8 June 2009 TOP STORY This Is Bne's Weekly Newsletter Covering FDI and Investment Plans in Eastern Europe

Home , Alisher Usmanov, Konstantin Grigorishin, Lasha Zhvania

February 9, 2009

This is bne's weekly newsletter covering FDI and investment plans in Eastern Europe. You can receive the list as a plain text or html email or as a pdf file. To manage your delivery options: http://businessneweurope.eu/users/subs.php 8 June 2009 TOP STORY This is bne's weekly newsletter covering FDI and investment plans in Eastern Europe. 1. Putin suggests relaxing rules on foreign investment You can receive the list as a plain text or html email or as a pdf file. Manage your 2. EurAsEC to create $10bn anti-crisis fund delivery options here: http://businessneweurope.eu/users/subs.php 3. Lukoil to invest $8 bn in 2009 4. Magnit, X5 Retail Group: Aggressive expansion plans to continue in spite of crisis NEWS TOP STORY 5. Customs Service reports huge drop in imports 1. Rusnano and Renova to create Russia’s solar panel industry 6. MinEconomy estimates GDP growth at 5.6% YoY in 2008 2. NOVATEK to stick to maximum investment plan - we expect capex at USD 0.6bn 7. Rosstat reports plummeting core sector output for December 3. Russia may seek new investors for electricity sector 8. Russia’s GDP may drop 10% in 2009 says union leader 4. Russian Foreign investment falls 30% in 1Q09 FOREIGN-RUSSIA INVESTMENT NEWS 9. Ford to expand St Petersburg plant

5. CIS: The trough is behind us RUSSIA-FOREIGN INVESTMENT February 9, 2009

6. Crisis bites deep into Russian infrastructure programme 10. InterRAO establishes JV with Cuban state This is bne's weekly newsletter covering FDI and investment plans in Eastern Europe. 7. Strategy Monthly: The Impact of China SECTOR GAS You can receive the list as a plain text or html email or as a pdf file. To manage your 8. Putin proposes that VEB and Rosselkhozbank fund light industry projects 11. $800m to be spent on Shtokman development 9. World Bank praises Russian administrative reforms delivery options: http://businessneweurope.eu/users/subs.php 12. Board of directors approves Gazprom's oil strategy 10. Russia to push for WTO and OECD entry by the end of this year 13. Gazprom and Beltransgaz sign new gas price agreement TOP STORY 11. Russian GDP Indicator recorded annual contraction of 6.8% in May 14. Gazprom Neft closes deal Serbian NIS deal 1. Putin suggests relaxing rules on foreign investment 13. Russian government expects GDP recovery in 2H09, may issue Eurobonds in 15. Medvedev calls for faster gas pipeline construction 2. EurAsEC to create $10bn anti-crisis fund 2010 16. Novatek : PT upgrade due to cancellation of export duty on LPG 3. Lukoil to invest $8 bn in 2009 RUSSIA-FOREIGN INVESTMENT 17. Structures near Shtokman could contain up to 2 tcm of gas 4. Magnit, X5 Retail Group: Aggressive expansion plans to continue in spite of crisis 13. LUKOIL: Eyeing bigger Kazakhstan presence, strategically positive 18. Surgutneftegaz expects output to decline 1.1% YoY this year 14. Russia may participate in Azerbaijani nuclear plant construction NEWS SECTOR Oil 15. Unimilk and Wimm-Bill-Dann interested in Belarusian dairy sector 5. Customs Service reports huge drop in imports 19. LUKOIL's production and capex guidance in line with previous statements 16. X5 Retail Group: Potential entry into Ukraine 6. MinEconomy estimates GDP growth at 5.6% YoY in 2008 20. Rosneft provides 2009 capex guidance GAS 7. Rosstat reports plummeting core sector output for December 21. TNK-BP: Capex cuts here and across the sector 17. Arctic may hold 30% of undiscovered gas 8. Russia’s GDP may drop 10% in 2009 says union leader SECTOR High Tech 18. COW: Russian gas distribution scheme FOREIGN-RUSSIA INVESTMENT 22. FAS investigates regional internet market 19. EU oil majors should unite to thwart Gazprom, says Azeri official 9. Ford to expand St Petersburg plant 23. Siemens to invest up to !50m in Voronezh region transformer plan 20. Gas Fundamentals: Inflection Point RUSSIA-FOREIGN INVESTMENT SECTOR Metals and Natural Resources 21. Gazprom may take control of Moldovan gas pipelines, warns Moldovagaz chief 10. InterRAO establishes JV with Cuban state 24. Azovstal invests more than $775 mln in 2007_08 to modernize 22. Gazprom's gas output drops 34% y o y in May SECTOR GAS 25. Mega-merger discussion continues 23. Nabucco to break even with 8 bcm of gas a year 11. $800m to be spent on Shtokman development 26. NLMK shuts two coke batteries 24. Novatek OAO to launch next phase of Yurkharovskoye field this year 12. Board of directors approves Gazprom's oil strategy 27. Polyus wants to postpone development of Natalka 25. Reinhard Mitschek: Nabucco deal to be signed soon 13. Gazprom and Beltransgaz sign new gas price agreement 28. Putin says Rosatom could develop fully-fledged partnership with Siemens 26. Russia demands Turkmenistan reduce gas volumes or prices 14. Gazprom Neft closes deal Serbian NIS deal 29. World's largest uncut diamond producers unite marketing efforts 27. Russia will back Nord Stream route chosen by Finland 15. Medvedev calls for faster gas pipeline construction SECTOR Power 28. Russia: May gas production statistics 16. Novatek : PT upgrade due to cancellation of export duty on LPG 30. Introduction of RAB in electricity distribution segment might be postponed 19. Russian Gas Sector: Next to Rebound? 17. Structures near Shtokman could contain up to 2 tcm of gas 31. Kovykta stalemate threatens OGK3 "investment" 30. Shtokman developer announces 20 new tenders 18. Surgutneftegaz expects output to decline 1.1% YoY this year 32. Kovykta talks suspended 31. TNK-BP proposes including Kovykta project in Gazprom investment programme SECTOR Oil 33. Liberalised segment of Russian power market to increase to 50% SECTOR Oil 19. LUKOIL's production and capex guidance in line with previous statements 34. Moscow authorities enhance competition in electricity retail 32. Further tax breaks for oil companies? - for new deposits in the Yamal-Nenets 20. Rosneft provides 2009 capex guidance Autonomous Area and in the north of Krasnoyarsk Territory - unlikely 21. TNK-BP: Capex cuts here and across the sector 33. Lukoil to invest $7bn in 2009 SECTOR High Tech 34. LUKOIL: Eyeing bigger Kazakhstan presence, strategically positive 22. FAS investigates regional internet mabrkuesti nessneweurope.eu 23. Siemens to invest up to !50m in Voronezh region transformer plan SECTOR Metals and Natural Resources 24. Azovstal invests more than $775 mln in 2007_08 to modernize 25. Mega-merger discussion continues 26. NLMK shuts two coke batteries 27. Polyus wants to postpone development of Natalka 28. Putin says Rosatom could develop fully-fledged partnership with Siemens 29. World's largest uncut diamond producers unite marketing efforts SECTOR Power 30. Introduction of RAB in electricity distribution segment might be postponed 31. Kovykta stalemate threatens OGK3 "investment" 32. Kovykta talks suspended 33. Liberalised segment of Russian power market to increase to 50% 34. Moscow authorities enhance competition in electricity retail

businessneweurope.eu 35. Oil output flat in May, up 0.5% y o y in 5m09 36. Russian daily crude oil production falls 0.1% MoM in May, gas output falls by 28.8% YoY 37. TNK-BP: Capex and Free float could grow 38. Transneft proposes new terms for Azeri oil transit SECTOR High Tech 39. Intel may assemble computers in Russia SECTOR Metals and Natural Resources 40. China launches anti-dumping investigation against Russian and US transformer steel producers 41. China substantially increases coking coal imports 42. Mechel increases FeCr and nickel production 43. Rusal to miss debt repayment deadline SECTOR Power 44. Energy Minister Shmatko expects capacity market model within two months 45. Government maintains pressure on OGK3 46. InterRAO, VTB and Kuwaiti firm to establish electricity investment fund 47. Post crisis power sector landscape could be different, Shmatko says 48. Warmer May temperatures contribute to electricity demand decline SECTOR Retail, FMCG 49. Russian government may allow retailers to deduct shrinkage for tax purposes 50. Vester closes last hypermarkets in Ukraine SECTOR Telecom 51. AFK Sistema: India subsidiary reaches one million mobile subscribers 52. Court refuses to suspend damage recovery from Telenor 53. North-West telecoms considers upping 2009 capex 54. Siberia Telecom guides for 8% YoY revenue growth - decreases capex further and plans RUB 4bn bond issues - likely to repay 2009 debt should it succeed with the bond issues 55. State commission approves Svyazinvest's reorganisation concept - 56. Svyazinvest: Moving in the right direction 57. Telecom sector: Russian broadband subscriber base up 1.6% MoM in April SECTOR Transport 58. Railway cargo turnover down 13% in May vs. 15% in April SECTOR Automotive 59. Amtel-Vredestein files for bankruptcy 60. Avtovaz gets RUB25bn state loan 61. Avtovaz may buy out GM's Russian JV assets 62. Car sector bailouts to start 63. GAZ could start assembling Opels by end 2009 64. Malaysian automotive producer Weststar cancels LDV deal 65. Nissan opens St Petersburg car plant 66. Russian car industry strategy should include Opel deal - Putin 67. Sberbank and AvtoVAZ offer free credit for Ladas 68. Sberbank and the OPEL deal SECTOR Aviation and defence 69. Aeroflot Nord may lose its license 70. Transportation Ministry invites Boeing to set up maintenance centres in Russia SECTOR Construction, Real Estate 71. Japanese and Chinese investors to access Siberian cement market SECTOR Media 72. Internet: Russian production houses see Russian content market contracting a third YoY in 2009 UKRAINE INVESTMENT

businessneweurope.eu 73. Altcom Group to invest $400m in glass plant 74. AMF upgrades facilities to produce home furniture 75. ArcelorMittal Kryviy Rih to shorten working week to 3 days in August 76. Britain's New Look in talks to enter Ukraine 77. Coke output grows in May 78. DNSS loses USD 6 mln, plans CapEx, may dilute: SELL 79. EU considers investment in Ukraine gas reservoirs 80. Gerts to build 2 more Auchan stores in Kyiv in 2009 81. Home electronics market contracts 82. Kryukiv Railcar will lay off an additional 800 employees in July 83. Lvivska Brovarnia to gain market share 84. New Relationship with Libya 85. Ukraine could make $5bn from An-148-100 sales in five years 86. Ukraine grain exports up 6x y/y; state cuts harvest forecast 12-14% 87. Ukraine may cancel 13% import duty on autos, fridges 88. Ukraine the most corrupt country in the FSU 89. Ukraine's pipe output recovers 13% m o m in May 90. Ukrainian steel output up 9.3% m o m in May 91. Ukravtodor's preparations for Euro-2012 to cost UAH 3 bln 92. Zaporizhstal's CapEx funding: EBRD, dilution? 93. ZATR modernized winding equipment KAZAKH INVESTMENT 94. Construction of Kazakhstan-Turkmenistan-Iran railway to start this year 95. Construction of power plant in Eastern Kazakhstan to support cement consumption 96. GE signs $500m deal with Kazakhstan Temir Zholy 97. Kazatomproms former Vice-Presidents testify that Dzhakishev created offshore companies OTHER COUNTRIES 98. Armen Movsisyan: Project of construction of a new 1200 MW nuclear power unit in Armenia estimated at $4,5 bln 99. Armenia retail turnover volume up by 2,5% in 1Q09 100. Armenia signs $459.7m nuclear power station deal with Worley Parsons International Consortium 101. Armenia: Foreign investments reach $186,3 mln in 1Q09 102. Armenian investments into construction down 42.4% in 1Q09 103. Azerbaijan: Investment in oil industry to hit record high this year 104. Azerbaijan: Ready to Take Part in Gas Reservoir Construction in Georgia 105. Azerbaijan: SOCAR & Turcas/Injaz unveils $15 billion investment plan for Petkim 106. Azerbaijan: SOCAR Investment Plans for 2009 Stand at USD 1.2bln 107. Azerbaijan will launch new auto plant in August 108. Azerbaijan: Sumgait-based petrochemical plants will be reconstructed 109. Belarus may get second IMF loan in June 110. Belarus to award nuclear contract to Atomstroyexport by end 2009 111. Belarus' 4M09 trade turnover declines 40% y/y 112. Belarus' retail sales up 5.5% 1Q09 113. Bulgaria invites investors to build tunnel under Balkan mountain range 114. Compromise close over Russian $500m loan to Belarus 115. Construction of third power transmission line Iran-Armenia to be launched in summer of 2009 116. Georgia: Mercedes Benz Representation in Georgia Sells One Motorcar in May 117. Georgia: State Economics May Fall by 1.5% in 2009 amid Street Rallies, says Government

businessneweurope.eu 118. Georgian Government to Introduce Economics Stimulation Package Next Week 119. IMF to release next $400m tranche for Belarus soon 120. Investment program of Electric Networks of Armenia CJSC for 2009-2011 costs 65.547 billion drams 121. Investments in Romanian economy fall 0.3% on mo in Q1 122. Iran to fully finance Tebriz-Eraskh oil pipeline at $250 mln 123. Kudrin causes a small storm with remarks on Belarus stability 124. Lasha Zhvania: Baku-Tbilisi-Kars will go on stream in 2012 125. Long-term growth prospects in Turkey remain sound, says East Capital 126. Raiffeisen Bank and EBRD co-operate to boost energy savings in Hungary 127. SOCAR launches development of Umid field after 20-year break 128. SOCAR sets up filling station chain in Azerbaijan 129. South Koreas KOGAS to invest $22m in Uzbekistan 130. Turkcell guaranteed $64m for Belarus unit's investment 131. Turkey may invest in Tajik HEP plants 132. Turkey unveils a new incentive package 133. Turkmenistan to announce East-West pipeline tender result June 29 134. UK-listed BLD to build resort at Bulgarian Black Sea 135. Unigrain Georgia launches Poti grain terminal 136. Uzbekistans Kyzylkumcement delays construction of new line

--************************************************************ TOP STORY --************************************************************ 1. Rusnano and Renova to create Russia’s solar panel industry bne June 8, 2009

Russian Nanotechnology Corporation - Rusnano - and Viktor Vekselberg’s business group Renova have inked a deal on setting up a joint venture to produce solar panels. The move is part of Rusnano’s wider strategy of developing new, innovative fields in the Russian economy.

The project is expected to cost 20.1 billion rubles in total. Under the agreement, signed at the St Petersburg Economic Forum, Rusnano will invest 3.7 billion rubles in the joint venture, and provide a further 8.9 billion rubles as a loan. By 2015, it is projected that the joint venture will have revenues of 10.3 billion rubles.

According to Rusnano head Anatoly Chubais, the facility will be the largest producer of alternative energy technology in Russia.

Rusnano will hold a 49% stake, while Renova will own the remaining 51%. Renova will also be responsible for development of the business. One of its companies, Avelar Energy Group will handle product sales.

The solar modules the company it will manufacture use the most recent global developments in thin film manufacturing; they will be based on thin film technology from Swiss specialists Oerlikon Solar, which is 45% owned by Renova.

The company to be set up by the two organisations will be Russia's largest solar modules manufacturing facility, with design capacity of one million solar modules per year, corresponding to 120 MW of energy a year. Production will start in the third quarter of 2009, but the plant is not due to reach full operational capacity until the fourth quarter of the following year.

businessneweurope.eu It will be located in Novocheboksarsk, town in the Chuvash republic. The facility will be in an industrial area operated by chemicals company Khimprom OJSC, within a large research centre. The centre will work to increase the efficiency of solar modules in close cooperation with Ioffe Physical Technical Institute of the Russian Academy of Science, Rusnano says in a press release.

“Solar modules manufacturing is consistent with RUSNANO strategy to deliver cluster projects resulting in creation of full-fledged nanotechnology products interrelated in manufacturing technology or process flow,” it says. “Such projects will serve as a backbone for establishing the new innovative fields of Russian economy.”

Rusnano also hopes the project will stimulate related manufacturing activities in Russia, such as the production of high-purity process gases and specialized glass. The company has already approved another solar energy project, the creatio of Russia’s first large scale facility to produce polycrystalline silicon and monosilane, raw materials used in the manufacture of solar batteries.

Globally, the solar energy production has increased rapidly in recent years. According to Lux Research, the market was worth $33.3bn in 2008, or around 5 GW. Today, the market is more than 11 times larger than it was in 2001.

As of 2008, the market for silicon thin-film solar modules was valued at 0.6 GW, and it is expected to quadruple in size to 2.4 GW by 2012. In financial terms, it will expand from $3.8bn to $8.6bn.

At present, the largest markets for solar technology, and the new venture’s main target markets, are European countries in particular Italy, Spain, Greece and Germany. However, in the longer term, the company is expected to sell up to 15% of its solar modules in Russia.

--************************************************************ 2. NOVATEK to stick to maximum investment plan - we expect capex at USD 0.6bn VTB Capital June 1, 2009

- production capacity to increase in 2009

News: According to Vedomosti, NOVATEK has decided to implement the maximum investment programme for 2009.

Our View: The company initially had two investment scenarios for 2009: depending on the demand outlook, it intended to invest either USD 0.4bn or USD 0.6bn (with the difference attributable to the third phase of the Yurkharovskoye field development.) Maximising investments in 2009 implies the company's positive outlook on the gas demand trend. Indeed, the company's CFO Mark Gyetvay said recently that the company had already seen some recovery in domestic gas demand. At the same time, by committing to long-term growth NOVATEK is likely to obtain some spare capacity with the launch of the third phase of the Yurkharovskoye field, which might remain idle for some time before being utilised once we see a fullscale recovery in domestic demand.

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businessneweurope.eu 3. Russia may seek new investors for electricity sector bne June 8, 2009

The Russian government may find new investors to build electricity generation facilities if existing investors fail to complete their projects, Energy Minister Sergei Shmatko has warned.

“If it becomes clear that investors are unable to meet their investment obligations, we will find a way to transfer their projects to other investors or invite a new investor to (carry out projects at) different sites,” Shmatko told journalists.

Electric power companies have until 2012 to bring into operation around 8,000 megawatts of generating capacity to maintain the reliability of Russia’s power grid, Prime-Tass quotes Shmatko as saying.

The Energy Ministry has instructed companies to provide full and detailed information on their progress. Private investors will, however, be allowed to revise construction timeframes and change the locations of generating capacities, under new plans being drawn up by the ministry.

--************************************************************ 4. Russian Foreign investment falls 30% in 1Q09 Rencap, Russia Monday, June 1, 2009

On 22 May, Rosstat reported that foreign investments into Russia amounted to $12bn and declined 30% YoY in 1Q09 from $17.3bn in 1Q08. Direct investment dropped 43% YoY in 1Q09 and equalled $3.8bn. Portfolio investments were almost zero, and other investment (primary credits) accounted for $8.7bn (a decrease of 24.4% YoY in 1Q09).

The main receiver of foreign investment in 1Q09 was the manufacturing sector ($5.2bn or 45% of total foreign investment). The trade sector received $2.7bn (or 23% of the total), transport and communication $1.3bn (11%), real estate $1.1bn (10%), and mining $1bn (9%). If we compare the structure of foreign investment in 1Q09 and the total for 2008, this year the leader is the transport and communication sector where the share of investment increased from 5% in 2008 to 11% in 1Q09 (see Figure).

On the other hand, domestic investment abroad increased in 1Q09 and amounted to $19.7bn which was 2.7x higher than in 1Q08. This largely reflects the process of capital outflow from Russia in 1Q09.

Foreign investment dynamics show that in the crisis period, investment into Russia has fallen sharply and there has been an increase of capital outflow (investment from Russia). We expect a deepening of the decrease in foreign investment in 2Q-3Q09.

//IMG:0609_Russia_macro_FDI_structure_1q09.gif:IMG//

NEWS --************************************************************ 5. CIS: The trough is behind us UBS, Clemens Grafe, economist

businessneweurope.eu June 1, 2009

__ We think the economy will grow again in Q3-09, possibly even in Q2 We believe most industrial sectors in the Russian economy are now showing signs of growth, albeit from very low levels. As official y/y data is not a good guide to current trends, we have seasonally adjusted the data to get a better idea. We think industry is growing, while retail sales are in the process of bottoming out. It is quite likely that GDP will soon show positive q/q growth in seasonally adjusted terms, although we believe this would be due more to the exceptional inventory adjustment that took place in Q1-09. That said, we think Russia will be back on a sustainable growth path by Q3-09.

__ After the contraction in risk indicators, growth indicators are rising too Clearly, much of the recovery in asset prices has been driven by the realisation that the risk to the Russian economy was overestimated by the market (or the market thought oil prices were going to fall much further). Following the correction in risk indicators such as the CDS spread and domestic interest rates, we believe other indicators now show the beginnings of expansion. Monetary aggregates are rising again, as is manufacturing profitability, and reserves are rising as capital flows back into Russia.

__ Don't overcomplicate things: just look at the oil price As analysts we are fond of sophisticated analysis, and we have constructed an early indicator. However, we have to admit that, while we believe it will help gauge the strength of the recovery going forward, the turning point for the economy is always best gauged by looking at the oil price.

__ Recovery to be led by the supply side While in much of the world the recovery is expected to be driven by higher consumption or higher infrastructure spending, we think in Russia the recovery will be driven by the production side. Russian businesses are busily cutting costs and rebuilding margins; once that process is over, they will start expanding again.

__ Monetary policy to be supportive With inflation now falling, however, monetary policy will become more supportive, and we think the CBR will continue to cut interest rates. With real wage growth in negative territory, PPIs negative y/y as well and the Ruble well supported, we think the CBR can easily cut rates by 250bps by year-end.

//IMG:0609_Russia_macro_production_vs_precrisis_sectors.gif:IMG//

//IMG:0609_Russia_macro_manufacturing_profits.gif:IMG//

--************************************************************ 6. Crisis bites deep into Russian infrastructure programme Jason Corcoran in Moscow June 5, 2009

Russia's Stalinist-like trillion-dollar infrastructure programme to revamp its crumbing roads, bridges, ports and airports over 10 years has been shaken by the global financial crisis. Many infrastructure projects have been postponed or cancelled due to the lack of available finance from domestic and international capital markets. And the Kremlin's much touted public-private partnership (PPP) programme to stimulate investment has yet to take off, while bankers hired to capitalise on an anticipated deal-making boom have been twiddling their thumbs for the past six months.

businessneweurope.eu Senior financiers held a meeting with Deputy Prime Minister Sergei Ivanov at the start of the financial crisis in November last year and were told that the infrastructure programme for 2009 was being cut by 30%. The 2009 budget for infrastructure is believed to have been slashed again by a similar amount following the ruble's devaluation and dwindling federal revenues from lower commodity prices.

The government is now targeting selective projects in St Petersburg, Moscow and the Winter Olympic venue of Sochi as priorities for completion until the investment climate for foreign and private capital improves. Joerg Bongartz, chairman of the board of Deutsche Bank Russia, said the government was stepping in to meet the shortfall in showcase projects. "In Russia, there has been a reality check on infrastructure spending since the start of the crisis," Bongartz tells bne in an interview. "A significant amount of foreign capital was expected to be made available for a number of large infrastructure projects structured as public-private partnerships, but it appears now that if the government wants these projects to materialise, a larger share of the funding and the coverage of particularly the foreign exchange rate risk will need to come from the budget and government funds."

Bongartz said Deutsche Bank is still hoping to get involved in infrastructure via its corporate finance specialist team, its infrastructure and property management unit Rreef and DB Partners, and its joint venture with the Austrian construction firm Strabag.

Planes, trains and automobiles

The St Petersburg municipal government has said it will delay $13bn of infrastructure projects, which had attracted bids from international companies including Alstom, Siemens and Oleg Deripaska's Basic Element, due to the credit crisis deterring most private investors. Projects facing prolonged delays include the $10bn highway, known as the Western High-Speed Diameter (WHSD), the Orlov tunnel under the Neva River and a planned $1bn upgrade of Pulkovo airport. The Orlov tunnel and a fast-speed train link to the airport are likely to be postponed indefinitely.

The WHSD roadway encircling St Petersburg was meant to be the pioneering large PPP project in Russia, but the winning consortium formed by oligarch Oleg Deripaska and Strabag hasn't yet signed the concession contract governing the project. St Petersburg Governor Valentina Matviyenko said in April that some of the major projects of the city's road infrastructure would be built at the expense of the federal budget after private investors pulled out. The federal government is to allocate $617m for the construction of the WHSD roadway provided the city authorities keep their word to invest $198m.

A decision on the winning consortium for Pulkovo airport has been pushed back to June 25. The municipal government on May 21 whittled down the list of bidders to upgrade Pulkovo airport to three - Deripaska's Basic Element, Flughafen Wien in partnership with Leader, an investment house founded by Gazprom structures, and German Fraport in tandem with state bank VTB. Those that didn't make it on to the shortlist include Macquarie Renaissance, a joint venture formed by the investment banks Macquarie and Renaissance Capital to invest in Russian and CIS infrastructure; Germany's Hochtief in partnership with oil and mining tycoon Viktor Vekselberg; India's GMR; and Turkish TAV Airports.

businessneweurope.eu A spokesman for Renaissance Capital in Moscow declined to comment on "specific transactions," but said the alliance sees the number and quality of potential deals increasing as industrial groups look to exit non-core investments, including infrastructure assets. Macquarie Renaissance's first fund raised half of its $1.5bn target last year. Most of the funds raised came from Russian and CIS multinational development agencies such as Vnesheconombank (VEB), the Kazakhstan State Development Bank and the Eurasian Development Bank.

VEB, which is the government agency responsible for infrastructure spending, has declined repeated requests for an interview. However, VEB's chairman, Vladimir Dmitiev, recently claimed on the VEB website that international agencies such as the International Finance Corporation and European Bank for Reconstruction and Development (EBRD) had expressed an interest in participating in the Macquarie Renaissance fund. Dmitriev said the fund's resources will soon be used for implementing infrastructure projects in CIS countries and more credit will be made available by VEB, the Kazakhstan State Development Bank and the Eurasian Development Bank. "And we are absolutely sure that as soon as the [the Macquarie Renaissance Fund] starts operating, we'll get a number of private and institutional investors to participate in it, including ones from the Middle East," Dmitriev said in a statement on the VEB website.

Renaissance said fund raising continues to progress, and is making solid progress, but declined to give any specifics. The Russian investment bank, which has its own financing difficulties, insists that private investment still has a role to play in priority projects alongside government funding. "The process of private investment alongside the government will be evolutionary," explains the Renaissance spokesman. "Macquarie Renaissance Investment Fund, for example, is the first dedicated infrastructure fund to be focused on Russia and the CIS. As in other markets, investor interest will follow as the opportunities to invest ramp up."

One location where investors can be certain that most planned projects will be undertaken is Sochi, the Black Sea resort which will host the Winter Olympics in 2014. "Sochi is one of the priority areas for the government because of the reputational issue attached to hosting the Olympics," says Deutsche's Bongartz. "This has to be successful and there has to be a clear timeline for projects as the date is fixed. There still remains a great deal of interest from abroad from companies keen to get involved in services and construction."

--************************************************************ 7. Strategy Monthly: The Impact of China Troika, Russia Thursday, June 4, 2009

_ The best synergy on the planet. China needs Russia's resources and Russia needs China's capital. China provides a growing market, financial resources and macroeconomic stability. Russia can provide oil, gas and coal that are needed for the next stage of Chinese industrialization.

_ Catalyzed by the crisis. Stagnation in the West and the pullback of Western banks is overcoming Russian reluctance to increase its ties to China at the same time as China is looking for an alternative home for its foreign currency reserves and for raw materials for its next stage of growth.

businessneweurope.eu _ Buy companies with hard assets near to China. They can benefit from cheaper financing costs, lower taxation, a growing market and asset sales. We like Peter Hambro Mining, Rosneft, Raspadskaya Coal, Mechel, KazMunaiGas EP and Kazakhmys, with the sector trading at a 2010E EV/ EBITDA of 5.4.

_ Buy companies building the new infrastructure. In 2008, only 5% of Russia's hydrocarbons went to the East; by 2015, this will rise to nearly one quarter; and by 2030, it could be 40%. Even now, three major pipelines, a railroad, new ports, container facilities and bridges are being built between China and the CIS as the region turns increasingly to the East. We like Globaltrans, FESCO, Dalmostostroi and Steppe Cement, with the sector trading at a 2010E EV/EBITDA of 2.8.

_ Buy the macroeconomic plays. China has already made regional loans and investments amounting to 10% of Kazakh GDP and 2% of Russian GDP this year, and stands poised to replace fast exiting Western capital. Bank equity and bonds in Russia and still more Kazakhstan are therefore plays on the macroeconomic stability that these funds bring. We like Sberbank and Halyk Bank debt and equity, as well as domestic bonds from RusHydro to the Moscow 54.

_ Not much relative value left. With the oil price and the market both up around 30% on the month, Russia is no longer an obviously cheap market, and sector adjusted, the market trades at 101% of the valuation of its global peers. There are three major areas of remaining relative value - banks, fertilizers (where we like Uralkali) and steels (where we like Magnitogorsk Steel).

_ The oil price of Damocles. Market euphoria over green shoots, emerging market decoupling, a weak dollar and inflation fears have all combined to send the oil price back toward $70/bbl, a level consistent with an RTS Index of 1,200 1,300. However, with high inventories and a weak economic framework in developed markets, we believe that the oil price itself remains vulnerable to setbacks.

--************************************************************ 8. Putin proposes that VEB and Rosselkhozbank fund light industry projects bne June 8, 2009

Russian Prime Minister Vladimir Putin has proposed that two state-controlled banks - VEB and Rosselkhozbank - fund several light industry upgrade projects, Itar-Tass reports. "This will allow us to improve product quality standards and thus bring back the lost prestige of domestic (light industry) products among Russian and foreign customers," Putin told a government presidium meeting. The Russian government has already allocated 200 million rubles to subsidise loans to light industrial companies, and a further 90 million rubles for loans to finance upgrades in the sector. Putin also recommended a crackdown on smuggling and illegal production which accounts for more than 40% of the Russian market for light industrial products.

--************************************************************ 9. World Bank praises Russian administrative reforms World Bank, Klaus Rohland

businessneweurope.eu June 2, 2009

The global financial crisis and economic downturn has called for an increased role of the government sector. Not only in Russia, governments worldwide face the challenge of developing effective policy responses in the face of increased economic pressure. Better governance and improved public sector management are particularly significant issues in the current economic atmosphere. Tighter fiscal constraints have intensified the Government's interest in improving the use of public resources, and on improving its technical efficiency in the delivery of public services. Fiscal discipline, to be supported through more efficient and strategic management decision processes and reforms related to the role of the state in the economy, is critical in the current atmosphere.

We are very encouraged to see that, despite the urgency of taking prompt anti-crisis actions, the Russian Government has not diverted its attention away from the ongoing public administration reform agenda. The Russian Government fully understands shortcomings in public sector management have the potential to negatively impact Russian private investment, growth and poverty reduction efforts. Therefore, we see that both the federal and sub-national authorities are intensifying their efforts in this area. This is exemplified by today's attendance of high level representatives of over 70 regions as well as most federal executive authorities.

Let me take this opportunity to confirm that the World Bank will continue to fully support the Russian government's ongoing efforts in public administration reform at this difficult time and beyond. In cooperation with the UK Department for International Development (DFID), the World Bank has been supporting public administration reform in Russia since 2004. The World Bank is uniquely placed in that its staff has experience working in countries all across the globe. This experience and global knowledge has been brought to Russia on request of our counterparts. Later in this conference, for example, we will have a distinguished expert from Brazil, whom the Bank has invited on the request of the Russian Government, to share his country's experience of citizen service centers.

Efforts in public administration reform are already bearing fruit, including the strengthening of federal and sub-national authorities' capacity to respond to the crisis quickly and effectively. For example, the Government's progress in using performance management concepts as a decision-making tool can assist the Government in selecting appropriate anti-crisis measures. Systematic monitoring of the effectiveness of anti-crisis measures and a stronger linkage with the budget process should help ensure that scarce budgetary resources can be reallocated to activities with the most impact in a timely manner. At this time more than ever it will be very important for all responsible Government bodies to work closely together in a fully coordinated manner.

Likewise, ongoing initiatives to improve public service delivery have much potential to help the anti-crisis policy responses to make a timely impact on Russian citizens and businesses, whose welfare and livelihoods are at risk. Initiatives such as the Multi-Functional Service Centers can make vital public services such as employment and social protection programs more accessible to citizens who need them, especially at this difficult time. At this time it is also especially crucial to take prompt action to ease the operation of businesses, especially small and medium-sized firms, whose survival is at risk. At the same time, support for small business development, which many regional governments have recently launched, can indeed help mitigate the impact of the crisis by encouraging greater employment through entrepreneurship.

businessneweurope.eu Such support need not be limited to financial support for businesses; steps to facilitate small firms' interaction with the state authorities can be equally important.

International experience suggests that reducing administrative barriers to business activity allows business to spend less money and time on meeting administrative and regulatory requirements. For example, in Greece, where some of you have visited as part of our program last year, the issuance of business licenses through one-stop- shop service centers has reduced business costs by 80 percent. This has been proven to result in more efficient allocation of resources to the real sector of the economy.

At the same time, such initiatives for streamlined service delivery to citizens and businesses result in substantial savings of public expenditures, which continue in the long run. Once one-stop-shop service centers are operational, the cost of service delivery declines [as such centers have the capacity to handle an increasing range of services with essentially the same level of resources]. For example, in Greece the cost of service delivery has dropped by 44 percent (in nominal terms) per administrative procedure in the past 5 years, even though the number of services provided by citizen service centers has increased.

Finally, efficient service delivery mechanisms such as one-stop shops help build public confidence in public authorities. Increased confidence on the part of businesses can encourage economic activity to come out of the grey sector into the formal economy, thereby boosting government revenues. Last but not least such transparent, streamlined service delivery mechanisms reduce opportunities for corruption and enhance citizen satisfaction with public services. This is an important element in any governance-related effort.

This content was part of a speech given at the Conference on Administrative reform, March 19, 2009 hosted by Russia's Ministry of Economic Development and Trade and the World Bank in Moscow.

--************************************************************ 10. Russia to push for WTO and OECD entry by the end of this year Unicredit, Russia June 5, 2009

Topic: Russia's Minister of Economic Development Elvira Nabyullina said the ministry hopes to complete talks with main members of the WTO by the end of this year, Kommersant reports.

Russia's Ministry of Foreign Affairs says it hopes for a similar result from the country's bid to join the OECD.

Our view: We welcome Russia's continuing efforts to join these organizations and see its membership as a key element of long-term economic development. Regarding the WTO, we note that Russia has yet to reach agreements with Ukraine and Georgia, and we do not share the Russian government's optimism as to the likely outcome.

Conclusion: We see Russia's willingness to join the WTO and OECD as a positive development, but we do not expect an early result and look for a neutral market reaction.

businessneweurope.eu --************************************************************ 11. Russian GDP Indicator recorded annual contraction of 6.8% in May VTB Capital June 4, 2009

PMI-based monthly GDP data from VTB Capital continued to signal contraction in May. The GDP Indicator was negative for the sixth consecutive month, posting -6.8% on the year-on-year measure. This was a better outcome than the revised record low of -7.7% posted in April, but was still one of the weakest figures in the eleven-year history of the series. Prior to May, the Indicator had fallen for nine straight months. Over the first quarter of 2009 the Indicator averaged -5.4%, indicative of a sharp contraction of the combined manufacturing and services economy.

It was also the lowest quarterly average to date. Services and manufacturing both registered weaker falls in activity in May The GDP Indicator is derived from VTB Capital's PMI surveys of business conditions in the manufacturing and service sectors of Russia. By weighting together the output measures from these surveys, an indicator of total output is produced. The Total Activity Index registered 44.5 in May, up from 42.6 in April. The rise in the Index represented an easing in the rate of contraction of output in the combined manufacturing and service sector, to its weakest since last October when the current sequence of decline began.

Commenting on the survey, Aleksandra Evtifyeva, Senior Economist at VTB Capital, reported: "The May rebound in the GDP Indicator came in line with the improvements in the manufacturing and services sectors registered by the respective PMI surveys. The key drivers for a rebound in manufacturing were new export orders and outstanding business. The services sector also benefited from a slower decline in outstanding contracts and significantly improved business expectations. Interestingly, the financial sector was not among the most confident, suggesting that the recent rally on the financial markets might still push expectations higher.

Unemployment growth continued to moderate in manufacturing and stabilised in the services sector (although at quite a high rate). The rate of job shedding in the services sector remains our major concern. However, given the difficulties in the financial sector, this was an expected development. Cost pressures continued to abate across the sectors. Manufacturers continue to cut output prices, while inflation in the services sector remains at its second lowest level since the survey began."

--************************************************************ 12. Russian government expects GDP recovery in 2H09, may issue Eurobonds in 2010 Alfa, Russia Wednesday, June 3, 2009

In the run up to the St. Petersburg Economic Forum, the Russian government is trying to find a positive aspect to the current crisis. Andrei Klepach, the deputy Minister of Economic Development, suggested yesterday that the steeper the drop in 2Q09, the faster the recovery of GDP in 2H09 would be.

Russia may also consider issuing $5-10bn in Eurobonds to finance 5% of GDP fiscal deficit in 2010.

While we believe that the contraction in 2Q09 is likely to signal bottom, we doubt that the recovery will be very fast. In our view, 2H09 outlook will be damaged by

businessneweurope.eu stagnating lending by banks, which cannot recover while the real sector is still burdened by de-facto bankrupt companies. We also maintain our view that a new round of pressure on the ruble will be very likely, which will reduce the attractiveness of real projects as opposed to financial investments to the FOREX market. We also believe that GDP growth will stabilize at around -1% y-o-y in 2010, reflecting weak local and foreign demand.

RUSSIA-FOREIGN INVESTMENT --************************************************************ 13. LUKOIL: Eyeing bigger Kazakhstan presence, strategically positive UralSib, Russia June 5, 2009

LUKOIL plans to buy BP's 46% stake in the LUKARCO JV. Yesterday, the CEO of LUKOIL (LKOH - Buy), Vagit Alekperov, said the company plans to maintain its investment program for 2009 at $7 bln. This will include the $1.5 bln buyout of BP's 46% stake in the LUKARCO joint venture (BP acquired US oil company ARCO in 1999, with which LUKOIL had set up a JV in 1997).

Alekperov confirmed that negotiations are ongoing and that a deal may be agreed upon in the near future. Considering that the buyout will increase LUKOIL's direct ownership to 12.5% and 7.7% respectively in two core Kazakhstan projects - the Caspian Pipeline Consortium (CPC) and Tengizchevroil, we regard this news as strategically positive for the company although price dependent.

Kazakhstan - a core upstream zone. LUKOIL has the strongest presence in Kazakhstan among the Russian oil peers. LUKOIL is currently involved in seven upstream projects in Kazakhstan: Karachaganak, Kumkol, Tengiz, Arman, Karakaduk, Zapadniye Buzachi and Aktyube. The combined reserve base of these projects is 474 mln bbl of 1P reserves, or 96% of LUKOIL's international reserves (although only 3% of total 1P reserves). The buyout of BP's stake in LUKARCO will increase the LUKOIL's stake in the Tengiz field from 2.7% to 7.7%. The buyout would also give LUKOIL direct ownership of a 12.5% stake in the CPC pipeline.

Valuable part of southern value chain. We welcome LUKOIL's exposure to the prolific reserve base and transportation network in Kazakhstan, as it strengthens the upstream and mid-stream part of LUKOIL's southern value chain. The upstream part includes LUKOIL's Caspian Sea offshore projects that will provide for medium- and long-term production growth. In addition, such exposure strengthens Russia's position in the region, and will enable it to indirectly control the reserves and logistics of oil that potentially could be a source to fill a reversed Odessa-Brody pipeline - a Ukrainian pipeline project that aims to squeeze out Russia's crude export to Europe.

--************************************************************ 14. Russia may participate in Azerbaijani nuclear plant construction bne

businessneweurope.eu June 8, 2009

Russia may take part in the construction of a nuclear power plant in Azerbaijan, Russia’s Deputy Energy Minister Vyacheslav Sinyugin said in television interview. According to Sinyugin, Russia has extensive experience in building nuclear power plants, and is willing to make proposals to the Azeri government in the near future. Interfax reports. "We are prepared to submit our proposals and ideas on this score," he said. "We have discussed this issue with our Azeri partners at the working level. No decisions on investments have yet been made, but we are studying Azerbaijan's proposals and ways for mutually advantageous cooperation.”

--************************************************************ 15. Unimilk and Wimm-Bill-Dann interested in Belarusian dairy sector bne June 8, 2009

Unimilk and Wimm-Bill-Dann are considering investments in Belarusian dairy plants, according to Belarusian Deputy Prime Minister Ivan Bambiza. Unimilk is currently looking at the Pruzhany Dairy Plant in the Brest Region and the Shklov Dairy Plant in the Mogilyov Region, Prime-Tass reports Bambiza as saying. The Russian dairy company is planning to build three production lines for whole milk at the Pruzhany plant and increase the Shklov plant’s whole milk output. The companies Wimm-Bill- Dann is interested in have not been named.

--************************************************************ 16. X5 Retail Group: Potential entry into Ukraine UralSib, Russia June 5, 2009

X5 may acquire one of Ukraine's largest food retailers. RBC Daily reports that X5 Retail Group is currently trying to acquire one of Ukraine's largest food retail players, most likely Velika Kishenya which operates 30 supermarkets and 8 hypermarkets in 16 Ukrainian cities and has total selling space of 100,000 sqm (while X5's total selling space is 907,000 sqm) The potential price of the deal has not been released. X5 already has a few stores operating in Ukraine which together generate 1% of the group's total revenue. X5 is also currently in acquisition talks with a number of Russian retailers including the Holiday chain.

Payment via share swaps. X5 plans to finance these acquisitions with share swaps and may issue new shares, according to RBC daily. Earlier this year, X5 provided 2009 capex guidance of about $466 mln (RUB14 bln) but this may not be enough for large M&A deals and so it may issue bonds (according to media reports X5 could issues bonds totaling about $258 mln) or raise new loans.

X5 is a potential consolidation center. We are positive on X5's intention to take advantage of current market conditions to carry out M&A deals. However without any information on the purchase price it is difficult to comment on the Ukrainian deal. For some time now X5 has been regarded as a consolidation center for Russian retail which should enable it to increase market share and market strength. We are currently revising our financial model for X5 and have taken the stock under review.

GAS --************************************************************ 17. Arctic may hold 30% of undiscovered gas

businessneweurope.eu bne June 8, 2009

The Arctic region may hold 30% of the world’s undiscovered gas, sufficient to supply global needs for 14 years. The region is also believed to contain around 13% of undiscovered oil, according to a US geological report. Much of the gas in the region belongs to Russia, Bloomberg reports. "These findings suggest that the future preeminence of Russian strategic control of gas resources is likely to be accentuated and extended," said Donald Gautier of the U.S. Geological Survey.

--************************************************************ 18. COW: Russian gas distribution scheme Renaissance Capital Monday, June 1, 2009

The figure illustrates the mechanics of the long-awaited swap between the Russian government and Gazprom that will secure direct state control over the latter, and give Gazprom almost full control over the Russian gas distribution industry. Last week saw two contradicting announcements on the deal. On the positive side, Gazpromregiongaz's CEO Sergei Gustov said Rosimushestvo had completed the transfer of the government's stakes in regional gas distributors to Rosneftegaz, and that Gazpromregiongaz had submitted an application to the Federal Antimonopoly Service for the approval of the swap. On the negative side, the government approved Gazprom's separate purchases of 92% of Kamchatskgazprom and 27% of Daltransgaz, which had initially been included into the list of assets for the swap.

//IMG:0609_Russia_gas_distribution_scheme.gif:IMG//

--************************************************************ 19. EU oil majors should unite to thwart Gazprom, says Azeri official bne June 8, 2009

European energy companies should work together to provide Azerbaijan with an alternative route for its natural gas exports, Elshad Nassirov, vice president of Azerbaijan’s state oil and gas company Socar, had said.

Speaking in an interview with Bloomberg, Nassirov called on European gas companies currently disputing three rival export routes to cooperate in order to prevent Gazprom from buying up excess natural-gas volumes from the western Caspian basin. Gazprom said in May that it wanted to buy all the gas from the second phase of the Shah Deniz field.

"The three projects should join us and Turkey in uniting efforts to make a transparent, reliable transit regime, which could be competitive to the Russian proposals," Nassirov said.

"As soon as this transit issue is completed, there will be enough gas for everyone," he added.

--************************************************************ 20. Gas Fundamentals: Inflection Point Alfa, Russia

businessneweurope.eu Tuesday, June 2, 2009

The Russian gas business is hurting, but the worst may be behind us. Domestic demand is weaker than it looks but is stable. Exports YTD are off sharply, but have passed their inflection point, and price competitiveness and volumes will improve. Gazprom appears to be pricing in all the potential bad news, and we upgrade it to E/ W. Novatek's valuation, however, implies unwarranted optimism, and we reiterate our U/W rating.

Domestic demand - Softer than it appears, but stable: Domestic gas consumption YTD was supported by cold weather, implying underlying demand is softer than it appears. May consumption is off 7.7% y-o-y, continuing a trend of 7-12% y-o-y weather-adjusted decreases since November. No sign of recovery has yet been seen in the data, but neither does the drop-off seem to be deepening, likely limiting further downside.

European exports - Soft, but weak signs of recovery: Exports are off 50% YTD due to weak demand, market share loss to Norwegian gas and LNG freed up by falling Asian demand, tough y-o-y comparisons, and uncompetitive pricing. The latter two factors are fading, and Gazprom's exports volumes to Europe are recovering slowly and have probably passed their inflection point. Indeed, exports should rebound sharply due to the well-advertised need to rebuild European storage and pricing that could turn from a liability to an advantage. However, the gap between Gazprom's export price and UK spot prices has yet to close, and exports will likely remain depressed until it does so, while plentiful LNG supply in the Atlantic basin could prolong Gazprom's export woes.

Production pain - Everyone hurting except Novatek: Production data show that Gazprom has now moved to spread the pain around to practically all suppliers of gas to its transport system, including LUKoil and even Turkmenistan, while Gazprom's own production is down 28% y-o-y in May. The only exception appears to be Novatek, where volumes have been flat y-o-y since March. That good fortune may prove fleeting.

Upgrading Gazprom to E/W - Pricing in much of the bad news: While we remain concerned about export and domestic volumes and domestic tariffs, we have now explicitly factored those issues into our earnings estimates (assuming 2009 exports -20% y-o-y; domestic sales -6.6%; and planned 2010 tariff growth cut in half). Even after all that, and assuming oil returns to the low-$40s, the stock seems fairly priced in both absolute and relative terms. Should the ruble and oil prices remain near current levels, the stock begins to even look attractive on an absolute level. We upgrade Gazprom to E/W and favor it over Novatek and Rosneft, but not LUKoil.

Maintain Novatek at U/W - Pricing in perfection: We remain quite wary of Novatek. The stock has resoundingly outperformed of late owing to its double leverage to higher oil prices and a stronger ruble, but its gains are overdone. Even using current oil prices and ruble rates for 2010 rather than our more pessimistic numbers still gives us a lofty EV/EBITDA of 10.1x. This implies substantial further growth in volumes and pricing in the near term, optimism we do not feel is warranted.

//IMG:0609_Russia_gas_temp_vs_demand.gif:IMG//

//IMG:0609_RUssia_gas_exports.gif:IMG//

businessneweurope.eu --************************************************************ 21. Gazprom may take control of Moldovan gas pipelines, warns Moldovagaz chief bne June 8, 2009

Gazprom could gain control of Moldova's gas distribution and transportation system if its files a suit against Moldovagas to secure payment for gas deliveries to Transdniestria, Interfax Ukraine reports. If Gazprom decides to sue the Moldovan company, Moldovagz’s assets could be frozen which would give Gazprom de facto control over its assets, according to Moldovagaz CEO Alexander Gusev.

"Right now we are a 50-50 company between the [Moldovan] government and Gazprom. But if a creditor sues to recover debts, including those attributable to Transdniestria, he could take all the property and become the full-fledged owner. Moldovagaz would end up with no assets, no trunk pipelines and no distribution pipelines and, accordingly, would cease to exist," Gusev said in a statement.

According to Gusev, Chisinau has paid Gazprom in full for gas delivered to Moldova - excluding Transdniestria - in 2008. However, Molodva’s debt to Gazprom increased by $297m to $1.343bn in 2008, since Transdniestria received gas worth $352m and paid just $55m.

--************************************************************ 22. Gazprom's gas output drops 34% y o y in May Troika, Russia Wednesday, June 3, 2009

Russia's gas output shrank 23% y o y in May to 1,574m m3 per day on the back of a 34% y o y fall to 980m m3 per day at Gazprom, the lowest level since 1983.

Meanwhile NOVATEK's output was 89m m3 per day in 5m09, up 5.4% y o y. In May, production by the gas independent was up about 1% y o y at 84m m3 per day.

The set of factors impacting gas demand in Russia and abroad remained unfavorable:

Gazprom is unable to export more important volumes of its gas due to non competitive pricing to other supply sources, and this is coupled with a recession in Russia, Europe and the FSU. European customers are using less expensive gas available on spot markets and stretching their storage in anticipation of lower contract prices from Gazprom. We estimate that Gazprom's price to non FSU markets commanded a premium of about $150 per 1,000 m3 over spot prices, such as at Zeebrugge, in May.

However, there are signs that European demand for gas to be stored in underground gas storage (UGS) is gaining momentum - the total volume of gas in European UGS surged 59% in May to 23.3bn m3, filling 41% of spare capacity, which is still relatively low (last May, the relevant figures were 29.0bn m3 and 57%, respectively).The situation with gas deliveries to the FSU also remains precarious because Ukraine and Belarus are seeking to decrease gas imports from Russia this year and due to Ukraine's problems with settling its gas bill.

businessneweurope.eu Moreover, domestic gas demand from Russian customers resumed its decent last month. In the first 20 days of May, residential and municipal demand for gas shrank 9% y o y, and demand from industrial customers fell 13%.

Energy Minister Sergei Shmatko recently admitted the possibility of a drop of up to 18 20% in Russian gas output this year. However, this is a pessimistic scenario that does not account for an increase in pumping gas in UGS and other potentially positive factors that may kick in later this year.

--************************************************************ 23. Nabucco to break even with 8 bcm of gas a year bne June 8, 2009

The Nabucco pipeline project will break even with a supply of 8 billion cubic meters of gas a year, a spokesman for the pipeline’s operating company has said. Christian Dolezal told RusEnergy that, "The point of break even of the project is 8 billion cubic meters of gas per year. Furthermore, the project may be broadened to 15 billion cubic meters and according to the optimistic scenario to 25-31 billion cubic meters per year." The operating company has already received data from 16 companies about possible volumes of gas to be supplied.

--************************************************************ 24. Novatek OAO to launch next phase of Yurkharovskoye field this year Citibank, Russia June 1, 2009

Novatek's Deputy CEO Viktor Girya said that Novatek had decided to follow the base capex scenario in 2009 of Rbl 21.8bn that assumes launch of the next phase of Yurkharovskoye field by the end of this year, bringing the company's total gas output capacity from the current 37 to 45bcmpa. Girya mentioned that having reviewed the market potential and relatively low costs of services and materials at present, the company decided that it wants to be ready for higher gas demand when it recovers.

As a reminder, in December 2008 Novatek approved two capex scenarios for 2009: the base one at Rbl 21.8bn and the "crisis" program at Rbl 14.7bn where the next phase of the field was supposed to be launched in 2010. In our view, although the capex growth by itself has rarely been taken positively, the news may indicate that Novatek is seeing more signs of demand recovery that make the company confident in its decision to continue capacity growth.

--************************************************************ 25. Reinhard Mitschek: Nabucco deal to be signed soon APA-Economics June 5, 2009

The Nabucco gas pipeline consortium expects a document to be signed soon for the progress of the project, the consortiums head said on Thursday.

The planned 3,300-kilometre (2,051-mile) pipeline needs an agreement between the governments whose countries the pipeline will cross.

Besides, there is a need to secure commitment from potential gas supplies who expressed tentative consent to fill the pipeline.

businessneweurope.eu We have support from countries. Work is under way. We are identifying the sources of gas to fill the pipeline. The final document is due in a few weeks, consortium Managing Director Reinhard Mitschek said at the 16th International Caspian Oil and Gas Conference in Baku.

Earlier, he had announced that an intergovernmental agreement on the project might be signed by the end of June.

The Nabucco project -- designed to pump gas from the Caspian region via Turkey and the Balkans to Austria through 3,300 km (2,051 miles) of pipelines -- aims to diversify gas supplies to Europe by reducing dependence on Russian gas.

Mitschek said international financial institutions take interest and offer support for the Nabucco Project.

Japanese and American investors also show interest. The project will be 25% financed by international financial institutions. The issues related to funding will be settled early next year, he added.

The project can be launched as there are gas consumers in Europe and the demand for gas to be transported is ensured, he added.

The project case has been strengthened by the gas price row between Russia and transit country Ukraine in January, which left over a dozen European countries without gas for two weeks.

However, funding, sourcing of natural gas and lack of agreement between the Nabucco consortium members have plagued the project.

Nabuccos shareholders are Austrias OMV, Hungarys MOL, Romanias Transgaz , Bulgarias Bulgargaz, Turkeys Botas and Germanys RWE.

Named after the Babylonian king in the eponymous opera by Italian composer Giuseppe Verdi, the pipeline will take 31 billion cubic meters of gas each year from the Middle East to Europe from 2013-2014 at the earliest.

--************************************************************ 26. Russia demands Turkmenistan reduce gas volumes or prices Visor Capital June 2, 2009

The dispute highlights the significant decline in export demand faced by GazProm. The move is likely to accelerate Turkmenistans promotion of alternative export routes. No significant share impact is expected for GazProm or any other listed shares.

GazProm (OGZD LI)(GAZP RU) yesterday demanded that Turkmenistan cuts either the price or volume of its gas exports. As European gas demand for Russian gas has fallen, GasProm has subsequently demanded that Turkmenistan share the pain and accept either a reduction in tariffs, or in volumes through its export Central Asia Centre (CAC) pipeline system. The two sides have been in talks since April 2009 over how to resume the flow of gas after it was severed by a gas pipeline explosion, which both sides blamed on each other, and stopped deliveries through the CAC IV pipeline.

businessneweurope.eu Turkmenistan has retaliated by resuming talks with Europe over future export routes. The dispute highlights the significant decline in export demand faced by GazProm. The move is likely to accelerate Turkmenistan s promotion of alternative export routes. No significant share impact is expected for GazProm or any other listed shares. We currently do not have GazProm under formal research coverage.

--************************************************************ 27. Russia will back Nord Stream route chosen by Finland bne June 8, 2009

Russia is willing to support any route for the Nord Stream gas pipeline that selected by Finland, Interfax reports. "Parties to the project are ready to take any route that will be most acceptable for the Finnish side," Russian Prime Minister Vladimir Putin told a press conference. Finland is due to finish its environmental impact study of the pipeline project by end June. Putin said there were issues to be resolved including clearing the Baltic Sea bed of World War II mines. "I think it would be best to defuse them whether the pipeline is going to be built or not," he said.

--************************************************************ 28. Russia: May gas production statistics Renaissance Capital Wednesday, June 3, 2009

Event: Russian gas production was down 17.9% YoY in May, to 40.0bcm, according to a Reuters report yesterday (2 June). Gazprom's gas production (including Gazprom neft) was down 12.5% MoM and a much bigger 34.9% YoY to 30.58 bcm, the lowest level in recent history. Novatek reduced its gas output 0.4% YoY to 2.6 bcm (posting MoM growth of 2.6%). All oil companies showed declining gas output MoM, led by TNK-BP (down 23,8% MoM and 12.4% YoY) and Rosneft (down 18.9% MoM and up 7.0% YoY). LUKOIL's gas output was down 15.6% MoM to 0.99 bcm (posting a YoY decline of 17.1%). Surgutneftegas showed the smallest MoM decline of just 0.5%. On a cumulative YtD basis, Gazprom reduced its production 23.1%, while Novatek increased its output 4.6%. Adjusted for the 2008 leap-year effect, YtD growth rates are -22.5% for Gazprom and 5.5% for Novatek.

Action: We retain our BUY rating on Gazprom and our HOLD rating on Novatek.

Rationale: The May production statistics are essentially a repeat of April. While clearly disappointing for Gazprom, we believe they largely reflect the effect of high gas prices in Europe, which are pegged to the oil price with a three-to-nine month lag. European utilities, facing a reduction in electricity consumption, are using alternative sources of fuel, and delaying refills of underground storage facilities until gas prices retreat. We continue to expect the end of 2Q09 and 3Q09 to see a sharp rebound in Gazprom's exports and production. For FY09, we expect Gazprom's gas production to fall 5.8% YoY and that of Novatek to increase 5.5%.

--************************************************************ 29. Russian Gas Sector: Next to Rebound?

businessneweurope.eu VTBC Friday, June 5, 2009

Lagging the recovery. While Russian oil majors have shown the first signs of a sustained recovery (crude output in Russia was up 1.3% Year-on-year in May), the gas sector is still on its knees (gas output in May dropped 28% Year-on-year). Coupled with the lag in European gas prices, as compared with oil, this tells us that a recovery in gas sector fundamentals is something to look for during 2H09.

New production forecasts. In 2009, we expect domestic gas demand to drop 5.6% and European gas imports from Russia to decline 11%.

We factor in a 13% decline in Gazprom's output in 2009 but expect NOVATEK's production to remain flat Year-on-year, with the early year strength offset by a Year- on-year decline in 2H09.

Reiterating our Buy on Gazprom. We maintain a Buy rating on Gazprom, after reducing our DCF Fair Value 9% to $9.4/share. The stock trades at a 2009F P/E of 6.6x, suggesting upside potential both due to multiples expansion and earnings growth as the cycle progresses. We expect 2Q09 to be marked by a recovery in Gazprom's output and a significant reduction in capex, resulting in a 60% uplift in free cash flow in 2009.

NOVATEK cut to Hold. After the recent rally, we see virtually no upside left in NOVATEK. Our updated Fair Value is $5.8/share (revised down 2%). At a 2009F P/E of 21.5x the stock looks rich, despite solid growth prospects in the long term. In our view, the recent acquisition of control in Yuzhno-Tambeyskoye field is a major potential long-term value driver for NOVATEK, but with the development horizon going beyond 2020, it is so far DCF-neutral.

GAS SECTOR YET TO REVIVE FROM RECESSION

Russian gas production dropped 17% Year-on-year in 4mo09. With us expecting industrial output to decline 9.5% in 2009 and electricity demand to contract 5%, we see the Russian gas balance shrinking 12.6% this year. We forecast Gazprom's gas production down 12.8% but NOVATEK's output to remain flat in 2009, in line with the recent guidance from the company's CEO.

In our view, the revival of the Russian oil and gas sector is underway, and while short-term volatility is imminent, we expect sector valuations to re-rate massively over the next two-three years.

While Russian oil majors have shown the first signs of a sustained recovery (crude output in Russia was up 1.3% Year-on-year in April), the gas sector is still on its knees (gas output in April dropped 23% Year-on-year). Coupled with the lag in European gas prices, as compared with oil, this tells us that a recovery in gas sector fundamentals is something to look for during 2H09.

FUNDAMENTAL CONCERNS MIGHT BE OVERSTATED BY NOW

We pinpoint two fundamental concerns over the gas sector which add uncertainty (and, contrariwise, upside potential) to Gazprom and NOVATEK.

__ Gas pricing environment looks volatile and hard to predict in 2009-10.

businessneweurope.eu European realised prices might surprise on the downside, since the bulk of Russian gas exports this year will be skewed towards the second half of 2009, when we forecast contract prices will hit the bottom. Domestic price reform in 2010 might also be revised to adopt a more gradual increase.

NOVATEK's deteriorating price premium (as indicated by the 1Q results), is another negative factor.

__ With no firm guidance on 2009 production levels yet, we expect both Gazprom and NOVATEK to see a major shortfall in output this year, with forward-looking production levels also revised down. While Gazprom's recent guidance of a potential 18% decline in output in 2009 is probably a worst-case scenario (no demand recovery and zero flexibility on Central Asian imports), NOVATEK's 5.5% growth so far this year (well reflected in the price performance) suggests some room for disappointment later on this year.

We stick to the following considerations when addressing these concerns:

We expect the recent oil market rally to smooth gas price trends in Europe in 2H09. There are to be two more quarterly gas price hikes, raising domestic prices 16.3% between the start and the end of the year, and we believe the government is unlikely to set back gas price reforms. However, the quarterly revision schedule does not change much in terms of overall price momentum.

Meanwhile, alongside the decline in gas volumes, particularly with the forward demand curve shifting down, we are likely to see major capex reductions and the bulk of the pre-crisis capex being targeted to new capacity adds (at both Gazprom and NOVATEK). As a result, we expect the two companies to see strong FCF momentum in 2009 (a year when sector profitability might well hit its low), with FCF yields averaging 9% and 2%, respectively.

Last, but not the least, the decline in Russian gas production, which has been accelerating dramatically this year (-28% Year-on-year in May), is likely to reverse in 2H09, with higher oil prices eliminating the spread between European contract and spot prices, coupled with the approaching winter all supporting the European demand for Russian gas. Therefore, the third quarter is likely to provide a basis for a recovery in Russian gas operations, which would then last for longer, should the global macro context improve towards the year-end.

UKRAINIAN TRANSIT REMAINS A MAJOR SHORT-TERM RISK

The major near-term risk for the Russian gas sector, and Gazprom in particular, is Ukrainian transit. The January agreement set forth the terms (first and foremost pricing issues) for supplying Russian gas to Ukraine, reducing long-term uncertainty. Meanwhile, the short-term risks of Ukraine potentially defaulting on its obligations to Gazprom have increased recently.

Gazprom is due to receive the next payment for May gas supplies to Ukraine (around $600mn) by 7 June. Considering Naftogaz of Ukraine's debt of approximately $4.5bn, and the tension in the country's domestic economy, the risk of a technical default is significant. Should this risk materialise, potentially resulting in yet another disruption of supplies to Europe, Gazprom's share price could suffer.

businessneweurope.eu At the same time, should supply disruption happen during the third quarter, when European gas prices hit the lows, it could potentially benefit Gazprom's 2009 financials, as the European customers would have to compensate with higher gas imports in the fourth quarter, when gas prices start to recover.

--************************************************************ 30. Shtokman developer announces 20 new tenders bne June 8, 2009

Shtokman Development, the company responsible for developing Russia's Shtokman gas field, has announced 20 tenders. The tenders concern high priority projects including construction of an electric power plant, Shtokman Development’s CEO Yury Komarov told journalists. Around 50 tenders will be held by the end of this year. Shtokman Development is also expected to submit a technical and economic feasibility study of the Shtokman gas field project to government expert body Glavgosexpertiza by the end of this year, Prime-Tass reports.

--************************************************************ 31. TNK-BP proposes including Kovykta project in Gazprom investment programme bne June 8, 2009

TNK-BP has called on the Russian government to include the Kovykta natural gas project in Gazprom’s investment program. TNK-BP shareholder Viktor Vekselberg told journalists the company has sent a letter to the Russian government on the issue, Prime-Tass reports. TNK-BP reached a preliminary agreement to sell its majority stake in Rusia Petroleum, which holds the license for the Kovykta field, to Gazprom but the deal has not yet been completed.

SECTOR Oil --************************************************************ 32. Further tax breaks for oil companies? - for new deposits in the Yamal-Nenets Autonomous Area and in the north of Krasnoyarsk Territory - unlikely VTB Capital June 4, 2009

News: According to Vedomosti, oil companies have proposed tax breaks for new deposits in the Yamal-Nenets Autonomous Area and in the north of Krasnoyarsk Territory for the first ten years, or 25mmtn of production. The paper also states that the Ministry of Energy supports those proposals.

Our View: We do not believe that the proposed tax breaks will be implemented in the near term, as the industry has already received enough support from the government in terms of tax benefits. In our view, the only new tax relief on the horizon for oil companies which could be implemented is export duty holidays for East Siberia, which have already been discussed for a while.

--************************************************************ 33. Lukoil to invest $7bn in 2009 bne

businessneweurope.eu June 8, 2009

Lukoil is planning to invest $7bn in 2009, the company’s president Vagit Alekperov told journalists at the St. Petersburg Economic Forum. This is lower than Lukoil’s investments in 2008, which amounted to $10bn, excluding acquisitions, Prime-Tass reports. Lukoil expects to produce between 97 and 98 million tonnes of oil this year, according to Alekperov.

--************************************************************ 34. LUKOIL: Eyeing bigger Kazakhstan presence, strategically positive UralSib, Russia June 5, 2009

--************************************************************ 35. Oil output flat in May, up 0.5% y o y in 5m09 Troika, Russia Wednesday, June 3, 2009

Russia produced 9.84m bpd in May, down 0.1% m o m but up 1.0% y o y. Oil output totaled 9.81m bpd in 5m09, or 0.5% higher y o y. Thus, the production profile is flattening out, which is a welcome development, given that a few months ago the official 2009 forecast heralded a decline of as much as 1.6 4.3%. However, a more detailed analysis reveals that the m o m output dynamics remain uninspiring - most

businessneweurope.eu companies posted no growth at all, while production by April's growth leaders - LUKoil and Bashneft - even fell.

This is also unsurprising in light of the deceleration in growth by LUKoil after its South Khylchuyuskoye field reached a production peak of 150,000 bpd. The combined yield by TNK BP's Uvat and Verkhnechonskoye projects rose 5.0% m o m to 60,000 bpd, which secured m o m and y o y growth for the company, but was not large enough to generate a production increase on the country level. Output in Russia was supported by more intensive development drilling spurred by ruble devaluation and lower prices for oil services. Drilling increased by more than 17% in March April versus the trough in January February and by 3.7% y o y.

Rosneft's consolidated oil output of 1.96m bpd was flat m o m, with no growth reported at its main production driver, Yuganskneftegaz. Growth at Purneftegaz (up 2.1%) and Sakhalinmorneftegaz (9.1%) was just enough to offset the decline at Severnaya Neft (1.1%) and some other subsidiaries. The situation involving LUKoil's oil output in West Siberia, the Volga Urals and Komi Region remains precarious: in May, the company's managed to stabilize output only at Kogalymneftegaz, while other subsidiaries reported a decline in production. Meanwhile, production by LUKoil, accounting only for its 70% stake in Naryanmarneftegaz, implies output of 1.82m bpd in May, which is up 1.5% y o y, not the 4.7% reported by CDU TEK.

Apart from Uvat, the near term foundation for TNK BP's growth is shaky, as production by its largest West Siberian units remains nearly flat or declining. Production by the company's new project - Kamennoye field - will spike 40% this year to 36,000 bpd, but only contribute to production stabilization.

Other Russian companies posted weak results: Gazprom Neft (0.60m bpd) managed to only somewhat slow the sharp drop in output and Surgutneftegaz (1.19m bpd) reported no change m o m. Meanwhile, Gazprom's May output of 0.23m bpd, down 11.0% y o y, remains a victim of the ongoing slump in the gas sector.

//IMG:0609_Russia_oil_company_output_Jun09.gif:IMG//

--************************************************************ 36. Russian daily crude oil production falls 0.1% MoM in May, gas output falls by 28.8% YoY Citibank, Russia June 2, 2009

CDU TEK released May crude oil production data this morning showing 0.4%MoM fall in Lukoil's daily output and 1.5% MoM output growth by Gazpromneft on the back of 6.2% higher MoM production reported by Sibneft-Yugra, its subsidiary developing South Priobskoye field. Rosneft's and TNK-BP's daily output numbers were 0.2% higher MoM, the rest of the covered companies showed flat performance. We also note 9.7% MoM fall in Bashneft's daily output that follows 80% MoM drop in drilling footage in April ahead of announced dividend payout and consolidation of its assets by AFK Sistema.

Gazprom's May daily gas output fell by 35% YoY, Novatek's output was flat. We view the news as largely expected.

--************************************************************ 37. TNK-BP: Capex and Free float could grow

businessneweurope.eu UralSib, Russia June 5, 2009

Upstream capex could increase 12%. Interfax reported yesterday, citing unofficial statements made by Victor Vekselberg, TNK-BP's Managing Director, during the Economic Forum in St. Petersburg that at next week's board meeting for TNK-BP Ltd, the parent company of TNK-BP Holding (TNBP - Hold), the company's 2009 investment program could be increased by $400 mln.

According to the article, most of the new capex will go to its upstream green field projects - Verkhnechonsk and Uvat. In December 2008 TNK-BP's Board of Directors approved investment of $3.3 bln for 2009 versus $4.4 bln in 2008.

Also, Bloomberg reported yesterday that the company's shareholders are considering raising the free float and placing some of their shares on the market. However no details were provided about the amount of shares involved and this may not happen until 2011 when market conditions should be much more favorable.

Biggest greenfields. Verkhnechonsk and Uvat are the company's biggest projects and are expected to provide up to 18 mln tons of crude (22.8% of total production) by 2018:

__ Verkhnechonskoye field (estimated reserve potential of 200 mln tons), which is located in Eastern Siberia, was brought on stream in October 2008 and produced about 2 mln tons of oil in 2008. The company expects production to peak at 7-8 mtpa by 2011 (10-12% of production); __ The Uvat project (estimated reserve potential of 1 bln tons), located in the Tyumen region of Western Siberia, comprises 15 license blocks with 21 discovered oil fields. This field should provide 2 mln tons this year and reach a plateau of 9-10 mln tons by 2018-19 (11-13% of total production).

Higher investment will support production. Upstream is TNK-BP's top priority and so we believe there is a good chance that a capex increase will be approved. In our DCF-model we assume 2009 investment of $3.1 bln (89% for upstream and 11% for downstream). In our view, directing additional capex into such promising projects would strongly support production and in 1H09 we expect TNK-BP to be one of the fastest growing oil companies in Russia in terms of production growth. We regard this news as neutral for TNK-BP Holding's shares since it is not clear how the project's parameters will change - if production profiles remain unchanged then capex growth would be negative for the company's valuation, but if they improve it could be positive.

--************************************************************ 38. Transneft proposes new terms for Azeri oil transit bne June 8, 2009

Transneft has proposed changing the terms under which Azerbaijan’s oil is shupped through Russia, Prime-Tass report.

According to Transneft spokesman Igor Dyomin, Transneft has proposed cutting its tariff if Azerbaijan ships more then 5 million tonnes of oil through Russia in a year. tariff might be increased if transit falls to 2 million tonnes a year. Currently,

businessneweurope.eu Azerbaijan ships around 3 million tonnes of oil through Russia each year, at a tariff of $15.67 per tonne.

Azeri Industry and Energy Minister Natig Aliyev has already said that Azerbaijan is happy with the existing transit terms.

SECTOR High Tech --************************************************************ 39. Intel may assemble computers in Russia bne June 8, 2009

Intel is currently considering assembling computers in Russia, the chairman of the US company’s board of directors, Craig Barrett, has said. Intel has already signed a cooperation agreement with the St. Petersburg city authorities on the supply of 250,000 Classmate PC computers to local schools, Prime-Tass reports.

SECTOR Metals and Natural Resources --************************************************************ 40. China launches anti-dumping investigation against Russian and US transformer steel producers Renaissance Capital Tuesday, June 2, 2009

The Ministry of Commerce of China (MOFCOM) has launched an anti-dumping investigation against the Russian and US grain-oriented (transformer steel) producers. NLMK maintains 100% domestic and 20% global market share in this segment deriving 20% of FY08 EBITDA from transformer steel sales. Transformer steel is a high margin product with 60-75% operating profit margin depending on the grade and current price of $3,500-4,000/tonne. NLMK's production volumes of transformer steel dropped around 75% YoY in 1Q09. In general, the transformer steel market is relatively consolidated. The six largest producers (NLMK, JFE, Posco, Wuhan, AK-Steel and Thyssen Krupp) control approximately 60% global market share.

Action: The news is neutral-to-negative for NLMK. We reiterate our HOLD rating on the stock. Rationale: The only large Chinese producer of transformer steel, Wuhan Steel, can barely meet domestic demand requirements. NLMK is one of the key suppliers of transformer steel to China. The decision of the Chinese authorities on the investigation aims to prevent a price war in the transformer steel segment. However, the launch of investigation doesn't guarantee the immediate imposing of import duties. China is a member of WTO. The investigation will need to provide evidence that NLMK sold transformer steel at a price below the cost of production, or that it poses a significant threat to local producers. The cash cost of $1,000-1,200/tonne eliminates the first option. In terms of a threat to local producers, the Chinese officials may need some time (three-to-six months) to prove the case under WTO regulations. The worst-case scenario is if China introduces temporary duties for the period of investigation.

--************************************************************ 41. China substantially increases coking coal imports Alfa, Russia

businessneweurope.eu Tuesday, June 2, 2009

Australian data show that there was a huge surge in coking coal import to China in April. China bought 2.8m t of coking coal in April and last month Queensland's coal terminals posted their strongest results since November.

Chinese steelmakers prefer import coking coal as it is cheaper than high-cost domestic coking coal. We note that in previous years, Chinese import was equal to only 4-6m t per annum.

We have noticed that several Russian coal companies (Sibuglemet, Mechel, Belon) have signed contracts with Asian players, selling on a spot basis (Mechel to China) or working in that direction (Raspadskaya). US Peabody said yesterday that China is also expected to become a net importer of steam coal (10-20m t) this year.

All in all, this is POSITIVE for Mechel and Belon, which sell coking and thermal coal to Asia. Also, we believe it is fairly positive for Raspadskaya.

--************************************************************ 42. Mechel increases FeCr and nickel production Renaissance Capital Tuesday, June 2, 2009

Yesterday (1 June), Mechel announced the commissioning of an electric arc furnace (EAF) at No.2 Tikhvin Ferroalloy Smelting Plant (TFZ). At the moment, three EAFs currently operate at the production site with only one EAF remaining idled. Mechel also announced last week that it would restart shaft furnace No.8 at Southern Urals Nickel Plant bringing the utilisation rate to approximately 80% of the pre-crisis level. The personnel of Southern Urals Nickel Plant resumed operations on a full-time basis from Apr 2009. Action: We believe the news is positive for Mechel. We reiterate our BUY rating on the stock.

Rationale: TFZ is one of the most modern smelting plants in Russia producing high- carbon ferrochrome. From Jan 2009, Mechel started supplies of high quality chrome ore from the Voskhod deposit in Kazakhstan, which is a part of Oriel Resources acquired in 2Q08. Previously, the operations of TFZ were constrained by high-cost imported chrome ore. Thus, the Oriel Resources acquisition resulted in the company building efficient upstream vertical integration in the ferroalloys division. Mechel sees growing demand for ferroalloys in the South-East Asian markets including China. The increase in nickel production at Southern Urals Nickel Plant may be caused by strengthening domestic demand for stainless steel. The import duties for flat stainless steel products have been increased recently from 5% to 15% in Russia. At the moment, local steel mills are planning to launch an anti-dumping investigation with regard to other grades of stainless steel produced by Asian and South African mills. The aforementioned measures may bring the domestic customer base back to Mechel, which controls around 80% of the domestic stainless steel market.

--************************************************************ 43. Rusal to miss debt repayment deadline bne

businessneweurope.eu June 5, 2009

Troubled metal company UC Rusal will probably missed the June 11 deadline to reach a restructuring deal with foreign creditors on its $7.4bn debt, says Viktor Vekselberg, a RUSAL minority holder, Interfax reports.

If the company misses the deadline it will have to ask for a second repayment standstill agreement in order to continue talks,

The company is asking to restsructure the debt schedule with payments over 7-8 years and agreed a two month standstill on repayments in March while talks were ongoing.

The state-owned Vnesheconombank (VEB) has already agreed to restructure $4.5bn of debt the company owes the bank. In all Rusal owes $14bn of which about $7bn is due by November.

SECTOR Power --************************************************************ 44. Energy Minister Shmatko expects capacity market model within two months Renaissance Capital Monday, June 1, 2009

Event: Responding to demands from genco proprietors to link contracts to build new capacity with the adoption by government of a long-term capacity market model, Reuters reported on Friday (29 May) that Energy Minister Sergei Shmatko expects the ministry to sign-off on the capacity model within 1-2 months. Interfax later quoted the Head of the Market Council Dmitry Ponomaryov as saying that the main discussions on the final draft of a model are to be completed by 19 June. According to Ponomaryov, the main discussion point is the level of payments for existing capacity, with wholesale buyers ready to pay around RUB40,000/MW per month ($16/kW per year), while generators are demanding RUB400,000/MW per month ($160/kW per year). Thus Ponomaryov believes the Market Council will adopt a medium figure of RUB130,000/MW per month ($51/kW per year).

Action: Strongly positive for Russian generation companies, in our view.

Rationale: In our view, an economically-based long-term capacity model is an essential element of the government's price liberalisation plans, and one that promises to provide meaningful financial returns on investment in new capacity. Furthermore, we calculate the Market Council proposals for the levels of capacity payments for existing power plants will increase genco capacity revenues by an average of 30%, with OGK2, OGK3 aqnd OGK4 the biggest winners. We also think a transparent pricing formula for newly-commissioned power plants will reduce the investment risks investors have been assigning to future cash flows generated by new equipment. We see this as a watershed that will reduce the current 70% discount between the market values of Russian gencos and the international peer group.

--************************************************************ 45. Government maintains pressure on OGK3

businessneweurope.eu Renaissance Capital Monday, June 1, 2009

Event: Deputy Minister of Energy Vyacheslav Sinugin announced on Friday (29 May) that the ministry expects OGK3 to take "adequate steps" toward the completion of the company's investment programme. According to Sinugin, the Energy Ministry had sent a communication to OGK3, demanding that the company meet its obligations with respect to commissioning new capacity. A report from the National Audit Chambers publicised on 29 April requested OGK3 to reverse its purchase of a 25% stake in Rusiya Petroleum and of Norilsk Nickel shares - both transactions which, in our view, were of doubtful value for OGK3.

Action: Positive for OGK3 share price, in our view.

Rationale: According to OGK3's 1Q09 RAS financials, the company earned RUB1.6bn ($50mn) on its operations during the period, RUB883mn ($28mn) on interest received on its cash reserves and RUB4,179mn ($134mn) on its forex strategy. As a result, the company's net cash position reached RUB60bn ($1,923mn). Meanwhile, at market close on Friday, OGK3's market capitalisation was $2,112mn, producing a market valuation of $20/kW (not including the $600mn ordered to be returned by the Audit Chamber). With corporate governance at OGK3 apparently under close government scrutiny, we think the company's shares are a highly attractive investment opportunity.

--************************************************************ 46. InterRAO, VTB and Kuwaiti firm to establish electricity investment fund Renaissance Capital Thursday, June 4, 2009

Event: According to Reuters, InterRAO will use the occasion of the St Petersburg International Economic Forum to formally sign an agreement with VTB and the Kuwaiti company Fouad Alghanim & Sons Co for General Trading & Contracting, to establish a power-sector investment fund. Action: We regard this as a positive development for InterRAO, and reiterate our BUY rating on OGK1.

Rationale: In our view, the establishment of the new fund, and the implied access to capital, will further strengthen InterRAO's ability to acquire electricity businesses at a time when asset prices remain depressed. We see OGK1 as an obvious target, where a new share is planned for end-2009/early-2010 to raise capex funds for urgently needed new capacity. Indeed, it may not be entirely coincidental that another Midde- East investor, Dubai World, was reported to have come close to buying control of OGK1 when the company's privatisation was attempted in summer 2008.

--************************************************************ 47. Post crisis power sector landscape could be different, Shmatko says VTB Capital June 2, 2009

- quite large share of investors could fail to bring new capacity on line - Energy Ministry plans to ask other strategics to fill the gap - moderately positive News: Energy Minister Sergey Shmatko has said that due to the current crisis quite a large number of investors could fail to build new capacities, Interfax reports. He mentioned that the Ministry could ask other strategics to take on the projects. Shmatko mentioned that Sintez group (TGK 2), KES (TGK 5, TGK 6, TGK 7 and TGK 9) and

businessneweurope.eu Norilsk Nickel (OGK 3) currently had problems implementing capex while he praised Enel (OGK 5), LUKOIL (TGK 8), ESN (TGK 14), Fortum (TGK 10) and E.ON (OGK 4) as those delivering on their capex obligations.

Our View: The ongoing crisis is definitely bringing new realities and could spoil the plans of certain investors. However, this means that there is a greater incentive for the government to launch more attractive long term capacity market rules, which would increase private investors' desire to compete for implementing projects.

--************************************************************ 48. Warmer May temperatures contribute to electricity demand decline Renaissance Capital Friday, June 5, 2009

Event: In a press statement released yesterday (5 May), Russia's electricity market System Operator reported that electricity consumption declined 8.3% YoY in May, marking the sharpest contraction recorded since the onset of the global economic crisis. The most significant decrease, of 14%, was recorded in the Mid Volga region, while the lowest fall occurred in the South. In several regions where demand is dominated by households, including Ingushetiya, Dagestan, Krasnodar region, and Chechnya, small increases were recorded.

Action: Neutral for the Russian power sector, in our view.

Rationale: We think much of the acceleration of the decline reflects unusually high ambient temperatures in certain regions of high electricity demand. In the Centre region, for example, which includes the city of Moscow, May temperatures this year were 2.5 degrees Celsius higher than for the corresponding period in 2008. Nevertheless, the same vagaries of climate cannot be blamed for the 9.5% demand contraction in the energy-intensive Urals region. Judged on this statistic, industrial demand remains at depressed levels.

SECTOR Retail, FMCG --************************************************************ 49. Russian government may allow retailers to deduct shrinkage for tax purposes Alfa, Russia Thursday, June 4, 2009

According to Vedomosti, the government proposed an amendment to the tax code that will allow retailers to deduct shrinkage and stolen goods for tax purposes. The maximum amount of tax deduction will be set at 0.5%-1.5% of sales.

The non-deductibility of retail shrinkage under Russian tax law has been one of the factors contributing to higher effective tax rates, relative to the statutory corporate rate, for retailers. Should this amendment be adopted, it should allow retailers to reduce their effective tax rates. POSITIVE

--************************************************************ 50. Vester closes last hypermarkets in Ukraine Concorde Capital, Ukraine

businessneweurope.eu June 1, 2009

Daily Kommersant reported today that Russian retailer Vester closed its last two hypermarkets in Ukraine, in Khmelnitsk and Ternopil. According to Rimma Remizova, Vester PR director, the shuttering of its stores was a result of a drop in consumer demand and high lease rates. Kommersant said that Vester would maintain an administrative office in Ukraine and still considered the market promising.

SECTOR Telecom --************************************************************ 51. AFK Sistema: India subsidiary reaches one million mobile subscribers UralSib, Russia June 1, 2009

Uncertainty over Indian project remains high. Vedomosti reported today that AFK Sistema's (SSA - Under review) Indian mobile unit, Sistema Shyam Teleservices (SSTL), customer base has reached one million. This figure suggests that SSTL is able to attract customers in India, but in our view a lot of uncertainty remains as to whether Sistema can become competitive in a market containing at least 11 other mobile operators. So far SSTL's key competitive advantage has been low pricing with an ARPU of 50% below the market average of $3.4/month.

OIBDA profitability requires 35 million customers. SSTL will need to acquire at least 35 mln subscribers (implying a 7-8% market share) to become profitable at the OIBDA level according to its CEO Vsevolod Rosanov. To do that, SSTL will have to acquire about 22% of total subscriber additions in India over the next 3-4 years. For comparison, in March SSTL attracted about 13% of net additions in the state of Rajastan where it already has full network coverage. Currently, mobile penetration in India is about 30%, implying huge growth potential.

Neutral for the stock. We see the news as neutral for the stock. In our view Sistema's Indian project still carries risks for Sistema, given that further development will require large-scale investment with an unclear return, albeit that potential investment in the project by the Russian government should put financing in place at least for 2009. Sistema has recently delivered plenty of corporate news including selling a controlling stake in Sistema-Hals to VTB and acquiring controlling stakes in Bashkir oil assets. To account for these changes, we have taken our recommendation for the stock under review.

--************************************************************ 52. Court refuses to suspend damage recovery from Telenor Renaissance Capital Thursday, June 4, 2009

Event: Yesterday (3 June), the Moscow Arbitrage Court denied to stay the enforcement of $1.7bn in damages awarded against Telenor. Telenor brought the motion to court in an attempt to suspend enforcement of the award, which it had been ordered to pay to VimpelCom. In February, a court in Omsk ruled in favour of VimpelCom's shareholder Farimex, and said Telenor must pay damages to VimpelCom for allegedly holding back its business in Ukraine. Telenor has appealed against the decision. Action: We think the news is neutral for VimpelCom.

businessneweurope.eu Rationale: The Tyumen Court of Cassation will hear the appeal on 10 June. The bailiffs have had the legal right to sell Telenor's stake in VimpelCom for around two months already.

--************************************************************ 53. North-West telecoms considers upping 2009 capex bne June 8, 2009

North-West Telecom may increase investment spending in 2009 above the planned 4.8 billion rubles, CEO Vladimir Akulich has said. Akulich did not comment on how much the company was considering investing, Prime-Tass reports. It had originally planned to invest 8.5 billion rubles in 2009, but later decreased the sun first to 6.5 billion rubles and then 4.8 billion rubles.

--************************************************************ 54. Siberia Telecom guides for 8% YoY revenue growth - decreases capex further and plans RUB 4bn bond issues - likely to repay 2009 debt should it succeed with the bond issues VTB Capital June 4, 2009

News: Interfax quoted Ivan Dadykin, Siberia Telecom's General Director, yesterday as saying that OJSC Siberia Telecom plans to increase its revenues 7.9% (in rouble terms) in 2009, with the share of new services at around 20.5%.

He added that the company had decreased its 2009 capex further to RUB 2.3bn (USD 75mn).

In separate news, Interfax has also reported that Siberia Telecom plans to place three bond issues totalling RUB 4bn.

Our View: Management's 2009 revenue guidance for OJSC Siberia Telecom (which does not include the financials of most of the company's mobile business) is 3% above our expectations for 2009. The company is planning aggressive revenue growth for new services and might succeed, given that national alternative players (like Vimpelcom and Comstar UTS) have frozen capex and small regional operators lack of funding.

According to our calculations, with the announced capex cuts the company might get through its tough 2009 debt payments (the major item is around USD 90mn of CLN, putable in October) should it succeed with the planned bond issues (we estimate the company needs to borrow the amount equal to CLN repayment).

--************************************************************ 55. State commission approves Svyazinvest's reorganisation concept - Troika, Uralisib VTB Capital June 1, 2009

• Rostelecom becomes the center of the new company.

• Rostelecom either merges with the regional telecoms (which entails early repayment of about $4.0bn of regional telecoms' debt and the buyout of minority

businessneweurope.eu shareholders), or, as is more likely, it issues new stock to be paid for by Svyazinvest in the form of 51% stakes in the regional telecoms.

• Rostelecom shares are de-listed from the NYSE. At a later stage, though, the state may conduct a secondary placement of its shares among the population or on a Western exchange.

• The new company tries to reinforce its position on the mobile market either by merging the mobile units of the regional telecoms or through establishing control over one of the Big Three operators.

• The new Rostelecom tries to strengthen its presence on the Moscow market via Central Telecom and Central Telegraph and through the acquisition of independent companies. The 28% stake of MGTS is not for sale.

• The plan also envisages a significant increase in investments in the broadband market by the new Rostelecom. potential consolidation process might take 1.5-3 years - State not in a rush to conduct asset swap with Sistema - reorganisation process moves forward with a risk for regionals' minorities

News: Vedomosti has today quoted a statement from the PR department at the Ministry of Telecommunications and Mass Communications as saying that the State Commission of Transport and Telecommunications has approved the concept for reorganising Svyazinvest, with its daughter companies being consolidated Rostelecom. The paper also quotes the Ministry's representative as saying that the reorganisation strategy should be approved by the holding's Board of Directors this autumn, and the consolidation process might take some 1.5-3 years.

Vedomosti's source confirms the two major consolidation scenarios previously mentioned in the press: i) a full merger of Rostelecom and the regional telecoms (preferable for the state scenario) and ii) Rostelecom getting Svyazinvest's stakes in regionals.

Interfax has also quoted Evgeny Yurchenko, Svyazinvest's CEO, as saying that the asset swap with Sistema (to get Comstar UTS's 25% stake in Svyazinvest) is not a critical issue for the reorganisation process now as Sistema is an efficient shareholder.

Our View: We see the news as confirming our view that the state is moving forward with consolidating its telecommunication assets and seeking the possibility of a full merger of the assets around Rostelecom (see our Svyazinvest Reorganisation Details: More Questions Than Answers of 20 May).

As for the time frame mentioned for the consolidation (1.5-3 years), we take this as the worst case scenario for the state (with Rostelecom getting Svyazinvest's stakes in regionals in the foreseeable future and proceeding to increase its stake further within the mentioned timeframe).

Yurchenko's statement on the asset swap with Comstar UTS (which is potentially negative for the latter) likely shows that there is a broader agreement with Sistema as the potential reorganised state-controlled telecommunication holding would create a direct conflict of interest for Sistema. We also note that Sistema could potentially

businessneweurope.eu block the reorganisation process using Comstar UTS's 25% stake in Svyazinvest. However we still expect that the state will (sooner or later) proceed with the swap due to its goal of maximising its stake in the controlled telecommunication assets.

All in all, we are sticking to our view that restructuring the state-controlled assets around Rostelecom creates a substantial risk for regionals' minorities.

Victor Klimovich

Uralsib adds:

Ambitious targets. The plan suggests that the unified operator would attain lead positions in the mobile and broadband markets, and implies the integration of all IRs' mobile operations and potentially the acquisition one of the Big-3 mobile operators. In addition, Svyazinvest should strengthen its position in the Moscow market, which also could imply the acquisition of some independent operator. The general director of Svyazinvest, Evgeny Yurchenko, also suggested that an integrated operator could place shares in an IPO following reorganization, although we believe the chances of that happening soon are low.

Any progress is better than the status quo, despite risks of dilution. The affect of reorganization on the minorities of IRs would depend on details such as potential swap coefficients between shares of IRs and an integrated operator. That said, some selling pressure on shares of IRs is possible in the short term, as there is a significant risk of value dilution should current market valuations be used to determine swap coefficients due to significant overvaluation of Rostelecom. However, such risk has long been known to the market and is mostly priced in at the current prices. We believe for IRs that any progress with reorganization of Svyazinvest would be ultimately preferable to the uncertainty that has prevailed over their fate. In addition, reorganization may offer IRs minorities a chance for entry into a better managed company with more liquid stock. We believe that IRs with developed mobile assets will be more favorably valued in the course of Svyazinvest assets integration and therefore investments in these companies are less risky. We, thus, reiterate our Buy recommendations for Uralsvyazinform, VolgaTelecom, Sibirtelecom and Far East Telecom.

Troika's Evgeny-Golossnoy adds

In our view, the best way to play the merger is via Rostelecom shares, which is likely to see the regional telecoms purchased at only a slight premium to their market prices.

The state is aiming for an 85-90% stake in the new company; therefore the future swap ratios for the regional telecoms are not likely to be very beneficial for minority shareholders. It is also possible that at the initial stage, the state may opt to buy just Svyazinvest's stakes (like we expect MTS to do with Sistema's stake in Comstar- UTS) without buying out the minority shareholders.

Should the state still consider making a buyout offer to the minority shareholders, we think that companies with a more diversified business (with mobile and/or internet units), such as Ural SI, Siberian Telecom, Far Eastern Telecom and Volga Telecom, are likely to receive slightly better conversion or buyout rates.

--************************************************************

businessneweurope.eu 56. Svyazinvest: Moving in the right direction UralSib June 1, 2009

Reorganisation preliminarily approved

Subsidiaries to be integrated on the base of Rostelecom. Last Friday, the government commission for transportation and communications approved a plan for reorganization of Svyazinvest, Vedomosti reported today. As was largely expected by the market, the plan envisages consolidation of Svyazinvest subsidiaries into one operating company on the base of Rostelecom. One option envisions Rostelecom and inter-regional telecoms (IRs) being integrated into a single legal entity, which would require Rostelecom to make an obligatory buyout offer to minorities and possibly face the need for early repayment of the debt of IRs. In an alternative option, Rostelecom would receive Svyazinvest stakes in IRs in exchange for newly issued shares. A final option should be approved during the autumn, but reorganization may take one-and-half to three years.

Any progress is positive – Buy strong IRs with mobile assets. We believe that for IRs any progress on the reorganization of Svyazinvest would be ultimately preferable to the uncertainty that has this far prevailed over their fate. In addition, reorganization could offer minorities of IRs a chance for entry into a better managed company with more liquid stock. We believe that IRs with developed mobile asset will be more favorably valued in the event of any integration of Svyazinvest assets and, therefore, investments in these companies pose less of a risk. We, therefore, reiterate our Buy recommendations for Uralsvyazinform, VolgaTelecom, Sibirtelecom and Far East Telecom. Comstar-UTS should also benefit, as Svyazinvest reorganization will likely help the company to swap its blocking stake in the holding for a debt to Sberbank.

Reorganization of Svyazinvest is vital for IRs From a territorial to functional structure. The current structure of Svyazinvest is based upon IRs providing local/zonal and, in several cases, mobile services in certain regions; while long-distance services are provided by a separate Svyazinvest provider, Rostelecom. Having separate providers on different levels makes little sense, as the long-distance business has no future. A far more efficient option would be to integrate all existing business lines into a single company.

Ambitious targets. The plan suggests that a unified operator would attain lead positions in the mobile and broadband markets. In addition, Svyazinvest should strengthen its position in the Moscow market, and could also imply the acquisition of some independent operator. The general director of Svyazinvest, Evgeny Yurchenko, also suggested that an integrated operator could place shares in an IPO following reorganization, although we believe the chances of that happening soon are low.

Reorganization of the holding will likely include non-Svyazinvest assets … We also believe that if the state consolidates all Svyazinvest subsidiaries into a single provider this will only be the first stage of the reorganization. As we commented in our report, “Changes Vital”, published in March 2009, even after consolidation, Svyazinvest companies would not join to become a fully integrated provider, as they lack national mobile coverage. This means that the newly consolidated structure would need to boost its mobile arm.

… such as MegaFon. We also believe that one of the Big-3 mobile operators, MegaFon, might be included in the final lineup of an integrated telecom provider

businessneweurope.eu based on Svyazinvest assets. Indeed, the government may try to gain control over MegaFon by swapping Alisher Usmanov’s debt to state banks for his indirect stake in MegaFon (Usmanov has a 74% stake in elecominvest, which controls 31% of MegaFon) and then consolidate it within a reorganized Svyazinvest. In addition to Usmanov's stake, the government could exchange Alfa's 25%+1 share in MegaFon for Alfa's debt to VTB, which is collateralized by VimpelCom shares. As the government is seeking to gain more control in all strategic areas of economy, this outcome is a real possibility.

Positives outweighs negatives Reorganization on the basis of Rostelecom raises concerns … Any consolidation of Svyazinvest assets would be accompanied by value redistribution among existing IRs and Rostelecom shareholders. Consolidation could be arranged at the expense of minority shareholders, which might receive unfair swap ratios during consolidation share swaps. Due to the significant disparity in the market valuations of Rostelecom and IRs – due to the artificially high valuation for Rostelecom – the stakes of IRs’ minorities could be diluted should consolidation be carried out on a basis of the market valuations of the companies contrary to the fair values of IRs and Rostelecom.

… but investments into IRs with mobile assets likely to be less risky. The mobile businesses of IRs are valued higher by the market than their fixed-line operations. For example, SouthTelecom and Sibirtelecom have comparable fixed-line customer bases, similar revenues from fixed-line services and a comparable debt load; however, Sibirtelecom also has a developed mobile business that provides about 25% of its total sales. The end result is that the market cap of Sibirtelecom is more than two-times higher than that of SouthTelecom’s. Therefore, the mobile business of IRs is valued at higher multiples than fixed-line, as the market uses Big-3 valuations as a benchmark for IRs mobile business valuations. The high valuations of mobile businesses are an important factor in reducing the risk of value dilution for IRs should they be consolidated into single integrated company.

Reorganization of Svyazinvest should be positive for Comstar-UTS. News on Svyazinvest reorganization should also be positive for Comstar- UTS, as the reorganization will likely include concentration of 100% of Svyazinvest stake under the government in the initial stage of the process. Therefore, Comstar-UTS may soon swap its 25% plus one share stake in Svyazinvest for a release from RUB26 bln of debt (and maybe a 28% stake in MGTS), a move that would strengthen its financial position.

Long-term benefits overbalance short-term risks. The affect of reorganization on minorities of IRs would depend on details such as potential swap coefficients between shares of IRs and those of an integrated operator. That said, some selling pressure on shares of IRs is possible in the short term, as there is a significant risk of value dilution should current market valuations be used to determine swap coefficients due to the significant overvaluation of Rostelecom. We, however, believe that the dilutive effect is limited, as IRs are traded at very low valuations that would be outweighed by the potential benefits of gaining a stake in a large integrated provider with much better growth prospects than IRs. However, such risk has long been known to the market and is mostly priced in at the current prices. Our position is that any reorganization/privatization of Svyazinvest should be positive for IRs shareholders, as only consolidation into an integrated provider could create more value for shareholders in the long term thanks to greater growth options, higher market value and better stock liquidity.

businessneweurope.eu --************************************************************ 57. Telecom sector: Russian broadband subscriber base up 1.6% MoM in April UralSib, Russia June 2, 2009

Broadband penetration reaches 18%. Yesterday AC&M consulting released broadband subscriber statistics for April. The total Russian broadband subscriber base increased 1.6% MoM to 9.3 mln customers, implying broadband penetration of 18% in households terms. In Moscow the broadband subscriber base grew by 1.5% MoM which is in line with the national growth figure despite the higher level of saturation. The data suggests that there is still huge potential for broadband market growth and customers are continuing to take up the service despite the crisis. In our view it is crucial that telecom operators build up market positions in the segment now and this could be one of the reasons behind the need to restructure Svyazinvest.

Comstar is the leader, but is growing somewhat slower than the market.

Comstar remains the market leader with a 12% market share and 1.1 mln subscribers, but grew slightly slower than the market at 0.7% MoM. VimpelCom, the second largest player in the market, posted 2.6% MoM subscriber growth to 871,000 customers. Among Svyazinvest subsidiaries two operators were able to deliver growth of above 3% MoM: Sibirtelecom up 3.4% YoY to 433,000 customers and South Telecom up by 3.1% MoM to 395,000.

Growth largely in line with expectations. Growth of the Russian broadband subscriber base is largely in line with our expectations and we do not expect the stats to have any major impact on share prices for telecom operators. The broadband market is set to become the key source of growth for Russian telecom operators in the medium-term and we expect Comstar-UTS (CMST - Buy), VimpelCom (VIP - Under Review) and inter-regional telecoms to benefit most from this growth.

SECTOR Transport --************************************************************ 58. Railway cargo turnover down 13% in May vs. 15% in April VTB Capital June 5, 2009 growth in industrial production expected in May --- improvement driven by exports News: Russian Railways released highlights of its May transportation statistics yesterday. Cargo turnover decreased 13% YoY, a slight improvement on the 15% YoY drop in April.

Our View: According to our estimates, the deceleration in the decline in transportation points to an improvement in industrial production (which dropped a dramatic 16.9% YoY in April). The positive changes were primarily driven by constantly growing export deliveries of key commodities (oil & oil products, coal and ferrous metals).

SECTOR Automotive --************************************************************

businessneweurope.eu 59. Amtel-Vredestein files for bankruptcy bne June 8, 2009

Tyre manufacturer Amtel-Vredestein has filed for bankruptcy with the Moscow Arbitration Court, Prime-Tass reports. The move follows a recommendation from the company’s shareholders at an extraordinary general meeting April 24. Amtel- Vredestein manages the Russian assets of Netherlands based Amtel-Vredestein. The Dutch company said in December 2008 that its Russian arm could not meet creditors’ demands and that it did not plan to continue providing funds.

--************************************************************ 60. Avtovaz gets RUB25bn state loan bne June 4, 2009

Russian Prime Minister Vladimir Putin signed off on an authorisation for the government to make the carmaker Avtovaz a RUB25bn loan, reports Interfax.

The loan will be interest free and the money should be paid out in the coming weeks.

The money is being channelled through the state-owned industrial holding Rostekhnologii, which is the major shareholder in the company.

--************************************************************ 61. Avtovaz may buy out GM's Russian JV assets bne June 3, 2009

Following the decision of American carmaker General Motor's decision to file for chapter 11 bankrupcy protection, its Russian partner Avtovaz says it may buy out the company's joint venture assets, reports Interfax.

The two companies have been producing the Chevrolet Niva SUV among other things, in a plant next to Avtovaz' main production facility in Togliatti. The joint venture was founded in 2002 but has never been a big success.

The JV agreement contains a preemptive buy out clause in the case of one of the partners going bust. Avtovaz and GM each own 41.6% of the joint venture, and the European Bank for Reconstruction and Development (EBRD) owns 16.8%.

"We need to take it [the Avtovaz-GM plant]," one source said. But "it all depends on the price and terms," said another, adding that Avtovaz did not have spare cash at the moment. "The issue will be decided in 10-15 days," a source told Interfax.

--************************************************************ 62. Car sector bailouts to start bne June 2, 2009

The Russian government will start making payments to Russia's leading carmarks this week as part of the state sponsored bailout programme.

businessneweurope.eu The first tranche of the state bail out for carmaker Avtovaz will arrive this week, Prime Minister Vladimir Putin said reports Interfax. issue.

State-owned Sberbank also said it has already provided RUB1.5bn loan to truck maker Kamaz last week. It did not specify the loan terms or maturity. Sberbank opened a 147-day credit line with a promissory note limit of RUB1bn in April.

The bank said at the time that lending in the form of promissory notes was good for the lender as it would not have to divert cash funds, and good for the borrower, as rates on promissory notes are normally lower than money market rates.

--************************************************************ 63. GAZ could start assembling Opels by end 2009 bne June 8, 2009

The Gorky Automobile Plant (GAZ) may start assembling Opel cars by late 2009 or early 2010, according to Nikolai Satayev, the minister for industry and innovation in the the Nizhny Novgorod Region where GAZ is based. Production of Opels is due to take place at facilities originally built for the production of Volga Siber cars, Prime- Tass reports. Sberbank and Canadian auto parts manufacturer Magna are expected to buy a controlling stake in Opel from General Motors by September.

--************************************************************ 64. Malaysian automotive producer Weststar cancels LDV deal VTB Capital June 3, 2009

- reportedly could not find financing - LDV on the edge of bankruptcy - neutral for GAZ, which is focused on Opel project

News: Malaysian automotive company Weststar, which agreed to buy GAZ's British asset LDV in early May, cancelled the deal yesterday. The reasons were not disclosed officially, but according to Kommersant the buyer failed to attract USD 73mn (GBP 45mn) financing from the British government. If GAZ does not find a new buyer for LDV, the British LCV producer will be declared bankrupt.

Our View: Disposing of LDV would be positive for GAZ. The company bought the British LCV producer in 2006, but the key project - localising the Maxus LCV - was not launched due to market turbulence last autumn and LDV has been a loss-making asset in each of the three years since it was acquired.

GAZ is unlikely to find a new buyer for the plant, but even were LDV to be declared bankrupt, this would be neutral for GAZ now. The recent acquisition of Opel by the Magna-Sberbank consortium provides another chance for the Russian car producer to solve its USD 1.3bn debt problem (which has arisen on the back of low demand). According to Sberbank's plan, GAZ's main plant in Nizhny Novgorod will start assembling up to 180,000 Opel cars a year. If this project is successfully implemented, we believe that GAZ is likely to solve its passenger cars problem and might significantly improve its debt situation.

--************************************************************ 65. Nissan opens St Petersburg car plant

businessneweurope.eu bne June 8, 2009

Japanese automaker Nissan opened its plant in St Petersburg June 2, Interfax reports. The company started production at the plant in the Kamenka industrial zone on a trial basis at the start of 2009.

The plant will produce Teana and X-Trail models, and has a capacity of 50,000 cars a year. Nissan has allocated $200m for the project.

In future, Nissan may also cooperate with Renault and AvtoVAZ to produce a third model of inexpensive car at the plant. However, the company's president Carlos Ghosn has warned of an expected further contraction in the Russian car market, forecasting that sales may fall 50% to under 1.5 million cars in 2009 .

--************************************************************ 66. Russian car industry strategy should include Opel deal - Putin bne June 8, 2009

The Russian government’s strategy for the country’s automotive industry should be revised to take into account Sberbank's acquisition of a stake in carmaker Opel.

"The Russian government has its own strategy to develop the automobile industry, and the deal we are talking about out to be written into it," Putin said at a meeting with Sberbank chairman German Gref, Russian Industry and Trade Minister Viktor Khristenko and Siegfried Wolf, CEO of Magna International, the Canadian company investing in Opel alongside Sberbank.

"I want to say right away that the Russian government was not directly involved, but we welcome Sberbank's involvement," Interfax quotes Putin as saying.

--************************************************************ 67. Sberbank and AvtoVAZ offer free credit for Ladas bne June 8, 2009

Sberbank and AvtoVAZ are offering a free loan to customers buying Lada cars, Reuters reports. Customers who take out the loans will receive discounts from dealers, which will offset loan service expenses.

--************************************************************ 68. Sberbank and the OPEL deal Renaissance Capital Monday, June 1, 2009

On Saturday (30 May ) the German government announced that the Magna consortium had been chosen as the preferred bidder for Opel, GM's German/ European car unit for which the German state is leading the sale process.

The Magna consortium is backed by the Kremlin, with Sberbank officially backing/ involved in the bid. Oleg Deripaska's GAZ is set to form a production alliance with OPEL should Magna win the bid. Prime Minister Vladimir Putin himself is directly involved in the negotiations with Chancellor Angela Merkel.

businessneweurope.eu Under the conditions of the deal, Germany will provide a EUR 1.5bn (USD 2.1bn) loan to keep Opel afloat. Magna (along with Sberbank) will contribute EUR 700mn (of which, EUR 300mn is to be provided by Magna). The plan also foresees a linkup with GAZ, which stated on Saturday that it could produce 180,000 Opel cars a year at its main Russian site. GAZ would require up to nine months to retool its main plant in Nizhniy Novgorod to start producing Opel models.

Sberbank will get 35% in Opel and, according to its CEO, the bank is interested in the deal because "it will bring access to new technologies at a 'fairly low' price" and "will make it possible to restructure the automobile industry in Russia".

Rencap's David Nangle writes: "While the deal is far from sealed, given the number of parties involved, should it go through as intended, it does seem from Magna- based communication that Sberbank may not just finance the deal, it may in fact take an equity stake in OPEL, reported at 35%. The initial take of, "what is a Russian bank doing buying a German car company", irrespective of the merits of the economics of the deal which we do not yet know, is negative for stock sentiment, in our view. Our medium-term view however is that similar to VTB's previous holding in EADS, Sberbank may well be a conduit for the transaction and a more logical Russian state or industrial entity will eventually be passed the stake, should the deal go as planned. The story is likely to drag, while Sberbank's timeline, the duration for which it has to hold the stake on balance sheets, and how the bank will be economically impacted, will remain unclear for a period to come, in our view."

Troika's Gennady Sukhanov adds:

The news is positive for GAZ, which would be a partner in the deal and would produce Opel vehicles for Russia and the CIS. For its part, GAZ would provide an assembly line in Nizhni Novgorod with a total capacity of 180,000 vehicles per year (the same plant where the Volga Siber is being assembled now) and a dealership network. In the long run, other types of cooperation would be possible.

Although the deal represents a good opportunity for GAZ, as it would gain access to modern auto technology, there are more questions than answers. One is how GAZ will be able to combine cooperation with Opel on one hand and a $1bn debt restructuring with creditors on the other. Once the deal is finalized we would expect to hear a lucid long-term plan from all counterparties.

VTBC adds:

The deal is negative for Sberbank as it is engaging in non-core investments, despite huge challenges on the core business side. Moreover, we see the corporate governance risk rising for Sberbank as in our view the deal is politically rather than economically driven.

//IMG:0609_Russia_company_opel_shareholders.gif:IMG//

SECTOR Aviation and defence --************************************************************

businessneweurope.eu 69. Aeroflot Nord may lose its license Alfa, Russia Friday, June 5, 2009

Rosavia is threatening to revoke Aeroflot Nord's certificate of operation, according to an article in today's Vedomosti. Aeroflot owns 51% of Aeroflot Nord.

Rosavia concluded that Aeroflot Nord must fix deficiencies such as low quality maintenance and poorly trained staff by September 1. The company must also submit a financial plan to Rosavia by July 1 and it is banned from carrying out international charter flights after June 15. The restrictions are a result of Rosavia's investigation into Aeroflot Nord's crash in Perm in September of last year.

Aeroflot Nord accounts for approximately 9% of Aeroflot's total passengers carried. We view this news as NEGATIVE for Aeroflot's brand and the firm's market share if it has to divest of Aeroflot Nord if the firm is unable to improve operations.

--************************************************************ 70. Transportation Ministry invites Boeing to set up maintenance centres in Russia bne June 8, 2009

The Russian Transportation Ministry has invited Boeing to set up a chain of maintenance centres in the country. At a meeting with the president and CEO of the US aircraft manufactuer James McNerney, Transportation Minister Igor Levitin said that major Russian airlines or the United Aircraft Corporation (UAC) could also become involved in the project. McNerney told Levitin that Boeing was interested in setting up both maintenance centres and a training center in Russia, Prime-Tass reports.

SECTOR Construction, Real Estate --************************************************************ 71. Japanese and Chinese investors to access Siberian cement market Visor Capital June 5, 2009

Japanese and Chinese investors are reportedly seeking to buy blocking stakes (25%) in Russian cement producers, which operate in Southern Siberian region. The news shows an increased level of confidence of international investors in the regional cement market. We expect a positive share impact for Steppe Cement.

According to a story reported in Kommersant, the Russia-based newspaper yesterday, Japanese Mitsubishi Heavy Industries and the Chinese China National Machinery Import & Export Corp. are seeking to buy blocking stakes (25%) in Sibir- Cement (SCEM RU) and RATM-Cement. Both Russian companies are strongly represented in the Southern Siberian cement market. Sibir-Cement is currently building a cement plant in the Astana region due for completion in 2010 or 2011.

At this stage, the cement producers involved did not confirm any potential of the transactions. We believe that the reported news shows the confidence of Chinese and Japanese investors in the Siberian and Central Asian cement markets. We expect a positive share impact for Steppe Cement (STCM LN), which we currently have under formal research coverage, available to our clients.

businessneweurope.eu SECTOR Media --************************************************************ 72. Internet: Russian production houses see Russian content market contracting a third YoY in 2009 VTB Capital June 1, 2009

- positive, as lower programming costs will support CTC Media's margins in 2009 News: Company Secrets, a Russian business magazine, has run an article today quoting different sources within Russian production houses as estimating that purchase prices for domestic content have decreased 20-50% (in dollar terms), while the volumes of Russian series and sitcoms purchased are down 70%. The magazine estimates the overall volume of domestically produced series decreasing to USD 400mn (in dollar terms) in 2009, or down 33% YoY.

Our view: The news is positive for CTC Media, given that 40% of its programming (and thus amortisation of programming rights) come from external local content (35% from the purchase of dollar-denominated foreign content and 25% is produced in-house), while total amortisation rights account for two-thirds of above-EBITDA costs. The news also bodes well for CTC Media's management statement that the company is unlikely to see pressure from rouble costs in 2009 and will try to keep them flat YoY.

UKRAINE INVESTMENT --************************************************************ 73. Altcom Group to invest $400m in glass plant bne June 8, 2009

Altcom financial and industrial group is planning to invest $400m in a glass plant in the Donetsk region. The plant will use the float production method, and will produce 23 million square meters of high quality float glass a year, Altcom deputy director general Mykhailo Kovalev told Interfax-Ukraine.

--************************************************************ 74. AMF upgrades facilities to produce home furniture bne June 8, 2009

Office furniture manufacturer AMF Furniture Company has invested over $1m to upgrade its facilities as it prepares to enter the home furniture market, Interfax Ukraine reports. AMF has already started producing soft furnishings, home cabinet- type furniture, medium density fiberboard (MDF) for kitchens, special fitments and component parts. "The entry to the home furniture market was planned by the company, and it considerably expands the range of products. We plan to occupy the leading position on the market, as we have on the office furniture market," said AMF sales manager Vyacheslav Nedilka.

--************************************************************ 75. ArcelorMittal Kryviy Rih to shorten working week to 3 days in August Dragon Capital, Kyiv

businessneweurope.eu June 1, 2009

ArcelorMittal Kryviy Rih (AMKR), Ukraine's largest steel producer, plans to shorten its working week to three days as of Aug. 1 due to weakened demand and a resulting drop in output. (Ukrainian News) However, company management reportedly did not agree this decision with trade unions and the State Property Fund (SPF). Given that AMKR has to comply with post-privatization conditions imposed by the SPF, its attempts to shorten the working week without prior approval by company employees and the SPF are likely to be opposed and renegotiated.

--************************************************************ 76. Britain's New Look in talks to enter Ukraine Concorde Capital, Ukraine June 4, 2009

British clothing chain New Look is in negotiations with partners on franchising agreements that would mark its entrance to the Ukrainian and Polish markets, Reuters reported yesterday, citing Carl Makfeyl, CEO of Markerpost Ltd. Makfeyl said the agreements could be signed in the next several months. Markerpost Ltd controls 885 stores under the brands New Look and Mim in Britain, Ireland, France and Belgium, and has franchising agreements with stores in Eastern Europe and Russia.

--************************************************************ 77. Coke output grows in May Foyil Securities, Ukraine June 2, 2009

Ukraine coke producers have followed domestic steelmakers' path and increased coke production in May by 7.3% m-o-m to 1.4m tons. The 5M 2009 output is 6.6m tons, or down 26.2% y-o-y. Our top picks Avdiyivka Coke and Yasyniv Coke did reasonably well too. Avdiyivka produced 236,000 tons in May (12.9% m-o-m) and its 5M 2009 output was 1m tons, or -45.7% y-o-y. Yasyniv Coke made 128,000 tons of gross coke, which represents a 10.3% increase to April. Yasyniv's 5M 2009 output was 589,000 tons, 14.6% less y-o-y. Alchevsk Coke produced 313,000 tons in May (19.5%) and 1.4m tons in 5M 2009 (-10.4%).

Our view: We see no surprise in the growth volumes as steelmakers - the key clients for coke producers - were clearly having a better month in May than in April. Avdiyivka and Yasyniv are set to maintain their current volumes in June, as key clients in Metinvest and Mariupol Ilyich seem to have stabilized output going into summer. Both companies are a BUY.

--************************************************************ 78. DNSS loses USD 6 mln, plans CapEx, may dilute: SELL Sokrat, Ukraine June 4, 2009

Ukrainian News, a news agency, ran an interview with Vitaliy Kornievskiy, interim CEO of Dniprospetsstal [DNSS UZ, U/R]. Kornievskiy reported a loss (either net or before tax) of UAH 46.9 mln (USD 6.1 mln) for 1Q09. The company is probing various sources in order to finance several CapEx projects (total of about USD 90 mln until 2012), including debt and financing from equipment suppliers.

businessneweurope.eu Dniprospetsstal is the only Ukrainian producer of a wide variety of specialty steel products. The Privat Group and VS Energy supposedly control 47% each. Both of the majority owners are not heavily exposed to steelmaking and may eventually sell their stakes to a long-term strategic owner. In 2008, the company produced 289 thsd mt of rolled products, down 9% YoY. For 5M09, rolled products output is down 61% to 55 thsd mt.

Our view:

After the April 2009 departure of then-CEO Daniel Valk, the new interim management has finally revealed its current plans.

The small loss in 1Q09 is in itself neutral, and implementation of the CapEx projects will eventually be positive for the company. Nevertheless, we are very worried about the prospects of the existing minority shareholders.

We think that the Privat Group will not necessarily run the company transparently, even if it aims to sell it. More likely are the transfer of profits to affiliates, debt financing from affiliates, and likely recapitalizations.

The balance sheet of Dniprospetsstal is, as of 2008 EoP, rather weak: statutory fund USD 6.5 mln, uncovered losses USD 37.1 mln, book value USD 37.7 mln (rescued by other paid-in capital, USD 66.8 mln), PP&E USD 57.1 mln, construction in progress USD 4.6 mln. On top of that, the company had USD 167.6 mln of net debt.

Dilution may be expected for several reasons: (1) the book value exceeds the combined PP&E and CIP; (2) further losses may be ahead; (3) agreements on financing CapEx may require an increase in shareholders' capital, especially due to the already heavy existing debt burden.

Notably, the Privat Group is using dept financing together with numerous shareholders' capital increases at another plant that it may be preparing for eventual sellout, the pipes & tubes producer Kominmet [DMZK UZ, N/R]. During 2007-2009, Kominment increased the number of shares outstanding by about 3.7 times via 5 capital calls.

An increase of the statutory fund by USD 10-20 mln at Dniprospetsstal will dilute the existing shareholders by 2.5-4 times, which will be NEGATIVE.

--************************************************************ 79. EU considers investment in Ukraine gas reservoirs bne June 8, 2009

The EU is considering investing in Ukraine’s gas reservoirs instead of building its own, according to Jean-Arnold Vinois, representative of the European Commission for energy issues. However, the EU would only do this if Ukraine’s gas companies are separated into storage and gas supply companies.

"Everything depends on Ukrainians for which it is necessary to provide due conditions for running the gas system in accordance with transparency rules of the European Union and with clear division of the functions of supply and storage,” RusEnergy quotes Vinois as saying.

businessneweurope.eu --************************************************************ 80. Gerts to build 2 more Auchan stores in Kyiv in 2009 Concorde Capital, Ukraine June 1, 2009

Donetsk-based construction company Gerts said it planned to complete building two more Auchan hypermarkets in November-December 2009, according to Interfax. The sizes and locations of the stores were not disclosed in the article. The first French- branded Auchan store in Ukraine was opened in March 2008 in Kyiv and the second in January 2009 in Eastern Ukraine.

--************************************************************ 81. Home electronics market contracts bne June 8, 2009

Sales of household electronics and photo equipment were just UAH1.44bn in the first three months of 2009, 22.5% less than in the same period of last year. "The economic crisis has led to a slump in sales in all product groups, apart from LCD panels (a 3.5% rise, to UAH 568 million) and USB flash memory (an 8.7% fall, to UAH 36 million)," says a press release from GfK Ukraine Company, which carried out the research. The greatest fall in sales was in the audio equipment segment, with sales of car audio equipment down 48.4% to UAH29m and household audio systems down 45.7% to UAH19m, Interfax Ukraine reports. A large fall in sales of video cameras, tube and plasma TV sets, DVD players and home theatre systems was also recorded.

--************************************************************ 82. Kryukiv Railcar will lay off an additional 800 employees in July Sokrat, Ukraine June 2, 2009

According to a Kremenchug city employment center, Kryukiv Railcar [KVBZ UZ, U/R], based in Kremenchug (Poltava Oblast), has decided to lay off an additional 796 employees in July. The main reason for decreasing the staff count is the absence of orders for freight raicars. KVBZ had about 9 thd employees before the start of the crisis in the railcar production industry (October 2008).

Our view:

We see this news is POSITIVE for KVBZ. As we wrote in our daily on April 27, KVBZ cut about 1500 workers as a first cost reduction step and was ready to lay off an additional 1000 employees later. The company continues implementing this strategy due to low demand for freight railcars. We believe that most of the employees to be laid off are involved in freight wagon production. The staff reduction will positively influence the company's financials. As a result we expect that the EBITDA margin will be at 13.8% and net margin at 7.9% in 2009. To increase capacity utilization KVBZ is trying to find new clients in the CIS (Belarus and Baltic States) and further abroad in Iran. The company has already developed and certified a new 25ton/axle bogie which is more economical to use and also developed new models of freight and passenger cars based on this new bogie technology, which in our view will positively influence the order volume in the mid and long term. In addition, KVBZ is trying to receive back the VAT of delivered railcars from the state, which equals UAH 100 mln. Unfortunately, since April we have not seen any progress of decreasing the

businessneweurope.eu significant Account Receivables, which in total run UAH 360 mln (UZ accounts for UAH 261mln).

We confirm our view that the key signal for all railcar producers will be an increase of transportation volumes based on manufacturers' output growth. We expect that demand for railcars will rise not earlier than 4Q2009 or even in 1H2010 if the situation in the commodity industry will be the same through the end of 2009. We hold a positive view of Kryukiv Railcar and its future prospects. We have put KVBZ's stock under review and will be updating our recommendation soon.

--************************************************************ 83. Lvivska Brovarnia to gain market share Sokrat, Ukraine June 1, 2009

Lvivska Brovarnia, a Ukrainian beer producer affiliated with Carlsberg Group Ukraine (Slavutych), increased its beer output by 43.9% YoY to 4.6 mln dal in January-April, 2009. In 2008, the company increased its beer output by 9% to 16.1 mln dal.

Our view:

According to official statistics, total domestic beer output shrank by 13.6% YoY to 23.3 mln dal in January-March, 2009. The increase in in Lvivska Brovarnia's output means that the company is continuing to gain domestic market share, as it started doing so last year. Lvivska Brovarnia accounts for nearly 20% of Carlsberg group's (Slavutych) total output in Ukraine. We believe, Slavutych's share will increase further this year as smaller local breweries go bankrupt do to the recession.

--************************************************************ 84. New Relationship with Libya BYuT Inform June 2, 2009

Prime Minister Yulia Tymoshenko's two-day visit to Libya marked a new chapter in the relationship between Kyiv and Tripoli and opened up areas for significant cooperation and bi-lateral trade.

On her return from Libya, Ukraine's premier unveiled proposals spanning energy, agricultural, and industrial sectors.

Chief of these is cooperation in the energy field. Plans include the possible construction of an oil refinery in Odessa, capable of refining 10 million tonnes of oil.

Interest was also expressed in the long awaited privatisation of the prized Odessa Portside (chemical) Plant - a privatisation thwarted by President Viktor Yushchenko.

The Libyan General Secretary of the General People's Committee (prime minister) al- Baghdadi Ali al-Mahmudi said, "I confirm my desire to build an oil refinery in Ukraine and will soon send a working group to conduct an economic estimation of the project."

In addition, an agreement was reached for Libya to supply 600,000 tonnes of crude oil to Ukraine's Kremenchug refinery, which has suffered a disruption since Russia cut off supplies over an ownership dispute.

businessneweurope.eu Following her meeting with Mr Mahmudi, a resolute Ms Tymoshenko talked about the need to seek new energy supplies. "Our independence would be greater if we were energyindependent and if we diversified our supply sources," she said.

Peaceful Civilian Nuclear Energy In the nuclear sector, an agreement was signed for cooperation in the development of civilian nuclear power projects. Mr Mahmudi made his intentions clear. "Libya has a number of propositions in the nuclear energy domain from other countries but we are striving to collaborate in this area with our Ukrainian friends," he said.

Feeding the Desert Nation Libya, which is one of the largest countries in Africa, comprises mostly desert, and is dependent on food imports to feed its 5.5 million population.

Valuing highly Ukraine's rich soils, the Libyans expressed their desire to revisit plans first discussed five years ago that would earmark 100,000 hectares for the large scale cultivation of grain.

The Ukrainian delegation, which included Minister for Agriculture Yuriy Melnyk, said that suitable land had been identified along with areas for the construction of large grain silos. Furthermore, it was recommended that a special zone be reserved at a port for the shipment of up to 4 million tonnes of grain.

Returning to Kyiv, Prime Minister Tymoshenko spoke at a meeting of the Cabinet of Ministers about the project abandoned five years ago. "Promises were made and financing was even provided, specific steps taken to work jointly on 100,000 hectares of agricultural land in order to supply grain to the African continent. Yet so many things failed to materialise under the previous administration," she said.

In addition to energy and agriculture, both countries agreed to extend cooperation in aerospace, the protection of information and higher education. And in order to promote mutual trade and investment, both states expressed their commitment to waive visa requirements for each other's citizens.

During her two-day visit, Ms Tymoshenko met with Libya's leader Muammar Gaddafi. She presented Mr Gaddafi with a replica of a sword used by Ukraine's famed Kozak warriors.

Mr Gaddafi described Ms Tymoshenko's visit as "a historic visit on a historic day." This was a reference to 25 May, the annual celebration of Africa Day, which commemorates the 1963 founding of the Organisation of African Unity (OAU). Mr Gaddafi, who has led his country since 1969, was elected Chairman of the 53- member state African Union in February 2009 - the intergovernmental organisation that succeeded the OAU.

--************************************************************ 85. Ukraine could make $5bn from An-148-100 sales in five years bne

businessneweurope.eu June 8, 2009

Ukraine could generate revenues of around $5bn from sales of the An-148-100 passenger jet in the next five years, Prime Minister Yulia Tymoshenko told a Cabinet meeting June 3. "We have orders for this aircraft on the world market, and the first deliveries could be made within five years and could bring in around $5 billion," Tymoshenko said.

--************************************************************ 86. Ukraine grain exports up 6x y/y; state cuts harvest forecast 12-14% Galt &Taggart, Kyiv June 4, 2009

PM Tymoshenko announced Ukrainian 08/09 marketing year grain exports increased 6x y/y to 23mmt, according to Bloomberg. In other news, Agriculture Minister Yuriy Melnyk cut FY09 grain harvest expectations 12-14% to 42-43mmt on the back of poor weather conditions in April.

--************************************************************ 87. Ukraine may cancel 13% import duty on autos, fridges Galt &Taggart, Kyiv June 5, 2009

Economy Minister Bohdan Danylyshyn yesterday said the government plans to cancel the additional 13% import duty on automobiles and refrigerators "in the near future," Interfax reported. The minister said he was aware of Europe's negative reaction to the protectionist measure. A temporary, additional 13% duty for a number of products was approved on February 24 and came into force 10 days later, but cancelled on all the imports except autos and fridges on March 25.

--************************************************************ 88. Ukraine the most corrupt country in the FSU bne June 5, 2009

Ukraine is the most corrupt country in the former Soviet Union, says a survey by leading NGO Transparency International, placing last in a list of eight countries and beaten out even by basket case regimes like Belarus, reports Interfax.

Ukraine scored 4.3 on the scale to 5 of the NGO's new Global Barometer that is designed to measure corruption.

This compares with the other countries scores of: Armenia - 3.1 Azerbaijan - 3.3 Belarus - 3.4 Georgia - 3.1 Moldova - 3.5 Mongolia - 3.7 Russia - 3.9 Ukraine - 4.3

This compares with selected western European country scores of: Austria - 2.8

businessneweurope.eu Bulgaria - 4 Czech Republic - 3.4 Denmark - 2.4 Finland - 2.5 Greece - 3.7 Hungary - 3.8 Iceland - 3.5 Israel - 3.5 Italy - 3.7 Luxemburg - 3.3 The Netherlands - 2.6 Norway - 3.1 Poland - 3.5 Portugal - 3.4 Romania - 4 Spain - 3.2 Switzerland - 2.8 United Kingdom - 3.3 United States - 3.7 Canada - 3.2

Respondents to the survey say corruption is growing fastest in the private sector, which was up by 8% compared to the results of 2003, reports Interfax.

Respondents also believe corruption is prevalent in politics the regulators sector to the benefit of companies.

Political parties are considered to be the most corrupt domestic institution (29%) followed by state officials (26%), parliament (16%), business (14%), courts (9%) and mass media (6%).

More than one out of every 10 respondents had to pay bribes last in the last 12 months. Four out of ten bribe-givers said the bribe was 10% of their annual income, reports the newswire.

The results show that people with low income pay bribes more frequently than the rich ones when they deal with the police, law, land sector and education.

--************************************************************ 89. Ukraine's pipe output recovers 13% m o m in May Troika, Russia Tuesday, June 2, 2009

Domestic steel pipe output recovered 13% m o m to 133,100 tonnes in May but fell 45% y o y in 5m09. Interpipe NTRP had the largest output recovery at 35% m o m, while Dnipropetrovsk Pipe suffered a further decrease of 35% m o m.

Troika's view: The steel pipe output increase in May was the first significant uptick since the collapse in November 2008 (except for the recovery in February after the gas crisis), and is definitively positive news. More generally, though, we believe that a one month recovery after five very poor months is not enough to call a sustainable recovery in demand domestically produced steel pipes. Interpipe NTRP's output rebound is especially remarkable, however, and could be an indication that heavily

businessneweurope.eu hit demand for seamless pipe and casing tube is recovering on the back of strengthening crude prices.

Overall, we view this news as neutral to positive for the domestic pipe sector.

--************************************************************ 90. Ukrainian steel output up 9.3% m o m in May Troika, Russia Tuesday, June 2, 2009

Ukrainian steelmakers increased their output 9.3% m o m to 2.34m tonnes in May, Ukrainian News reports. In 5m09, Ukrainian steel output fell 39% y o y to 11.31m tonnes. Alchevsk Steel showed the largest m o m production growth, up 17% in May, while Zaporizhstal was the only listed steel producer to report a reduction in steel output (down 1.2% m o m). Dniprospetsstal and Mariupol Steel remained the clear outsiders judging by their respective 62% and 49% drops in output in 5m09.

Troika's view: The growth in output achieved by Ukrainian steelmakers in May was the result of marginal recovery in demand due to restocking activity, as well as improving supplies of iron ore products to non integrated domestic steel mills. The latter factor explains the substantial m o m growth in output at Alchevsk Steel and Dzerzhinsky Steel last month.

At the same time, Ukrainian steel production in 2009 has shown no progress on a y o y basis, dropping 39%. We expect no substantial growth in Ukrainian steel output in June.

--************************************************************ 91. Ukravtodor's preparations for Euro-2012 to cost UAH 3 bln Concorde Capital, Ukraine June 5, 2009

Ukravtodor's program for building up Ukraine's roadway and tourist infrastructure for hosting the UEFA European Football Championships in 2012 has a tentative price tag of UAH 3 bln, according to details released yesterday of a government approved document dated May 20. The program foresees the reconstruction of more than 2,850 current buildings and the construction of 250 new objects such as gas stations and parking areas, renovations to 332 objects such as rest areas, tourist centers, campgrounds and leisure facilities) on more than 7 ths km of roads. Of the total amount, UAH 10 mln is planned to come from the state budget, UAH 12 mln from local budgets and the rest - from other sources.

--************************************************************ 92. Zaporizhstal's CapEx funding: EBRD, dilution? Sokrat, Ukraine June 1, 2009

Ukrainian News reported that Zaporizhstal [ZPST UZ, U/R] is proceeding with its large-scale CapEx program. It was revealed that the construction of sinter and oxygen converter shops has a budget of USD 1.3 bln (earlier estimates were USD 1.7-2.0 bln). The company had already paid EUR 40 mln (supposedly, to Siemens- VAI) for the preparation of the project's technical documentation.

businessneweurope.eu It was revealed that on May 29, 2009 Zaporizhstal obtained a permit from a local authority to run its open-hearth furnaces until 2018. In relation to that decision, Zaporizhstal pledged to replace the outdated OHF technology with oxygen converters by 2018.

Alexander Rabtsun, Zaporizhstal's CFO, explained that the permit was insisted on by the EBRD, which will consider financing the project (most likely, with a credit) in the immediate future. The conditions for the possible EBRD financing were not revealed.

Separately, Zaporizhstal is also pursuing pulverized coal injection implementation at its blast furnaces.

Zaporizhstal is the fifth-largest Ukrainian steelmaker (3.94 mln metric tons of crude steel in 2008, which is down 12% YoY). The company is not vertically integrated.

Zaporizhstal shares have been traded on the PFTS since May 20, 2008, after almost two years of being delisted due to a rough 3.13x minority dilution. As late as the beginning of 2009, the Midland Group owned about 48% of the company.

As we reported earlier, the two owners of the Midland Group, Alexander Shnaider and Eduard Shifrin, intend to split their assets, and the fate of Midland's stake in Zaporizhstal had not been decided, at least publicly, as of late December 2008.

Our view:

Because we expect the company's operating income to be minimal at least in the next couple of quarters, and possibly for the next few years, we suspect that the company may conduct a statutory fund increase.

As of the end of 2008, Zaporizhstal's book value amounts to USD 813 mln, which is in principle a substantial sum that may suffice (provided no losses are incurred) for reasonable financing covenants even without a dilution. Nevertheless, fixed assets amounts to USD 899 mln (including USD 184 mln of construction in progress), which means the company has no liquidity attributable to own capital to mobilize for the project. Furthermore, the 2008 EoP debt amounts to USD 318 mln, a significant sum offset partially by USD 142 mln in cash & equivalents. In short, we think that a USD 200-300 mln loan may require an equity contribution of USD 50-100 mln.

Zaporizhstal's statutory fund amounts to USD 86 mln, and a USD 50-100 mln secondary share issuance may dilute the existing shareholders by 1.6-2.2 times.

Besides financing CapEx, a notable reason for the majority owners to conduct an SCI is in order for the Midland Group to consolidate control over the company.

In principle, modernization is badly needed at Zaporizhstal, as well as at the most of Ukraine's steelmakers. Nevertheless, financing CapEx projects with equity and debt, when operating cash flows are insignificant, may be a heavy burden on the shareholders due to the associated dilution. A dilution is not certain as of now, but will be NEGATIVE. It is unfortunate that Zaporizhstal has to pursue modernization during such hard times.

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businessneweurope.eu 93. ZATR modernized winding equipment Sokrat, Ukraine June 5, 2009

According to a press release from Zaporizhtransformator [ZATR UZ, N/R] - the world`s largest manufacturer of transformer equipment - the company has modernized its winding equipment, which includes three vertical and one horizontal winding machines. The value of the modernization project is estimated at EUR 1 mln.

Our view:

This news is POSITIVE for Zaporizhtransformator. Step by step, ZATR is modernizing its equipment and implementing new technology to achive a production level of 100GWt by the end of year. In April ZATR gave the figures for its order book, which totaled USD 370 mln. New production equipment will allow ZATR to provide good quality power transformers to new and existing clients.

The company produces power transformers, power units, and systems for monitoring and controlling electricity grids. It exports to 83 countries around the world. Since 2001, ZATR has been a member of the Energy Standard Group, which includes a particularly large number of machine manufacturing enterprises and is headed by businessman Konstantin Grigorishin.This is done through Cyprus-based companies, including Karatano Ltd., Zadano Ltd. and Azidano Ltd., each of which own 24.99% of the enterprise, and Artamare Ltd., which owns 23.65%.

KAZAKH INVESTMENT --************************************************************ 94. Construction of Kazakhstan-Turkmenistan-Iran railway to start this year bne June 2, 2009

Construction of the Kazakhstan-Turkmenistan-Iran is due to begin in the fourth quarter of 2009, Kazakhstans Minister of Transport and Communications of Kazakhstan, Abelgazi Kusainov, has said. The railway, which will start at Uzen, will give Kazakhstan a rail link with the Gulf States, Kurainov told the Kazakh parliament. 138 kilometres of the 678 kilometre railway will run through Kazakhstan, Kazakhstan Today reports.

--************************************************************ 95. Construction of power plant in Eastern Kazakhstan to support cement consumption Visor Capital June 5, 2009

The construction of a new power plant could commence in 2010. The planned investment may total US$800m. We expect a positive share impact for Steppe Cement, because the construction should support cement demand in the region, positively affecting cement prices.

According to an Interfax report yesterday, the construction of a power plant in the Semei region, Eastern Kazakhstan, by a local company AK Energy is to start in 2010 and is expected to be completed in 2014. Total investments in the construction could

businessneweurope.eu reportedly reach US$800m. Electric and heating capacity of the plant on completion is planned to be 200MWt and 600Gkal/h, respectively.

We believe that construction of such a power plant could increase cement consumption in the region, positively affecting cement prices. We expect a positive share impact for Steppe Cement (STCM LN), which we currently have under formal research coverage, available to our clients.

--************************************************************ 96. GE signs $500m deal with Kazakhstan Temir Zholy bne June 1, 2009

General Electrics unit GE Transportation has signed a 15-year customized service agreement with Kazakhstan Temir Zholy subsidiary JSC Lokomotiv. The deal - worth almost $500m is the largest service agreement GE Transportation has ever signed outside North America.

Under the agreement, GE will work with the Kamkor Repair Corporation to improve the performance of KTZs fleet of 2TE10 locomotives by providing guaranteed locomotive availability and reliability, supply of all materials and components, managed locomotive component inventory and material logistics and shared training.

GE and Kazakhstan Temir Zholy have also agreed to invest jointly in a locomotive plant in Astana, where GE Evolution Series locomotives will be assembled.

The ongoing cooperation between GE and the Republic of Kazakhstan is proof that a strategic partnership can help fuel long-term economic growth, GEs chairman and CEO Jeff Immelt said at the signing ceremony in Astana.

Todays announcements ensure that Kazakhstans critical rail infrastructure remains modern and efficient in the future while expanding GEs global service base. GE not only continues to supply industry-leading products and services, but also helps Kazakhstan create sustainable growth through manufacturing capacity and a world class rail system.

--************************************************************ 97. Kazatomproms former Vice-Presidents testify that Dzhakishev created offshore companies Visor Capital June 2, 2009

The press-service of the Committee on National Security announced yesterday that the former Vice-Presidents of Kazatomprom has reportedly confirmed that Mukhtar Dzhakishev owns several offshore companies used for the transfer of ownership of the Akdala, Inkai, Kharasan, Mynkuduk uranium deposits and Stepnogorsk mining- chemical plant. Negative share impact is expected on publicly traded uranium companies, such as Uranium One and Cameco.

The Head of the press-service of Kazakhstan s Committee on National Security, Kenzhebulat Beknazarov, reportedly announced yesterday that the three former Vice-Presidents of Kazatomprom: Malkhaz Tsotsoriya; Askar Kasabekov; and Dmitry Parfenov gave testimony confirming the creation and ownership by Mukhtar Dzhakishev of several offshore companies, through which he controlled several

businessneweurope.eu uranium deposits in the country. The representative of the Committee also announced that this information was confirmed by the head of the Stepnogorsk mining-chemical plant and Ulbinsk metallurgical plant.

As reported in the Committee s press-release, during the period of 2004-2006, Dzhakishev formed several joint ventures in Kazakhstan with participation of offshore companies including New Power Systems Ltd , UrAsia London Ltd , Jefcott Ltd . Furthermore, the press-release stated that these joint ventures acquired for free the subsurface use right on uranium deposits at Akdala, Inkai, Kharasan-1 and Mynkuduk as well as the Stepnogorsk mining-chemical plant.

The press-release reportedly says that the offshore companies which were created became the owners of more than 200,000 tonnes of uranium reserves, with the value exceeding dozens of billion dollars. The press-release goes on to state that Products, mined from uranium deposits Akdala, Inkai, Mynkuduk and others were sold abroad through offshore companies, created by Dzhakishev, Ablyazov and other affiliated parties. Revenue was distributed among these individuals. Part of the revenues was directed in the form of loans on expansion of the uranium deposits and mines, they owned.

We believe the story is negative for the publicly quoted uranium companies, such as Uranium One (UUU CN) and Cameco (CCJ US) (CCO CN), who are participants of the joint ventures, which operate the deposits mentioned in the press release. We believe that a period of uncertainty continues for these companies and we expect negative share impact. Currently, we have Uranium One under formal research coverage, available to our clients. We do not have Cameco under formal research coverage.

OTHER COUNTRIES --************************************************************ 98. Armen Movsisyan: Project of construction of a new 1200 MW nuclear power unit in Armenia estimated at $4,5 bln Arminfo News Agency June 5, 2009

According to recent assessments, the project of construction of a new 1200 MW nuclear power unit in Armenia is estimated at $4,5 bln, Armenian Minister of Energy and Natural Resources Armen Movsisyan told journalists, Wednesday. 7 or 8 years ago the project was estimated at $800 mln. Since then the world prices for metals used in construction of nuclear power plants have grown, and the demand for NPP has abruptly increased, too.

It is not ruled out that when drawing up the conceptual project of construction of the new nuclear power plant in 2009 its value may grow a little, the minister said. He recalled that last Thursday the Armenian government signed an owner-contractor agreement worth $459,7 mln with the managing company - Worley Parsons consortium. The managing company will give consultations to the Armenian Government and control the construction of the new nuclear power unit.

Earlier the minister reported that the lifespan of the new unit will be 60 years, it will be equipped with passive security systems, the term of refueling will be 18 month at least. For comparison the minister pointed out that the lifespan of the current 400

businessneweurope.eu MW NPP is 30 years, it is equipped with an active security system, and the refueling term is 12 months.

To recall, the tender for selecting the managing company was announced in February 2008. Constrcution of the new nuclear power unit is supposed to start in 2012. It will be launched before 2017. By that time the current nuclear power unit is to be decommissioned.

--************************************************************ 99. Armenia retail turnover volume up by 2,5% in 1Q09 Arminfo June 4, 2009

In January-April 2009, the retail turnover in Armenia totalled 262,2 bln AMD, or $777.3 mln at present prices, having increased by 2,5% as compared with the same period of 2008. The National Statistical Service of Armenia told ArmInfo that in April 2009 if compared with March this indicator has grown by 1,1%.

According to National Statistics Service, the share of shops made up 64,4,2%, or 169 bln AMD ($501 mln), the share of markets of consumption goods - 10,2%, or 16.8 bln AMD ($79.4 mln), the share of stalls - 4,7%, or 12,3 bln AMD ($36.3 mln), the share of markets of farm products - 2,3%, or 6,2 bln AMD ($18.3 mln).

The volume of wholesale trade increased by 4,4% by the end of April 2009 as compared with the same period of 2008, and totalled 119 bln AMD ($353 mln), or 30,1% of the total volume of trade turnover.

In January-April 2009, the total volume of trade turnover made up 396 bln AMD ($1.2 bln) at present prices. The share of car trading (including cars sold by official dealers, spare parts, as well as technical service and repairs) made up 3,6%, or 14.5 bln AMD ($43 mln). This index is by 48,3% lower than that of the same period of 2008.

Food products in Armenia rise in price by 2,4% in May of 2009 Yerevan. Food products in Armenia rose in price by 4,7% in January-May 2009. In May as compared to April, food products rose in price by 2,4%. The National Statistics Service reports in May 2009 if compared with December 2008 vegetable and animal origin oil fell in price by 4.6% and by 1.1% as against April. Fruits rose in price by 45.8% in Jan-May 2009, and only in May - by 29%. Coffee, tea, cocoa rose in price by 0.7% as against April and by 6,3% in Jan-May 2009. The average price of eggs in Armenia rose in price by 2.1% in May. Meat products rose in price by 0,1-0,3% in May if compared with April 2009. Fish products grew in price in Feb-Apr 2009 by 1,3%. Inflation in the consumers market of Armenia in May 2009 totaled 1,6%, and 5,5% in Jan-May 2009.

--************************************************************ 100. Armenia signs $459.7m nuclear power station deal with Worley Parsons International Consortium Arminfo June 4, 2009

Government of Armenia signed a works contract for $459.7m with Worley Parsons International Consortium, Friday. The consortium is selected as a managing company for implementation of the construction programs of the new nuclear power unit in

businessneweurope.eu Armenia on the basis of a tender. Minister of Energy and Natural Resources of Armenia Armen Movsisyan presented the draft agreement. He said that part of the funds nearly $500,000 will be paid to the contractor for consultation from the state budget, the remaining part from the fund to be formed by investors in the construction project.

A. Movsisyan said the new 1200 MW power unit must be built in conformity with international energy safety standards. The exploitation term of the new unit will be 60 years. It will be equipped with passive restraint system. Refueling term will be at least 18 months. For comparison, the minister said, that the exploitation term of the operating 400MW NPP is 30 years. It is equipped with active restraint system and the term of refueling is 12 months.

, the minister said. Worley Parsons offers Armenian Government 25% +1 share as present in order it has levers of management and a share in the project.

The new power unit of the Armenian NPP with capacity of 1000-1200 megawatt is estimated at$5.7-7.2bn in compliance with the feasibility study. The power unit is to be put into exploitation before 2017. The operating power unit will be closed down by that period of time.

--************************************************************ 101. Armenia: Foreign investments reach $186,3 mln in 1Q09 Arminfo June 4, 2009

In the first quarter of 2009, the total volume of foreign investments in the Armenian economy increased by 12,3%, up to $186,3 mln, the National Statistics Service says.

Direct foreign investments (DFI) made up $139.3 mln having grown by 51,8% if compared withe same period of 2008.

The total of 60,2% of the attracted foreign investments ($112.1 mln) and 77,5% of DFI ($107.9 mln) over the first quarter of 2009 were directed to the communication sphere. The total of 21,3% ($39.8 mln) of foreign investments were directed to the sphere of energy, water supply and gas supply, 4,53% ($6.3 mln) of DFI - to the sphere of air transport, 2,92% ($4.1 mln) of DFI -to the sphere of hotels and restaurant services.

By the volume of foreign investments made in the Armenian economy in the first quarter of 2009, France is the leader - $84.2 mln of DFI; Netherlands held the second place - $38,8 mln ($817.5 thsd of which being DFI); then comes Russia - $33.1 mln ($27.9 mln of which being DFI); Argentina - $11.7 mln ($10.8 mln of which being DFI); the USA - $9,4 mln ($7.6 mln of which being DFI). If compared with the same period of 2008 Russian investments decreased by 67,1% (DFI- 49%); Argentinean - by 23,9% (DFI- by 30%), American - by 7,8% (DFI increased by 24,9%). At the same time investments from France have grown by 17 times and from the Netherlands - by 54,3 times (DFI - by 14,4%).

In April 2009 general volume of services have risen by 3% in Armenia

businessneweurope.eu --************************************************************ 102. Armenian investments into construction down 42.4% in 1Q09 Arminfo June 4, 2009

Capital investments in construction for Jan- Apr 2009 totaled 51.5 billion drams or $153 million, which was by 42.2% less as against the same period of 2008. In April versus March, capital investments were down 35.3%.

The National Statistical Service of Armenia reports the share of construction and assembly in total was 41 billon drams or $121 million.

State budget investments in the sphere totaled 3.7 billion drams ($11 million) or 7.2% of total expenditure. Organizations spent 31.5 billion drams ($93.3 million) on capital construction or 61.1% of total investments in the sphere in Armenia. The population spent 12.8 billion drams ($38 million) or 24.9% of total investments in the sphere. World Bank issued 1.9 billion drams credits to the sphere ($5.5 million) or 3,6% of total.

--************************************************************ 103. Azerbaijan: Investment in oil industry to hit record high this year APA-Economics June 4, 2009

State-run oil companies and large non-government crude producers may spend more than $375 billion to develop hydrocarbon assets this year as producers seek to prepare for higher future fuel demand, Ernst & Young said. Oil prices, which lost more than $100 last year from a high in July, have climbed almost 50 percent this year to more than $60 on optimism about an economic recovery.

"Companies are wary of finding themselves in a position where they have to play catch-up on investment when the upturn materializes," Andy Brogan, Ernst & Young's Global Oil and Gas transaction advisory leader, wrote in a report on Monday.

The global financial crisis and recession in the world's largest economies has led to a decline in demand for fuel and electricity. The Organization of Petroleum Exporting Countries, responsible for 40 percent of global crude supply, cut production quotas as demand evaporated and prices fell.

"The majority of national oil companies and the largest oil majors are planning to maintain or increase their level of capital investment through the down cycle," Brogan wrote.

National companies may invest more than $275 billion this year, with spending by so-called supermajors falling to $100 billion from $122 billion last year, according to the report.

Chevron Corp. will be the only one of the majors to increase investment this year, according to a chart in the report. Companies like Exxon Mobil Corp. and Total SA will leave investment unchanged, while Royal Dutch Shell Plc, BP Plc and ConocoPhillips will reduce spending, according to the report.

--************************************************************

businessneweurope.eu 104. Azerbaijan: Ready to Take Part in Gas Reservoir Construction in Georgia GBC June 4, 2009

Georgian Prime Minister Nika Gilauri believes that Georgian-Azerbaijan strategic projects will be implemented successfully, the abc.az news agency reports.

We have discussed issues of strategic importance, Gilauri said after his meeting with Azerbaijani President Ilham Aliyev and Azerbaijani Prime Minister Artur Rasizade as part of the Baku International Energy Exhibition-Conference.

"At the meeting we focused on the construction of the high-voltage electricity transmission line between Georgia and Azerbaijan to export electricity to Turkey", Gilauri said and added that the construction works would start in 2010.

The Azerbaijani party is interested in the construction of a gas reservoir in Georgia, as well as in the participation in the project, Gilauri noted.

"We have discussed financial and technical sides of the project, which is to ensure the region's energy security", Gilauri said.

Moreover, the parties also discussed the Baku-Tbilisi-Kars railway project issues.

At the end of the visit, the parties signed a Georgia-Azerbaijan memorandum on cooperation in the transportation field.

Oil and Gas - Caspian Oil Refining and Oil Chemistry opened in Baku on June 1 and it will end on June 5.

--************************************************************ 105. Azerbaijan: SOCAR & Turcas/Injaz unveils $15 billion investment plan for Petkim APA-Economics June 4, 2009

The SOCAR&Turcas/Injaz alliance (Azerbaijan-Turkey-Saudi Arabia), the owner of a 51% stake in Petkim Holding, the largest petrochemical firm in Turkey, plans to implement a $15 billion investment plan until 2018 to double the plant's annual capacity to 6 million tons.

Kenan Yavuz, Executive Director of Petkim, said the planned investment would mainly go to the establishment of new oil refineries.

"These refineries will be cheaper than refineries planned near Ceyhan due to the existence of port, dam and power network," he added.

According to him, Petkim's annual output capacity will reach at least 10 million tons after new facilities are launched and supplied by Azerbaijan and other countries.

He said Petkim's annual crude demand is 2 million tons currently.

"New refineries will produce aircraft fuel and petroleum products. With new facilities being constructed, Petkim will be Turkey's largest container port in five years. About $150 million will be invested in this port," he added.

businessneweurope.eu According to him, Petkim was not affected by the global financial crisis.

Petkim's market share is expected to reach 40% in several years from 25% currently.

SOCAR&Turcas/Injaz consortium owns a 51% controlling stake in Petkim after privatization in 2007.

--************************************************************ 106. Azerbaijan: SOCAR Investment Plans for 2009 Stand at USD 1.2bln GBC June 4, 2009

The State Oil Company of Azerbaijan (SOCAR) is waiting that the Government of Azerbaijan approves its bookkeeping project in the nearest future, the abc.az news agency reports.

SOCAR submitted the project to the Government in the midst of January 2009.

"Total investment capital in the project stands at USD 1.2bln, which a little lower compared to 2008. Last year the company made investments worth USD 1.4bln", the SOCAR vice president says.

--************************************************************ 107. Azerbaijan will launch new auto plant in August APA-Economics June 4, 2009

A new automobile plant will be launched in Nakhchivan in August.

Musa Abdullayev, Director of existing Nakhchivan Automobile Plant, said , a cooperation agreement was signed with Chinese Lifan Corporation on the sidelines of China-Azerbaijan Busines Forum in Beijing to establish the assemble of cars in Nakhcivan.

According to him, 108 cars will be assembled at the initial stage.

These cars include Lifan-320, Lifan-520 (sedan and hatchback) and Lifan-620 (sedan). Parts will be supplied from China and 108 cars will be assembled by late August, he added.

He said the plant and assembly line is under construction at present.

--************************************************************ 108. Azerbaijan: Sumgait-based petrochemical plants will be reconstructed APA-Economics June 5, 2009

The construction of a modern petrochemical complex in Sumgait will not be delayed due to the global financial crisis, said Suleyman Vezirov, head of Azerkimya state- owned petrochemicals maker

businessneweurope.eu According to him, the concept and feasibility study of the project has already been prepared.

This will be the largest project in this sector in Azerbaijan after oil projects. Most time-consuming time of the project has been completed and we are currently at the stage of design, he noted.

In the first phase of the project it is planned to build 19 petrochemical plants, as well as a plant with a capacity of 1 million tons for the production of fertilizers.

The technical consultant is Frances Technip and feasibility study developer is the United States Nexant.

The complex will be equipped with facilities for cleaning of raw materials, production of ammonia and urea, olefins, polyolefins, and the other petrochemical products, as well as the installation of steam cracking plants.

--************************************************************ 109. Belarus may get second IMF loan in June bne June 2, 2009

Belarus may receive the second tranche of its IMF standby loan in June, IMF Resident Representative in Minsk Natalia Koliadina said in an interview with Prime-Tass.

The state agreed the provisions with the IMF in April and May, clearing the way for the payment of about $400m, Koliadina said.

"We are optimistic about the probability of the review meeting the scheduled date, that is, by the end of June. We have reached agreements with the authorities on virtually all the principal items, save for a few. The authorities did a good job during the mission, and we keep working fruitfully after the mission, therefore I am very optimistic about the likelihood of completing the review in June so that Belarus receives the second tranche shortly afterwards," Koliadina said.

Koliadina said there were a few unresolved issues in the talks, but commented that she thinks they are "not major stumbling blocks."

The IMF is not asking for another one-off devaluation move.

"We do not insist on devaluation in a single move. We suggest that the authorities use the opportunities offered by the current exchange arrangements, which provide a certain flexibility in setting exchange rates," she said reports the newswire.

"The foreign exchange market stabilized in mid-March, and even now that the situation remains tense, there has been a major shift since January 2009. Devaluation expectations were not ungrounded then, because problems tended to accumulate in October, November and December; furthermore, the Russian ruble depreciated significantly against major currencies. New expectations of devaluation are now observed mostly because of momentum," Koliadina said.

However, she said that the IMF wants a review of the exchange rate policy.

businessneweurope.eu "If the government keeps making concessional loans to support the manufacturing sector or housing construction, Belarusian monetary policy will grow weaker and the state budget will be affected, hence inevitable exchange rate shifts. If everything remains the way it was agreed during the talks - a balanced budget and prudent monetary policy (and the National Bank pursues a quite rigid monetary policy) - no adjustments in the exchange rate of the ruble may be required," Koliadina said.

IMF does want the government to make more effort to balance the budget.

"Budget expenditures have been revised downwards, and we believe it is an adequate move under the circumstances. Social spending remains unchanged, while other expenditures may be curtailed at the government's own discretion. When it comes to wages, our program envisaged no changes in the first half of the year, and we have had no discrepancies here," Koliadina said.

--************************************************************ 110. Belarus to award nuclear contract to Atomstroyexport by end 2009 bne June 8, 2009

Belarus is planning to give Russia’s company Atomstroyexport the contract to build a nuclear plant in the country by the end of this year, according to Nikolai Grusha, head of the Belarusian Energy Ministry’s nuclear energy department. Grusha told a press conference that the 2,000 megawatt plant is expected to cost $6.5bn to built, with a further $2.5bn to be invested in the plant’s infrastructure, Prime-Tass reports. The first unit is due to be launched in 2016, with the second to start operation in 2018.

--************************************************************ 111. Belarus' 4M09 trade turnover declines 40% y/y Galt &Taggart, Kyiv June 1, 2009

Belarus' 4M09 merchandise trade turnover declined 40.3% y/y to US$ 13.8bn, the State Statistics Committee reported. Exports were down 48.6% y/y to US$ 5.6bn and imports dropped 32.9% y/y to US$ 8.2bn to post a US$ 2.6bn deficit vs. a US$ 1.4bn in 4M08. Trade turnover with CIS partners was down 43% y/y to US$ 7.7bn, with Russia 42% y/y to US$ 6.6bn and Ukraine 53% y/y to US$ 774.1mn.

--************************************************************ 112. Belarus' retail sales up 5.5% 1Q09 bne June 2, 2009

Retail sales volumes were up 5.5% in the first quarter of this year to BR16.251 trillion, the National Statistics Committee told Prime-Tass Monday.

The government is forecasting retail sales will increase 17% in 2009. Sales by trading companies have been hit, but are also rising, up 6% in the first quarter BR15.407 trillion, while catering companies' sales fell 3% over the same period to BR843.5bn.

Household consumption also rose by 14.1% over the same period to BR1.095m. Food accounted for 40.7% of all consumer expenditures, down 0.4%age points on

businessneweurope.eu the year; services accounted for 24.9%, compared to 23.3% in the first quarter of 2008, of them payments for utilities made up 9.7% of all consumer expenditures, up from 8.9%. Spending on non-foods accounted for 32.4% of the total, down from 33.3%. Alcohol accounted for 2% of the total spending, down from 2.3%, reports Prime Tass.

Below is the breakdown of the population by the average monthly disposable incomes, per capita:

Less than Br250,0007.6% Br250,000-Br500,00043.7% Br500,000-Br750,00028.7% Br750,000-Br1,000,00012.4% Over Br1,000,0007.6% Source: Prime Tass

--************************************************************ 113. Bulgaria invites investors to build tunnel under Balkan mountain range bne June 3, 2009

Bulgaria on Tuesday invited potential investors to show interest in building a north- to-south tunnel under the Balkan mountain range that would become part of EU- defined transport Corridor 9 linking Helsinki with the Aegean Sea, SeeNews reported. The deadline for showing interest in the proposed concession for building and operating the tunnel is July 15, the National Agency Road Infrastructure (NARI) said in a statement.

The idea to build a tunnel under the Shipka Pass, in central Bulgaria, dates back to the late 19th century. In 1994 Bulgaria held an international tender for the construction of a 3.2-kilometre tunnel under the mountain pass. Fourteen companies showed interest in the tender which failed the following year. A feasability study of the project, conducted in 2001, put the estimated cost of the tunnel at $125 million (88 million euro). A tunnel under the Shipka Pass would provide a shortcut between the east-to-west roads located on both sides of the Balkan range in northern and southern Bulgaria that link the capital Sofia with the Black Sea coast and are part of EU-defined transport corridors, and will become the shortest road linking the Baltic Sea with Greece's Aegean port of Alexandroupolis.

--************************************************************ 114. Compromise close over Russian $500m loan to Belarus bne June 4, 2009

A compromise has nearly been reached between Russia and Belarus over the next $500m tranche of a total $2bn loan Moscow was due to pay.

Russia was willing to make the payment, but insisted that it be made in rubles, effectively tying the payment to payments by Belarus for gas imports.

Minsk wanted the money in dollars to shore up its battered finances. Foreign currency reserves stood at $3.75bn on May 1, while external debt has climbed to $14.8bn as of the start of this year, $7.9bn of which is short-term, reports the Moscow Times. At the same time the government is planning $25bn of spending in

businessneweurope.eu the 2009 budget, while the current account deficit is growing after exports have tumbled.

The issue of the loan has caused tempers to flair. Last week Deputy Prime Minister and Finance minister Alexei Kudrin expressed the Kremlin's concern over Bealrus' ability to service the debt, causing an outcry in Minsk.

Belarusian President Alexander Lukashenko, who said Belarus would not "beg" for the tranche and called for re-orienting the country's foreign policy away from Russia towards other countries.

However, apart from Lukashenko's histrionics, experts believe that the row will blow over and the Kremlin will continue to prop Belarus up.

--************************************************************ 115. Construction of third power transmission line Iran-Armenia to be launched in summer of 2009 Arminfo News Agency June 5, 2009

Construction of the third power transmission line Iran-Armenia will be launched in summer of 2009, Minister of Energy and Natural Resources Armen Movsisyan told ArmInfo.

At present, he said, the construction project is undergoing an examination. he said.

The program costs nearly 75 million euro, including 64 million euro credit from Iran and 11.3 million euro financing by the Government of Armenia. The construction is to over in 2-3 years. By preliminary data, the power line will extend 400 km: 300 km in the territory of Armenia and 100 km in the territory of Iran. The designed capacity is 400 MW and voltage is 220kV in Armenia and 230kV in Iran. At present two power lines by 200MW each connect Armenia and Iran. After the construction of the third line, the designed capacity between the states will increase to 800MW.

--************************************************************ 116. Georgia: Mercedes Benz Representation in Georgia Sells One Motorcar in May GBC June 5, 2009

The sales of Aka, an official distributor of Mercedes Benz motorcars in Georgia, have been nearly reduced to zero for the last three months. The company hardly manages to sell only one motorcar a month. In May the company sold one motorcar by an interior installment payment scheme, Lasha Lomidze, the commercial director of Aka, told GBC.

It is difficult to say whether the situation on the market is improved, because no one expected that the sales fall would last for three months.

The Head Office has introduced 7-20% discount rates to stimulate the sales, but the move has occurred insufficient amid the crisis. At the same time, Lomidze rules out the further reduction of prices.

Before the August 2008 war Aka used to sell 10-15 motorcars a month and sold total of 180 motorcars, including trucks, in 2008. Last year Aka received a major order

businessneweurope.eu from Magti, a cell communications company. The latter acquired 52 units of C-class motorcars of Mercedes Benz.

The price of A-class motorcars at Aka starts from 17 000 EUR.

Aka launched operation in Georgia in 1991, but the representation officially opened in 1996.

--************************************************************ 117. Georgia: State Economics May Fall by 1.5% in 2009 amid Street Rallies, says Government GBC June 1, 2009

The Government of Georgia has published a press-release concerning the current economic situation in the country.

The full version of the document:

"The 2008 economic growth of Georgia made up 2.1%. The global economic crisis affected Georgia lesser compared to other countries thanks to the last years' reforms. Namely, the financial crisis hasn't penetrated the country and even no financial institution has faced problems, the unemployment index hasn't increased and the inflation rate has fallen.

Naturally, no country in the world is able to wholly avoid the financial crisis. The Government of Georgia expected the crisis would affect Georgia too. According to the Q1 2009 indicators, the 2009 economic growth would be 1%. Under the forecast, the global economic crisis and the domestic factors would result in the considerable fall of the economics in Q1 2009. The unimportant fall was expected in Q2 too, but the investment inflows should increase in Q2 through the fiscal stimulation and the last years' reforms. As a result, the current year was to end in a little, but positive rise after the growth in Q3 and Q4. The International Monetary Fund (IMF) and other international financial institutions completely agreed with these forecasts.

Unfortunately, H1 2009 has passed inefficiently because of the political crisis in our country. The current situation has affected the confidence of both investors and domestic businessmen in Georgia. The exports and imports have decreased, the turnover indexes have fallen and a lot of investors have suspended investment plans in Georgia. Our plans for drawing investments and valuably recovering the economics in Q2 2009 have failed. The implementation of these plans has been rescheduled for Q3 and Q4.

The state economics in 2009 may decrease by 1.5% as a result of the street rallies. This forecast will affect all other parameters too, especially, tax incomes, which will be lower compared to the planned parameters.

Despite this, the Government of Georgia has provided intense work with donor organizations for last months. As a result, we will be able to increase the 2009 state budget thanks to the unprecedented support of donor organizations and the west to additionally stimulate the economics compared to the earlier-planned parameters. The state budget will rise at the expense of increased non-tax incomes and various international aids. Moreover, tenders announced as part of the investment projects financed by donor organizations and the state budget have been already completed

businessneweurope.eu and construction works are underway. Starting June these works will give supplementary stimulus to the economics. The tendency will intensify in Q4. As a result, the country will be capable for overcoming the current economic difficulties if the political processes are stabilized".

--************************************************************ 118. Georgian Government to Introduce Economics Stimulation Package Next Week GBC June 2, 2009

The Government of Georgia has practically completed the development of the economics stimulation package. The introduction will be expectedly held next week.

The Government has already agreed all components of the stimulation package, Prime Minister Nikoloz Gilauri told GBC.

The economics stimulation package calls for the development of banks stimulation mechanisms to increase their capacity for issuing credits.

The government is also working at the correction of the 2009 state budget parameters to increase the supply.

Moreover, the expenditures for motorway construction, water supply system and other infrastructure projects will increase by 50m GEL.

--************************************************************ 119. IMF to release next $400m tranche for Belarus soon bne June 3, 2009

The IMF will release the next $400m of Belarus' standby facility soon, Belarusian Prime Minister Sergei Sidorsky said reports Prime Tass.

The IMF has praised the republics reform efforts and is please with the progress, Sidorsky said, claiming that Belarus is now, "more efficient than Russia."

"IMF experts and the Belarusian government monitor the situation in Belarus on a monthly basis. Their reports were excellent, and we believe we will receive the next $400m tranche in no time," Sidorsky said.

"Would IMF lend to an inefficient economy? I guess not," Sidorsky said in a swipe at Russian Finance Minister Alexei Kudrin, who caused a small storm in the relations after questioning the health of the Bealrusian economy and its ability to repay loans last week.

--************************************************************ 120. Investment program of Electric Networks of Armenia CJSC for 2009-2011 costs 65.547 billion drams Arminfo News Agency June 5, 2009

Total cost of the investment program of Armenian Electric Networks (ENA) CJSC for 2009-2011 is 65.547 billion drams, says Yuri Gavrilenko, Head of the Department for Investments.

businessneweurope.eu Thus 34.81 billion drams will be invested in 2009, 16.31 billion drams in 2010, and 14.42 billion drams in 2011. The program provides for reconstruction, construction and acquisition of power distribution networks (26.9, 9.32 and 7.68 billion drams investments in 2009,2010 and 2011 respectively); connection of new users (6.9 billion drams - by 2.3 billion drams yearly); modernization of power metering system (10.35 billion drams - 3.51, 3.53 and 3.30 billion drams in 2009, 2010 and 2011 respectively); acquisition of vehicles and mechanisms (983.8 million drams - 627.4, 182.8 173.6 million drams in 2009,2010 and 2011); repair of administrative and industrial facilities (2.45 billion drams - 850 million drams in 2009 and by 800 million drams in 2010 and 2011); acquisition of computer hardware, metering devices, and Modus software (963.7 million drams - 623.2, 172.5 and 168 million in 2009, 2010 and 2011, respectively).

--************************************************************ 121. Investments in Romanian economy fall 0.3% on mo in Q1 bne June 4, 2009

Investments in the Romanian economy fell by 0.3% on the year to RON12.77bn (EUR3bn) in the first quarter of 2009, data showed. Investments in industry accounted for 40.8% of the total in the first quarter, followed by investments in trade and services with a 36.2% share, the INS said in a statement. Investments in agriculture and constructions accounted for 7.6% and 6.8% respectively.

--************************************************************ 122. Iran to fully finance Tebriz-Eraskh oil pipeline at $250 mln Arminfo News Agency June 5, 2009

Iran will fully finance Tebriz-Eraskh oil pipeline at $250 mln with a condition that Armenia will later repay its participation, Armenian Energy and Natural Resources Minister Armen Movsisyan told journalists Wednesday.

He also added that such an arrangement has been recently made as at present Armenia suffers financial problems and cannot pay its share in the project, in which both countries are taking part on a parity basis. The minister said that in the near future the working group of Iranian specialists will arrive in Yerevan to discuss final option of the technical and economic assessment of the project. , - the minister said.

--************************************************************ 123. Kudrin causes a small storm with remarks on Belarus stability bne June 2, 2009

Russia's Deputy Prime Minister and Finance Minister Alexei Kudrin had to back peddle on Monday, after causing a small storm by saying he was not sure Belarus' economy was stable.

"We don't understand it, that is, the Belarusian government turned out to be unprepared both for conditions of an economic nature and criticism. During [President Alexander] Lukashenko's appearances there was one item: if those who want to help Belarus and desire a balanced and stable economy are equated with the opposition, then I don't understand what it is Belarus needs," Kudrin said.

businessneweurope.eu Kudrin's comments came in the context of talks over a second $500m tranche of over a $1bn Russia has promised to lend Minsk. Russia is insisting the loan be made in rubles, but Minsk is asking for hard currency.

Kudrin went on to say that the loan was dependant on the health of the Belarusian economy.

"At some stage we ought to see [the Belarusian] dependence [on loans] lessening. And if we see that this has something to do with the measures the Belarusian government is due to take then the opportunity for the $500 million tranche being disbursed remains," Kudrin told a briefing.

--************************************************************ 124. Lasha Zhvania: Baku-Tbilisi-Kars will go on stream in 2012 APA-Economics June 5, 2009

The construction of the Baku-Tbilisi-Kars Railway has continued to progress on schedule despite several delays and technical problems, Georgian Minister of Economic Development Lasha Zhvania told APA-Economics correspondent in Istanbul.

I think the progress of this project is successful and satisfies the transport ministers of the participating countries. There is no specific decision about the next meeting, but the parties may hold a meeting at different levels if need be, he added.

According to him, a tender will be announced for the construction of Georgian section and a tunnel in the nearest future.

The rehabilitation of existing rail line is progressing on schedule. In my view, Baku- Tbilisi-Kars Railway will go on stream in 2012, he noted.

The three countries agreed in February 2007 to build a rail line linking the Azerbaijani capital Baku, the Georgian capital Tbilisi and the Turkish city of Kars. Construction work commenced on November 21, 2007.

As per the agreement, Azerbaijan undertook to extend a $200mln loan to Georgias Marabda-Kartsakhi Railroad LLC for 25 years at 1% interest rate annually. The loan will be spent on construction of a 29km long railroad in Georgia, a ST-2 wheel base in Turkish-Georgian border and rehabilitation of old railway.

The project costs more than $600 million. Construction of railroads is slated for operation in late 2011.

A 76km long railway will be laid in Turkey as part of Baku-Tbilisi-Kars Rail Link.

--************************************************************ 125. Long-term growth prospects in Turkey remain sound, says East Capital Marcus Svedberg, Chief Economist at East Capital June 3, 2009

Turkey is probably the country in Europe with the largest future potential. It enjoys a young and dynamic workforce, a strategic geopolitical situation between Europe, Asia

businessneweurope.eu and the Middle East and is also the most important energy bridge to Europe. It is symptomatic that the Obama administration seems to have realised those strengths after only four months in office whereas the European Union, and some of the largest member states in particular, continues to hesitate about Turkey after more than 40 years.

Turkey first applied for membership in 1963 and EU accession is not only an important goal in itself for Turkey, it could also serve as an effective external reform driver, helping Turkey to fully realise its potential sooner rather than later. But in order to do so, the EU must keep the prospect of membership real and genuine. A privileged partnership will not do the trick.

The Turkish economy has been hit hard by the global crisis but should be able to bounce back relatively quickly. It is a relatively underpenetrated economy and Turks are quite unleveraged, which should be a boon these days. The banking sector has learned from previous crises and is surprisingly resilient with Capital Adequacy Ratio at 18%. Moreover, the country is not very dependent on the weakening demand in Europe with a diversified and relatively low export dependency; export makes up less than 20% of GDP and is spread on a large number of countries in Europe, Middle East and North Africa.

--************************************************************ 126. Raiffeisen Bank and EBRD co-operate to boost energy savings in Hungary Press release June 4, 2009

. €25 million credit line to improve energy efficiency in municipal infrastructure . Proceeds of credit line to be used for on-lending to municipalities and municipal companies in Hungary . Raiffeisen Bank is Hungary's second-largest provider of municipal finance

Raiffeisen Bank Zrt. (Hungary) will receive a €25 million credit line from the European Bank for Reconstruction and Development (EBRD) to finance energy saving investments in the Hungarian municipal sector.

The proceeds of the credit line will be used for on-lending to Hungarian municipalities, municipal companies, as well as energy saving companies that provide services to municipalities in order to support the upgrade of the energy efficiency of municipal infrastructure. Supported infrastructure improvements will include the rehabilitation of heating and power distribution systems, the replacement of outdated boilers and the improvement of buildings' thermal insulation. This facility will help Hungarian municipalities reduce energy consumption by up to 150 GWh per year, comparable to the amount of electricity consumed in a year by the households of Gyor, Hungary's sixth-largest town with a population of 128,000.

General awareness of the benefits of energy efficiency has increased in recent years, but local municipalities still rely almost exclusively on government funds and EU grants for modernizing their infrastructure. With this EBRD support, Raiffeisen Bank will be able to increase the availability of funding for energy conservation projects for municipalities and energy saving companies in Hungary, thus helping to improve this sector's energy efficiency.

businessneweurope.eu A fully-owned subsidiary of Raiffeisen International Bank-Holding AG, Raiffeisen Bank is Hungary's fifth-largest bank by assets and the country's second-largest provider of municipal finance.

The credit line is part of a European Union-EBRD programme to promote medium and long-term funding for energy efficiency improvements in the municipal sector through commercial partner banks.

To enhance the effectiveness of investments, the EBRD credit line is complemented by grant funds from the European Commission, which will be used to help the municipalities assess energy saving potential and financial feasibility of infrastructure rehabilitation projects, as well as to provide investment incentives to borrowers who successfully implement projects. The incentives will be based on estimated level of energy savings and will amount to up to 20 per cent of the sub-loans.

Since the beginning of its operation in Hungary, the EBRD has invested over €1.9 billion across more than 100 projects.

--************************************************************ 127. SOCAR launches development of Umid field after 20-year break APA-Economics June 2, 2009

State Oil Company of Azerbaijan (SOCAR) has launched development of Umid Field after a 20 year break.

SOCAR said construction work on the Umid-1 platform has already been completed.

Drilling rig, power station, heliport, and 2 fully-equipped quarters facilities are deployed there. The platform is ready for operation, said the company.

The first exploration well of 6500 meters will be dripped from this month.

--************************************************************ 128. SOCAR sets up filling station chain in Azerbaijan APA-Economics June 4, 2009

State Oil Company of Azerbaijan (SOCAR) will set up a chain of petrol stations in the country this year, said Rovnag Abdullayev, President of SOCAR.

According to him, the government has given approval to the opening of filling station chain branded SOCAR.

The company initially plans to launch 26 filling stations by this yearend, he added.

--************************************************************ 129. South Koreas KOGAS to invest $22m in Uzbekistan bne June 1, 2009

KOGAS is planning to invest $22 million in geological exploration in Uzbekistan by 2011.

businessneweurope.eu The South Korean company signed an agreement last year with Uzbek state oil and gas company Uzbekneftegaz to explore the hydrocarbon-rich Ustyurt region.

Uzbekneftegaz is also working with a consortium of South Korean companies including KOGAS, Daesan Petrochemical., LG International, SK Gas Co. and STX Energy to build a $2.4bn gas-chemical complex in Ustyurt, Interfax reports.

The complex is expected to have annual processing capacity of 400,000 tonnes of polyethylene and 100,000 tonnes of polypropylene.

--************************************************************ 130. Turkcell guaranteed $64m for Belarus unit's investment Fortis June 5, 2009

Turkcell (TCELL) announced that it guaranteed US$64mn under a supply contract, signed for products and services which would be received from suppliers ZTE and Huawei within the context of substructure investment of its subsidiary Belarus Telecommunications Network Closed Joint Stock Company (BeST) which operates in Belarus. On Thursday, TCELL shares overperformed the ISE-100 Index by 1.3%.

--************************************************************ 131. Turkey may invest in Tajik HEP plants bne June 1, 2009

Turkey is interested in investing in the construction of medium and large hydroelectric power plants in Tajikistan, Turkeys President Abdullah Gul said during a visit to Dushanbe.

"Turkey is ready to take part in projects to build small, mid-sized, and large hydroelectric plants in Tajikistan," Gul told a press conference after talks with his Tajik counterpart Emomali Rakhmon.

"We back Tajikistan's position on the distribution of water power resources in the region," Gul added.

Gul did not say which plants Turkey is interested in funding. However, Tajikistan is known to be seeking investors for the 3,600 MWt Rogun Hydroelectric Power Plant.

The plant is controversial, since Uzbekistan is concerned it will consume much of the water it currently uses to irrigate crops.

--************************************************************ 132. Turkey unveils a new incentive package Ata Invest June 4, 2009

PM Erdogan unveiled a new incentive package to boost employment, kick start new investments, increase competitiveness and to minimize regional differences. The burden of the new package on the budget is estimated at TL 2.5 bn. Package is divided into three categories: Large Project Investments, Regional Investments and Sectoral Investments, along with tax incentives and incentives to promote employment.

businessneweurope.eu Regional incentives

For Regional Investments, Turkey is divided into four regions and more incentives will be applied to disadvantaged regions. The most disadvantaged region covering Southeast and Eastern part of Turkey will receive more incentives. Investments in agriculture and textiles will be supported in the southeastern provinces while electronics and automotive investments will be dominating in the west, due mainly to the differences in labor costs and education levels.

Tax incentives

Incentive package divides Turkey into regional categories. Each region is associated with sectoral incentives. Incentives include corporate tax reductions for those who invest in the disadvantaged regions. Corporate taxes in region 1 will be reduced to 10%, in region two to 8%, in region three 4%. Corporate tax exemptions will go as low as 2% for those who invest in the most disadvantaged region covering Southeast and eastern part of the country.

Package also includes corporate exemptions from social security premium payments on employees on a regional basis in an attempt to lower labor cost. Until 2010, Treasury will pay the corporate tax premium on employees if a corporate moves from regions 1 and two to regions three and four for five years while the corporate taxes will be reduced to 5%. The tax breaks to be extended under the Large Project Investments category will be applied to those greater than 250 million lira.

Labor package

Temporary jobs will be created for 6 months in an effort to support employment. In this framework, 120,000 jobs will be created through community employment projects including maintenance jobs in schools and health institutions. A new 200,000 jobs will be created through vocational education while the 10,000 will be supported to establish their own businesses. In addition, 100,000 high school and college graduates will be employed as interns. This package will be effective for 6 months and social security premiums will also be provided by the government.

At a related development, the World Bank will lend Turkey US$ 6.5 bn loan within the "Country Partnership Strategy," program. Part of the loan will be used to expand employment opportunities through the new employment package. It is estimated by the Bank that Turkey has the capacity to create more than 1.5 million new jobs through 2011. New employment package is expected to involve registering the off - the- book labor force to help improve sustainable growth potential. Currently, only 20% of the working-age population pays personal income taxes and contributes to social security payments. World Bank expects to double those figures by taking some basic measures. The reform package will aim to increase employment, maintain macroeconomic stability, improve business environment, and provide flexibility in the labor market.

Sectoral support and SMEs

12 sectors to be supported are the following; road motor vehicles, textile & apparel, leather, mining, medical instruments, medicine, electronic air vehicles, machinery manufacturing, railroad, harbor, transit pipeline, and chemicals.

businessneweurope.eu Credit support for SMEs will be applied to those with annual revenues less than TL 25 mn, employing up to 250 people, and having no NPLs dating before June 30, 2008. This system will be effective for two years. 65% of the credit will be under Treasury's guarantee, while the remaining 35% will belong to banks. Initially, TL 1 bn will be transferred to the credit guarantee fund and TL 10 bn credit is expected to be guaranteed.

Remarks

In a broad sense, the incentive package addresses the structural problems in the economy and aims to help correct external imbalances through support in key sectors including chemicals, refined petroleum products and manufacturing motored vehicles, aircraft manufacturing, electronics, medicine and medical equipment and likely to help reduce Turkey's reliance on imports while improving competitiveness and value added in international markets. However, the program needs to be analyzed in detail for further remarks. A detailed analysis will be provided later.

--************************************************************ 133. Turkmenistan to announce East-West pipeline tender result June 29 bne June 2, 2009

The Turkmen government will announce the winner of an international tender to build the countrys East-West gas pipeline on June 29, Kommersant reports. Construction of the pipeline was opened to international tender after relations between Ashgabat and Moscow soured earlier this year. Over 70 companies from Europe, Russia and China are understood to have submitted bids.

--************************************************************ 134. UK-listed BLD to build resort at Bulgarian Black Sea bne June 2, 2009

London-listed Bulgarian Land Development (BLD) said on Monday it will launch the construction of a holiday complex at the Bulgarian Black Sea coast, as it has received sufficient initial deposits from purchasers, SeeNews reported.

The company has already signed 41 contracts worth 2.5 million euro ($3.55 million) for the complex, called July Morning, BLD said in a statement filed with the Alternative Investment Market (AIM) operated by the London Stock Exchange.

July Morning will be completed in two phases and will spread over 95,000 sq m of land. The first phase of the construction will comprise a single block of approximately 3,600 square metres including 55 apartments and is expected to be completed in 2010.

--************************************************************ 135. Unigrain Georgia launches Poti grain terminal Galt & Taggart June 2, 2009

Unigrain Georgian Group announced it launched a new 300,000t annual capacity grain terminal complex in the Black Sea port of Poti that will process grain and

businessneweurope.eu oilseed shipments. Unigrain Georgian invested US$ 5mn in the terminal that will serve as a hub for shipments to Trans-Caucasian countries and Kazakhstan.

--************************************************************ 136. Uzbekistans Kyzylkumcement delays construction of new line Visor Capital June 5, 2009

The largest Uzbek cement producer, Kyzylkumcement, has delayed construction of a new production line until 2014-15. We expect that such a delay could negatively impact cement supply in the region, positively affecting cement prices. We do not expect any immediate share impact for Steppe Cement.

Following difficult market conditions, Kyzylkumcement, the largest cement producer in Uzbekistan, announced a delay in construction of a new production line until 2014-15. Previously, the Company planned to invest US$150m in the construction of a new line with a capacity of 1mta. In 2009-10, the Company announced that it is to spend about US$30m for the modernisation of existing cement grinding mills. Such an investments would have enabled Kyzylkumcement to increase its existing capacity of 3.1mta by 0.5mta.

As the delay in construction of the new line is likely to lower cement supply in the Central Asian region in the medium term, we expect a positive effect on cement prices in the regon. However, we do not expect any immediate share impact for Steppe Cement (STCM LN). We currently have Steppe Cement under formal research coverage, available to our clients.

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