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The nominal amount of GDP in the first six months of 209 You can order analytical surveys and economic was RUR18.221tn, according to preliminary estimates, out analyses according to your fields of interest of which GDP in the second quarter equalled RUR9.383tn. and needs by contacting us at [email protected] According to the Economic Development Ministry’s preliminary estimates, Russian GDP dropped by 10.1% in the first half of the year. However, growth of industrial production, adjusted to seasonal and calendar factors, was 0.8%, said Min- ister Elvira Nabiullina.

The GDP dynamics slowed down in the first six months of the year due to a decline both in exports and in domestic demand – a decrease of investment and a drastic slowdown of household consumption.

2. Industry and Manufacturing

The industrial production index in June 2009 was 87.9% ECONOMIC SURVEY against the same period of last year. The index for the first REVIEW OF THE six months was 85.2%. Industrial production indices, % against the average monthly result of 2006 RUSSIAN 125 120 115 ECONOMY 110 105 100 IN 1H09 95 90 85 80 I II III IV V VI VII VIII IX X XI XII I II IIIIV V VIVII VIII IX X XI XII I II III IV V VI 2007 2008 2009 aggregate amount trend

According to preliminary estimates of the Economic Develop- The production index in mining was 96.0% in June and ment Ministry, Russia’s GDP dropped by 10.1% in the first six 96.6% in the first six months against respective periods of months of 2009. However, growth of industrial production, last year. with adjusted seasonal and calendar factors, was 0.8%. The manufacturing index was 84.0% and 78.7% respectively. 1. GDP The index in the production and distribution of electricity, Dynamics of Russian GDP in 2006-2009, in market prices, bn roubles gas and water was 92.1% and 94.4% respectively. 14000 Retail turnover in June 2009 was RUR1.1778tn, which is 11563 12000 6.5% less than in June 2008 in mass of commodities. In the 10741 first six months of 2009, it fell 3.0% to RUR6.800tn. 9739 10000 9383 8914 9217 8731 Construction work completed in June 2009 amounted to 8203 8000 RUR348.0bn, or 80.4% against a year before. In the first half 7425 7306,7 6788 6992,9 of 2009, it was RUR1.5588tn, or 80.7%. 6343 5722 6000 The number of new flats built by organisations of all forms of ownership was 55,900 in June and 233,900 in January-June. 4000

2000 3. Consumer Prices Index and Inflation

0 The consumer prices index in June 2009 was 100.6%, with 1st quarter 2nd quarter 3rd quarte 4th quarter prices of food products growing and services 0.5%, and of non-food products 0.8%. 2006 2007 2008 2009 3

In Moscow, the consumer prices index was 100.8% in June The population’s real disposable monetary income, % against the average monthly result of 2006 and 108.0% since the beginning of the year. In St Peters- 170 burg, it was 100.5% and 107.9%, respectively. 160 150 140 The average monthly cost of a fixed set of consumer goods 130 and services for interregional comparison of the popula- 120 110 tion’s purchasing power was RUR7,626.30 at the end of 100 June, up 0.7% over the month and 9.4% since the beginning 90 80 of the year. 78 I II III IV V VI VII VIII IX X XI XII I II IIIIVVVIVII VIII IX X XI XII I II III IVVVI 2007 2008 2009 Its cost in Moscow grew 0.7% and 8.3% respectively, to actual data RUR10,666. In St Petersburg, it was RUR8,071.90, an in- excluding seasonal factors crease of 0.4% and 6.4%. trend

Food prices grew 0.5% in June 2009 compared to the previ- 2.1mn people were registered with government employment ous month (in June 2008, they increased 1.1%). services, out of which 1.8mn people received unemploy- ment benefits. The average monthly cost of a minimum food basket in Rus- sia was RUR2,270.60 at the end of June, up 1.4% from the The average gross monthly payroll in June 2009 was end of May and 7.3% from the beginning of the year. RUR18,907, according to preliminary estimates, which is an increase of 6.1% compared to June 2008. The cost of the basket in Moscow grew 1.6% and 9.9% respectively to RUR2,571.30. In St Petersburg, it was up 1.3% Dynamics of gross payroll in 2007-2009 roubles and 6.1% to RUR2,450.80. 25000

Prices of food products rose 0.8% in June 2009 (compared 20000 to an increase of 0.7% in June 2008). Prices and tariffs of 15000 services were up 0.5% in June 2009 (up 1.1% in June 2008). 10000 The index of industrial producer prices in June 2009 was 5000 102.2%, according to preliminary estimates (110% since the beginning of the year). 0 July May April June March August January October February November December 4. Living Standards and Population’s Income September Indices of consumer prices and industrial producer prices, 2007 2008 2009 % against December 2006 106 104 The average gross monthly payroll in the first six months of 102 2009 was RUR17,875. 100 98 96 The aggregate wages arrears in the monitored spheres of 94 economic operation as of July 1, 2009, was RUR7.194bn, 92 down 18.0% from June 1, 2009. 90 XII II III IV V VI VIIVIII IX X XI XII I II IIIIVVVIVIIVIII IX X XI XII I II III IVVVI 2006 2007 2008 2009 The amount of delayed wages on July 1 equalled about 2% consumer prices of the monthly wage fund for employees in the monitored industrial producer prices economic sectors. In education, healthcare, social services and culture, it was 0.1%. The real disposable monetary income (income excluding obligatory payments and adjusted to the consumer prices Delays caused by untimely receipt of funds from all levels of index) dropped by 1% in June 2009 against June 2008, ac- budgets amounted to RUR270mn, or 3.7% of the total delays. cording to preliminary estimates. In the first half of 2009, it remained the same as a year before. 5. Foreign Trade The economically active population numbered 76.1mn people in June 2009, or over 53% of the country’s entire popula- Russia’s foreign trade turnover in January-May 2009 fell by tion. 44.5% against the same period of last year to $168.9bn.

At the end of June, 6.3mn people, or 8.3% of the workforce, Exports plunged 47.3% to $102.6bn and imports 39.4% to were classified as unemployed (in compliance with the $66.3bn. Russia’s foreign trade surplus plummeted 56.5% methodology of the World Labour Organisation). A total of to $36.3bn from $82.8bn in January-May 2008. 4

According to preliminary estimates of the Economic Develop- $40.7bn. The biggest contribution to capital inflow in the sec- ment Ministry, Russia’s foreign trade surplus in the first six ond quarter was made by the non-financial sector ($14.2bn). months of the year was $43.3bn against $104.8bn in the In the first quarter, companies of this sector exported $28bn. same period of 2008, said Andrei Klepach, deputy economic development minister. Exports equalled $125.5bn (com- At the same time, capital exports by banks grew by $200mn pared to $240bn a year before) and imports $82.2bn to $7bn in the second quarter. In the first quarter, it ($135.2bn). equalled $6.8bn.

Russia’s foreign trade in 1st quarter 2007-2009 The Finance Ministry projects net capital outflow from Rus- (balance of payment methodology), bn USD sia this year at about $83bn. At the same time, the Central 303,1 300 Bank expects it to be around $70bn, while the World Bank 250 forecasts that Russia will lose some $170bn. 200 205,5114,5 193,0 168,9 150 Investment in fixed assets in June 2009 dropped by 1.5% 128,6 102,6 110,1 against May, with consideration of seasonal and calendar fac- 100 82,8 77,0 66,3 51,6 tors. Compared to June 2008, investment decreased by 20.1%. 50 36,3 0 Allocations for construction and other projects under the Trade turnover Exports Imports Surplus 2007 2008 2009 (estimates) non-programme part of the Federal Target Investment Pro- gramme will amount to RUR208.97bn this year, which is 32.1% of the programme’s total size. Out of this sum, state Russia’s trade with its main foreign trade partners outside defence order accounts for RUR42.01bn. the CIS fell by 45.6% in January-May 2009 and equalled $135.305bn, with trade with the EU falling by 49.4% to Financing of budget appropriations for the programme’s im- $79.98bn and with APEC by 41% to $33.381bn. plementation (excluding the defence order) in January-May 2009 was RUR162.19bn, or 30.4% of the year’s limit. (In Trade with the CIS decreased by 46.9% to $23.302bn, with April, financing of budget appropriations was 27.6%.) members of the Eurasec by 40.4% to $14.601bn, and with members of the Common Economic Space by 48.8% to Financing of the annual limit of government capital invest- $20.071bn. ment in production facilities was significantly higher than for construction projects for state requirements in general. Exports of fuel and energy dropped by 51.1% in January-May Within a special package, appropriations were financed to 2009 to $65.175bn, with exports of oil falling by 53.5% to their average amount. At the same time, financing of the so- $32.025bn and of gas by 52.5% to $14.067bn. cial sector was significantly below average.

Exports of cars, equipment and vehicles fell by 41.3% to $5.314bn, of chemical products by 41.2% to $6.831bn, of Financing and spending of funds of the Federal Target In- timber products by 38% to $3.187bn. Exports of food prod- vestment Programme in January-May 2009 ucts and agricultural commodities increased 49.3% to $3.839bn (with grain imports growing 250% to $1.369bn). Financing from Use of funds from all government capital sources of financing, Exports of metals and metal products plunged 45.9% in Jan- investment, bn roubles bn roubles uary-May to $12.401bn, with exports of ferrous metals and their products down 44% to $7.562bn and of non-ferrous Industry 84.18 24.29 metals 48.6% to $4.473bn. Social sector 49.15 22.63

Imports of cars, equipments and vehicles fell by 53.5% to Special package 28.87 18.21 $24.851bn in the reporting period, of food products and agricultural commodities by 18.7% to $10.811bn, and of Overall, state commissioners used RUR65.14bn of govern- chemical products by 30.3% to $9.552bn. ment capital investment in January-May 2009, which is 11% of the year’s limit for construction.

6. Investment 7. International Reserves; Stabilisation, Reserve Net capital outflow from Russia in the first six months of and National Wealth Funds 2009 amounted to $27.6bn, according to a report by the Russian Central Bank. Russia’s gold and foreign currency reserves equalled $427.08bn at the beginning of 2009, but stood at The Bank estimates net capital inflow in the country in the sec- $412.590bn on July 1, 2009, down $14.49bn, or 3.4%, in ond quarter of 2009 at $7.2bn. Inflow was registered for the the first half of the year. Compared to the 1st quarter, the re- first time since the second quarter of 2008, when it equalled serves grew $28.71bn, or 7.4%. 5

575 Debt to international financial organisations was $4.136bn. 550 525 500 475 Debt to countries outside the Paris Club equalled $1.867bn, and 450 425 to countries of the former Council for Mutual Economic Assis- 400 375 tance $1.339bn. Commercial debt was $1.214bn and debt on 350 domestic government foreign currency loan bonds $1.778bn. 325 300 275 250 Russia’s foreign debt, including the private sector, totalled 225 200 $475.1bn on July 1, 2009, down from $483.5bn on January 175 1, according to the Central Bank’s preliminary estimates. 150 125 100 75 This means that the country’s debt dropped by $8.4bn in 50 25 January-June. 0 July July May May April April June June March March August January January October February February 9. Oil November December September 2008 2009 мmonetary gold other foreign reserves The price of Urals oil in the first six months of 2009 was The Reserve Fund and the National Wealth Fund dropped by $53.5 per bbl (45.4% against the same period of last year) almost 18% as of July 1, 2009, to $184.45bn. Dynamics of global oil prices in 2007-2009 (USD per bbl) Dynamics of the Reserve Fund in 1h09 132,5

140,0 132,0 122,9

Date bn USD 114,1 120,0 108,6 129,7 104,3

01.01.2009 137.09 127,8 98,5 95,8 93,0

100,0 91,7 118,8 91,3 111,5

01.02.2009 137.34 83,0 105,3 78,1 99,8 72,0 77,9 71,5 71,9 91,7

80,0 70,0 89,5 90,1 88,1 97,0 67,9 01.03.2009 136.33 67,3 58,8 62,2 79,6 57,4 52,8 53,0 51,0 74,2 60,0 73,7

01.04.2009 121.06 69,0 67,9 46,2 64,2 44,3 68,0 63,8 43,4 70,0 41,2 58,9 57,0

01.05.2009 106.81 40,0 53,8 49,0 50,0 51,0 45,0 43,0 42,0 01.06.2009 100.95 39,0 20,0 01.07.2009 94.52 12345678910 11 12 12345678910 11 12 123456 2007 2008 2009

Dynamics of the National Wealth Fund in 1h09 Brent Urals

Date bn USD On July 1, 2009, the Russian government set the export duty on crude oil at $212.6 per metric ton. 01.01.2009 87.97 Dynamics of oil prices and export duties, 01.02.2009 84.47 % against December 2007 150 500 01.03.2009 83.86 400 01.04.2009 85.71 100 300 % 01.05.2009 86.30 200 50 USD per ton 01.06.2009 89.86 100 0 0 01.07.2009 89.93 I II III IV V VI VII VIII IX X XI XII I II III IV V 2008 2009 8. Foreign Debt Custom crude oil duties (USD per ton, right axis) Average factual export prices Average global prices (Urals) Russia’s foreign sovereign debt equalled $39.135bn, or €27.95bn, as of July 1, 2009. Russia’s Eurobond issues accounted for the biggest share of the debt, 62%, and equalled almost $27bn on July 1. Pavel Orekhov, leading expert with Info-Analitika, for FC Novosti Debt to the Paris Club member states was $1.190bn. 6

on construction, modernisation and re- to a certain revival in the economy, You can order updated pair of railways, motor roads, and other said Georgy Luntovsky, the Bank’s first data blocks and information objects of the transport infrastructure. deputy chairman. according to your fields of interest and needs “In the 4th quarter of 2008 and the 1st by contacting us at Finance Ministry to raise $27.5bn quarter of 2009, the trend was to ac- [email protected] from bond placement in 2010 tively withdraw money from circulation,” he said. “Fortunately, we have re- The Russian Finance Ministry expects to cently been returning money to raise RUR844.1bn ($27.5bn, or circulation for several successive €19.3bn) from placement of govern- months, reimbursing what was with- ment bonds next year, said Alexei Lavrov, drawn earlier.” head of the ministry’s department for budget policy and methodology. “This is one of the signs that the economy is reviving and it also shows that The aggregate sum to be repaid next the measures taken by the Russian year is RUR275.7bn, which means that government to prevent wage arrears the domestic market will finance the are already bringing positive results,” federal budget’s deficit of he concluded. RUR394.2bn, he said.

In 2011, the government plans to bor- IMF Executive Board backs row RUR957.5bn ($31.1bn, or $250bn SDR allocation to boost €21.9bn) on the domestic market and global liquidity to repay RUR208.9bn. In 2012, it will borrow RUR755.4bn ($24.6bn, or The Executive Board of the Interna- €17.2bn) and to repay RUR518.9bn. tional Monetary Fund (IMF) has backed an allocation of Special Drawing Rights In 2009, the government will borrow (SDRs) equivalent to $250bn to pro- RUR739.5bn ($24.1bn, or €16.9bn) vide liquidity to the global economic and repay RUR100.4bn, the ministry system by supplementing the Fund’s estimates. 186 member countries’ foreign exchange reserves. For next year, the ministry expects the interest rate to be 13%, Lavrov said. The equivalent of nearly $100bn of the new allocation will go to emerging markets and developing countries, of Alfa Capital sets up Russia’s first which low-income countries will re- hedge fund ceive over $18bn, the IMF said in a statement. The Federal Financial Markets Service has registered Russia’s first hedge The SDR allocation will be made to IMF BANKING AND fund, which was set up by the Alfa Cap- members that are participants in the FINANCE ital Asset Management. SDR Department (currently all members) in proportion to their existing VTB North-West loans $32.5mn The Private Investment Fund is a quotas in the Fund, which are based to Lengiprotrans hedge fund, which implies an invest- broadly on their relative size in the ment declaration and asset structure, global economy. The operation will in- VTB North-West, a branch of Bank VTB it said in a statement. crease each country’s allocation of operating in northwest Russia, has is- SDRs by approximately 74% of its sued two loans aggregately worth Apart from access to foreign financial quota. Russia will receive 4.4bn of RUR1bn ($32.5mn, or €22.8mn) to tools, the fund’s rules envisage a pos- SDR, which is equivalent to $6.87bn. Lengiprotrans for 12 months. sibility of margin transactions. The SDR allocation was requested as The RUR600mn loan will be used to buy part of a $1.1tn plan agreed at the into Roszheldorproject (railway design), Central Bank expects cash in G20 summit in London in April and en- and RUR400mn will be used to replen- circulation to increase soon dorsed by the International Monetary ish the company’s working capital. and Financial Committee (IMFC), the The Russian Central Bank expects the IMF said. If approved by the Board of Lengiprotrans is one of the largest de- amount of cash in circulation to in- Governors with an 85% majority of the sign organisations in Russia focused crease in the near future, which testifies total voting power on August 7, the 7

SDR allocation will be in effect on Au- Western Europe and was approved by most serious for Russia,” said Stanley gust 28. Switzerland’s regulators. Root, PwC’s automotive analyst in Moscow. “The development of the mar- Gazprombank shareholders include ket will depend to a large extent on Federal budget deficit in June Gazfond (50% plus one share), government efforts to revive it.” reaches 8.8% of GDP Gazprom (41.7%), New Financial Tech- nologies (6.3%), and the bank's man- Heavy job losses and salary cuts have Russia’s federal budget deficit in June agement (2%.) forced many Russians to delay auto 2009 equalled RUR277.05bn ($8.7bn, purchases, while many banks have re- or €6.2bn), or 8.8% of GDP, announced Russische Kommerzial Bank was set fused to give them affordable car loans the Finance Ministry. up in 1992 and was one of the Russian due to the global credit drought, foreign banks VTB bought in 2007. It of- Reuters writes. Budget revenues totalled RUR526.89bn fers a full range of banking services, and expenditure RUR803.94bn. but does not accept deposits from indi- Stanley Root also said that less than viduals. Its clients are western and 20% of cars were sold on auto loans in The budget’s primary deficit reached Russian banks and companies. As of 1h09 compared to over 50% in 1h08. RUR267.85bn, or 8.5% of GDP, last late 2008, the bank’s assets amounted In money terms, auto loans accounted month. to 2.4bn Swiss francs (€1.6bn). for 17% of the cars sold in 1h09 compared to 35% in 1h08. Revenues ensured by the Federal Tax Service accounted for RUR218.21bn Russia to allocate $6.8bn for of the total, by the Federal Customs banks’ recapitalisation through Russia’s international reserves Service for RUR227.34bn, by the Fed- loan bonds in 2010 down 10% in 1h09 eral Property Management Fund for RUR3.1bn, and by other federal bodies Next year, Russia will allocate On July 1, 2009, Russia’s international for RUR78.23bn. RUR210bn ($6.8bn, or €4.8bn), or reserve assets equalled $412.590bn, 0.5% of GDP, for banks’ recapitalisa- up 2.1% from $404.171bn on June 1 but The nominal amount of Russia’s GDP tion through federal loan bonds, the In- down 3.4% from the beginning of the in June equalled RUR3.151tn terfax news agency quoted Deputy year, reported the Russian Central Bank. ($98.4bn, or €70.5bn). Prime Minister, Finance Minister Alexei Kudrin as saying. Compared to a year ago, the reserves dropped by 27.5% from $568.966bn Bank Tatarstan issues $1.9mn This year, allocations for the same pur- on July 1, 2008. investment loan pose are planned at RUR250bn 250 ($8.1bn, or €5.7bn), he said. If this International reserve assets in foreign Virazh, a company that accounts for sum is not spent for some reason, it currency grew 3.3% over June to more than 35% of the Russian indus- may be transferred to next year, which $365.382bn. Compared to the begin- trial chemicals market, has obtained a means that the amount of money for ning of the year, they fell by 10% five-year loan from Bank Tatarstan, a additional capitalisation in 2010 will ($406.205bn on January 1, 2009). branch of Sberbank in the Republic of be increased, he said. Tatarstan on the Volga. Gold reserves fell by 1.6% over June to $16.621bn. Virazh is a major supplier of feedstock and paint and varnish materials to Russia’s reserve position with the IMF large companies in Tatarstan and a dropped to $1.701bn on July 1 from number of other Russian regions. GLOBAL CRISIS $1.539bn on June 1. NEWS Special drawing rights equalled $3mn Gazprombank buys Swiss asset on the specified date. Other reserve for $91mn Russian car market to fall assets fell by 9.5% over the specified 50%-60% by yearend period to $28.883bn. One of Russia’s four largest state banks, Gazprombank, bought the en- For the full year, total car sales in Rus- tire share capital of Russische Kom- sia are expected to come to between Medvedev submits agreement on merzial Bank AG, a Zurich-based 1.3mn and 1.6mn vehicles, a decline Eurasec Anti-crisis Fund to provider of commercial banking serv- of between 50% and 60% on last year, parliament ices, from Russian state-owned VTB PricewaterhouseCoopers writes in a re- Bank for $91mn. cently published report. Russian President Dmitry Medvedev has submitted for the parliament’s rati- According to BFM.ru, the deal was part “The negative effects of the global au- fication the agreement on the estab- of the effort to streamline VTB banks in tomotive crisis have been among the lishment of the Anti-crisis Fund of the 8

Eurasian Economic Community 63.5%), VIM-Avia (down 35.5%), and to develop an iron ore deposit in Rus- (Eurasec) and the agreement on man- Sibir (S7 trademark, down 35.7%). sia’s Chita Region in Siberia. aging the Fund’s accounts. The documents were signed in Moscow on However, some airlines posted growth in It plans to build a dressing plant and a June 9, 2009. passenger services in the first five steelmaking facility at the Bere- months of 2009, including Red Wings (up zovskoye deposit. Analysts, however, Eurasec comprises Belarus, Kaza- 44.5%), Orenburg Airlines (35.2%), Vladi- believe that the sum will suffice only to khstan, Kyrgyzstan, Russia and Tajik- vostok Avia (27.1%), and Yakutia (9.8%). build a dressing plant with a capacity of istan, while Moldova, Ukraine and Ar- up to 10mn metric tons of ore annually. menia have observer status. The airlines’ passenger load factor (percentage of available seats occupied by The Berezovskoye deposit of sideritic fare-paying passengers) shrank by 1.8 ores is situated in the south of the Chita percentage points, with Aeroflot and Region (now the Trans-Baikal Territory). GTK Rossiya showing the biggest drop, Its known reserves total 438mn metric to 62.1% and 65.5%, respectively. tons of ore with an iron content of 36.6% to 50.6%, according to the Russ- INDUSTRY ian Federal Agency for Subsurface Use. REPORTS According to preliminary estimates, up Mobile phone market shrinks to 71% of the ore reserves can be ex- 36% in 1h09 INTERNATIONAL tracted from open-pit mining. The mobile handset retail market in COOPERATION Russia contracted by 36% in the first Vladivostok to host Third Pacific half of 2009 from the year before, to Russian company discovers gas Economic Congress 10.49mn phones, Interfax reports. The off Namibia market shrank to RUR56.048bn The Third Pacific Economic Congress ($1.8bn, or €1.3bn) in money terms. Russia’s Sintezneftegaz has discov- will be held in Vladivostok, on the Pa- ered large gas reserves in the Kunene- cific coast, on June 25-26, 2009. It has The number of mobile handsets sold in 1 exploratory well of Block 1711 of the been organised by the administration Russia in the first quarter was 5.46mn Namib Basin off Namibia. of the Primorsky Territory with the as- (down 29% from January-March 2008) sistance of the Federation Council worth RUR30.139bn ($964.5mn, or Sintezneftegaz conducted oil explo- (upper house of Russia’s parliament) €688.3mn). In the second quarter, the ration jointly with local partners and the ministries of regional develop- number of cell phones sold was through its local subsidiary, Sin- ment and economics. 5.03mn worth RUR28.716bn tezneftegaz Namibia Ltd. ($919mn, or €655.8mn), down 42%. The motto of the congress is "Russia and Petroleum Commissioner Immanuel Asia-Pacific countries: from Cooperation Finland’s Nokia remained the largest Mulunga in the Namibian Ministry of to Integration." It will discuss ways to de- supplier of cell phones to the Russian Mines and Energy told local newspaper velop investment, innovation, trade and market, with 38.8% of the market in New Era that drilling results reveal that economic cooperation with the Pacific January-June. The other major suppli- the gas and condensates found in the Rim countries, and the growing role of ers are Samsung (29.6%), Sony Erics- well are not of commercial interest. Russia’s Far East in regional integration. son (13.5%), LG (6.5%), Philips (2.7%), Fly (2.5%), Motorola (2.1%) He added: “It was not possible to fully and Alcatel (1.1%). evaluate the hydrocarbon potential of Eurasian Development Bank to the penetrated section due to opera- manage Eurasec’s Anti-crisis Fund tional problems during testing.” Air passenger traffic down 11% in The Board of the Eurasian Develop- Russia in January-May Despite this, PetroAlliance Services Co ment Bank (EDB) met in Almaty, Kaza- of Moscow estimates that the 4,698m – khstan, last Friday to take decisions In January-May 2009, Russian airlines 4,748m interval could contain potential vital for the bank’s effective manage- carried 11.1mn passengers, down gas resources of up to 14 tcf. Initially, ment of the Eurasec’s Anti-Crisis Fund. 11.4% from the year-ago, according to the Kunene-1 well was drilled for oil. federal air transport agency Rosaviatsia. In accordance with the decision of the Eurasec countries, Russia will provide In January-April, air passenger traffic China to invest $500mn in ore 75% of the money ($7.5bn), while dropped by 23%. production in Baikal region Kazakhstan will donate $1bn.

The biggest drop in passenger service Chinese steel company Xiyang Group is The Fund’s money will be issued to was registered at Atlant-Soyuz (down willing to invest RNB3.3bn ($483mn) member states in the form of sovereign 9 and stabilisation loans, and will also In particular, a large steel producer, No- loan agreement with automaker Sollers be used to finance interstate invest- volipetsk Steel, had to halve production at to finance a car assembly project in ment projects. its US plant, while steel and mining giant Vladivostok (Primorye Territory, Rus- Mechel failed to implement the planned sia’s Far East) and auto components The EDB Board approved Deloitte as the increase of coal production there. production in Yelabuga (Tatarstan). bank’s external auditor for 2009. The next meeting of the bank’s Board is scheduled Russian steelmakers claim that their The bank will open two credit facilities for November 2009 in St Petersburg. American colleagues support their for Sollers’ subsidiaries implementing view, but analysts say positive changes the projects: Sollers-Far East (loan Eurasec comprises Belarus, Kaza- are unlikely. limit of RUR1.8bn), and Sollers- khstan, Kyrgyzstan, Russia and Tajik- Shtamp (loan limit of RUR3.2bn). istan, while Moldova, Ukraine and Ar- menia have observer status. Boeing, VSMPO launch joint The total cost of the project, which is to venture in Russia be implemented within six years, is The Eurasian Development Bank was RUR5.1bn ($160.6mn, or €114.1mn). established by Russia and Kazakhstan US aircraft giant Boeing and Russia’s in 2006 to help boost investment VSMPO-Avisma, the world's top titanium The car assembly plant in Vladivostok across the former Soviet Union. maker, will launch their titanium ven- will annually produce at least 10,000 ture on Tuesday, according to Reuters. vehicles of different models, including SsangYong offroaders, Isuzu trucks, Power Machines delivers The venture, known as Ural Boeing and Fiat Ducato vans. generating equipment to La Manufacturing (UBM), which had an ini- Yesca hydropower plant tial investment budget of $60mn, ex- The auto parts stamping facility will be pects to produce $700mn to $900mn set up in the Alabuga special economic Russia’s Power Machines has shipped worth of titanium for the Boeing 787 zone in Tatarstan to localise the pro- the first batch of power generating Dreamliner. Boeing said last winter that duction of Fiat Ducato, VEB reports. equipment to the La Yesca hydropower supplies for the aircraft would begin in plant being built in Mexico. the first quarter of 2010. These new production lines are expected to create over 1,000 jobs and The company’s press service said that VSMPO-Avisma, located in the Urals, to reduce the price of cars assembled under the contract worth over $200mn exports some 65% of its output and in Russia. Power Machines should produce and has major aircraft firms, including Boe- supply two 375 MW hydro-turbines, ing and Airbus, among its clients. It will Sollers, previously known as Severstal- two hydro-generators and support machine titanium forgings at the plant Auto, is a large automaker in Russia equipment for the project. in Verkhnaya Salda for further process- controlling such manufacturers of au- ing at Boeing’s plant in Portland. tomobiles and auto engines as UAZ The La Yesca project to become part of a and ZMZ and the producer of micro- hydroelectric cascade on the Rio Grande cars, ZMA. The company said it de Santiago River has been estimated Castorama hypermarket unveiled boosted sales 28% in 2008, to at some $800mn. The dam, one of the in Voronezh 128,200 vehicles. world’s tallest, will be 722 ft (220 me- ters) high with a basin of 2.39bn cu m, Castorama, a chain of DIY home and the equivalent of Mexico City’s water renovation hypermarkets, has opened RusNano to invest in solar consumption over two years. a hypermarket in Voronezh in central batteries Russia. The new hypermarket, worth Power Machines is a leading Russian RUR1bn ($32mn, or €23mn), has be- The Supervisory Board of the RusNano manufacturer and supplier of complex come the chain’s ninth asset in Russia. corporation for nanotechnologies has decisions in the field of power engi- approved the idea of producing solar neering. batteries for spacecraft and space stations jointly with the Kvant research and production association. Russian steelmakers complain about new US laws The batteries will be based on gallium ar- INVESTMENT senide, which allows increasing their ef- Russian steelmakers used the first of- PROJECTS ficiency to 32% from 15% in the case of ficial visit by US President Barack silicon batteries. The new batteries will Obama to Moscow to publicly complain VEB to finance Sollers’ involve the use of three-stage 30-layer about the new US laws adopted, in investment project solar elements, each 10-15 nm thick. part, within Obama’s anti-crisis package, business daily Kommersant Russia’s state development bank The new batteries will meet global re- writes. Vnesheconombank (VEB) has signed a quirements. Their effectiveness in 10 space will be some 30%, and life span a new bus model, NefAZ, with the VDL Krasnaya Zarya builds $120mn 15 years. chassis. confectionary factory

The three-axle 15 metre-long large ca- The Ivanovo-based confectionary pro- Atomenergoproject invests over pacity bus with 39 seats and a total ca- ducer Krasnaya Zarya has completed $81mn in Novovoronezh-2 pacity of 140 passengers has been de- the construction of a plant with a ca- nuclear plant signed for urban and suburban use. pacity of 30,000 metric tons of choco- The bus weighs 25 metric tons, its late and waffles annually. Investment Atomenergoproject, general contractor maximum speed is 80 km/h (50 mph), in the project has exceeded $120mn, for the Novovoronezh-2 nuclear power and its fuel tank capacity is 318 litres. according to a statement by state agri- plant in the Voronezh Region (central cultural bank Rosselkhozbank, which European Russia), invested RUR2.5bn The Neftekamsk automotive plant provided a loan for the construction. ($81.3mn, or €57.1mn) in construction (NefAZ) is a Kamaz subsidiary produc- and assembly at the project in January- ing dump trucks and buses on Kamaz The aggregate area of the new plant is June 2009. chassis, as well as trailers, semi-trail- 16,500 sq m (177,610 sq ft). It will em- ers and tank trailers. ploy about 400 people. In July 2009, the company plans to dis- burse RUR690mn of investment. Established in 1953, the Netherlands- The launch of the new plant will make based VDL Group is an international in- Krasnaya Zarya one of the biggest pro- Atomenergoproject, a 100% subsidiary dustrial and manufacturing company. ducers in the industry. The company of state holding Atomenergoprom, has Its bus and coach division produces plans to take up 4% of the Russian designed the majority of nuclear power coaches, public transport buses, chas- chocolate market and to enter foreign plants built in Russia, Eastern Europe sis modules, mini and midi vans. markets as well. and the CIS.

Investment in YMZ-530 engines Sugar beet seed plant to be set Russian road-building agency, reaches $94mn up in Lipetsk Region Vinci Concessions sign agreement Investment in a plant to manufacture Russian Agriculture Minister Yelena YMZ-530 engines has reached Skrynnik, Lipetsk Region Governor Anatoly Chabunin, head of the Russian RUR3bn ($94.1mn, or €67.6mn), Igor Oleg Korolyov and Salis Karatkov, Federal Road Agency, and Louis-Roch Kulgan, CEO of GAZ Group’s Power- general director of Shchelkovo Burgard, CEO of Vinci Concessions, Eu- train Division, said at a presentation of Agrochim, one of Russia’s largest rope's leading operator of transport in- MAZ trucks with YMZ-650 and YMZ- pesticide producers, have signed a frastructure concessions, have signed 530 engines. cooperation agreement to increase a concession agreement to finance, the output of sugar beet seeds in the build and use part of the toll road be- The engines are made at the Yaroslavl Lipetsk Region. tween the 15th and the 58th km of the Diesel Engine Plant, Avtodiesel. Moscow-St Petersburg route. The deal envisages building a coated Aggregate investment was supposed seed plant with a capacity of up to The average toll will be RUR3.60 to amount to RUR13.7bn, out of 400,000 sugar beet seeds in 2009- ($0.12, or €0.08) per km. which RUR10.7bn was to be bor- 2010. rowed. That sum would have allowed The construction is to start in 2010 launching a plant with a capacity of To implement the investment project, after the concessioner proves its ability 110,000 engines annually, he said. the Agriculture Ministry will issue fed- to pay for the project, and to be com- However, the crisis forced the com- eral budget subsidies to the central pleted within 36 months. pany to make adjustments. Russian region to encourage agricultural production there, with the local The total cost of the toll part of the route “Now the first stage envisages a ca- administration providing investor will be RUR60bn ($2bn, or €1.4bn), pacity of 60,000 engines annually,” support. with RUR23bn ($748mn, or €525mn) to Kulgan said. The required sum of in- be allocated by the Russian government vestment, considering that RUR3bn and the rest attracted by the North- has already been provided, is Tambov Region to build pork Western Concession Company. RUR8.5bn. plant

At present, the group is expecting a Russian Agriculture Minister Yelena Russian, Dutch automakers RUR5.5bn loan from Vnesheconom- Skrynnik, Tambov Region Governor design new bus model bank. All parameters of the loan have Oleg Betin and Vladimir Gromov, gen- been coordinated, and now it is up to eral director of the Rusagro Group, one The Neftekamsk auto works (NefAZ) the government to make the decision, of Russia's biggest agro-industrial and the Dutch VDL group have designed the official said. holdings, have signed an agreement to 11 establish a pork plant in the Tambov Boeing and Russian titanium producer He said the local baker and pasta Region. VSMPO-Avisma have announced the maker, Lipetskkhlebmakaronprom, launch of a joint enterprise, Ural Boeing would establish two plants, and a From 2009 through 2014, it is planned Manufacturing (UBM) in Verkhnaya Salda, cheese factory will be built in the Ter- to build there a pig-breeding farm with Sverdlovsk Region, on July 7, 2009. buny regional economic zone. The a capacity of 1mn pigs annually, a feed planned unit investment dairy plant plant to roll out 60 metric tons of feed The new plant, equipped with cutting- will boost competition on the dairy per hour, and a slaughterhouse with a edge equipment and technology, will market in the interests of agricultural capacity of 320 pigs per hour. machine titanium forgings for use on producers. the Boeing 787 Dreamliner, and also Under the agreement, the Agriculture for Russian aircraft. Ministry will grant federal budget subsidies to the Tambov Region, while the regional administration will provide as- National Reserve Corporation to sistance in building the infrastructure, build low-rise village in Kirov including communications, and social Region LAW AND facilities. The National Reserve Corporation LEGISLATION plans to build a large settlement of Legislative initiatives: SZNK construction group sand low-rise cottages in the Kirov Region, July 17-24, 2009 quarry said Alexander Lebedev, board chairman of the NRC, the majority share- President Dmitry Medvedev proposed The SZNK Group has commissioned holder in National Reserve Bank, one introducing a system of state employ- its first sand quarry, Bukhary, in cen- of Russia's largest. ment for higher school graduates. tral Russia’s Vladimir Region, with investment in the project exceeding In his words, one of Russia’s largest *** RUR40mn ($1.3mn, or €899,528). companies building wooden houses could be re-registered from Cyprus to The government decided to experimen- The group has supplied the first sand the Kirov Region. tally introduce a new annual auto certi- from the quarry for a road construc- fication test system on January 1, tion project to expand Moscow’s The houses will cost up to RUR20,000 2010. Yaroslavskoye and Dmitrovskoye ($637, or €456) per square metre. highways. *** The field’s proven reserves amount to China to build battery recycling Several MPs submitted to the State some 2mn cu m of sand with a poten- plant in Irkutsk Duma, the lower house of parliament, tial increase. amendments to the law on advertising Chinese businessman Jan Bo has ar- that stipulate new demands to the ad- SZNK is a holding of construction com- rived in Irkutsk (east Siberia) on the vertising of abortions. panies and organisations of northwest recommendation of the authorities of Russia handling a full range of con- Shenyang, Irkutsk’s fraternal city, and *** struction works, from production and with the to invest some $2mn in the delivery of building materials to construction of a plant to recycle bat- The Federal Financial Markets Service turnkey construction. teries from across Russia. drafted amendments to the law on the securities market that oblige the is- Jan Bo is the owner of King Power, an suers to disclose information about the Boeing to invest $27bn in empire that handles battery produc- financial situation of guarantors. Russian business within 30 years tion and disposal and exports batteries to Japan, Germany, the United States *** Boeing has unveiled plans to invest up and Singapore. to $27bn in Russia's aerospace sector The Industrial Policy Committee of the within the next 30 years. The money Federation Council, the upper house of will go to cooperation programmes Lipetsk Region to accommodate parliament, proposed adopting the bill with its Russian partners related to ti- Europe’s largest meat plant introducing responsibility for produc- tanium production, design and devel- tion and marketing of low-quality petro- opment of civil aircraft, and also for ac- Cherkizovo Group, a leading Russian chemicals. quisition of different services and vertically integrated agro-industrial materials. company, will build Europe’s largest *** meat plant in the Lipetsk Region, said By now, Boeing has already executed Oleg Korolev, governor of the southern Prime Minister Vladimir Putin proposed over $5bn worth of contracts in Russia. Russian region. expanding the powers of the heads of 12 budgetary establishments with regard *** *** to financing of their operation. In particular, he proposed giving them the President Dmitry Medvedev signed the Prime Minister Vladimir Putin signed right to freely use allocations for the law to expand the possibilities of using the government resolution approving a so-called miscellaneous expenditure. the pension funds of those Russians general exception with regard to agree- who had not chosen a management ments between the buyer and the *** company. seller, and also agreements on joint research projects. The Federal Anti-trust Service pro- *** posed allowing all banks to participate *** in the privileged auto loan programme. President Dmitry Medvedev signed the law on the use of cash registers by Prime Minister Vladimir Putin signed *** small businesses. the government resolution to index the insured part of the labour pension by The Government submitted to the *** 7.5% on August 1, 2009. State Duma a draft law on additional support to airlines. President Dmitry Medvedev signed the *** law on anti-corruption examination of *** laws. The government distributed RUR70bn ($2.25bn, or €1.58bn) of subsidies The Industrial Policy Committee of the *** among regional budgets. Federation Council supported the bill on state regulation of safety in the nu- President Dmitry Medvedev signed the *** clear energy industry. law on loan cooperatives. The government approved the new *** rules for placing the monies of the Na- Legislative portfolio: tional Wealth Fund. July 17-24, 2009 President Dmitry Medvedev signed the law on the use of state securities for The new terms for receiving state sub- recapitalisation of banks. President signs law to approve sidies for the acquisition of Russian- Eurasec’s anti-crisis fund made cars came into force. *** President Dmitry Medvedev signed the *** President Dmitry Medvedev approved law on the ratification of the treaty es- the law on tax deductions for deals to tablishing Eurasec’s Anti-crisis Fund President Dmitry Medvedev signed the buy land plots together with real estate and the agreement on the manage- decree on the establishment of the standing on them. ment of the fund’s monies. state road-building corporation, Avtodor. *** The State Duma adopted the law on *** July 15, and the Federation Council ap- President Dmitry Medvedev approved proved it on July 18, 2009. The Federation Council ratified the the law simplifying the registration of treaty on the establishment of non-profit organisations. The Eurasian Economic Community, Eurasec’s anti-crisis fund. established in 2000, comprises Be- *** larus, Kazakhstan, Kyrgyzstan, Russia *** and Tajikistan. Three other former So- President Dmitry Medvedev signed viet republics – Armenia, Moldova and The Federation Council approved the the law to postpone until October 1, Ukraine – have observer status. bill to allow bookmakers for betting on 2009 the deadline for submitting the horse racing. draft budgets for 2010 and the planning period of 2011-2012 to the State Code of Administrative Offences *** Duma. amended, other laws enforced

The Federation Council approved the *** The amendments to the Code of Ad- bill to replace the unified social tax ministrative Offences specifying the with insurance premiums. Prime Minister Vladimir Putin signed duration of investigation of such of- the government resolution amending fences have come into force. *** the customs tariff of crude oil, according to which a lower duty is stipulated The law increasing the size of tour op- The Federation Council raised pen- for crude produced at 13 East Siberian erators’ capital, and the law introduc- sions for working during the Soviet era. fields. ing fines for violations of the marketing 13 rules for narcotic substances were en- MP Konstantin Shipunov submitted to which stipulate raising it by at least forced. the State Duma a draft law allowing 200% to enhance capitalisation and banks to terminate account agree- consolidation on the stock market. The Central Bank of Russia has limited ments if a client conducts suspect the profitability of bank deposits. transactions. Legislative portfolio: The State Duma, the lower house of President Dmitry Medvedev instructed June 26-July 3, 2009 Russia’s parliament, adopted the bill the Prosecutor General’s Office to con- allowing higher schools to create small sider setting up an international court Prime Minister Vladimir Putin signed businesses. for trying sea pirates. the government resolution raising the oil export duty to $216.6 from $152.8 Russia and Germany signed agree- The Economic Development Ministry per metric ton on July 1, 2009. ments to set up a Russian-German en- drafted a government resolution to ergy agency and to facilitate research harmonise laws with legislation on *** and technical cooperation, and land and construction relations. adopted several other documents. President Dmitry Medvedev signed the The government proposed limiting law on the terms of allocation of finan- The State Duma adopted amendments the right of retail chains to buy new cial assistance from the housing and to the Labour Code with regard to premises. utilities support fund. labour safety standards and the law re- placing the unified social tax with in- President Medvedev proposed approv- *** surance payments. ing harsher responsibility for the sale of tobacco and alcohol to minors, and Russia and Belarus signed a memo- The State Duma ended its spring ses- also suggested that the age of candi- randum on controlling the safety of im- sion and adjourned until September 9. dates to representative bodies of mu- ported livestock and fish breeding nicipal authority should be lowered to products. 18 years. Finance Ministry to increase *** mandatory motor vehicles liability insurance Legislative initiatives: The lower house of parliament adopted June 26-July 3, 2009 the bill postponing the submission of The Finance Ministry has drafted the draft federal budget to the State amendments to the law on the The government decided to approve Duma. mandatory liability insurance for the main parameters of the draft motor vehicles, also known under its budget for 2010-2012 by July 27, *** Russian acronym of OSAGO, to in- 2009. crease health and life insurance to The State Duma prolonged the op- RUR500,000 ($15,730, or €11,160) *** eration of the dacha amnesty law, from RUR160,000, and property dam- which introduced amendments to age insurance to RUR150,000 In the context of the energy-saving bill the registration of real estate ($4,720, or €3,350) from discussed at the State Duma, the lower rights in the countryside, until RUR120,000. house of parliament, President Dmitry March 1, 2015. Medvedev said at the State Council’s President Dmitry Medvedev submitted meeting in Arkhangelsk that emer- *** the treaty establishing the Anti-crisis gency measures must be taken to Fund of the Eurasec countries for ratifi- promptly introduce innovations in the The State Duma adopted the bill on the cation to the State Duma. sphere of renewable energy, hydrogen powers of prosecutors during examina- and nuclear power generation. tion of laws for corruption loopholes. The Federal Migration Service recom- mended its territorial divisions not to *** *** issue labour permits to foreigners who plan to work in retail trade. The Federal Anti-trust Service pro- The State Duma adopted in the second posed introducing criminal responsibil- reading the bill expanding the possibili- The Justice Ministry drafted a law on ity for failure to place state orders with ties for investing pension savings in ab- compensations to victims of terrorist enterprises. sence of direct instructions. attacks. *** *** A group of MPs submitted to the State Duma a draft law recommending that The Federal Financial Markets Service The State Duma adopted the bill bookmaker’s offices should be opened drafted new capital adequacy require- changing the terms for the buyout of at racetracks. ments for professional market players, leased property. 14

*** “Last year, pork imports accounted for This means that retail petrol prices in 29% of the market and poultry imports Russia in June were higher than pro- The State Duma approved a statement for 36%,” he said. “This is too much. ducers’ prices by 70%-80% on average on ensuring the safety of Russian Now we have managed to reverse the against 60%-70% in June 2008. tourists. trend in favour of domestic production, and imports have been falling,” he *** pointed out. Russia’s foreign trade down 45.8% in 1h09 The lower house of parliament, the The government has already allocated State Duma, adopted in the first read- over RUR300bn ($9.8bn, or €6.9bn) In the first six months of 2009, Rus- ing the bill on the powers of customs worth of investment loans for develop- sia’s foreign trade fell to $158.6bn, brokers. ment of specialised meat animal down 45.8% compared to the same pe- breeding. Subsidies for pedigree ani- riod of last year, according to the In- mal breeding have been increased by dustry and Trade Ministry’s report on State Duma approves mortgage 40% this year, and the government re- industrial production and retail trade in loans for non-residential imburses 100% of the refinance rate January-June. premises on subsidised loans to agricultural producers. According to the ministry, exports in The lower house of Russia’s parlia- January-May equalled $100.2bn, down ment, the State Duma, has adopted in It has also decided to set up a spe- 47.6% year on year, while imports the third reading amendments to the cialised pedigree selection centre and plunged by 42.3% to $58.4bn. law on mortgage to allow taking out reserved RUR3bn for regional pro- mortgage loans for non-residential grammes that promote meat animal Despite the crisis, domestic retail premises. breeding. turnover did not drop significantly in January-July and was 97% against the The basic law on mortgage will be same period of last year. amended to include a clause according Producers’ petrol prices up 25% to which a building or some other in June structure with a land plot, or other non- Russian producers suffer losses residential premises acquired on a Retail petrol prices grew 8.8% in June of $2bn from other countries’ bank mortgage loan or a target loan, 2009 but dropped by 2.8% since the restrictions shall be considered to be in pledge as beginning of the year, reported the of the day of state registration of the Federal State Statistics Service. Losses incurred on Russian producers borrower’s right of ownership. Petrol producers’ prices surged 25% by other countries’ restrictions are esti- in June and 44% since the beginning mated at around $2bn, according to The authors of the law say the ability to of the year. the Economic Development Ministry’s take non-residential premises in monitoring of Russia’s social and eco- pledge will guarantee the interests of An increase in retail petrol prices in nomic development in the first six lending establishments, which will June was registered in 77 regions of months of 2009. therefore be able to issue loans to Russia, the biggest one seen in the small and medium-sized businesses Altai Republic (up 28.1%). In Moscow As of July 1, 2009, there were 93 re- for the purchase of non-residential and St Petersburg, they grew 3.3% and strictions on Russian goods in place premises. 6.1% respectively. that were introduced by foreign countries to protect their own markets. Out An increase in producers’ prices was of them, there were 42 anti-dumping seen in 17 regions (ranging from 0.2% measures, seven special protection in the Tyumen Region to 57.5% in measures, and 44 non-tariff trade reg- Bashkortostan). ulation measures, including administrative regulation. MACRO- The average consumer petrol price in June was RUR16.90 ($0.55, or €0.39) A total of 21 countries have restric- ECONOMICS per litre for A-76, AI-80 and other low- tions against Russian goods, namely octane fuels, RUR19.72 ($0.64, or Australia, Argentina, Armenia, Be- Russia to reduce dependence on €0.45) for AI-92 and AI-93 regular, and larus, Brazil, India, Indonesia, Kaza- imported pork, poultry by 2012 RUR21.53 ($0.70, or €0.49) for AI-95 khstan, Kyrgyzstan, China, Mexico, and other premium and super fuels. Moldova, Peru, Azerbaijan, Turk- The dependence of the Russian mar- menistan, Uzbekistan, the United ket on imported pork and poultry may The average producers’ prices were States, Thailand, Turkey, Ukraine, diminish by 2012, Itar-Tass quoted RUR9.42 for low-octane, RUR11.67 for South Korea, the Philippines, and also Russian First Deputy Prime Minister regular, and RUR12.27 for premium all the EU member states as a single Viktor Zubkov as saying. and super petrol. customs union. 15

Over half of all anti-dumping measures Investment in nominal terms equalled survey conducted by the VTsIOM poll- are aimed against Russian steel and RUR671.1bn ($21.4bn, or €15.1bn) in ster. This answer was given by 11% of steel products. The second biggest June, up 18.2% from May. respondents. amount of restrictions is related to mineral fertilisers. In the first six months of 2009, invest- As many as 9% of Russians believe ment fell by 18.2% against the same that the biggest threats are alco- period of 2008, when it had grown holism, drug addiction and general Car production in Russia plunges 19.9% against January-June 2007. degradation of the population, while by 60% in 1h09 7% named a military threat on the part of the United States, NATO or the West Car production in Russia plummeted Russia’s GDP down 9.8% in June in general and the possibility of a third by 60% in the first six months of 2009. world war. Production of trucks and buses fell by In June 2009, Russia’s gross domestic 72.5% and 63.5%, respectively, the In- product fell by 9.8% year-on-year to Fewer people fear inflation, the author- dustry and Trade Ministry said in a RUR8.4828tn ($270.4bn, or ities’ indifference towards people, Rus- statement. €190.8bn), reported the Federal State sia’s breakup, society’s stratification Statistics Service. into the rich and the poor, and exhaus- Production of foreign cars fell by 53.4% tion of natural resources (1% per each and of domestic brands by 65.1%. The industrial production index for the reason). period was 87.9% against June 2008. Production of trucks was down 72.5% As many as 39% of respondents could to 39,400. A decline was seen at all not name any threats the country is truck producers. Putin expects gas demand facing. to recover, exceed pre-crisis level Production of foreign trucks fell by 44.6% against January June 2008 to Gazprom’s adjusted investment pro- Russia to continue decreasing 3,100. Production of buses was down gramme for 2009 will amount to meat import quotas 63.5% to 13,200. RUR775bn ($23.44bn, or €16.84bn), Russian Prime Minister Vladimir Putin Russia will continue its policy of a gradual said at a meeting of the government decrease of meat import quotas, First Inflation in Russia may reach presidium. Deputy Prime Minister Viktor Zubkov told 10%-11% by yearend journalists in the Tyumen Region. The gas giant’s programme should pre- Inflation in Russia this year will be serve top priority projects, such as “de- However, there should not be a ban in below the planned 13%, said Russian velopment of new fields on the Yamal order not to affect the prices drasti- President Dmitry Medvedev. However, and Kamchatka, diversification of gas cally, he added. Quotas will be de- it will still be too high, he believes. transportation routes, and develop- creased depending on domestic bal- ment of capacities producing liquefied ance of meat production and “We should curb inflation to 4%-6%,” natural gas,” he said. consumption, Zubkov said. he emphasised. In the first six months of 2009, gas Earlier, it was reported that the infla- production in Russia dropped by Russian economy remains tion rate in Russia was 7.9% from Janu- 20.8%, Putin said. However, he said he extremely closed – World ary 1 to July 20, 2009, compared to was positive that as the economy re- Economic Forum report 9.3% in the same period of last year. covered gas consumers both in Russia and abroad would start increasing Russia remains one of the world's most The Economic Development Ministry their acquisitions within the next few closed trading economies, preceding has downgraded its inflation forecast for months and that demand for gas would only Chad, Cote d’Ivoire, Venezuela the year from 13% to 12%-12.5%. Last not only recover, but would also signifi- and Zimbabwe, reads a report pre- year, inflation in Russia was 13.3%. cantly exceed the pre-crisis level in the pared by the World Economic Forum. long run. The Global Enabling Trade Report Investment in Russia down 20% placed Russia 114th out of 121 na- in June Russians see economic crisis, tions in terms of ease to trade with, be- weak industry and agriculture as hind such economies as Ethiopia, Investment in fixed assets in Russia key national threats Mauritania and Pakistan. The US dropped by 20.1% in June 2009 com- ranked 16th, one spot ahead of France pared to June 2008, reported the Fed- Among major national threats Russia but four behind Germany. The survey eral State Statistics Service. In May, in- is facing today, the first place belongs found that the most open economies vestment was down 23.1%, in April to the economic crisis and to weak in- in the world were Singapore, Hong 16.2%, and in March 15.4%. dustry and agriculture, according to a Kong and Switzerland. 16

The report, which debuted last year, 2009, reported the Federal State Sta- Obninsk became the first town to host determines comfort of trading by such tistics Service. a public presentation of the project. factors as efficiency of customs administration, availability and quality of In 2008, inflation was 1% in June and transport infrastructure, tariffs, and 8.7% in the first half of the year. Regional industrial zone to be set business administration (corruption). up in Lipetsk Region The basic inflation (without short- term uneven fluctuations of prices The project for establishing a regional Russia’s foreign trade surplus under the influence of some adminis- industrial zone in Yelets in the Lipetsk down 53% in January-May trative and seasonal factors and Region has been declared winner at a events) was 0.3% in June and 6% in competition held by the south Russian In January-May 2009, the surplus of January-June 2009. region. Russia’s foreign trade equalled $41.9bn, down 53.4% from $89.97bn In Moscow, the inflation rate was 0.8% An area of 269.7 hectares (666 acres) in the same period of last year, re- in June and 8% in the first six months. has been allocated for the zone near ported the Federal Customs Service. In St Petersburg, it was 0.5% and 7.9% the village of Olshanets, where plants respectively. to process food and produce and store Surplus in trade with countries outside combined feed, as well as processing the CIS dropped by 55.6% to $33.3bn, facilities will be built. and in the CIS by 42.6% to $8.6bn. Budget 2010 based on oil price of $55 Total investments by zone residents Russia’s foreign trade turnover in the spec- are expected to reach RUR12.6bn ified period equalled $158.6bn, down The Russian Finance Ministry expects ($403mn, or €288mn) in 2010-2017. 45.8% compared to January-May 2008. the average price of oil to be $54 per bbl in 2009 and $55 per bbl in 2010, Trade with countries outside the CIS said Minister Alexei Kudrin. The ad- Public catering sees drop in equalled $135.3bn (down 45.6%) and justed version of the 2009 budget is revenues in the CIS $23.3bn (down 46.9%). based on an oil price of $41 and a GDP drop of 2.2%. Revenues of Russian public catering Exports from Russia fell 47.6% to companies dropped by 11.2% in May $100.2bn. The value of exports to High oil prices will bring more rev- 2009 against May 2008 to RUR57.6bn countries outside the CIS plunged enues, but they will still not exceed the ($1.85bn, or €1.31bn), reported the 47.9% to $84.3bn and to the CIS, amount envisaged by the latest version Federal State Statistics Service. 45.9% to $15.9bn. of the budget, the minister added. The aggregate turnover of cafes, Imports in the first five months of According to the latest forecasts, GDP in restaurants, bars and canteens in Jan- 2009 equalled $58.4bn, a drop of Russia may plummet by 8.5% this year, uary-May amounted to RUR275.5bn 42.3% against the same period of last instead of the earlier predicted 2.2%. ($8.85bn, or €6.27bn), down 8.2% year. Imports from outside the CIS fell from the same period of last year. 41.2% to $51bn and from the CIS, 49% to $7.4bn. Kaluga Region top candidate for In 2008, the Russian catering sector National Innovation System saw an annual growth of 10%-15%, Russia’s main trading partners outside project slowing down to 5% only in December. the CIS in the specified period were China (bilateral turnover dropped The United Russia party presented a At the beginning of 2009, Russia had 38.4% to $13.3bn), Germany project, "National Innovation System," 27,400 restaurants and cafes, 3,300 ($13.2bn, down 54.2%), the Nether- at a meeting of the Advisory Council at bars and 3,470 canteens and stores lands ($12.5bn, down 48.8%), Italy the Kaluga Region governor’s office in selling semi-finished foods. ($10.9bn, down 46.9%), Turkey ($7bn, Obninsk. The project stipulates provid- down 49%), the United States ($5.9bn, ing assistance to companies active in down 36.8%), Japan ($5.6bn, down the innovation sphere in order to de- Budget revenues from customs 48.8%), France ($5.6bn, down 37%), velop Obninsk as a science town. down 42% Finland ($5.1bn, down 46.1%), and Poland ($5.4bn, down 54.1%). Maxim Shereikin, the Kaluga Re- In June 2009, the Russian customs gion’s economic development minis- transferred RUR227.29bn ($7.3bn, or ter, said the region was among the €5.2bn) to the federal budget, down Inflation in Russia reaches 7.4% leaders in the Central Federal District 42% from RUR391.57bn a year ago, re- in 1h09 for socio-economic development. In- ported the Federal Customs Service. vestment in the region has exceeded The inflation rate in Russia was 0.6% in $1bn, which made it a top candidate In the first six months of the year, the June and 7.4% in the first six months of for participation in the project, while Service transferred RUR1.31166tn 17

($42.1bn, or €29.9bn) to the budget, Russian M&A market down 50% Earlier it was announced that the No- down 37.5% from RUR2.15926bn in in 1h09 rilsk Nickel board of directors decided the same period of 2008. not to pay 2008 dividend. “As for any The volume of the Russian M&A mar- future dividend payout, the decision ket totalled $46.16bn or 314 transac- will depend on the Company’s financial Russian residents’ foreign debt tions in the first half of the year, includ- liabilities including debt repayment re- down 6.8% in 1q09 ing 174 ($18.55bn) involving a change quirements and 2009-2010 invest- of the controlling beneficiary and 140 ment programme execution, as well as Russian residents’ foreign debt deals ($27.51bn) without such a on its financial performance as re- dropped 6.8% in the first quarter of change. ported in IFRS compliant statements,” 2009, to $450.8bn on April 1 from the statement reads. $483.5bn on January 1, announced According to information analytical the Russian Central Bank. group M&A Online, 49 deals worth Norilsk Nickel is a diversified mining $5.16bn were reported in June. and metal producing company, the The foreign debt of government bodies world's largest producer of nickel and fell to $27.6bn from $29.5bn, with the palladium and one of the global lead- debt of federal government bodies ers in the production of platinum, dropping to $26.4bn from $28.2bn. cobalt, copper and rhodium.

The banking system’s foreign debt (excluding capital participation) fell to $146.4bn NEWS OF KEY Tenex to supply low-enriched from $166.3bn in the specified period, uranium to US while the debt of non-financial companies COMPANIES (excluding capital participation) was down Techsnabexport (brand name Tenex) Uralsib to set up Russia’s largest to $274.3bn from $284.4bn. has signed the 6th long-term low-en- loan fund riched uranium contract with Constel- lation Energy Nuclear Group (CENG). Financial Corporation Uralsib will set up Russia’s largest loan fund, Korpora- Under it, Tenex will supply part of tivny (Corporate), worth RUR3bn CENG’s nuclear fuel requirements in ($94.5mn, or €67.1mn). 2015-2025. Low-enriched uranium will be supplied from any of the four Russ- MERGERS AND Alexander Pugach, head of asset man- ian enrichment plants equipped with agement at Uralsib, told RBC Daily they ACQUISITIONS cutting-edge centrifuges. would use the fund to securitise a pool of Magna, Sberbank to divide Opel loans and thereby improve its liquidity. The deal follows the signing of five stake 50:50 agreements on uranium supplies Market players say that securitisation signed in May and June between Tenex Magna International Inc, Canada’s (pooling and repackaging of cash-flow- and American companies. The first two largest auto parts maker, will file a bid producing financial assets into securi- agreements were approved by the US for a stake in German carmaker Opel, a ties, which are then sold to investors) Department of Commerce. division of the US concern General Mo- is possible only if there is demand from tors, according to Bloomberg. the fund’s investors, which will depend Techsnabexport, a Russian company on the quality of the loan portfolio and that exports goods and services pro- Magna would acquire 27.5% of Opel com- its profitability. duced by the nuclear power sector, is a pared with the earlier proposal of 20%. 100% subsidiary of state nuclear group State lender Sberbank, Magna’s Russian Atomenergoprom. partner, would own 27.5% instead of a Norilsk Nickel denies meeting planned 35%, the company said. with UniCredit Securities CENG is a division Constellation Energy, a leading supplier of energy products The Magna-Sberbank partnership Management of Norilsk Nickel has and services to wholesale and retail would invest €700mn in Opel, the “held no meetings with representatives electric and natural gas customers, with Magna spokesman said. The proposal of UniCredit Securities and made no three nuclear stations (five reactors) in calls for €4.5bn in loan guarantees declarations with regard to dividend the states of Maryland and New York. from European governments. amounts, anticipated financial results or any plans concerning corporate as- Earlier, German Economy Minister sets,” the company said in a statement. Rusal not to increase aluminium Karl-Theodor zu Guttenberg said they production until middle of 2011 did not rule out Opel’s bankruptcy, Therefore, the Company deems state- adding that several important ques- ments and figures presented in the United Company Russian Aluminium tions needed to be clarified before UniCredit Securities’ analytical review (UC Rusal) does not intend to increase making a decision to sell Opel. inaccurate. 18 its output until the middle of 2011, when it AllTech Group seeks partners to more rouble bonds than dollar notes plans to launch the first lines of the develop field for the first time since 2006, London Taishet and Boguchany aluminium plants, financial analysts say. expecting the balance of supply and de- AllTech Group plans to invest $3.2bn in mand on the global market to fully recover gas refining in the Nenets Autonomous Foreign investors’ interest in the Russ- by that time, the company’s press service Area (northeast of European Russia) ian market is the result of the Russian announced quoting Alexei Arnautov, direc- and is seeking partners for these proj- government’s policy, which prevented tor of Rusal’s aluminium division. ects, the Vedomosti business daily the national currency’s plunge after writes. the collapse of global oil prices and Earlier it was reported that Rusal supported the rouble’s appreciation planned to reduce aluminium production AllTech has obtained an oil and gas li- and growth. in 2009 by 500,000 metric tons, or 11%. cence for the Korovinsky block in the Nenets area. The Russian rouble is one of the most attractive currencies among emerging X5’s discounters report Though the block’s total reserves have economies. unprecedented profit for 2q09 not been assessed yet, one of the fields, the Korovinskoye gas conden- The consolidated net retail sales of X5 sate field, contains 40.85 bcm (1.44 RusNano attracts $500mn to Retail Group, Russia's largest retailer tcf) of C1 natural gas. Russian innovations fund in terms of revenue, surged 46% in roubles (to RUR67.826bn) and by 7% in AllTech Group is an asset management US investment fund DFG is prepared US dollars (to $2.100bn) in the second company active in the oil and gas sector to invest some $500mn in establish- quarter of 2009 year on year, the com- (CH-Oil&Gas LLC), the coal and chemi- ing an innovations fund in Russia. The pany said in a press release. cals industry (JSC Siberian Anthracite) intention was announced at DFG’s and development projects in the talks with RusNano, said Anatoly On a pro-forma basis, net retail sales Moscow Region (AllTech Development). Chubais, head of the nanotechnolo- grew 26% in roubles and dropped 8% gies corporation. in dollars due to the rouble’s devalua- Total assets managed by the Group ex- tion (down 34%). ceed $2bn. Chubais said that RusNano’s supervisory board had decided to establish In the second quarter of 2009, the funds, in particular venture and seed company discounters’ LFL sales grew EBRD to lend $500mn to Russian ones. The largest of them will be worth 11% in rouble terms year-on-year, sup- Railways $1bn, with half of the money to be pro- ported by 6% traffic growth. Moscow vided by DFG. and regional stores reported record The European Bank for Reconstruction high traffic growth of 13% and 16%. and Development (EBRD) is planning RusNano plans to use the funds to at- to provide a $500mn loan to Russian tract additional money from private in- In 2q09, X5 added a net 20 stores, in- Railway. The bank's board of directors vestors in Russia and abroad for nan- cluding 14 soft discounters, two super- will discuss the issue on July 14, 2009. otech projects, for encouraging the markets and four hypermarkets with a transfer of cutting-edge international total net selling space of 28,700 sq m The rail monopoly expects to receive technologies to Russia, and for creat- (308,930 sq ft). the long-term loan – for 10-15 years – ing additional market mechanisms of at the end of July or the beginning of assisting projects at different stages of August. development. Pharmstandard becomes first Russian member of IPEC Europe Earlier, its senior vice president said: “The borrowing will not cost more than Trading in wheat futures up by Pharmstandard, the third largest phar- rouble bonds. It will be used to restruc- over 8% in Russia in six months maceutical company operating in Rus- ture our debt.” sia, is the first Russian company to be- The volume of Russian wheat futures come a full member of the This year, Russian Railways has placed grew by over 8% in January-June 2009 International Pharmaceutical Excipi- several issues of rouble bonds with at the National Mercantile Exchange ents Council Europe (IPEC Europe), rates ranging between 14.25% and (NME), a division of the MICEX, to reads the company’s press release. 15% annually. RUR24.2bn ($779.6mn, or €551.9mn), or 72,000 contracts for a This was made possible thanks to the total of 4.6mn metric tons. organisation’s strategy to expand and Russian companies prefer invite new members. At present, IPEC issuing rouble bonds The MICEX and the NME said in a joint Europe has 79 full members, including press release that the largest monthly Eli Lilly, GlaxoSmithKline, Merck, Novar- Russian companies shut out of the in- turnover on the market of wheat fu- tis, Pfizer, Sanofi-Aventis, Solvay, etc. ternational debt markets are selling tures at the NME was registered in 19

June – RUR4.1bn, or 12,430 contracts including 571,140 tons (4.2mn bbl) in for a total of 787,480 tons, up nearly excess of the plan. 9% month on month. STOCK MARKET

Aggregate turnover on the wheat fu- Evraz to raise $900mn through tures market from April 9, 2008 to bonds, GDR June 30, 2009 amounted to 9.7mn metric tons of grain worth RUR50.6bn. Evraz Group, one of Russia’s biggest STATE CONTROL steel producers, intends to raise $900mn via a $600mn convertible FAS to hear case against bond offering with maturity in 2014 Microsoft on September 7 and a $300mn issue of global deposi- tory receipts (GDRs) on the London A commission of the Federal Anti-trust Stock Exchange, the company said in a RATINGS Service (FAS) of Russia has started statement. hearing the case against Microsoft for S&P revises outlook on violations of anti-trust legislation. The money will be used to refinance its Ingosstrakh to negative, affirms debt and for corporate purposes, said rating The FAS press service said that, in the company, which is part-owned by keeping with a court ruling, the FAS billionaire Roman Abramovich. Standard & Poor’s Ratings Services commission decided to postpone the has revised its outlook on Russian In- hearing at Microsoft’s request. Evraz’s main shareholder, Lanebrook gosstrakh Insurance Co to Negative (77.6%), intends to sign up for from Stable. At the same time, it af- The corporation is charged with violat- $400mn, acquiring bonds and GDR in firmed the BBB- long-term counter- ing the Russian law on competition. approximately equal parts. party credit and insurer financial strength ratings and the ruAA+ Russia The anti-trust authority accused Mi- The placements will be coordinated by national scale rating of the insurer. crosoft of abusing its dominant posi- Goldman Sachs International and tion in the operating system market by Morgan Stanley & Co. Deutsche Bank The negative outlook reflects height- pulling Windows XP from retail in June AG will act as the bookrunner and ened industry and country risk and the 2008, thus forcing users to buy Vista Lazard & Co as the company’s finan- possibility of further deterioration of In- even though demand for the former re- cial advisor. gosstrakh's investment portfolio qual- mained high, and of setting different ity. prices for the same product, a possible reference to the practice where Mi- Ingosstrakh Insurance Co continues to crosoft lets computer makers factory- demonstrate strong competitive ad- downgrade PCs to XP Professional vantages in Russia and the manage- from either Vista Business or Vista Ulti- ment team has maintained a positive mate, the two highest-priced retail edi- track record, the rating agency said. tions of that 2007 operating system.

Anti-trust watchdog to collect multimillion-dollar fines from oil majors

REGIONS Russia’s Federal Anti-trust Service expects to collect hundreds of millions of Tatarstan produced over 16mn dollars from the largest Russian crude tons of oil in 1h09 producers – Rosneft, LUKoil, TNK-BP and Gazprom Neft – for hiking prices Oil companies in Russia’s Volga republic on the petrochemical market again. of Tatarstan produced 16,066,886 metric tons (118.1mn bbl) of oil in the first We hope to win the lawsuit filed half of 2009. Of that amount, the repub- against them in the Supreme Arbitra- lic’s largest crude producer, Tatneft, ac- tion Court, said Igor Artemyev, head of counted for 12,792,565 tons (94mn the regulator. bbl), up 1.7% from the target plan. "The fine will be larger than the first The company said 12,829,760 tons time because this is a second offence," (94.3mn bbl) of oil had been shipped, he said. 20 21 22 23