out,' than 'trickle-down.'
Russia's economy and society were, indeed, ravaged by the 'shock therapy' of the early 1990s and then the collapse of the rouble in the late 1990s, which wiped out the burgeoning middle class. A true expert on the subject is investigative journalist Alice Politovskaya (who was nearly poisoned when she tried to cover the Beslan tragedy in September, 2004). When she was asked at a PEN club meeting in London in October 2004 whether the proportion of the population in Russia that was destitute was "30% or nearer 70%?" she replied it was 95%. By Western standards this is undoubtedly true.

Stepping up immigration
As the former capital of a great empire, Russia can have recourse to immigration as a recompense for declining numbers of ethnic Russians at home. Moscow is increasingly eager to attract immigrants to fill gaps in the country's labour pool, especially low-paying and menial jobs. The changes would seem to have the added benefit of increasing the Kremlin's political leverage with CIS states. 
Recent changes in Russia's citizenship legislation, initiated by President Vladimir Putin, have helped encourage a significant number of Kyrgyz and Central Asians to seek a permanent place in Russia. The changes make it possible for all former Soviet citizens who have legal residency status to be eligible for fast-track Russian citizenship. In addition, Russia's Federal Migration Service announced in late last year that it would seek to legitimise up to 1 million illegal migrants from the CIS in 2006. If it can keep this rate of immigration up, then it could yet stabilize the size of the population at around 145 million. 

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ENSURING ENERGY SECURITY

A) Russia leader of the G8
Meanwhile energy is the name of the economic game. Russia, with its vast energy reserves and comparatively small population, is the world's natural swing exporter of oil, as it already is of natural gas. Moreover, it has had a long experience in atomic and nuclear power.
The G8 session of energy ministers, with their colleagues from China, India, Mexico, Brazil and South Africa, and spokesmen for the World Bank, OPEC and IAEA, has become a dress rehearsal for the forthcoming G8 summit in St. Petersburg in July. The world leaders are planning to adopt a programme for building a global system of energy security. 
This is how Minister of Industry and Energy Viktor Khristenko described the recent session. He also noted that "the quality of life of the entire world community directly depends on the reliable access to energy," and this is why there is a need for a "common approach to the task of ensuring global energy security." 
The ministers adopted a final statement on the results of the session, which supports Russia's main points: 
a) It is necessary to secure mutual and fair access to energy markets. 
b) Energy security is the same for consumers and producers: the stability of supplies and the effective protection of the environment. 
c) Third countries have the right to develop atomic power engineering, but they should be subject to international control and should not violate the regime of nuclear weapons non-proliferation. 

B) Growth in energy consumption 
The ministers emphasized that the 21st century is bound to see a considerable growth in the world consumption of energy. They recognized that a future global fuel-and-energy system would require a huge investment into the production, transportation and procession of energy resources. 
President Putin believes that the world energy market will feel the benefits from Russia's major energy projects very soon. "Russian companies are already carrying out projects of strategic importance for genuinely strengthening the global energy security system. We are looking at the development of the major Shtokman gas field. Intensive work on the construction of the North European Gas Pipeline is now underway. We are working on a project to lay a pipeline from Eastern Siberia to the Pacific coast, with a branch to the People's Republic of China." 

C) Gearing up for July 
The president said Russia would prepare specific proposals on energy security for the July G8 summit and is prepared to support major projects financially. 
An important result of the G8 meeting in Moscow is the official support for atomic power engineering as the most accessible alternative to non-renewable hydrocarbon resources. The ministers discussed the prospects of nuclear power engineering, and a number of future scenarios, using Iran as an example. They came to the conclusion that nuclear power engineering is very promising, especially for developing economies. 
One of the most vigorous proponents of the nuclear power alternative was US Energy Secretary Samuel W. Bodman. He had his own program in Moscow - to reveal the new US strategy designed to enhance energy security in the US and the rest of the world. The strategy is being referred to as the Global Nuclear Energy Partnership. 
A US-Russian rivalry is obviously emerging in the sphere of nuclear power engineering. At the same time, such major components of the Russian and American programs as nuclear weapons non-proliferation, ecological safety and accessibility of nuclear materials to a broad range of consumers enable the two countries to bring their positions closer together and avoid excessive rivalry. 
Russia made it clear that it will defend its positions on fuel markets. Viktor Khristenko said the concept of energy security includes the guaranteed demand for its oil and gas abroad. This does not fully coincide with the Western strategy. In February, US President George W. Bush called on his compatriots to give up their addiction to oil and focus on the development of alternative energy sources. The strategy of the EU is to reduce its growing dependence on the supply of energy carriers, particularly from Russia. 
Generally, the G8 energy meeting had a positive outcome, but the contradictions it revealed on some problems will be rather hard to remove. Russia is engaged in difficult talks on joining the Energy Charter, primarily with the EU. Russia has signed the Charter, and is negotiating the transit protocol to it, according to Khristenko. 
EU representatives insist on Moscow joining the Energy Charter, largely because it prohibits the signatories to reduce energy supplies even in case of a price dispute. The EU is clearly trying to protect itself against the situation that developed last December and January around Ukraine and Moldova. 

D) Charter not ratified 
Russia signed the Energy Charter in 1994, but the State Duma has yet to ratify the document. The protocol on transit has become a stumbling block: the West insists on third countries' access to gas pipelines on Russian territory. Khristenko stressed that the transit protocol is the Charter's backbone. "The talks are not easy, but they are going on," said he. "If there is progress, the Charter will be ratified." 
Optimistic official estimates aside, the Moscow session has shown that building a global energy system is a formidable challenge. G8 members have different interpretations on many problems related to energy security. But at the same time, a consensus is possible and will have to be reached.

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Feared deputy Chechen PM appears on rise
There is still the running sore of Chechnya. Russian troops withdrew from Chechnya in 1996 following a two-year botched war, but rolled back in 1999 after Chechen incursions into a neighbouring province, and apartment building explosions blamed on the rebels. 
Major offensives in Chechnya ended by mid-2000 but insurgents and troops still clash in small skirmishes. Separatists attack Russian troops and law-enforcement officers with booby-traps and land mines. 
The Kremlin-backed prime minister of war-battered Chechnya said on February 28th that he was stepping down to give way to the widely-feared head of a shadowy security service, the ITAR-Tass news agency has reported. 
The news confirmed perceptions that deputy prime minister and youthful strongman Ramzan Kadyrov was consolidating power ahead of an expected move into the presidency. Outgoing prime minister Sergei Abramov and Chechnya's president offered conflicting explanations for Abramov's stepping down, raising questions about a possible power struggle within the Moscow-backed administration of Chechyna, where separatist rebels have fought Russian troops for most of the past dozen years. 
Chechen President Alu Alkhanov said that the prime minister was stepping down for health reasons. But hours later, Abramov said he was stepping down to give way to Kadyrov, the son of a Chechen president who was assassinated after winning a Kremlin-approved election that was widely regarded as fraudulent. 
Expectations have been high that Kadyrov would succeed Alkhanov on October 5 when he turned 30, the minimum age for a president under Chechen law. Taking over the prime minister's job would be a stepping-stone to the presidency, which Alkhanov is supposed to occupy for several more years. 
"The decision of Sergei Abramov to leave his post as head of the republic's government was an unpleasant surprise for me," Kadyrov said in a statement. "I regret it because (he) ... did much for the restoration of the republic." 
Abramov denied the president's explanation of his resignation. 
"I was surprised to learn that my resignation was connected with my health. It's not so," the news agency quoted him as saying. "I submitted the statement about my resignation on condition that the government of the Chechen Republic would appoint the current deputy prime minister, Ramzan Kadyrov." 
The Interfax news agency quoted the head of the Chechen parliament as saying it fully supports Kadyrov becoming prime minister. 
There are wide reports in Chechnya of civilians being kidnapped or improperly detained by security forces, and allegations that police torture suspects to extract confessions. Chechens and human rights group say Kadyrov's security forces are responsible for human rights violations. He has an evil reputation for cruelty and ruthlessness. No doubt his Russian masters who much have orchestrated this, are well pleased with his assumption of new powers.
United Nations High Commissioner for Human Rights Louise Arbour told reporters in Moscow that abuse by security forces is the central problem holding back the restoration of civil society in Chechnya. 
Abramov was named prime minister in March 2004 and survived an assassination attempt several months later. The prime minister was seriously injured in November in a car accident. There was wide speculation that the accident was an assassination attempt. Officials dismissed the prospect. 

Bypass the UN on Iran
"The US and its European allies remained at odds with Russia and China over Iran... as Britain proposed new talks and sanctions backed by force if necessary," the Associated Press reported on March 21st. Senior diplomats from six key nations "could not overcome Russian and Chinese opposition to tough action in the Security Council." 
The US has urged Europe for years to join in a tougher approach toward Iran, which would begin by referring Iran to the UN Security Council. The Security Council is indeed the natural address for imposing binding, multilateral sanctions on an aggressor nation that threatens international security. This is the chief purpose of the United Nations, according to its charter, and over a decade after the end of the Cold War it is reasonable to sincerely attempt to employ the UN as it was meant to operate. 
Now that Europe seems finally to be on board with the US, however, the obvious danger was that two other nations with veto power in the Security Council, Russia and China, would render the new transatlantic consensus meaningless. 
Russia and China cannot, of course, be assumed to be have Western interests in mind or to act as responsible members of the community of nations. Russia has been Iran's chief supplier of nuclear technology. China is a major Iranian trading partner. But most importantly, Russia (increasingly) and China are led by dictatorial regimes that see themselves in competition with Western power, and as potentially threatened by Western demands regarding democracy and human rights. 
It is often asked why Russia - with its own war against Muslims in Chechnya raging and its proximity to Iran - does not seem inordinately concerned about an Iranian bomb, and has recently broken ranks with the Quartet by inviting Hamas for talks. Surely, the Russians need no lectures about the dangers from militant Islamists, the thinking goes. 
There is no point, however, in second-guessing Russia's interpretation of its own interests. The question is whether the West will hold itself hostage to the whims of nations whose policies and agendas bear little relationship to its own security requirements. 

There is another way
Russia and China should be told by the US and Europe that, while working through the Security Council is clearly the first and most appropriate course of action, the threat from Iran requires concerted diplomatic, economic and perhaps military measures regardless. If Moscow and Beijing joined in, sanctions would be that much more effective, but it is possible that draconian measures by Washington, London, Paris and Berlin and many other like minded capitals might be sufficient to raise the price of Teheran's nuclear project so high that it would be abandoned. 
Sanctions remain a long-shot effort to change Iran's course. Much of the international community, it seems, either quietly assumes that Iran will obtain the bomb, or that military measures will be necessary. We've become used to the sanctions option being either too little or too late. 
What is clear is that lowest common denominator sanctions of the sort Russia and China might accept will be insufficient - unless, perhaps, these countries face a choice of joining in an international effort or being bypassed entirely. 
The standard must be what the situation demands, not what Russia and China will agree to. Speed and toughness, which are critical to induce Iran to back down, should not be sacrificed to obtain an unrealistic degree of international consensus. If the US and Europe have linked all diplomatic, trade and cultural ties with Iran to the abandonment of its nuclear programme, it will do Iran little good that Russia and China have not.

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AUTOMOBILES

GM-Avtovaz restarts assembly line 


The GM-Avtovaz joint venture restarted its assembly line recently, the company told Interfax News Agency reported.
The company said the line, which was stopped on February 9th due to "a shortage of parts," would be working two shifts as it did prior to the shut-down. The company's press office did not name the companies that had stopped supplying components or their reasons for doing so.
The Federal Industry Agency's (Rosprom) press service told Interfax that Avtovaz stopped supplying engines for Chevrolet Niva cars because GM and Avtovaz could not agree on their price. Boris Aleshin, head of Rosprom, is on the Avtovaz board. "Production will resume once the price has been agreed," the press service said.
The GM-Avtovaz board decided at a recent meeting to resume car production on February 21st. "General Motors, Avtovaz, and the European Bank for Reconstruction and Development (EBRD) reached an agreement to resume production at the plant on February 21st," the company said in a statement. General Motors and Avtovaz each own 41.6 per cent of the joint venture's common shares, and the EBRD has 16.8 per cent of preferred shares.
Avtovaz is not planning to review the format of its cooperation with General Motors in the context of the joint venture this year, a source in the company's management told Interfax.
The source said that during the joint venture's board meeting, the parties agreed to raise prices for the components which Avtovaz supplies to the joint venture. The source did not say how much the components would now cost and whether this would affect prices for the Chevrolet Niva and Chevrolet Viva cars that the joint venture produces. But "for the year to come, all (other) parameters of cooperation will be unchanged," the source said.
Avtovaz is not, for example, planning to buy GM out of the venture, the source said. Rosprom's press service, too, has told Interfax that Avtovaz is not thinking of buying GM out.
Igor Yesipovsky, the new director general at Avtovaz, said at the beginning of February that the car plant's management intended during February to decide on a development concept for GM-Avtovaz. "Relations between Avtovaz and the joint venture show that something is not right," Yesipovsky said. He said that if the enterprise was lucrative and if there was any point developing it, then its partners would want to get to grips with the situation.
But Warren Browne, managing director of General Motors in Russia and the CIS, told reporters in the middle of February that GM's joint venture with Avtovaz was a good example of cooperation between American and Russian car makers. The joint venture does not have any debts, it has a positive cash flow and it pays dividends, Browne said.
GM-Avtovaz said on its web-site that it would be putting retail prices for the Chevrolet Niva up 3,500 roubles from February 22. The basic model will go up from 318,000 roubles to 321,500 roubles and the top range model from 350,000 roubles to 353,500 roubles. A representative of the joint venture declined to comment in detail when asked by Interfax whether the price rise was connected with the higher component prices. Meanwhile, the All-Russian Automobile Alliance (AVVA), an Avtovaz subsidiary, has reduced its stake in the parent company's capital to 30.43 per cent from 32.35 per cent, Interfax reported recently.
AVVA reduced its share of common shares to 35.95 per cent from 38.21 per cent. Avtovaz owns 85.9 per cent of AVVA, 50 per cent of TsO AFK and 51 per cent of IFK. AVVA owns 10 per cent of TsO AFK. Vnesheconombank owns just over seven per cent of the Russian auto maker and about 16 per cent is held by private shareholders, while around 1.5 per cent is federally owned.

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AVIATION

Airbus, Russia in talks on US$25 billion jet 

Airbus the world's biggest builder of commercial jets, is studying the possibility of Russia's participation in future programmes to build Airbus planes as a full-fledged partner on the basis of shared risks, Interfax News Agency reported, citing the Airbus's representative office in Moscow. 
"Airbus has already submitted a proposal to the government and the Russian aviation industry, which envisions wide Russian participation in designing and producing the new A350 plane and partnership in a programme to turn narrow-bodied Airbus passenger planes into cargo planes," the release read.
"Airbus considers Russia a prospective market and forecasts that, in the next 20 years, Russian airlines will need more than 600 planes with an overall cost of US$46 billion to satisfy the expected increase in the number of flights and replacements of out-dated aviation technology," the release said. 
The turnover of cooperation programmes with Russia could exceed US$800 million over 10 years. In addition, there are grounds to assume that annual turnover of US$110 million will already be reached in 2007, the company said. 
The programmes include numerous research projects, design work, the purchase of materials, deliveries of plane parts and wide cooperation in certification issues.
The accord would generate about US$ one billion a year in revenue for Russian companies through 2030, including US$20 billion for the development of a new passenger plane, US$ three billion in parts orders for Airbus's new A350 airliner and US$ two billion for converting single-aisle passenger planes into cargo carriers, Airbus Senior Vice President, Axel Krein, told reporters in Moscow.
Aeroflot, the biggest airline in eastern Europe and once the operator of the world's largest plane fleet, is seeking proposals for 22 long-haul aircraft and plans to announce next month whether it will buy Airbus's A350 model or Boeing's 787.
The Moscow-based carrier has said it may sign an option for a further 12 airplanes, a total package valued at about US$ three billion. Airbus's proposal may sway Aeroflot's decision, Aeroflot Deputy Chief Executive Officer, Lev Koshl-yakov, said. 
The Russian government owns 51 per cent of Aeroflot, which is run by CEO, Valery Okulov, son-in-law of Putin's predecessor, Boris Yeltsin.

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BANKING

VEB, Development Bank, Roseximbank to unite 

A Russian Bank of Development with charter capital of US$2.5 billion is expected to be set up by the end of 2006, Economic Development and Trade Minister, German Gref, told reporters in Moscow, according to Interfax News Agency reported. 
The new bank will likely be a union of Vnesheconombank (VEB), the current Russian Bank of Development and Roseximbank, he said. Other banks could also join the union, he said. Vneshtorgbank (VTB) will not be included on a list of banks for consolidation, Gref said in answer to a question. "A Russian Bank of Development will be set up this year with a capitalisation of at least US$2.5 billion that will carry out export and import operations and invest in foreign assets," Gref said. Various ways of consolidation are under discussion, but the main one being discussed is a merger of VEB, the current Russian Bank of Development and Roseximbank, Gref said.
He did not comment on who would head the bank. "This will be a new, large institute of development that will work according to special legislation with a relatively large potential," he said. "If this potential isn't enough, we are ready to capitalise the bank to such an extent that it will develop," Gref said in speaking of government support for the new bank.

Alfa Bank worth US$3.5bn but excludes sale 

Alfa Bank shareholders are not discussing the sale of the bank to a strategic investor nor are planning an initial public offering (IPO), Mikhail Fridman, head of Alfa Group, the bank's parent company, and the bank's main shareholder, said at a press conference at the Interfax central office. "An IPO is not right for today. We have internal resources to develop the business," he said. If you use those multipliers that are used to assess the value of the banking business, for example in Ukraine, then Alfa Bank is worth at least US$3.5 billion, Fridman said.
Alfa Bank will borrow no more than US$ one billion this year, Alfa Bank's Rushan Khvesyuk said. He added that Alfa's corporate-banking business will probably grow 30 per cent this year, more than the industry average of 20 per cent to 25 per cent.
Alfa Bank plans to invest US$125 million in its retail-banking business this year, the lender said. Moscow-based Alfa Group is a company with interests ranging from telecommunications to oil and is run by Fridman. He is Russia's second-wealthiest man, worth US$11.4 billion, according to a list of the country's rich published by Finans business magazine recently.
Alfa is also considering teaming up with Sistema to bid for fixed-line phone operator Svyazinvest should the government sell it this year as planned, Fridman said. "It's possible we would," Fridman replied when asked whether Alfa might make a joint offer with Sistema, which controls Mobile TeleSystems, Eastern Europe's biggest mobile phone company. 
Vladimir Yevtushenkov, Sistema's president and billionaire owner, said on February 8th the company is seeking a partner to bid for Svyazinvest. Sistema would consider combining with Alfa, company spokesman, Alexey Kurach, said. 
Alfa-Bank boosted its assets tentatively 40 per cent in 2005 to US$9.84 billion, the bank said. Net profit grew 11.1 per cent to more than US$170 million in 2005, from US$153 million in 2004. Alfa-Bank's credit portfolio grew 45.6 per cent to US$5.97 billion in 2005.
Equity increased 23 per cent to US$870 million from US$707 million during the year. All figures are subject to adjustment, the bank said. Alfa-Bank was Russia's third biggest bank by assets at the end of the third quarter of 2005, according the Interfax-100 ranking of the country's biggest lending institutions, compiled by the Interfax Centre for Economic Analysis.

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ENERGY

Norilsk shares up after Polyus plans to sell 20% of Gold Fields 

Norilsk Nickel shares grew two per cent after Polyus, the gold mining unit that is to be spun off from Norilsk, said it is selling its 20 per cent of South Africa's Gold Fields, the world's fourth biggest gold producer, Interfax News Agency reported.
There are currently three Norilsk representatives on the Gold Fields board. Polyus had revenue to International Accounting Standards (IAS) of US$462 million in 2005. At the start of this year, a number of investment banks issued participation notes and certificates for Norilsk Nickel's ADR holders who will receive Polyus shares after Polyus has been spun off. This grey market values Polyus at US$ 6.5-7.0 billion.
Norilsk Nickel Shareholders registered as of January 1, 2006 will receive shares in the new Polyus at a ratio of 1:1. The free float in Polyus shares will be 45 per cent, as for Norilsk Nickel. 
Interros chief, Vladimir Potanin, and Norilsk Nickel Director General, Mikhail Prokhorov, are the main beneficiaries of Norilsk Nickel and the future independent Polyus. Polyus will receive 10 billion roubles and all of the Russia-based gold mining assets of the existing Polyus, plus 20 per cent of South Africa's Gold Fields from Norilsk Nickel. The new Polyus will receive assets only - Norilsk Nickel will retain all liabilities.
Polyus Gold plans to list on one or more Russian exchanges in April this year and to issue a level one ADR in May. The company thinks it will have enough funding for its projects until 2008-2009, when it plans to start to raising an estimated US$ one billion in capital. But Polyus is not planning an IPO this side of 2010-2011 because its management has said it will not be disclosing its value until then. Polyus plans in time to have its shares listed in New York or Toronto.

Polymetal spins off exploration division 

Polymetal, Russia's biggest silver producer and second largest gold producer, has spun off its exploration division into separate companies, Interfax News Agency reported.
These subsidiaries will focus on a program of active geological exploration to replenish the reserves of existing properties, create an additional raw material base for existing mines, and acquire and study new promising properties, Polymetal said in a press release. Polymetal has set up the Northern Urals Exploration Co. in the Sverdlovsk region and Dukat Exploration Co. in the Magadan region. Exploration of licensed properties in the Khabarovsk territory is handled by Georazvedka.
Northern Urals Exploration will carry out initial exploration within the context of licences received last year for the Galkinskaya and Katasminskaya properties, which are next to the existing Vorontsovskoye mine, as well as the Fevralskoye deposit.
Dukat Exploration will aim to renew and expand the company's reserves in the Magadan region by exploring the flanks of the Dukat deposit, the flanks and deep horizons of the Lunnoye deposit, potential licence properties near existing mines, as well as remote properties in the region. Georazvedka is carrying out exploration work at the flanks and deep horizons of the Khakandzhinskoye deposit, as well as within the bounds of a licence acquired at auction to study the Khakarinskaya field.
Polymetal plans to carry out an initial public offering on the London Stock Exchange in November 2006. The company aims to increase production of silver and gold by 20-30 per cent by 2008 from the 18.9 million ounces of silver and 243,000 ounces of gold it produced in 2005. This growth is expected with existing assets.

Severstal to spend 1.5bn roubles on Kuzbassugol 

The Severstal Group will spend 1.5 billion roubles on developing coal production at Kuzbassugol, which is part of ZAO Severstal Resource, the Kemerovo regional administration's press service said, Interfax News Agency reported. 
The investment comes as part of a new agreement on cooperation in 2006 between Severstal Group and the Kemerovo regional administration.
Severstal Group Director General, Alexei Mordashov, and Kemerovo region Governor, Aman Tuleyev, signed the agreement on February 9th. A total of 540 million roubles will be spent on ensuring safe working conditions at Kuzbassugol enterprises. Another 76.8 million roubles will be spent on the social needs of the company's workers and its pensioners.
Severstal also said it would raise the average salary miners receive by 20 per cent in 2006. The agreement also stipulates that Severstal Group will take part in the fulfilment of national priority projects in education, health care and housing construction that are to be carried out in the Kemerovo region in 2006.
In particular, the company is expected to provide educational and medical equipment to local schools and hospitals, improve the living conditions of miners, take part in a programme to tear down dilapidated housing in Anzhero-Sudzhensk and partially finance the construction of housing in Berezovsky, where the company's coal enterprises are located. A total of 19 million roubles will be spent on these purposes. Another 11.5 million roubles will be spent on carrying out social programmes in the Kemerovo region and the city of Kemerovo itself. Anzhero-Sudzhensk will also receive 20 million roubles to tear down dilapidated barracks. Severstal Group spent 4.2 billion roubles on a similar programme to develop the region in 2005, which is three times the amount it spent in 2004, Kuzbassugol's press service told Interfax. 
The drop in investment in 2006 can be attributed to the fact that Severstal carried out extremely large investment programmes in 2005, mainly at the Severnaya Concentrate Mill, which will begin working in August 2006, the press service said.
Some 336 million roubles were spent on ensuring safe working conditions in 2005 and salaries were raised by 35.3 per cent and totalled an average 15,500 roubles per month at the end of 2005. 
The 2005 investment programme also allocated 73 million roubles for the social needs of workers and pensioners and 67.5 million roubles to carry out social programmes to develop Anzhero-Sudzhensk, Berezovsky and Belovo.
The agreement envisions that coal output at Kuzbassugol enterprises will total four million tonnes in 2006 compared to 3.7 million tonnes in 2005. The management structure of Kuzbassugol will also be transferred from Kemerovo to Berezovsky, where the company's mines are concentrated and a concentrate mill is being built. This is being done to move the management structure closer to production and raise management efficiency.

Transneft to protect Russia's CPC interests 

Transneft President, Semyon Vainshtok, believes that his company is ready to protect state interests in the Caspian Pipeline Consortium if it receives trustee management of Russia's 24 per cent stake in this consortium, Interfax News Agency reported.
"At the moment participation in the CPC is humiliating for Russia. The country has not received a cent for transiting oil through its territory. We realize that it is a free ticket to war, but we are ready to protect Russia's interests and change the situation," Interfax quoted him as saying at a meeting with students at Tomsk Polytechnic University.
He said that CPC losses in its 4.5 years of existence amounted to about US five billion, which has also prevented Russia from receiving revenue from its participation in this project. However, Transneft is ready to send some of its transport volume through the CPC, he said. "In 2005 Transneft increased supplies of oil to the CPC from its transport system 500 per cent, this indicates out ability to help," Vainshtok said. The CPC's Tengiz-Novorossiisk pipeline, running 1,580 kilometres, links deposits in Western Kazakstan with Russia's Black Sea coast. The multinational ownership interest in the CPC is as follows: Russian Federation - 24 per cent, the Republic of Kazakstan - 19 per cent, the Sultanate of Oman - seven per cent, Chevron Caspian Pipeline Consortium Company - 15 per cent, LUKArco B.V. - 12.5 per cent, Rosneft/Shell Caspian Ventures Limited - 7.5 per cent, Mobil Caspian Pipeline Company - 7.5 per cent, Agip International (N.A.) NV -2 per cent, BG Overseas Holding Limited - two per cent, Kazakstan Pipeline Ventures LLC - 1.75 per cent, and Oryx Caspian Pipeline LLC-1.75 per cent. At the moment the Russian stake in ZAO CPC-R, the CPC organizational structure in Russia, is managed by the Federal Property Agency.

Rosneft to independently implement Vankor project 

Russian oil company Rosneft believes it can independently develop the Vankor field in Krasnoyarsk territory, without a foreign partner, Rosneft President, Sergei Bogdanchikov, told journalists, New Europe reported.
"We thought about a partner when we thought that we would chose the northern route to transport the oil from the project. The technological complexity of transportation discouraged us, and we considered inviting a partner," he said. "When it was decided to build (a pipeline) to the south, then we saw that we would be able to develop the field ourselves," he said. However, Bogdanchikov said that he is not categorically rejecting the possibility of a foreign partner for the Vankor project. "In principle, any project is always open to partnership, especially if it has not reached full capacity," he said. Bogdanchikov said that investment in the Vankor project would amount to about US$ one billion this year and US$3.5 billion by 2008. The Rosneft president said that unlike Vankor, the company is not ruling out including a foreign partner in a project to explore and develop the Tuapse depression in the Black Sea - which in this case is France's Total. "There are problems there connected with ministry of defence regulations, nevertheless we are not ruling out having a foreign partner in this project," he said.

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FOREIGN DEBT

India to repay US$1 billion to Russia 

India has agreed to repay US$ one billion of debt to Russia, Economic Development and Trade Minister, German Gref, said, Interfax News Agency reported.
The final agreement is yet to be signed, Gref said, and Russia wants to sign the document by March, when Prime Minister, Mikhail Fradkov, visits India. Russia has agreed to invest the money that India will repay into the Indian economy, Gref said during a visit to the country.

Russia to clear US$12bn in debt to Paris Club in 6 mths 

Russia is drafting proposals on repayment of US$11 billion to US$12 billion in debt to the Paris Club and hopes to do this over six months, Interfax News Agency reported, citing a source in the Finance Ministry. 
The G8 may discuss the use of these funds to write off debt for the poorest countries, he said. The source said the US$11 billion to US$12 billion would clear almost all the Soviet-era debt to the Paris Club that can be repaid ahead of schedule. Germany issued bonds for debt totalling six billion Euro. Payments on these are tied to Russia's payments on its debt. The funds obtained from early debt repayment could become the basis for increasing Paris Club member contributions to the International Development Association, which is part of the World Bank, and the International Monetary Fund, as part of initiatives to write off debt to the poorest countries, the source said.

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FOREIGN ECONOMIC COOPERATION

Moscow, Hanoi to expand trade, economic cooperation 

Russia and Vietnam are determined to take their trade and economic cooperation to a qualitatively new level. "The two countries' governments are expected to negotiate the future of the VietSovPetro joint venture after 2010, when the agreement that established this company expires," Prime Minister, Mikhail Fradkov, said, New Europe reported. 
The Russian and Vietnamese prime ministers will instruct the relevant ministries to work on this, Fradkov told a news conference in Hanoi following talks with his Vietnamese counterpart Phan Van Khai.

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FOREIGN INVESTMENT

Russian companies to expand activity in Azerbaijan

A number of Russian companies will expand their activities in Azerbaijan, Russian President Vladimir Putin, said. "We sell a significant amount of oil and gas to Azerbaijan. I do not rule out that we will continue the sale of hydrocarbons, but we proceed from the assumption that joint activities will develop," Putin said at a press conference in Baku recently, New Europe reported.
The Russian oil company LUKoil operates two fields in Azerbaijan, Putin said. "It seems that their Azeri partners support this activity and I count on this support," Putin said.
The Russian aluminium giant RusAl also plans to make significant investments in Azerbiajan's metallurgy sector, he said. Putin also mentioned machine-building, transport, agriculture and the power industry among promising sectors for cooperation. In particular, Russia is considering priority ways of investment in Azerbaijan's electricity sector, the reconstruction of existing facilities and the construction of new ones, he said.
"I also deem interaction in the financial field important. Some of our banks are negotiating with their Azeri operations there," he said.

Foreign investment up to US$27bn in 2005 

Preliminary data shows that in 2005 the volume of foreign investments in the Russian economy amounted to US$26.8 billion, Russia's Deputy Economy Minister, Kirill Androsov, said recently, at the "round table" discussion in the ministry. The volume of accumulated investments at the end of 2006 amounted to US$96 billion. Androsov said that the largest volume of investments was made into the manufacturing sector (26.6 per cent). The raw materials sector attracted 21.5 per cent of total investments, Interfax News Agency reported.

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PRECIOUS METALS

Yakutia to help Polyus look for gold 

The government of Yakutia will help gold producer Polyus, which is being spun off by MMC Norilsk Nickel, to look for new areas in which to prospect for gold in the mineral-rich Russian internal republic's south, New Europe reported.
Polyus, which acquired three gold mining assets in Yakutia last year, said in a press release that the agreement was reached at a meeting with Yakutia's leadership.
Polyus said that in return it would make as much use as possible of local workers and inputs when carrying out exploration and mining activities in the republic. Polyus presented a medium-term programme for developing its assets in Yakutia. This includes renovating a gold recovery plant at the Kuranakh group of deposits, performing additional exploration at the Kyuchyus and Nezhdaninskoye fields and upgrading the Nezhdaninskoye recovery plant to process ores mined at the field.
Vyacheslav Shtyrov, the president of Yakutia, instructed the republic's government to draft proposals to develop transport and energy infrastructure at the Nezhdaninskoye field.
Polyus and the Yakutia government also decided to sign a gold industry partnership agreement.
Polyus owns 99.2 per cent of the AldanZoloto gold producer in Yakutia, which holds the Kuranakh licence, 50 per cent of South Verkhoyansk Mining Company (SVMC), which holds the Nezhdaninskoye licence, and 100 per cent of Yakut Gold Company, which holds the Kyuchyus licence. The Interros holding company owns 20 per cent of SVMC.
Polyus has gold reserves of 28.135 million ounces (just over 875 tonnes) calculated to Russian standards in Yakutia.

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