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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: 304- (28/04/06)

Massive renovation of infrastructure and the environment 
President Putin has said that his priority over the last two years of his presidency is to use some of the Government's billions of petro-dollars to rebuild roads, ports, the energy system and other infrastructure. 
Much of the existing infrastructure is near collapse after decades of under-investment during the Soviet Union. The Government wants to use Public Private Partnership (PPP) to do this. It passed a special PPP law last year, and Alexander Misharin, Deputy Minister of Transport, said: "One of our main objectives is to promote PPP." 
With only a short time left as Russian President, Vladimir Putin wants a legacy to be remembered by, just like any other re-elected leader, such as Bush and Blair, also soon to depart the scene. Putin wants his monument to be rebuilding Russia's infrastructure on the back of its newly inflated oil and gas income. He knows that only private companies taking responsibility for Public Private Partnerships can hope to succeed in this in the time that Russia and his own ambitions demand. 
Fulfilling this dream could potentially provide a bonanza for foreign, and especially British, project management groups, which have more experience than anyone in this type of contract. Unfortunately, Mr Putin has already left a legacy that will colour Russia's economy for years to come: the Yukos affair. There is a real risk that the rise and fall of the oligarchs, who played a comparable role in Boris Yeltsin's reforms, will be repeated in the rise and fall of private partners. In short, financial exposure from the international market place will be heavily influenced by estimates of the progress of the rule of hand in Russia.
Anyone taking on a project in which the Russian Government and its agencies are customer, partner and regulator will wonder what might happen if it upset or fell out of favour with its partner. Yukos bosses are not the only ones to have faced arbitrary "tax" demands, physical harassment, seizure of assets or being charged with new crimes. The role of corruption is also a big imponderable in acquiring contracts. 
"The smart way to answer Russia's need," says Robert Cole of The Times, "is to go for the up-front consultancy, project management and financial structuring work, but to avoid putting up capital for long-term investment. Bonds to finance the UK Ministry of Defence's new PPP at Aldershot are being marketed with an AAA rating. Bonds to fund a Russian PPP would be nearer ZZZ."

The British angle
The UK is a key player here. It has been attracting a lot of Russian money, notably into the London and South England property markets. Well-heeled Russians now speak English the way that their aristocratic forbears used to speak French. They like to educate their children at British public schools, which are of course in fact very private and exclusive.
British banks, financial advisers and construction companies are now set to make hundreds of millions of pounds from the multi-billion pound PPP programme to rebuild Russia's dilapidated infrastructure. Balfour Beatty and Jarvis, the building groups, have already been approached by the Kremlin over whether they would be prepared to lodge bids with Ernst & Young, the accountancy giant chosen to run the first PPP auction, for an £8 billion contract to build a new high-speed motorway between Moscow and St Petersburg.
As many as 20 similar deals are being considered for this year alone, with a possible total contract value of more than £50 billion - the biggest PPP programme in the world. British companies are favourite to win many of the contracts, as they have the most experience of PPP, first developed by John Major's government in the early 1990s. Evgeni Sidorenko, a partner at Ernst & Young, said: "It's the biggest deal of its kind in the world." 
Other transport projects for the next year include a ring road around Moscow; port terminals at St Petersburg, Novorossiysk and Murmansk; and a toll road outside St Petersburg. The Transport Ministry has 12 projects outlined for the next year, and wants to hold tenders for all of them in the next three months. 
The Government also wants to use PPP to expand its oil and gas export network, which is at full capacity now. The new Novorossiysk and Murmansk terminals will help to improve oil exports, as will a project to upgrade the country's rolling stock. The Government also plans to use PPP to help to finance a £4 billion oil pipeline from Siberia to the Pacific coast, and to build a hydro-electric dam in Siberia. There is now of course a wealth of international experience in this kind of financial proposition.
At a recent conference in Moscow, foreign investors expressed cautious support for the ambitious programme, but warned against being too hasty or optimistic. 
Alexander Yerofeyev, senior manager at KPMG, said: "PPP deals can fail spectacularly, even in developed and transparent markets like the UK. The Government needs to be careful to get it right if it doesn't want several situations like the Channel Tunnel or Wembley Stadium." 

UK bids to rebuild Russia's infrastructure
Russia's Private Public Partnership deals due in the next 12 months

· New ten-lane high-speed motorway between Moscow and St Petersburg. Ministry of transport holding tender. Value US$15bn
· Moscow ring-road. Ministry of transport holding tender. Value US$2bn
· New terminal at St Petersburg port. Ministry of transport holding tender. Value US$700m
· Motorway link to St Petersburg port. Ministry of transport holding tender. Value US$600m
· New Terminal at Novorosslysk port. Ministry of transport holding tender. Value US$1.5bn
· New terminal at Murmansk port. Ministry of transport holding tender. Value US$1.5bn
· New oil pipeline to Pacific coast. Ministry of Industry and energy holding tender. Value US$6bn
· Hydroelectric plant in Krasnoyarsk. Ministry of culture considering tender. Value US$3bn

Russia's creaky infrastructure signals more deals to come

ELECTRICTY
· Russia's energy system is overloaded, leading to city-wide blackouts. UES, the state energy company, wants to attract £20bn in private investment over the next few years.
· Electrical wiring throughout Russia is old and some believe dangerous. One of the most spectacular wiring-related fires was at the 540-metre-high Ostankino TV tower in 2000.

WATER
· Hot water is switched off for two weeks in every home each summer to prevent heating systems breaking down.
· Russia's far east also hit by water shortage, and eastern port of Vladivostok has frequently without tap water last year.

MILITARY
· Much of Russia's military and navy technology needs overhaul. Recent disasters include the 2000 sinking of the Kursk submarine and the sinking of another submarine last year.

AIRCRAFT
· Many Russian planes are in need of servicing, particularly regional airlines, and emergency landings are not uncommon.

UK mulls halting foreign takeover of gas
Russian gas giant Gazprom was believed to be considering a takeover of Centrica in February, the newspaper said. Britain is reportedly closely watching Gazprom, which aims to supply 20 per cent of British gas by 2015. 
The nervousness over supplies may, in part, be a reaction to Gazprom cutting off - temporarily - gas supplies to Ukraine earlier this year because of a pricing dispute.
However, the Government's free market policy - that already has seen most of Britain's utilities sold to overseas buyers - cannot easily be reversed. Shareholders, who have seen Centrica's share price rise gently on the back of persistent takeover speculation, should be heartened by this. 
A more pressing question, however, is how the shares will fare if the takeover speculation evaporates entirely. Since February's results, Centrica's shares have fallen back as the market has digested the nature of the group's problems. 
While wholesale gas and electricity prices have been high, Centrica has suffered because its downstream margins have been squeezed - British Gas's residential supply business actually lost money in the second half of last year. 
The energy group has also lost more than a million customers and has been unable to make the upstream acquisitions on which its strategy depends because of high prices for such assets. 
Gazprom is more and more being used by the Russian government that controls it, as an agent of expanding Russian influence in the world of energy production and supply - already considerable. (See our report on Belarus). Not only does Gazprom already control the world's largest gas reserves, but there is every probability, given the sheer size of the worlds largest nation, that there is far more yet to be discovered. 
This Gazprom story looks like the equivalent for the UK of the recent debacle in the USA over the acquisition of some US docks by a Dubai based investor. So free markets in the west are 'free' only up to a point. 

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AGRICULTURE

Rosselkhozbank plans to lower loan rates for farmers 

The Russian Agriculture Bank (Rosselkhozbank) is planning to lower the rates of loans issued to farmers, Rosselkhozbank CEO, Yury Trushin, said, Interfax News Agency reported recently.
"A session of the bank's executive committee was held at which the decision was made to lower rates on loans (to farmers). We're carrying out the president's instructions," he said. Russian President, Vladimir Putin, called on Rosselkhozbank to lower the rates on loans to agricultural producers at a session of the legislative council. The rate currently amounts to 16 per cent. The parameters of the lowered rate are currently being determined, "but the rate will be acceptable and will not differ too much from the Central Bank's refinancing rate," Trushin said. "It will be one percentage point higher than (the Central Bank's rate) or two at the most," he said. "Loans are in great demand right now and the flow of recipients is enormous. People are truly standing in line starting at five in the morning as the president said," Trushin said, adding that "this means the programme hit the nail on the head and the bank will cope with it." "The bank is currently working on mechanisms to ease the procedure of receiving loans since demand for borrowed funds will grow as the snow melts," he said. As part of the national priority project on the development of the agro-industrial complex, Trushin said Rosselkhozbank has already issued about 2,700 loans, mainly for farmers and people with private plots, who use them to purchase young livestock. About 500-700 loans will be issued annually as part of the project, he said. "This is a minimal figure that will grow in the future," he said.

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CREDIT RATINGS

S&P raises Rosbank rating to B with stable outlook

International rating agency, Standard & Poor's said recently it had raised its long-term counterparty credit and certificate of deposit ratings on Russia-based Rosbank from B- to B and its Russia national scale rating from ruBBB- to ruA- with a stable outlook, New Europe reported.
"The rating upgrade reflects Rosbank's improved capitalisation following the recent Tier 1 capital increase; completed legal and organisational integration of the OVK banking group; and expectations of higher sustained core profitability in the medium term," S&P credit analyst, Irina Penkina, said.
"The ratings remain constrained by Rosbank's sizable concentration in loans and funding, low operating efficiency, challenges in managing an extensive distribution network, untested quality of the fast-growing retail portfolio, and Russia's high operating risks," the agency said.
"The stable outlook reflects Standard & Poor's expectations that, in the beneficial macroeconomic environment, Rosbank will be able to reach a sustainable improvement in its core profitability due to a double effect of higher margin from retail lending, and cost-cutting initiatives," S&P added.
"If the bank demonstrates its ability to withstand the competitive pressure on recurrent profitability better and maintains good asset quality, this could lead to an upgrade," Penkina said.
"The ratings could be lowered if the bank is unable to control the quality of its lending, which is growing quickly in the current favourable economic environment; to reap satisfactory financial benefits from its enlarged distribution base ad infrastructure following the OVK integration; and if there is a discontinuation of financial support from the Interros group to support the bank's rapid growth in a financial or economic stress scenario."
Rosbank's is one of Russia's 30 largest private banks owned and controlled by Interros, Russia's largest non-energy Financial Industrial Group. "In 2005, Rosbank completed the consolidation of its sister banking group, OVK thereby adding retail operations to its traditional large corporate focus," S&P added.

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ENERGY

HydroGenCo, RusAl project may cost US$6 billion 

The cost of the HydroGenCo and Russian Aluminium project to complete Boguchansk hydro power plant and construct an aluminium plant in Krasnoyarsk that will require electricity from Boguchansk could reach US$6 billion, New Europe reported.
This amount includes investment in creating infrastructure, RusAl Director General, Alexander Bulygin, said recently. "This is a top priority project for RusAl. We beat many records with this project," he said. Over 500 hours were spent in negotiations to prepare the project, he said. "I consider it to be objectively exclusive," he added. "We are now concluding the negotiation stage for the deal structure. The project will be the biggest private-government sector partnership to build a hydro power plant in the world," HydroGenCo Chairman Vyacheslav Sinyugin told the press.

Wintershall moving forward on Russian, Turkmen projects 

The board of directors at Achimgaz, a joint venture of Gazprom subsidiary Urengoigazprom and Germany's Wintershall AG, is pleased with construction progress at its production facilities, an Urengoigazprom source said, Interfax News Agency reported.
Achimgaz was set up in July 2003 to develop Achimov deposits at Urengoi gas and oil condensate field found at 3.15 - 3.8 kilometres.
The deposits have a more complex geological structure than the Senomanian and Valanzhin deposits currently in development. Wintershall has the modern technology, equipment, and experience drilling sub horizontal wells at great depths in complex geological conditions, which is important in developing the Achimov deposits.
The directors visited the Achimgaz construction site. A commission headed by production director at Gazprom Vasily Podyuk and Wintershall executive, Bernhardt Shmidt, visited the gas and condensate treatment plant at the first block of Achimov deposits, as well as gas condensate wells and a condensate pipeline.
The Achimgaz directors were pleased with the work at the sites and said that in the two months remaining before the thaw all construction of pipelines and delivery of heavy equipment must be completed.
"In summarising the work by the commission Shmidt said there was complete certainty the facilities would be launched on time and production of Achimov gas and condensate at Urengoi field would begin at the end of this year," he said.
Achimgaz began drilling work at Achimov deposits in March. German specialists are building several wells for Achimgaz. They have delivered housing facilities and drilling equipment. Tyumenburgaz has installed one drilling derrick and launch work has begun. US specialists are helping install the upper drilling structures, making drilling work more efficient, faster, and safer. Urengoigazprom and Wintershall have conducted only exploration work at the deposits up to this point. In the summer of 2005, Achimgaz started the third phase of a project to develop Achimov deposits at the Urengoi gas field, the Urengoigazprom press service told Interfax.

Kuzbass coal producer gets syndicated US$100m loan

Yuzhkuzbassugol, a coal producer from Russia's coal-rich Kuznetsk basin or Kuzbass, has arranged a US$100m loan with a syndicate of banks led by Societe Generale and Paribas to build a new deep mine at the Yerunakovsky-VIII coal field, Vladimir Lavrik, the company's general director, said, Interfax News Agency reported.
"The company has already received the syndicated credit from the banks Societe Generale and Paribas has started to use it to build the mine," Lavrik said. He said this was a five-year loan repayable at 6.5 per cent annually with a one-year grace period.
The funds "should suffice" to build the mine and a rail track to transport the coal, he said. Yuzhkuzbassugol won the rights to the section, which is part of the Yerunakovsky coal filed in the Novokuznetsk district, at a February 2005 auction.
The five million tpy mine should be commissioned in the second half of 2007. Its initial capacity will be three million tonnes of coal per year, rising eventually to five million tonnes.
Yerunakovsky-VIII contains around 57.5 million tonnes of coking coal.
Yuzhkuzbassugol estimates that it accounts for 24.5 per cent of the coal produced at deep mines in the Kuzbass and 17.5 per cent of Russia's entire coal produced that way.
It has 25 enterprises, including 11 deep mines, and supplies most of its coal to steel mills from the Evraz Group, the Mechel Group's Chelyabinsk Iron & Steel Works, Magnitogorsk Iron & Steel Works and Severstal.
Yuzhkuzbassugol reduced coal production 5.5 per cent to 17.1 million tonnes in 2005. The company exported 30 per cent of its coal and sold 70 per cent in Russia, as in 2004.

TNK-BP offers Gazprom 51% of Kovykta

Russian-British oil company TNK-BP has offered Gazprom a controlling stake in a holding company that will develop the Kovykta gas condensate field, TNK-BP Executive Director for Gas Projects, Victor Vekselberg, said at a briefing in Moscow, New Europe reported.
He said that TNK-BP proposes to set up a holding company that will contain four companies. Participation in these four companies is to be distributed in various proportions. Vekselberg said that TNK-BP proposes to give its subsidiary Russia Petroleum a controlling stake in the company that will develop the field, and it is ready to give Gazprom 100 per cent of a transport company that will operate both regional and export pipelines. He said that for the gas sales company TNK-NP is proposing "the same distribution as for the holding company, but gas should be exported via an agent agreement with Gazexport." The fourth company in the holding company will process gas and, according to Vekselberg, third parties may participate in this company. He said that as part of this sub-division "we propose to set up two gas processing companies: one of them based at Sayanskkhimplast, and a second -producing helium - at Geliimash." Vekselberg also said: "We are considering spinning off production of nitrogen fertilizer into a separate company." He said that TNK-BP would like to have a leading position in the company producing Kovykta gas "as we have experience connected with the analysis of geological information for the field, and we think that we will handle this more effectively." Vekselberg refused to say at what price TNK-BP is prepared to offer the Kovykta stake to Gazprom. He said that Gazprom could acquire this stake for cash, or in exchange for assets. He ruled out the possibility of 50 per cent of Slavneft being used in this deal, and said that Slavneft is worth more.

LUKoil to launch phase-3 of Vysotks terminal in July 

Russian oil company LUKoil is to launch the third phase of an oil terminal in Vysotsk in Leningrad region in July 2006, AO RPK-Vysotsk LUKoil-II Deputy general director, Sergei Kiselev, said in St. Petersburg on March 17th, Interfax News Agency reported.
He said that the launch of the third phase would include the launch of an additional reservoir park of eight reservoirs. Four of these will have capacity of 15,000 cubic metres, two - 20,000 cubic metres, and two - 10,000 cubic metres. Kiselev said that with the launch of the third phase the total reservoir capacity at the terminal will amount to 460,000 cubic metres and the terminal's capacity will increase to 12 million tonnes of products per year. He also said that in January-February 2006 LUKoil exported about 1.4 million tonnes of oil products through Vysotsk. In particular, in February LUKoil shipped two tankers from the terminal, with about 50,000 tonnes of diesel for TNK-BP. "There have not yet been any TNK-BP orders for March," he said. LUKoil launched the first phase of the Vysotsk terminal in June 2004 with a capacity of 4.7 million tonnes of oil and oil products per year. The terminal was built to export cargo to Europe and the US. The company launched the second phase of the terminal in April 2005, increasing its capacity to seven million tonnes per year. After the launch of the third phase in 2006, the complex will include two rail loading platforms, 17 reservoirs, three service docks - including two for tankers of 47,000 tonnes and 80,000 tonnes. 

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EUROBONDS

Alfa Bank places Eurobonds, plans US$250m loan 

Russia's Alfa Bank has placed US$350 million in Eurobonds at LIBOR + 1.6 per cent, secured by the bank's payment rights, a source in banking circles said, Interfax News Agency reported.
Alfa Bank appointed Dresdner Kleiner Wasserstein and Merrill Lynch as the organizers of a debut issue of Eurobonds secured by diversified payment rights (DPR), a source in banking circles said. The issuer of the Eurobonds is the SPV Alfa Diversified Payment Rights Finance Company S.A., and the guarantor is ABH Financial Limited (the parent company of Alfa Bank). The Eurobonds are issued under regulation 144A/RegS. Alfa Bank was in fifth place in terms of assets in the Interfax-100 rating of Russia's largest banks in 2005. Alfa Bank is planning to raise a US$250 million syndicated loan in May and June, said Interfax. Alfa Bank confirmed that it plans to raise a loan for about US$250 million. The syndication process is due to start in May. A bank representative did not reveal the timeframe for the loan or other details of the transaction.

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FOREIGN DEBT

Russia plans repayment

Finance Ministry officials said recently that Russia could pay an additional US$12bn of the country's outstanding US$25.2bn debt to the Paris Club of creditor nations this summer, the International Herald Tribune reported on April 7th.
The early repayment underscores the rebound in Russia's finances since an economic collapse in 1998, a turnaround largely due to high prices for oil and gas, its main exports.
Sergei Storchak, the deputy finance minister, was quoted by Russian news agencies as saying that the issue would be discussed at the May session of the Paris Club of lender nations and that the sum could be paid by the end of August.
Prime Minister, Mikhail Fradkov, has ordered negotiations to be held on paying the debt, a spokeswoman for the Finance Ministry said.
The planned payment constitutes a large chunk of Russia's outstanding debt to the Paris Club, which also includes some 6bn Euro, or US$7bn, that the German government has converted into bonds, the spokeswoman said. She declined to give her name, citing the ministry's policy about speaking to the press.
The deputy head of the ministry's press service, Vitaly Krasnyuk, said the time frame proposed by Storchak was "quite realistic."
Russian officials have said they would use money collected in a special oil revenue fund to pay the country's Soviet-era debt to the Paris Club.
Moscow is seeking to retire the debt early, while several creditor countries have asked Russia to pay a premium to compensate them for lost interest payments.
Vladimir Dmitriyev, chairman of the state-controlled, Vneshtorgbank, which deals with foreign debt payments, expressed optimism for the planned negotiations.
"Members of the Paris Club have shown political will to meet Russia halfway and settle the debt ahead of time," Dmitriyev was quoted as saying.
In May 2005, Russia reached a deal to pay off US$15bn of the US$43bn in Soviet-era debts it owed to the Paris Club.

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FOREIGN RELATIONS

Russian-Chinese relations developing steadily

Russian-Chinese relations are probably at their strongest ever, Russian Deputy Foreign Minister, Alexander Alexeyev, said in an article published in the Nezavisimaya Gazeta newspaper recently.
"They have been expanding steadily in a wide variety of areas over the past 15 years. It seems to me that Russia and China now have the best relationship they have ever had and the governments of both countries will continue to develop them," he said. 2006, the Year of Russia in China, "will be a truly unique period for Russian-Chinese ties," Alexeyev said. "This is a 12-month period that will include a wide range of political, public, economic and cultural events featuring Russian symbols on the territory of the People's Republic of China," the deputy foreign minister said.
"The first two months of the Year of Russia in China were a great success," he said.
Cross-border trade between Russia and China increased by more than 30 per cent in 2005, exceeding US$5 billion, Vneshtorgbank (VTB) President and Chairman, Andrei Kostin, said at a Russian-Chinese economic forum in Beijing recently, Interfax News Agency reported. 
VTB has concluded settlement agreements on cross-border trade with several Chinese banks in the two countries' national currencies, Kostin said. "This creates additional opportunities to broaden bilateral trade, and is an important measure to enhance demand for our currencies, which will ultimately strengthen them and make them convertible," he said. Kostin also said positive tendencies have made themselves felt in the bank's cooperation with Chinese lending organisations on international financial markets. In 2004-2005, China's major banks - the Bank of China and Agricultural Bank - were among the banks that extended the VTB a syndicated credit worth over US$1 billion. Partnership between the VTB and Chinese lending organisations is broadening rapidly in new areas.

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MINERALS & METALS

Lebedinsky GOK buying 8.67% of Oskol steel works 

Lebedinsky GOK (LGOK), a major iron ore producer from Russia's Belgorod region, is buying 370,148 common shares or 8.67 per cent of the charter capital in Oskol Electrometallurgical Combine (OEMK), a steel works from the Belgorod region, for US$139 million, LGOK said in an official statement, Interfax News Agency reported.
The statement said that the deal was signed on March 21st. Elbridge Investments (Cyprus) Limited sold the shares. Directors at LGOK have decided to buy back 1,859,401 shares or 9.944 per cent of the company' charter capital. The company will offer to buy the shares for US$223.1 a share between April 25 and June 5 inclusive. The whole block could cost US$414.6 million. It is thought that LGOK is buying the shares in order to consolidate upstream assets that will be part of a mining holding being set up by the businessman Alisher Usmanov. LGOK and OEMK are controlled by the company Gazmetall, in which Usmanov is a major shareholder. Novolipetsk Steel sold its 11.86 per cent of LGOK to OEMK-Invest for US$400 million at the start of this year. Prior to that deal, Gazmetall controlled 81.51 per cent of LGOK. Gazmetall currently controls 70 per cent of OEMK.

MMK reduces RAS net profit 10.8% in 2005 

Magnitogorsk Iron & Steel Works (MMK) reduced net profit to Russian Accounting Standards (RAS) 10.8 per cent in 2005 to 29.82 billion roubles, the company said in a financial report, to be presented to shareholders at their annual meeting. The report said MMK had to contend with a competition war on its sales markets and a price war with iron ore suppliers last year, New Europe reported.
It said steel prices, which had grown in recent years, started to plummet in the second quarter of 2005. MMK produced 49,000 tonnes less metal than planned in view of the global over-production crisis. Revenue was 3.5 billion roubles less than targeted, although operating profit was 9.6 billion roubles more than targeted because MMK managed to reduce costs by 13.1 billion roubles. Product profitability was 12.6 percentage points higher than planned. According to a conservative forecast for 2006, MMK does not plan to raise metal product prices even though raw material prices are forecast to rise. Operating profit would fall 10.8 billion roubles to 31.4 billion roubles, revenues would be 143.9 billion roubles and costs 112.5 billion roubles. MMK plans to sell 10.6 million tonnes of commercial metal in 2006, exporting 5.1 million tonnes to the non-CIS and 300,000 tonnes to the CIS. Exports of long products should quadruple in 2006, flat hot-rolled products should grow eight percent and cold roll 205, and billet sales should fall 52 per cent. MMK said in a statement that its board of directors had approved candidates for the new board to be elected at the AGM, which took place on April 21st. Four of them are independent candidates: Andrei Gorodissky, who is head of the law firm Gorodissky & Partners; Kirill Levin, deputy chairman of Gazprombank; Zumrud Rustamov, vice president of Siberian Coal and Energy Company (SUEK); and Sir Brian Fall, who was British envoy to the South Caucasus in 2003 and is an advisor to Rio Tinto. Other candidates are: Nikolai Lyadov, who is MMK's security chief; Sergei Krivoschekov, the deputy general director for strategic planning and ownership; Viktor Kutischev, commercial director; Andrei Morozov, deputy chairman of the board of directors; Viktor Rashnikov, chairman of the board; Gennady Senichev, general director; and Rafkat Takhautdinov, MMK's first deputy general director. MMK has said it plans to increase the number of independent directors, partly in connection with requirements for companies planning to enter the stock market.

Mechel halves ADR offering to US$350m 

No. 5 Russian steel maker Mechel has halved an ADR offering to US$350 million, Interfax reported recently, citing a market source.
The source said he thought this was because the price that had emerged during the placement was on the low side. "The price range is US$21.5-22 per ADR, and it looks like the price will be US$22," the source said. Mechel's ADR were trading for US$24.59 each on the NYSE. The source said the order book had been "re-subscribed several times." USB is organising the placement. UBS AG originally planned to sell ADR and derivatives for up to US$1 billion in Mechel shares, including around US$700 million in shares and between US$250 million and US$300 million in three-year convertible bonds. The coupon on the bonds could be 9.5-10.5 per cent annually. The order book for the bonds closed recently. Analysts said they thought Vladimir Iorich, one of Mechel's core shareholders with 42.2 per cent of the company, was probably selling a 30 per cent stake in Mechel. Mechel has said Igor Zyuzin, chairman of the board of directors and the company's other main beneficiary, will increase his stake in Mechel to controlling.

Murmansk region, Hydro discuss aluminium plant 

Governor of Murmansk region, Yury Yevdokimov, and representatives from Hydro of Norway met recently to discuss the construction of an aluminium plant in the Kola Peninsula, New Europe reported.
"We received a very interesting proposal from our Norwegian partners about the possible construction of an aluminium plant in the region," the governor said. The project will include two phases for the plant each with the capacity to produce 300,000 tonnes of aluminium annually, he said. In addition, a thermal power station will be built that will use gas from the Shtokman field. Part of the electricity will be used in production and the rest will be used to supply heat in Murmansk. "I think it is positive that construction of the first phase of the project coincides with the first phase at Shtokman," Yevdokimov said. "There are some nuances in the Hydro proposal that we are not completely happy with," he said. For example, Hydro proposed bringing in raw material from Komi, while the Murmansk regional authorities consider it a better idea to use their own raw material reserves. "We have natural raw material reserves and man-caused reserves, namely, nepheline sand (Apatit production waste)," he said. The regional governor and Hydro decided a working group should be set up to develop an additional agreement to the memorandum of cooperation signed in 2005, Yevdokimov said.

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