Russia
Russia 090317
Basic Political Developments
• China to launch drill with Russia - China and Russia will launch a joint anti-terror drill in Northeast China this year, a defense official has said.
• Development of friendly Russia-NKorea relations contributes to peace - N Korean newspaper
• Putin to meet Mongolian PM - Russia's Prime Minister Vladimir Putin will meet with his Mongolian counterpart Sanjaa Bayar today. The meeting will be held during the Mongolian PM's working visit to Russia
• War Games Start - Russia and Western European countries began rival war games Monday, less than two weeks after NATO ended a seven-month freeze on relations with the Kremlin.
• Bushehr plant poses no threat to NPT: Moscow - Spokesman for Russian company, Rosatom Sergei Novikov, said on Monday that Bushehr Nuclear Power Plant poses no threat to the nuclear Non-Proliferation Treaty.
• Russia says no plans to continue highly enriched uranium agreement with US - Russian Rosatom press-secretary Sergey Novikov has said Russian has no plans to negotiate new contracts for the reprocessing of highly enriched uranium into uranium fuel for nuclear power plants
• Lavrov discusses econ rehabiltiation projects in Kabul
• Russia, Afghanistan join forces to fight drug trafficking
• Nigeria, Russia plan joint commission to promote ties
• Russia to support Kazakhstan initiatives during its presidency in OSCE
• Russian destroyer heads home after Somali anti-piracy mission
• Politics key to Russia-Turkey nuclear plant deal - Turkey's domestic political agenda looks set to play a key role in the government's decision over whether to give the go-ahead for a Russian-led consortium to construct the country's first nuclear power plant.
• At G20, Kremlin to Pitch New Currency - The Kremlin published its priorities Monday for an upcoming meeting of the G20, calling for the creation of a supranational reserve currency to be issued by international institutions as part of a reform of the global financial system.
• Thai court holds hearings on alleged Russian arms dealer
• In Interview, Bout Denies Links to Sechin - Suspected arms dealer Viktor Bout denied ties to Deputy Prime Minister Igor Sechin in an interview published Monday.
• Independent Russian language Inter Russia TV Channel begins broadcasts to Latin America
• Medvedev tells banks to stop harassing companies
• Medvedev Attacks 'Selfish' Banks - President Dmitry Medvedev on Monday moved to defend struggling producers from private lenders that resist rescheduling payments, saying it was not a time for "corporate selfishness."
• Medvedev's Corruption Scissors
• Prosecutors Say Nabiullina's Venture Firm Misused Funds - The Prosecutor General's Office urged Economic Development Minister Elvira Nabiullina on Monday to stop the misuse of government funds at a venture company that she oversees.
• Lebedev hopes to be mayor of Olympic city - The Russian billionaire and Evening Standard owner Alexander Lebedev announced yesterday that he plans to stand as mayor of Sochi, the Russian Black Sea resort that will host the 2014 winter Olympics.
• Russian diplomat takes queries at UVU on Moscow's foreign policy - The Russian Federation's ambassador to the United Nations spoke briefly about Russia's foreign policy history, but spent the bulk of the hour during his guest lecture at Utah Valley University on Monday morning answering questions about controversial international relations overtures made by the Russian government in the past year.
• The Kremlin's Failing Monopoly - Ever since Vladimir Putin came to power a decade ago, the Kremlin regime has relied on two pillars: the security forces and energy exports. By suppressing internal rivals and absorbing their assets, the regime created a dual monopoly.
• A New Minister for an Old Industry - Will Yelena Skrynnik Succeed in Reforming Russia's Agriculture Industry?
• Kommersant Cyberattack - Kommersant's web site stopped functioning Monday because of online attacks, said Georgy Ivanov, head of the newspaper's legal service.
• Convictions Grew Last Year - Russia's courts convicted 941,933 people last year while just 10,027 were acquitted, the Supreme Court's court department said.
• Court to rule on Khodorkovsky appeals - A Moscow court will announce on Tuesday its ruling over the appeals filed on behalf of former Yukos owner Mikhail Khodorkovsky and his business partner, Platon Lebedev.
• Reforming of Russia’s GRU special-task divisions continuing
• United Russia Loses Murmansk Election
National Economic Trends
• Russian Ruble Strengthens Against Dollar-Euro Currency Basket
• RF Finance Ministry presents '09 specified Fed budget
• Govt to submit anti-crisis plan along with budget adjustments to Duma –Putin
• Output Shrinks 13.2% in February - Russian industrial output posted the second-fastest contraction in the series' seven-year history in February, but the pace of the slowdown eased a little from January, State Statistics Service data showed on Monday.
• Shuvalov comments on lending by state banks
Business, Energy or Environmental regulations or discussions
• UralSib Market Overview: The bear parties on
• Russian Banking Sector: Temporary Relief or Serious Cure?
• Sberbank, VTB Climb After Report Banks May Not Need Share Sales
• Russia to Let Banks Use Loans as Tier 1 Capital, Vedomosti Says
• Troika Dialog Seeks to Raise $172 Million in Russian Bond Sales
• Fitch Revises Open Investments' Outlook to Negative; Withdraws Ratings
• COMMENT: When loans go bad in Russia - Non-performing loans (NPLs), previously of interest only to banking analysts, are becoming a macro issue. Russian companies' $220bn of near-term debt repayment obligations, when combined with January's 9% drop in GDP, will drive NPLs to 15% and require a $90bn injection to recapitalize banks. Much of this injection will finance capital outflows, implying another 15-20% drop in the ruble despite lower import levels.
• Russia is expected to witness the bulk of CEE Financial Services M&A
• Rosneft to drop TGK11 legal challenge
• RusHydro: Share placement suspended on technical issues
• RusHydro: State might support realization of the BEMO project
• Distribution Companies: Introduction of RAB tariffs may be accelerated
• Tariff Service to bring forward rate-of-return tariffs for distcos
• RusAl may pledge its stake in BEMA joint project for VEB loan
• USW, Russian steelmaker Severstal to resume talks
• Norilsk in Australian Talks
• Moscow starts to shut up shop - Soaring unemployment and a shrinking economy point to long winters of discontent
• First Russian high-speed train arrives to Moscow - First Russian high speed train has accomplished its first experimental trip from St. Pteresburg Moscow, the Interfax news agency reported on Monday. The train is called the Sapsan or Peregrin Falcon.
• UPDATE 1-Russia's move to unseat Aeroflot CEO raises alarm
• Peter Hambro Mining: Production Update with Sweet Aftertaste
• FAS allows Prokhorov to increase stake in Polyus Gold to 75%
• Russia's GV Gold boosts stake in subsidiary Inakit to 99.97%
• Crisis could spark new Russian 'gold rush': papers - Russians falling on hard times could soon be seeking their fortunes as gold prospectors in a Soviet-era prison region if legislative changes are approved, newspapers speculated on Monday.
• Fertiliser sector news
• GAZ fails to restructure bond
• Government to discuss AvtoVAZ's troubles on Tuesday
• Ford Forecasts Russian Sales May Plunge 50% as Economy Falters
• Kia Aims to Increase Vehicle Sales in Russia by 13% This Year
• AFI Avoids the Worst Of Developers' Woes
• X5 Retail Group: May settle debt for shares
• Government view on mobile tariff situation
• Ernst & Young begins Svyazinvest appraisal
• MTS and Comstar merger - talks revived?
• Russian operators want to renegotiate Apple iPhone deal - paper
• Altimo to decrease stake in Turkcell below 5% to meet US court's decision
Activity in the Oil and Gas sector (including regulatory)
• Gazprom and Rosneft will repay credits regardless of oil price - Mr Sechin
• Oil producer Russneft faces bankruptcy
• Russneft: Sberbank representatives likely to join the board
• Novatek 4Q08 IFRS results preview (2008, 4Q)
• Novatek Fourth-Quarter Net May Fall on Ruble, Prices: Outlook
• Tatneft: Trying to attract $1.5 bln loan - External funding needed to construct Nizhnekamsk refinery on time.
• FAS give Sistema green light to buy Bashkirian Oil assets
• New tug for Murmansk oil-tankers
• Venezuela and Russia Team Up for Orinoco Exploration Activities
• Lukoil bought Prosperity Capital out of RITEK – Graifer
• Lukoil poised to pay 2008 dividend
Gazprom
• Gazprom turns down invitation to join Nabucco project
• Gazprom may have transferred Severenergia option to Novatek
• Authorities silent over ‘NIS’ balance sheet - Debt not to be forgiven by Russians
• Russian-Serbian company until end of March - Signing of documents over setting up of a mutual company of ‘Serbijagas’ and Russian ‘Gazprom’ and beginning of making of the feasibility study for construction of the ‘Southern Stream’ stretch of the gas pipeline are expected to take place until the end of the month, ‘Blic’ learns.
• Gazprom's non payment problems may be mounting - Consumers in Moscow and Moscow Region owe Gazprom some R5bn ($143m) for gas delivered, the Kommersant daily reports.
• Gazprom to suspend gas supplies to non-payers
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Full Text Articles
Basic Political Developments
China to launch drill with Russia
By Wang Linyan (China Daily)
Updated: 2009-03-17 08:32
China and Russia will launch a joint anti-terror drill in Northeast China this year, a defense official has said.
"The defense ministries of the two countries are currently discussing details of the drill," Qian Lihua, director of the Ministry of Defense's foreign affairs office, said.
The drill, the second between the two troops, is aimed at promoting bilateral strategic partnership, Qian said.
It will also mark the 60th anniversary of the establishment of Sino-Russian diplomatic ties, he added.
The first such drill was held in Vladivostok in Russia and East China's Shandong in August 2005.
In 2007, the two countries joined a multinational anti-terror drill that also brought together Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.
Qian said China will hold more exercises with its neighbors this year, as it is keen on promoting high-level military exchanges. He, however, did not elaborate.
China has strengthened military ties with its neighbors by participating in regional exercises, Qian said.
Since 2002, the country has joined 17 military exercises and four ground training drills with its neighbors.
The country has sent teams to observe military drills in India and Pakistan, as well as "Cobra Gold" drills between Thailand and the United States.
China and Australia will strengthen cooperation in fighting terrorism, disaster relief and peacekeeping, Chen Bingde, chief of the general staff of the People's Liberation Army, said yesterday. He made the remarks during a meeting with Australian Chief of the Army Ken Gillespie.
Development of friendly Russia-NKorea relations contributes to peace - N Korean newspaper
PYONGYANG, March 17 (Itar-Tass) - The development of friendly relations between Russia and North Korea makes a contribution to promoting peace and security in North East Asia, writes on Tuesday the leading republican newspaper Rodong Shimboon on the occasion of the 60th anniversary of the Agreement on Economic and Cultural Cooperation between Moscow and Pyongyang.
Partnership between Russian and North Korea in these spheres “has been actively developing over the past few years”, the newspaper emphasised. The publication points to regular guest performances of Russian show biz companies in North Korea as an example of bilateral cultural exchanges.
In the opinion of the article’s authors, a project of joint reconstruction of the railway from the port of Rajin to the Khasan border station, launched last autumn, opens new prospects for cooperation in the economic sphere.
Rodong Shimboon writes, “Russia is now engaged in work … to build a powerful state as well as to ensure security of the country and national interests”. “Special attention is given in this connection to consolidating the state’s defences,” the newspaper stresses, noting that Russia “takes measures to update military aviation materiel and to reinforce the combat potential of strategic missile troops”.
“Korean people sincerely wish the Russian government and people successes in developing the country and ensuring its stability,” Rodong Shimboon writes by way of conclusion.
The KCNA state news agency reported on Tuesday that North Korean prime minister Kim Yong-Il, now on a visit to China, sent earlier a congratulatory telegram to his Russian counterpart. Kim expressed confidence in his message that “relations of cooperation between the two countries will develop and consolidate, in future too, in the spirit of documents, signed by the two countries”.
Putin to meet Mongolian PM
RBC, 17.03.2009, Moscow 09:57:15.Russia's Prime Minister Vladimir Putin will meet with his Mongolian counterpart Sanjaa Bayar today. The meeting will be held during the Mongolian PM's working visit to Russia. During their talks, the parties are expected to discuss a whole range of bilateral cooperation issues with a special emphasis on the economic component, cooperation in the mining and other industries, including agriculture. They will also consider establishing joint ventures and promoting Russian corporate capital on the Mongolian market.
War Games Start
Russia and Western European countries began rival war games Monday, less than two weeks after NATO ended a seven-month freeze on relations with the Kremlin.
Russia deployed more than 5,000 troops in land and air exercises in the Kemerovo region, while NATO-member Norway hosted 7,000 soldiers from 12 countries in an exercise simulating an invasion to control Arctic oil fields. (Bloomberg)
Bushehr plant poses no threat to NPT: Moscow
MOSCOW (IRNA) - Spokesman for Russian company, Rosatom Sergei Novikov, said on Monday that Bushehr Nuclear Power Plant poses no threat to the nuclear Non-Proliferation Treaty.
Novikov told Voice of Russia on Monday that Russia has struck a special deal with Iran under which the NPP spent fuel will be returned to Russia.
He said, “That’s a very important point for our western partners and after signing the deal, the problems experts had on the NPP, were removed.”
He added that uranium enrichment and using spent fuel are two points making nuclear non-proliferation system in the nuclear fuel cycle vulnerable.
He noted that Russia is prepared to deliver required amount of nuclear fuel to the NPP within all span of life of its reactor.
Russia says no plans to continue highly enriched uranium agreement with US
Rencap, Russia
Tuesday, March 17, 2009
Russian Rosatom press-secretary Sergey Novikov has said Russian has no plans to negotiate new contracts for the reprocessing of highly enriched uranium (HEU; from weapons) into uranium fuel for nuclear power plants (NPP; low enriched uranium [LEU]).
Russia now supplies 50% of fuel for US NPPs, thus providing fuel for 5% of the total electricity generated in USA. The only contract between Russia and USA was signed under a 20-year HEU agreement (also referred to as Megatons to Megawatts) on 18 Feb 1993. The contract aims to convert 500 tonnes of HEU, the equivalent of approximately 20,000 nuclear warheads, from dismantled Russian nuclear weapons into LEU, which is then converted into nuclear fuel for use in US commercial reactors. The agreement expires in 2013, and Russia will not sign a further contract, preferring to process uranium from natural uranium ore.
Rosatom expects the US and Russia to finally sign the agreement on peaceful usage of nuclear energy, prepared in 2008 but revoked by former US president George W Bush. Political disapproval of the contract was aired after the Georgian conflict, but we think the restart of Russian-US relations could be positive for new nuclear cooperation. Action: We believe that the cancellation of the HEU agreement was widely expected and could be positive for Russian uranium producers if new agreements and cooperation with the US are finalised. According to NTI, Siberian Chemical Combine, Mayak, Krasnoyarsk Electrochemical plant and Ural Electrochemical Combine are involved in the HEU blend-down process. Processors of uranium fuel, including Machine plant Electrostal and NZHK would likely benefit from any new agreement.
Lavrov discusses econ rehabiltiation projects in Kabul
MOSCOW, March 17 (Itar-Tass) - Russian Minister of Foreign Affaris Sergei Lavrov discussed the possibility of Russia's more active participation in the economic rehabilitation projects of Afghanistan in Kabu on Monday.
A Russian Foreign Ministry official has told Itar-Tass that Lavrov, during his working visit to Afghanitan, was received by President Hamid Karzai, held talks with his Afghan counterpart Rangin Dadfar Spanta, and met with the Interior Minister, and the chairmen of the upper and lower housees of the Afghan parliament.
"The sides had a detailed exchange of views on the development of the situation in Afghanistan on the eve of presidential and provincial elections. The sides expressed a common point of view on the need for constructive interaction between the executive and legislative branches of power in Afghanistan within the electon campaign period in the interests of stabilising Afghan internal political situation," the Ministry official said.
"The need was also emphasized for stepping-up international efforts to assist the Afghan government in ensuring security and socio-economic rehabiltiation of the country," the official pointed out.
Lavrov informed the Afghan leadership of the implementation of the accords between Russia and NATO about transit across Russianterritory of non-military cargoes intended for the needs of foreign military contingents in Afghanistan. The Russian side welcomed the agreement reached recently betwee the Afghan Defence Ministry and the International Security Assistance Force on coordination of combat actons.
"The sides pointed out special importance of regional cooperation, including Afghan-Pakistani one, in fighting terrorism and drugs-related crimes as well as that of the forthcoming special conference on Afghanistan to be held under the auspices of the Shanghai Cooperation Organisation. The conference is called upon to give a fresh impetus to interaction on the Afghan track with the participation of Afghanistan's neighbours. Both sides stated their striving to broden bilateral political and interparliamentary contacts. They discussed prospects for Russia's more active participation in projects for the rehabilitation of the Afghan economy," the Russian Foreign Ministry official said.
Sergei Lavrov and Rangin Dadfar Spanta signed an agreement between Russia and Afghanistan on cooperation in efforts to combat the trafficking of narcotics, psychotropic substances and their precursors. The two Ministers pointed out the importance of the document which serves as a stimulus to arrangements for purposeful joint activities in this major area of cooperation.
The Russian Foreign Minister also attended a ceremony marking the opening of an exhibition of archival materials. The exhibition is dedicated to the 90th anniversary of the establishment of Russo-Afghan diplomatic relations.
Russia, Afghanistan join forces to fight drug trafficking
RBC, 17.03.2009, Moscow 10:58:36.Russia and Afghanistan have signed an agreement on fighting drug trafficking and the illicit trade of psychotropic substances and their precursors. The accord was signed by Russia's Foreign Minister Sergei Lavrov and Afghan Foreign Minister Rangin Dadfar Spanta during the Russian minister's visit to Kabul. Both sides stressed the particular importance of the document as a major incentive for joint efforts in the area. They also underscored the significance of regional cooperation in counteracting terrorism and drug trafficking, especially between Afghanistan and Pakistan, and hailed the upcoming ad hoc conference to be held in Afghanistan under the aegis of the Shanghai Cooperation Organization.
Meanwhile, Lavrov also met with Afghani President Hamid Karzai, and the parties exchanged their opinions on the situation in Afghanistan in the run-up to the presidential elections. They emphasized the need for further international efforts to help Afghanistan ensure security and social and economic recovery. With this in mind, the parties vowed to expand cooperation.
Nigeria, Russia plan joint commission to promote ties
2009-03-17 00:15:54
LAGOS, March 16 (Xinhua) -- Nigerian Minister of Foreign Affairs Ojo Maduekwe said his country and Russia have concluded plans for the establishment of a joint commission to further deepen bilateral relations.
According to the reports of the News Agency of Nigeria on Monday, Maduekwe left the country for Moscow to meet with Russian officials on the establishment of the commission on Sunday.
The foreign minister said that the two countries would discuss, among others, nuclear technology for peaceful purposes, oil and gas as well as trade and investments.
"We have just entered into some agreement with the Russian government in the oil and gas sector, of course you know the Russians are leading players in the oil and gas sector and they have done very well," he added.
The official also disclosed that consular issues affecting Nigerian residents in Russia would be discussed.
Russia to support Kazakhstan initiatives during its presidency in OSCE
[14:45] 16.03.2009, Kazakhstan Today
|Almaty. March 16. Kazakhstan Today - Russia will support in every possible way the Kazakhstan initiatives during its presidency |
|in the Organization for Security and Cooperation in Europe (OSCE). The Minister for Foreign Affairs of the Russian Federation, |
|Sergey Lavrov, said on March, 14th in Moscow at the meeting with the Minister for Foreign Affairs of Kazakhstan, Marat Tazhin, |
|the agency reports citing the press service of the Ministry Foreign Affairs of Kazakhstan. |
|According to the press service, on March, 14th in Moscow during the working visit M. Tazhin held the meeting with his Russian |
|counterpart S. Lavrov. |
|During the meeting Foreign Ministers considered the current condition and prospects of further development of both bilateral and|
|multilateral cooperation between the Republic of Kazakhstan and the Russian Federation. |
|As for the forthcoming presidency of Kazakhstan in OSCE, the Minister of Foreign Affairs of the Russian Federation stated that |
|"Russia will support in every possible way the Kazakhstan initiatives of counterparts during its presidency in OSCE." |
| |
|Russian destroyer heads home after Somali anti-piracy mission |
| |
|VLADIVOSTOK, March 17 (RIA Novosti) - Russia's Admiral Vinogradov destroyer and the Boris Butoma tanker have completed their |
|anti-piracy mission around the Horn of Africa and are on their way home, Russia's Pacific Fleet press service said on Tuesday. |
|The ships from Russia's Pacific Fleet have been involved in the anti-piracy operation off the Somali coast since the beginning |
|of January and are heading to Indonesia, where they will visit the port of Jakarta on March 24-28 before returning to their main|
|base in Vladivostok. |
|Earlier a Navy spokesman said that the Admiral Panteleyev destroyer would set sail from Vladivostok in April to take part in the|
|anti-piracy operations in the Gulf of Aden. |
|Both warships are Udaloy class missile destroyers, armed with anti-ship missiles, 30-mm and 100-mm guns, and Ka-27 Helix |
|helicopters. |
|According to the UN, Somali pirates carried out at least 120 attacks on ships in 2008, resulting in combined ransom payouts of |
|around $150 million. |
|Around 20 warships from the navies of at least a dozen countries, including Russia, India, the United States, China and Arab |
|states are involved in anti-piracy operations off Somalia, which has been ravaged by years of civil war. |
|Somalia's new unity government plans to tackle the problem of piracy by creating a maritime corridor through the country's |
|territorial waters with international assistance. |
|Politics key to Russia-Turkey nuclear plant deal |
| |
|David O'Byrne
in Istanbul |
|March 17, 2009 |
| |
|Turkey's domestic political agenda looks set to play a key role in the government's decision over whether to give the go-ahead |
|for a Russian-led consortium to construct the country's first nuclear power plant. |
| |
|With Turkey's local elections scheduled for March 29, the government of Prime Minister Tayip Erdogan looks unlikely to announce |
|any final decision on the project until April at the earliest, aware that the deeply unpopular project has already polarized |
|public opinion. |
| |
|Despite protests from other pre-qualified potential bidders - including AECL, Suez Tractobel and Unit Investment - that the |
|global credit crisis meant they needed longer to prepare their bids, last year's tender was completed on time, with a consortium|
|of Russia's state-owned Atomstroyexport, Inter RAO and Turkish company Park Teknik registering the sole bid to build the plant |
|at Akkuyu on Turkey's east Mediterranean coast.
|
| |
|Slated to eventually consist of four separate units of 1,200 megawatts (MW) each, the planned plant would go a long way to |
|meeting Turkey's expected growth in power demand albeit at a price, that of a guaranteed off-take which will see Turkey's power |
|grid take 100% of the power the plant produces at an agreed fixed price up to 2030. In view of the long-term guarantee, the |
|consortium's bid price of 21.16 euro cents/kilowatt hour (KWh) caused further controversy, being considerably higher than the |
|4–14c/kWh that private companies currently sell power into Turkey's slowly liberalising power market. That controversy has |
|scarcely been dampened by the consortium's subsequent offer to drop its bid to 15.35c/kWh.
|
| |
|"The new bid is still expensive, but at least it is on the threshold of being acceptable," says Haluk Direkseneli, an energy |
|consultant working for the Ankara-based International Strategic Research Organisation (USAK).
"The problem is that we still |
|don't know the details of the tender or the bid, such as who bears financial responsibility for security and for disposal of the|
|nuclear waste," he adds, pointing out that the true cost could be significantly higher.
|
| |
|Russian reliance |
| |
|Price aside, much criticism of the project has centred on the fact that the plant will rely on supplies of Russian uranium for |
|fuel.
With Turkey already dependent on Russia for the bulk of its natural gas imports, which in turn generates around half of |
|the country's electricity, many see further dependence on Russian uranium as a strategic mistake.
|
| |
|"If the project were being assessed on purely commercial or technical grounds, then it would be a simple decision and would not |
|have come this far," says Direskeneli, who believes that PM Erdogan is using the project as leverage for other projects his |
|government hopes to complete and which require backing from Russia.
These include plans to extend the existing Russia-Turkey |
|Blue Stream gas line, which runs across the Black Sea to Turkey's Mediterranean energy hub at Ceyhan, and the construction of a |
|combined oil, gas and water pipeline from Ceyhan to Israel, both of which require Russian finance to move ahead.
Also planned |
|is an oil line running from Turkey's Black Sea coast to Ceyhan to act as an alternative for tankers transiting Turkey's already |
|overcrowded Bosphorus straits.
With the bulk of tankers in the Black Sea carrying Russian-owned oil and with Russian companies |
|backing a rival project for a pipeline through Bulgaria and Greece, Turkey desperately needs Russian support if this project is |
|to be realised.
|
| |
|But while the nuclear project may succeed in leveraging Russian support for Turkey's other ambitious energy projects, it also |
|risks hampering other investment in new power plants. |
|Faced with demand for power growing at an average of 8-9% per year, Turkey has been attempting the difficult task of encouraging|
|private companies to build new power plants without off-take guarantees, while simultaneously implementing a fully liberalised |
|power market.
|
| |
|Despite the problem of securing financing for projects that have no guaranteed sales contracts, Turkish companies have been |
|quick to meet the challenge, proposing a vast array of new plants utilising domestic and imported coal, imported natural gas |
|and, increasingly, renewable energy resources such as wind.
A tender held in late 2007 for new wind power projects attracted |
|bids for around 40,000 MW of capacity – equal to all of Turkey's existing power capacity.
|
| |
|However, with Turkish energy demand expected to drop this year thanks to the global crisis, and with subsequent growth expected |
|to be slower, many fear that guaranteeing to take 100% of the power produced by a new nuclear plant at a high fixed price will |
|prevent investment in other new power projects.
"This project has both political backing and off-take guarantees," says |
|Direkseneli.
"Other private companies just don't have that luxury, and potentially it's a huge disincentive for them to invest."|
|At G20, Kremlin to Pitch New Currency |
| |
|17 March 2009 |
|By Ira Iosebashvili / The Moscow Times |
|The Kremlin published its priorities Monday for an upcoming meeting of the G20, calling for the creation of a supranational |
|reserve currency to be issued by international institutions as part of a reform of the global financial system. |
| |
|The International Monetary Fund should investigate the possible creation of a new reserve currency, widening the list of reserve|
|currencies or using its already existing Special Drawing Rights, or SDRs, as a "superreserve currency accepted by the whole of |
|the international community," the Kremlin said in a statement issued on its web site. |
| |
|The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member |
|countries. |
| |
|The Kremlin has persistently criticized the dollar's status as the dominant global reserve currency and has lowered its own |
|dollar holdings in the last few years. Both President Dmitry Medvedev and Prime Minister Vladimir Putin have repeatedly called |
|for the ruble to be used as a regional reserve currency, although the idea has received little support outside of Russia. |
| |
|Analysts said the new Kremlin proposal would elicit little excitement among the G20 members. |
| |
|"This is all in the realm of fantasy," said Sergei Perminov, chief strategist at Rye, Man and Gore. "There was a situation that |
|resembled what they are talking about. It was called the gold standard, and it ended very badly. |
| |
|"Alternatives to the dollar are still hard to find," he said. |
| |
|The Kremlin's call for a common currency is not the first in recent days. Speaking at an economic conference in Astana, |
|Kazakhstan, last week, Kazakh President Nursultan Nazarbayev proposed a global currency called the "acmetal" -- a conflation of |
|the words "acme" and "capital." |
| |
|He also suggested that the Eurasian Economic Community, a loose group of five former Soviet republics including Kazakhstan and |
|Russia, adopt a single noncash currency -- the yevraz -- to insulate itself from the global economic crisis. |
| |
|The suggestions received a lukewarm response from Foreign Minister Sergei Lavrov on Saturday. |
| |
|Nazarbayev's proposal did, however, garner support from at least one prominent source -- Columbia University professor Robert |
|Mundell, who was awarded the Nobel Prize in 1999 for his role in creating the euro. |
| |
|Speaking at the same conference with Nazarbayev, he said the idea had "great promise." |
| |
|The Kremlin document also called for national banks and international financial institutions to diversify their foreign currency|
|reserves. It said the global financial system should be restructured to prevent future crises and proposed holding an |
|international conference after the G20 summit to adopt conventions on a new global financial structure. |
| |
|The Group of 20 industrialized and developing countries will meet in London on April 2. |
Thai court holds hearings on alleged Russian arms dealer
MOSCOW, March 17 (RIA Novosti) - A Thai court is holding another round of hearings on extradition of a Russian businessman accused of conspiracy to sell arms to Colombian left-wing rebels, Russian television said on Tuesday.
Viktor Bout, 42, was arrested in Bangkok in March last year during a sting operation led by U.S. agents. The United States accuses Bout of conspiring with others to sell millions of dollars' worth of weapons to the Revolutionary Armed Forces of Colombia (FARC).
Today's session will be dedicated to witness accounts, Russia's Vesti 24 television said. Bout's lawyers insist that the defendant was arrested in violation of Thai laws, and demand his immediate release from custody.
Bout recently said his case was fabricated by the U.S. authorities for political reasons.
"There was no evidence shown during the trial last year that would incriminate me on the charges. It is purely a political matter," Bout said.
"The Americans failed to present anything concrete other than questionable claims," he added.
A court in Bangkok announced last Monday its intention to close the hearings this month, setting the dates for March 17 and 18.
Bout, a former officer in the Russian army, faces a life sentence if extradited and tried in a U.S. court. However, Thai authorities earlier announced that they would not press charges against Bout.
Western law enforcement agencies consider Bout to be "the most prominent foreign businessman" involved in trafficking arms to UN-embargoed destinations, including the Democratic Republic of Congo and Angola.
UN reports say Bout set up a network of more than 50 cargo aircraft around the world to facilitate his arms shipments, earning him the nickname "merchant of death."
In an interview published in a Russian newspaper in October, Bout said Washington fabricated charges against him after he had refused to work as an informant.
In Interview, Bout Denies Links to Sechin
17 March 2009
The Moscow Times
Suspected arms dealer Viktor Bout denied ties to Deputy Prime Minister Igor Sechin in an interview published Monday.
Analysts have linked Bout with Sechin, the powerful deputy to Prime Minister Vladimir Putin, and speculated that the relationship might be part of the reason that the United States wants to extradite Bout on arms charges.
Bout, who is jailed in Thailand, said he had never met Sechin and denied speculation that the two men served as Soviet intelligence officers in Mozambique at the same time in the 1980s, Britain's Guardian newspaper reported Monday.
Sechin officially worked in Mozambique and Angola as an interpreter with the Soviet embassies there in the 1980s. Stratfor, a private intelligence agency, has said Sechin was the Soviet Union's "point man for weapons smuggling to much of Latin America and the Middle East."
Bout also officially worked as an interpreter in Mozambique and Angola in the 1980s, according to Russian media reports.
While denying ties to Sechin, Bout acknowledged that he had carried out air shipments for the Russian state. "Sometimes, yeah. We did the flights," he was quoted as saying.
The interview with Bout will be broadcast on Britain's Channel 4 News on Tuesday.
Independent Russian language Inter Russia TV Channel begins broadcasts to Latin America
MEXICO-CITY, March 17 (Itar-Tass) -- The independent Russian language TV channel Inter Russia TV Channel based in Panama, has begun round-the-clock satellite TV broadcasts to the territory of Latin America - - from Mexico to Argentina and Chile. The audience of the new channel is offered news programs about developments in Russia and the world, including Latin American countries, and also programs devoted to culture, sports and education.
Since February, the TV channel broadcasted to Panama, but now the geography of TV broadcasts to the Russian-speaking audience is being radically expanded due to a Mexican communication satellite, Chief of the new project, Russian entrepreneur Valery Gaichuk- Bologa told Tass by telephone from Panama.
The potential audience of the new channel is around 120,000, including citizens of the Russian Federation who live and work there, descendants from the CIS countries, people – former graduates from Soviet and Russian institutes, who still love Russia and its culture.
Inter Russia TV Channel will be broadcasting in an open regime, which enables local cable television companies to include the Russian language channel into their cable broadcasting network, the chief of the Russian language TV project said.
Medvedev tells banks to stop harassing companies
* Says large holding companies should be protected
* Tells banks to stop "corporate egoism"
* Urges acceleration of state guarantees to companies
MOSCOW, March 16 - President Dmitry Medvedev warned Russian banks against destroying large, crisis-hit companies, in remarks that could signal support for indebted billionaire Oleg Deripaska.
"A situation where a certain organisation can halt the work of a big holding, even if it has a legitimate set of demands, is impermissible," Itar-Tass news agency quoted Medvedev as telling First Deputy Prime Minister Igor Shuvalov on Monday.
The issue of whether the state should bail out tycoons who face difficulties in paying back foreign loans taken out during a decade of economic boom is at the heart of the dispute about anti-crisis measures needed to salvage Russia's economy.
Some influential figures in the government say a collapse of major companies could lead to explosive growth in unemployment and undermine social and political stability in the country, a matter of primary concern to the Kremlin.
Medvedev did not name specific banks or holdings on Monday, but referred Shuvalov to remarks he made last month in the Siberian city of Irkutsk.
Then, Medvedev tasked the government with helping rescue the debts of major corporations crucial to the national economy, the collapse of which could lead to thousands of lay-offs and trigger public unrest. [ID:nLK511507]
"I told you then to use the power of state enforcement," Medvedev told Shuvalov on Monday.
"If you wish, you can change the legislation. If you wish, you can handle the issue individually. But we cannot sacrifice entire companies with many thousands of staff to meet the ambitions of certain credit organisations," Medvedev said.
"It's time to stop the corporate egoism," he said. "Give this advice to our colleagues: if they fail to understand the problem, we will look at the issue from a different point of view."
Medvedev's Irkutsk speech was a response to comments by Deripaska, the main owner of UC RUSAL. The aluminium firm, which is $14 billion in debt, has since signed a two-month standstill deal on the $7.4 billion it owes to international banks.
But Russia's Alfa-Bank, controlled by billionaire Mikhail Fridman, said last week it was pursuing Deripaska for about $1 billion it says it is owed by his companies. [ID:nLB941862]
SOCIAL, POLITICAL STABILITY
The government has compiled a list of over 1,000 "strategic companies" that can theoretically count on state help, although it has said inclusion does not automatically guarantee help.
But help for tycoons, when ordinary Russians are feeling the effects of the financial downturn, could be politically risky for Medvedev and powerful Prime Minister Vladimir Putin, who are striving to ensure broad support for their anti-crisis policy.
Another group of government officials believes the government should focus assistance on banks to maintain macroeconomic stability.
In February, Deputy Prime Minister Igor Sechin poured cold water on Medvedev's positive signals to Deripaska by saying UC RUSAL, already helped when state bank VEB bought over a $4.5 billion foreign debt, still had the means to rescue itself.
On Monday, Medvedev urged the government to accelerate the granting of state guarantees for strategic enterprises, part of the rescue package intended to keep industries afloat.
"It is March 16 today but not a single state guarantee has been released," he said. "You need to do this faster."
Shuvalov said key companies had already asked the state for over 350 billion roubles ($10 billion) in aid, including 213 billion roubles in state loan guarantees, and had been granted over 2 trillion roubles in loans from state banks.
Shuvalov said not all key companies who had asked for funds would necessarily be granted them. (Editing by Dan Lalor)
Medvedev Attacks 'Selfish' Banks
17 March 2009
By Anatoly Medetsky / The Moscow Times
President Dmitry Medvedev on Monday moved to defend struggling producers from private lenders that resist rescheduling payments, saying it was not a time for "corporate selfishness."
Medvedev appeared to be firing a warning shot at the country's largest private lender, Alfa Bank, though he didn't name any companies. The bank, controlled by billionaires Mikhail Fridman and Pyotr Aven, is locked in a legal battle over loans with companies that are part of Basic Element, billionaire Oleg Deripaska's holding vehicle.
"We can't sacrifice the future of entire enterprises and the employment of many thousands of workers to satisfy the ambitions of individual lending institutions," Medvedev said in a meeting with First Deputy Prime Minister Igor Shuvalov at his Gorki residence outside Moscow. "It's time to end corporate selfishness."
A bank must not be able to halt the operations of a company even if it has legitimate complaints, Medvedev said.
Alfa Bank had no comment, a spokeswoman said. A spokesman for a Basic Element company, Glavstroi, said Alfa may be looking to bankrupt the Deripaska-owned company.
Medvedev first raised the need for banks to be more receptive to producers' economic hardships at an economic meeting in Irkutsk late last month. On Monday, he sounded irritated that the message got lost earlier, saying the government should find a way to force bankers into greater compliance.
Banks "must value" the government's efforts that prevented them from collapsing after liquidity began evaporating from the market last fall. Alfa Bank became the first private bank to draw a subordinated loan from state-owned Vneshekonombank in January.
Shuvalov, who is the government's anti-crisis point man, told Medvedev that some banks were "extremely tough" on borrowers and that the government will work with both sides to ensure that loans are paid on mutually acceptable terms.
A spokesman for Shuvalov said he could not immediately say which lenders were giving defaulting corporate clients an excessively hard time.
Several Basic Element companies, including Glavstroi, a construction unit, and Soyuzmetallresurs, a mining operation, have had tough talks — involving legal disputes — with Alfa on loan restructuring in recent months. "We have arrears and are trying to come to a compromise," said Glavstroi spokesman Vitaly Korolyov. "This is perhaps the only lender that has an extremely unconstructive position."
Vladimir Tatarchuk, deputy chairman of Alfa Bank, said last week that the bank regarded Basic Element's conditions for restructuring as unacceptable.
Basic Element has had more fruitful talks on restructuring some loan payments with other banks, including UralSib and the Bank of Moscow, a Basic Element spokesman said, adding that the company's debt to Alfa is less than $1 billion.
During the meeting with Shuvalov, Medvedev also ordered the government to move more quickly to provide state loan guarantees to companies that are listed as strategic by the Cabinet. No guarantees have been provided since the government's decision to offer them in December, a delay that may force some companies to go out of business, Medvedev said.
Shuvalov said there has been more progress in actual lending than in giving guarantees. Three state-controlled banks loaned 2.6 trillion rubles ($75 billion) to the companies on the list, with most coming from Sberbank, Shuvalov said. VEB and VTB each extended about 500 million rubles of that amount, he said.
Medvedev's Corruption Scissors
17 March 2009
By Kirill Babaev, Senior Vice President Altimo
The landscape of government relations in Russia is changing drastically. This is happening along with the whole business environment of this country, which is trying to adjust itself to the new severe conditions of the global economic downshift. However, it is quite interesting to observe the sharp change in lobbying practices which, set up in the 1990s, have not been significantly influenced by any economic turbulence until last year.
In the 1990s, lobbying in Russia was somewhat simple and naive. I remember seeing a letter signed by the speaker of the State Duma addressing some state body and lobbying a license for a minor hemp rope-producing plant. We all knew how this kind of letter was possible, and everyone in the government relations industry had a handy price list for almost every state authority service or document.
Things only started to change recently, and the crisis will make these changes something close to a government relations revolution. This will happen for two reasons: first, companies no longer prepared to spend big money on government relations, and second, the state officials are quite reluctant to let themselves be pressed by the new anti-corruption measures introduced in Medvedev's plan.
Both reasons are quite important. Companies demand a more civilized means of lobbying from their in-house government relations teams and outsource advisors. The latter can still be paid a small retainer (though the majority of my colleagues have had these replaced by success fees), but they are not given "opex" (operational expenditure) money any longer, for sorting out the problems with the authorities. Instead of just bringing a piece of paper to a state servant for a signature along with a gift in the other hand, they now have to sit down and prove that this is what the country needs. Without budgets, the army of lower level, corrupt state officials will have to restructure their understanding of how to deal with the business community. This is exactly what companies could not do before: to join together and refuse to pay bureaucrats. The crisis has given them such an opportunity.
The straightening out of the state policies will also contribute. It is now not all that easy to get a signature from a State Duma deputy: he will, in most cases, require an approval from his parliament faction, and to go there he will need a strong substantial ground behind the paper he is going to sign. He will need to re-estimate the recent anti-corruption laws and the risks any violation can result into. So, he can't go for a small budget any longer. And the company is not ready to offer more. Aren't these the "corruption scissors" of Medvedev?
Thus, the substance of what the officials are requested to do is starting to prevail over the financial side of lobbying. This process will definitely take a long time to create a new system of government relations. The lobbying law, which has been widely discussed, can fix the new situation, but to create it, only the business and the authorities themselves can, by a mutual agreement that the 1990s have passed in Russia.
I remember a case that happened to me about six years ago in one of the Russian regions. An industrial group was lobbying for a new plant construction in a distant district, and finally the regional government's approval was received. We faxed the paper together with an official letter to the district's head of administration. In about one hour, we got our fax back, with the only two words inscribed on top of it: "Gde ya?" -- "Where am I?"
We didn't understand it, but a local official to whom we turned for advice got it from the first glance: "The head of administration asks what his share in the project is."
I am sure: this story is the past now, it won't happen again.
Prosecutors Say Nabiullina's Venture Firm Misused Funds
17 March 2009
The Moscow Times
The Prosecutor General's Office urged Economic Development Minister Elvira Nabiullina on Monday to stop the misuse of government funds at a venture company that she oversees.
In a rare rebuke of a sitting minister, First Deputy Prosecutor General Alexander Buksman said the Russian Venture Company, which Nabiullina chairs, had improperly spent about $222 million on her watch.
The state company deposited 6 billion rubles ($173 million) in U.S. banks and spent another 1.7 billion rubles to buy shares of companies with foreign capital in 2007 and 2008 instead of using the money to spur investment and innovation in Russia, Buksman said in a statement on the prosecutor's office web site.
"Schemes were created where funds allocated for developing the innovative economy of the Russian Federation were transferred to the United States and onto the accounts of companies created there," the statement said.
The Russian Venture Company was also accused of overpaying its staff. Prosecutors have sent a warning to the company's general director, Alexander Korobov, the statement said.
Nabiullina's office did not respond to Buksman's statement Monday.
Political analysts have suggested that the inquiry into the Russian Venture Company is another manifestation of government infighting between a clan of security and law enforcement officials and a camp of liberal-minded economists, which include Nabiullina.
The Russian Venture Company was created two years ago to finance technology startups.
Lebedev hopes to be mayor of Olympic city
Luke Harding in Moscow
The Guardian, Tuesday 17 March 2009
The Russian billionaire and Evening Standard owner Alexander Lebedev announced yesterday that he plans to stand as mayor of Sochi, the Russian Black Sea resort that will host the 2014 winter Olympics.
Lebedev said he wanted to run as an independent during elections next month. In 2003 he made a failed attempt to become Moscow's mayor. "I have been dreaming about becoming a mayor for many years," Lebedev said yesterday.
His announcement means that the contest is likely to be the most colourful in Russia's recent election history. On Friday Andrei Lugovoi, suspected of involvement in the 2006 murder of London-based exile Alexander Litvinenko, said he was also throwing his hat in the ring - a move that raised calls for a British boycott of the games. Lugovoi is an MP for Russia's ultra-nationalist Liberal Democratic party.
Lebedev said he was uncertain whether the Kremlin would allow him to stand but added that Sochi's problems were similar to those in Moscow and other Russian cities, and included corruption, decaying infrastructure and a lack of affordable housing.
The tycoon, who is a semi-opposition figure, also said Russia could save money on the 2014 Olympics by using existing facilities elsewhere in the country rather than building new ones. "It would be foolish not to look at ways to cut the cost."
|Tuesday, 17 March 2009 |
|Russian diplomat takes queries at UVU on Moscow's foreign policy |
| |
Michael Rigert - DAILY HERALD
The Russian Federation's ambassador to the United Nations spoke briefly about Russia's foreign policy history, but spent the bulk of the hour during his guest lecture at Utah Valley University on Monday morning answering questions about controversial international relations overtures made by the Russian government in the past year.
Vitaly Churkin said Russia's military intervention into the independent state of Georgia and its breakaway republic of South Ossetia last August was in response to the Georgian government's use of force against ethnic minorities and peacekeepers in the region.
"It was to save the people from ethnic cleansing, or worse," he said. "Under the circumstances, Russia had no choice."
The question had come from a member of the audience who had asked Churkin if Russia's action stemmed from comments made previously by Russian Prime Minister Vladmir Putin, who characterized the former Soviet Union's loss of it satellite states in 1991 as a "tragedy."
"Putin expressed a sentiment," Churkin said. "It was not an official policy."
He said though Russia has good relations with its former satellite states, the breakup of Russia from its former member states in 1991 might be akin to Utahns waking up one morning only to discover that Utah was no longer part of America.
Churkin also was asked about the international community's concern about Iran developing a nuclear weapon, and President Barack Obama's alleged recent letter to Russian President Dmitry Medvedev. The letter discussed the possibility of Moscow putting more pressure on Tehran to cease its pursuit of nuclear weapons if the U.S. were to abandon plans for antiballistic missile defense system in eastern Europe.
Churkin said that Obama didn't offer one in exchange for the other, but was simply making an inquiry as to what impacts an antiballistic missile system in Poland (a concept, along with North Atlantic Treaty Organization expansion, vigorously opposed by Moscow), would have on Russia.
"You cannot strengthen security at the expense of others," Churkin said of former President George Bush's and NATO's plans to expand membership into eastern Europe. "You have to be mindful of others."
Iran, he said, has done nothing to violate the nuclear nonproliferation treaty its leaders have signed. Churkin said the only reason there has been questions in the U.N.'s Security Council on the topic was that Tehran did not immediately reveal some of its nuclear research information in a timely manner.
"We should not punish Iran economically," Churkin said. "That's not very plausible. ... It's a much more delicate situation."
The Russian government has been encouraged by the new U.S. president's interest in moving toward greater engagement and negotiation with Moscow and other world partners on topics such as Iran, as opposed to acting unilaterally on foreign policy issues as the Bush administration did, he said.
"If there are reasonable gestures from the U.S., we hope that the Iranians would react positively," Churkin said. "Russia is the last one to be interested in Iran having nuclear weapons. We're a lot closer [than the United States]."
Answering another question, he said the dispatch of two Russian Tu-160 strategic bomber aircraft in September to Venezuela, widely questioned by the U.S. government, was simply a measure to give military pilots long-distance mission experience. Russia, he said, had widely communicated its plans to resume strategic bomber patrols two years ago. The patrols were put on a 15-year hiatus due to economic constraints.
Coming to an agreement on a new nuclear weapons strategic reduction plan between Washington, D.C., and Moscow, he said, is one of the three biggest policy issues currently facing the two countries. The current nuclear treaty expires this year.
The other two issues include resolving Russia's concerns over the proposed development of an American antiballistic missile defense system in Eastern Europe, and finding common ground on plans to expand NATO eastward into Europe -- the issues, he said, threaten stability and make Moscow "very uncomfortable."
Churkin said Russia wants to work hand-in-hand with Obama, Europe and all the nations of the world to bring about peaceful conclusions to disputes and concerns, including the current world economic crisis.
Stopping nuclear proliferation, terrorism, genocide and other human disasters around the world, he said, remains the role of United Nations members and its Security Council.
Citing Russian President Medvedev, Churkin said, "We're proud to have good relations with any country that is prepared to have good relations with us."
Churkin became the current permanent representative of the Russian Federation to the U.N. in 2006. He also has served as the Russian Federation's ambassador-at-large to the Ministry of Foreign Affairs, as well as Russian's ambassador to Belgium and Canada.
The Kremlin's Failing Monopoly
17 March 2009
By Alexander Etkind
Ever since Vladimir Putin came to power a decade ago, the Kremlin regime has relied on two pillars: the security forces and energy exports. By suppressing internal rivals and absorbing their assets, the regime created a dual monopoly.
Redistributing some of the profits from high energy prices enabled the regime to improve living standards and make itself popular with ordinary Russians. And resolving internal problems through a disproportionate use of force reassured even the regime's security-obsessed former KGB men.
Until recently, this combination of carrots and sticks functioned effectively. The virtual absence of popular protest in Russia during the Putin years seems amazing. But make no mistake: Putin's popularity ratings relied not on his vigor, humor or mystique, but on salaries and credits that Russians had never enjoyed before. And as long as oil prices were growing faster than Russian salaries, those in power could still grab a big slice of the profits.
Now that happy union between the Kremlin and ordinary Russians is ending. Few Russian policymakers, much less the people, expected oil and gas prices to collapse as they have. We do not know what will happen next. If prices rebound, Putin and his people will glorify themselves for their wisdom. But if prices remain stagnant at current levels, Putin's system is doomed to failure.
It is no coincidence that George W. Bush's and Putin's disastrous presidencies were cotemporaneous. By driving up energy prices, Bush was Putin's greatest ally. Putin returned the favor by refocusing Russia from its multiple problems to "terrorism." Both sought to undo the work of their successful predecessors, Bill Clinton and Boris Yeltsin. Both led their countries into traps with which their successors must deal. When Bush said that he liked what he saw in Putin's eyes, he meant it. But their successors are as different as the procedures that brought them to power.
Since Soviet times, the Kremlin has traditionally been wary about Democratic administrations in the United States. John F. Kennedy refused to tolerate the Soviet military presence in Cuba. Jimmy Carter boycotted the Moscow Olympics. Clinton led the successful operation against Slobodan Milosevic's Serbia, the Kremlin's best friend in Europe. And U.S. President Barack Obama's triumph heralded the fall in oil prices.
With energy revenues screeching to a halt, Putin's regime will lose popularity. Central myths about Putin being the healer of the nation and the supplier of giveaway budgets are collapsing.
And Putin cannot avoid responsibility. If the Kremlin claimed credit for the oil- and gas-fired prosperity of the past six years -- prosperity only because of economic exuberance elsewhere in the world -- the Kremlin should be accountable for the current devastation.
In the 1998 crisis, Russians did not yet take for granted imported cars, foreign tourism and other middle-class perks. The ruling group in the Kremlin was variegated and conflict-ridden, but its response to the crisis was effective and even creative. Now, the ruling group is uniform, unanimous and most likely unfit for any serious revision of policy. It is a dangerous situation.
Though the current level of anti-Americanism in Russia's official media seems unprecedented, the regime is most worried about internal problems. During the current financial crisis, which hit Russia right after the war with Georgia in August, the Kremlin and the State Duma issued a series of laws and orders that have turned Putin's authoritarianism into a dictatorship. Opposition parties have become negligible. The oligarchs' businesses have been largely nationalized. The presidential term has been extended. Industrial centers with growing unemployment will receive more troops.
Trial by jury, which was infrequent anyway, is being seen less and less. The concept of high treason is bandied about almost daily. We will see more persecution of scientists, journalists and businessmen, whose work with international charities, media or corporations will now be construed as treachery.
Some of these people will be murdered rather than tried; others will be tried by state-appointed judges rather than murdered. But this is not news anymore in Putin's Russia.
What will become news will be the sort of mass protests that were seen recently in Ukraine, Thailand or Greece. Can Putin's dual monopoly survive them? Perhaps, but it will do so only if it risks deep change, a new perestroika rather than simply a thaw. But it is more likely that the regime is too rigid and too blinkered to act.
Alexander Etkind, a Saint Petersburg native, is a reader of Russian literature at Cambridge and a fellow at Princeton University. © Project Syndicate
March 16, 2009
A New Minister for an Old Industry
By Dmitry Babich
Russia Profile
Will Yelena Skrynnik Succeed in Reforming Russia's Agriculture Industry?
The new Russian Minister of Agriculture, Yelena Skrynnik, will face many challenges as she starts to fulfill her new duties this week. Her predecessor, the former Minister Alexei Gordeyev, prided himself on tougher protectionist policies in the food industry, and on making Russia a grain exporting country for the first time in 60 years. However, soaring food prices and continued dependence on imported foodstuffs make Gordeyev’s achievements somewhat dubious, and put before Skrynnik the uphill task of putting Russia’s enormous natural resource – ten percent of the world’s ploughed land – to better use.
“What is the use of Russia exporting 20 million tons of grain every year, if we continue to import foreign meat?” bellowed Musheg Mamikonyan, the chairman of the board of the Meat Producers’ Union, at a conference on Russia’s food market held in Moscow on Friday under the auspice of the Federation Council, the upper chamber of Russia’s parliament. “Using these 20 million tons as fodder, we could produce ten million tons of meat, and make a much bigger profit. Remember that in every sausage that we import from other countries there is at least one pound of grain.”
But even if the government supports Mamikonyan’s ideas, it will still take a few years for Russia to change the structure of its food imports and exports. Data from the State Committee for Statistics shows that between 1990 and 2008, the livestock population of black cattle in Russia fell from 57.2 million to 22.2 million. Thus, Russia’s President Dmitry Medvedev certainly had a point when he said that Skrynnik was “taking up a very troublesome job.”
Gordeyev’s idea that high import tariffs on foreign beef would expand the market niche for Russian beef and encourage the domestic producers to increase the livestock population did not work. Even though the import tariff on pork is now 60 percent of the product’s customs price, and must amount to no less than one euro per kilo, pork production in Russia did not increase, and did not make the price burden for the consumer any lighter. On the contrary, many analysts associate the current food price increases with Gordeyev’s protectionist policy. During the period between February 2008 and February 2009, food prices increased by 16.9 percent in Russia, while in the EU the increase for the same period was just 3.6 percent.
Speaking after a recent government session, the first Vice Premier Igor Shuvalov acknowledged that the government considered setting certain “price ceilings” for several basic food staples, but the idea was rejected. “Limiting price increases by administrative methods can only make the situation worse,” Shuvalov told reporters. “Our greatest concern is the soaring price of meat foodstuffs, because here we are very dependent on imports.”
“So, domestic producers happened to be unable to increase the amount of beef and pork that they produce, despite protectionist barriers, higher prices, and other stimuli from both the government and the consumers,” said Mikhail Delyagin, the director of the Moscow-based Institute of Globalization Problems. “The reason is that even market stimuli may not work in the Russian countryside, with its crumbling infrastructure and dwindling human resources. Before Russia’s agriculture can respond to increasing demand, its production capacity needs to be increased.”
Hopefully, Yelena Skrynnik, who has been working in the sphere of leasing technical equipment for Russia’s agricultural companies, knows how to make that increase in capacity possible and, most importantly, affordable for Russia’s farmers. So far, however, her emphasis has been on self-reliance: as the leader of Russia’s state leasing giant Rosagroleasing, which she has headed since 2001, Skrynnik actively supported the interests of domestic producers of combine-harvesters, lobbying increased tariffs for foreign agricultural equipment and offering generous state support for farmers willing to lease Russian-made vehicles. It remains to be seen if this policy will yield better results than Gordeyev’s policy of slapping high customs duties on imported foodstuffs.
Kommersant Cyberattack
Kommersant's web site stopped functioning Monday because of online attacks, said Georgy Ivanov, head of the newspaper's legal service.
The attacks began Saturday and are "quite strong," Ivanov said. The attacks are based on "false requests for information that are sent to the web site and most often are initiated from computers containing a virus." (Bloomberg)
Convictions Grew Last Year
Russia's courts convicted 941,933 people last year while just 10,027 were acquitted, the Supreme Court's court department said.
The number of convictions grew from 935,090 in 2007, while acquittals fell 2 percent, from 10,204, the department said on its web site.
The number of people who received prison sentences inched up 1 percent to about 316,000.
The statistics also show that the number of cases heard by jury trials in first instance was down by 11.4 percent to 535, from 605 in 2007. (MT)
Court to rule on Khodorkovsky appeals
17 March, 2009, 10:18
A Moscow court will announce on Tuesday its ruling over the appeals filed on behalf of former Yukos owner Mikhail Khodorkovsky and his business partner, Platon Lebedev.
The pair are already serving an eight-year sentence for tax evasion and fraud, after being convicted in 2005. Now they face charges of embezzling about $25 billion which could see them spending a further 22 years in prison, the Itar-Tass news agency says.
Preliminary hearings into the case started on March 3 and their defence team has filed numerous appeals.
Lawyers say there's a lack of solid evidence and question whether the new criminal case against their clients is within the jurisdiction of Moscow’s Khamovnichesky Court.
The defence also cite that "one cannot be tried for one and the same thing twice."
Vadim Klyuvgant, representing Khodorkovsky, explained that the charges concerning the so-called ‘oil episode’ of the case are practically the same as the charges brought against Khodorkovsky and Lebedev in 2005.
He said the only difference is that back then it was called ‘tax evasion’ and now it’s called ‘embezzlement’.
Klyuvgant added that the period of time during which legal action can be taken on some of the charges against Khodorkovsky, namely of embezzling assets of Yukos subsidiary ‘Vostochnaya Neftyanaya Kompaniya’, had already expired.
The defendants and their lawyers have asked for the case to be returned to the General Prosecutor’s Office for a number of reasons, in particular the demands to enter upon the indictment the list of defense’s witnesses, including Russian Finance Minister Aleksey Kudrin. They also want the case redirected to Moscow’s Simonovsky Court and for the case to be heard alongside that of former Yukos Vice-President Vasily Aleksanyan.
They also want some of the evidence against Khodorkovsky and Lebedev to be excluded from case files, calling it 'irrelevant'.
At a preliminary hearing on Friday, Mikhail Khodorkovsky said the court should seize some of the property previously owned by Yukos and that the prosecution violates law by failing to issue an arrest warrant for the property that Khodorkovsky allegedly embezzled.
For their part, the prosecution appealed for the defendants to be kept behind bars.
The court is expected to announce its decision on all complaints and requests later on Tuesday.
Reforming of Russia’s GRU special-task divisions continuing
16.03.2009
The member of the Russian State Duma committee on defense Igor Puzanov recommended the Russian parliament member Anatoly Lokot to direct an official inquiry to the Ministry of Defence on disbandment of the 67th separate special-task brigade in Berdsk and employment of the dismissed servicemen to receive „exhaustive information”, news agency Rosbalt reports.
Earlier, on March 10, Lokot addressed with the legal request to the the State Duma defense committee with the requirement to request in the Ministry of Defence the information on opportunities of employment for those dismissed from the service, especially for the servicemen of special-task units.
The parliament member supported cancellation of the decision on disbandment of the GRU 67th separate special-task brigade in Berdsk and insisted on the report of the Ministry of Defence on granting social guarantees for the militaries and members of their families.
Lokot's deputy inquiry on disbandment of Berdsk special-task brigade was transferred to the Minister of Defence Anatoly Serdyukov still on February, 11, though there is no reply as far.
The parliament member considers that the further destiny of officers and the ensigns of parts of special troops who are subjects of disbandment is unknown. The reduction of central apparatus of the GRU and subdual of military units of intelligence in military districts to their commanders that would lead to loss of the federal status was intended within the reform’s framework. The experts do not exclude also their transition to the Interior troops of the Ministry of Interior of Russia which are not reduced and become stronger.
Lokot was told at the Joint Staff that the corresponding document had already been prepared and in the near future he would receive it. The information on plans of disbandment of the GRU special-task brigade in Berdsk appeared in early 2009, and in the end of February, the visiting Colonel-General Alexander Postnikov, commander of the Siberian Military District, confirmed these intentions.
Currently a liquidation commission is working in the brigade, according to Oruzhie Rossii online paper. Some mass media have been reporting that the chief of the Main Intelligence directorate (GRU) of the General Staff, Valentin Korabelnikov, who disagrees with the reform of military intelligence, has written an official report on resignation. However, according to news agency Interfax, referring to a high-ranking General Staff official, there is no such official report and General Korabelnikov has been continuing to execute his duties.
There was speech at a plenary session of the Russian State Duma on March 13 about the disbandment of some GRU troops of the Joint Staff of Russia. The faction of the Communist Party of the Russian Federation suggested summoning of Valentin Korabelnikov who has been heading the GRU since 1997, to the State Duma and listening to his report in a closed session.
However, the majority of Unified Russia members blocked this offer and the member of parliamentary defense committee Igor Puzanov stated that the dissatisfied with the reform -colonel Colonel-General Korabelnikov, «has already served out his term».
Indirectly on the website of the Communist Party of the Russian Federation it is regarded as acknowledgement of reports about forthcoming leaving from the post by Korabelnikov, and also that the reforming of special-task divisions has been carried out without his consent.
According to the law, the age of the higher commanders of the Russian Armed Forces should not exceed 60 years, though separate exceptions can be made; today the term of service is certain in 65 years. According to open sources, Korabelnikov was born on January 4, 1946, and is 63 years old.
According to the Argumenty nedeli, Korabelnikov’s deputies have refused the offer to hold his post; this is the reason why the General’s official report on resignation is not signed yet. It is said that the new director of the military intelligence, most likely, will be deprived of the right of weekly reporting to the President of Russia.
It has been reported in the Russian media that the GRU special-task units may be significantly reduced in the framework of the reform of the Armed Forces. Argumenty nedeli writes, referring to a General Staff source, that the central apparatus in Mocow will be reduced, however, the scale of the curtailment is not known yet. According to the source, «our employees in the military districts will be subordinated to the commanders of the districts, instead of the ‘Aquarium’(HQs) in Moscow, as it was before.
“What will occur to the spetsnaz units is absolutely not clear. It is known only about disbandment of three brigades. That means that the GRU as a structure of federal subordination will cease to exist, in fact”.
The present reform of the GRU is not the first lately. In April, 2006, the intelligence directorates of the Air Forces, the Navy and the Land forces were transformed into departments with appropriating reduction of their number and subordination directly to the GRU. The questions of training of spetsnaz were also transferred to the military intelligence.
According to Argumenty nedeli, referring to open sources, the structure of the Russian military intelligence includes for today, 218th separate special-task battalion (Moscow, oscow Military District), 16th separate special-task brigade (Tambov, oscow Military District), 2nd separate special-task brigade (Pskov, Leningrad Military District), 22nd guards separate special-task brigade (Aksay, North Caucasian Military District), 10th separate special-task brigade (Goryachy Klyuch, North Caucasian Military District), 12th separate special-task brigade (Asbest-5, Volga-Urals Military District), 3rd guards separate special-task brigade (Samara, Volga-Urals Military District), 67th separate special-task brigade (Berdsk, Sibirian Miliatry District), 24th separate special-task brigade (Ulan-Ude, Sibirian Military District), 14th separate special-task brigade (Ussuriysk, Far Eastern Military District). Disbandment of the 6th separate special-task brigade, 12th separate special-task brigade, as well as the 12th andf 3rd guards separate special-task brigades is scheduled for 2009.
The Russian Minister of Defence has reportedly decided to get rid of the GRU as parallel to the Foreign Intelligence Service, solving with it practically the same tasks, Moscow-based Stringer online edition writes. Servicemen of the GRU in private conversations approve that the tasks of the GRU and SVR are strongly enough separated, but if the merge will occur, it can appear even useful for them. The salaries in the SVR and maintenance with habitation there is much better than in the GRU, writes Nezavisimoye voyennoye obozreniye.
United Russia Loses Murmansk Election
17 March 2009
By Alexandra Odynova / The Moscow Times
In a surprise upset, independent candidate Sergei Subbotin trounced his United Russia rival for Murmansk mayor in weekend elections, prompting a threat by United Russia to challenge the vote.
Subbotin, a former deputy Murmansk governor, won 61 percent of the vote in the runoff election, well over the 35 percent collected by the United Russia candidate, incumbent Mayor Mikhail Savchenko, the local elections committee said.
A senior United Russia official accused Murmansk Governor Yury Yevdokimov on Monday of violating election law by offering support for Subbotin during the campaign and said his party might contest the vote.
"Yury Yevdokimov agitated for votes for one of the candidates on a local channel," said the official, Vyacheslav Volodin, in a statement posted on United Russia's web site.
Volodin said he regretted that Yevdokimov was a party member, and United Russia would review his membership in light of the election.
Yevdokimov dismissed the criticism, saying he did not think that Subbotin's victory would affect United Russia's activities in the region.
Subbotin said Monday that he would not join United Russia, but added that he was a party supporter. "I'm a supporter of Vladimir Putin," he said, Interfax reported. Prime Minister Putin chairs the party.
Still, Subbotin's victory is an embarrassment for United Russia that could lead to a clampdown on outspoken governors, said Alexei Titkov, regions analyst at the Institute of Regional Politics.
"Subbotin's victory will cause temporary problems for United Russia because they will have to explain why their candidate didn't win," he said.
He said United Russia used to give governors more freedoms during elections, but this time it adopted "a very strict position against Yevdokimov, who was not used to it."
A second round of mayoral elections was also held Sunday in Tomsk, Petropavlovsk-Kamchatsky and the Primorye region town of Partizansk. United Russia's candidates won in Tomsk and Petropavlovsk-Kamchatsky.
The party did not back a candidate in the town of Partizansk, and the election was won by independent candidate Alexander Galushchenko, a senior official in the Vladivostok administration.
Local election officials declared an unusually high number of ballots as invalid: more than 25 percent, Interfax reported. Turnout was 25 percent, a large drop from 41 percent on March 1.
The turnout fell after the candidate who led in the first round, Communist Party-backed Vladimir Khmelyov, was removed from the ballot over complaints filed by Galushchenko. Galushchenko ran against incumbent Mayor Igor Rulko, who placed third in the first round.
In Tomsk, United Russia member Nikolai Nikolaychuk was elected mayor with about 51 percent of the vote. Turnout was 43 percent, 6 percent higher than in the first round.
Incumbent Petropavlovsk-Kamchatsky Mayor Vladislav Skvortsov was narrowly re-elected over Mikhail Puchkovsky, who was backed by A Just Russia, another pro-Kremlin party.
National Economic Trends
Russian Ruble Strengthens Against Dollar-Euro Currency Basket
By Denis Maternovsky
March 17 (Bloomberg) -- Russia’s ruble gained 0.1 percent against the dollar-euro basket used by the central bank to limit fluctuations of the currency, reaching 39.2227 at 10:04 a.m. in Moscow.
The ruble gained 0.1 percent to 34.5972 against the dollar and was little changed at 44.8896 per euro.
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@
Last Updated: March 17, 2009 03:08 EDT
RF Finance Ministry presents '09 specified Fed budget
MOSCOW, March 17 (Itar-Tass) - Late on Monday night, the Finance Ministry of the Russian Federation introduced amendments to the Law on Federal Budget for 2009 and for the Planned Period until 2010-2011, an official in the Ministry's press service has told Itar-Tass.
Thereby, the Finance Ministry presented a specified 2009 draft Federal budget to the government that will examine the bill at its meeting on Thursday, March 19.
Alexei Kudrin, Russian Vice-Premier and Minister of Finance, had said earlier that during the introduction of a new budget for 2009, it would be suggested that the (earlier drawn-up) budgets for 2010 and 2011 be terminated. The drafts of those budgets would be presented to the government and subsequently to the State Duma lower house of parliament before August 26, this year.
Govt to submit anti-crisis plan along with budget adjustments to Duma –Putin
NOVO-OGARYOVO. March 16 (Interfax) - The adjusted draft budget for
2009 will be submitted by the government to the State Duma along with
the anti-crisis plan designed for the same period of time, Russian Prime
Minister Vladimir Putin said.
"[The government] must carry out some sort of an inventory and
analysis of all the anti-crisis measures prepared," Putin said while
opening the meeting on economic issues on Monday.
"A comprehensive document will be prepared as a result. It will
include both earlier decisions, the implementation of which must
continue, and new plans that will run until the end of 2009," he said.
The prime minister pointed to the priorities in the post-crisis
development and the need to implement the country's plans for a period
until 2020.
The document containing the analysis of anti-crisis measures will
be submitted with the State Duma along with budget bills and will be
published by the media for expert and public debate, Putin said.
Hopefully, the document will be broadly discussed both among
experts and public organizations, including the Public Chamber, business
associations and political parties, Putin said.
"I hope a number of constructive proposals will prevail," he said.
In the future, the government "will be making further adjustments
and additions to the anti-crisis programs depending on the situation in
the global and Russian economy," Putin said.
Output Shrinks 13.2% in February
17 March 2009 Reuters
Russian industrial output posted the second-fastest contraction in the series' seven-year history in February, but the pace of the slowdown eased a little from January, State Statistics Service data showed on Monday.
Output fell 13.2 percent year on year last month after shrinking by a record 16 percent in January, the statistics service said. Analysts had forecast a 15 percent contraction in February output.
"In itself, the [Russian] number is very bad and very big, but it is better than expected," said Yulia Tseplyayeva, chief economist for Russia and CIS at Merrill Lynch.
"But it is too soon to cheer, because in manufacturing, the slowdown is much deeper than we expected. Such a serious contraction talks of a sharp slowdown in demand."
Manufacturing output shrank 18.3 percent compared with last year, with falls of 6 percent in extraction of raw materials and of 5.7 percent in production of electricity and gas.
Within manufacturing, trucks, cars, buses and tractors also saw production more than halved compared with last year as lack of credit has dried up demand and forced companies to idle plants and cut working weeks.
Cement output was down by one-third, reflecting trouble in the construction sector.
In month-on-month terms, manufacturing rose 19.7 percent, possibly reflecting a greater number of business days compared to public holiday-filled January.
In the short term, some analysts said the slight slowdown in industrial output contraction could have been helped by an unexpected rise in month-on-month producer prices, the first in half a year.
Nonetheless, prospects for the rest of the year remain glum.
Rail freight shipments, a broad indicator of economic activity, fell 26 percent to 27 percent in early March compared with a year ago, broadly in line with the previous month's performance, Deputy Transportation Minister Andrei Nedosekov said on Monday. The slowdown in shipments eased to 24.2 percent in February, year on year, from 33.1 percent in January.
For the year as a whole, the Economic Development Ministry forecasts a 5.7 percent contraction in industrial output.
Shuvalov comments on lending by state banks
Troika, Russia
Tuesday, March 17, 2009
First Deputy Prime Minister Igor Shuvalov yesterday commented on the extent of lending by the leading state banks, Sberbank, VTB and VEB.
Shuvalov commented that the 295 companies on the strategic list have received over R2 trln ($58bn) since the global economic crisis hit the Russian economy last autumn.
He added that Sberbank had issued over R1.60 trln ($46bn) as of March 10, while VTB had issued over R530bn ($15bn) and VEB over R500bn ($14bn).
Shuvalov's comments are somewhat eye opening in terms of the volume of loans he ascribes to Sberbank, with R1.6 trln effectively equivalent to almost 40% of the bank's total corporate loan book at February 1 (R4.1 trln), but we would treat them with a lot of caution. When contacted, Sberbank was not clear about where the data came from, and we assume that it could come from the Central Bank's daily reporting, which is not a reliable guide for published monthly RAS data. According to the latter, Sberbank's corporate loans increased by R457bn ($13bn) in September January (as a net increase). We await the February data from Sberbank and would not read too much into Shuvalov's numbers until we receive some clarity from Sberbank.
Elsewhere, Central Bank Deputy Chairman Alexei Ulyukaev said that the Central Bank is considering new ways of increasing banking sector capitalization using subordinated debt.
Banks may be allowed to include 30 year subordinated loans into tier 1 capital calculations (up to 15% of tier I capital) and changes to legislation could be made this year. Another change could be an increase in the permissible ratio of tier 2 capital to tier 1 capital from its current 50% level to 100%. Banks are able to apply to VEB for subordinated debt funding, but have not been actively using the instrument (only R17bn of the R255bn package has been used), given that it requires a matching capital injection from shareholders and that many leading banks have limited capacity for tier 2 issuance. While the changes to capital rules would increase capacities for raising sub debt by banks, and give banks some cushion in meeting domestic capital requirements, they would have no impact on BIS capital ratios reported by the leading banks, such as Sberbank and VTB, in IFRS financials.
Andrew Keeley
Business, Energy or Environmental regulations or discussions
Market Overview: The bear parties on
UralSib, Russia
March 16, 2009
Hoping to create a new floor. The rally in global equity markets showed no signs of abating as last week ended and, with the absence of any bad news surprise, looks set to push further ahead. The generally optimistic rhetoric from politicians and central banks ahead of the G20 summit on 2 April should also help keep the mood relatively buoyant. But, this is still a rally within a bear market and only die-hard optimists assume that the negative market phase has ended. The realistic hope is that it is a case of two-steps forward and one-back rather than an ultimately failed attempt to break the previous downward trend. In the former, more hopeful view, the market will soon reach a peak and profit taking will take prices lower but not to where they were two weeks ago. The pessimists will point to several previous rallies in global markets that failed and their view is that it is, again, a case of one-step forward and then two back. The local markets have outperformed the emerging market and global average, and the RTS has now extended its rally from the late January bottom to 31%. The oil stocks have been a big driver of that rally as the price of crude has stayed in the mid-$40's/bbl. But OPEC's decision not to cut production quotas again will put oil under pressure early this week and, within it, the Russian oil majors. The best place to be positioned for an extension of this bear market rally is with the banks (Sberbank and VTB) and the mobiles (MTS and VimpelCom). If the oils gain further then that will be a good profit-taking opportunity as even OPEC officials yesterday acknowledged that their decision will likely cause the price of crude to drop over the short term.
Oils led the way while steel lagged. Last week the local bourses push strongly ahead again. The RTS rose relatively better than MICEX because the former is dollar denominated and it gained from the further gain in the ruble.
The RTS added 13.2%, bringing it 3.3% in positive territory for the year, while MICEX rose by 8.8% to stretch its gain this year to 20.9%. That compares very favorably with the 8.1% gain last week for the MSCI emerging markets index, the 6.9% advance in the FT All-World Index and the 10.6% rise in the US S&P 500 Index. The value of the ruble rose 2.7% relative to a weakening US dollar (to $34.77) and added 0.9% against the euro. The price of crude rose 1.6% on Nymex, to end the week at $46.25/bbl, while Urals closed Friday at $43.48/bbl.
The oil sector was the best performing of the week, led by Tatneft (up 26%), Rosneft (up 22%) and LUKOIL (up 16%). Gazprom also rose with the better optimism over oil and the ruble, closing the week up 17%. The banks also rose strongly with the better global trend in the sector after several big US banks said that they are trading profitably this quarter. VTB rose 23% while Sberbank lagged with a mere 12% gain. Uralkali rose 28% after news of a smaller than feared fine raised hopes that its problems may be over. CTC Media was the best stock of the week, rising 46% on thin volume. At the other end of the table, AFI Development was the laggard with a loss of 27%, while the steel and coal names were also out of favor. Evraz was the worst of the steels, with a drop of 5%, while Raspadskaya ended the week off 4%.
Chris Weafer
Russian Banking Sector: Temporary Relief or Serious Cure?
VTB Capital
March 16, 2009
In his speech at the Russian Economic and Financial Forum in Switzerland yesterday, the Deputy Head of the CBR Alexey Ulyukayev declared that the Russian regulator was ready to loosen controls further so as to maintain stability in the Russian banking sector.
According to him, the Bank of Russia might issue new regulations in 1H09 that would allow banks to include subordinated debt (most probably issued for 30 years) in the formation of up to 15% of Tier 1 capital. The CBR might also increase the volume of Tier 2 capital to 100% of Tier 1 capital (currently this level is 50%) but leave itself the right to ban interest payments on subordinated loans if needed. These latest declarations of protection measures confirm that the CBR has serious concerns about the deteriorating quality of banking assets and its negative forecast of the soaring necessity for additional capital in the system.
In our view, approving such measures will not cure the situation in the sector but just postpone the realisation of the credit losses and, hence, the full-scale resumption of banks' credit activities. That said, such measures would make sense were there good visibility over the possible scale of NPLs and prospects for quick economic recovery.
Given that leading countries are considering tightening prudential controls and dealing with bad loans (which was also confirmed at the recent meeting of G-20 Finance Ministers this weekend), the Russian authorities' decision could be viewed as behind the curve. 'Detoxing' banking assets will not only bring liquidity to the sector but also release the burden of bad assets, while lifting capital limits further will only bring temporary relief without eliminating the cause of the disease.
The Russian banking system will certainly require support and more balanced regulation in the near future as the accelerating growth of non-performing loans and a further deterioration in asset quality on the back of the tough economic situation seriously threaten the majority of banks.
Meanwhile, we consider that larger banks will be in a more favourable situation than their smaller peers as they are to receive subordinated loans from the state, which could possibly be treated as Tier 1. Needless to say, state banks (and Sberbank in particular) are to benefit strongly. We expect that such a measure could add up to RUB 130bn of new Tier 1 capital for Sberbank to absorb higher provisions (it would allow an additional 2.5% provisions charge on our estimates).
Sberbank, VTB Climb After Report Banks May Not Need Share Sales
By William Mauldin
March 17 (Bloomberg) -- OAO Sberbank, Russia’s biggest bank, led gains in the Micex Index, and VTB Group also climbed after Vedomosti reported the banks may not have to sell new shares.
The central bank may allow lenders to use subordinated loans as Tier 1 capital, the newspaper said, citing first deputy chairman of Russia’s central bank, Alexei Ulyukayev. The central bank plans to submit the required legislative changes by July, according to Vedomosti.
Upgrading subordinated loans will help by “reducing the need for equity issuance, a clear positive for minority shareholders,” JPMorgan Chase & Co. banking analysts Alex Kantarovich and Anna Avdokushina wrote in a note today.
Sberbank rose 3.9 percent to 18.91 rubles at 11 a.m. in Moscow, the biggest gain in the 30-stock Micex. VTB added 2.2 percent to 2.77 kopeks, a second day of gains.
To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@
Last Updated: March 17, 2009 04:28 EDT
Russia to Let Banks Use Loans as Tier 1 Capital, Vedomosti Says
By Paul Abelsky
March 17 (Bloomberg) -- OAO Sberbank and VTB Group may not need to sell shares because Russia’s central bank plans to allow banks to use subordinated loans as Tier 1 capital, Vedomosti reported.
The central bank plans to submit the required legislative changes by July, the newspaper said, citing Bank Rossii First Deputy Chairman Alexei Ulyukayev. The subordinated loans will be able to come from both shareholders, including the government, and outside investors, Vedomosti said.
Banks need to increase capital because of the increasing number of bad loans, the newspaper said.
To contact the reporter on this story: Paul Abelsky in St. Petersburg at pabelsky@.
Last Updated: March 17, 2009 02:27 EDT
Troika Dialog Seeks to Raise $172 Million in Russian Bond Sales
By Denis Maternovsky
March 17 (Bloomberg) -- Troika Dialog, the Russian investment bank one-third owned by Standard Bank Group Ltd., plans to sell $172 million of ruble and dollar bonds.
Troika plans to sell three-year notes of 2.5 billion rubles ($72 million) in five parts and $100 million, also in five parts, the Moscow-based comapny said in a regulatory filing dated yesterday.
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@
Last Updated: March 17, 2009 02:45 EDT
Fitch Revises Open Investments' Outlook to Negative; Withdraws Ratings
Alfa, Russia
Monday, March 16, 2009
On Friday, Fitch revised Outlooks on Open Investments' (OPIN) Long-term Issuer Default Rating (IDR) and National Long-term Rating to Negative from Stable. The agency has affirmed OPIN's Long- and Short-term IDRs at B and National Long-term Rating at BBB(rus). At the same time, Fitch has withdrawn OPIN's ratings.
The agency cited OPIN's exposure to the weak Russian real estate market, which will likely lead to significantly reduced profitability, asset values and operating cash flows in 2009 and 2010. Although Fitch expects OPIN to have sufficient liquidity to meet its commitments for 2009, it believes that 2010 will be more challenging if the weak property and financial market conditions persist.
COMMENT: When loans go bad in Russia
Natalia Orlova of Alfa Bank
March 17, 2009
Non-performing loans (NPLs), previously of interest only to banking analysts, are becoming a macro issue. Russian companies' $220bn of near-term debt repayment obligations, when combined with January's 9% drop in GDP, will drive NPLs to 15% and require a $90bn injection to recapitalize banks. Much of this injection will finance capital outflows, implying another 15-20% drop in the ruble despite lower import levels.
Russia's total corporate debt (local and foreign bank debt plus bonds) is $780bn. The two key risks posed by this debt are its high exposure to foreign currency risks and its short maturity. Foreign debt represents around 40% of total corporate obligations, similar to Indonesia in 1997. Some $220bn of debt, or 30% of the total, is due in the next 12 months, hampering companies' ability to repay their loans and driving up NPLs.
Given January's 9% drop in GDP, the economic environment is working against borrowers, and we reiterate our view that consumption trends will deteriorate substantially in the coming months. However, the retail loan portfolio of Russian banks is equal to only 10% of GDP, one-third of banks' corporate exposure, so the retail segment shouldn't be as large a concern for the banking system as the corporate segment.
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Best case is 15% NPLs
If growth remains weak, global markets stay closed and the ruble continues under pressure, we anticipate that NPLs will rise to $88bn, or 15% of total corporate loans. This would be equivalent to 80% of the entire banking sector's equity capital, or 7% of GDP. The lowest estimate for the amount needed to recapitalize banks appears to be around 5% of GDP.
We believe that until now, only the banking community has been concerned about the increase in NPLs. However, it will soon become a macro issue. Should NPLs be covered by the direct recapitalization of Russian banks or the creation of a special state agency, this additional injection of state funds will at least partially finance capital outflow, adding to ruble depreciation and higher inflation. If the state delays solving the problem of NPLs, payment arrears will continue to increase.
While the 40% year-on-year drop in imports in January-February is good news for the ruble in the very near term, the risk of NPLs lead us to forecast another 15-20% depreciation of the currency by year-end, all else being equal, as the unavoidable injection of liquidity into the banking system gets turned into capital flight.
Natalia Orlova Chief Economist of Alfa Bank
Russia is expected to witness the bulk of CEE Financial Services M&A
Mergermarket
March 17, 2009
By trading with the global economy, the CEE region has been dragged into the credit crunch. Originally not involved in trading the derivatives which were the very cause of the crisis, the reduction in liquidity which constitutes a hallmark in the global economy has dampened Financial Services M&A activity in the CEE region.
This report, produced by Mergermarket and CMS, provides an in-depth analysis of 2008 CEE Financial Services deal activity, including leading transactions, as well as an outlook for 2009. Surveyed FS executives are united in believing that M&A activity in CEE Financial Services will decrease as a result of the credit crisis, but are divided as to the severity of the implications.
Helen Rodwell, CEE Head of Corporate at CMS Cameron McKenna, commented, "The volume of deals in the FS sector in CEE has undoubtedly dropped. In Q4 2007 31 deals were completed, while in Q4 2008 that figure was 15. 2008 was a year of change for deal makers, and the air of uncertainty looks set to continue. However, those involved in deals have become more savvy and aware of the current environment and so are better equipped to cope with the year ahead."
Key findings from the survey include:
_ Close to half of survey respondents judge that 2009 CEE Financial Services acquisitions will be driven by low valuations.
_ Respondents believe inbound Financial Services transactions in 2009 will originate exclusively from within Europe and the CEE region. Cross-border M&A prospects remain bearish, with 74% suggesting that international deal flows will decrease in 2009.
_ Fully 80% of respondents believe that the reason the credit crisis has depressed CEE Financial Services M&A activity is because it has led to a change in risk assessments. Close to half (47%) also consider the macroeconomic downturn outside the region has adversely impacted on M&A volumes, while just 7% suggest that a fall in consumer confidence is to blame.
Additional findings include:
_ Over half of respondents believe that the level of private equity buyouts in the CEE Financial Services sector will increase in 2009, while a further 40% consider that buyout levels will remain the same. Respondents believe these private equity buyouts are most likely to originate locally.
_ The bulk of Financial Services deal flow is expected to be valued under €250m, according to 93% of respondents.
_ Banking and Investment sectors are likely to see the bulk of deal flow, while Pension funds are set to witness the least amount of M&A activity in 2009.
Rosneft to drop TGK11 legal challenge
Rencap, Russia
Tuesday, March 17, 2009
Event: Interfax reported yesterday (16 Mar) that Vladimir Yemeshev, Head of the Energy Department at Tomsk Regional Administration, had announced that Neft-Aktiv (a Rosneft affiliate) and TGK11 plan to sign an agreement to end Rosneft's legal challenge to the consolidation of Tomsk generation plants into TGK11. According to Yemeshev, the agreement was arranged with Energy Minister Igor Sechin and would be 'beneficial to all parties'. Previously, we reported that Rosneft was planning to pass over its stake in TGK11 to InterRAO for operational control. Igor Sechin is also board chairman at Rosneft and at InterRAO. Action: Positive for TGK11 share price, in our view. Rationale: According to the most recent (and active) court ruling, TGK11 was set to be broken up into its constituent parts - Tomsk and Omsk generation companies - once Rosneft had won its lawsuit against the original consolidation. Yesterday's news implies that this plan will now be dropped and that TGK11 will be able to proceed to a long-planned new share issue aimed at raising funds to finance urgent capex. Nevertheless, we caution investors against expecting a potential tender offer from Group E4 - the previous leading contender to buy the share issue - as we judge it unlikely that InterRAO will lightly give up the prospect of TGK11 control.
RusHydro: Share placement suspended on technical issues
UralSib, Russia
March 16, 2009
The placement was suspended by FSFM. Last Friday Interfax reported that the Federal Service for Financial Markets (FSFM) had suspended the placement of additional shares for RUB10 bln ($288.2 mln) by RusHydro (HYDR - Buy) to finance its 2009 investment program. According to an FSFM statement, the suspension was caused by mistakes in the report of the issue's results. We do not think this news is significantly negative for RusHydro's stock price, as we believe the company will resolve this issue swiftly and complete the placement.
State is a source of cash to finance capex. Under the initial plan RusHydro expected to raise RUB10 bln in the first half of 2009 by selling new shares to the state to finance its huge 2009 investment program, which totals nearly RUB73 bln ($2.1 bln). The placement price is RUB1.0/share ($0.029/share), which implies a 57% premium on the current market price. We estimate that after the placement the state will increase its stake in the company from 60.4% to 61.9%.
Discount to international peers. Based on an EV/Capacity multiple the stock is currently trading at $163/kW, which implies an 82% discount to its international peers ($890/kW). We believe that the main factors behind this undervaluation are the current tumultuous market environment, specific country and sector risks and a lack of clarity about its investment program and financing sources. However, we believe that the company is set to benefit the most from the liberalization of the wholesale electricity market, as it operates power plants with zero fuel expenses. In addition, we expect it to narrow the gap in its valuation when the market stabilizes.
RusHydro: State might support realization of the BEMO project
UralSib, Russia
March 17, 2009
State mulls support for BEMO project. Deputy Prime Minister Dmitry Kozak said that the state might give support to the BEMO project (Boguchansk Energy Metallurgic JV, which includes construction of the Boguchanskaya hydro power plant and aluminum factory) that is being developed by RusHydro (HYDR - Buy) and Rusal, Interfax reported yesterday. There are currently several problems financing the project mainly due to Rusal's current financial difficulties and, according to Kozak, the state is looking at several ways to solve this problem. Two potential measures highlighted by Kozak are VEB financing that could be secured via Rusal's stake in BEMO or the participation of a third-party in the joint venture. Should the state support the project it would be slightly positive for the share price performance of RusHydro, as finishing the project on time would have a positive impact on shareholder value, as construction of the aluminum factory is the key driver for the profitability of the project.
Delay in aluminium factory construction will hit profitability of the project.
The BEMO project is one of RusHydro's priority investments. According to the initial plan, the factory must become a consumer of electricity generated by the Boguchanskaya hydro power plant. The aluminum factory must be launched simultaneously with the hydro power plant's first stage of commission. The hydro power plant is scheduled to be fully commissioned in 2012. But in February of this year, Interfax reported that completion of the aluminum factory might be postponed until 2012, while the power plant will be commissioned on time. A delay in construction of the factory will have a negative impact the project financially as, in the current economic environment, the company would find it hard to find another large consumer for this amount of capacity.
Discount to international peers. Based on an EV/capacity multiple, the stock currently trades at $163/kW, which implies an 82% discount to international peers ($890/kW). We believe that the main factors behind this undervaluation are the current tumultuous market environment, and specific country and sector risks. However, we believe that the company is set to benefit the most from the liberalization of the wholesale electricity market, as it operates power plants with zero fuel expenses. In addition, we expect it to narrow the gap in its valuation when the market stabilizes.
Distribution Companies: Introduction of RAB tariffs may be accelerated
UralSib, Russia
March 17, 2009
FTS prepares the ground for accelerated switch to RAB tariffs. The Federal Tariff Service (FTS) is preparing a proposal that would allow the country's electricity distribution companies to accelerate the adoption of the new RAB (regulatory asset base) tariff system, Interfax reported yesterday citing FTS head Sergey Novikov. The transition to a new tariff system was initially planned for 2011. We consider the switch to the new tariff system to be a major driver for the distribution companies' shares, although we expect the government to introduce special price caps to minimize distribution tariff growth under the new system. We therefore regard this news as potentially positive in the long term, but it will not help the distribution companies to boost their financials in the short term. However, the news may generate some speculative demand in the stocks.
No need to wait until next year. The FTS is preparing amendments to a government decree that would allow the distribution companies to switch from current "cost plus" tariff system to RAB tariffs this year, whereas the decree currently stipulates 1 January 2011 as the latest date for the switchover. RAB tariffs should drive the distribution companies' market caps as they will be more motivated to increase cost efficiency and implement new investment projects and be able to raise long-term debt more easily. However, the RAB calculation for existing assets and the rate of return on this RAB are the key variables through which the government will retain a degree of control over tariffs.
Undervalued on sector specific multiples; financial guidance still cloudy.
Russia's distribution companies have yet to report full-year consolidated financials as they were only created in 2008. Therefore financial multiples are not reliable indicators for comparison. The sector-specific EV/RAB multiple based on FGC (FEES - Sell) estimates imply an average EV/RAB multiple of 0.19 for the distribution companies - far below the international peer average of 1.0. The most undervalued companies are Lenenergo (LSNG - Not Rated), MRSK Urals (MRKU - Not Rated) and MRSK Holding (MRKH - Not Rated), which are trading at EV/RAB multiples of 0.09, 0.11 and 0.07, respectively.
Matvey Taits
Tariff Service to bring forward rate-of-return tariffs for distcos
Rencap, Russia
Tuesday, March 17, 2009
Quoting the head of the Federal Tariff Service (FST) Sergei Novikov, Interfax reported yesterday (16 Mar) that FSK is proposing draft legislation to allow full implementation of rate-of-return tariff formation for all electricity distribution companies during 2009. According to Novikov, the legislation will be presented to Prime Minister Vladimir Putin for final approval by the end of this month. As a result, all inter-regional distribution companies (MRSKs) will get the opportunity for immediate implementation of the new tariff formation methodology, subject to getting FST approval of the relevant initial regulatory asset base (iRAB). Under current plans, most distcos would implement rate-of-return tariff formation from 1 Jan 2010.
We judge that implementation of the new tariff system for distcos is a key element of growth in shareholder value in the MRSKs. The ability to introduce new tariffs this year decreases the risk of political cold feet at a later stage and, in our opinion, should be a catalyst leading to sharp upward revaluation in the shares of MRSKs. We calculate the current average market value of the MRSKs at around $2,000 per km of grid - perhaps 10% of their depreciated replacement costs.
RusAl may pledge its stake in BEMA joint project for VEB loan
Alfa, Russia
Tuesday, March 17, 2009
According to various media sources, RusAl, Russia's largest aluminum producer, has applied to VEB for a R16bn ($448m) loan to finance its part of the BEMA project (Boguchansk Energy Metallurgical Association). RusAl may pledge its stake in the BEMA project as collateral. Moreover, Deputy Prime Minister Dmitry Kozak has announced that a third party may participate in this project in order to finance it, but he did not specify who that might be.
Earlier, RusHydro and RusAl had requested $900m (R32bn) for the BEMA project from VEB, VTB, Sberbank and Gazprombank. BEMA is being carried out on a 50:50 basis with RusHydro and involves the construction of the Boguchanskaya GES and an aluminum smelter in the Krasnoyarsk region on the Angara River. RusAl is now facing tough times owing to low aluminum prices on global markets. Therefore, the company is focusing on its current operating activity and delaying financing of prospective investment projects.
Given the ongoing debt burden of RusAl ($17bn), it is very likely that RusAl's stake in the BEMA project will end up in the hands of VEB if the company received the loan by pledging its stake as collateral. However, given that, first, the VEB loan is only one of the proposed ways of financing the project and the final decision remains to be seen, and second, the BEMA project accounts for a relatively small share of RusHydro's valuation, we consider this news as NEUTRAL for RusHydro
USW, Russian steelmaker Severstal to resume talks
By The Tribune-Review Tuesday, March 17, 2009
The United Steelworkers said it will resume contract negotiations on Thursday with Severstal North America Inc., which represents about 6,500 steelworkers in mills in West Virginia, Ohio, Maryland and Michigan.
The Pittsburgh-based union said it will discuss Severstal's obligation to fund a plan that provides benefits to retirees. The union and the Russian-owned steelmaker also are close to reaching a tentative agreement on pensions and active employee health care, the USW said. Most of the issues pertaining to the local plants have been resolved, the USW said in a statement.
The negotiations, which began last October, are continuing under the latest contract extension that expires March 31. The current labor contract expired in September.
Severstal North America, which is headquartered in Dearborn, Mich., declined to comment on the bargaining, spokesman Michael Henson said.
Norilsk in Australian Talks
Poseidon Nickel, an Australian exploration company chaired by billionaire Andrew Forrest, said Monday that it was in talks to buy Norilsk Nickel's Cawse mine.
"Negotiations are incomplete and ongoing," the company said in a statement to the Australian stock exchange. "Poseidon will continue to keep the market fully informed regarding the acquisition." (Bloomberg)
Moscow starts to shut up shop
Soaring unemployment and a shrinking economy point to long winters of discontent
Kathryn Hopkins in Moscow
The Guardian, Tuesday 17 March 2009
Four decades after her father wrote Back in the USSR, Stella McCartney is shutting up shop in Moscow. Designers such as Lanvin and Alexander McQueen have followed suit. Several stores that were once packed with fur-clad Russians fighting to pick up the latest western trends now stand empty.
Only six months ago, wealthy Muscovites were spending their petro-dollars at GUM, the luxury department store on Red Square, but as oil prices dropped so did their bank balances. Last weekend there were more shop assistants than customers in nearly all of the centre's designer boutiques.
The city's notorious traffic has also freed up significantly over the past year and there are visibly fewer 4x4s and limos blocking Moscow's roads. "It has become much easier to drive through the city. Routes that took one hour last year take 30 minutes," said Moscow-based political analyst Georgy Bovt.
Russia's dependency on oil is pushing the country's economy into a tailspin. Oil peaked at $147 a barrel in July but has since plunged as low as $35 a barrel. As a result of the plummeting oil price and the global financial crisis, gross domestic product shrank by 8.8% in the 12 months to January, the rouble has lost one-third of its value since September and unemployment is expected to rise to 10 million by the end of the year. The Kremlin has spent more than $200bn of its reserves to cushion the devaluation of the rouble and avoid public panic.
Neil Shearing, emerging Europe economist at consultants Capital Economics, believes the situation is going to get much worse. "The news from Russia has gone from bad to worse in recent weeks. The economy looks likely to contract by 5% this year, which would be close to the drop in output witnessed during the 1998 rouble crisis," he said, referring to the year when the government defaulted on its debts, sending shockwaves through the global financial system. "In contrast to the 1998 crisis, a weak external environment makes a sharp bounceback in growth unlikely."
"The situation is worse than at the beginning of the 1990s," said Ilya Roytman, president of IBR Consulting in Moscow, which helps companies such as Nestlé set up shop in Russia. "Before it was just in Russia. Around Russia there was a stable economic climate which helped us. But now there is a global economic crisis and because many governments have protectionist values it will not be possible to borrow resources."
Unemployment is widely expected to soar to 12% this year from 6.3% in 2008 as firms struggle to access finance. "This will spell disaster for an economy in which private consumption accounts for over half of GDP," said Shearing. About 500,000 Russians are waiting to be paid wages which are late and since inflation is running at 13%, their purchasing power is slipping rapidly.
Stephen Dalziel, executive director of the Russo-British Chamber of Commerce (RBCC), believes that the financial crisis in Russia is much worse than in Britain.
"I think that the problem is that they were unprepared to the point of being arrogant," he said. "When sub-prime happened in 2007 they were arrogant because they thought it was a western thing. They said it wasn't like 1998 and then it suddenly hit them."
He believes that the situation for businesses is far worse than 1998.
The government is "too dependent on natural resources, which is foolish, he said. "They do nothing to encourage an increase in small and medium enterprises. Hopefully this time they will understand how SMEs develop the backbone of an economy. They have paid it lip service, but haven't done anything."
He said that Russian companies were "extremely worried" about the economic climate and are making big cutbacks.
Bovt believes that the problem has been exacerbated by prime minister Vladimir Putin's focus on large corporate national champions, and that he has "suppressed" economic activity for small and medium businesses. "Poor people are just unemployed with no initiatives to start their own business," he said.
Outside Moscow and St Petersburg, there is a potentially more serious problem looming. Russia has many so-called monocities, where most of the town's population is employed by one industry such as car production or commodities output.
"The biggest problem for now is monocities," Bovt said. "One example is Tolyatti in the Volga, where about 60% of the population are involved in Lada production. The plant is in trouble so most of the population of the city will be unemployed."
With mass unemployment could come mass unrest. Several demonstrations have already taken place as hundreds of thousands of people have lost their jobs or had their salaries cut, but the authorities have been quick to shut them down.
"Authorities are absolutely terrified of social unrest, the idea of a spontaneous explosion of unrest," said Dalziel. "If there were to be a mass demonstration somewhere, there could be a domino effect. I really don't think anyone in authority knows what to do."
First Russian high-speed train arrives to Moscow
16 Mar, 11:04 PM
First Russian high speed train has accomplished its first experimental trip from St. Pteresburg Moscow, the Interfax news agency reported on Monday. The train is called the Sapsan or Peregrin Falcon.
The train reached 180 km/h speed and could have reached more if not for the safety requirements, the Russian Railways (RZD) president Vladimir Yakunin said at the solemn ceremony of the trains arrival on Sunday. According to the RZD press service, upon arrival to Moscow the train headed to a special facility near the suburban town of Sherbinka for a thorough test of all systems.
UPDATE 1-Russia's move to unseat Aeroflot CEO raises alarm
Mon Mar 16, 2009 1:11pm EDT
* Stakeholder says offer is part of state move into aviation
* CEO Okulov says dedicated to his job, gives no answer yet
* Analysts warn of paralysed management at crucial time
* TransMin says wants Okulov to help it cope with crisis (Rewrites with comments from Aeroflot, analyst, shareholder)
By Simon Shuster
MOSCOW, March 16 (Reuters) - Investors in Aeroflot (AFLT.MM: Quote, Profile, Research, Stock Buzz) voiced alarm on Monday over an apparent government attempt to push out the airline's veteran chief executive and give him a post in the transport ministry.
Analysts warned that the departure of Valery Okulov, the son-in-law of Russia's first president Boris Yeltsin, could paralyse Aeroflot's management during one of the most trying periods in its 86-year history.
The move has been linked by analysts to a state plan to carve up the aviation sector and hand most of it to a new state corporation, Russian Technologies, which is headed by an ally of Prime Minister Vladimir Putin.
Asked if this was the case, Alexander Lebedev, Aeroflot's biggest minority shareholder said through a spokesman: "It is linked to the restructuring of the sector. That much is clear ... state business interests have decided to get more involved in Aeroflot."
CRITIC OF STATE PLAN
In November, Okulov criticised the creation of a new state carrier, Russian Airlines, that will absorb aviation firms crippled by the financial crisis -- calling it a "pyramid scheme."
The new firm is being overseen by Putin ally Sergei Chemezov, who as head of Russian Technologies, has sweeping powers over Russia's industrial complex, including weapons, heavy machinery and now aviation.
On Monday, Deputy Transport Minister Andrei Nedosekov told Reuters that the ministry was determined to hire Okulov away from Aeroflot soon.
Last week it offered him a job as one of the six deputies working under Transport Minister Igor Levitin, a relatively low-profile position for a decorated pilot who heads a blue chip company and has 34 years of experience in civil aviation.
"The ministry needs all hands on deck right now," Nedosekov said. "We want a professional ... and that's Okulov, so I think the minister's determination on this is absolutely correct."
Okulov, 57, said he was dedicated to his job.
"(Aeroflot) is not just a transitional phase in my life. It is my life," the Vedomosti business daily quoted him as saying on Monday.
His spokeswoman Irina Dannenberg said he was happy at his job and it was too early to discuss his departure.
A spokeswoman for the Transport Ministry said they had not received a response from Okulov yet.
'BAD TIME FOR CHANGE'
Okulov has spent more than a decade turning Aeroflot from an unprofitable Soviet-era behemoth into a modern airline. His personal and political contacts have accounted for much of the firm's lobbying power in a heavily regulated industry.
The favourite candidate to replace him has been named by the Russian media as Vitaly Savelyev, a former deputy economy minister who now works at services conglomerate Sistema (SSAq.L: Quote, Profile, Research, Stock Buzz).
Savelyev's total lack of experience in the aviation sector raised concerns among industry analysts.
"Insofar as Vitaly Savelyev has never had any experience in the sector, it will take some time to get oriented. And right now is a time when efforts need to be fully focused," said Georgy Tarakanov of VTB.
Savelyev runs the telecoms division at Sistema, which controls Russia's largest mobile network, Mobile TeleSystems (MBT.N: Quote, Profile, Research, Stock Buzz).
"Any big management change first of all puts the brakes on all operating processes while people get adjusted," Tarakanov said.
Lebedev owns roughly 30 percent of Aeroflot and tried without success to sell half of that stake after the creation of Russian Airlines was announced.
He said he was against removing Okulov. "Aeroflot is weathering the crisis better than any other airline. It doesn't even need state help," he said. (Reporting by Simon Shuster; Editing by Rupert Winchester)
Peter Hambro Mining: Production Update with Sweet Aftertaste
Troika, Russia
Monday, March 16, 2009
Peter Hambro Mining (PHM) has released its annual production update that brought positive surprises: higher grade ore zones at both Pioneer and Malomir that exceeded expectations are to significantly enhance the economic profile of both projects; and the company is looking to launch its prospective assets - Albyn, Tokur, Yamal and Pokrovsky Flanks - over 2011 12. As expected, production is expected at 487 koz in 2009 (up 24% y o y), but could reach 793 903 koz by 2011, ahead of our estimates. Though the market will continue to severely discount any projections on long term development assets, enhanced economics at the near term Pioneer and Malomir are highly reassuring, in our view.
_ Having already been burned several times by providing overly aggressive guidance, PHM opted to present low and high scenarios, depending on the macroeconomic conditions (gold price and funding availability), as well as the results of its own exploration and development success. While the low case is generally in line with our numbers, production under the high case would be substantially greater due to successive launches of Albyn, Tokur, Yamal and Pokrovsky Flanks.
_ At Pokrovsky, which churned out 267 koz in 2008, a move into deeper horizons and processing of harder material will expectedly put grades and economics under pressure until the mine life ends in 2012. But the company is positive on the prospectivity of Pokrovsky Flanks, which could start adding feed to the mill as soon as 2011 and will have the capacity to fully load the Pokrovsky mill in the future at grades of 2 g/tonne.
_ Following an exemplary ramp up in 2008, Pioneer is to see the second mill line commissioned in 2H09, increasing the mill's capacity to 3.2m tpy, and PHM is targeting 5.4m tonnes by constructing the third line in 2H10. The exploration results at the high grade Andreevskaya zone have been highly promising, and production grades have consistently been well in excess of predicted grades under JORC. The zone is now estimated to contain 642 koz, grading a hefty 13.3 g/tonne (C1+C2), and it is expected to substantially improve the economics of the asset through 2012 via lifting the average processed grades. The company is also positive on the further exploration potential of Andreevskaya.
_ At the Malomir project, the high grade non refractory Quartzitovoye ore zone was discovered in 2008, and it contains 682 koz, grading 5.6 g/tonne. The metallurgy there is straightforward, and PHM now expects to be able to process non refractory material during 2H10 2013, which would greatly enhanced the asset's economics. Later, this is to be substituted by higher cost, lower grade refractory ore from the main deposit, and processed via autoclaves.
FAS allows Prokhorov to increase stake in Polyus Gold to 75%
Troika, Russia
Monday, March 16, 2009
The Federal Antimonopoly Service (FAS) has granted permission to Mikhail Prokhorov (Onexim Group) to increase his stake in Polyus Gold to 75%, Interfax reported on Friday. Permission was requested on February 9 and approved on February 27.
Prokhorov is already a controlling shareholder, with a 30% stake in the company, and is highly unlikely to be excited about the possibility of exceeding this threshold, as it would trigger a mandatory buyout offer to minority shareholders. Vladimir Potanin (Interros) has apparently been looking to monetize his 30% stake in the company - he is said to have sold 20% to Suleiman Kerimov (Nafta Moskva) and may be looking to sell the remaining 10%.
Representatives of Prokhorov later confirmed to Interfax our initial assumption that the request was made at a time when Prokhorov was engaged in negotiations with Potanin regarding the acquisition of his stake. Thus, the request and FAS permission are no longer relevant and will have no implications for the stock.
Russia's GV Gold boosts stake in subsidiary Inakit to 99.97%
MOSCOW. March 16 (Interfax) - The Russian Federal Antimonopoly
Service (FAS) has approved a petition by gold producer OJSC Vysochaishy
(GV Gold) on the acquisition of a 99.928% stake in its subsidiary CJSC
Inakit, the FAS said in a statement.
GV Gold has now increased its interest in the company to 99.971%.
The company told Interfax that Inakit owns licenses to explore for
and produce gold at the Leprindo property in the Irkutsk region. The
company will acquire the Inakit shares as part of an additional share
issue.
"Vysochaishy plans to increase its stake in the charter capital of
Inakit throughout the year following the registration date as part of a
development programs for subsidiaries, bringing the stake to 99.971%.
The subsidiary company is planning to spend the roughly 140 million
rubles it receives on the refinancing of loans and further development,"
a GV Gold spokesman said.
The company's ore and placer gold fields are located in the Irkutsk
and Amur regions as well as the republics of Yakutia and Komi. The
company increased gold production 28.3% to 4 tonnes in 2008 and plans to
produce 4.2 tonnes of gold in 2009.
Crisis could spark new Russian 'gold rush': papers
15 hours ago
MOSCOW (AFP) — Russians falling on hard times could soon be seeking their fortunes as gold prospectors in a Soviet-era prison region if legislative changes are approved, newspapers speculated on Monday.
Russian newspapers were intrigued by a proposal put to President Dmitry Medvedev to permit not only companies but also private individuals to prospect for gold in the remote northeastern Magadan region.
The proposal came from the head of the regional assembly there, Alexander Alexandrov.
Legalising individual gold prospecting "wouldn't so much raise the volume of gold extracted as reduce social tensions in the Kolyma region," Alexandrov was quoted by Novye Izvestia newspaper as saying.
"This is a question of employment."
He added there was strong interest in gold-mining among pensioners in the region.
The freezing-cold gold mines there were once the last resting place of Soviet convicts deported en masse by Joseph Stalin.
Novye Izvestia voiced scepticism about the plan -- which Medvedev has ordered government officials to look into -- saying: "The era when you could dig yourself up a fortune with a simple shovel are gone."
But another daily, Izvestia, was more upbeat, expounding on previous individual attempts to make fortunes from gold in spite of official bans and saying that a similar trend was under way in the United States.
"In the United States the financial crisis is pushing former managers to exchange their business suits for denim overalls.
"Rising gold prices and mass unemployment have already forced thousands of Americans to rush to the mines of California and Alaska and seek their happiness there," the latter paper said.
Fertiliser sector news
Rencap, Russia
Monday, March 16, 2009
The two key events in the Russian fertiliser sector over the past two weeks were
Uralkali's announcement of a potash price decrease for Brazil and the company's statement that it has agreed its share of liabilities for construction of the 53 km Yaiva-Solikamsk rail bypass, close to Mine 1.
Uralkali has agreed to meet the total cost associated with the accident at Mine 1 in the amount of about RUB7.8bn ($223mn). The company has indicated that, at a meeting held by Russian Minister of Finance Alexey Kudrin, it proposed financing the RUB5bn deficit in the RUB12.33bn total cost of building the nearby 53 Yaiva-Solikamsk railway. Participants in the meeting agreed financing arrangements for the construction of the railway, including RUB2.79bn to be funded from the federal budget, RUB3.54bn from Russian Railways and RUB1bn from Silvinit.
Uralkali also reiterated its willingness to pay RUB2.767bn of costs related to the Mine 1 flood incurred by the federal and regional budgets - putting Uralkali's total commitment to meeting Mine 1 accident costs at about RUB7.8bn. We regard the news as positive, noting that: 1) Uralkali's portion of the railway construction cost is below our previous expectations (RUB13.7bn); 2) the RUB7.8bn cost likely represents the lion's share of total expenses for 2009; and 3) the news eliminates some of the uncertainty associated with the Mine 1 flood. Despite having undertaken to announce the final amount, Rostechnadzor has commented that the total costs associated with the accident will be determined only when the mine is closed.
On 4 Mar 2009 BPC, a trader for Uralkali and Belaruskali, established a new spot price of $750/tonne for deliveries to Brazil. The new price for large Brazilian importers is 25% lower than the previous price ($1,000/tonne), and will be effective Mar-May 2009. BPC said the price cut is based on its analysis of the local and global potash fertiliser market and agriculture sector, which have been affected by the global economic downturn. Prices for key crops (soybean, corn and others) have declined, leading to a decline in farmers' purchasing power. In our view, the reduction should facilitate a recovery in Brazilian demand and ease negotiations on the Chinese contract. The Brazilian market, which accounted for 6.5mnt of potash consumption in 2008, is one of the most important for potash exporters. High inventories in SEA and lower consumption in China in 2008 resulted in a significant fall in demand in 1Q09. We have seen an approximate 30% reduction of soybean, corn and wheat prices from the levels fixed in July-Aug 2008 (when Brazil's spot potash price was last set). BPC's efforts to improve the market situation and to aid recovery of farmers' demand in Brazil should be positive for the global sector, in our view. We expect the price for China (about $630/tonne in 2008) to add at least $25/tonne in 2009, to reach a level comparable with other markets. However, we think weak demand elsewhere will affect negotiations on new prices. The recovery of Brazilian demand will likely accelerate Chinese negotiations.
Production statistics for Jan 2008 were uninspiring, with. Russian fertiliser producers cutting production significantly, due to low demand for potash and nitrogen fertilisers. In Jan 2009, production of potash fertilisers fell about 80% YoY, on average, and production of nitrogen and complex fertilisers by the 10-largest producers declined 12% YoY.
According to RBC Daily, ACF-Agrochem Finance Limited, which owns 99% of UralChem Group, is to revise the conditions of the Voskresensk Mineral fertilisers (VMU) acquisition deal, through which it acquired a 71.72% stake in VMU for $358.6mn. ACF-Agrochem has initiated proceedings against UralChem and Uralchem's Cyprus-based subsidiaries to nullify the acquisition deal.
Sibur Holding plans to borrow $2.2bn from VEB, including $1.4bn for its 500k tpa propylene project in Tobolsk (the project's total cost estimate is $1.8bn), and EUR564mn for the construction of 330k tpa of polyvinylchloride capacity in Nizhegorodskaya region. VEB will be able to refinance the majority of these credits through foreign banks under the pledge of global export agencies (Sibur partners), including Hermes (a Germany-based export agency), SACE (Italy), ONDD (Belgium), Coface (France) and others. These agencies can provide guarantees after projects pass through their respective environmental due diligence.
GAZ fails to restructure bond
VTB Capital
March 16, 2009
GAZ has failed to restructure its RUB 5bn (USD 144mn) bond within the 30-day period provided by Russian legislation, Vedomosti reports. Talks on debt restructuring continue.
We remind investors that GAZ failed to exercise a put option on the bond on 12 February 2009 and later offered its creditors to the freeze interest and principal payments on its debt for six months and two years, respectively, simultaneously prolonging the debt for five years.
It is hardly a surprise that the company is experiencing increasing difficulties with its creditors, which were offered unattractive debt restructuring terms. The failure to restructure the bond allows the bondholders to seek the company's bankruptcy. We believe that such an extreme scenario is unlikely, but do not rule out that GAZ's troubles may result in current shareholders' holdings being diluted and control over the company changing.
Government to discuss AvtoVAZ's troubles on Tuesday
VTB Capital
March 16, 2009
The special government commission chaired by First Deputy Prime Minister Igor Shuvalov is expected to discuss the situation at AvtoVAZ on Tuesday, Vedomosti reports. According to the paper, the company has experienced increasing problems settling with suppliers and its huge debt burden does not allow it to attract new loans. Vedomosti also reports that about 60% of the company's assets have been pledged as collateral for loans totalling over USD 1bn.
The Shuvalov commission held a similar meeting to discuss the situation at GAZ in early February, shortly before the company failed on its putable bond. This may indicate that the problems at AvtoVAZ have reached a critical point. Meanwhile, we believe that AvtoVAZ is better positioned for government support, given i) the state's exposure to the company through Rostekhnologii's 25% stake and ii) AvtoVAZ's social significance.
Ford Forecasts Russian Sales May Plunge 50% as Economy Falters
By Paul Abelsky and Maria Ermakova
March 17 (Bloomberg) -- Ford Motor Co., whose Focus is the top-selling western car in Russia, cut its industry forecast for the country, saying sales may plummet as much as 50 percent this year in what used to be the second-fastest growing auto market.
“All the indications are that even now demand is continuing to soften,” Nigel Brackenbury, Ford’s managing director for Russia, said in a telephone interview yesterday from Moscow. “There is substantial inventory in the market place that was built in 2008.”
Carmakers are bracing for a far steeper decline than the 19 percent predicted just two months ago by the Association of European Businesses, an industry group that includes automakers. Volkswagen AG and Toyota Motor Corp. estimate Russian sales will plunge by as much as a third as interest rates on car loans climb to more than 20 percent and the economy falters.
The Russian slump is cutting off one of the last growth areas for western carmakers at a time when the global industry is in a tailspin. For nearly a decade as oil prices climbed, Russian consumers increasingly bought more expensive foreign models, spurring double-digit sales gains second only to China, according to Boston Consulting Group. Now, Russians are buying cheaper cars without the extras, if they’re buying at all.
Russian car sales in the first two months of 2009 dropped 36 percent to 252,314 vehicles as the ruble depreciated and interest rates rose. Russia may slide into recession this year after ten years of uninterrupted growth as the global economic slowdown erodes demand for the country’s oil and gas.
‘Scary Word’
Elena Shapochanskaya typifies the Russian consumer’s current wait-and-see mood. She had planned to buy a western brand this year, putting in an order for a car from PSA Peugeot Citroen costing 350,000 rubles ($10,027) before deciding to cancel it.
“It’s the crisis - that scary word that everyone is afraid of,” the 25-year-old Moscow consulting firm employee said in explaining her decision. “There’s an uncertainty at work, and they’ve cut our bonuses.”
Ford’s Brackenbury said his internal forecast last month was for registrations to fall by a third. Deteriorating market conditions, such as slowing sales, fewer visits to dealers and a lower volume of phone calls, convinced him to cut his estimate.
Ford, which stopped production at its St. Petersburg plant for one month from mid-December to mid-January, is looking at further adjustments to “plan realistic inventories,” he said. Toyota, the world’s largest automaker, said yesterday it will idle its Russian factory for one week because of the sales drop.
Russia’s Economy Ministry predicts the economy will contract 2.2 percent in 2009. The ruble has slumped about a third against the dollar in the last six months.
High Interest Rates
Interest rates on car loans have advanced to as high as 21 percent from about 12 percent previously, said Mikhail Pak, an analyst at IFC Metropol in Moscow. Carmakers say 90 percent of customers pay for their cars with cash because of the high rates. It was about 50 percent in 2008.
“People are having difficulties getting credit,” Tor Berge, Toyota’s vice president for Russia, said in an interview. “It also shows that a lot of people are trying to put their rubles into a car to sort of secure their money.”
The Russian government has responded to the car sales drop by pledging to spend about 220 billion rubles to aid the industry, offering to subsidize loans on car purchases and making plans to upgrade at least 12 percent of the federal car fleet. The government also raised import duties on cars and trucks to encourage domestic production.
Scaling Back
Foreign carmakers as a result are scaling back sales of imported models and focusing on cars produced at their own Russian factories. Ford will build about 80 percent of the cars it sells in Russia this year locally, while Volkswagen, Europe’s largest carmaker, will produce about 70 percent in the country. That compares to 50 percent last year, they said.
“Russian automakers will fare relatively better than foreign companies as they benefit from the weaker ruble, government aid and higher import tariffs,” said Ilya Makarov, a transportation analyst with UBS AG in Moscow.
Domestic producers such as OAO AvtoVAZ, the nation’s biggest carmaker and builder of the Lada, “are also less exposed to the volatile markets outside Russia,” Makarov said.
The impact of the collapsing car market is also being felt beyond the country’s borders. In recent years, 70 percent of Russian car imports passed through neighboring Finland’s ports. Now, cars meant for Russia, are piled up in the Nordic nation.
Excess Inventory
“The excess that built up in the autumn is sitting out in the parking lots and the automakers are wondering if they can sell them or what else to do with them,” Jukka Ryky, managing director of the Freeport of Finland, said. “Our parking lots are nearly full. Everywhere else is full too. Temporary lots are being used around Europe.”
Anatoly Alexeyev knows the situation all too well. A sales manager at a dealership south of Moscow, Alexeyev says visits have dropped 20 percent since the beginning of the year. Those that do buy are opting for cheaper Russian models as opposed to western brands.
“Prices on foreign cars have increased significantly” as a result of the decline in the ruble, he said. “There is a shift toward Russian cars.”
Western carmakers say there’s no sign of a recovery taking hold and that a turnaround won’t come until after the economies in the U.S. and western Europe pick up and demand for oil increases.
“It might be at the end of the year that the market starts to come back,” Frank Wittemann, the Volkswagen brand’s Russia chief, said. “It really depends on what the oil price does.”
To contact the reporters on this story: Maria Ermakova in Moscow at mermakova@; Paul Abelsky in St. Petersburg at pabelsky@.
Last Updated: March 16, 2009 22:00 EDT
Kia Aims to Increase Vehicle Sales in Russia by 13% This Year
By Garfield Reynolds
March 17 (Bloomberg) -- Kia Motors Corp.’s Russian distributor aims to boost sales in the country by 13 percent to 100,000 vehicles this year.
Kia Motors Rus plans to increase market share to become one of the top five brands in the Russian market by 2010, the distributor said in a statement dated yesterday on its Web site. Kia boosted Russian sales 12 percent last year to 88,152 cars, according to the Moscow-based Association of European Business in the Russian Federation.
The company next year plans to import 20,000 cars from South Korea and 45,000 vehicles will be assembled in Kaliningrad, Russia, from kits shipped from Slovakia, RIA Novosti reported yesterday. About 35,000 will be produced at Kia’s Izhavto factory in Izhevsk, in the Ural Mountains region of Russia, the news agency said.
To contact the reporter on this story: Garfield Reynolds in Sydney at greynolds1@
Last Updated: March 17, 2009 01:51 EDT
AFI Avoids the Worst Of Developers' Woes
17 March 2009 Reuters
AFI Development chief executive Alexander Khaldei considers his company a survivor on Moscow's devastated real estate scene, but he has lost some of his swagger.
Last year, Khaldei, who co-owns the Russian developer with Israeli billionaire and diamond dealer Lev Leviev, was sitting on a portfolio of some of Moscow's most prestigious projects, which were valued at nearly $6 billion.
Now, he has scaled back his development projects from 34 to concentrate on three flagship central Moscow ventures that make up the lion's share of his portfolio, which was valued by consultants from Jones Lang LaSalle at $2 billion at the end of 2008.
The Moscow property market has seized up as the businesses that occupy the city's sleek new Class A office space slash their staff and some companies pack up altogether, filling the business newspapers with sale and bankruptcy notices.
"Where are they going? Those offices are emptying out. We feel the effects of it too," Khaldei said in an interview.
"We try to be flexible, cutting rates a little bit to try to keep our tenants, so our turnover is small. But on the whole, there is a lot of empty office space on the market."
Office rents, he said, have fallen by 20 percent, while apartments have been steadier, falling 10 percent to 15 percent.
He said the $2 billion valuation of his portfolio was too low.
"But considering what is happening with developer structures, we can't prove otherwise. The market is at a standstill, not because we aren't building anything but because there is no demand," Khaldei said.
"Developers need to go on holiday. There is no demand. If there is no demand, it doesn't matter what you build. It can be a shack or a palace -- if you can't sell it, you can't get a return on your investment."
Before the crisis, AFI was selling offices as fast as it could build them. It continues to rent its own premises from a rival, with Khaldei's corner office overlooking the building he had planned to occupy, which is now leased to a Wall Street bank.
That office building is part of its intricate Tverskaya Zastava project, a plan to renew the grubby and crumbling neighborhood around Belorussky Station at the old northern gates to the city, now a traffic bottleneck.
With cash in short supply and demand scarce, AFI is pursuing Tverskaya Zastava and two other flagship projects -- the Mall of Russia in Moscow's new financial district and an apartment building across the river from the Kremlin.
The company will write down assets "within reason" in an earnings release for the fourth quarter of 2008 -- when the credit crisis hit Russia with full force -- to be issued March 17, he said.
While the Moscow real estate scene has been heavily focused on its more leveraged developers, AFI Development had about $370 million on its balance sheet at the end of the third quarter and "long, comfortable credit lines" with no debt immediately due.
Khaldei was sniffing the air for blood last year, hoping to acquire crisis victims with his cash pile. But the company returned cash to its shareholders last year instead and now sees potential in managing assets seized by banks for debt.
"Banks are the biggest owners of real estate right now. They can't sell off all that collateral. There are no buyers on the market, so it would be logical to put it under experienced developers' management," he said.
"We could take on, say, five sites from a bank, get them into shape and finish them on schedule so that finished buildings were ready for the end of the crisis."
X5 Retail Group: May settle debt for shares
UralSib, Russia
March 16, 2009
Replacing its syndicated loan for shares. X5 Retail Group (FIVE LI - Buy) may settle a $1.1 bln syndicated loan maturing in December 2010 by issuing shares in favor of BNP Paribas, Calyon, HSBC Bank, ING Bank and Raiffeisen Bank, Kommersant reported today. CFO Evgeniy Kornilov confirmed that this is one option for the company to refinance its debt.
Short-term debt covered. As of end-2008 X5's total debt amounted to $2.0 bln, $580 mln of which was short-term debt. The company has sufficient resources in place to refinance this debt ($224 mln in cash as of end-3Q08, a $258 mln credit line from VTB and $114 mln credit line from Alfa Bank). In 2010 X5 is due to redeem $1.4 bln. The $1.1 bln syndicated dollar-denominated loan accounts for the bulk of this sum and matures in December 2010, hence it represents the biggest investment risk for X5.
Still more than a year to go. We consider this news to be neutral as the company still has more than a year and a half to refinance this loan, and it is too early to say exactly how the company will do so. X5 enjoys strong support from the government (as proved by the earlier receipt of VTB loans), and we calculate that it is generating sufficient cash flow to cover its loan obligations (operating cash flow of $575 mln in 9M08 and an expected $700 mln in 2009).
Government view on mobile tariff situation
Rencap, Russia
Tuesday, March 17, 2009
According to Vedomosti today (17 Mar) Deputy Prime Minister Sergey Ivanov wants the mobile operators to consider cutting tariffs. Over the weekend the Minister of Communications and Mass Media Igor Shegolev said to Vesti that there are no reasons to worry as only the price of business-class services is increasing.
The big three mobile operators have already increased roaming tariffs. VimpelCom increased domestic mobile tariffs in Moscow and St Petersburg while MTS and MegaFon may not go for a tariff increase. We think VimpelCom was forced to increase tariffs to enhance dollar-based operating cash flows to repay its debt, whereas MTS and MegaFon, which have a more stable liquidity position, have more room to manouevre. In our view tariffs are not about to go down.
Ernst & Young begins Svyazinvest appraisal
Troika, Russia
Tuesday, March 17, 2009
Svyazinvest has hired Ernst & Young to appraise its assets, the Vedomosti daily reports.
The agreement was signed on March 12.
The initiative to conduct an appraisal came from Deputy Prime Minister Sergei Ivanov, who previously liked the idea of the state regaining control in Svyazinvest by buying a 25% stake from Comstar UTS/Sistema.
It is premature to say whether this could be a prelude to a deal between Comstar UTS and the government regarding the sale of 25% of Svyazinvest, as the results of the valuation may be used for other purposes, such as Svyazinvest's restructuring, or a buyout of a 40% stake in Rostelecom from its current owners. But this possibility should not be ruled out.
While there is no guarantee that the results of this appraisal will not be shelved as previous valuations have been, it is generally quite positive that the state has started taking the legal steps necessary to conduct further corporate actions with its stake in Svyazinvest. Perhaps this time the process of restructuring the holding will begin - finally.
MTS and Comstar merger - talks revived?
Rencap, Russia
Tuesday, March 17, 2009
According to Vedomosti today (17 Mar), a merger between MTS and Comstar was discussed at the end of last week with the participation of Sistema management. According to the article, the stumbling-block was the valuation of Comstar: MTS estimates the operator is worth $850mn, while Comstar values itself at $2.2bn. The current market cap of Comstar is $1.36bn and our fair value is $2.68bn.
We discussed the merits of an MTS and Comstar merger in our report Sistema, MTS, Comstar: Integration is the Game - Part 2 dated 5 Aug 2008 (click here to view). In brief: 1) it makes sense; 2) it creates synergies; and 3) it is better for Comstar than for MTS. Overall, we believe the offer price will be determined by some sort of independent valuation of both entities, but we doubt Comstar's minority shareholders would accept an offer below the bottom end of consensus valuation for the stock, and even more so below market cap. The price suggested by MTS is $2.2/share which is lower than the current market price and unlikely to be agreed upon, in our view. The price suggested by Comstar of $5.7/share sounds more viable to us. The deal can be financed by both equity and cash, but the final deal structure should imply the unification of the legal structure of MTS and Comstar, as otherwise the companies will not be able to extract full synergies (they will not be able to exchange subscriber databases, for instance). Finally, we believe the deal is unlikely to happen prior to the sale of Comstar's blocking minority stake in Svyazinvest.
Russian operators want to renegotiate Apple iPhone deal - paper
sMOSCOW, March 17 (RIA Novosti) - Russia's "big three" cell phone operators are trying to renegotiate a deal to sell Apple's iPhone in Russia after sales plummeted amid the global financial crisis, Kommersant business daily said on Tuesday.
Apple's iPhone 3G went on sale in Russia last October with MTS, the country's largest cell phone operator, pledging to sell 1 million phones over three years, while Megafon and VimpelCom were tied into selling 1.5 million units over two years. However, iPhone sales in Russia have failed to match the successes seen in other countries, including the U.S., which sold one million units in three days.
With just 230,000 iPhones sold since October and 2009, and sales in Russia plummeting by 30-40% along with the 30% depreciation in the value of the ruble, all three Russian operators are looking to review their agreement with Apple and reduce the number of phones they are obliged to sell and the price they pay for them.
"Due to the crisis, since the start of the year iPhone sales have dropped by 30-40%, but new models could help boost sales. For example, in the fall of 2008 there was information that Apple was ready to release an iPhone Nano, but this didn't happen," a representative from one of Russia's cell phone operators told Kommersant.
Eldar Murtazin, a leading analyst at Mobile Research Group, pointed to mounting losses incurred by the Russian operators, and said that when the iPhone officially went on sale in Russia 400,000 units were imported, of which only 55% have been sold.
Murtazin was cited by Kommersant as saying, "The indirect and direct loses to MTS, VimpelCom and Megafon have reached $60 million following the ruble depreciation."
Apple originally set a price for the iPhone at around ($900) euros for 8GB model and ($1,000) for the 16GB model, exclusive of VAT and customs duties of 23%.
Altimo to decrease stake in Turkcell below 5% to meet US court's decision
VTB Capital
March 17, 2009
Vedomosti and RBC-Daily quote Kirill Babaev, senior Vice President of Altimo (a 44% holder at Vimpelcom), as saying that the holding is close to selling part of its 6.6% stake in Cukorova Telecom Holdings (CTH), the owner of Turkcell, to fulfill the November 2008 decision by the US Federal Court for the Southern District of New York. According to that decision, Altimo must decrease its stake in Turkcell (which is the 100% owner of Astelit, the third national Ukrainian mobile operator) below 5% or sell its 43.5% in Kyivstar, the largest Ukrainian operator (56%-owned by Telenor). Because Altimo failed to deposit Storm's Kyivstar shares with the Court on 11 March, the court ordered Altimo to pay fines of USD 100,000 per day, beginning on 12 March, until it had complied with the order (with the amount doubling every 30 days thereafter until Altimo was no longer in contempt).
Altimo has not disclosed the name of the potential buyer, saying that the stake would be sold at close to the market price (USD 169mn, as of yesterday's close).
We see the news as technical and unlikely to impact on the new twists and turns in the Alfa-Telenor shareholder conflict saga. Furthermore, we remind investors that in late 2007, Altimo decreased its ownership in Turkcell from 13.2% to 6.6%, selling 6.6% to Kazakh Visor Holding. It reserved the right to buy its stake back again and receive dividends on all 13.3%. In our view, the Alfa- Telenor shareholder conflict saga will continue to unfold.
Activity in the Oil and Gas sector (including regulatory)
Gazprom and Rosneft will repay credits regardless of oil price - Mr Sechin
Tuesday, 17 Mar 2009
Interfax citing Mr Igor Sechin Russian Deputy Prime Minister has said the level of oil prices won't impact Gazprom and Rosneft companies' ability to honor their obligations to foreign creditors.
Mr Sechin leader of a Russian delegation to a regular session of the Organization of the Petroleum Exporting Countries said "The level of prices for oil actually does not affect our companies' ability to repay their debts."
Mr Sechin said Gazprom is to repay USD 3.7 billion in debts on credits in 2009 and Rosneft USD 3.1 billion by 2012. He said that the Russian deputy prime minister acknowledged that the largest Russian producers of hydrocarbons are concerned about the level of prices on the world markets. He added that "The level of prices must guarantee the return of the resources put into the development of new fields.”
Mr Sechin said that a larger part of the oil companies' investment is being spent on supporting extraction. If the drop in prices leads to a reduction in extraction, at the next stage this will lead to cuts in supplies to the market and, as a consequence, to a rise in prices for oil. He said that "It is a two-way street. Both consumers and producers must coordinate their moves."
Oil producer Russneft faces bankruptcy
Published: March 16, 2009 at 10:24 AM
MOSCOW, March 16 (UPI) -- Russian energy majors Gazprom and Rosneft are potential buyers for Russia's eighth-largest oil producer, Russneft, which is facing bankruptcy from loans.
Russneft faces bankruptcy over $2.8 billion in bank loans from Russian billionaire Oleg Deripaska.
Deripaska has expressed his interest in purchasing Russneft since 2007, when its founders gave him control over the company because of tax arrears.
The mogul in 2007 took out a $2.8 billion loan to buy the company from state-controlled bank Sberbank, using shares from an existing venture as collateral.
In February, Deripaska took out another $2.8 billion in debt with Sberbank, this time using his Russneft shares as collateral to pay back the first loan. Russneft lacks the finances to pay off the second loan, the Platts news service reports.
"There are only two options now, bankruptcy or the sale of the company," a source told Platts.
Energy monopoly Gazprom and integrated oil company Rosneft are listed as potential buyers for Russneft, with Gazprom positioned as the most likely candidate.
Russneft: Sberbank representatives likely to join the board
UralSib, Russia
March 17, 2009
Top-managers are leaving Russneft. Vedomosti reported yesterday that Russneft first vice president Oleg Shegolev and CFO Alla Baranovskaya have left the company. An EGM has been scheduled for 22 May to elect a new board. According to media reports, Sberbank representatives will be elected to the new board. The current board has five members: Vladislav Solovev, CEO of EN+ (representing core shareholder Oleg Deripaska) and four representatives of Cyprus-registered Chrysostomides Co.
Vast debt burden the key issue. The idea of Sberbank's representatives joining the Russneft board was first raised about a month ago when Deripaska's BasEl started negotiations with the bank about debt restructuring. Deripaska took out a $2.8 bln loan in 2007 from Sberbank using shares in one of his businesses as collateral, to buy out Russneft's former owner, Mikhail Gutseriyev. According to media reports, Deripaska borrowed another $2.8 bln from Sberbank in February this year to repay the first Sberbank loan using 100% of Russneft shares as collateral.
Sale is very likely. It is very likely that Sberbank's representatives will join the Russneft board as Deripaska has no money to repay the $2.8 bln debt, hence in the short term Russneft will be controlled by the state-owned bank. The future of the company remains unclear, but in our view there is only one main option - the sale of the asset to a state-owned company or one with close links to the state. Russneft has a relatively strong upstream and downstream business, and we believe the assets would be a perfect M&A target for Gazprom Neft or Surgutneftegas. Split of the companies assets is also possible, with certain assets transferred to MOL which currently owns 50 % of Russneft's subsidiary ZMB, some assets - to Glencore - Swiss oil trader, and some to possibly Gazprom Neft or Surgutneftegas.
Novatek 4Q08 IFRS results preview (2008, 4Q)
Rencap, Russia
Monday, March 16, 2009
Novatek said it will report its 4Q08 IFRS results on Wednesday, 18 March. These will be very weak in our view, driven by the timing mismatch between a sharp fall in oil and gas condensate prices and costs adjustments. While this was a common problem for the Russian oil & gas sector last quarter, we believe Novatek will fair better than most other hydrocabon producers due to the fact that most of its profits are currently being derived from the domestic gas business, which is experiencing an upward secular pricing trend, albeit in roubles.
As 2008 gas production statistics have already been reported, we expect little deviation to our 4Q08 revenue estimate of RUB16.2bn, representing declines of 4% YoY and 18% QoQ, a result of lower oil prices. At the same time, operating costs will have risen 18% on our estimates, reflecting a natural lag between the sharp correction in market conditions and the costs reduction. In addition, most of the rouble adjustment took place in the beginning of 2009, also delaying the positive effect of currency weakening on Novatek's profitability. As a result, we estimate Novatek will report 4Q08 EBITDA of RUB6.0bn, a 23% decline YoY, representing EBITDA margin of 36% (vs 46% in 4Q07 and 47% in 3Q08).
Novatek recently pre-reported a 4Q08 currency loss of RUB2.8bn and a deferred tax gain of RUB1.1bn, which, combined with our estimated net interest expense of RUB57bn and underlying tax rate of 25%, will result in a 47% YoY drop in net income to RUB2.7bn, on our estimates.
Novatek Fourth-Quarter Net May Fall on Ruble, Prices: Outlook
By Stephen Bierman
March 17 (Bloomberg) -- OAO Novatek may say fourth-quarter profit fell 52 percent after Russia’s largest non-state natural gas company incurred a currency exchange loss on dollar denominated debt and prices fell.
Net income of the Tarko-Sale, Siberia-based company probably fell to 2.42 billion rubles ($70 million) in the three months ended Dec. 31 from 5.05 billion rubles a year earlier, according to the median estimate of 11 analysts surveyed by Bloomberg.
The ruble’s 16 percent depreciation against the dollar in the quarter resulted in a 3.3 billion ruble loss on U.S. dollar- denominated debt, Novatek said on March 12. It also said that condensate prices for the company’s approximate 50,000 barrels a day of liquids output fell 50 percent in the quarter on the previous three months.
“Despite a 25 percent increase in domestic gas prices in 2008, ruble devaluation and demand weakness are likely to result in a material decline in profits and margins,” VTB Group said in a note to investors.
Novatek, which increased output 8.3 percent to 30.9 billion cubic meters of gas last year in comparison with 2007, sells its gas domestically in Russia. OAO Gazprom, Russia’s state-run natural gas exporter and pipeline monopoly, owns almost 20 percent of Novatek’s shares.
Earnings before interest, taxes, depreciation and amortization likely fell 26 percent to 5.77 billion rubles and sales 2.2 percent to 16.6 billion rubles. The company is scheduled to report earnings March 18.
Ruble to dollar exchange rates in this story are taken at today’s rates. Figures in the table below are in billions of rubles.
4Q 2008
Median High Low 4Q 2007
Estimate Estimate Estimate Reported
Revenue 16.6 18.8 16.1 16.9
Ebitda 5.77 7.2 4.57 7.8
Net Income 2.42 2.71 .766 5.05
The survey included analysts from Bank of America Corp’s Merrill Lynch & Co, Alfa Bank, Deutsche Bank AG, JPMorgan Chase & Co., Renaissance Capital Group Inc., Troika Dialog, Citigroup Inc., UniCredit SpA, IFK Metropol, VTB Group, and UBS AG.
To contact the reporter on this story: Stephen Bierman in Moscow sbierman1@.
Last Updated: March 17, 2009 03:16 EDT
Tatneft: Trying to attract $1.5 bln loan
UralSib, Russia
March 16, 2009
External funding needed to construct Nizhnekamsk refinery on time.
Tatneft (TATN - Buy) is trying to attract a $1.5 pre-export loan to finance construction of the Nizhnekamsk refinery, Interfax reported last Friday, citing Tatarstan's Development Minister, Marat Khusnulin. The company has submitted a proposal to a group of foreign banks but has not disclosed any further details.
Traditionally has a conservative debt approach. Tatneft is one of the most conservative oil companies in Russia in terms of debt. As of 30 September 2008, the company's net debt stood at $509 mln implying, by our estimates, 2009E net debt/EBITDA of 0.7. If the company does attract an additional $1.5 bln loan then its 2009E net debt/EBITDA will grow to 2.8, which is quite high for the capital intensive oil industry.
Refinery planned to be complete in 2010-11. Tatneft, one of the few large oil companies in Russia without refining capacity, has to arrange processing agreements to ensure supplies of oil products for its filling stations. In 2005, the company started construction of the Nizhnekamsk refinery, one of the most advanced refineries in Russia, with annual throughput of 7-mtpa capable of yielding 2.7 mln tons of diesel fuel and 0.9 mln tons of gasoline. The quality of the refined products will meet EURO-5 standards. The complex also includes a deep conversion refining plant with annual throughput of 3.5 mln tons and a petrochemical plant for the production of products based on aromatic hydrocarbons. Tatneft plans to complete construction of the complex by 2010- 11. Construction of the refinery will enable the company to produce value-added oil and petrochemical products, which are more profitable than crude oil sales and less sensitive to crude oil price fluctuations. We view this news as positive from a strategic perspective, although it is negative in the short term as the additional debt will put pressure on the company's financials. Nevertheless, we reiterate our buy recommendation on the company's ordinary shares with a target price of $2.7.
FAS give Sistema green light to buy Bashkirian Oil assets
Rencap, Russia
Monday, March 16, 2009
The Federal Antimonopoly Service (FAS) will allow Sistema to buy majority stakes in five Bashkirian Oil companies.
The acquisitions are likely to be funded through debt raising, as Sistema does not have sufficient cash on hand or other funding sources (despite a blocking minority stake in Svyazinvest which could be sold to the state; however the deal structure and timing are not certain). We think the upside for Sistema stock, arising from the potential transaction, will depend upon the difference between price paid, current market value and the fair value the market will attach to it. We think in the current market environment Sistema might make the purchase at a favourable valuation.
New tug for Murmansk oil-tankers
2009-03-16
The Kola Bay get its first tug-boat especially designed to support the fleet of oil-tankers sailing in- and out the Kola Bay.
Sovcomflot (SCF) Group’s new tug, Kapitan Avdyukov, had her naming ceremony at the construction yard in Turkey last week and the boat will soon be ready to serve the oil-tanker fleet in Murmansk, writes the web-portal Shipbuilding. Energy.Transport.
The tug-boat is the first in a series of three tugs designed to facilitate the safe operation of tankers in Kola Bay. Two similar tugs of 3660 kW and 2460 kW capacity, Kapitan Popov and Kapitan Reutov, will join the Group's fleet in July - August 2009.
Venezuela and Russia Team Up for Orinoco Exploration Activities
EFE 3/16/2009
URL:
Venezuela and Russia reached an agreement that opens the way for a Russain consortium to "be in the Junin 6 block of the Orinoco petroleum belt," Venezuelan Oil Minister Rafael Ramirez said here Sunday.
The Venezuelan oil minister said he cut the deal with Russian Deputy Prime Minister Igor Sechin, who is attending the Organization of Petroleum Exporting Countries, or OPEC, meeting Sunday in the Austrian capital as an observer.
"They can enter all above-water activities in a joint venture with (Venezuelan state-owned oil giant) PDVSA, which is what we are going to do," Ramirez told reporters before the OPEC meeting.
The accord, an amendment to an existing cooperation agreement, covers exploration and production, calling for investment of some $6 billion in the field, which has the capacity to produce 200,000 barrels per day (bpd) of crude, the Venezuelan oil minister said.
The agreement opens the way for the Russian consortium, which includes several companies, among them Grosneft, Gazprom and Lukoil, to join in the project, Ramirez said.
"We added some definitions to the existing agreement," Sechin told Efe.
On Saturday night, Ramirez and Sechin put their signatures on "the amendment to the Energy Area Cooperation Convention signed in November of last year," PDVSA said in a statement.
"The creation and operation of the Joint Venture -- for the execution of the project in an area of 447.85 sq. kilometers ( sq. miles) -- will be subordinated to the legislation of the Bolivarian Republic of Venezuela," PDVSA said.
Last November, Russian President Dmitry Medvedev, the first Russian head of state to visit Venezuela, and his Venezuelan counterpart, Hugo Chavez, signed seven cooperation agreements designed to bolster their countries' alliance.
Lukoil bought Prosperity Capital out of RITEK – Graifer
MOSCOW. March 17 (Interfax) - Lukoil (RTS: LKOH) bought the stake
held by funds controlled by Prosperity Capital Management in Russian
Innovatory Fuel & Energy Company (RITEK) (RTS: RITK), Valdery Graifer,
Lukoil's board chairman, told reporters.
"Yes, it was Lukoil," Graifer said.
Lukoil had already consolidated 80% of RITEK prior to the deal.
Lukoil poised to pay 2008 dividend
RBC, 17.03.2009, Moscow 11:54:45.Lukoil does not plan to scrap dividend for 2008, chairman of the Russian oil giant's board of directors Valery Grayfer told journalists today. He indicated that the next meeting of the board of directors was scheduled to be held in Prague in late April, where its members would prepare items for the shareholders' meeting agenda and consider dividend payments for 2008. The general meeting of shareholders, meanwhile, is scheduled for June.
As reported earlier, Lukoil paid RUB 42 (approx. USD 1.2) per share as dividend for 2007, and the total dividend payout stood at RUB 35.72bn (approx. USD 1.03bn).
Gazprom
Gazprom turns down invitation to join Nabucco project
MOSCOW, March 17 (RIA Novosti) - Gazprom has received an invitation to join the Nabucco pipeline project to pump gas from Central Asia to Europe, but will not take up the offer, a deputy head of Russia's energy giant said.
In an interview with Vesti TV on Monday, Alexander Medvedev said Gazprom would stick with its South Stream project and stay out of Nabucco.
"Unlike in the case of Nabucco, we have everything we need for this project [South Stream] to materialize," he said. "We have gas, the market, experience in implementing complex projects, and corporate management."
The executive said Gazprom was not prepared to split its operations between two projects simultaneously.
"You chase two rabbits, you catch neither. We have a rabbit we know, and we will chase it," he said.
The $10 billion Nabucco pipeline, backed by the European Union and the U.S., is intended to link energy-rich Central Asia to Europe through Azerbaijan, Georgia, Turkey, Bulgaria, Romania, Hungary and Austria, bypassing Russia and Ukraine. Construction has been tentatively scheduled to begin in 2010.
The South Stream pipeline is designed to annually pump 31 billion cubic meters of Central Asian and Russian gas to the Balkans and on to other European countries, but its capacity could be increased by a further 16 billion cu m. The project involves Bulgaria, Serbia, Hungary, Italy and Greece.
Russia's transit disputes with its former Soviet neighbors have raised concerns in Europe about too much energy dependence on Russia.
Russia cut off gas supplies to Ukraine on January 1 after failing to reach a deal over debt and prices for 2009 in late December, and later halted gas deliveries to Europe, saying Ukraine was stealing transit gas. Kiev denied the accusation.
Gazprom may have transferred Severenergia option to Novatek
Rencap, Russia
Monday, March 16, 2009
RBC Daily reported this morning (16 Mar), citing last week's reports by Stafetta, an Italian news agency, which referred to a publication of the Italian Audit's Court, that Gazprom may have transferred its option (expiring next month) to acquire a 51% stake in Severenegia (formerly, Enineftegas - an Eni/Enel JV set up for the acquisition of former YUKOS assets, Arcticgas and Urengoil, in 2007) to Novatek. No details of the transfer arrangement have been disclosed. All three parties involved - Eni, Gazprom and Novatek - have denied that the transfer had taken place.
Severenergia boasts just over 1 tcm of reserves and is capable of producing up to 40bcm of gas pa, 7% and 130% of 2008 production by Gazprom and Novatek respectively. Gazprom has included the costs of acquiring the 51% stake in Severenergia into its 2009 budget and remains adamant the option will be excercised. Although the costs have not been disclosed, a $1bn figure has been mentioned in the media, equivalent to EV/reserves multiple of 0.3 (vs current multiples of 0.9 and 1.3 for Gazprom and Novatek respectively). With no shortage of resources, and evident oversupply of the unregulated portion of the Russian gas market, neither company needs these assets, in our view. However, it is unlikely that Russia will allow the control of the assets to rest with Eni, therefore some sort of a deal is imminent, we think.
Authorities silent over ‘NIS’ balance sheet
Debt not to be forgiven by Russians
Author: B. Stamenković, J. Aleksić | 17.03.2009 - 07:00
Dilemma over ‘NIS’ annual balance sheet strongly echoed in public because of unexpected enormous loss shall probably get its epilog after auditor gives its calculation. The Minister of economy Mladjan Dinkic said yesterday that ‘NIS’ ‘has made profit in business dealing’ and that the Russians ‘by presenting the loss actually want to avoid payment of dividends to the State as the minor owner’. Other members of Serbian Government did not want to say anything on the matter.
‘NIS’ forwarded to the Ministry of finance a positive balance sheet for 2008 at the end of February. Then the company requested some time more for ‘certain changes’ and submitted a new balance sheet which shows a loss of 3 billion Dinars mainly due to bad business results in the third and fourth quarter due to world economic crisis. Other mentioned reasons are drop of prices of naphtha derivatives and devaluation of Dinar in relation to EUR.
The authorities are still waited for to explain the two balance sheets.
There are speculations that the Russians are angry because the profit from previous years, 2006 and 2007 was used for outstanding debts. Experts believe that the new owner has calculated in the loss debts of Serbian public enterprises towards ‘NIS’. Also Russians found a debt of USD 1.14 billions although the inter-state agreement stipulates no taking of credits by ‘NIS’ after 2007.
Russian-Serbian company until end of March
Author: E. B. | 12.03.2009 - 10:18
Signing of documents over setting up of a mutual company of ‘Serbijagas’ and Russian ‘Gazprom’ and beginning of making of the feasibility study for construction of the ‘Southern Stream’ stretch of the gas pipeline are expected to take place until the end of the month, ‘Blic’ learns.
In an agreement on setting up of a mutual company signed in Moscow last December it is stipulated that a Russian-Serbian company shall be set up at the beginning of March this year. According to our source the voluminous work is the only reason for delay. When feasibility study is concerned as said initially it was to be finished until the middle of 2010, but according to announcements of recently it might be ready as early as in September.
Certain concern regarding realization of the whole project and running of the ‘Southern Stream’ through our country was caused by a series of documents that Russia and Hungary signed two days ago in Moscow about construction of that pipeline through the territory of Hungary. The two sides signed a basic agreement on cooperation in construction of a gas pipeline and transit of gas through Hungary by which they founded a mutual company for that purpose. As said by Hungarian Prime Minister the Hungarian part of the ‘Southern Stream’ is to be finished until 2015. That is also the time when Russian gas is expected to start running through Serbia.
Gazprom's non payment problems may be mounting
Troika, Russia
Tuesday, March 17, 2009
Consumers in Moscow and Moscow Region owe Gazprom some R5bn ($143m) for gas delivered, the Kommersant daily reports. Moscow consumes around 28bn m3 per year, or about 10bn m3 in the first quarter, we estimate. This suggests that Gazprom's revenues in Moscow Region were approximately $515m in 1Q09, which means that the non payments could amount to up to 28% of all sales in Moscow. While we would not extrapolate this high%age for all of Russia, it seems that Gazprom's problem of non payments from its customers may be mounting, even though during the latest strategy meeting with analysts, the company claimed that it did not see any problems in the first month of the year. The news suggests that a fairly large chunk of Gazprom's domestic sales may not be translating into cash flow. According to the daily, starting tomorrow the company is threatening to cut off customers that are more than 60 days overdue, and will reinstate deliveries only after the debt is fully repaid.
Gazprom to suspend gas supplies to non-payers
Alfa, Russia
Tuesday, March 17, 2009
Gazprom has signaled its intention to manage its accounts receivable very actively. According to today's Kommersant, Gazprom faces serious problems with receivables in the Moscow region and is going to suspend gas supplies to those companies with payment delays of more than two months. According to the article, as of March 15 the total outstanding payables of these industrial consumers in the Moscow region were around R5bn ($140m).
We treat this news as slightly positive for the company, since, as we have said previously, Gazprom's ability to manage its accounts receivable during the crisis will be one of its key challenges in upcoming months.
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