NovemberOctober 27,31, 20102009

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

TOP STORY INVESTMENT 1. A Corporate Ostpolitik 2. Banks transfer RUB500bn to invest funds during crisis 3. Bashneft can win Titov and Trebs by default 4. CEE scores well on fibre-optic penetration 5. Chinese cash to power Russian coal 6. CORRUPTION WATCH: Bribery still on the rise 7. CORRUPTION WATCH: Public Prosecutor to investigate 4G licensing process 8. FAS thinks 4G frequencies need to be distributed not just for Big Three operators 9. FUNDS Up on the farm 10. Germans welcomed back to the Baltics 11. Investors see Kazakhstan as the smiling assassin 12. Lithuanian PM stokes row with Poland 13. No new gas-price agreement during Putin's visit to Ukraine 14. Putin OKs oil-tax reform in 2011 15. Russia and Poland to sign gas transit deal this week 16. Russia and Ukraine sign agreement on nuclear fuel plant 17. Russia to compete for helicopter tender to Afghanistan 18. Russia, Poland urge EU to abolish visas for Kaliningrad residents 19. Russia's arms exports to reach record $10 bln in 2010 20. Russian food prices up six times faster than in EU 21. Transneft announces plans for earlier completion of new pipeline projects 22. Turkmenistan blasts Russia and boosts Nabucco 23. UK companies creating joint CEE logistics presence 24. Vietnam wants free trade deal with Russia, Belarus, Kazakhstan SECTOR Gas 25. Albania talks on South Stream 26. Audit Chamber warns Exxon Neftegas over Sakhalin-1 spending 27. Energy Ministry says no plans to replace Sakhalin-1 operator 28. Exxon Neftegas vows to stick to approved Sakhalin-1 budget 29. Gazprom offers Poland no discount on additional gas 30. Gazprom unit plans to reconstruct 37,000 km of pipes over 10 years 31. Moscow and Kiev to create working group to revise gas deal - Azarov 32. Netherlands, Denmark ask for more gas from Gazprom 33. Polish government approves deal with Russia on increased gas supplies 34. Russia and Poland sign new gas deal with possible discounts 35. Russia, Greece plan meeting before year-end on Burgas-Alexandroupolis 36. Russia, Greece to hold talks on Burgas-Alexandroupolis pipeline before year end 37. Russian deputy PM: “Nabucco project has no perspective at all” 38. Russian-Turkmen relations: Clearing the way for gas pipes 39. Ukraine says Russia agrees to lower gas price next year

SECTOR Oil 40. Alekperov comments on LUKOIL's plans 41. Investment in Russian oil refineries may hit RUB780bn 42. Lukoil to increase invest in oil refining after 2012 43. Oil refining can yield $5bn in annual budget revenues through 44. Putin sees oil cos drafting upgrade plans worth RUB780bn 45. Rosneft denies Bashneft cooperation offer on Trebs, Titov deposits 46. Rosneft in talks on joint oil, gas projects in Ecuador 47. Russia's hydrocarbon reserves twice the size estimated according to international standards 48. Russian and Japanese companies to invest $300 million in East Siberian oil, gas projects 49. TransCreditBank to invest in $2.4bn oil refinery project 50. TransCreditBank, Verkhotursky refinery to launch oil refinery by 2014 51. Transneft to disclose more details about its operations - better transparency SECTOR High Tech 52. Prospects for the IT Sector Are Improving : Public and private demand will drive growth 53. Putin orders to earmark RUB6bn for research universities 2010 54. Russia may grant Ukraine access to Glonass for military use 55. Russia may invest $5 million in national operating system - paper SECTOR Metals and Natural Resources 56. Consortium of Evraz, EPK and Severstal to build railroad 57. Evraz provides update on NKMK's rail-mill project 58. Mechel to upgrade Bratsk Ferroalloy Plant 59. MMK releases 3Q10 trading update 60. MMK revisits plans for development of the Prioskolskoye iron ore deposit 61. NLMK enhances scrap self-sufficiency 62. Polymetal: analyst meeting wrap-up 63. TMK site visit SECTOR Nuclear 64. ASEAN interested in energy cooperation with Russia - minister 65. Saudi Arabia approves civil nuclear cooperation with Russia SECTOR Power 66. IES Holding raises 2011 free-market electricity price forecast 67. Inter RAO UES inks $100mn deal on Ecuadorian hydropower project 68. MRSK Volga's new RAB guidance 41% above previous expectations 69. RusHydro goes abroad 70. Russia and Iceland to develop geothermal industry on Kamchatka 71. Russian ministry sees launch of 3.6 GW power units in 2010 72. TGC-2 to launch 1,130 MW of generating facilities in 2011-2014 SECTOR Retail, FMCG, Pharma 73. Coca-Cola to invest $1 billion in beverage production in Russia in 5 years 74. Eldorado 9M10 numbers: Read-across for M.video 75. Medvedev calls high medicine prices 'immoral' SECTOR Telecom, Internet 76. Megafon to get 4.6MHz in E-GSM 77. No mobile subscriber growth in September 78. Prospects for IT sector improving SECTOR Transport 79. Aeroflot outperformed sector in first nine months of the year 80. Aeroflot seeks penalties for Boeing and Sukhoi 81. Russian airlines continue to outperform global peers 82. Sapsan train races ahead in profitability for Russian Railways 83. Sobyanin offers more roads, parking to tackle Moscow traffic jams 84. Ways of solving Moscow traffic problems SECTOR Agriculture 85. Agriculture Ministry sees 9-10 pct output decline in 2010 86. Cherkizovo announces new greenfield construction 87. Russia extends grain export ban until July 2011 88. Russia to lift flour export ban from January and extend grain ban to June 30 89. Russian agriculture minister calls for cutting poultry imports 90. Russian govt to allocate RUB5bn to cattle farms Q1 2011 SECTOR Automotive 91. AvtoVAZ's swing 92. Canada's Magna opens car component plant in Russia's Kaluga 93. GM-AvtoVAZ checks cars for possible brake failure 94. Lada cars to arrive in Venezuela in November 95. Magna opens Kaluga factory 96. More local components 97. Russia's car output up 92.8% on year in January-September SECTOR Aviation, shipbuilding and defence 98. Exec hopes UAC meets deadlines with first Superjets deliveries 99. France ready to build first Mistral warship for Russia in 2013 100. Medvedev stresses need for financial incentives to boost military reform 101. Rosoboronexport exports over $60bn in arms in ten years 102. Russia and India to begin design of 5G-fighter in December 103. Russia announces tender for purchase of helicopter carriers 104. Russia carries out successful tests of two SLBMs 105. Russia floats out first of new class of frigate 106. Russia ready to discuss arms sales with Iran - arms exporter 107. Russia sends new space freighter to orbital station 108. Russia to manufacture Iveco armored vehicles under license 109. Russia to restrict 'noisy' planes 110. Russian arms exporter denies MiG-31 fighter contract with Syria 111. Russian arms firm denies Yakhont missile deliveries contract 112. Russian Navy to procure 10 new frigates next decade 113. UAC exec says Russia's Irkut to produce, sell An-148 jets SECTOR Tourism, Sports etc. 114. Rostov Region to lose casinos 115. Russia to open over 20 new national parks in next decade - Putin SECTOR Engineering 116. Rostov Region govt sees Guardian launching glass plant late 2012 SECTOR Media 117. UTV Media to spend RUB500mn on 7TV repositioning 118. Video International releases 2010-2015 advertising market forecast SECTOR Chemicals, Fertliser 119. PotashCorp increases prices for granular product USD 75/short tonne GOVT REFORMS, REGULATIONS, ECONOMICS, REGIONS 120. Additional taxes for heavy trucks 121. Dagestan to build its own Cote d'Azur by 2017 122. Domestic fertiliser producers to pay market price for potash starting in 2013 123. Eight MRSK branches may migrate to RAB from November 1 124. EU seeks cancellation of overflight fees 125. Export duty for cement abolished 126. FAS imposes low fine on mobile operators for high roaming rates 127. FTS approves transition to RAB for 11 MRSK branches on January 1 128. Government meeting focused on oil sector long-term stability 129. Ingushetia looks for Chinese investors 130. Prime Minister Vladimir Putin orders preparation for a legal base for running 3G/4G services in 2G network 131. Regulator to consider RAB parameters for eight MRSK grids 132. Russia to reform its armed forces by 2020 - defense minister 133. Shuvalov discussed partial deregulation of domestic potash prices 134. Vietnam mulls free trade zone with post-Soviet customs union UKRAINE INVESTMENT 135. TNK-BP to plough up to $2.5bn into shale gas exploration in Donetsk 136. Alchevsk Coke releases output targets 137. Avangard plans to boost sales by 46.5% YoY in 2011 138. Avangard projects capital investment at $37mn in 2011 139. AvtoKrAZ launches trucks for left-hand drive countries 140. Azarov: Agreement on Russian gas contradicts Ukrainian law 141. Cost of construction of nuclear fuel production plant in Ukraine to exceed $300mn 142. Creativ Group shareholders to develop pig farming as separate business 143. German co seen investing 600mn euros in Ukrainian wind power project 144. Government is Deterring Foreign Investment 145. Government to auction off grain export quotas 146. Interim sugar production results reached 0.93 mln tonnes 147. Kernel Holding confirms plans to export 1.3 Mt of grain despite quotas 148. Kernel's conference call on grain quotas fails to clarify situation 149. Kyiv cancels 66 outdoor billboard permits 150. Kyivenergo highlights investment plans 151. Mariupol Illich Steel boosts output in October 152. MHP ups land bank 5%, adding 11,000 ha 153. MMK Illicha to cut purchases from Yasynivsky Coke 154. Ukraine looks to scrap changes under EU free-trade accord 155. PM forecasts 1Q11 imported gas price at $230-235/tcm 156. Russia may ink deals to build units at Ukrainian nuke plant `10 157. Russia temporarily bans poultry import from MHP 158. Russia, Ukraine and EU need cooperation for security of gas deliveries 159. Steel prices stable last week 160. TNK-BP could pump $2bn into Ukraine shale gas project 161. Ukraine follows Russia in grain quota practices 162. Ukraine harvests over 39.5 m t of grain as of October 26 163. Ukraine negotiating to lift ban on meat and dairy exports to Russia 164. Ukraine to lower dockage for ships transporting oil for Belarus 165. Ukraine to start pumping Azeri oil via Odessa-Brody pipe 166. Ukraine, EU may complete free trade zone talks by June 2011 167. Ukrros produces 61 kt of sugar KAZAKH INVESTMENT 168. Alhambra Resources commences a fall drilling program on North Balusty 169. Kashagan development programme cut by US$18bn 170. Kazakhstan inks 2bn euro cooperation deals with France 171. Kazakhstan to invest $5.4 billion in industrialization in 2011 172. Lockheed Martin signs $50-million contract with Kazaeronavigatsia CENTRAL ASIA INVESTMENT 173. Eurasian countries among world’s most corrupt 174. Tajikistan to block Vakhsh river in November 175. Tajikistan to provide electricity to Pakistan 176. Turkmenistan has “great potential” - ExxonMobil 177. Uzbekistan to amend bankruptcy law 178. Uzbekistan: Uzmetkombinat increases production BELARUS INVESTMENT 179. Belarus gets green light from U.S., EU for WTO accession talks 180. Belarus to present $1.266bn flat stock plant project at invest forum in Germany 181. Belarus to present over 100 projects at investment forum in Frankfurt am Main 182. Belarus to select investor among Chinese cos to build 2nd car-making plant by `11 183. Belarus to sign contract with Chinese CNCEC for soda ash plant construction 184. Belarusian govt to choose investor for car plant by year-end 185. Lithuania is consistently working more closely with Belarus 186. Minsk wants Russian oil re-export duties to be scrapped from 2011 187. Nemiroff plans to make up to 1 million decaliters of vodka annually at Minsk Kristall 188. Nemiroff starts licensed vodka production in Belarus 189. Plywood factory blast in Belarus leaves 1 dead, 19 injured 190. Renaissance Capital secures major investment mandates in Belarus EURASIA INVESTMENT 191. Azerbaijan decreases grain production 192. Azerbaijan increases car production and decreases refrigerator production 193. Azerbaijan resumes electrolysis production in Surface Active Substances Plant 194. Azerbaijan to meet need for meat completely, during next five years 195. Azerbaijan: Cargo and passenger transportations via automobile transport increase by 6% and 8% in Azerbaijan 196. Azerbaijan: Cargo transportation on Azerbaijan segment of TRACECA transport corridor rises 8% 197. Azerbaijan: Communication services increase by 33% in Azerbaijan 198. Azerbaijan: Czech interests in purchasing of Azerbaijani gas 199. Azerbaijan: IDB increases investment in Azerbaijan 200. Azerbaijan: Investment in Azerbaijan main capital increases by 49% year-on- year 201. Azerbaijan: Oil transportation decreases, gas transportation rises via main pipelines in Azerbaijan 202. Azerbaijan: Passenger transportation via transport sector decreases by 4.7%, cargo transportation increased by 0.1% in September 203. Azerbaijan: Production in chemical industry rises 8% in Azerbaijan 204. Azerbaijan: Stopping of FATF’s monitoring regime in Azerbaijan will create opportunities for attracting of foreign investors - Rufat Aslanli 205. Azerbaijan: Turkish government puts forward initiative to establish Nakhchivan- Turkey Business Council and free trade zone on border 206. Russian cos supply $5mn equip to upgrade Uzbek power plant 207. Tajikistan to limit electric power consumption starting November 1 208. Turkmenistan intends to mount energy cooperation with Europe 209. Turkmenistan, Russia in new energy feud 210. Uzbek co seeks to process oil shale with Russia's Atomenergoproekt SOUTHEAST INVESTMENT 211. Albania's central bank keeps key repo rate unchanged 212. Albania's trade deficit falls in September as exports rise 213. Bosnia's paper and printing industry exports up 214. Bulgaria tobnuild a second nuclear power plant at Belene 215. CEE energy giant serious about Turkish refinery 216. Council underscores 'very positive dynamics' in EU-Moldova relations 217. Croatia contemplates future EU perks of power 218. Croatia's economy still in recession 219. Double-edged decision looming on Serbia 220. EBRD lowers its forecast for Serbia GDP growth 221. EBRD signs 200m euros worth of loans with Alpha Bank subsidiaries in Romania and Serbia 222. EBRD-funded OMV Petrom power generation project on track in Romania 223. IMF predicts Albanian gov debt to be 61.9% by end of 2011 224. Macedonia should keep currency peg, says PM 225. Macedonia's 2011 census to be held in line with UN recommendations and EU standards 226. Macedonia's M1 money supply up 227. Minister says agriculture an opportunity in Serbia 228. Moldova budget revenues increased by 14.7% over last year 229. Moldova sells 110m lei in 3 T-bill issues 230. Moldova's foreign debt rises to $2.364 bn 231. Montenegrin T-bills attracted high level of interest, says government 232. Montenegro attracts 468m in FDI January-September 233. Montenegro wants precautionary deal with IMF 234. Montenegro's foreign trade gap narrows 12.3% in September 235. Romania denies companies moving to Bulgaria 236. September stats for Bosnia 237. Serbian gov begins new negotiations with IMF 238. Tender for Universal Telecoms Service License opens in Montenegro 239. The central bank of Croatia reports drop in total value of assets CENTRAL EUROPE INVESTMENT 240. Baltics, Czech Republic lead CEE - for shoplifting 241. Fiat boss praises Polish productivity 242. Germans to build glue factory in Hungary 243. Lithuania invites Chinese electronics giant 244. Parliamentarians to sort out Poland-Lithuania spat 245. Poland-Lithuania row shows little sign of abating 246. Slovakia has gained access to gas from the Baumgarten node 247. Slovakia to follow Czech Republic on renewables 248. Wind farms planned for Polish lake district 249. Wooden bedsprings put bounce into furniture business OTHER COUNTRIES 250. Mongolia will help loosen China’s stranglehold on rare earths 251. Mongolia: Aspire Mining aims to double resources 252. Mongolia: Cabinet Announces 26 Projects in 4 priority levels 253. Mongolia: Ivanhoe Mines - Rio Tinto dispute would not delay Oyu Tolgoi mine construction 254. Mongolia: Ivanhoe Tension Will Not Stop Mongolian Mine Project 255. Mongolia: SouthGobi Resources to invest US$20.6m in Mongolian coal producer

TOP STORY INVESTMENT 1. A Corporate Ostpolitik bne October 28, 2010

From the Vltava to the Volga, Germany's relationship during the last century with Central and Eastern Europe was a tumultuous affair. But ties between Berlin and the countries to its east in the new millennium are proving to be a lot happier and mutually beneficial.

Western Europe is in the middle of doing an about face on Russia. While European politicians have spent most of the last decade looking down their nose at Russia and criticising it for its poor record on democracy, human rights and corporate governance, over the last year EU leaders have dashed to Moscow to schmooze with what will soon be the biggest consumer market on the continent.

Germany was the exception to this EU conceit. Former chancellor Gerhard Schroeder regarded Russia as a strategic partner from the start and Germany has long been Russia's best friend in the West. Schroeder's pay-off for this after leaving office was a cushy job running Gazprom's Nord Stream pipeline project, which runs directly from the huge Yamal gasfields in Russia's northeast to the German Baltic shore and should prove a boon for Germany, as it will help it become the lynchpin in a new strategic energy tie-up between east and west.

When Angela Merkel became chancellor in 2005, she pointedly gave Moscow the cold shoulder, choosing to visit Poland ahead of Russia. More recently, relations have improved as the chancellor follows Germany's leading companies to this increasingly important European market. "The image of Russia in Europe is often not very flattering and not very fair. In Germany, we have an old saying that goes like this: 'When Russia seems strong, it is not as strong as it seems. When Russia seems weak, it is not as weak as it seems'," wrote Wolfgang Clement, a former German economy minister, in an oped in the Moscow Times in October. "The relations between Germany, the European Union and Russia can be summed up in five words: We depend on one another."

France has belatedly started to see where Schroeder was coming from and over the last 18 months it has been impossible to attend one of the large Russian investment conferences without running into the French finance minister, the impressive Christine Lagarde, who was in Moscow again in October for VTB Bank's second investment summit. It seems that a new Berlin-Paris-Moscow axis is emerging in European politics that stands in stark contrast to the "us versus you" situation that Prime Minister Vladimir Putin outlined in a fiery speech in Munich in 2007, which in essence said Russia was about to give up on any form of partnership with Western Europe.

Lagarde's remarks to attendees at the VTB conference were music to Moscow’s ears. "There is a new monetary policy in the world... It is not unilateral, not bilateral, but multilateral - we need to be multilateral in all areas. It is not appropriate that China is never involved in currency discussions [at things like IMF meetings] or that [Russian Deputy Prime Minister and Finance Minister Alexei] Kudrin can only enter the room at certain sessions of the G7 and G8 session meetings."

Weltmeister

The French are good at flirting, but the Germans work - and that is what really appeals to the Russians. Germany remains the world's trade weltmeister and vies with Turkey to be Russia's biggest trading partner, shipping there over €40bn of goods in just the first six months of this year.

The lacklustre German economy is doing better than most in Europe – its economy grew a miraculous 2.2% in the second quarter from the previous quarter - and that is partly because German exporters, already buoyed by demand in China, are profiting from a modest upswing in CEE as well this year. As emerging Europe's economies revive and banks slowly resume lending, business is picking up and feeding through to the German economy. Exports to the region from Germany rose 20% over the first half of this year, according to the East Committee, which promotes German industry across CEE and the former Soviet Union. "The majority of these countries have overcome the economic crisis, with the exception of Romania, Bulgaria and Croatia," says Klaus Mangold, who is chummy with Schroeder and has headed the East Committee for a decade.

In the first six months of this year, total trade between Germany and all the countries of CEE amounted to €102.9bn, up from €85.5bn a year earlier. Exports from Germany to Poland rose 19.3% to more than €31.4bn in the period. Exports to Russia also showed a strong turnaround, climbing 29%, but remaining in second place at €26bn, which is about 80% of what they were before the crisis, according to the Vienna Institute for International Economic Studies (WIIW).

Follow the growth

With a stagnant home market, German business has flocked to Russia. And most of those firms plan to expand over the next year as the economies of the leading industrialised nations continue to slow. "We have nearly regained the pre-crisis level, and German enterprises view the Russian market as dynamic and growing," German President Christian Wulff told the Russian press during his state visit to Moscow in the middle of October. "About 6,500 German companies are working in Russia, and many of them plan to enlarge their business."

While Russia's overall foreign direct investment (FDI) level is still some way below the pre-crisis peak of $75bn, Kudrin said at the VTB event that FDI should come in at $40bn this year. "We have a large amount of cumulative German investments in the Russian economy. This is almost $23bn. The growth in the first half-year equalled nearly $6bn," Prime Minister Vladimir Putin said following his meeting with the German president.

Anecdotal evidence suggests much of this incoming investment is from strategic investors - particularly retail companies – which are setting out their stalls to grab a share of a market that what was for a brief time in 2008 Europe's largest consumer market. The German DIY chain Obi opened its first stores in Moscow in 2003 and currently has 14 stores, but is expanding rapidly. The cash-and-carry discounter Metro has been in Russia for four years and quickly expanded with its electronic goods giant MediaMarkt. Another German giant Siemens is also deeply entrenched, with a stake in Russia’s leading engineering firm Power Machines. These are established players that have arrived in Russia under their own steam, attracted by the growing wealth of the Russian consumer. Now the government is pushing a new string of deals and also wants to clear the way for its small- and medium-sized enterprise to enter the market, the backbone of the German economy.

During his recent trip to Russia, German President Wulff met with the Ulyanovsk Region's government and said that Russian and German companies might cooperate to build Antonov's massive An-124 cargo plane. This joint venture has been kicked about by the German and Russian governments since Boris Yeltsin's day, but actually looks like it could happen now.

Moscow is expecting more European companies to come and invest in the next five years than any other city on the continent, according to a study released by real estate firm Cushman & Wakefield at the start of October. London, Paris and Frankfurt may be the top-three cities in which to do business in terms of volume, but Moscow wins in terms of getting new business, the survey found, overtaking last year's winner Warsaw: nearly 10% of the 500 European companies surveyed said they expect to bring their operations to Moscow soon.

Even so, Germans say they still find it hard to work in Russia, putting the miles of red tape as their chief moan. "The insufficient legal security and bureaucratic pitfalls scare off German companies sometimes and prevent them from doing more active business in Russia," Wulff said.

2. Banks transfer RUB500bn to invest funds during crisis bne October 26, 2010

Alexei Simanovsky, head of the Central Bank of Russia's (CBR) regulation and oversight department, says that Russian banks transferred about RUB500bn to various investment funds during the economic crisis, reports Prime-Tass.

The news agency quoted Simanovsky as saying that as the economic situation improves, performing assets are being returned to the banks, while non-performing assets are being written off or funds raised from the sale of non-core assets are being booked as compensation for bad assets.

3. Bashneft can win Titov and Trebs by default Troika Dialog October 28, 2010

The Trebs and Titov tender will be declared void and Bashneft will likely be awarded the field, as it submitted the bonus payment, while Surgutneftegaz, the other remaining contender, apparently chose not to, Interfax yesterday cited an official from the Natural Resources Ministry as saying. All other major oil companies were earlier disqualified by the government, while Rosneft chose not to bid.

While the whole show around the field reflects poorly on the country and its business practices, the outcome, as we previously argued, could be positive for Bashneft. Trebs and Titov is the only greenfield that we know of that does not require additional tax breaks, provided the refining clause is removed. The field's NPV, estimated at $1.3 bln, in our view, contributes about 15% to the company's market cap and represents a free option on Bashneft stock, and the market somehow has yet to appraise this.

Oleg Maximov

4. CEE scores well on fibre-optic penetration bne October 27, 2010

Central and Eastern Europe's claims to hi-tech leadership status got a boost Wednesday with data showing that Lithuania boasts the highest fibre-to-the-home (FTTH) penetration rate in Europe, according to the latest figures from the FTTH Council Europe.

There were 284,400 FTTH customers in Lithuania in July, accounting for 20.96 percent of all households, according to the report.

The top five nations in the FTTH ranking are Lithuania, Sweden (12.93 percent of households), Norway (12.03 percent), Slovenia (11.19 percent) and Slovakia (8.73 percent).

"The new member states are leading the drive for fiber to the home in Europe," Chris Holden, the president of the FTTH Council Europe, said in a press release.

5. Chinese cash to power Russian coal bne October 26, 2010

Just as it is building pipelines to carry Russian oil and gas to its rapidly expanding economy, Chinese cash is ready to help Russian companies develop coal deposits in the east of the country in order to export it south, reports The Moscow Times.

Speaking at the International Energy Week conference yesterday, Deputy Energy Minister Anatoly Yanovsky said that by the year's end the government will unveil coal deposits that will be developed using $6bn in Chinese loans.

Russian coal producers will use the cash to finance investments, in return for a guarantee to increase supplies to China, where demand is rising for coal used in making steel and fueling 80% of the country's power plants.

The deposits may include assets owned by Sakhalinugol on Sakhalin Island and the Elegest coal field in eastern Siberia, Yanovsky said. He added that it is for the Russian companies and Chinese banks to negotiate individual deals, and claimed that it's not for the Energy Ministry to make decisions. He declined to name the companies in talks with the Chinese.

The announcement comes as Russia and China have stepped up cooperation in developing trade in oil and gas. Russian oil is scheduled to start flowing across the Chinese border in a new pipeline in January, and the governments expect an agreement on gas sales by July so they can start building another pipeline.

That the loans are aimed at Russian, not Chinese, coal producers, is a diversion from China's traditional policy of giving loans to its own, but this reflects deals in oil and gas over the past few years.

With China's economy so thirsty for energy, it is constantly looking to both expand and diversify its energy supplies. It is about to reap some of the benefits of its Russian cooperation, with Transneft and Rosneft - who were handed tens of billions of dollars worth of loans - about to start delivering 15m tonnes of oil per year through the Chinese spur of the ESPO pipeline.

Russia also hopes that Bejing will agree to fund the Altai gas pipeline, which carry gas from Western Siberia, as the pair draw closer to finally agreeing on gas deliveries after years of disagreement over prices. China has successfully plugged itself into Central Asian hydrocarbons producers in the meantime, as well as seeing imports from the Middle East, Australia and South America boom.

Now the world's biggest coal consumer hopes to increase annual coal imports from Russia to 15m tonnes in the next five years, and raise that to at least 20m tonnes within the next 20 years, according to a statement from the Russian Industry and Trade Ministry last month.

6. CORRUPTION WATCH: Bribery still on the rise bne October 28, 2010

Russian police uncovered 35,000 cases of corruption in the first nine months of 2010, the Interior Ministry said Wednesday, including alleged crimes involving four deputy governors and five regional ministers, reports Bloomberg.

President Medvedev's drive to cut corruption has faced stiff criticism that while he talks a good game, effective action has been thin on the ground. The latest Corruption Perceptions Index released by Transparency International on Tuesday showed that Russia fell eight places in the last year, to leave it 154th out of 178 countries, and make it the most corrupt major economy in the world (i.e. amongst the G20) according to perceptions of business and NGO leaders.

Whilst the announcement was clearly timed as a riposte to the report, it also appears to support claims that there is a glass ceiling when it comes to corruption investigations that leaves senior officials and Moscow-based public servants with the right connections safe from charges. Cases in the spring that saw Mercedes-Daimler and Hewlett-Packard admit to paying bribes to the Interior Ministry and Prosecutor General's office respectively are still to see any Russian officials charged for their part in the cases.

Major bribe taking increased by 17.5 percent from January to September compared with the same period of 2009, the Interior Ministry said. The average size of a bribe increased 1.5 times to about $1,400.

"We understand that you can't overcome corruption in one year," Alexander Nazarov, deputy head of the ministry's economic crimes department, said at a briefing outside Moscow. "We are trying to minimize this problem so it doesn't affect the development of the economy."

Russians pay bribes totaling $300 billion a year, equivalent to almost a quarter of gross domestic product, according to Kirill Kabanov, head of the National Anti- Corruption Committee. Medvedev's promises to reduce corruption won't succeed unless law enforcement is improved, Kabanov said.

7. CORRUPTION WATCH: Public Prosecutor to investigate 4G licensing process Alfa Bank October 26, 2010

According to Kommersant, the Office of the Federal Prosecutor will investigate the Ministry of Telecommunications and the telecoms regulator with respect to the authorities' adherence to regulations concerning the award of frequencies suitable for development of 4G networks. The Federal Prosecutor has issued a letter confirming its intention to look into this matter in response to an enquiry by Duma Deputy Victor Ilyuhin. The Big 3, which had previously voiced concerns to President Dmitry Medvedev over the transparency of the process to award 4G licenses, deny any involvement in Deputy Ilyuhin's enquiry and the Federal Prosecutor's decision to examine the matter.

We qualify this news as POSITIVE for mobile shares. In our view, the Federal Prosecutor's enquiry should ensure the transparency and fairness of the 4G licensing process in Russia, increasing the likelihood that the Big 3 will be allowed to compete on a level playing field and on the basis of their merits for 4G frequencies.

Elena Mills

8. FAS thinks 4G frequencies need to be distributed not just for Big Three operators VTB Capital October 25, 2010

News: On Friday, Interfax quoted Anatoly Golomolzin, Deputy Head of FAS, as saying that 4G frequencies needed to be distributed not just for Big Three operators, but also for smaller operators.

Our View: We think that the lack of 4G frequencies in Russia in general will make it extremely difficult to distribute them to a significant number of players. And given the current balance of lobbying power, the Big Three and Rostelecom are the most likely recipients of 4G frequencies. However we do not expect a quick resolution to the situation with 4G frequencies in general, which has been neutral for the Big Three operators so far.

9. FUNDS Up on the farm Nicholas Watson in Prague October 25, 2010 Over the last decade, farmland has been second only to gold in the list of best-performing assets. And with more droughts like one in Russia this summer and a continuation of the trends that are pushing the world toward a new food crisis, agriculture could well take the top spot over the next 10 years. This past year has been characterised by droughts in two of the world's major food producing nations. A savage drought in Argentina reduced last year's crop harvest (in December 2009 and January) to the smallest in about a century, while in the first eight months of this year, beef exports fell 51% from the year-earlier period. This summer's drought and wildfires in Russia were if anything even more dramatic. On October 12, the Russian Agriculture Ministry said 13.3m hectares (ha) of the country's grain crop has been destroyed, about a third of the expected harvest, rather than the 10.8m ha previously predicted. The Kremlin consequently slapped a ban on grain exports, with Ukraine following suit, which has prompted large wheat importers like Egypt, Tunisia, Algeria and Jordan to buy up extra wheat on the spot market, triggering a sharp rise in world grain prices. Wheat futures for December delivery were trading at around $7 a bushel mid-October, which is up about 46% since the end of June. All this is reminiscent of 2007-08 when spiralling wheat prices prompted food riots in developing countries across the globe. However, traders say this spike is temporary and prices are already sliding back on signs that beneficial weather will boost the winter harvests; prices now are still more than 40% less than those record highs hit a few years ago and food stocks were at a seven-year high at the beginning of the year after bumper harvests last year. But while this short-term panic will no doubt fade, the longer-term trends of a global food crunch remain intact. "Part of the investment case for agriculture is the really strong supply and demand backdrop," says Coast Sullenger, managing director of GAIA Capital Advisors, which runs the GAIA World Agri Fund (up around 18% since the start of the year as of September 30). According to estimates from the UN's Food and Agriculture Organization (FAO), the world will need to produce 70% more food by 2050 as the population rises by 2.3bn people, at the same time as diets and the climate are changing. How can world meet the new demand? Two ways: either increase the amount of arable land or increase the efficiency of that arable land. Land grab There is some space for the former. The FAO and the European Bank for Reconstruction and Development (EBRD), which in mid-October hosted a meeting in Istanbul on food security, estimate that in Kazakhstan, Russia and Ukraine alone around 13m ha of land could be returned to agricultural production with no major environmental cost. "The countries of Central and Eastern Europe and Central Asia have vast untapped agricultural resources and can play a vital role in improving world food security," says Anthony Williams of the EBRD. However, the amount of extra arable land in the world that can be put into production is reckoned to be only another 3%, something that is illustrated by the fact that over the last 50 years the annual growth of harvested hectares has been less than 1%. It's this reality that has pushed countries from Asia, particularly China, and the Middle East to embark upon a fresh land grab. According to a new study by the World Bank, large-scale farmland deals amounting to 45m hectares were carried out in 2009 alone. Ironically, at the same time as some of those countries are buying up foreign land, they are reducing the amount of arable land at home. China’s government recently said it plans to boost annual grain output to more than 550m tonnes by 2020, an increase of 50m tonnes over 2007. However, the amount of cultivable land in the country sharply decreased from 130m ha in 1996 to 122m ha in 2008 due to rapid urbanisation and natural disasters. Much of the rest of gains will have to come from technology via a new so-called "Green Revolution," the post-war technological improvements in agriculture practices that allowed food production per hectare to grow an annual 3% over the same period when the annual growth of land under cultivation was under 1%. But the challenge going forward, says Sullenger, is that much of the easy gains in this area have already been made. "It's easier to increase output per hectare from a low base, but you can only increase the amount so much before you have diminishing returns." GAIA and others see the most leverage for investment returns coming from emerging market regions like Brazil, Russia, Ukraine and Kazakhstan due to low valuations, low costs of production and low land values. In Argentina, the cost of farmland is about $8,000 per hectare, whereas in Russia it's less than $800. "The [former Soviet] region has huge land reserves and enormous potential to increase yields substantially," says Charles Riemenschneider, director of the FAO's Investment Centre. "At the beginning of economic transition, there was an initial sharp drop in production, but since then we have seen slow, but steady progress." Kyrgyzstan's future on hold as votes are recounted Clare Nuttall in Almaty October 22, 2010 Kyrgyzstan seemed to have triumphed over its recent history of revolution and ethnic clashes by holding Central Asia's most democratic elections to date on October 10. But weeks after the vote, a prime minister still had not been selected and the Central Election Committee had bowed to popular pressure for a recount. With the country still anxiously awaiting a result, there are growing fears the continued political void result cause in a renewal of violence. Of the 29 parties that fielded candidates in the October elections, only five managed to pass the 5% threshold needed to take a seat in the parliament. Supporters of Butun Kyrgyzstan, which missed out on a parliament seat by just 0.16%, held a series of demonstrations in the days following the elections. Despite assurances from international monitors that the election was carried out properly, the Central Election Commission has started to recount ballot papers and verify voter lists. The official election result will only be announced after all complaints have been dealt with, the CEC said on October 18. President Roza Otunbayeva has also called for patience while the result is verified. Selection of Kyrgyzstan's new PM, who under the new constitution will govern the country, is therefore on hold until the recount is carried out. Unpredictable The current political stalemate and rising tensions are a disappointment, since the election itself went much more smoothly than expected. Overall, international election monitors commended the process. "I have observed many elections in Central Asia over the years, but this is the first election where I could not predict the outcome," said Morten Hoglund, special coordinator of the short-term Organisation for Security and Cooperation in Europe (OSCE) observer mission in Kyrgyzstan, at a post-election press conference. Although turnout was just under 56%, the run-up to the elections saw an intense period of campaigning, with party politics being openly discussed all over the country. Throughout September and early October, visual evidence of the elections was everywhere, from the five-metre high hoardings in Bishkek, to the party slogans painted into the mountainside on the busy road to Lake Issyk-Kul, to the banners flying from yurts on the high summer pastures. Every evening the television news was devoted to coverage of election rallies interspersed with party political broadcasts. "Children don't say they want to be a doctor or an engineer any more," says Gurulash Zhananbaeva, owner of a guesthouse in the remote mountain town of Naryn, in September. "They want to go to Bishkek and be a politician." The parliament gained new importance with the adoption of a new constitution in June, which saw Kyrgyzstan switch from a presidential republic to a parliamentary republic. The single chamber parliament will select the PM by a majority vote. The system is intended to put a stop to the corruption and abuses of power that took place under the regime of former president Kurmanbek Bakiyev, who was ousted in the April revolution, since power will no longer be concentrated in a single person. Instead, the presidency would become a largely symbolic role. Otunbayeva will surrender her office in October 2011, and is barred from standing again. This is the theory. In practice, among the five parties with parliament seats there has been little progress towards agreeing on a coalition government. The largest share of the vote - 8.88% - went to the nationalist Ata Zhurt party. Speaking after the election, its leader Kamchybek Tashiyev denied links to Bakiyev, but the party counts many former Bakiyev supporters among its leaders. Ata- Zhurt's success was something of a surprise; prior to the elections, the expected outcome had been for a coalition between Otunbayeva's Social Democratic Party (SDP) and Ata-Meken, headed by Omurbek Tekebayev, the architect of Kyrgyzstan's new constitution, which was backed by 90% of voters in the June 2010 referendum. In the event, Ata-Meken came in fifth with 5.6% of the vote and the SDP got 8.04%. The other two parties currently expecting parliament seats Ar-Namys, the party of former Prime Minister Felix Kulov, which took 7.74% of the vote, and Respublika, which has not sided with either the interim government or the opposition, with a 7.24% share. Given the relatively small share of the vote taken by each party, a cross-party coalition is one proposed solution to the stalemate. However, given the parties' divergent views, formation of a stable and long- lasting coalition is unlikely. Another possibility could be for Ata-Meken and the SDP to team up with either the moderate Respublika or - if it passes the threshold with the recount - Butun Kyrgyzstan. However, this would leave Ata-Zhurt, which gained the largest share of the vote, out in the cold. The party's main power base is in the south, where distrust of the Bishkek government is running high. Kyrgyzstan's north and south are divided as much by politics as by the Ala-Too mountain range, and Otunbayeva's government is already unpopular, especially in Bakiyev's hometown of Jalal- Abad. Tensions in the region exploded in June, when a fight between Kyrgyz and Uzbek youths in Osh escalated into four days of deadly ethnic violence and spread to Jalal-Abad and other nearby towns. In the run-up to the election, few people in the south believed the ballot would be free or fair. If Ata Zhurt is sidelined after winning the largest share of the vote, this could lead to further violence at a time when the damage done in June is only just starting to be repaired. Calm before a storm? The rebuilding effort has started, with families camped out in their ruined compounds while they build temporary shelters for the winter, although many of the Uzbek areas are still deserted. "We had a war," local residents say, pointing to the damage. Whole sections of the city's main market, the Jayma bazaar, have also been destroyed, while elsewhere the damage is more isolated - a single restaurant burned down or a beauty salon with its windows smashed and door boarded up in a street of otherwise untouched businesses. By September, the situation was starting to return to normal. The schools had re-opened, albeit with armed guards stationed outside. Traders were also back at the bazaar, where some had set up flower stalls under charred awnings, or heaped watermelons and pumpkins beside piles of rubble. The ongoing investigation into the June events, as the ethnic violence is euphemistically referred to, is a source of further tensions. Several defendants and their relatives have been attacked by angry mobs, according to a report by Human Rights Watch. "The wounds from the June violence are still deep and raw," says Ole Solvang, emergencies researcher at Human Rights Watch. "Fair trials can help heal those wounds, but mob justice and fundamentally flawed investigations will only make things worse." The hope expressed across Kyrgyzstan was that the elections to the newly powerful parliament would produce a government that would be able to ensure security, and allow the economy to get back onto a stable growth path. Kyrgyzstan's economy grew steadily during the Bakiyev years - though most of the population saw little benefit. However, it is set to shrink this year, with the International Monetary Fund (IMF) forecasting a contraction of 3.5% of GDP. Three key sectors – agriculture, tourism and trade – were seriously damaged both by security worries and the closure of borders by Kyrgyzstan's neighbours. The economy has been shored up by remittances from migrant workers abroad and the Kumtor gold mine, which has increased production due to high gold prices. International financial organisations led by the Asian Development Bank, the IMF and the World Bank pledged $1.1bn at a donor conference in July. However, both international and local businesses have decided to hold off on new financial commitments until the future becomes clearer. "Businesses definitely suffered after the April and June events. There was a negative effect on all sections of the economy, and the situation concerning property rights is a serious problem," said Kuban Ashyrkulov, executive director of the International Business Council in Kyrgyzstan. "We hope to have a new parliament and a new government that finally will be able to start thinking about the economy." Only with the election of a new government is the situation expected to return to normality, and investors to feel confident in investing in their businesses and once again looking forward to the future. But will not happen until the current political vacuum has been filled. 10. Germans welcomed back to the Baltics bne October 27, 2010

When the Baltic Germans – many of whose families had lived in das Baltikum for 500 years or more - answered Hitler's call to return "home" in 1939, Latvian Prime Minister Karlis Ulmanis famously declared: "Let them go." Less than a century later, the sentiment is "Let them come."

In recent months, it seems the Baltic states in general, but Latvia in particular, have drifted in Germany's direction. While Estonia has buddied up with Finland thanks to the two countries' shared Finno-Ugric roots and Lithuania has been rediscovering its historic ties to Poland, Latvia has been less certain about which country could act as its big brother.

Latvia's relationship with Sweden has soured thanks to the Swedish banks' role in the country's disastrous credit bubble and the other most obvious partner – Russia – is treated with understandable caution.

But now with Europe's biggest economy proving its strength through the global economic crisis, Latvia, as the country that has fallen furthest and fastest in economic terms, regards Germany as an obvious teacher. Equally importantly, German leaders have been impressed by Latvia's path of Teutonic iron austerity to realign its economy – a stark contrast to the whining imprecations of Greece.

German Chancellor Angela Merkel said as much on September 10 in Riga. Latvia had "passed the test with flying colours," she declared. "We are allies in the European Union when it comes to solid financial policies and adherence to the EU's Stability and Growth Pact."

According to the coterie of German journalists who always travel with Merkel, her Baltic trip was the easiest they could remember. "There seems to be instant agreement on everything, and no nasty surprises at all – in fact it's quite boring," one senior correspondent told bne.

Friends indeed

While in Riga, Merkel addressed the German-Baltic Chamber of Commerce (AHK), many of whose members won praise locally for staying put when other investors chose to flee the troubled Baltic economies. Merkel wowed members with a slick 20- minute pep talk in a modest hotel conference room.

"It won't happen immediately, but these signals in Latvia and Germany are very important [for trade]," AHK director Maren Diale-Schellchmidt tells bne. "Like several other countries, Estonia, Latvia and Lithuania are perceived as strategically important markets by German companies. The current phase of consolidation offers new opportunities, especially for German companies which have not been active here as yet. German companies still have confidence and interest in the Baltic markets, shown by the positive comments and evaluations given in this year's business survey - about 80% would repeat their engagement here."

Crucially, much German investment involves the manufacturing and export industries the region needs to balance its books. Building materials firms such as Henkel (Estonia) and Heidelberg Cement (Lithuania) have opened state-of-the-art factories in recent months, while two days before Merkel's visit extraction firm Nordtorf cut the first sods in a new €6.5m peat substrate plant in eastern Latvia, which is by some measures the poorest part of the EU with 20% unemployment. "In a year, you won't recognise this place," founder Bernhard Steingrover told local press of the plans to turn a soggy bog into a modern factory.

In a sharply contrasting project, the city of Frankfurt is helping Riga plan a new 20,000-square-metre convention centre on a 36-hectare site near Riga airport. Operating through its Messe Frankfurt publicly-owned company, responsibilities range from the initial feasibility study and site analysis to market research. "For Messe Frankfurt, it is essentially a question of strategically expanding business fields. Within the Baltic states, Riga is a particularly attractive city for trade and industry owing to its geo-strategic location within the EU, its major seaport and its proximity to Russia," says Uwe Behm, Messe Frankfurt board member.

Going forward, German energy firms E.On and RWE are considered front-runners in an ongoing but secretive tender for construction of a nuclear power plant in Lithuania, which is likely to cost around €5bn. Another German firm, Nukem, is already responsible for ongoing decomissioning work at the now-defunct Ignalina nuclear plant.

Other smaller factors are playing a role in Latvia's German re-engagement, too. Prime Minister Valdis Dombrovskis spent time in Germany as a student and speaks the language, a fact that has helped him develop a rapport with Merkel, while German tourist numbers have risen by around 20% in the past year as they rediscover Riga's Hanseatic history and Jugendstil architecture. Many are surprised to hear Latvians with names like Šmits peppering their strange language with German-sounding words like bischen - a direct result of their centuries of overlordship.

And with Germany and Russia developing a close relationship, cultivating links with Germany may be a roundabout way of improving links to the east, particularly if little Latvia can convince the two giants to use it as a transit and trade route. An early taste of just such a situation came in September when German logistics giant DB Schenker and Russian Railways sister company TransContainer began operating a new joint depot on the outskirts of the Latvian capital capable of moving incoming cargo rapidly from Riga port to Russia.

11. Investors see Kazakhstan as the smiling assassin bne October 28, 2010

Kazakhstan's prime minister kicked off October's KazEnergy Eurasian Forum in Astana by insisting his government is working to improve the rather battered image of his country as a safe place for foreigners to invest in. Privately, though, international oil majors continue to express concern about the state's ongoing efforts to reassert its control over oil and gas projects.

Karim Massimov, the prime minister, talked about the need to "reduce the uncertainty gap" for foreign investors, an acknowledgement that his government's actions over the past few years to claw back stakes in major oil and gas projects is having an adverse effect on investor confidence. "These uncertainties have had a corrosive effect on investment," he told delegates in his opening speech.

The most high-profile case involved the largest oil development in the world, the giant Kashagan project in the Caspian Sea, which has approximately 35bn barrels of oil in place and reserves of over 10bn barrels. A long-drawn-out dispute over the huge delays and cost overruns was finally resolved in late 2008 when the shareholders in the project - Eni, Shell, Total, Exxon Mobil, ConocoPhillips and Inpex – agreed to give up part of their shares in the project to allow the state-owned KazMunaiGas to raise its stake to 16.81% from 8.33%. Further, a new operating company called the North Caspian Operating Company replaced the previous operator, Eni subsidiary Agip KCO.

Most concede that the Kazakh government had reasonable grounds for pressing its case against the majors, particularly Eni, and altering the production sharing agreement (PSA), which was signed way back in 1997 when the world was a very different place. Instead of 2005, delays now mean that Kashagan won't see first oil until next year, while costs have soared from the initially envisaged $57bn to $136bn. "Circumstances change and it may be necessary in some cases to renegotiate certain terms of contracts and certainly Kazakhstan has a right to do that - contract sanctity works both ways and the Kazakh side can insist that companies meet their obligations," said Daniel Stein, the US State Department's senior adviser to the special envoy for Eurasian energy.

However, the manner by which the Kazakh government ratcheted up the pressure on the project's partners was reminiscent of tactics used by Russia in its various fights with foreign oil companies over outdated PSAs, including those that forced Shell in 2006 to cede control of its Sakhalin-2 project to Gazprom – ie. tax bills and environmental fines.

These tactics have also been employed in other disputes with foreign firms where the Kazakh government is trying to renegotiate agreements. The Tengizchevroil consortium, led by Chevron, that's developing the Tengiz field in Western Kazakhstan was once threatened with having its license withdrawn because of accusations it breached environmental legislation, while the partners of the consortium developing the Karachaganak field - Italy's Eni (32.5%), the UK's BG Group (32.5%), Chevron (20%) and Russia's Lukoil (15%) - have been accused of tax fraud.

These hardball tactics are conveniently glossed over by the government and, indeed, the IOCs themselves. "Maybe I agree this kind of decision or negotiations will increase uncertainties, but the authorities of Kazakhstan try to solve all issues in a reasonable way," the Kazakh oil minister, Sauat Mynbayev, said.

Thus, judging from Mynbayev and Massimov's comments, it appears the Kazakh government's strategy is to concede publicly that their actions might be harming its reputations with investors, while insisting it's only trying to redress past iniquities in the way the contracts were negotiated and it's doing so in a fair and reasonable way. The subtext of this is: at least we're not as bad as the Russians, who aggressively expropriate projects from foreign partners.

Keeping schtum

The foreign majors too are at pains to say in public that the renegotiations of the contracts are being conducted in good faith and are sensitive to ideas otherwise, so much so that Mark Albers, senior vice president at Exxon, when asked at a press conference surrounded by Kazakh government officials whether he believed the government's actions belied its words, snapped back that the question "sounded like a set-up."

"Investors have to evaluate technical, geopolitical, financial conditions and when agreements are changed along the way that increases the risk. Generally, we have been able to resolve issues in this country in our experience over the last 10 years, where there have been disagreements we have been able to come to a resolution of those issues that have enabled the projects to go forward," Albers said through gritted teeth.

In private, however, foreign majors are more forthright. The US State Department's Stein lambasted the Kazakh government during his speech to delegates for resorting to punitive measures such as "public tax audits, intrusive investigations and criminal investigations," and in an interview afterwards he said the complaints are not restricted to US firms. "I wouldn't limit this to the American side, there have been concerns raised by many of the IOCs operating in Kazakhstan," he said.

The concerns have even spread to Kazakh firms. Kenzhebek Ibrashev, head of KazMunaiGaz Exploration Production (KMG EP), the listed subsidiary of Kazakhstan's national oil company, complained before the conference about a lack of clarity over possible changes to the fiscal regime governing oil and gas producers.

It has been widely reported that the government intends to double the export duty on crude oil to $5.40 a barrel from January, in an attempt to shore up the country's budget, as well as force projects such as Tengizchevroil whose PSAs exempt them from the export tax into paying it. Even after the rise, the tax would equal only one- fifth of the duty that was in force until January 2009, when it was abolished to help producers through the global economic crisis, but industry insiders like Ibrashev worry about the lack of a consistent message coming out of the government. "We are obviously concerned about the long-term consequences [of a change in the tax] - when many investors bought our shares, they counted on the stability of the fiscal regime in the country," said Ibrashev. "We hope that by the end of year, the government's plans will be more clear, because companies such as ours and other firms operating in Kazakhstan need clarity in the tax regime – we need to know what to budget for, what to plan for."

Few with knowledge of the inner workings of the Kazakh power structure - essentially a benign dictatorship under President Nursultan Nazarbayev, whose family members are prominently represented - are willing to comment publicly on whether there are divisions with the government. However, examining comments by various officials suggest there might be. Mynbayev, the oil minister, surprised many at the conference by saying that Kazakhstan is not in fact trying to force the partners in Karachaganak to cede a stake in the project to state-owned KMG. "We're not talking about buying a stake," he insists. "The parties are discussing how to improve the project."

Yet this contradicts what Timur Kulibayev, Nazarbayev's son-in-law and a man with huge influence over the country's hydrocarbon industry through various posts on the boards of state firms, said publicly over the summer about how Kazakhstan wants to take a stake of up to 10% in the Karachaganak project.

Either circumstances have changed, various parts of the government are at odds with each other, or Mynbayev is fibbing. Foreign investors are watching closely to see which is true.

12. Lithuanian PM stokes row with Poland bne October 28, 2010

Lithuanian Prime Minister Andrius Kubilius further stoked a simmering row between his country and Poland, accusing individual Polish politicians' of making false accusations.

"I am slightly surprised by this atmosphere heating and absolutely false accusations against Lithuania by individual Polish politicians. I would guess they are a reflection of the Polish interior policy," the Lithuanian prime minister said in an interview to the Ziniu Radijas radio station on Thursday.

His comments were made a day after Polish Foreign Minister Radoslaw Sikorski accused Lithuania of undermining bilateral ties by a number of unresolved issues related to the treatment of ethnic Poles and Polish investments in Lithuania.

13. No new gas-price agreement during Putin's visit to Ukraine Renaissance Capital October 28, 2010

Event: Prime Minister Vladimir Putin met with his Ukrainian counterpart yesterday (27 Oct) to discuss various issues of mutual cooperation, including a new price for imported gas. However, no official agreement was reached following this meeting. Prime Minister Mykola Azarov said before the meeting that Ukraine would seek a new price, while Putin, according to Reuters, noted that Russia is always ready to continue a dialogue. However, later Putin's spokesman, Dmitry Peskov, said that the current agreement completely satisfies the Russian side. During the same visit, TNK- BP signed an agreement with the Ukrainian government on the exploration and development of shale gas in the Donetsk region. According to TNK-BP Executive Director German Khan, the company plans to spend $1-2bn over a five-to-seven- year period on shale gas projects, expecting to reach annual production of 5bcm of gas.

Action: We think the news is neutral for Gazprom.

Rationale: We think further revisions of the gas price are unlikely at this stage, given that just six months ago Russia already agreed to provide a 30% discount. We would expect any further discounts to be linked to better terms forpurchases of gas from Turkmenistan - which should not have any material impact on Gazprom's earnings - or to be part of broader cooperation with Ukraine. For now, we conservatively assume a price of just $177/mcm for Gazprom's gas sold to Ukaine in 2010 (vs the actual price of about $230/mcm in 2Q10).

Ildar Davletshin

14. Putin OKs oil-tax reform in 2011 UralSib October 29, 2010

Putin asks government to submit oil tax bill to Duma by summer 2011. Meeting with high-ranking oil executives and gov- ernment officials in Samara yesterday, Prime Minister Vladimir Putin agreed that a new a tax regime is necessary to keep Russia's oil output at its current 10 mln bpd for the next decade. Putin directed the finance energy ministries to prepare the first draft of a new oil taxation system by the end of 2010 for the government to send them to the Duma in mid-2011 for approval. In addition, he suggested that Rosneft's reduced Vankor duty be extended for an additional four months.

New tax system eventually to allow for excess-profit tax. According to Putin, the new tax system would allow more differ- entiation of the mineral extraction tax (MET) depending on field conditions and set a unified export duty for all types of oil prod- uct, though the rate remains to be set. More importantly, he said that excess-profit tax would be introduced under the new tax framework, but at a later date. We expect the bill to become law in 2012 if Putin's timeline is adhered to.

Rosneft worst-case 2011 EBITDA to increase 4-5%. For Rosneft, the four-month extension (which we understand to mean January-April 2011) would add some 4-5% to EBITDA that it would earn in the absence of tax breaks. This limited tax appears to be a compromise between the Finance Ministry and Rosneft, and should not affect our valuations, as it would not last beyond 2011. It is encouraging that the government has now accepted that oil tax reform is inevitable, but its impact on the industry will depend heavily on the new system's parameters.

Alexei Kokin

15. Russia and Poland to sign gas transit deal this week RIA Novosti October 25, 2010

Russia and Poland will sign an agreement this week that will put an end to a four- year gas transit row between Moscow and Warsaw, Russian Deputy Energy Minister Anatoly Yanovsky said on Monday.

"Not today, but I believe, within a week, no later," Yanovsky said.

The Energy Ministry has ordered companies to prepare contracts to 2037, to expand gas supplies to Poland and "improve the tariff", he added.

Russia and Poland agreed the text of the document on October 17. Gas will be supplied until 2022 while transit will be maintained until 2019, as in the previous contract.

The agreement also envisages a gradual increase in Russian gas supplies to Poland, from 9.7 bcm in 2010 to 11 bcm in 2012. EuRoPolGaz, a Russian-Polish joint venture operating the Polish stretch of the Yamal-Europe pipeline will set the transit tariff.

The Polish government has approved the agreement and is now waiting for EuRoPolGaz and Gaz-System gas operators to sign it.

16. Russia and Ukraine sign agreement on nuclear fuel plant RIA Novosti October 28, 2010

Russian fuel company TVEL and Ukrainian state concern Nuclear Fuel on Wednesday signed an agreement in Kiev on the construction of a nuclear fuel plant in Ukraine.

The agreement was signed during a committee meeting on economic cooperation of the Russian-Ukrainian intergovernmental commission.

"This is very important for us because it is a great step to the closed nuclear fuel cycle in our country," Ukrainian Fuel and Energy Minister Yuri Boyko said. "We have 15 nuclear reactors, and we should have our own nuclear fuel." Ukraine's cabinet on September 22 approved TVEL as the winner of the tender to build a nuclear fuel plant in the country. The plant is to come online in 2014.

The deal would also help to determine the period during which Russia would supply nuclear fuel to Ukraine under the previously agreed contract.

The two neighbors signed a long-term deal to supply nuclear fuel to Ukraine this summer. The agreement contained a clause which directly linked the contract period with the results of the nuclear fuel plant construction tender.

"After the Ukrainian government decided on September 22 that TVEL won the contract to build a nuclear fuel production plant, the term of validity of the nuclear fuel supply contract was extended to the whole period while Russian-made reactors are operational in Ukraine, with an option to be renewed," said Alexander Lokshin, deputy head of Russia's state-run nuclear power corporation Rosatom.

Earlier the head of the Russian state nuclear corporation Rosatom, Sergei Kiriyenko, said the prospects of integrating the Russian and Ukrainian nuclear power industries are real.

Moscow and Kiev intend to establish a Russia-based joint venture on uranium enrichment, similar to the one established by Russia and Kazakhstan in Angarsk in East Siberia, Kiriyenko said.

A delegation of Russian ministers led by Prime Minister Vladimir Putin paid a visit to Ukraine on Wednesday to discuss a wide range of bilateral issues that included energy cooperation with Ukrainian top officials.

17. Russia to compete for helicopter tender to Afghanistan RIA Novosti October 27, 2010

Russia will compete for a helicopter tender for the U.S. anti-terrorism campaign in Afghanistan, the head of the Russian delegation said at the Euronaval 2010 exhibition in Paris.

"The American side asked us [Rosoboronexport] to participate in the tender that is due to be announced in the shortly," Ivan Goncharenko said, adding that technical talks with the United States had already been held.

Goncharenko said Russia had a chance to win the tender because of its price-quality characteristics.

In May, the United States lifted sanctions against Rosoboronexport that it had earlier blacklisted from tenders with U.S. arms. The sanctions were imposed in 2006 after the U.S. government accused Rosoboronexport of violating nuclear non-proliferation rules.

Despite the ban, dozens of Mil Mi-17 Hip helicopters have been bought by the United States for use in Afghanistan and Iraq over the past four years via intermediaries as commercial items, thus avoiding direct contact with Rosoboronexport.

Goncharenko also said Russia had signed a contract with Poland's Defense Ministry on the delivery five Mi-17s for the Polish anti-terrorism operation in Afghanistan.

18. Russia, Poland urge EU to abolish visas for Kaliningrad residents RIA Novosti October 29, 2010 A Russian-Polish agreement introducing visa- free travel for residents of Russia's Baltic exclave of Kaliningrad is ready, but the EU is not eager to approve it, Poland's foreign minister said on Thursday. "We have persuaded EU foreign ministries that we are right, but we have still to persuade interior ministries, which is much more complicated. But both Russia and Poland will try their best to change this [EU] rule," Radoslaw Sikorski said at a joint news conference in Warsaw with his Russian counterpart, Sergei Lavrov. The European Parliament's resolution 1931/2006 allows states party to the Schengen agreement to establish a simplified visa regime for people living in a 30-kilometer zone on both sides of an external border. In April, Poland and Russia filed a request to the European Commission seeking to extend the resolution to all Kaliningrad Region residents. Lavrov said it was "obvious to everyone" that the European Union should make an "exception" by approving the Russian- Polish proposal, which he said was in the interest of both Russian and Polish citizens. "I hope that common sense will prevail," the Russian foreign minister said. Russia is also in talks with Lithuania on the easing of EU visa requirements for Kaliningrad region residents. To travel by land from Kaliningrad to the rest of Russia a person must pass through either Lithuania or Poland. 19. Russia's arms exports to reach record $10 bln in 2010 RIA Novosti October 28, 2010

Russia's arms exports are expected to hit an all-time high of over $10 billion in 2010, the head of Russia's state-run arms exporter Rosoboronexport said on Thursday.

In 2009 Russian arms sales were worth $8.5 billion, including $7.4 billion worth via Rosobornexport.

"Rosobornexport currently exports several thousand military products, expanding arms sales by $500-$600 million each year," Anatoly Isaykin told a news conference on the 10th anniversary of the company.

Rosobornexport's portfolio of export orders is estimated at $40 billion, Isaykin said.

Despite constantly expanding arms exports, Russia faces increasing competition on the international arms market from the United States, Germany, France and the United Kingdom as well as Chinese military expansion.

Russia exports weaponry to over 100 countries.

Its main arms customers are India, Algeria, China, Venezuela, Malaysia and Syria. Vietnam also emerged as a key importer after it signed a deal to buy submarines, aircraft and other military hardware from Russia late last year.

20. Russian food prices up six times faster than in EU bne October 26, 2010

Russian Federal State Statistics Service, or Rosstat, said on Tuesday the food prices in the country grew by 9.2 percent in the period of January to September, 6 times than the 1.5 percent seen in the European Union (EU).

In September, Russia food prices rose 2.0 percent while Europe saw just 0.3 percent increase and some European countries even saw the lower prices - Hungary, Denmark, Slovenia, the Netherlands, Germany, Portugal, Sweden.

The biggest increase of food prices in Russia was 6.1 percent for dairy products, cheeses and eggs, 4.7 percent for oils and fats, 2.7 percent for baked goods.

So far, the fruit prices reportedly fell 0.8 percent while vegetables prices grew almost twice (46.3 percent) in Russia over the first nine months while 6.1 percent in the EU.

In addition, the pace of price hike in Russia in January-September 2010 has been four times higher than in Europe, Rosstat said.

Russia's consumer prices in September rose 0.8 percent while in European countries the consumer inflation was 0.2 percent. For first nine months of 2010 inflation in Russia amounted to 6.2 percent against 1.5 percent average in the European Union.

Among the non-EU countries, inflation for first nine months has been higher than that in Russia were Ukraine (7.4) and Belarus (6.8). The only EU country which inflation was equal to Russian was Romania, with 6.2 percent for that period.

21. Transneft announces plans for earlier completion of new pipeline projects Renaissance Capital October 29, 2010

Event: Yesterday (28 Oct) Transneft CEO Nikolai Tokarev, speaking at a government meeting in Samara, announced that Transneft plans to complete the second phase of the East Siberia Pacific Ocean pipeline (ESPO-2) in 2013, which is one year earlier than originally planned. Tokarev also said that the second line of the Baltic pipeline system (BPS-2) is almost complete and will be commissioned in early 2011, six months earlier than planned. He mentioned that good progress was being made on the Purpe-Samatlor pipeline, with some 50% of it completed. Total capex through 2020 for the new oil pipelines, according to Tokarev, will amount to over $13bn, with an additional $4bn for product pipelines.

Action: We think the news is positive for Transneft and reiterate our BUY rating on the stock.

Rationale: Transneft has historically delayed completion of pipeline projects and its actual costs normally exceeded initial estimates. The fact that the company is now aiming for earlier completion may indicate improving efficiency within the organisation, especially in light of a recent order signed by Prime Minister Vladimir Putin requiring more transparency in its operations. The company's announced capex programme through 2020 is similar to our estimate of $12.3bn (net of VAT); however, we note that the majority (over $10bn) of this spending will be in 2011- 2013.

Ildar Davletshin

22. Turkmenistan blasts Russia and boosts Nabucco bne October 29, 2010

Turkmenistan issued a strongly worded complaint on Thursday that Russia is interfering in its energy policy, as relations between the two former Soviet states continue to deteriorate.

The Turkmen Foreign Ministry accused Russia of attempting to disrupt its plans to develop international energy ties following Russian claims that the European gas market had no place for Turkmen natural gas.

Accompanying a visit by President Dmitry Medvedev to meet his counterpart Kurbanguly Berdymukhamedov, Russia's Deputy Prime Minister Igor Sechin said that the Turkmeniustan is unlikely to ever be able to sell its gas without crossing Russian territory.

"Turkmenistan views the published remarks as an attempt to interfere in the normal course of international energy relations, and cast doubt on our responsibilities to our partners," the Turkmen ministry said in a statement on its website today.

Relations between the two countries have come under stress since the Central Asian state moved to lower its dependence on Russia for exporting its gas - the country's largest source of income by far.

Until recently, Turkmenistan sold practically all of its gas to Russia, with few other options (save minor sales to Iran) to ship it out of the country. However, since Berdymukhamedov came to power in late 2006, the country has been seeking to leverage the geopolitical struggle for energy that has seen the spotlight fall on Central Asia. Both European and Asian countries are keen to access the region's large reserves without having to deal with Moscow.

Last year Turkmenistan opened a pipeline to China, and it has made no secret of its intention to supply the EU's planned Nabucco pipeline - which is intended to carry Central Asian gas to Europe bypassing Russia. Ashgabat has also hiked prices offered to Moscow, which are now some way above the level at which it ships to China.

Moscow has reacted angrily to the new policies and slashed its purchases of Turkmen gas - although poor market dynamics in Europe are also having an effect. The tensions came out into the open last year following an explosion on the mainline to Russia, with Ashgabat claiming that it was caused by Russian negligence. Russia imported 40bcm in 2008, but this year only plans to buy 10bcm.

Now the tensions are bubbling back to the surface, with Medvedev's visit followed closely by news that Exxon Mobil is returning to operate in Turkmenistan after an absence of eight years.

For his part, Sechin claimed last week that the glut on European gas markets would scupper Nabucco- which would compete with Russia's own South Stream to supply southern Europe - for the next four years at least.

Yesterday, Ashgabat hit back by claiming that Russia itself has made Nabucco - whose major problem has been securing supplies to fill the pipeline - more realistic. "Deliveries to Europe have become more realistic ever since Russia lowered its purchases of Turkmen gas," the ministry said in the statement. "Turkmenistan will continue to develop European aims in its energy policy."

The big question for all Turkmen customers however remains just how big its reserves are. Although it has opened itself up a little since eccentric former president Saparmurat Niyazov died in 2006, the country remains secretive, and little official information is available concerning its reserves.

Deliveries to China are expected to hit 40bcm by 2015, whilst Iran has also increased its imports of Turkmen gas, and Ashgabat is actively backing a 1,000-mile pipeline to India and Pakistan.

At the same time, Wednesday saw Exxon Mobil personally welcomed by Berdymukhamedov as it returned to Turkmenistan. The US giant reopened its office in the country, which it closed in 2002 citing economic reasons.

Berdymukhamedov said he hoped that "the huge experience of ExxonMobil could be successfully used in geological exploration and development of Turkmen hydrocarbon reserves on the Caspian Sea shelf, and in oil processing," reports Reuters.

23. UK companies creating joint CEE logistics presence bne October 26, 2010

Companies Helical Bar and Thameling Group announced Monday the creation of a joint venture to develop pre-let warehouse and distribution properties in Central Europe.

The joint venture will focus on strategic sites in Poland, the Czech Republic and Slovakia. Thameling Group will source and develop sites close to major road infrastructure hubs and airports, with Helical Bar providing development finance alongside senior bank finance. The JV’s initial spending capacity will be circa €50 million. Completed assets are expected to be forward sold to the open market.

The joint venture aims to take advantage of the opportunities presented by the decline of land and construction costs in the region. It will provide build-to-suit small and medium size units up to 10,000 sqm within a park environment, together with larger standalone facilities.

Thameling Group co-founding partners Hans van Luijken and Piotr Michalski, formerly joint managing directors of Parkridge CE Developments and Prologis, have a strong track record in the sector. Over the last decade, they have developed, leased and delivered over 1.3 million sqm of warehouse and industrial accommodation and built a land bank of 680 hectares with a development potential of 2.7 million sqm.

International Property Consultants King Sturge introduced Thameling Group to Helical Bar and advised on the joint venture structure.

24. Vietnam wants free trade deal with Russia, Belarus, Kazakhstan bne October 28, 2010

Vietnamese President Nguyen Minh Triet on Thursday proposed concluding a free trade agreement with the Russian-Kazakh-Belarusian customs union, reports Prime- Tass.

The news agency says that Triet was speaking in the run-up to his Russian counterpart Dmitry Medvedev's visit to Vietnam.

The news agency says that Triet also called for stepping up economic cooperation with Russia, including the development of Vietnamese oil and gas fields and the construction of a nuclear plant in Vietnam, and for partnerships in the telecommunications and banking industries.

SECTOR Gas 25. Albania talks on South Stream bne October 25, 2010

Deputy Foreign Minister Vladimir Titov says that Moscow might include Albania in the South Stream gas pipeline, which will carry Russian gas to southeastern Europe, reports The Moscow Times.

The newspaper report quoted Titov as saying that Russia would consider extending the planned pipeline to the small Balkan country.

26. Audit Chamber warns Exxon Neftegas over Sakhalin-1 spending RIA Novosti October 27, 2010

The Russian government may replace Exxon Mobil as operator of Sakhalin-1 oil and gas project for raising its spending to $95.3 billion from $42.8 billion for the period until 2055, Audit Chamber auditor Mikhail Beskhmelnitsyn said on Tuesday.

"In August 2010, Exxon Neftegas presented a long-term operation program, cost estimates for the full development of the field until 2055. A significant reduction in production is envisaged and at the same time spending rose from the planned volume of $42.8 billion to $95.3 billion. This is a growth of 120 percent ...compared to the costs envisaged in a feasibility study provided for the signing of the Production Sharing Agreement. This will lead to a significant reduction in the state's profit," Beskhmelnitsyn said.

"We have no irreplaceables, this is why any issues and proposals can be considered. Today Russian companies can replace (foreign firms)." The Natural Resources Ministry has also said the government and Exxon Neftegas were at odds over this year's spending and negotiations were difficult.

27. Energy Ministry says no plans to replace Sakhalin-1 operator RIA Novosti October 27, 2010

The Russian Energy Ministry has no plans to replace the operator of the Sakhalin-I oil and gas project, which Russian and foreign companies are managing under production-sharing agreements, but will study the Audit Chamber's findings on the operator's efficiency, Energy Minister Sergei Shmatko said on Wednesday.

"The Energy Ministry has never formulated the issue in this way and is not going to do so. But we'll certainly study the Audit Chamber materials that will be submitted," Shmatko said.

The current Sakhalin-1 project operator is U.S. oil firm Exxon Neftegas. Russia's Natural Resources Ministry said in late September that disagreements between Russian ministries and the company persisted, especially in relation to a new cost estimate for the project.

28. Exxon Neftegas vows to stick to approved Sakhalin-1 budget RIA Novosti October 27, 2010

Exxon Neftegas, operator of Russia's Sakhalin-1 oil and gas project, says it will strictly adhere to an approved budget for the project, following accusations by the Audit Chamber that the company had increased spending to levels unprofitable for the government.

"The amount of work at Sakhalin-1 has not undergone significant changes. The consortium continues to implement its activities under the initial budget approved by the authorized governmental body," the company said on Wednesday.

"Exxon Neftegas Limited company and consortium members strictly follow existing obligations to develop the Sakhalin-1 project and its future stages and to provide the highest possible benefits from its implementation to all parties in accordance with a production sharing agreement (PSA) on Sakhalin- 1." The Audit Chamber said on Tuesday that the government could replace Exxon Neftegas as Sakhalin-1 operator for increasing spending on the project to $95.3 billion from the approved $42.8 billion for the period until 2055.

Exxon Neftegas also said that it had presented a phased program of Sakhalin-1 development to an authorized state body.

"The work program and a corresponding costs estimate correspond to the PSA and previously submitted documents approved by the authorized government body," the firm said. "We will continue active cooperation with the authorized government body on future plans for project development."

29. Gazprom offers Poland no discount on additional gas bne October 29, 2010

Russian gas giant Gazprom will not be offering Poland a discount on additional gas deliveries agreed upon on Friday, reports Interfax.

Citing an unnamed source at Gazprom Export, the news agency says that there won't be a discount.

30. Gazprom unit plans to reconstruct 37,000 km of pipes over 10 years bne October 25, 2010

Gazpromregiongaz, a subsidiary of Russian natural gas giant Gazprom, plans to reconstruct 37,000 kilometers of gas pipelines over the next 10 years, says the company's CEO Sergei Gustov, reports Prime-Tass.

The news agency says that Gazpromregiongaz operates Gazprom's gas distribution assets in Russia.

31. Moscow and Kiev to create working group to revise gas deal - Azarov RIA Novosti October 29, 2010

Russia has agreed to create a working group with Ukraine to revise contracts on gas supplies, Ukrainian Prime Minister Mykola Azarov said on Thursday.

Ukraine has long asked Russia to reconsider the gas pricing formula and the issue was discussed at talks between Azarov and Russian Prime Minister Vladimir Putin on Wednesday. Putin said after the talks that no agreement had been reached but discussions would continue. He predicted that a mutually acceptable solution would be found.

Earlier on Thursday Azarov said Ukraine would pay roughly $230-235 for 1,000 cubic meters of Russian gas in the first quarter of 2011, but on television he merely expressed the hope that a deal would be reached.

"Currently we have the main thing for this optimism - a good political framework," Azarov said. "There is trust between the leaders, the presidents, between the governments and an understanding that the problem should be solved based on the principles of mutual benefit." Ukraine's national energy company Naftogaz was given a 30-percent discount for Russian gas in April when the Ukrainian government agreed to extend Russia's lease on a naval base in Crimea until at least 2042.

Ukraine paid $305 for 1,000 cubic meters of Russian gas in the first quarter of 2010, $236 in the second quarter and $248 in the third quarter. The Ukrainian Energy Ministry predicted in early October that the price for Russian gas supplied to Ukraine would stand at $245-270 for 1,000 cubic meters in the first quarter of 2011.

Gazrpom Deputy Chairman Valery Golubev has said the gas price in the first quarter of 2011 would remain at the level of this year's fourth quarter, which he put at $250.

32. Netherlands, Denmark ask for more gas from Gazprom RIA Novosti October 29, 2010

Gazprom has received requests for higher gas deliveries from the Netherlands and Denmark, Gazprom Deputy Chairman Alexander Medvedev said on Friday.

"We have orders for increased gas supplies from the Netherlands and Denmark. This means that gas has a promising future," said Medvedev, who heads Gazprom's export arm Gazprom export.

Earlier this week Gazprom's head of Foreign Relations Department Stanislav Tsygankov said the company maintained its plan to increase gas exports to Europe, its largest export market, to 180 bcm per year by 2020, adding that 2010 gas exports would be at last year's level or nearly 140 bcm.

Consumers in Europe, where the economic slowdown has slashed gas consumption, are bargaining for a lower gas price on long-term agreements with Gazprom, citing cheaper fuel on spot markets, and the company cannot get the lucrative deals it had about five years ago.

Last winter, Gazprom, which supplies a quarter of the European Union's gas needs, offered some European clients a spot pricing element in their deals to stimulate volumes, but the company said it had recently stopped offering them.

Tsygankov has said Gazprom expected European demand to return to pre-crisis levels by 2012.

33. Polish government approves deal with Russia on increased gas supplies RIA Novosti October 27, 2010

The Polish government has approved an agreement with Russia on the increase of Russian gas supply to Poland, the government's press service said.

"The Cabinet has agreed to sign the document," the press service said in a statement.

"The conclusion of the agreement results from the necessity of providing Poland with additional natural gas supplies and increasing the country's energy security," the statement said.

The deal, under which Russia will increase its gas supplies to Poland via the Yamal- Europe pipeline by 2 billion cubic meters annually, is expected to be signed later this week.

The agreement, reached on October 17 in Moscow, is valid through 2022.

In January, Polish state gas monopoly PGNiG signed a contract with Russian energy giant Gazprom increasing Russian gas supplies to Poland to up to 10.2 billon cubic meters a year.

34. Russia and Poland sign new gas deal with possible discounts RIA Novosti October 29, 2010

Russia and Poland ended a four-year impasse on energy supplies on Friday by signing new gas supply and transit agreements.

Moscow promised Warsaw discounts if it bought more gas, Deputy Prime Minister Igor Sechin said on Friday following a meeting with his Polish colleague Waldemar Pawlak.

"A discount is possible if the volume of gas supplies increases," Sechin said.

Alexander Medvedev, deputy chairman of Russian gas giant Gazprom and head of Gazprom Export, said the new agreements envisaged a flexible discount system for purchases on top of minimum contract volumes.

Pawlak had said Warsaw would only sign the deal if it contained a 10 percent discount on additional volumes.

The new agreement says that Russia will increase supplies to 11 bcm from 2012 until 2022, up from 9.7 bcm in 2010. The transit tariff will be set by EuRoPolGaz, a Russian-Polish joint venture operating the Polish sector of the Yamal - Europe pipeline, which carries gas from the Yamal peninsula to Europe.

The transit agreement runs until 2019 as in the previous contract, but Sechin said the extension of delivery and transit contracts was possible.

"We are looking positively on the possibility of prolonging deliveries and transit in the future," he said.

The European Union, whom Russia supplies with a quarter of its gas needs, had expressed concern that the new Russian-Polish deal would not comply with EU legislation.

"(The agreements) take into account new elements related to EU market regulation," Pawlak said.

The row between Poland and Gazprom started in 2006, when Warsaw wanted to increase the transit tariff on its stretch of the Yamal-Europe pipeline, prompting Gazprom's ire. Gazprom insisted on a rate set by an intergovernmental agreement and filed a suit against Poland, which it won in 2008.

35. Russia, Greece plan meeting before year-end on Burgas-Alexandroupolis bne October 26, 2010

Russian Energy Minister Sergei Shmatko has said that Russia and Greece plan to hold a joint session before year-end to hash out a unified position concerning the Burgas-Alexandroupolis oil pipeline project and Bulgaria's role, reports Interfax.

The news agency quoted Shmatko as saying that they reached agreement on formation of a working group that will hold a meeting soon to work out Russia and Greece's joint position.

We are going to clarify how to behave toward Bulgaria, Shmatko was quoted as saying.

We respect the position of Bulgaria, who is doing an analysis of this project. We await the results, Shmatko was quoted as saying.

36. Russia, Greece to hold talks on Burgas-Alexandroupolis pipeline before year end RIA Novosti October 25, 2010

Russia and Greece will hold talks to work out a joint position on the Burgas- Alexandroupolis oil pipeline project before the end of the year, Russia's Energy Minister Sergei Shmatko said on Monday.

"We have decided to set up a working group, which will discuss a joint position on the Burgas-Alexandroupolis project at its first meeting," Shmatko said, adding that Moscow respected the position of Bulgaria, which wanted to assess ecological risks of the project.

In 2007, Russia, Greece and Bulgaria signed a contract on a joint construction of the Burgas-Alexandroupolis oil pipeline to bypass the busy Black Sea. The project's capacity amounts to 35 million tons per annum with a possible expansion to 50 million tons.

Construction was delayed after Bulgaria formed a new cabinet headed by Boyko Borisov, who has made contradictory statements on energy projects with Russia, including a rejection of plans to participate in the construction of the Burgas- Alexandroupolis pipeline.

In July, Bulgaria agreed to pay a 6.5 million euro contribution to operating costs for the project, but its participation is still uncertain.

37. Russian deputy PM: “Nabucco project has no perspective at all” APA-Economics October 25, 2010

Nabucco project has no perspective at all, Russian Deputy Prime Minister Igor Sechin told journalists.

“We can say taking the evaluations of Turkmenistan side and European and world experts into accounts Nabucco has no perspective at all. The current situation at gas market proves this.

According to him there is no need realization of Nabucco deal with lack of the perspective for increasing of gas transportation. Nord Stream will be launched and South Stream will be developed until its realization.

Note that, Nabucco is the new gas bridge from Asia to Europe and the flagship project in the Southern Corridor. It will be a pipeline to connect the world’s richest gas regions - the Caspian region, Middle East and Egypt - to the European consumer markets.

The pipeline will link the Eastern border of Turkey, to Baumgarten in Austria - one of the most important gas turntables in Central Europe - via Bulgaria, Romania and Hungary. When completed the 3,300 km pipeline’s annual capacity will be 31 bcm. The construction of the pipeline is supported by the 2009 Intergovernmental Agreement signed in Ankara in July 2009, which harmonises the legal framework and grants stable and equal transport conditions for all partners and customers.

It is widely acknowledged that Central and Western Europe will face a considerable shortfall in its energy supply over the next two decades, with gas prices expected to increase as domestic production declines. Consequently, it is crucial that new infrastructure be established to meet further demand and ensure both security of supply and supply diversification.

The main pipeline will be built in one phase from Ankara to Baumgarten. Construction will start in 2012, with the first gas flowing in 2015.

38. Russian-Turkmen relations: Clearing the way for gas pipes RIA Novosti October 28, 2010

Russian-Turkmen relations can hardly be called cloudless. That's why analysts had every reason to expect Russian President Dmitry Medvedev's recent visit to Ashgabat to be swathed in intrigue.

These expectations were, it appears, quite justified. Although Turkmen President Gurbanguly Berdymukhamedov has said he is ready to deliver more natural gas to Russia, this statement somewhat contradicts Ashgabat's policy to date of diversifying its gas supplies.

In 2009, this Central Asian republic, which boasts the world's fourth-largest gas deposits, finished building a gas pipeline to China and also expanded its gas deliveries to Iran. Turkmenistan is also actively involved in European supply projects aiming to grant Europe access to Asia's natural resource wealth while circumventing Russia.

The promises that Berdymukhamedov has made may seem, at first glance, unexpected, but they have one simple explanation: Ashgabat's new clients are even less malleable than their longtime customers.

China, for one, is in no mood to back down on price. In the first quarter of 2010, Beijing paid $120-140 per thousand cubic meters of Turkmen gas, while Moscow paid $195. Russia will buy just ten billion cu. m. of Turkmen gas this year because the calculated price was even higher, at $240 per thousand cu. m.

Turkmenistan has expedited work on the East-West pipeline, due to transport gas from its largest gas field, South Yolotan, to the Caspian coast. The pipeline transports gas from Turkmen deposits to the continental shelf and on to Europe via the Trans-Caspian or Pre-Caspian gas pipeline, but that's not all. As a two-way pipeline, it can also deliver gas from Turkmenistan's shelf deposits to the country's Asian consumers that lie beyond its eastern borders. Moreover, compressed Turkmen gas can also be shipped by tanker.

The deliberate decision to expedite construction on the East-West pipeline highlights Russian-Turkmen relations: Clearing the way for gas pipes Ashgabat's desire to persuade the European Union to ramp up work on the Nabucco pipeline project and to delve further into trans-Caspian gas-transportation options.

Turkmenistan has made it clear to Europe that it can always supply China. Similarly, Beijing is reminded that it should consider possible risks linked with the transportation of Turkmen gas to Europe.

Ashgabat now wants the EU, which is also bent on diversifying its gas supplies, to swing into action, while Brussels has no misgivings about the Turkmen experience, which shows that diversification does not always have a happy ending.

Without Turkmen gas, all these grand European pipeline projects, and particularly Nabucco, will remain on paper. They can only really lay claim to gas from Azerbaijan, which is already being fought over by a host of prospective customers.

Consequently, none of the three European projects, namely, the Nabucco pipeline, the Trans-Afghanistan Pipeline (TAP) and the Interconnector Turkey-Greece-Italy (ITGI) pipeline, have received any solid guarantees regarding gas supplies from Azerbaijan.

No one wants to buy gas without gas-transportation guarantees. And if there are no customers then investment is not forthcoming. That in turn means that no gas pipeline will be built.

The EU has virtually created a transit corridor linking Turkmenistan, Azerbaijan, Georgia and Turkey, but faces problems getting the gas across the Caspian Sea.

Italian multinational oil and gas company Eni S.p.A. proposes using tankers to deliver liquefied Turkmen gas.

However, as no such projects have yet been implemented anywhere in the world, there is little understanding of what they would involve both economically and technically. Although pipelines can be laid underwater, that approach is not an option for legal reasons, since the littoral countries have to date failed to demarcate their borders.

Yet despite all that, the idea still remains highly attractive, which is why the EU is looking for any loopholes it can find that could be used to justify pipeline construction. Rumors abounded this summer that the European Commission had drawn up a document which could underpin an agreement to build a Turkmenistan- Azerbaijan pipeline.

It was argued that this new pipeline route would be a workable option despite unresolved territorial disputes between the countries involved, including Turkmenistan and Azerbaijan.

In fact, that was only a test to gauge the Russian response. Unsurprisingly, Russia was not well disposed towards these rumored developments.

Another tactical ploy is now on the agenda. A 200-km pipeline has already been laid from the Azeri-Chirag-Guneshli oil and gas field, located midway between Azerbaijan and Turkmenistan, to the Azerbaijani coast.

The EU is seriously contemplating this option and is planning to launch construction of this section of pipeline whether or not Russia consents. That would be a glaring violation of international law from the diplomatic standpoint.

Turkmenistan is prodding Europe to act more resolutely. Ashgabat said in the run-up to Medvedev's visit that it was ready to sell gas to its European customers on the Turkmen border, with the latter then taking responsibility for delivery.

Despite these provocative statements, the EU is unlikely to confront Russia head on. Consequently, this project seems fated to remain something of a pipe dream.

Moreover, China has proved a difficult partner, insisting both on keeping the price low and that it gets Turkmen gas on highly favorable terms. It seems Ashgabat's only chance of making the Turkmen gas sector turn a greater profit is by negotiating with Moscow. Medvedev responded cautiously to Berdymukhamedov's proposal.

The question is: how ready is Russia to exploit this newly favorable situation. Russia's economy may not need additional Turkmen gas that much now, but down the line the need might arise, for example if EU gas prices skyrocket in the medium term.

Moreover, Russian companies could expand gas production in Turkmenistan and sell the gas on to China. Although this is clearly not the most immediately profitable option, it could help oust a potential rival from the European market.

Konstantin Simonov is the general director of the Moscow-based National Energy Security Foundation.

39. Ukraine says Russia agrees to lower gas price next year RIA Novosti October 29, 2010

Ukraine will pay roughly $230-235 for 1,000 cubic meters of Russian gas in the first quarter of 2011, less than was predicted, Ukrainian Prime Minister Mykola Azarov said on Thursday.

The statement followed talks between Azarov and Russian Prime Minister Vladimir Putin in Kiev on Wednesday. "We made good progress yesterday," Azarov told journalists in Kiev.

Putin said after their meeting that no agreement had been reached, adding that discussions would continue and expressing confidence that a mutually satisfactory solution would be found.

The Ukrainian Energy Ministry predicted in early October that the price for Russian gas supplied to Ukraine would stand at $245-270 for 1,000 cubic meters in the first quarter of 2011.

Gazrpom Deputy Chairman Valery Golubev had said the gas price in the first quarter of 2011 would remain at the level of this year's fourth quarter, which he put at $250.

Ukraine's national energy company Naftogaz was given a 30-percent discount for Russian gas in April when the Ukrainian government agreed to extend Russia's lease on a naval base in Crimea until at least 2042.

Ukraine paid $305 for 1,000 cubic meters of Russian gas in the first quarter of 2010, $236 in the second quarter and $248 in the third quarter.

Ukraine has long asked Russia to reconsider the gas pricing formula, saying that the current prices are still too high. Russian Energy Minister Sergei Shmatko said in mid- October that Russia was considering Ukraine's proposal.

SECTOR Oil 40. Alekperov comments on LUKOIL's plans VTB Capital October 27, 2010

News: LUKOIL's President Vagit Alekperov said in an interview yesterday that that over the next 5-6 years LUKOIL's capital expenditures would be no less than USD 10bn a year. He said that the company plans issue Eurobonds for 5 to 10 years totalling around USD 1bn, possibly in two tranches. According to Alekperov, ConocoPhillips currently owns less than 4% in LUKOIL's share capital and that LUKOIL did not plan to acquire it. LUKOIL will consider an SPO of shares acquired from Conoco later on. Touching upon the of development West Qurna, Alekperov said that the drilling would start in March-April 2011, with first production to follow in 2012 at 120mbd.

Our View: In our model, we expect LUKOIL's capex at USD 9.5-10bn per annum during 2011-2016F, which is slightly below Alekperov's guidance, which is largely attributable to West Qurna, yet not part of our valuation. In terms of Conoco's remaining stake in LUKOIL we believe that even if the company would sell it to the market, the technical risk is not significant, considering the size of the stake (around 4%). Nonetheless, we believe that management would be willing to obtain control over the remaining 4%. We welcome the possible SPO in Asia, though we do not view it as an essential valuation driver for what is already the most liquid Russian oil stock.

41. Investment in Russian oil refineries may hit RUB780bn bne October 28, 2010

Russian Prime Minister Vladimir Putin announced that major oil refineries are planning to attract about RUB780bn of investment to modernize production, reports Interfax.

The news agency quoted Putin as saying that he know that large companies are planning to invest a total of RUB780bn into modernizing those production facilities.

42. Lukoil to increase invest in oil refining after 2012 bne October 27, 2010

Lukoil Vice President Vladimir Nekrasov says that Lukoil plans to increase annual investments in oil refining to $2.5bn after 2012 from $2.0bn currently, reports Prime-Tass.

The news agency quoted Nekrasov as saying that Lukoil also plans to increase oil refining to 2 million tonnes per year after 2016 after refinery upgrades.

43. Oil refining can yield $5bn in annual budget revenues through bne October 28, 2010

Russian Energy Minister Sergei Shmatko has said that annual budget revenues from oil refining are estimated at $5bn through 2020, reports Interfax.

The news agency quoted Shmatko as saying that this will make it possible to ensure refining volumes at 230-240 million tons per year.

44. Putin sees oil cos drafting upgrade plans worth RUB780bn bne October 28, 2010

Russian Prime Minister Vladimir Putin has said that Russian oil companies are expected to draft refinery upgrade programs with a combined cost of RUB780bn for the period until 2020, reports Prime-Tass.

The news agency quoted Putin as saying that Russia's oil industry needs total investments worth over RUB8.6 trillion in this period, he said. Russia's oil output is projected to remain at around 500 million tonnes per year over the next 10 years.

The news agency says that Putin also instructed government agencies to discuss proposals on a new taxation system for the oil industry by the end of 2010 and submit them to the State Duma sometime in June-August 2011.

45. Rosneft denies Bashneft cooperation offer on Trebs, Titov deposits RIA Novosti October 31, 2010

Rosneft has denied proposing cooperation with mid-sized oil company Bashneft in development of the huge Trebs and Titov oil deposits, Rosneft President Eduard Khudainatov said on Friday.

"We have not turned to Bashneft, have not met or held any talks," Khudainatov said.

Bashneft is one of two bidders left in the tender for the Trebs and Titov deposits. The second participant in the tender, Surgutneftegas, has not yet made an advance payment or presented its feasibility study.

Khudainatov said that if Bashneft proposes cooperation with Rosneft after getting the license, the company would scrutinize the project's potential.

The government will auction the fields, located in the oil-rich northern Timan- Pechora province, on December 2.

In September, the government admitted only Surgutneftegas and Bashneft to the tender and rejected bids by LUKoil, TNK-BP, Gazprom Neft and Nord Imperial, part of India's ONGC, on procedural grounds.

The Trebs and Titov deposits are among the most promising in the Timan-Pechora province.

46. Rosneft in talks on joint oil, gas projects in Ecuador RIA Novosti October 27, 2010

Rosneft may participate in development of oil and gas condensate deposits and oil refinery projects in Ecuador, the company said on Tuesday.

That follows talks between Rosneft President Eduard Khudainatov and an Ecuadorian delegation, including Ecuador's Strategic Resources Minister Jorge Glas, and Ecuadorian Ambassador to Russia Patricio Chavez.

"During the talks, both parties discussed the opportunities for mutual cooperation and implementation of joint oil and gas projects in Ecuador. In particular, the parties discussed Rosneft's possible participation in the development of oil and gas condensate deposits and oil refinery projects," the company said.

47. Russia's hydrocarbon reserves twice the size estimated according to international standards bne October 28, 2010

Russian Energy Minister Sergei Shmatko has said that Russia's hydrocarbon reserves measured according to domestic standards are twice the size estimated under international classification, reports Interfax.

The news agency quoted Shmatko as saying that this is because unlike international standards, ours don't take into account such things as economic expediency.

Russia's oil reserves are estimated at 22 billion tonnes, enough to keep extraction at the current level for 40 years, the minister was quoted as saying.

48. Russian and Japanese companies to invest $300 million in East Siberian oil, gas projects RIA Novosti October 26, 2010

The Irkutsk Gas Company (INK) and the Japan Oil, Gas and Metals Cooperation (JOGMEC) will invest $300 million until 2014 in the development of three oil and gas sites in the north of Russia's Irkutsk region, the head of the INK board of directors said on Saturday.

INK and JOGMEC began working together in 2007, when they established two joint ventures for the development of three oil and gas sites in the north of Irkutsk region: North Mogdinsk, West Yaraktinsk and Bolshetirsk.

"We plan to invest $300 million in the project. INK will contribute 51 percent, while JOGMEC will contribute 49 percent," Nikolai Buinov said.

The reserves of North Mogdinsk are estimated at around 14.8 million tons, INK said in a report, although Buinov said they could in fact amount to as much as 50 million tons.

The report said gas deposits at West Yaraktinsk have been confirmed, while drilling is still being carried out at Bolshetirsk.

Buinov estimated that the first oil from the deposits would enter Japan on the East Siberia - Pacific Ocean (ESPO) oil pipeline in three to four years time.

The ESPO pipeline is slated to pump up to 1.6 million barrels of crude per day from Siberia to Russia's Far East and then onto China and the Asia-Pacific region. The pipeline's first leg is expected to be commissioned in late 2009.

JOGMEC President Hirobumi Kawano said the company was considering using new Japan GTL technology, which allows the production of liquid fuels from natural gas, in the excavation of the Irkutsk fields.

INK has licenses to develop 11 oil and gas deposits in the north of the Irkutsk region.

JOGMEC, which is 100 percent owned by the Japanese government, is engaged in gas and mining projects in a number of different countries and has a market capitalization of $3.37 billion.

49. TransCreditBank to invest in $2.4bn oil refinery project bne October 26, 2010

Russia's TransCreditBank has signed an agreement to invest in a $2.4bn project to build the Verkhotursky Oil Refinery in the Sverdlovsk Region, reports Prime-Tass.

Citing TransCreditBank, the news agency says that of the total, $1.6bn is expected to be invested over a period of five years.

50. TransCreditBank, Verkhotursky refinery to launch oil refinery by 2014 RIA Novosti October 27, 2010

TransCreditBank, the banking arm of state monopoly Russian Railways, and Verkhotursky oil refinery have signed a cooperation agreement to build an oil refinery in the Sverdlovsk region in the Urals, the bank said on Tuesday.

"The participants assess the total investment at $2.4 billion," the bank said in a statement.

The refinery, with a capacity of three million tons of oil and three billion cubic meters of gas, will be launched in 2014.

The refinery's core product will be vehicle fuel, the regional administration said.

51. Transneft to disclose more details about its operations - better transparency VTB Capital October 25, 2010

News: According to RBC Daily, in addition to the customary financial reports Transneft will be obliged to disclose more information about its operations, such as details of tariff components, investment programme, crude losses, etc. The newspaper speculates that during the next three months the Federal Antimonopoly Service and Federal Tariff Service will develop and approve the system and timetable for Transneft to report the data.

Our View: Should Transneft disclose details of its operations, it would improve the company's transparency and the overall understanding of the crude transportation parameters by the market.

Lev Snykov

SECTOR High Tech 52. Prospects for the IT Sector Are Improving : Public and private demand will drive growth UralSib, Russia October 27, 2010

Expectations of IT market growth confirmed. Our view on the Russian IT sector remains positive, and we expect it to benefit from higher demand for IT products in the private sector as well as from government efforts to modernize the Russian economy. The recent approval of a new tax regime for the IT sector (from 2010 to 2019) confirms that the government is taking clear steps to stimulate the industry. In our view, the Russian IT sector should not only be able to maintain its market niche, due to the need for local IT products and services, but it also has competitive advantages on a global level. The recovery in corporate spending on IT products and services, which was scaled down during crisis, should support market growth in 2011 and 2012. In the long term, we expect IT spending in Russia to increase to global levels (2.5% of GDP, compared to the current 1.2%). Recent government measures add further support to our forecast for the sector to grow to $25 bln by 2015 at a 2011-15E CAGR of 17%.

Target prices revised upwards. We have updated our models for IBS Group and Armada to reflect recent developments in the sector and the new tax regime. As a result, our target prices for both stocks were upgraded - by 14% to $16/share for Armada and by 21% to $23/share for IBS Group. We reiterate our Buy recommendation for Armada, which offers 90% upside potential from current levels, and a Hold recommendation for IBS Group, which offers only limited upside potential having already gained 127% YtD. We have left our model for Sitronics unchanged as the IT segment accounts for only a moderate share of its business and the effects of the new tax region on its financials will be negligible.

53. Putin orders to earmark RUB6bn for research universities 2010 bne October 25, 2010

Russian Prime Minister Vladimir Putin has ruled to provide RUB6bn in 2010 to develop national research universities, reports Prime-Tass.

Citing a statement issued by the government's press service, the news agency says that Putin also ordered RUB5bn to be allocated in 2010 to develop five federal universities, namely the Kazan, Arctic, Urals, Northeast, and Far East federal universities, as well as RUB2.25bn to be provided to the Moscow State University.

54. Russia may grant Ukraine access to Glonass for military use RIA Novosti October 27, 2010

Russia is ready to consider giving Ukraine access to high-precision targeting signals provided by the Glonass satellite navigation system, Russian Deputy Prime Minister Sergei Ivanov said on Wednesday.

Glonass is the Russian equivalent of the U.S. Global Positioning System, or GPS, and is designed for both military and civilian use. Both systems allow users to determine their positions to within a few meters.

"If the Ukrainian government shows interest in gaining access to a [Glonass] high- precision signal, we will readily consider this issue," Ivanov told reporters in Moscow.

Russia earlier proposed setting up a joint venture with Ukraine for the development and implementation of the Glonass system.

Ivanov said Russia has been successfully cooperating with India on the use of the Glonass system for defense purposes after Moscow and New Delhi signed a relevant agreement in March.

Russian-built Glonass receivers for aiming and target acquisition are used, in particular, on Brahmos supersonic cruise missiles. According to Indian sources, the receivers have so far performed reliably and consistently.

Russia currently has a total of 26 Glonass satellites in orbit, but three of them are not operational. Three more Glonass-M satellites are scheduled for launch by the end of 2010, allowing Russia to operate a complete Glonass network of 24 operational satellites and have 3-4 satellites in reserve.

55. Russia may invest $5 million in national operating system - paper RIA Novosti October 27, 2010

The Russian government may allocate 161 million rubles ($5.28 million) in 2011 for the development of a national operating system in a bid to reduce the country's dependence on Microsoft, a Russian business daily said on Wednesday.

A further 490 million rubles could be invested in the project from 2011-2013, Vedemosti daily said, citing a draft federal target program.

The project will allow the government to regulate the security of information systems, said Alexander Chachava, president of information technology company Leta Group.

The target program does not include earlier mentioned plans for the development of a national Internet search engine, aimed at stimulating the development of domestic technology.

Instead the draft outlines funding for the development of an internal governmental search engine, which would allow officials to search for documents on ministry databases.

However, specialists told the paper that the project to develop a national search engine is not dead and could find another source of funding.

SECTOR Metals and Natural Resources 56. Consortium of Evraz, EPK and Severstal to build railroad VTB Capital October 26, 2010

News: According to today's Vedomosti, the key holders of licenses in the Ulug- Khem basin are set to create a consortium in order to construct a railway to Transsib.

Our View: Insufficient infrastructure is the major issue which deters the development of new coal mining regions in Russia. Capex required for the construction of the Kyzyl-Kuragino railway with capacity of up to 15mtpa of coal totalling roughly USD4bn with the state fund financing one-third of it.

Based on our estimates, Ulug-Khem is to produce at least 30-40mtpa of coal and transportation capacity as a result has to at least double. Moreover, Transsib also has limited capacity which is a bottleneck for the project. Given our bullish view on coking coal and the current news coupled with China being ready to support development of coal mining in Tuva (as much coal as would be needed for exports) through special purpose credit lines (around USD 6bn), we see the news as another positive development for the industry as a whole.

Alexander Pukhaev

57. Evraz provides update on NKMK's rail-mill project Renaissance Capital October 29, 2010

Event: Yesterday (28 Oct), Evraz announced that the first stage of the rail-mill modernisation project at the NKMK site had been completed. Total project capex is EUR44mn. The universal rolling mill, with the capacity to produce 750k tpa of rails, is designed to produce 100 metre rails that can be used for high-speed railways. The mill will also be able to produce beams, channels, and round and square bars. Evraz said the mill could be commissioned in late 2012. According to Evraz Group CEO Alexander Frolov, "Evraz is aware of the growing demand for higher-quality and longer rails in our key markets, and interest for such rails from our major customer in Russia, OAO Russian Railways." Action: The news is neutral for Evraz, in our view.

Rationale: Evraz did not provide any new details about the NKMK rail-mill project. We think it is worth mentioning that Russian Railways is not currently buying 100 metre rails. Meanwhile, there are new track projects in Russia requiring 100 metre rails in the pipeline. According to Steel Business Briefing, Russian Railways expects to buy 20-30kt of 100 metre rails in 2011 and to increase its purchases to 600kt by 2015. The 100 metre rails are difficult to transport and store, thereby constraining potential export sales. Another element of the high-speed rail story in Russia is that Mechel secured a 20-year umbrella agreement with Russian Railways in 2008 to supply the company with at least 400k tpa of high-speed rails up to 100 metres when the company commissions its new universal rolling mill. According to management, Mechel's universal rolling mill is also scheduled to begin production in 2012.

Boris Krasnojenov

58. Mechel to upgrade Bratsk Ferroalloy Plant Renaissance Capital October 26, 2010

Event: Yesterday (25 Oct), Mechel announced plans to upgrade the Bratsk Ferroalloy Plant. Four new ferroalloy electric furnaces will be installed on the production site in 2011-2012, enhancing production capacity by 30%. The current installed capacity is 91k tpa of ferrosilicon. The project capex of RUB1.9bn (approximately $63mn) will be financed via a credit facility provided by Sberbank. Mechel obtained a five-year maturity (three-year grace period) RUB15bn ($500mn) credit line from Sberbank earlier this month.

Action: The news is positive for Mechel, in our view.

Rationale: Mechel is keeping on track with several major growth capex projects, including the Elga Coal project and the Bluestone Coal enhancement plans. The company is also carrying out a massive upgrade of its steel division, including the installation of a 1mn tpa universal rolling mill for the production of high-speed railway rails and the adoption of new stainless and specialty steel technology. The planned upgrade of the Bratsk Ferroalloy Plant is evidence that Mechel remains in growth mode. Mechel has recently underperformed major coking coal peers across the globe (e.g. Fushan Coal, Walter Energy and Alpha Natural Resources) without any visible reason that we can see. Taking into account positive dynamics in the coking coal sector, we consider the current levels attractive for buying the stock.

Boris Krasnojenov

59. MMK releases 3Q10 trading update Alfa Bank October 28, 2010

Yesterday MMK released its 3Q10 trading update, which included substantially better disclosure on production breakdown and information on prices. Steel volumes were flat q/q with guidance of similar volume for 4Q10, both in line with the company's recent forecast. The share of domestic sales is continuing to rise, and currently makes up 69% of the total vs. 65% in 2Q10. Realized steel prices on the domestic market were mostly flat, while the export price fell 11%. All this was already expected and we therefore view it as neutral.

In the company's mining segment, iron ore rose slightly, while Belon's coal output fell by almost 30%, both in coking and steam coal and concentrate production. The decline was the result of a change of walls during the quarter as well as additional safety measures; similar problems Evraz experienced earlier in the year. MMK reported that coal volumes recovered as of 4Q10. We view the difficult geological conditions and increased ash content at Belon as a negative sign. These issues, highlighted by us earlier, cannot be turned around in one quarter and may continue to negatively affect the company's production performance in the future. Although MMK recently highlighted the issues at Belon, we still see these developments as negative.

We view the results as slightly NEGATIVE, mostly due to the issues in the coal division.

Barry Ehrlich

60. MMK revisits plans for development of the Prioskolskoye iron ore deposit Renaissance Capital October 27, 2010

Event: Yesterday (26 Oct) MMK signed an agreement with Hatch Engineering and Consulting (the Russian division of Canada-based Hatch) on a pre-feasibility study of the Prioskolskoye iron ore project. The deposit's iron ore reserves and mine life are estimated at 2bnt and 60 years. MMK plans to build an iron ore beneficiating plant with the capacity to process 25mn tpa of raw iron ore, and to launch the production of pellets and direct reduced iron (DRI) at the deposit.

Action: The news is positive for MMK, in our view.

Rationale: The agreement with Hatch is MMK's first step towards the development of the Prioskolskoye deposit, which may meet with a positive market reaction. MMK has only 30% self-sufficiency in iron ore, including slag processing, while its remaining needs are supplied primarily by ENRC. The Prioskolskoye project may secure close to 90% iron ore self- sufficiency for MMK in the long term, on the company's estimates, while DRI may be supplied to EAF-based steel-making facilities in Russia and Turkey (Atakas site). The high-grade raw iron ore (36-40% Fe) of the Prioskolskoye deposit and favourable geological conditions in the Kursk Magnetic Anomaly region should enable MMK to build a mine comparable to NLMK's Stoilensky GOK and Metalloinvest's Lebedinsky GOK in terms of efficiency. We note that if MMK decides to go ahead with the Prioskolskoye project, it may require significant investment commitments. The initial stage of the project may take four-to-five years, including the development of infrastructure, and will require $3-4bn of capex. However, efficient upstream integration has become a key success factor for steel mills across the globe, so we think MMK's announcement may find investor support.

Boris Krasnojenov

61. NLMK enhances scrap self-sufficiency Renaissance Capital October 29, 2010

Event: Yesterday (28 Oct), NLMK acquired LLC VMI Recycling Group (VMI) for $28.4mn from a group of private investors. VMI owns scrap collection and processing assets in the Moscow region. It has four sites, equipped with modern scrap- shredding equipment, with a total capacity of approximately 500k tpa.

Action: The news is positive for NLMK, in our view.

Rationale: NLMK is on track to launch a 1.5mn tpa EAF mini mill in the Kaluga region, 80 km from Moscow, in 1H12. With the acquisition of VMI, NLMK targets enhanced self-sufficiency in scrap ahead of launching additional EAF-based steelmaking facilities. NLMK's scrap subsidiary, Vtorchermet, owns a number of scrap yards in the Moscow region, which have obvious synergies with the acquired VMI facilities. We learned during the VII Metallurgical Raw Materials conference in Ukraine earlier this month that CIS markets, including the Russian market, may face a significant scrap shortage in 2013-2014. The major Russian steel mills (e.g. MMK) have already pointed to a visible scrap shortage in 1H10. Thus, the success of the mini mill project largely depends on the level of its integration into scrap collection and processing. According to Steel Business Briefing yesterday, "rumour is circulating in Russia that the government is once more preparing to restrict scrap exports - not through hiking duties, but by complicating the administrative approach." Boris Krasnojenov

62. Polymetal: analyst meeting wrap-up Troika Dialog October 26, 2010

Polymetal yesterday held a regular annual analyst meeting to provide an update on its operations.

_ The team's near-term focus remains the commissioning of Albazino, Amursk POX plant and Mayskoye over the course of 2010-12.

_ Polymetal sees few M&A opportunities, given expanding valuations, and prefers now to center its efforts on its own exploration. Apart from near-mine exploration, the company intends to pursue six other standalone projects, including the acquired Svetloye. It is hoping to discover bulk-mining open-pitable ore bodies with supportive grades. Kazakhstan remains one of the preferred locations.

_ PolymetalreiteratedthatitdoesnotplantoimproveitsfundingpositionviaanSPO.

_ The biggest disappointment remains Dukat, where exploration at the flanks did not yield meaningful results and production will be lower than forecast over 2010-11 as a result of processing low-grade stockpiles and equipment issues that were disclosed last week. This will be addressed, with Goltsovoye becoming operational at end 2010 and equipment retrofitting, but the mill will be working only at 1.3 mln tonnes, compared with the design capacity of 1.5 mln tonnes from 2H12, due to a lack of feed, as stockpiles are exhausted.

_ Further optimization at Varvara is ongoing, and Polymetal thinks costs could be reduced to $500/oz. The total processing capacity at the asset is 5.0 mln tonnes, but the company can only process 3.5 mln tonnes from existing mines, and it will continue to search for feed, either from its own deposits (like East Tarutin), or on a tolling basis.

_ Albazino is on track for commissioning in 4Q10, and Polymetal is excited about its prospects, planning to have 6 mln oz in resources by end 2012. The company feels that the deposit could be mined underground, in addition to open pit, subject to positive exploration, which could almost double the operation's size. The open-pit costs are currently estimated at $450-500/oz.

_ The autoclave has arrived on site at the Amursk POX plant, and the start of commissioning is envisioned for June 2011. Polymetal does not plan to treat third- party concentrates.

On balance, we were left with an encouraging impression, as the company is successfully managing its aggressive growth pipeline (from 780 koz in 2010 to 1.4 mln oz) in the disciplined way that we have come to appreciate so much.

Mikhail_Stiskin

63. TMK site visit Alfa Bank October 27, 2010

TMK held a site visit yesterday and provided positive FY10 guidance and outlook. The company guided for 4MT of product sales (Alfa 3.9MT) $5.5bn of revenue (Alfa $5.4bn) and an EBITDA margin of 16-18% (Alfa 17%).

Our upgrade to O/W on October 1 was based on the view that the company would now be able to meet consensus expectations for FY10 and FY11. Simultaneously, on forward multiples the stock had moved to parity to Russian steel, which is typically a floor for the stock and unfairly values the unique and structural growth attributes of the company relative to the Russian steel sector. This guidance, in our opinion, is supportive of our thesis and we view it as POSITIVE.

Demand appears strong in the near and mid-term: TMK is fully booked out through 1Q11 at longitudinal LDP facilities and operating at 70% at spiral seem LDP. Management expects the Gazprom Altai pipeline as well South Stream (which is potentially subject to cancellation) to deliver a combined 3MT of pipe demand. Gazprom has already begun preparing documentation and deliveries for the Altai pipeline, which may start in early 2012, according to management. This potential timeline and the company's strong positioning to obtain orders from Altai is POSITIVE, in our opinion.

On the negative side, US Steel's 3Q10 financial results released yesterday indicated that tubular product inventory in North America remains on the high side going into 4Q10. While this issue has been flagged by the market for the past few months, it indicates that US divisional performance could be weaker than expected in the 2H10- 1Q11 period.

Barry Ehrlich

SECTOR Nuclear 64. ASEAN interested in energy cooperation with Russia - minister RIA Novosti October 31, 2010

The Association of Southeast Asian Nations (ASEAN) is interested in developing energy cooperation with Russia, including in the nuclear sector, Russian Foreign Minister Sergei Lavrov said on Saturday.

"Our partners have paid special interest to nuclear energy... as well as to the possibilities of developing of geothermal energy," Lavrov told journalists after the Russia-ASEAN summit in the Vietnamese capital of Hanoi.

"The prospects are good, we will work them out as part of our road map for 2010- 2015," Lavrov said.

Other issues discussed included the fight against terrorism, organized crime and drug, he added.

The minister announced earlier on Saturday that Russia will be a regular member of the ASEAN summits from 2011 onwards.

65. Saudi Arabia approves civil nuclear cooperation with Russia RIA Novosti October 27, 2010

The Saudi Arabian government has approved plans for civil nuclear cooperation with Russia, the state-run Saudi Press Agency said.

The draft agreement was signed by the head of the country's center for nuclear and alternative energy technologies, Hashim Abdullah Yamani.

The King Abdullah City for Nuclear and Renewable Energy was founded in April to diversify the kingdom's power generation away from oil and gas.

Saudi Arabia, the world's biggest oil producer, joins other countries of the Cooperation Council for the Arab States of the Gulf (CCASG), including Kuwait, Qatar and the United Arab Emirates in seeking civil nuclear energy.

Kuwait and France sealed a civil nuclear energy deal in April, while the United Arab Emirates and South Korea signed a $20.4 billion agreement last year whereby several companies headed by Korea Electric Power Corp. would build four nuclear plants in the Arab country.

SECTOR Power 66. IES Holding raises 2011 free-market electricity price forecast Troika Dialog October 28, 2010

IES Holding, one of the key strategic investors in the electricity sector, expects growth in free-market electricity prices in 2011 on the back of the introduction of capacity price caps in most (26 out of 29) free-capacity-flow zones (FCFZs). The company forecast an annual average free-market electricity price in the Europe and Urals price zone of R1,020-1,025/MWh, Interfax cited Executive VP and head of IES' trading division Eduard Smelov as saying yesterday. The old forecast was R970- 975/MWh, and the difference represents the missed income that gencos will incur from the introduction of price caps (circa 10-15% of revenues). This new forecast implies higher growth in the electricity price than in fuel costs.

In the FCFZs without price caps, IES Holding expects monthly capacity prices of R140,000-150,000/MW. Commissioning of new capacity in 2011 will cover electricity consumption growth, which will realistically total 1.0-1.5% next year, according to Smelov.

IES Holding's new 2011 average free-market electricity price forecast for the Europe and Urals price zone is 8.2-8.7% above our current forecast of R943/MW. Also, we model 2011 capacity prices for existing capacity at the price cap levels (R118,125/MW per month in the Europe and Urals price zone) across all FCFZs (including the three zones with no formal introduction of price caps). We do not change our estimates, but note that potentially higher prices imply upside risk for our 2011 forecasts and genco valuations. Our top picks in the generation space remain OGK-1, OGK-2 and TGK-1.

Alexander Kotikov

67. Inter RAO UES inks $100mn deal on Ecuadorian hydropower project bne October 26, 2010

Russian power company Inter RAO UES has signed a turnkey agreement totaling more than $100mn to carry out electrical and hydromechanical work at the Toachi- Pilaton hydropower complex in Ecuador with Ecuadorian company Hidrotoapi, reports Prime-Tass.

Citing a statement issued by the Russian company, the news agency says that Hidrotoapi is expected to finance the project with its own and borrowed funds.

68. MRSK Volga's new RAB guidance 41% above previous expectations Alfa Bank October 29, 2010

At an analyst meeting yesterday, MRSK Volga's management announced their new RAB guidance of RUB77.0bn, 41% above MRSK Holding's previous estimate of RUB54.5bn. We treat this announcement as VERY POSITIVE for the company and the entire MRSK universe, as other MRSKs' RAB guidance is likely also to be revised upwards, and the RAB story is currently the key catalyst for these names. Our top picks in the distribution sector are MRSK Urals, MRSK Center-Volga, MRSK Center, MOESK and MRSK South.

On a separate note, yesterday the FTS approved the implementation of RAB- based tariffs for 11 regional MRSK branches that were originally supposed to do so in mid- 2010. RAB will now be in place by January 1, 2011, which we view as supportive of these names. The branches are as follows: from MRSK Center-Volga: Ivenergo and Kirovenergo; MRSK Center: Voronezhenergo, Kostroma, Smolensk and Tambovenergo; and MRSK Volga: Penza, Orenburg, Ulyanovsk, Saratov and Samara. The remaining MRSKs should also adopt RAB by January 1, 2011 as planned. Moreover, we note that two branches of MRSK Center - Bryansk and Orelenergo - will also implement RAB as of November 1, 2010.

Alexander Kornilov

69. RusHydro goes abroad bne October 26, 2010

RusHydro, the country's biggest producer of renewable energy, plans to acquire or build generation assets in Turkey, Vietnam and Kazakhstan, says deputy chief executive George Rizhinashvili, reports The Moscow Times.

The newspaper report quoted Rizhinashvili as saying that RusHydro also plans to swap five sales units with Inter RAO for about 40 percent of Siberian power producer Irkutskenergo.

70. Russia and Iceland to develop geothermal industry on Kamchatka RIA Novosti October 25, 2010

Russia and Iceland are in talks on geothermal energy source projects in the Kamchatka region of Russia's Far East, Energy Minister Sergei Shmatko said on Monday.

"We are discussing a large project to build a geothermal station and possible construction of a power-intensive metallurgy plant in Kamchatka," Shmatko told a government meeting.

"We are filled with enthusiasm. Iceland is very constructive and considers cooperation with Russia as one of its priorities. This is why we are full of hope." Shmatko said that he had visited several large Icelandic enterprises which use hot springs as an energy source. Iceland is fully self-sufficient in energy with the help of renewable energy sources, he said.

Russia plans to get 4.5 percent of its energy from renewable energy sources by 2020, he said.

71. Russian ministry sees launch of 3.6 GW power units in 2010 bne October 28, 2010

Russian Deputy Energy Minister Andrei Shishkin has said that Russian electric power generating companies are expected to launch 3.6 gigawatt (GW) power generating units in 2010, reports Prime-Tass.

The news agency quoted Shishkin as saying that an earlier plan envisaged the launch of 4.481 GW power generating units in 2010.

The launch of 910 megawatt (MW) generating units was postponed until 2011, Shishkin was quoted as saying.

72. TGC-2 to launch 1,130 MW of generating facilities in 2011-2014 bne October 27, 2010

Russian power utility Territorial Generating Company-2 (TGC-2) plans to launch 1,130 megawatts of generating facilities in 2011-2014 under its investment program, reports Prime-Tass.

Citing a statement issued by the company, the news agency says that under a brokerage contract concluded by TGC-2, the company is to launch the facilities, while customers are to purchase power capacity at a price established in the contract over a period of 10 years.

SECTOR Retail, FMCG, Pharma 73. Coca-Cola to invest $1 billion in beverage production in Russia in 5 years RIA Novosti October 28, 2010

The world's largest soft drink producer Coca-Cola plans to invest some $1 billion in developing its production in Russia, the president of the company's Russia, Ukraine & Belarus Business Unit said on Wednesday.

Zoran Vucinic also said at an international forum in the city of Nizhny Novgorod on the Volga that by 2020 Coca-Cola is to double the volume of its business in Russia.

Nizhny Novgorod has hosted a Coca-Cola drink plant since 1996.

Coca-Cola, based in Atlanta, Georgia, sells its products in over 200 countries. The company entered the market of the Soviet Union in the late 1980s. In 2009, the company said it intended to expand its business in Russia.

74. Eldorado 9M10 numbers: Read-across for M.video Renaissance Capital October 28, 2010

Event: On Tuesday (26 Oct), Reuters published parts of an interview with Eldorado CEO Kaha Kobahidze, in which he announced Eldorado's expansion plans for 2011: the company wants to invest $150mn in opening 50 new stores and in the full restyling of 50 old stores (to compare, for M.video next year we assume $68mn of capex and 30 new stores). Capex per store (the same for new openings and restyling) is estimated at $1.5mn (vs $1.8mn for M.video). Kobahidze mentioned a visible recovery in the consumer electronics market as a reason for the increased investment. In our view, the strong market dynamics are driven by income recovery and the wider availability of consumer credit. For 9M10, Eldorado reported 15% rouble-based revenue growth to RUB68.3bn (vs +17% for M.video). The company said that its EBITDA margin reached 4.2% (M.video reported 4.1% in 1H10).

Action: Positive for M.video, in our view.

Rationale: The announcement confirms a positive demand outlook for M.video, in our view. At the same time, competition is intensifying. We think M.video is well positioned to beat the competition, given its strong brand, experienced management team and the RUB6-7bn of net cash on its balance sheet (YE10 estimate), which is available for expansion acceleration. We also note that M.video has outperformed Eldorado in revenue growth so far this year.

75. Medvedev calls high medicine prices 'immoral' RIA Novosti October 25, 2010

Artificially increased prices for medicines are immoral and criminal, Russian President Dmitry Medvedev said on Monday.

"Artificially increased prices in this sphere appear immoral if not criminal," Medvedev said during the State Council's meeting on social-economic issues of the elderly.

The president proposed to expand the pharmacy network and provide more free medicine for pensioners.

"It is necessary to expand the pharmacy network...as well as to facilitate the distribution of prescriptions to elderly people and organize the home delivery of medicines for them," he said.

SECTOR Telecom, Internet 76. Megafon to get 4.6MHz in E-GSM VTB Capital October 26, 2010

News: This morning Kommersant quotes two unnamed sources close to the State Commission on Radio Frequencies as saying that Megafon would get an additional 4.6MHz in E-GSM band for free, which was used by the Military.

Our View: While the news is insignificant at the first glance, we see two important implications for Russian mobile operators: i) the decision once again confirms that chances of a new GSM operator in Moscow emerging are close to zero (as there are no free frequencies and the lobbying power of the Big Three will likely prevent any attempts to get frequencies from the current GSM players), ii) the decision might indicate that the Ministry of Defence might show flexibility in frequencies redistribution, which is a key factor for obtaining of 4G frequencies by the Big Three.

As for any direct impact of the news, we think that Megafon obtaining an additional 4.6MHz band in GSM will not change the competitive situation in Moscow, though it would save some money for Megafon (enabling it to better utilise its GSM equipment).

Victor Klimovich

77. No mobile subscriber growth in September UralSib October 27, 2010

Some growth seen in the capitals but regions post decline. In September the number of active SIM cards in Russia was flat MoM at 216.5 mln, according to the ACM- Consulting survey released yesterday. Nevertheless, mobile penetration in Moscow improved 0.9 ppt MoM to 198.7% and in St Petersburg by 1.1 ppt MoM to 198.0%, while in the regions mobile penetration declined 0.1 ppt MoM to 139.7%.

6Inter-regionals and VimpelCom lag behind competitors. VimpelCom Ltd (VIP - Buy) saw a 0.1% MoM decline in its Russian subscriber base to 51.6 mln. MTS (MBT - Buy), Megafon and Tele2 accounted for 43%, 33% and 24% of net additions, respec- tively. Inter-regional telecoms posted weak performance. For example, Uralsvyazinform (URSI - Buy), Sibirtelecom (STKM - Buy) and NCC, a subsidiary of VolgaTelecom (VTEL-Buy), posted respective 11%, 8% and 9% MoM declines in their mobile sub- scriber bases. This trend supports our pessimistic view on the prospects of the consolidated Rostelecom (RTKM - Hold) on Rus- sian mobile market. That said, such a decline could be partially due to operators cleaning their subscriber bases. In Ukraine small operators Astelit and URS each lost 0.8% of their subscribers, indicating that the leading positions of MTS and Kyivstar are safe.

Mobile statistics irrelevant for growth. These statistics confirm that subscriber growth in Russia is basically over. Thus, in the medium term, we expect the revenues of MTS and VimpelCom Ltd to be driven mainly by growth in the fixed-line broadband and mobile data segments, and this growth potential is not fully priced in by markets in our view. Traded at a 2011E EV/EBITDA of 4.5, VimpelCom Ltd is somewhat cheaper than MTS (4.7), however, the latter offers a more focused and less risky investment case. We reiterate our Buy rating for both names.

78. Prospects for IT sector improving UralSib October 28, 2010

Expectations of IT market growth confirmed. Our view on the Rus- sian IT sector remains positive, and we expect it to benefit from higher demand for IT products in the private sector as well as from government efforts to modernize the Russian economy. The recent approval of a new tax regime for the IT sector (from 2010 to 2019) confirms that the gov- ernment is taking clear steps to stimulate the industry. In our view, the Russian IT sector should not only be able to maintain its market niche, due to the need for local IT products and services, but it also has com- petitive advantages on a global level. The recovery in corporate spending on IT products and services, which was scaled down during crisis, should support market growth in 2011 and 2012. In the long term, we expect IT spending in Russia to increase to global levels (2.5% of GDP, compared to the current 1.2%). Recent govern- ment measures add further support to our forecast for the sector to grow to $25 bln by 2015 at a 2011-15E CAGR of 17%. (Please see our desk note published yesterday.)

Target prices revised upwards. We have updated our models for IBS Group and Armada to reflect recent developments in the sector and the new tax regime. As a result, our target prices for both stocks were upgraded - by 14% to $16/share for Armada and by 21% to $23/share for IBS Group. We reiterate our Buy recommendation for Armada, which offers 90% upside potential from current levels, and a Hold recommendation for IBS Group, which offers only limited upside potential having already gained 127% YtD. We have left our model for Sitronics unchanged as the IT segment accounts for only a moderate share of its business and the effects of the new tax region on its financials will be negligible.

Konstantin Chernyshev

SECTOR Transport 79. Aeroflot outperformed sector in first nine months of the year Alfa Bank October 29, 2010

Aeroflot airlines increased passenger turnover 36.6% y/y in January- September to 26.25 bln pkm. Passenger traffic rose 31.3% to 8.532m passengers. The load factor totaled 78%, 9 ppts above the previous year's figure.

Russian airlines carried 43.8m passengers, an increase of 27% y/y, and 4.3% below Aeroflot's traffic growth. Aeroflot therefore outperformed the sector in the first nine months of the year, which we view as POSITIVE.

Georgy Ivanin

80. Aeroflot seeks penalties for Boeing and Sukhoi VTB Capital October 28, 2010

News: Aeroflot's CFO Shamil Kurmashov announced yesterday that the company planned to seek penalties from Boeing and Sukhoi Civil Aircrafts for delays in their planes delivery schedule. The start of SSJ-100 flights in Aeroflot's delivery had been rescheduled several times over a two-year period with December 2010 being the last agreed deadline. Delays in Boeing-787 production shifted the delivery of first plane to Aeroflot's fleet from 2014 to 2016. Fines for Boeing are likely to exceed USD 100mn.

In separate news, Kurmashov commented that he saw no sense in the privatisation of the state's stake in Aeroflot prior to 2014 when the merger with Rosavia is likely to be completed and would provide synergy effect. The Minister of Transportation, Igor Levitin supported his stance.

Our View: We believe that current statements targeting aircraft makers aim to accelerate plane deliveries. Aeroflot needs them for developing the regional network (SSJ-100) and its image in promoting transportation during Sochi-2014 Olympic Games (B-787). Delays in SSJ-100 deliveries are partially explained by red tape, so we do not expect that the final project owner - Russian government - will accept fines for them. In any case, the amount is likely to be just several million dollars, immaterial for Aeroflot. The company made several attempts to push Boeing for a rescheduling of deliveries for Sochi-2014 needs and this time it turned from sentiments into financial arguments. However, in any case decision on fines might be taken not earlier than in 2014. Statements on privatisation are absolutely reasonable and came in line with our view on the issue. So, we see both news items as neutral for the company.

81. Russian airlines continue to outperform global peers UralSib October 29, 2010

Russian airlines show 32% passenger turnover growth for 9M10 ... Yesterday, Rosaviation announced 9M10 data for Russian airlines with overall passenger and freight turnover rising 32% and 40%, respec- tively, driven by higher air traffic demand this year. In September, Rus- sian airlines' passenger and freight turnover increased 26% YoY. Pas- senger loading for Russian airlines increased 79.3% in 9M10 (up 4.2 ppt YoY) and 81.9% (up 2.6 ppt YoY) in September. According to this data, Aeroflot's passenger turnover increased 34% YoY to 29.8 bln pkm. Aeroflot is expected to provide more details soon.

... outperforming global peers, which grew 8.3%. Earlier this week, IATA announced 9M10 data for international airlines with overall pas- senger and freight turnover up 8.3% and 25.1%, respectively. In Sep- tember, international airlines' passenger and freight traffic increased 10.5% and 14.8% YoY, respectively. For 9M10, the Middle East was the best performing region in the passenger segment, with turnover up 18.7%; in the freight segment, Latin America outperformed, growing 38.5% YoY. In September, the Middle East was the best performing region in both the passenger and freight segments, with 23.9% and 24% YoY growth, respectively. Passenger loading for global airlines was 78.7% in 9M10 (up 3.7 ppt YoY), and 80% in September (up 2.9 ppt YoY). This year, IATA expects passenger and freight turnover to increase 7.7% and 19.8% YoY, respectively.

News supportive for Aeroflot. The news supports our positive view on Aeroflot, which we see as the major beneficiary from stronger demand for air traffic in Russia. Our current model for Aeroflot implies a 26% growth rate for the passenger segment in 2010, with a 74.5% passenger loading factor for the year. Based on Rosaviation's 9M10 data, we believe our current assump- tion is achievable in 2010. We therefore reiterate our Buy on the name.

Anna Kupriyanova

82. Sapsan train races ahead in profitability for Russian Railways RIA Novosti October 26, 2010

The Sapsan high-speed train launched by Russian rail monopoly Russian Railways (RZhD) less than twelve months ago has proved to be the monopoly's sole profitable enterprise in the passenger transport sector, with its profit margin hitting 30 percent, RZhD President Vladimir Yakunin said on Tuesday.

"The other types of rail passenger transportation are loss-making," Yakunin said in an interview with Vedomosti business daily, adding that losses amounted to 34 billion rubles ($1.1 billion) from commuter train carriage and 36 billion rubles from long-distance train transportation.

Commuter train tariffs are regulated by regional authorities while rates for economy- class coaches are set by the Federal Tariff Service. These rates are lower than the economically justified level and therefore the government has to compensate the rail monopoly for its losses, an RZhD representative said. Tariffs for Sapsan fast-speed trains, however, are regulated directly by Russian Railways, which offers competitive rapid carriage services compared with other means of transport.

The demand for high-speed rail passenger carriage has proved to be so strong that the company is considering buying another eight Sapsan trains, Yakunin said, without specifying the terms of the expected deal.

The company plans to make a decision on the purchase by the end of 2010, Valentin Gapanovich, RZhD senior vice-president, said on Friday.

Russian Railways currently has eight high-speed Sapsans produced by the German engineering group Siemens. They run between St Petersburg, Moscow and Nizhny Novgorod. The Sapsan occupancy rate is 84.5 percent, according to RzHD.

The company's revenues from ticket sales may amount to 205 million euros annually at the current ticket price, while profits from the operation of these trains exceed 61 million euros.

83. Sobyanin offers more roads, parking to tackle Moscow traffic jams RIA Novosti October 28, 2010

New Moscow Mayor Sergei Sobyanin has put forward three strategies for solving Moscow's notorious traffic problems.

"The Moscow mayor named three priority areas: increasing the number of parking places, developing public transport and road construction," Moscow's City Hall said on its web site.

The serious lack of parking places in Moscow means that car-owners are often forced to park on the edges and sidewalks of the already busy downtown roads, adding to the traffic chaos.

The mayor said fining drivers for incorrect parking would be ineffective unless the city authorities are able to provide alternative parking places.

A new 1,410-place car park is already being built next to the capital's Belorussky railway station, where the traffic problems are particularly bad, and is due to open in the near future, the press service said.

Sobyanin climbed onto the roof of a 14-storey building near the station on Wednesday morning to assess the traffic-clogged streets below.

In a speech prior to his inauguration, Sobyanin named solving the city's transport problems as one of the key issues on his agenda.

84. Ways of solving Moscow traffic problems RIA Novosti October 28, 2010

SECTOR Agriculture 85. Agriculture Ministry sees 9-10 pct output decline in 2010 RIA Novosti October 27, 2010

This summer's abnormal heat and drought may have caused a fall of 9-10 percent in Russia's agricultural production this year, Agriculture Minister Yelena Skrynnik said on Wednesday.

"In the first nine months of 2010, the agriculture production index amounted to 89.3 percent, while the final 2010 index is expected at 90-91 percent due to a 20-25 percent fall in the production of crop goods caused by the drought," Skrynnik told the Federation Council, Russia's upper house.

Skrynnik reiterated the ministry's grain harvest forecast of 60.5 million tons in net weight compared to year-on-year 97.1 million tons. This volume and existing reserves will suffice to meet Russia's domestic demand.

Skrynnik added that despite the abnormal summer weather, meat output in the first nine months of 2010 grew almost seven percent.

86. Cherkizovo announces new greenfield construction Renaissance Capital October 28, 2010

Event: Yesterday (27 Oct), Cherkizovo announced the beginning of construction at a greenfield pork farm project in the Lipetsk region. The estimated capacity is 12,500 tonnes of live-weight pork per year, starting from 2013. Investments will reach $50mn, of which 20% will be funded by internal cash flows and 80% by bank loans. We calculate the capex per tonne at $4,000.

Action: Positive news for Cherkizovo, in our view (although minor, we estimate the effect on valuation at about 2%).

Rationale: As a result of this investment, we expect 2013 pork production volumes to grow 9% to 153,500 tonnes/year; our 2013 EBITDA forecast rises 3.3%; and our DCF-based target price increases 2% (after accounting for capex). We highlight the favourable geographic location of the farm: it is close to existing facilities, which should result in cost and scale synergies within the high-margin pork division. We remain neutral on the stock, due to high current grain prices and the soft meat-price environment, which indicate a potential margin squeeze for Cherkizovo.

Ulyana Lenvalskaya

87. Russia extends grain export ban until July 2011 VTB Capital October 25, 2010

News: Russia officially extended its grain export ban until 1 July 2011, with Prime Minister Vladimir Putin signing the applicable legislation.

Our View: We note that the decision was fully expected as the forecasted domestic harvest (60mn tonnes) would barely satisfy local demand and government officials have been discussing export ban extension for a while. We also highlight the risk that next year's harvest would be far below peak years 2008-2009 (108mn tonnes and 97mn tonnes respectively) since i) the winter sowing campaign is behind the schedule, ii) seed quality is poor and iii) weather forecasts warn that the coming winter is to be severe. Therefore, we note that export ban might be extended even beyond July 2011. This is potential negative to Razgulay which is a large grain exporter.

Ivan Kushch

88. Russia to lift flour export ban from January and extend grain ban to June 30 RIA Novosti October 25, 2010

Russia will cancel a temporary ban on flour exports from January 1, following a government resolution issued on Monday.

The ban was imposed as part of a grain export ban following the country's worst drought in decades.

The ban on export of wheat, barley, rye, and corn has been extended from January 2 to June 30, 2011, the government said.

Wheat flour and wheat-rye flour was excluded from the list of goods banned from export.

Russia's Grain Union has asked the government to lift the ban on flour and cereals export at least for companies of the Siberian regions, so that they do not lose their hard-won foreign markets. The Grain Union has said Russia has enough flour for its own needs.

89. Russian agriculture minister calls for cutting poultry imports bne October 26, 2010

Russian Agriculture Minister Yelena Skrynnik has called for reducing poultry imports and promoting poultry exports, reports Prime-Tass.

The news agency quoted Skrynnik as saying that she believed Russian producers were able to fully meet domestic demand for poultry.

90. Russian govt to allocate RUB5bn to cattle farms Q1 2011 bne October 25, 2010

Russian Prime Minister Vladimir Putin has said that the Russian government plans to allocate RUB5bn in January-March 2011 to the cattle farms that manage to maintain their head count, reports Prime-Tass.

The news agency says that Putin also proposed allocating at least an additional RUB1bn in 2011 for purchases of fertilizers, bringing the total size of such subsidies to about RUB5.5bn, and RUB1bn for spring planting including purchases of seeds.

SECTOR Automotive 91. AvtoVAZ's swing bne October 28, 2010

Oleg Lobanov, Executive Vice President of AvtoVAZ, has said that AvtoVAZ's profit for 2010 according to Russian accounting standards will be about RUB1bn, reports local media.

Lobanov was quoted as saying that profit according to international standards will be even higher: interest-free loans the company received in 2009-2010 will have effect.

92. Canada's Magna opens car component plant in Russia's Kaluga bne October 28, 2010

Canadian auto component manufacturer Magna International has opened a car component plant in the Russian city of Kaluga, reports Prime-Tass.

The news agency says that the capacity of the plant amounts to 200,000 car kits per year.

93. GM-AvtoVAZ checks cars for possible brake failure RIA Novosti October 29, 2010

GM-AvtoVAZ, a joint venture between General Motors and Russia's top automaker AvtoVAZ, is checking about 2,000 cars sold to dealers for possible braking system problems, a company spokeswoman told RIA Novosti on Friday.

"Since a possible vacuum brake booster defect may appear in Chevrolet NIVA cars, GM-AvtoVAZ is checking all vehicles supplied to dealers from October 6 to October 18. This is 1,973 cars shipped to all Russian regions. The defect is in the increase of force on the brake pedal during braking," the spokeswoman said.

The fault means that with time, the driver would have to put more and more force on the pedal, she said.

"If the problem is identified, it will be removed by the dealer in accordance with GM- AvtoVAZ recommendations. Dealers and customers who bought the cars produced in the above-mentioned period, have already been informed of the necessity to check the cars," the spokeswoman added.

94. Lada cars to arrive in Venezuela in November RIA Novosti October 31, 2010

The first batch of 460 Lada-family cars will arrive in Venezuela in November, the Venezuelan trade minister said.

Russia's biggest automaker AvtoVAZ and Venezuela agreed in April on the construction of a Lada assembly plant in Venezuela and on the delivery of 2,250 Lada cars to the Latin American country.

"The first shipment of 460 Lada Kalina, Lada Priora and Lada 4x4 will arrive in Venezuela in November," the Mexican media quoted Richad Canan as saying.

"They will be sold on the local market for 43,000-51,000 bolivars [$10,000-12,000]," the minister added.

Venezuelan President Hugo Chavez travelled around Moscow in a red Lada Priora during his visit to Russia in October.

Chavez, who owned Lada Niva (4x4) in the 1990s, noted reasonable price and low fuel consumption as the main advantages of Lada cars.

AvtoVAZ made a 3.1 billion ruble ($103 million) net profit to IFRS in the first half of 2010 compared with a 19.6 billion ruble ($635 mln) loss in the first half of 2009.

95. Magna opens Kaluga factory bne October 28, 2010

Canadian auto parts maker Magna on Thursday launched its new plant in Kaluga, which the company said demonstrated its belief in the strong potential of Russia's automotive market, reports The Moscow Times.

The newspaper report says that the facility, whose total production area is 15,000 square meters, will manufacture bumpers and front-end modules and will assemble radiator grills and instrument panel-beams.

96. More local components bne October 26, 2010

Russian Deputy Industry and Trade Minister Andrei Dementyev has said that Russian ministries may reach an agreement on new requirements for foreign automakers with local production within a month, reports The Moscow Times.

The newspaper report says that automakers may be required to increase the amount of locally made components used in production.

97. Russia's car output up 92.8% on year in January-September bne October 26, 2010

Russia's car output rose 92.8% on the year to 823,000 units in January-September, reports Prime-Tass.

Citing a statement issued by the Economic Development Ministry, the news agency says that the increase in output was attributed mainly to low output in January- September 2009 because of low demand and the suspension of production at some car plants.

Russia's truck output rose 62.6% on the year to 102,000 units in January- September, reports Prime-Tass.

SECTOR Aviation, shipbuilding and defence 98. Exec hopes UAC meets deadlines with first Superjets deliveries bne October 27, 2010

Russia's United Aircraft Corporation (UAC) plans to meet the delivery deadline and start supplying the first Sukhoi Superjet 100 planes to customers by the end of 2010, says UAC President Alexei Fyodorov, reports Prime-Tass.

The news agency quoted Fyodorov as saying that the corporation ìstill hopes to start deliveries this year."

99. France ready to build first Mistral warship for Russia in 2013 RIA Novosti October 29, 2010

If Moscow and Paris sign a contract to build Mistral class helicopter carriers for Russia, the first warship may be built in 2013, a top manager of French STX Europe shipbuilder said on Friday.

The shipyards of Saint-Nazaire are seen as the most likely winner in a tender to build amphibious assault warships for the Russian Navy.

"If Russia and France sign the deal, the first Mistral-class vessel may be built in the shipyards of Saint-Nazaire in late 2013-early 2014," said Jacques Hardelay, STX Europe president for operations in France.

He said the shipyards of Saint-Nazaire are able to build two Mistral class warships simultaneously.

"If the contract is signed, then in one year, namely in 2015, Russia would get a second Mistral class warship. Therefore, by 2016 the Russian Navy would have two Mistral class warships," Hardelay said.

"As soon as the contract is signed, we would propose to our Russian colleagues to produce certain components for the first two ships to be built in France. There won't be many [components to be produced] for the first ship, but many more for the second," the official added.

Russia will be able to build its first domestically-produced Mistral class amphibious assault ships in late 2016 or early 2017.

100. Medvedev stresses need for financial incentives to boost military reform RIA Novosti October 29, 2010

Higher salaries are key to the successful reform of the Russian military, President Dmitry Medvedev said on Thursday.

"We will not be able to make our Armed Forces modern and effective, more battle- ready and better equipped if officers receive compensation that does not motivate them to work efficiently," he said.

Personal motivation was critical to national defense, Medvedev said during a visit to a training center outside Moscow.

The military is reforming itself and "although these changes are difficult, they are vital," he said.

A number of good decisions were made to tackle existing problems, the president said without elaborating.

"I am keeping an eye on this as supreme commander-in-chief," he said.

Under a bill pending in the Russian parliament, salaries in the Russian military are to increase considerably. For example, a battalion commander is to make over 100,000 rubles ($3,000) a month.

101. Rosoboronexport exports over $60bn in arms in ten years bne October 28, 2010

Russia's state arms trader Rosoboronexport exported at least $60bn worth of arms and military hardware between 2000 and 2010, says the company's general director, Anatoly Isaikin, reports Interfax.

The news agency quoted Isaikin as saying that the earnings have far exceeded $60bn.

Isaikin was also quoted as saying that Rosoboronexport accounts for 80% of Russia's arms exports.

In the meantime, the news agency quoted Isaikin as saying that the order portfolio keeps increasing daily. It was worth $37.3bn just recently and it has now increased to $40bn.

Defense-industry companies will be loaded with work more than they are now, Isaikin was quoted as saying.

102. Russia and India to begin design of 5G-fighter in December RIA Novosti October 28, 2010

Russia is planning to sign in December an agreement with India on the preliminary design of a joint fifth-generation fighter aircraft, a senior Russian aircraft industry official said on Wednesday.

Russian Sukhoi holding and Indian Hindustan Aeronautics Limited (HAL) agreed in early 2010 to jointly develop a fifth-generation fighter jet, tentatively dubbed PAK FA.

"An agreement with India on the pre-design of the PAK FA will be signed in December," said Alexei Fyodorov, head of Russia's United Aircraft Corporation.

The sides agreed to develop both a single-seat and a two-seat version of the aircraft by 2016, focusing on the single-seat version in the initial stages of development.

The new aircraft will most likely be based on Russia's T-50 prototype fifth-generation fighter, which has already made several test flights and is expected to join the Russian Air Force in 2015.

Russia has been developing its fifth-generation fighter since the 1990s. The current prototype, known as the T-50, was designed by the Sukhoi design bureau and built at a plant in Komsomolsk-on-Amur in Russia's Far East.

Russian officials have already hailed the fighter as "a unique warplane" that combines the capabilities of an air superiority fighter and attack aircraft.

103. Russia announces tender for purchase of helicopter carriers RIA Novosti October 27, 2010

The Russian Defense Ministry has announced a tender for the purchase of amphibious assault ships for the Russian Navy, a deputy defense minister said on Tuesday.

"We have just announced a tender on the purchase of two vessels and on the transfer of technology for future deliveries," Vladimir Popovkin said at the Euronaval 2010 exhibition, which opened on Monday in Paris.

Popovkin said the tender was not public, and he was unable to reveal details.

"But we have sent proposals to all countries capable of building ships of this class," he said, adding that the deal, based on the results of the tender, would be completed by the end of the year.

Experts said earlier that a French Mistral class amphibious assault ship was most likely to win the tender. However, Ivan Goncharenko, the head of the Russian delegation at Euronaval 2010, said Russia had suspended talks with France.

"There were talks on Mistral, but no longer as of today. We were told that once we announce the tender, the talks must be suspended," Goncharenko said. He did not rule out that the talks could be resumed.

Moscow had been in talks with Paris on the purchase of a Mistral class warship on a 2+2 scheme, whereby Russia would buy one or two French-built Mistrals and build another two under license domestically.

The Mistral class ship is capable of transporting and deploying 16 helicopters, four landing barges, up to 70 armored vehicles including 13 battle tanks, and 450 personnel.

The 22nd International Naval Defense & Maritime Exhibition and Conference (Euronaval 2010) is being held at the Paris-Le-Bourget exhibition center on October 25-29.

104. Russia carries out successful tests of two SLBMs RIA Novosti October 28, 2010

Russia successfully tested two ballistic missiles in separate launches from nuclear submarines in the Barents Sea and the Pacific Ocean on Thursday, a Defense Ministry source said.

The official said a Sineva ballistic missile was launched at 2:30 p.m. Moscow time (10:30 GMT) from the Bryansk (Delta IV class) strategic submarine in the Barents Sea and hit its designated target on the Kura test range in Russia's Far East Kamchatka region.

A SS-N-18 Stingray ballistic missile was launched at the same time from the Svyatoy Georgiy Pobedonosets (Delta III class) strategic submarine in the Sea of Okhotsk and hit its designated target on the Chizha testing site in the White Sea.

Both submarines were under water at the time of the launches, the source said.

The test launches were carried out in line with a program to ensure the combat readiness of the naval component of Russia's nuclear triad.

105. Russia floats out first of new class of frigate Ria Novosti October 30, 2010

Russia's first Project 22350 frigate was floated out at the Severnaya Verf shipyard in St. Petersburg on Friday.

The Admiral Gorshkov frigate will be able to execute long-range strike, anti- submarine and escort missions in remote areas.

However, it will be some time yet before it enters service because the ship is only 40% complete, officials said.

The next Gorshkov-class frigate, the Admiral Kasatonov, is under construction and expected to be launched in 2012.

The Russian Navy will receive up to 10 new ocean-going frigates in the next 10 years, a Defense Ministry source said.

The Russian Navy needs between 20 and 30 such frigates, which will be the 21st century's main ocean-going surface ship.

The Admiral Gorshkov has a displacement of 4,500 tons, a speed of 29 knots, a range of 4000 nm at 14 knots, and endurance of 15 days.

It has a crew of 210 and an assortment of weaponry, including a 130 mm A-192 gun, a Kashtan close-in weapon system (CIWS), eight Oniks 3M55 (SS-N-26) anti- ship missiles, the Shtil I (SA-N-12 "Grizzly") medium range antiaircraft missile complex, four 533mm torpedo tubes, RPK-9 Medvedka-VE (SS-N-29) anti-submarine rockets, and 24 Uragan SAM missiles.

It also carries a Ka-27 or Ka-32 helicopter.

MOSCOW, October 29 (RIA Novosti)

106. Russia ready to discuss arms sales with Iran - arms exporter RIA Novosti October 28, 2010

Russia's state-run arms exporter Rosoboronexport said on Thursday it was ready to discuss the delivery to Iran of arms that fall outside UN sanctions.

"Rosoboronexport strictly complies with the UN Security Council's resolutions and the Russian President's decree on sanctions against Iran," Rosoboronexport head Anatoly Isaykin said. "But if we receive orders for arms that are not included in the list of sanctions, we will hold discussions on the matter." "There is no an absolute taboo on this," he added.

In September, Moscow banned the sale of S-300 air defense systems and other arms to Tehran following a fourth round of UN Security Council sanctions against Iran over its nuclear program.

The contract to supply Iran with the missile system, one of most effective in existence, was signed at the end of 2007. Russia was to supply five battalions of S- 300PMU-1 to Tehran, worth $800 million.

Russia is currently in talks with Tehran over compensation payments for the cancellation of the contract.

107. Russia sends new space freighter to orbital station RIA Novosti October 28, 2010

A Russian space freighter has separated from its launch vehicle and is heading to the International Space Station (ISS) on a resupply mission, a Russian space official said Wednesday.

Russia launched a Soyuz carrier rocket with the Progress M-08M cargo spacecraft at 7:11 p.m. Moscow time (15:11 GMT) on Wednesday from the Baikonur Space Center in Kazakhstan.

"The freighter has separated from the third stage of the Soyuz launch vehicle...All on-board systems are operating normally," a Roscosmos spokesman said.

The freighter is expected to dock with the ISS on October 30.

Progress-family freighters have been the backbone of the Russian space cargo fleet for decades. In addition to their main mission as cargo spacecraft, they are also used to adjust the ISS's orbit and conduct scientific experiments.

108. Russia to manufacture Iveco armored vehicles under license RIA Novosti October 27, 2010

Russia will start manufacturing armored vehicles under a license from the Italian company Iveco in 2011, a first deputy Russian defense minister said at Euronaval 2010 on Tuesday.

The Euronaval 2010 exhibition, the 22nd International Naval Defense & Maritime Exhibition and Conference, is being held at the Paris-Le-Bourget Exhibition Center October 25-29.

"Production of the first vehicles is to begin next year. The first vehicle will be manufactured at the end of [2011]," Vladimir Popovkin said, adding that a joint venture that will roll out the vehicles has already been established in Russia.

Popovkin said this will in essence be a Semi-Knock Down assembly. "The use of Russian components is to exceed 50% with time," he said.

Italian truck, bus and diesel engine manufacturer Iveco (Industrial Vehicle Corporation) is based in Turin.

109. Russia to restrict 'noisy' planes RIA Novosti October 28, 2010

Flights of "noisy" aircraft should be restricted at night time in airports located within city limits across Russia, the head of Rosaviatsia, Russia's Federal Air Transport Agency, said on Thursday.

The agency earlier proposed these restrictions only for airports in Moscow.

The list of aircraft that fall under the "excessive noise" category includes the Russian-made Tu-134, Tu-154B and Il-86 airliners.

Alexander Neradko said Rosaviatsia had held talks with air carriers whose fleets include these aircraft, and insisted that the proposed restrictions would not seriously affect their operation because the share of "noise polluters" in their fleets is constantly declining.

Moscow's Vnukovo airport earlier said it would stop receiving aircraft whose noise levels exceed the existing standards starting in March 2011.

110. Russian arms exporter denies MiG-31 fighter contract with Syria RIA Novosti October 27, 2010

Russia does not have a contract to supply MiG-31 Foxhound fighter jets to Syria, the head of the Russian state-run arms exporter Rosoboronexport said on Wednesday.

Media rumors about the sales of at least six MiG-31 aircraft to Damascus under a 2007 contract sparked criticism in the West and Israel, which consider arming Syria a threat to regional security.

"The existence of a contract on the delivery of MiG-31 interceptors to Syria is a journalistic hoax," Rosoboronexport General Director Anatoly Isaykin told reporters at the Euronaval 2010 exhibition in Paris.

The MiG-31 Foxhound is a two-seater supersonic interceptor aircraft developed to replace the MiG-25 Foxbat. It is equipped with two D-30F6 turbofan two-shaft engines with a common afterburner and a variable supersonic nozzle, which allow the aircraft to fly at supersonic speeds of up to Mach 2.83.

The interceptor also features unique air-to-air missiles capable of hitting targets at ranges exceeding 200 kilometers (125 miles), including aircraft with stealth capabilities, cruise missiles, and supersonic aircraft.

111. Russian arms firm denies Yakhont missile deliveries contract RIA Novosti October 28, 2010

Russian state arm company Rosoboronexport says it has no contracts for delivery of P-800 Yakhont (SS-N-26) anti-ship cruise missiles or the associated Bastion missile system, the firm's general director Anatoly Isaikin said on Thursday.

"Rosoboronexport does not have delivery contracts for Yakhont missiles or Bastion," Isaikin said.

"Rosoboronexport delivers arms in compliance with international norms without upsetting regional balances of power, and does not permit the illegal proliferation of arms...or allow them to fall into the hands of terrorists or abhorrent totalitarian regimes," he said.

In September 2010, Russian Defense Minister Anatoly Serdyukov said Russia would implement a 2007 contract to deliver Yakhont missiles to Syria.

Israel and the USA lobbied against the deal, as it would have allowed Syria to hit ships up to 300 km from its shores with the supersonic cruise missiles. They were also worried they could be acquired by regional terrorist groups.

"His (Isaikin's) statement is somewhat surprising given what has already been said about the deal," International Institute for Strategic Studies' Military Aerospace Senior Fellow Douglas Barrie said.

Vietnam has already taken delivery of Bastion systems ordered from Russia in 2005.

112. Russian Navy to procure 10 new frigates next decade RIA Novosti October 29, 2010

The Russian Navy will receive up to 10 new ocean-going frigates in the next 10 years, a Defense Ministry source said on Friday.

Later on Friday the first Admiral Gorshkov-class Project 22350 frigate will be floated out at the Severnaya Verf shipyard in St. Petersburg. The ship will be able to execute long-range strike, anti-submarine and escort missions in remote areas.

The next Gorshkov-class frigate, the Admiral Kasatonov, is under construction and expected to be launched in 2012.

"In the next 10 years the Russian Navy may receive up to 10 frigates of this project [22350]. There is no doubt that Severnaya Verf has sufficient capacity for this," the source said.

The Russian Navy needs between 20 and 30 such frigates, which will be the 21st century's main ocean-going surface ship.

The Admiral Gorshkov has a displacement of 4,500 tons, a speed of 29 knots, a range of 4000 nm at 14 knots, and endurance of 15 days.

113. UAC exec says Russia's Irkut to produce, sell An-148 jets bne October 27, 2010

Russian aircraft corporation Irkut is to produce, sell, both domestically and abroad, and lease out An-148 regional passenger jets, says UAC President Alexei Fyodorov, says Prime-Tass.

The news agency quoted Fyodorov as saying that Irkut, which is currently selling An-148 jets, is expected to integrate Russia's Voronezh Aircraft Production Association, or VASO, which assembles the jets, soon.

SECTOR Tourism, Sports etc. 114. Rostov Region to lose casinos bne October 28, 2010

The upper house of the Russian parliament agreed to move one of the four gambling zones that were established in 2008, as casinos were closed down in the rest of the country, reports Prime Tass

The Federation Council approved a bill on Wednesday excluding the Rostov Region from the regions eligible to develop gambling establishments. The bill seeks to relocate a gambling zone called Azov City from the coast of the Azov Sea, which stretches across the border between the Krasnodar and Rostov regions, to the Anapa resort in the Krasnodar Region. To become law the bill needs to be signed by the president.

115. Russia to open over 20 new national parks in next decade - Putin RIA Novosti October 29, 2010

A total of 21 national parks will appear in Russia in the next ten years, the country's prime minister, Vladimir Putin, said on Friday.

Speaking at a government meeting dedicated to the development of Russia's preserved natural territories, Putin said 11 national parks would be significantly enlarged.

Putin also said additional funds should be allocated to increase the qualification and salaries of natural park employees, as well as provide them with modern technical equipment.

"Natural reserves in the Far North, in remote Siberian and the Far Eastern areas are specially suffering from a lack of highly qualified experts. One of the main reasons for this is the low level of salaries," he said.

Putin also called for the development of ecological tourism in Russia, which would provide the country with money that would then be used to improve national parks.

"We should create normal legal conditions for the development of recreation tourism in the territory of national parks... allowing to rent land, construct buildings and facilities necessary for hosting and serving tourists," Putin said, adding that such construction should be carried out "in line with the strictest ecological standards and under appropriate control." The head of government also urged the introduction of effective systems to prevent wildfires in national parks and reserves.

An unprecedented heat wave hit European Russia this summer, sparking wildfires and severe droughts in many regions. More than 50 people died in the fires, which destroyed over 2,000 homes and hundreds of thousands of hectares of forests.

In September, Putin said the country would allocate 7.5 billion rubles ($242.5 million) in 2011 to rehabilitate forests and prevent wildfires.

SECTOR Engineering 116. Rostov Region govt sees Guardian launching glass plant late 2012 bne October 28, 2010

U.S. float glass manufacturer Guardian is expected to launch a $200mn float glass plant in Russia's Rostov Region in October-December 2012, reports Prime-Tass.

Citing the Rostov Region government, the news agency says that the construction of the plant, with a production capacity of 800 tonnes of glass per day, is scheduled to start in March-May 2011.

The plant is set to be located in the region's Krasnosulinsky industrial park, reports Prime-Tass.

SECTOR Media 117. UTV Media to spend RUB500mn on 7TV repositioning Renaissance Capital October 28, 2010

Event: On Tuesday (26 Oct), UTV Media, which is controlled by Alisher Usmanov, announced that it would spend $16.7mn (RUB500mn) on repositioning its 7TV channel. Apart from showing Soviet-era movies, the company will focus on entertainment programmes. Management plans to present the channel's new concept to advertisers tomorrow (Oct 29), while the new content would be fully implemented by Mar 2011. 7TV's audience share has increased to 1.4% currently from 0.2% in Aug 2009, though a large part of this increase is due to the acquisition of around 30 regional TV stations, rather than an underlying audience improvement. Increased investment by 7TV follows steps earlier this spring by Channel 5 to reposition itself, adding more entertainment programmes, although this did not lead to a material increase in the channel's audience share. Increased programming investment by 7TV and Channel 5 suggests that the level of competition for CTC Media and especially its Domashny and DTV networks is increasing. Earlier this year, CTC said that it would spend more on its smaller channels, but YtD DTV's audience share is still broadly flat, although Domashny's share has increased to around 2.5% from 2.2% previously. In the medium term, we expect increasing competition to lead to further margin erosion for CTC Media, while we see its current valuation (14.0x and 14.6x 2011E and 2012E EV/EBITDA, respectively) as stretched.

David Ferguson

118. Video International releases 2010-2015 advertising market forecast Renaissance Capital October 25, 2010

Event: On Friday (22 Oct), Video International (VI) published updated forecasts for the Russian advertising market for 2010-2015. VI now expects 16% advertising growth in 2011, up from 11% previously, with TV the largest advertising segment, outperforming the overall market with 17% growth in 2011 (vs 13% growth forecast previously). The upgrade follows last week's upgrade by Zenith Optimedia of its Russian advertising forecasts, with Zenith now expecting 18% market growth in 2011, vs 12% previously. In the medium term (2010-2013), VI expects TV's share of total advertising to decline to 53% from 56% today, internet's share to increase to 12.6% from 9% currently, and the print segment's share to decline materially to 15% from 13% currently. Though CTC Media should continue to benefit from strong top-line momentum, we are relatively sceptical about the potential for this to pass through to the bottom line as the broadcaster increases its programming investment.

David Ferguson

SECTOR Chemicals, Fertliser 119. PotashCorp increases prices for granular product USD 75/short tonne VTB Capital October 26, 2010

News: The largest global potash producer, PotashCorp announced a USD 75 per short tonne price increase for granular product in the US market. The new price comes to USD 515 vs. USD 440 previously.

Our View: The scale of the increase came as a surprise and points not only to a deficit of granular product (with industry sources reporting there is nothing to buy until the end of the year), but also to a tightening situation on the potash market. The move supports our view that risks in the current consensus potash price forecasts are on the upside

Elena Sakhnova

GOVT REFORMS, REGULATIONS, ECONOMICS, REGIONS 120. Additional taxes for heavy trucks Aton October 28, 2010

The state plans to introduce additional taxes on heavy trucks (more than 12 tonnes) to reflect their extensive use of road infrastructure, Vedomosti reports today (28 Oct). This would likely have an adverse effect on the trucking industry, but benefit railroad companies, mainly Transcontainer, as cargo transported by trucks is predominantly consumer goods. We think the move could also end up dampening truck sales in Russia.

121. Dagestan to build its own Cote d'Azur by 2017 RIA Novosti October 25, 2010

Russia's volatile North Caucasus republic of Dagestan plans to build a Cote d'Azur- type resort near the republic's capital of Makhachkala, a spokesperson for the city's administration said on Monday.

The spokesperson said that investment would reach 150 billion rubles ($5 billion), and that the resort town would include an entertainment complex for children, a yacht club and many more facilities.

"The resort town is planned to be completed by 2017," the spokesperson said.

He also said that 15 hotels would be built with rooms for 15,000 tourists.

According to the National Anti-Terrorist Committee, more than half of all terrorist attacks in the North Caucasus in 2010 have occurred in Dagestan.

The committee reported that in August and September alone, counterterrorism and special operations in Dagestan have resulted in the deaths of 82 suspected militants.

Earlier this year, Russia's North Caucasus presidential envoy Alexander Khloponin proposed an ambitious $15-billion project aimed at creating a tourist industry in the troubled North Caucasus region, including a ski resort in Chechnya.

In 2002, the United Russia party pledged that "by 2008, the North Caucasus will become Russia's tourist and resort Mecca."

122. Domestic fertiliser producers to pay market price for potash starting in 2013 Renaissance Capital October 26, 2010

Event: Today (26 Oct) RBC Daily reported that yesterday (25 Oct), at a meeting with First Deputy Prime Minister Igor Shuvalov initiated by Suleyman Kerimov, the government decided to set potash prices for domestic complex fertiliser producers at the market level from 2013. A transitional period in 2011-2012 will smooth out the sharp increase in prices. Until 2013, complex fertiliser producers will be able to buy potash at minimal export prices (currently RUB6,300/tonne [$210/tonne]) and may be eligible for compensation. Domestic farmers will pay a lower potash price of RUB4,200/tonne ($140/tonne) until 2013. Thereafter, the government plans to provide them with additional subsidies for the purchase of potash and complex fertilisers.

Currently, the potash price for domestic fertiliser producers is RUB4,300/tonne ($143/tonne). According to the government's guidance on nondiscriminatory access to the potash market, potash fertiliser producers have to supply 1.65mnt of potash per year to the domestic market at prices that are indexed to industrial inflation.

Action: In our view, the news is positive for potash fertiliser producers (Uralkali, Silvinit), which will benefit from a higher selling price, and negative for complex fertiliser producers (Acron, Dorogobuzh, EuroChem), due to higher costs.

Rationale: Silvinit and Uralkali supply about 17% and 12% of their potash output, respectively, to the domestic market. In 2009, Silvinit delivered 0.94mnt of potash to the domestic market, while Uralkali delivered 0.6mnt. The current netback average export price for potash is about $270/tonne, on our estimates. If domestic potash prices are set at the market level, we estimate that Silvinit and Uralkali will be able to increase their revenue by $120mn and $76mn, respectively, which will be fully translated into EBITDA.

Mikhail Safin

123. Eight MRSK branches may migrate to RAB from November 1 Troika Dialog October 26, 2010

MRSK Holding expects eight MRSK branches to migrate to RAB from November 1, Interfax cited MRSK Holding CEO Nikolai Shvets as saying yesterday. At the same time, RAB tariffs for the current year may be recalculated for those branches that disagree with the tariff level, according to Shvets. The total claims resulting from the tariff mismatch amount to R14 bln. The tariff recalculation in 2010 will mean that this substantial volume will not have to be included in the 2011 tariffs, thus avoiding a tariff hike. Moreover, Shvets expressed confidence that all the MRSKs will be able to switch to RAB from January 1, 2011, which is envisaged in the law.

On a separate note, MRSK Holding and ErDF (a subsidiary of France's EDF) are negotiating the latter's participation in the management of Tomsk Disco (currently under the management of MRSK Siberia). ErDF will only participate in the disco's management, and privatization is not currently being discussed, according to Shvets. To recap, MRSK Holding is working on a long__term strategy to develop the power network assets through 2030, and some strategic options were earlier indicated: single__share conversions of MRSKs, consolidating MRSK Holding with one of the MRSKs, attracting outside companies to manage MRSKs and possible privatizations. MRSK Holding has submitted a proposal to the Energy Ministry to maintain the ban on lowering the state's stake in MRSKs to below controlling by 2015, reportedly.

We regard the comments as supportive for the entire distribution universe. They indicate that the process of migration to RAB is on track, though we believe that some MRSK branches (e.g. those of MRSK North Caucasus) might not be transferred to RAB. MRSK Center plans to have two branches transferred from November 1. The planned transfer of a disco under co__management of ErDF should be a positive event for the sector, given that it brings its extensive industry expertise. It is particularly positive for Tomsk Disco, though it is illiquid.

November 1 will be an important day for the MRSK stocks. The key parameter to watch will be the iRAB levels to be approved. We retain our positive view on the distribution sector and prefer MRSK Holding as a play on the RAB transition. It offers diversification of company__specific regulatory risk. It also has a potential technical trigger - the results of the next MSCI Russia Index review will be announced on November 10, and we believe that the stock has a chance of being included.

Alexander Kotikov

124. EU seeks cancellation of overflight fees VTB Capital October 29, 2010

News: The European commission has sent a request to the aviation authorities of Austria, Germany, Finland and France and plans to initiate a claim against these countries for bilateral agreements with Russia limiting competition in the industry as reported by Vedomosti. Similar agreements regulate air traffic and industry relations between Russia and 23 EU countries, including the mechanism of overflight fees payments. So, the recognition of agreements as breaking competition would imply an early termination of overflight fees payments.

Our View: Considering the red tape and court cases against the 23 countries are likely to carry on for several months with a final decision to be taken in the earliest 2011, we see 2012 (only two years earlier than scheduled by the agreement for 2014) as the earliest possible deadline for overflight fees cancellation. The total volume of overflight fees is estimated at USD 300mn a year with Aeroflot taking on the role of the collecting agent and getting around 30% of this amount that represents less than 2% of company's revenues. So, cancellation of overflight fees payments in 2012 would imply a deterioration of the 2012-13 EBIDAR margin by 2% and 3%, respectively, and a decrease in our target price of USD 2.80. Taking into account that potential early cancellation would have a slight impact on valuation, Aeroflot's management is preparing for overflight fees cancellation seeking new revenue drivers and decreasing costs. Moreover, since the company would stay profitable even without them, we view the news as neutral for the stock and not affecting our positive view on the company

Elena Sakhnova

125. Export duty for cement abolished Metropol October 26, 2010

The Russian government has cancelled the export duty for cement, lowering it to zero from the current 6.5%. The zero duty will be effective starting November 19.

We believe that no export duty could be beneficial to the Russian producers, since they could increase their exports from 0.6mn tones in 2009 to 3-3.5 mn tones in the next few years. However, the production increase could take place a couple of years later, since the current international market conditions are weak and not favorable for export increases. For example, cement price in Kazakhstan is about USD 60 per tonne, which is even less than USD 76 per tonne in Russia.

Zero export duty is more beneficial for the cement producers located in the Central part of Russia, where the transport cost is rather low for supplying cement to both Asia (Kazakhstan and Turkmenistan) and Europe (Azerbaijan, Belarus, Finland and Baltic states). At the same time, the Russian stocks we are covering (Sibcem, Iskitimcement, Gornozavodskcement) may not benefit as much from the zero duty, since their capacities are located far away from most cement consuming countries, except Kazakhstan.

126. FAS imposes low fine on mobile operators for high roaming rates Renaissance Capital October 25, 2010

Event: Vedomosti and Kommersant reported today (25 Oct) that the Federal Antimonopoly Service (FAS) has fined the Big Three mobile operators 1% of roaming revenue to penalise them for excessively high roaming rates.

Action: A slightly positive development for MTS and VimpelCom, in our view.

Rationale: Given that the fine could have ranged from 1% to 15% of revenue, we think the size of the fine is positive for the mobile players, and reflects their readiness to cut national and CIS roaming rates. As we have said before, the impact of these rate cuts is unlikely to be more than 1% of EBITDA, all other things being equal, i.e. without growth in usage.

Ivan Kim

127. FTS approves transition to RAB for 11 MRSK branches on January 1 Troika Dialog October 29, 2010

The Federal Tariff Service (FTS) has approved the transition to RAB regulation for a number of MRSK Holding discos on January 1, 2011. Eleven branches will migrate to RAB, two in line with the previous schedule and nine that were supposed to migrate at mid__year, according to the FTS. Two branches are part of MRSK Center Volga (Ivenergo and Kirovenergo), four are part of MRSK Center (Voronezhenergo, Kostromaenergo, Smolenskenergo and Tambovenergo) and five come from MRSK Volga (Penzaenergo, Orenburgenergo, Ulyanovsk Disco, Samara Disco and Saratov Disco). In addition, two MRSK Center branches will migrate to RAB on November 1, 2010 (Bryanskenergo and Oryolenergo; both were supposed to do so on July 1).

As of today, 17 of 69 regions of MRSK Holding have already migrated to RAB. Last Monday, MRSK Holding CEO Nikolai Shvets said that the holding expects eight more branches to migrate to RAB on November 1. He also expressed confidence that all MRSKs will be able to switch to RAB from January 1, 2011, which is envisaged by the law. If eight branches migrate on November 1, and 11 more on January 1, 2011, the total number of regions under RAB would grow to 36. However, we expect further announcements about the remaining MRSK branches (in addition to those 36 regions) later, and most of MRSK Holding's branches should migrate by January 1 (there is a risk that some smaller branches, e.g. part of MRSK North Caucasus, might not be transferred to RAB, in our view).

This FTS approval implies that all of MRSK Center's 11 branches will be under RAB as of January 1, as well as seven out of nine MRSK Center__Volga branches (we have yet to see exact information about Marienergo and Nizhnovenergo) and five out of seven MRSK Volga branches (the management expects a positive decision from the regulator also on the remaining Mordovenergo and Chuvashenergo).

The iRAB levels are still unclear, and this will be the key parameter to watch, as it is the most important long__term driver of value. We prefer MRSK Holding as a play on the RAB transition. It offers diversification of company__specific regulatory risk (the levels of iRABs to be approved) and has a potential technical trigger - the results of the next MSCI Russia Index review will be announced on November 10, and we believe the stock has a good chance of being included. It trades at just a 3% premium to its market SOTP.

128. Government meeting focused on oil sector long-term stability Troika Dialog October 29, 2010

Yesterday's government meeting in Samara was dedicated to the long-term perspectives of the Russian oil sector. Even though the meeting delayed approval of the General Program for the Oil Sector to 2020, the event's participants made a number of statements pertaining to oil policy, upcoming tax reform, and the development of oil infrastructure, production and refining.

A highly optimistic goal, attainable only in case of a tax reform, is to keep Russia's oil output at about 10.02-10.10 mln bpd to 2020. At any rate, greenfields will contribute no more than 20-30% of Russia's total oil production by that time. Meanwhile, Russia's oil export capacity will already swell from 5.4 mln bpd to 7.0 mln bpd by 2015 as a result of commissioning new export pipelines (BPS-2 and ESPO-2). At yesterday's meeting, Prime Minister Vladimir Putin also signed a government order regarding construction of the Zapolyarnoye-Purpe pipeline (initial capacity 0.24 mln bpd) that would give the green light to oil companies' (including TNK-BP, Slavneft and Gazprom Neft) projects in the northern part of Yamalo-Nenetsk Region.

Putin said that Russia needs to begin auditing mineral reserves to international standards, which we consider positive for oil companies' transparency (especially Surgutneftegaz), even though this is fraught, according to the energy minister, with a roughly 50% cut in the size of oil reserves (currently pegged at 22 bln tonnes to Russian standards).

Tax reform in the oil sector is the core issue to be addressed by the government. The current tax regime impedes the development of about 30% of oil reserves at fields in the development stage. Specific tax rates should be coordinated by the relevant federal bodies by year end, and any necessary legislative amendments should be submitted for the Duma's consideration in mid-2011. In fact, we do not expect any expected radical changes - the Energy Ministry is only proposing to reduce the state tax take from 73% to 65% in 2020. By this time, the tax regime in the oil sector will include a tax on excess profits ("windfall profit tax"), oil MET and export duty.

Putin was quoted by some media about keeping the export duty breaks on Vankor for four months. It was not mentioned what would happen thereafter. We find this figure confusing, and it is absolutely unclear to us what the government intends to do about Vankor's taxation. Perhaps Putin is buying time until a more definite decision is reached, given that he ordered the relevant government bodies to come up with long-term taxation proposals for the industry by mid-2011.

Oleg Maximov

129. Ingushetia looks for Chinese investors RIA Novosti October 25, 2010

Ingush President Yunus Bek-Yevkurov invited Chinese investors to set up a car manufacturing plant in the North Caucasus republic while presenting Ingushetia's investment projects at Russia's pavilion at the Shanghai Expo 2010.

"Chinese business should go beyond market trading since we are interested in it taking up the development of the fuel-energy, agro-industrial complex, as well as house building and automobile manufacturing. We are also interested in creating jobs for women, especially in clothing manufacture," he said.

Ingushetia presented a variety of projects at the Expo-2010. Yevkurov plans to establish ties with Chinese partners that will allow for cheaper imports into the region and create new jobs.

"Come and we will provide you with total security," Yevkurov said, commenting on Chinese journalists' questions about the security aspects of running business in the volatile republic.

The 2010 World Expo is being held in Shanghai until October 31. Up to 70 million people are expected to visit the city for the event, which has seen investment of up to $4 billion. Over 200 countries, corporations and international organizations are taking part.

Moscow constructed a pavilion at the exhibition for the first time in 30 years. The Russian pavilion is considered one of the most popular and innovative at the Expo.

130. Prime Minister Vladimir Putin orders preparation for a legal base for running 3G/4G services in 2G network VTB Capital October 29, 2010

News: This morning Vedomosti cites an order by Prime Minister Vladimir Putin's to the Minister of Telecommunication to prepare a proposal to optimise frequency use in Russia, in particular a possibility of LTE/UMTS network launch in the GSM frequency spectrum. The proposal is likely to be prepared by 15 December.

Our View: We think that technological neutrality between 3G/4G and 2G networks (which was lobbied by mobile operators) if implemented in Russia, might partially resolve the Big Three's problem with LTE networks launch. However, we also think that this intermediate decision will not allow the Big Three operators to use a full scale of solutions for customers and offer them proper speed of connections due to very limited frequency bands available now in 2G (GSM). On the other hand, we see that the top state's officials attempting to help the Big Three with LTE launch (however, up until now these efforts 'sink' at lower levels, mainly in the Ministry of Defence which seeks to lobby their own company to launch LTE).

Victor Klimovich

131. Regulator to consider RAB parameters for eight MRSK grids Renaissance Capital October 28, 2010

Event: Russia's Federal Tariff Service (FST) announced yesterday (27 Oct) that a meeting to approve the parameters for the next phase of electricity distribution grids to adopt rate-of-return (RAB) tariffs will take place today (28 Oct). According to the press release, the government will reconsider the parameters that were discussed on 26 Oct, but on which no agreement was reached. Earlier this week, MRSK Holding (MRKH) CEO Nikolay Shvets revealed that he expects at least eight grids to launch RAB tariffs from 1 Nov 2010, with other grids following by year-end.

Action: Generally positive for the MRSKs, in our view.

Rationale: We have already expressed our view that any confirmation of initial grid RABs (iRABs) will provide further confirmation that the government timetable for all grids to have RAB tariffs by 1 Jan 2011 is back on track - and hence will be supportive of MRSK share prices generally. MRKH is now trading at a 34% premium to the sum of the parts, and we judge that some catching up by the subsidiaries is now in order. The table below shows the 24 grids that had been scheduled to adopt RAB tariffs from 1 July, and we expect that the eight grids referred to by Shvets will come from this list. If the approved iRAB for any grid represents a haircut of 25% or more on the MRKH guidance figure, we judge that the market will see the news as negative for that MRSK. Conversely, if the approved iRAB represents a haircut of less than 25% on the MRKH guidance figure, we believe this will be positive for that MRSK's share price.

132. Russia to reform its armed forces by 2020 - defense minister RIA Novosti October 31, 2010

Russia's Armed Forces will undergo three stages of transformation before their reform is over by 2020, Defense Minister Anatoly Serdyukov said on Sunday.

The minister said the first stage involved organic staff measures.

"We have actually completed these measures. We have cut the strength of personnel to 1 million who will comprise 150,000 officers, 100,000-120,000 professional sergeants while the rest will be conscripts," Serdyukov said in an interview with Vesti Nedeli TV program.

Serdyukov said the second stage involved social issues and the third phase dealt with the issues of armament.

"Armament supplies are quite a long process. We have divided it into two parts. At the first stage, which will last until 2015, modern armaments in our army must comprise no less than 30% while this figure must increase to 70% by 2020," Serdyukov said.

The defense minister said the year 2020 was expected to see the end of military reform in Russia.

133. Shuvalov discussed partial deregulation of domestic potash prices VTB Capital October 27, 2010

News: First Vice Prime Minister Igor Shuvalov held a meeting with representatives of fertilizer companies at which the possibility of deregulating prices for potash sold to NPK producers and meant for exports was discussed. According to Vedomosti, the timeline mentioned would imply free prices from 2013, whereas until then, the price would be pegged to the minimal export net back parity. Potash destined for the domestic market would be sold at the price of potash for farmers.

Our View: When loyal to the government Kerimov entered the share capital of potash producers, we previously believed, based on media reports that he would try to maximise cash flows, not the least by eliminating a non-sense subsidising of NPK industry by potash companies. These would allow to save approximately USD 100mn in EBITDA next year and as much as USD 300mn per year in the future. Shuvalov- headed meeting is the first, but not the last step in this direction as the struggle between NPKs and potashes will continue.

One of the potentially difficulties in solving the matter is whether the government would provide a subsidy to NPK producers to partially compensate an increase and if so what would be the source of the funds, given the tightening state budget.

A free-market mechanism after 2013 is also surprising as pricing of monopolists has to be regulated by the watchdog agency - Federal Anti-monopoly Service (FAS). If 2013 term arose because this is the year when EuroChem is supposed to enter the potash market, then there is a high chance for the deadline extension as given the current progress EuroChem is unlikely to launch its new mine in 2013.

Hence, based on this scenario our expectation would be a compromise pricing for 2011 (somewhere in between current price and net back) and a net-back after that.

If we are correct, the valuations potashes of would be enriched by 5-7%, while Acron might lose between 5-15% of its current target price depending on the scale of subsidies if any.

Elena Sakhnova

134. Vietnam mulls free trade zone with post-Soviet customs union RIA Novosti October 31, 2010

Vietnam is considering creating a free trade zone with the post-Soviet customs union of Russia, Belarus and Kazakhstan, Vietnam's President Nguyen Minh Triet said on Sunday.

Triet said during a joint press conference with his Russian colleague Dmitry Medvedev who is on an official visit to Vietnam that both countries intended to increase bilateral trade to $10 billion by 2020 from the current $1.5 billion.

Russia, Belarus and Kazakhstan signed in November 2009 an agreement to create a customs union, paving the way for a single economic space. The agreement came into force on January 1, but is unable to start working fully until disputes are resolved and the customs code comes into effect.

The three countries have agreed to create a single economic space by January 1, 2012.

Ukraine has said it does not intend to join the customs union, but has supported the idea of free trade among former Soviet republics.

UKRAINE INVESTMENT 135. TNK-BP to plough up to $2.5bn into shale gas exploration in Donetsk bne October 28, 2010

Russian-Anglo JV TNK-BP signed off on a deal with the Ukrainian government to explore for shale gas yesterday, where it was part of the delegation led by Russian Prime Minister Vladimir Putin at the seventh session of the economic cooperation committee of the Russian-Ukrainian intergovernmental commission.

The deal appears at odds with the Russian government's official position, which has frowned upon the recent trend favouring alternative gas deposits, claiming that they're inefficient and unable to compete with production from mainstream reserves. Russia has several technically challenging off-shore fields that it is trying to collect the cash and expertise to develop.

Despite this, Russian Energy Minister Sergei Shmatko joined TNK-BP Executive Director German Khan, Ukrainian Fuel and Energy Minister Yuriy Boyko and Naftogaz Deputy CEO Vadym Chuprun to sign off on the deal, which will team TNK-BP up with Ukraine's state energy company Naftogaz.

The pair will plough $50m into the first stage of the project, which will see them explore for deposits in low-permeability sandstone in the Donetsk region, according to Interfax.

Khan said that should reserves be confirmed, TNK-BP - which has been pushing to expand its gas production recently - will launch an extraction phase, with hopes that it could reach annual output of 5bcm within seven years. Assuming the full plan is implemented, the company expects to invest $1.5-$2.5bn in the project over the next 25 years, he added.

136. Alchevsk Coke releases output targets Astrum October 28, 2010

According to Metal-Courier, Alchevsk Coke (ALKZ: N/R) intends to increase coke output by 1% m/m to 214,000 tonnes in October and by 40% m/m to 300,000 tonnes in November 2010. The planned growth in output in November owes mostly to the expected growth in coke de- mand from the related Alchevsk Steel (ALMK: U/R) and Dzerzhynskyi Steel (DMKD: N/R). ALKZ, ALMK and DMKD are controlled by ISD.

Astrum's perspective: This news is NEUTRAL-to-POSITIVE for the stock of ALKZ since the growth in pig iron output by ISD-owned steelmakers, and, consequently, in their coke demand may be rather modest in November due to a prolonged raw materials undersupply. Statistics for the first 24 days of October suggests that, in the current month, the total pig iron output of ALMK and DMKD will grow by 5-8% m/m, which is well below the initial plan (of boosting output by 36% m/m). In the case that ISD will not repay at least 30% of its debt to Metinvest for iron ore (with total debt of about UAH 940m as of mid-September) in October-November, production growth at ALKZ, ALMK and DMKD will not exceed 15% m/m in November.

Yuriy Ryzhkov

137. Avangard plans to boost sales by 46.5% YoY in 2011 Art Capital October 29, 2010

Avangard Chairman Oleg Bakhmatiuk announced that the Company plans to increase net sales by 46.5% YoY in 2011 to $630mn.

Pavlo Bidak: The news is mostly Neutral for Avangard [AVGR LI; U/R] since it is in line with our baseline scenario. EBITDA is expected to be c. $200mn in 2010 and c. $250mn in 2011. We have visited a press-conference held by Mr.Bakhmatiuk today and got some takeaways on the Company. Recently, Avangard has placed $200mn worth of Eurobonds, most of which will go to replace the more expensive loans taken in Ukrainian hryvnia.

The Company is expected to produce and sell 4.4bn of eggs in 2010, getting $430mn in net sales, while EBITDA is deemed to increase 20-30% YoY. In 2010, egg output is projected to total 6bn, and in 2012 - 6.8bn. The Company aims for external sales to represent 45-50% of the total sales volume.

Mr. Bakhmatiuk announced that Avangard is not planning on acquiring any egg producers in Europe, dismissing the Interfax's October 27 news. Iraq, Saudi Arabia, Egypt and Far East remain priority markets for Avangard, so all efforts focus on getting a greater market share in those regions, since the Company feels comfortable enough on the Ukrainian market already. We consider these markets quite attractive since Iraq, for instance, imports $34bn worth of food every year. Moreover, high demand for food products in Asia and Far East allows the Company to earn good margins from sales of its egg and dry-egg products.

138. Avangard projects capital investment at $37mn in 2011 bne October 27, 2010

Avangard agribusiness, the leading producer of shell eggs and egg products in Ukraine, projects that its capital investment in 2011 will be $37mn, which will be spent mainly on the completion of two poultry factories, reports Interfax.

The news agency says that the company plans that its capital investment in 2010 will be five times higher than those in 2009, and will amount to $185.6mn.

139. AvtoKrAZ launches trucks for left-hand drive countries Sokrat October 26, 2010

AvtoKrAZ Holding has launched production of trucks designed for countries with left- hand drive traffic systems. The KrAZ-5233NE serial military truck was developed in response to an order from an Indian company's security agency. A new truck will allow the company to sell trucks to clients in Pakistan and South Africa.

140. Azarov: Agreement on Russian gas contradicts Ukrainian law Kyiv Post October 27, 2010

The agreement on Russian natural gas deliveries that was signed by the previous government does not correspond to the current Ukrainian legislation for a range of reasons, Prime Minister of Ukraine Mykola Azarov has said.

"The current situation on the market has changed, that's why the basic agreement and the gas price formula require reconsideration. In addition, Ukraine joined the European Energy Charter and adopted a law on the gas market.

Read more: http://www.kyivpost.com/news/politics/detail/87672/#ixzz13XtRhg4s

141. Cost of construction of nuclear fuel production plant in Ukraine to exceed $300mn bne October 29, 2010

The cost of building a nuclear fuel production plant in Ukraine for VVER-1000 reactors will be over $300mn, says TVEL Vice President Vasily Konstantinov, reports Interfax.

The news agency quoted Konstantinov as saying that he think that it will be over $300mn.

142. Creativ Group shareholders to develop pig farming as separate business Dragon Capital October 28, 2010

Shareholders of Creativ Group, one of the largest Ukrainian vegetable fat and oil producers, yesterday announced plans to launch a pig farming business by end- 2011, which will be separate from the listed company. (Interfax)

Although the news has no direct immediate impact on the stock, the prospective launch of affiliated pig farming business in 2012 will provide Creativ Group with additional demand for sunflower and soybean meal, which the company presently sells as a by-product to third parties. We maintain our Buy recommendation on the stock.

Andriy Bespyatov

143. German co seen investing 600mn euros in Ukrainian wind power project bne October 26, 2010

German company Wind is expected to invest 600mn euros in the construction of a wind power plant in the Ukraine's Odessa Region, says Alexander Yakovenko, first deputy chairman of the region's Ovidiopol district, reports Prime-Tass.

The news agency quoted Yakovenko as saying that under the project, Wind is expected to install 75 wind power units with a combined capacity of 220 megawatts (MW).

144. Government is Deterring Foreign Investment BYuT October 28, 2010

Foreign investment in Ukraine has fallen by 29 percent since the new government took office. This is the startling verdict of the National Bank of Ukraine.

Speaking at a press conference in her home city of Dnipropetrovsk, Leader of the Opposition, Yulia Tymoshenko revealed the startling figure. "This means that not only is there no investment inflow, but current investments are being withdrawn," said Ms Tymoshenko.

Foreign businesses seeking to invest in Ukraine see huge opportunity but are nervous about the business climate which is far from stable. Recent charges laid against steel maker ArcelorMittal that it failed to invest $200 million in an investment programme prompted fears that the government would return the $4.8 billion Kryvorizhstal plant to state hands. However, after seeing the nervous reaction of investors, the government did a swift u-turn.

The Bloc of Yulia Tymoshenko-Batkivshchyna says that the government needs to do much more to woo investors. "A robust strategy, incentives and legal protection are required," said a party spokesperson.

The omission of "stability clauses" in production sharing agreements is a particular bone of contention, one that is deterring Western energy companies from investing in exploration projects.

"The lack of an independent judiciary is becoming a another barrier to investment," a foreign businessman told Inform, "Ukraine is not a market for the risk averse."

145. Government to auction off grain export quotas Dragon Capital October 29, 2010

The government has asked parliament to amend legislation on grain trade to allow auctioning of grain export quotas. (Delo)

The existing quotas, introduced earlier this month and in effect until year-end (with a possible extension through 1H11) cap wheat exports at 0.5 Mt, barley at 0.5 Mt and corn at 2 Mt. The government was initially expected to distribute quotas based on eligible traders' historical export volumes. If the new legislation is approved, the Economy Ministry will sell quotas at auctions, with the starting price per tonne of exports currently being discussed in the range of $10-35/t depending on grain type. This may bring at least UAH 0.5bn to the budget.

Last week Ukrainian wheat (grade 3 milling wheat) traded at $195/tonne (EXW; flat w-o-w and +60% y-o-y; incl. VAT), corn at $202/t (flat w-o-w and +51% y-o-y) and barley at $205/t (flat w-o-w and +92% y-o-y). We estimate the export quotas may push prices down by 25- 30% to $150-160/t (incl. VAT), the desirable level for the state Agrarian Fund which has been allocated $0.6bn to buy 4.0-4.5 Mt of grain in the 2010/11 marketing year. As of Oct. 22, the Agrarian Fund had 40% of the targeted volume, or 1.6 Mt.

Tamara Levchenko

146. Interim sugar production results reached 0.93 mln tonnes Sokrat October 29, 2010

Sugar producers in Ukraine processed 8.1 mln tonnes of sugar beet and produced 0.93 mln tonnes of sugar as of October 27, which is 35.7% YoY more than in 2009. Sugar beet is being processed by 62 sugar factories, whereas it was processed in only 45 factories in 2009.

147. Kernel Holding confirms plans to export 1.3 Mt of grain despite quotas Dragon Capital October 28, 2010

WSE-listed Kernel Holding, one of the largest sunflower oil producers in Ukraine, held a conference call to explain implications of the recently imposed quotas on grain exports from Ukraine. The company confirmed its target to ship at least 1.3 Mt of grain abroad in 2011FY (July 2010-June 2011). (Company)

Kernel has already exported 600 kt of grain and expects its further shipments to consist of soybean and rapeseed (about 350 kt), corn (the overall quota for this crop is quite large at 2 Mt), and wheat and barley (volumes for the latter two crops will be small due to low quotas).

Kernel considers its current export target of 1.3 Mt (down from 2.3 Mt in the previous financial year) to be conservative and does not rule out its revision early next year based on the government's further actions regarding export restrictions. We plan to reinstate our view on the stock as soon as uncertainty over a potential extension of the existing quotas is clarified (for more details please see our flash note from Oct. 25).

Tamara Levchenko

148. Kernel's conference call on grain quotas fails to clarify situation Alfa Bank October 27, 2010

Kernel's management held a conference call with investors yesterday and confirmed that the company will be able to meet its grain export delivery targets for 2011 of 1.3 MT despite the introduction of quotas. The company does not foresee any difficulty in receiving all necessary permission for deliveries on existing contracts. However, the mechanism of granting permission has not yet been determined and it is also unclear whether the quotas will be extended after December 31, 2010. YTD grain deliveries for Kernel total 600,000 tons and we therefore expect the company will be able to meet its export target of 1.3 MT even if the quotas are extended. Management also confirmed that Kernel may export soybeans and rapeseed without restrictions.

However, management did not explain the government's rationale behind the introduction of grain quotas given that the Ukrainian grain harvest this year was sufficient for both domestic consumption and exports (39 MT harvest vs. annual consumption of 27 MT). Part of the problem may be that the Agro Fund failed to accumulate enough grain for intervention reserves (1.6 MT accumulated so far vs. the target of 5 MT). It is clear that the Agro Fund does not have sufficient financing to purchase 5 MT of grain owing to the state budget deficit. It is therefore possible that grain export restrictions are being introduced in order to coordinate the grain trading policy with Russia, which may assist Ukraine to accumulate the necessary grain reserves by helping to finance grain purchases or by grain swaps (corn for wheat, for example). If closer cooperation with Russia in building up grain reserves becomes more evident in the near future, it is possible that Ukraine will coordinate the introduction of quotas in other agricultural products, including sunflower oil, this or next year. If regulation goes down this path, we view this as potentially NEGATIVE for Kernel and we will be keeping a close eye on all relevant information that promises to shed more light on the situation.

Denis Shauruk

149. Kyiv cancels 66 outdoor billboard permits Kyiv Post October 26, 2010

Kyiv City Administration chief Leonid Chernovetsky on Oct. 25 cancelled 66 billboard advertising permits, according to the administration's website.

The main reason for revoking permits are that structures for bearing the advertisements violate regulations or the companies hanging them up are not fully authorized, the statemement says, adding that Kyiv's City Administration's advertisement directorate has recently launched a new pilot with "the best companies in the advertising business."

Read more: http://www.kyivpost.com/news/city/detail/87529/#ixzz13S51ozGi

150. Kyivenergo highlights investment plans Millennium October 28, 2010

The National Electricity Regulatory Commission (NERC) increased the KIEN's investment component by 10.4% to UAH 178.3mn, the Company representative announced Oct 27. The funds are supposed to come from the extra profits the company should receive from above-target electricity sales in 2010. The news corresponds with the KIEN's intention to invest UAH 163mn in the electricity and heat distribution grid in 2011.

We see this news as POSITIVE foe KIEN, as the company is now available to invest in modernization of existing and construction of new facilities on the eve of the Euro- 2012. Also, we consider the increase of the investment component to be primarily driven by the Company's strong 3Q2010 earnings (net income of UAH 837.4mn vs 2Q2010 loss of UAH 195.8mn).

Anton Sokolov

151. Mariupol Illich Steel boosts output in October Astrum October 25, 2010

According to Metal-Courier, in October, Mariupol Illich Steel (MMKI: U/R) will boost pig iron output by 16% m/m to 427,000 tonnes. Such impressive growth owes to solving technical problems at its power plant and higher demand for its steel products.

Astrum's perspective: The announced output level in October is 3% above the target set by the management of MMKI and in line with our forecast. We believe that this news is NEUTRAL -to-POSITIVE for the stock of MMKI. We expect that, in 2010, MMKI will post the industry- largest growth in crude steel output (by 28-31% to 5.49-5.60 mln tonnes).

Yuriy Ryzhkov

152. MHP ups land bank 5%, adding 11,000 ha Renaissance Capital October 26, 2010

Event: Yesterday (25 Oct), MHP announced the acquisition of 100% of LLC Ridny Kray, a grain-growing company with 11,000 ha of land under lease. Although the details of the deal were not disclosed, we estimate that the acquisition cost MHP $3- 6mn. Since YE09, MHP has upped its land bank by 63,000 ha, or 35% in total.

Action: Positive, but mostly on sentiment, in our view.

Rationale: MHP's land bank has expanded to about 243,000 ha, which is fully in line with our estimate of 260,000 ha by YE10. While the news is not unexpected, we feel that it demonstrates MHP's resolve to follow through on its expansion goals.

Konstantin Fastovets

153. MMK Illicha to cut purchases from Yasynivsky Coke Dragon Capital October 26, 2010

MMK Illicha plans to cut coke purchases from Yasynivsky Coke by 53% m-o-m (45 kt) to 40 kt in October, replacing this volume by deliveries from Avdiyivsky Coke [Strong Buy; FV $4.13]. (Metal Courier)

Local media also reported that Metinvest Holding, which now controls MMKI, made a decision to reduce purchases from Yasynivsky Coke so as to increase capacity utilization at Avdiyivsky Coke, the group's coke producer.

The above developments have already been incorporate into our model - we forecast MMKI's coke purchases from Yasynivsky to halve to 0.6 Mt in 2011 from 1.1 Mt this year. Further decrease is hardly possible due to capacity constraints at Avdiyivsky.

Yasynivsky Coke can redirect freed-up shipments to export markets, particularly to U.S. Steel's European plants, as well as start supplying Zaporizhstal [Not Rated], which plans to launch PCI equipment this month and will thus need premium-quality coke. Zaporizhstal plans to buy 10 kt of coke from Yasynivsky in October, and with further expansion of the new technology to all its blast furnaces will need to change its current suppliers since only Yasynivsky Coke and Makiyiv Coke of all domestic producers can presently ensure the required quality of coke (for more details please see our Oct. 6 report on Yasynivsky Coke).

Alexander Makarov

154. Ukraine looks to scrap changes under EU free-trade accord bne October 27, 2010 Ukraine's foreign minister said that the country wants to delay parts of its free-trade agreement with the EU, a move which could prove a serious barrier in its bid to eventually join the bloc. President Viktor Yanukovych has repeatedly insisted that integration with the EU is his top priority, and his government increasingly provokes bemusement from officials in Brussels with regular announcements of rapid progress in the relationship. However, when it comes to the crunch, Ukraine has struggled to turn words into action that matches its ambition. The application to postpone the accords is tantamount to an admission from Kyiv that it is far from ready to embark on the association agreement that is a step towards eventual full membership in the European bloc. Foreign Minister Kostyantyn Gryshchenko said in an interview yesterday in Brussels that Ukraine wants to postpone the elimination of duties on imported cars and increase grain-export quotas to the European Union, which are part of the association agreement. He said that the country "needs to have a timeline for adapting industries that provide jobs for hundreds of thousands of people so we would not have catastrophic results. We would like to have this elimination in stages that would provide time necessary for the industry to adapt."

Ukraine will miss the target date during a November summit for signing the so-called association agreement, which allows free trade and visa-free travel, with the EU for a second year, Bloomberg reports. Gryshchenko however maintained that the association agreement is "seen by Ukraine as a major step forward toward the goal of full integration. It's always difficult when you are negotiating and not dictating to say exactly when you will reach a level of understanding of both sides."

The EU wants to set too low a quota for Ukraine's barley exports, Gryshchenko said. Ukraine was the world's biggest barley exporter before introducing limits on shipments this month to avoid shortages on the domestic market after a dry summer damaged this year's crops."Insisting on an abysmally small quota doesn't really help to move ahead with the agenda," he complained. 155. PM forecasts 1Q11 imported gas price at $230-235/tcm Dragon Capital October 29, 2010

PM Mykola Azarov said the price of imported Russian gas for Ukraine would range from $230- 235/tcm in 1Q11. (Interfax)

Given current oil prices, we think this estimate is too optimistic and the actual price range should be $250-253/tcm. It is still possible Ukraine may negotiate a lower base price for its gas contract with Russia, but we think it's a remote possibility as long as Ukraine does not yield to Russia's demands to form a JV between Naftogaz Ukrainy and Gazprom.

In related news, Naftogaz announced it planned to import some 4 bcm of gas in 4Q10 at an estimated cost of $1bn ($250/tcm). However, given Ukraine's contractual obligation to import 36.4 bcm for the full year and actual imports of 23.3 bcm in 9M10, the domestic oil and gas monopoly is supposed to buy 13.1 bcm in the final quarter of 2010.

Dennis Sakva

156. Russia may ink deals to build units at Ukrainian nuke plant `10 bne October 27, 2010

Russia may sign agreements to build two units at Ukraine's Khmelnitskaya nuclear power plant in 2010, reports Prime-Tass.

The news agency says that Russian engineering company Atomstroyexport won a tender to build the units in 2008.

157. Russia temporarily bans poultry import from MHP VTB Capital October 25, 2010

News: Interfax announced on Friday that Rosselkhoznadzor temporarily banned imports of poultry from certain companies from Brazil, the US, Germany, Ukraine etc., as they do not meet Russia's internal sanitary requirements. This list of companies includes MHP.

Our View: We note that this is fully neutral for MHP as the volumes the company exports to Russia are fully immaterial and it had never planned to increase it, focusing rather on the CIS at present and on the EU in the long term.

In our view, the action has little to do with sanitary issues but rather with the threat of poultry oversupply in Russia. We note that poultry production in Russia has been rising at a 19% CAGR over the last decade while demand has been weak recently and has just started to recover. Besides that US poultry (banned as of January) has already started to arrive to Russian ports while local farmers have probably also increased supplies preferring to get quick cash rather than spend more money on grain. Apparently, Russian authorities are taking care of local producers, which benefits Cherkizovo (second largest poultry producer and fourth largest pork producer in Russia).

Ivan Kushch

158. Russia, Ukraine and EU need cooperation for security of gas deliveries Kyiv Post October 26, 2010

Russia, Ukraine and Europe need cooperation to ensure the security of natural gas deliveries, International Energy Agency chief Nobuo Tanaka told journalists.

He made the comment in response to a question about an asset swap between Russian Gazprom and Ukrainian Naftogaz Ukrainy.

"The cooperation of Russia, Ukraine and Europe is important in order to resolve the transit issue," Tanaka said.

Read more: http://www.kyivpost.com/news/nation/detail/87447/#ixzz13S5RBSDT

159. Steel prices stable last week Foyil Securities October 25, 2010

According to Metal-courier, the export steel prices for the Ukrainian steel were on average stable over the last week, during October 15-October 22. The only exceptions were the prices of billets and hot-rolled coil. The former increased by 1% and the latter fell by 1.2% w/w. The domestic prices of coke, pellets and iron ore concentrate were stable.

Our view: It has already become clear that the fourth quarter did not bring the long- awaited recovery in steel demand. Although the average October export steel prices have grown by as much as to 4% compared to the average third quarter prices, the domestic cost inflation hindered margin improvement. Average coke and pellet prices are more expensive by 4% and 6% than the average third quarter prices. The picture looks even less favorable for steel producers, if we take YTD price changes into consideration. While the prices of coke, iron ore concentrate and pellets surged by hefty 50%, 53% and 61% YTD, export steel prices have not gone up by higher than 33% (slabs), lowering the profitability of the steel industry.

Yevheniy Barannikov

160. TNK-BP could pump $2bn into Ukraine shale gas project bne October 27, 2010

TNK-BP could invest $1.5bn-$2bn in a share gas project in Ukraine's Donetsk region over 25 years, says German Khan, the Russian-British joint venture's executive director, reports Interfax.

The news agency quoted Khan as saying that TNK-BP could pump up to $50mn in the project's first stage, which involves drilling six test wells.

161. Ukraine follows Russia in grain quota practices Alfa Bank October 26, 2010

According to the latest comments from the Ministry of Agriculture, the export ban on selected grains as of December 31, 2010 may be extended to the end of the grain marketing year: June 2011. The Ukrainian government is following the steps undertaken by the Russian government in the grain export market, indicating that the Ukrainian government's move was stipulated by bilateral favors from the Russian government, possibly to help finance the Ukrainian government's grain purchases for state reserves.

The news is NEGATIVE for both grain producers and traders, as producers cannot receive adequate compensation for their harvest to start financing the winter planting campaign. Traders are blocked from delivering contracted grain, as the mechanism for quota distribution has not been determined and it is impossible to determine how much grain a particular trader is authorized to export. We expect to get more information from Kernel's management on today's conference call from on the government's plans.

Denis Shauruk

162. Ukraine harvests over 39.5 m t of grain as of October 26 bne October 27, 2010

Ukraine had harvested 39.5 million tonnes of grain as of October 26, 2010, which was almost 9.2% down on the same date of 2009, reports Interfax.

Citing the Agriculture Ministry, the news agency says that Ukraine harvested 10 million tonnes of corn against 6 million tonnes in 2009.

The average productivity of corn is currently 43.9 metric quintals per hectare, against 47.1 metric quintals per hectare last year, reports Interfax.

163. Ukraine negotiating to lift ban on meat and dairy exports to Russia Dragon Capital October 29, 2010

Russian and Ukrainian veterinary authorities are in talks to lift the existing ban on exports of Ukrainian meat and dairy products to Russia. (Liga)

The Ukrainian side is now to provide an updated list of exporters of livestock products and guarantee their compliance with Russian veterinary requirements, after which Russian authorities will inspect the eligible Ukrainian companies to allow them to resume exports.

As we reported earlier, Russia imposed a temporary ban on imports of poultry meat from a number of countries including Ukraine effective Nov. 4. The decision has negligible impact on MHP [Buy; FV $23.6] as the company has so far exported only tiny volumes to the neighboring market to decide on the expediency of larger shipments. We expect MHP to easily pass the upcoming inspections as its production facilities are built in accordance with strict European standards and have already received a positive conclusion from the European Commission's Directorate General for Health and Consumer Protection. We find the news to be neutral to positive for MHP as we think the company will secure Russian export permits before launching its new production capacities in 2013. We maintain our Buy recommendation on the stock.

Tamara Levchenko

164. Ukraine to lower dockage for ships transporting oil for Belarus bne October 27, 2010

Ukrainian Transport and Communications Minister Konstantin Yefimenko says that Ukraine is to provide a 20%-40% discount off dockage for ships transporting Venezuelan oil to Belarus via a Ukrainian port, reports Prime-Tass.

The news agency quoted Yefimenko as saying that the size of the discount is to depend on the volume of shipments.

165. Ukraine to start pumping Azeri oil via Odessa-Brody pipe bne October 28, 2010

Ukrainian President Viktor Yanukovich has said that Ukraine plans to start transporting Azeri oil via the Odessa-Brody pipeline to Europe, reports Prime-Tass.

The news agency says that the Odessa-Brody pipeline, built in 2002, was initially designed to pipe Caspian oil to Europe.

However, Ukraine failed to obtain sufficient supplies of Caspian oil and had to start pumping Russian oil to the Black Sea in reverse mode in 2004. Since then, Ukraine has sought to switch the pipeline to its originally intended direction, reports Prime- Tass.

166. Ukraine, EU may complete free trade zone talks by June 2011 bne October 28, 2010

EU Trade Commissioner Karel de Gucht said he thinks that the European Union and Ukraine may complete free trade zone negotiations within six or seven months, reports Interfax.

The news agency quoted Karel de Gucht as saying that hopefully, the negotiations will be over by the summer holidays.

167. Ukrros produces 61 kt of sugar Dragon Capital October 26, 2010

Ukrros, one of the largest Ukrainian sugar refiners, produced 61 kt of sugar as of Oct. 22 and expects full-year beet sugar output of 160 kt, in line with our forecast. (Company)

Factoring in 65 kt of raw cane sugar the company processed earlier in 2010, we estimate its total sugar output in 2010 at 220 kt (+72% y-o-y).

The company has so far harvested 79,000 ha of land, or 84% of its 2010 planted area, and expects a grain crop of 241-246 kt (+5-7% y-o-y). For next year, Ukrros has already planted 22,000 ha with winter wheat (+5% y-o-y) and 5,000 with other winter crops such as barley, rapeseed and rye (flat y-o-y).

The reported operating statistics support our financial forecast for Ukrros. The stock looks deeply undervalued compared to its closest domestic peer, Astarta Holding [Under Review], and foreign sugar processing companies. We recommend the stock as a Buy.

Tamara Levchenko

KAZAKH INVESTMENT 168. Alhambra Resources commences a fall drilling program on North Balusty Visor Capital October 25, 2010

The Company aims to check the origin of previous gold anomalies and to estimate the entire width of the mineralized zone. We do not expect significant share impact.

On Friday, Alhambra Resources (ALH CN) announced that it has started a fall drilling program on North Balusty mine within the Uzboy deposit. The Company aims to check the origin of the gold anomalies established by trenching completed in 2005 and 2007 and to estimate the entire width of the mineralized zone. The drilling program at North Balusty will consist of approximately 2,000m of hydro-core lift drilling focused on the most promising of three target areas.

We do not expect significant share impact as the drilling program is part of the exploration targets within the Uzboy deposit that is already known by the market. We currently have Alhambra Resources under formal research coverage, available to our clients.

169. Kashagan development programme cut by US$18bn Visor Capital October 25, 2010

According to newswire sources, Royal Dutch Shell Plc (RDSA LN) decided to cut the Kashagan oil field development programme by US$18bn. As a reminder, Kasahagan's investment budget was initially US$136bn. Should the news be confirmed, this would have a negative impact on Kazakhstan in the long run (less FDI, potential delays in oil production ramp-up in the long term) and also on the listed members of the consortium, which are in addition to Shell (16.8%), Total (FP FP) (16.8%), NC KMG (16.8%), ExxonMobil (XOM US) (16.8%), ConocoPhilips (COP US) (8.4%) and Inpex (7.6%). This cut in the development programme could postpone the production from the field expected to start in 2012. We do not have any of these companies under formal research coverage.

170. Kazakhstan inks 2bn euro cooperation deals with France bne October 27, 2010

Kazakhstan has concluded 2bn euros worth of contracts with France on cooperation in the space, aircraft, and transport sectors, reports Prime-Tass.

The news agency says that under the agreements, France's Alstom Transport is expected to supply 295 electric locomotives for cargo and passengers trains by 2021 to Kazakhstan's national railroad operator Kazakhstan Temir Zholy.

171. Kazakhstan to invest $5.4 billion in industrialization in 2011 SRI October 26, 2010

Kazakhstan plans to spend KZT800 billion ($5.4 billion) on industrial projects in 2011, Prime Minister Karim Masimov told the ruling Nur Otan party.

The Kazakh government plans to spend KZT2.3 trillion ($15.6 billion) on industrialization in the next three years, Masimov told Nur Otan during a meeting on the 2011-2013 budget, according a statement posted on the prime minister’s website on Monday.

The government will invest KZT487 billion ($3.3 billion) in agriculture through 2013, including KZT170 billion ($1.2 billion) next year, and over KZT1 trillion ($6.8 billion) on transportation infrastructure, including KZT345 billion ($2.3 billion) in 2011, Masimov said.

172. Lockheed Martin signs $50-million contract with Kazaeronavigatsia SRI October 25, 2010

Lockheed Martin said Monday it had signed a $49.9-million contract with Kazaeronavigatsia RSE, Kazakhstan’s air navigation service provider, to create the first national Air Traffic Management System in the Central Asian state.

Lockheed Martin has signed a contract to deploy additional Skyline air traffic management automation systems and maintain the national system through 2025, it said in a statement.

This is the fifth contract awarded to Lockheed Martin as Kazaeronavigatsia enhances its capabilities to apply advanced technology to manage Kazakhstan’s national airspace, the company said. The contract follows a $15.5-million contract award in 2007 to deploy a Skyline air traffic management system at the ACC in Aktobe, Kazakhstan and four airfield towers.

CENTRAL ASIA INVESTMENT 173. Eurasian countries among world’s most corrupt bne October 27, 2010

Uzbekistan and Turkmenistan remain at the bottom of Transparency International’s corruption perceptions index.

The two countries tie in 172nd place in the index of xxx countries, above only Iraq, Afghanistan, Myanmar and Somalia.

The index ranks countries according to perception of corruption in the public sector. The surveys used to compile the index include questions relating to bribery of public officials, kickbacks in public procurement, embezzlement of public funds and the effectiveness of public sector anti-corruption efforts.

According to Transparency International, nearly three quarters of the countries surveyed scored below five, on a scale from 10 (very clean) to 0 (highly corrupt).

“These results signal that significantly greater efforts must go into strengthening governance across the globe, says the organisation’s chair Huguette Labelle.

“With the livelihoods of so many at stake, governments’ commitments to anti- corruption, transparency and accountability must speak through their actions. Good governance is an essential part of the solution to the global policy challenges governments face today.”

Other countries from the Eurasian region were also close to the bottom of the list. Kyrgyzstan was in 164th place, while Russia and Tajikistan werre slightly higher at 154th.

Kazakhstan was rated the least corrupt Central Asian country, coming in at 105th place.

Among the Caucasian countries, Georgia was in 68th place on the index, but Armenia and Azerbaijan were in 123rd and 134th place respectively.

174. Tajikistan to block Vakhsh river in November bne October 25, 2010

The Vakhsh river will be blocked in early November to allow construction of the Saungtuda-2 hydropower plant to begin, according to Tajikistan’s Minister of Energy and Industries Gul Sherali.

“Preparatory work is under way at the dam site and waterway tunnels,” Asia Plus quotes Sherali as saying.

“The river course will change and water will run along two waterway tunnels.”

He added that construction of the power plant will not affect electricity supply in Tajikistan.

Sangtuda-2 is being built jointly by Tajikistan and Iran, which has provided $180m of the $220m needed for the project.

175. Tajikistan to provide electricity to Pakistan bne October 25, 2010

Tajikistan has expressed an interest in providing electricity to Pakistan, APP reports.

The offer was made at a meeting of ministers from Afghanistan, Pakistan, Russia and Tajikistan in Islamabad.

Ministers from the four countries also agreed to form joint working groups in the areas of energy, transportation, agriculture and food.

176. Turkmenistan has “great potential” - ExxonMobil bne October 28, 2010

International energy company ExxonMobil is keen to develop Turkmenistan’s oil and gas resources after re-opening its office in the Turkmen capital Ashgabat.

"Turkmenistan has great potential to be a regional energy and economic leader given its abundance of natural gas, which is the fastest growing fuel around the world," said Joerg Weller, general manager of ExxonMobil Exploration and Production Turkmenistan Ventures B.V., in a statement quoted by Reuters.

ExxonMobil closed down its Turkmenistan office in 2002, though has continued to operate in Kazakhstan and Russia.

177. Uzbekistan to amend bankruptcy law bne October 27, 2010

The legislative chamber of Uzbekistan’s lower house of parliament, the Oliy Majlis, has approved a draft law amending the country’s bankruptcy law. In particular, the amendments are intended to stipulate the legal mechanism for transfer of a bankrupt's property to state ownership, where the bankrupt owes money to the state budget, according to Uzreport.

178. Uzbekistan: Uzmetkombinat increases production bne October 25, 2010

Uzbek Metallurgical Plant (Uzmetkombinat) has increased production and added to its product range, UzA reports. The company produced 559,600 tons of steel, and 543,800 thousand tons of finished steel and manufactured goods in the first nine months of 2010. Uzmetkombinat has already finished several investment projects, and others are in progress.

BELARUS INVESTMENT 179. Belarus gets green light from U.S., EU for WTO accession talks bne October 29, 2010

Belarus has received a ,,green light" from the United States and the European Union for holding talks over the accession to the World Trade Organization (WTO), says Deputy Foreign Minister Andrei Yevdochenko, reports Prime-Tass.

The news agency quoted Yevdochenko as saying that progress in talks always depends on positions of some key players, traditionally, they are the U.S. and EU. As of today, we have a green light for holding talks from both these players.

180. Belarus to present $1.266bn flat stock plant project at invest forum in Germany bne October 27, 2010

Belarus will present its project to construct a flat stock plant in Zhlobin-based BMZ, worth an estimated $1.266bn, during the investment forum in Frankfurt am Main scheduled for November 17, says the head of the innovation and investment department with the Industry Ministry of Belarus, Dmitry Korchik, reports Prime- Tass.

The news agency quoted Korchik as saying that it is a very serious project for the ministry, with required investment volume of $1.266bn. It is a new production that will call for foreign investments, so we will set up a joint venture. The investor will have to possess raw materials for the new production, because BMZ uses scrap metal, and it is short of it for current activities.

181. Belarus to present over 100 projects at investment forum in Frankfurt am Main bne October 29, 2010

Belarus will present over 100 investment projects at the investment forum in Frankfurt am Main slated for November 17, 2010, says Igor Kamalov, the deputy director of the National Investment and Privatization Agency (NIPA), reports Prime- Tass.

The news agency quoted Kamalov as saying that each project is attractive to investors. They have been developed to a very high degree - they have the payoff period, profitability and profits.

182. Belarus to select investor among Chinese cos to build 2nd car-making plant by `11 bne October 27, 2010

Belarus will select an investor to finance the construction of a second car manufacturer among Chinese companies by the end of the year, says the head of the innovation and investment department with the Industry Ministry of Belarus, Dmitry Korchik, reports Prime-Tass.

The news agency quoted Korchik as saying that a few Chinese companies are interested in the construction of a car plant in Belarus; we have held talks with some of them, however, the final decision has not been made yet. I believe we will select the investor by the end of the year.

183. Belarus to sign contract with Chinese CNCEC for soda ash plant construction bne October 29, 2010

Belarus plans to sign a contract with Chinese CNCEC for the construction of a soda ash plant in the Gomel Region this November, reports Prime-Tass.

Citing an unnamed representative in the Architecture and Construction Ministry, the news agency says that the capacity of the new production is projected at 300,000 tonnes annually.

184. Belarusian govt to choose investor for car plant by year-end bne October 27, 2010

The Belarusian government plans to choose an investor among Chinese companies by the end of 2010 to build a more than $100mn car plant, says Dmitry Korchik, head of the Belarusian Industry Ministry's innovation and investment department, reports Prime-Tass.

The news agency quoted Korchik as saying that besides Chinese investors, French and Italian companies are also interested in the project.

185. Lithuania is consistently working more closely with Belarus OSW October 29, 2010

The visit paid by Lithuanian Presdident Dalia Grybauskaite to Minsk on 20 October, during the presidential election campaign in Belarus, showed Lithuania's determination to maintain close ties with Belarus. Although successive Lithuanian authorities have expressed negative opinions about Lukashenko's regime and supported the opposition in Belarus for years, they have on the other hand criticised the EU's policy of imposing restrictions on Belarus and keeping Minsk in isolation. Vilnius tried to develop contacts with Belarus, but it was the lifting of EU sanctions in 2008 and Lukashenko's interest in opening up to the West that allowed the Lithuanian govenrment to intensify these relations. This new stage was launched by Lukashenko's visit to Vilnius in September 2009, followed by further meetings between officials from the two countries. The key elements in the cooperation between Belarus and Lithuania are transit and energy. Lithuania, with its large seaport in Klaipeda and transit infrastructure, is particularly interested in winning Belarus as a stable partner, especially when Lukashenko signs long-term contracts for oil supplies from Venezuela, and like Lithuania. is keen to secure LNG transported by sea. The Lithuanian authorities are forced to seek favours from their Belarusian partner as Klaipeda competes with other Baltic seaports (in Latvia and Estonia). In order to maintain Belarus' interest in Lithuania's offer of economic cooperation, Lithuania is extending its offer to political support, and acting as an intermediary in establishing closer relations between Minsk and Brussels. For Lukashenko, who is seeking both political and economic backing in the face of his aggravated conflict with Russia, dialogue with Lithuania and support from the Lithuanian president (a former EU commissioner) are particularly advantageous. However, there is no balance in the relations between these countries: Lithuania is taking a risk by siding with the Belarusian president without any guarantee of future economic profits, and assuming that its political support will lead to the prestigious success of bringing democratisation to Belarus. On the other hand, Lukashenko is convinced that by simply maintaining the hopes of closer ties with Lithuania, he will be able to seek its support whenever it is helpful for him.

A year of cooperation summed up, and hopes for the future

In March 2010, before the twentieth anniversary of Lithuania regaining independence, Belarus made a symbolic political gesture to Lithuania that proved the two countries have been successful even in settling thorny issues. Following the commitment that President Lukashenko made during his visit to Vilnius in September 2009, the Belarusian authorities handed Lithuania the protocol from the investigation of General Uladzimir Uskhopchyk, who on 13 January 1991 commanded the Vilnius regiment of the Soviet Army and, at Moscow's orders, brutally pacified the mass independence demonstrations taking place then in Lithuania. The rapprochement between these two countries has contributed to the development of economic cooperation. In Lithuania influential business circles, grouped around the Lithuanian Confederation of Industrialists and its leader Bronislovas Lubys, are particularly interested in it. Lithuanian entrepreneurs see an opportunity in the progressive liberalisation of the Belarusian market, and despite the crisis are relying on it more and more. In 2009 Lithuanian investments doubled in comparison with 2008, and reached US$150 million. Lithuania is currently the seventh largest foreign investor in Belarus, and has a positive trade balance in its trade with Belarus. Lithuania's important objective in its relations with Belarus remains the transit of cheap Ukrainian electric energy through Belarus to Lithuania, which was strongly emphasised by President Grybauskaite during her visit to Minsk. The gas crisis between Russia and Belarus, together with Minsk's determination to seek alternative to Russian suppliers and new ways of receiving supplies, has however opened up further opportunities for collaboration. In June 2010, the Prime Ministers of both countries established an intergovernmental working group on economic cooperation in the energy field. On 7 October, this group elaborated an agreement on the transit of Venezuelan oil to Belarus through the Lithuanian state- owned oil terminal in Klaipeda (5 million tonnes of oil within two years) and the transit of oil by train to the Belarusian refinery in Novopolotsk. The conclusion of agreements between the companies from both countries that service this contract will lead to Belarus' economic ties with the seaport and terminal in Klaipeda being strengthened. Above all, it is influential Lithuanian business circles that are interested in increasing the importance of Lithuania as a transit country (Lubys controls part of the Klaipeda seaport). Lithuania is considering the prospects of collaboration with Belarus while preparing a project for an LNG terminal in Klaipeda which will ensure supplies of gas to Lithuania, and could also be used by Belarus. Although Lithuania has strengthened its relations with Minsk, Vilnius has no guarantee that the planned economic initiatives will bring the expected profits. On one hand, the Belarusian government appears interested in cooperation, but on the other, they have set tough conditions that include cheap fees for the transit of oil. Belarus may also present the argument that it has an alternative transit route, as it is talking to Latvian partners about the possibility of using the oil terminal in Vindava. In such conditions Lithuania is forced to retain Minsk's interest by extending its offer to political cooperation, in order to attain visible results in its policy of opening up to Belarus.

Supporting Lukashenko without precise conditions

President Grybauskaite went to Minsk even though this decision was criticised both in Lithuania and in opposition circles in Belarus. It was said that the visit would become an instrument in the electoral campaign of the Belarusian dictator, particularly after a wave of negative propaganda against Lukashenko in the Russian media. Grybauskaite's visit to Belarus was officially justified by the necessity of Lithuania's preparation for leadership in the Organisation for Security and Co-operation in Europe the following year, which would in turn lead to the necessity of monitoring the election of the Belarusian president in the forthcoming elections scheduled for 19 December. Dalia Grybauskaite also brought to Minsk a Lithuanian proposal to advocate and defend Belarus' interests in Europe. For Lukashenko these assurances were important, particularly the fact that they were formulated by a former EU commissioner who enjoyed a good reputation in Brussels. Lukashenko has been pleased by this gesture, and expects that Grybauskaite's support can be of use to him if he has to break the resistance of those EU states and institutions which have not seen any chance of constructive dialogue with him. Furthermore, the Lithuanian declarations have not been publicly accompanied by any firm and specific conditions. Lithuania is hoping that Belarus will use its support in the EU and will take the steps awaited by the international community. By not placing any conditions on its support, Lithuania may place itself in a difficult situation. More serious irregularities in the election process may jeopardise the partnership between Lithuania and Belarus and bring Lithuania under fire from international criticism. Also, relations between the Lithuanian government and the Belarusian opposition, which has not felt the strong support from Lithuania as it did earlier, may grow more distant. During President Grybauskaite's visit, Lukashenko only declared that the registration of all candidates in the election would be held in a regular and transparent way, and international observers would be granted access to election commissions. During the visit, an agreement on small-scale border traffic between Lithuania and Belarus was signed, which covers visa-free circulation in the near-border area of up to 50 km inside the territories of each country. Lithuania is the third country after Poland and Latvia to sign such an agreement with Belarus. Now this agreement needs to be accepted by the European Commission (which thus has to agree to extend the area from 30 km to 50 km) and then ratified by the parliaments of both countries.

Summary

In the short term, Lukashenko needs political and economic support from Vilnius against the background of the escalating conflict with Russia. In this context, the Lithuanian president's visit could alleviate the effects in both Belarus and the EU of the anti-Lukashenko campaign which the Russian media is currently conducting. With a further deterioration of relations with Russia, Lithuania's help in the energy sphere may contribute to Belarus' increased energy security, by securing the transit route for Venezuelan oil and possibly for gas through the LNG terminal. Energy projects bear risks, though, and political gestures in a situation where there are no positive changes in Belarus could mean the failure of Vilnius' policy towards Belarus. This is now de facto the strongest direction in Lithuania's eastern policy, and failure would affect Lithuania's image in the EU. Through the support pledged to Minsk in its conflict with Moscow, Lithuania is also running the risk that its own relations with Russia could become more distant. Dalia Grybauskaite's election for the presidency was greeted with high hopes in Russia. However, despite some gestures that showed Russia was ready to work on the 'new opening' with Grybauskaite, these plans were not put into practice, and the announced visit of Grybauskaite to Moscow has not taken place. Lithuania's closer ties with Belarus during the intensified dispute between Minsk and Moscow may lead to a situation where, although Belarus will remain the major partner for Lithuania in the area of eastern policy, Vilnius' position in the region will be weakened.

186. Minsk wants Russian oil re-export duties to be scrapped from 2011 RIA Novosti October 29, 2010

Belarus is insisting that duties for the re-export of Russian oil should be cancelled from January 1, 2011, Belarusian Foreign Deputy Minister Andrei Yevdochenko said on Friday.

"There are duties inside the Customs Union that contradicts the norms and principles of international trade," Yevdochenko explained.

"We do not expect privileges from anybody and expect that all business entities [in the Customs Union] will start to work under equal conditions within the next five years," he added.

Duties for the re-export of Russian oil were introduced as Belarusian refineries bought oil from Russia at domestic market prices and sold refined petroleum products in Europe. The export tax on these petroleum products went to the Belarusian budget.

Russia is currently imposing tax on all petroleum products supplied to Belarus.

Russia exported more than 21 million tons of oil to Belarus last year, but only 5-6 million tons was for domestic consumption. The rest was re-exported, some after passing through one of the country's two oil refineries.

Russian First Deputy Prime Minister Igor Sechin suggested in December that Belarus could import the domestic volumes duty-free, citing the "brotherly relations" between the two countries, leaving the remaining 15 million tons subject to export duties.

Moscow and Minsk faced off at the start of the year over tariffs on imports of Russian oil, which Belarus said should be completely duty-free in the Customs Union.

The introduction of oil export duties forced Belarus to halve crude oil exports in the first half of 2010. Export of petroleum products has lowered by 40 percent, and the output of Belarus's oil industry by 30 percent.

Belarusian President Alexander Lukashenko has pledged to seek alternatives to Russian energy supplies.

The CIS Economic Court ruled on September 7 that Moscow and Minsk must come to an out of court agreement within one month on a dispute over export duties.

The court dismissed a request from Belarus that Russia be prohibited from levying export duties on oil products until the end of the dispute.

187. Nemiroff plans to make up to 1 million decaliters of vodka annually at Minsk Kristall bne October 28, 2010

Nemiroff plans to produce up to 1 million decaliters of vodka annually at Minsk Kristall, says the chairman of Belgospischeprom concern, Ivan Danchenko, reports Prime-Tass.

The news agency quoted Danchenko as saying that they are glad that Nemiroff has come to our market - it is recognition of the Belarusian market and quality of local products.

188. Nemiroff starts licensed vodka production in Belarus bne October 29, 2010

Ukraine's Nemiroff, one of the leading vodka producers in the CIS, has started licensed vodka production in Belarus at Minsk Kristall distillery, reports Interfax.

Citing the company, the news agency says that the Nemiroff production quota in Belarus is one million decaliters per year.

189. Plywood factory blast in Belarus leaves 1 dead, 19 injured RIA Novosti October 25, 2010

One person died and 19 others were injured on Monday when a blast ripped through a plywood factory in Belarus's southern Brest region, a local emergencies official said.

"A fire broke out as a result of the blast, and some 100 square meters of the roof collapsed," Vitaly Novitsky said.

Eighteen people received serious injuries, and one was still buried under the debris, he added.

The fire at the factory has been extinguished and rescuers are working at the site.

190. Renaissance Capital secures major investment mandates in Belarus press release October 27, 2010

Renaissance Capital, the leading emerging markets investment bank, has secured a number of key investment mandates in the Republic of Belarus.

On October 18, the Government of Belarus ratified an agreement between Renaissance Capital and Belgospisheprom, the Belarussian state food industry corporation, on providing investment advisory services. The agreement names Renaissance Capital Belgospisheprom's investment agent.

Earlier this month, on October 5, the Council of Ministers of the Republic of Belarus also named Renaissance its global advisor for attracting investments into the Belarus economy. According to the agreement with the Belarusian government, Renaissance Capital is to represent the interests of the Republic of Belarus in matters related to foreign investments.

Renaissance Capital is also supporting Belarusian privatization efforts. Earlier this year, Renaissance Capital was appointed Belarus' privatization advisor by the State Property Fund of Belarus.

"We strongly believe in Belarus' investment potential, and cooperation between the state and private sector is key to realizing this potential," said Peter Vanhecke, CEO, Renaissance Capital Ukraine, Belarus & CEE. "We are pleased that our emerging markets experience and long-standing relations with a wide range of institutional and strategic investors enable us to act as a financial intermediary between the Republic of Belarus and the international investment community".

In December 2009, Renaissance Capital opened a representative office in the Republic of Belarus. The office is staffed locally and supported by Renaissance Capital's investment banking hub in Kiev. It offers a full range of investment banking services in Belarus including access to equity and debt capital markets, securities sales and trading, M&A, research and derivatives, and promotes the Republic of Belarus as an investor destination to foreign institutions and industries.

EURASIA INVESTMENT 191. Azerbaijan decreases grain production APA-Economics October 25, 2010

Climate change influences on grain production in Azerbaijan, Deputy Minister of Agriculture Bahram Aliyev told APA.

According to him climate change created problems in grain production: “Azerbaijan produced 3 mln tons of grain last year. This met the need of the country for grain, completely. Azerbaijan produced 2 mln tons of grain this year and this is connected with climate change.”

He also noted that 47.8% of Azerbaijani lands were subjected to corrosion.

192. Azerbaijan increases car production and decreases refrigerator production APA-Economics October 27, 2010

During 9 months of 2010, 846 automobiles were produced in Azerbaijan. Of this, 477 were Lorries, 369 were cars. Production of cars rose by 12.3 times compared with a year ago, State Statistical Committee told APA.

At the same time Azerbaijan produced 468 tractors during the same period, up 6% compared with a year ago.

Besides, the production of refrigerators and conditioner decreased. Thus, 2749 refrigerators were produced during the period of report, down approximately 25% compared with a year ago. Number of produced conditioners made 1214, down approximately 8% from year earlier. At the same time, Azerbaijan produced 6651 TVs.

193. Azerbaijan resumes electrolysis production in Surface Active Substances Plant APA-Economics October 28, 2010

Azerbaijan resumed electrolysis production in Surface Active Substances Plant.

SOCAR says the electrolysis baths were loaded and production of liquid chlorine and caustic soda started after a long time.

194. Azerbaijan to meet need for meat completely, during next five years APA-Economics October 26, 2010

Azerbaijan will meet the need for meat until 2015, Deputy Minister of Agriculture Bahram Aliyev told APA.

According to him Azerbaijan meets 70% need for meat that this includes poultry too: “Azerbaijan’s current need for meat makes 80 000 tons. Azerbaijan is expected to meet the need for meat completely, until 2015.”

195. Azerbaijan: Cargo and passenger transportations via automobile transport increase by 6% and 8% in Azerbaijan APA-Economics October 27, 2010

In January-September, 2010, 74.5 mln tons of cargo and 875.3 mln passengers were transported via automobile transport, up 6.2% and 7.6% compared with a year ago, State Statistical Committee told APA.

96.5% of passengers used the buses, 3.5% used taxies.

196. Azerbaijan: Cargo transportation on Azerbaijan segment of TRACECA transport corridor rises 8% APA-Economics October 26, 2010

In January-August, 2010, 33.7 mln tons of cargo were transported in Azerbaijan area on TRACECA (Transport Corridor Europe-Caucasus-Asia), up 7.9% compared with a year ago, State Statistical Committee told APA.

According to Committee 40.1% was transported by railway, 43% by automobile, 16.9% by sea transport.

Income from transportations made AZN 207.4 mln.

197. Azerbaijan: Communication services increase by 33% in Azerbaijan APA-Economics October 25, 2010

Azerbaijan-based information and communication enterprises conducted AZN 832 mln services to the population in January-September, 2010, up 33.4% compared with a year ago.

67.8% of income of communication and information services came from mobile phone and these services rose 34% to AZN 564.3 mln.

198. Azerbaijan: Czech interests in purchasing of Azerbaijani gas APA-Economics October 28, 2010

Czech interests in purchasing of Azerbaijani gas. According to Radek Matula, Ambassador of the Czech Republic to Azerbaijan, Czech government supports the project of energy corridor.

The main part of this project will be Nabucco pipeline, purpose will be diversification of natural gas resources.

He also noted that Czech’s need for gas makes 8-8.5 bcm. “South energy corridor will increase not only Czech’s energy security, but energy security of whole Europe. Czech’s 73-78% of current need for gas comes from Russia, others from Norway.

199. Azerbaijan: IDB increases investment in Azerbaijan APA-Economics October 28, 2010

Investment of Islamic Development Bank in Azerbaijan made AZN 2 974.4 thousand, during January-September, 2010, up30.2% compared with a year ago, Stat Statistical Committee told APA.

SSC says share of IDB’s investment in the capital invested by foreign countries and international organizations in Azerbaijan’s main economy makes 0.2%.

Azerbaijan has been a member of IDB since 1992.

200. Azerbaijan: Investment in Azerbaijan main capital increases by 49% year-on-year APA-Economics October 25, 2010

Investments of foreign resources in Azerbaijan’s main capital made AZN 1 399.8 mln, in January-September, 2010, up 48.7% compared with a year ago, said the State Statistical Committee.

Of this, AZN 1 308.8 was invested by the investors of Great Britain, USA, Japan, Norway, Turkey, Korea and France.

201. Azerbaijan: Oil transportation decreases, gas transportation rises via main pipelines in Azerbaijan APA-Economics October 26, 2010

Azerbaijan transported 37.3 mln tons of oil via main pipelines in January-September, 2010, down 1.85 compared with a year ago.

State Statistical Committee says that 76.7% of transportation was implemented via Baku-Tbilisi-Ceyhan pipeline, down 0.3% compared with a year ago. 659.5 thousand Turkmenistan oil was transported via BTC from July so far.

At the same time 13.1 bcm of gas was transported via main pipelines during the same period, down 10.2% compared with a year ago. Of this, 30.9% was transported via Baku-Tbilisi-Erzurum South Caucasus pipeline, up 8% compared with a year ago.

202. Azerbaijan: Passenger transportation via transport sector decreases by 4.7%, cargo transportation increased by 0.1% in September APA-Economics October 27, 2010

Passenger transportation via transport sector decreased by 4.7% and cargo transportation increased by 0.1% in September, 2010.

Cargo transportation to CIS countries via air transport ended up 0.5% and passenger transportation decreased by 49.1% to CIS countries, 6.1% to abroad. Cargo transportation via pipeline slid 0.3%.

203. Azerbaijan: Production in chemical industry rises 8% in Azerbaijan APA-Economics October 28, 2010

The enterprises of chemical industry, pharmaceutical products, rubber and plastic produced AZN 161.7 mln production, in first 9 months of 2010.

According to SSC the production in chemical industry rose 7.7%, rubber and plastic productions and pharmaceutical products decreased by 6.1% and 9%.

204. Azerbaijan: Stopping of FATF’s monitoring regime in Azerbaijan will create opportunities for attracting of foreign investors - Rufat Aslanli APA-Economics October 28, 2010

Stopping of FATF’s monitoring regime in Azerbaijan will create opportunities for attracting of foreign investors, chairman of State Committee for Securities Rufat Aslanli told APA.

According to holding of monitoring in Azerbaijan made the foreign investors discomfort: ”Now, stopping of monitoring in Azerbaijan may create opportunities for attracting of foreign investors.”

Note that, the FATF has been in existence since 1989. In 2004, Ministry representatives from the 35 FATF members agreed to extend the mandate of the Task Force until 2012. This 8-year mandate demonstrates that members of the FATF remain united in their commitment to combat terrorism and international crime, and is a sign of their confidence in the FATFas an important instrument in that fight.

205. Azerbaijan: Turkish government puts forward initiative to establish Nakhchivan-Turkey Business Council and free trade zone on border APA October 28, 2010

Turkish State Minister for Foreign Trade Zafer Caglayan, who arrived in Nakhchivan to attend Azerbaijan-Turkey business-forum, held a press conference at Duzdagh hotel, APA reports quoting Anadolu agency.

Noting that it was his first visit to Nakhchivan Zafer Caglayan said the autonomous republic had been isolated.

“Armenia has stuck between Nakhchivan and other part of Azerbaijan as a knife. It has access only to Iran and Turkey. Nakhchivan has a special place in the foreign policy of our government. That’s why we are here today,” he said.

Zafer Caglayan said Turkish businessmen wanted to do serious work in Nakhchivan, increase the investment made in the autonomous republic and mutual trade. He noted that discussions were being held to establish Nakhchivan-Turkey Business Council.

“We want to establish the council that may help the businessmen. One should take advantage of being bordered on Nakhchivan. It would be better to create free trade zone on the border. It would increase mutual trade. We can create a region without customs and trade with every part of the world. I gave necessary instructions. Turkey’s General Directorate of Free Trade Zones will study the issue. It will be possible to set up this system without losing time,” he said.

Minister said he had asked chairman of the Supreme Assembly Vasif Talibov to give support to create conditions for the Turkish businessmen to invest in Nakhchivan.

206. Russian cos supply $5mn equip to upgrade Uzbek power plant bne October 27, 2010

Sergei Dabizha, chief engineer of the AMMC, has said that Russia's Energomash Group and Scientific Production Company (SPC) Rakurs have supplied $5mn worth of equipment to upgrade a thermal power plant at Uzbekistan's Almalyk Mining- Metallurgical Complex (AMMC), reports Prime-Tass.

The news agency says that Energomash-BZEM, a Belgorod-based unit of Energomash Group, supplied boiler equipment, while St. Petersburg-based SPC Rakurs supplied an automatic control system.

207. Tajikistan to limit electric power consumption starting November 1 bne October 28, 2010

Tajikistan plans to limit electric power consumption starting November 1 due to a shortage of electric power, reports Prime-Tass.

Citing the country's electric power holding Barki Tajik, the news agency says that the limitation will not affect the country's capital of Dushanbe, administrative centers of the country's regions, and some other cities.

208. Turkmenistan intends to mount energy cooperation with Europe bne October 28, 2010

Ashgabat is surprised with Russian media reports concerning Turkmen energy deliveries to international markets, reports Interfax.

Citing the Turkmen Foreign Ministry, the news agency says that the reports are totally unfounded.

209. Turkmenistan, Russia in new energy feud bne October 28, 2010

Turkmenistan on Thursday accused Russia of meddling in its efforts to build energy ties with Europe, the latest flare-up in tensions over gas trade between the two former Soviet nations, reports The Moscow Times.

The newspaper report says that the Turkmen foreign ministry rejected suggestions by Deputy Prime Minister Igor Sechin that the country was unlikely to ever be able to sell its gas without crossing Russian territory.

210. Uzbek co seeks to process oil shale with Russia's Atomenergoproekt bne October 28, 2010

Uzbek national oil and gas holding Uzbekneftegaz plans to cooperate with Russian research and development institute Atomenergoproekt in processing oil shale in Uzbekistan, reports Prime-Tass.

Citing a representative of Uzbekneftegaz, the news agency says that investments in the project are expected to amount to $150mn.

SOUTHEAST INVESTMENT 211. Albania's central bank keeps key repo rate unchanged bne October 28, 2010 Albania's central bank has decided to keep the country's key repo rate at 5.0% for a third consecutive month, according to SeeNews. Expectations for the inflation and its current level now are in line with the central bank's target, central bank governor Ardian Fullani was quoted as saying in a statement after a regular monthly meeting of the supervisory board. The country targets an average annual inflation rate of 3.0% in 2010 with one percentage point variation band on either side. Albania's consumer prices rose 3.4% on an annual basis in September compared to a 3.5% rise in August. In July, the central bank cut the key repo rate by 0.25 percentage points to 5.0%, the first decrease since October last year and a level last seen in 2005. 212. Albania's trade deficit falls in September as exports rise bne October 28, 2010 Statistics office data shows that in September Albania's trade deficit fell 4.6% on the year to 227.566bn leks ($2.29bn/1.64bn euro) as exports rose far faster than imports, data from the statistics office showed on Tuesday, reports SeeNews. In September alone, the country had a trade gap of 27.227bn leks, 18% lower on the year, the National Statistics Institute, INSTAT, said in a monthly report. In the first nine months of the year, imports rose by 11% to 346.63bn leks, while exports expanded by 60.5% to 119.064bn leks. The EU accounted for 70% of Albania's exports through September and for 64% of the country's imports over the same period. Italy and Greece remained Albania's main trading partners during the nine-month period. 213. Bosnia's paper and printing industry exports up bne October 25, 2010 Bosnia's paper and printing industry rose 31% to nearly 150m marka ($107m/77m euro) from January to September 2010, according to SeeNews. Repro material imports to the country rose 2.5% on the year to 270m marka in the nine months to September shows data from Bosnia's Foreign Trade Chamber. The local paper industry accounted for more than 141m marka of the exports and for 228m marka of the imports. The printing industry shipped abroad over 8.0m marka worth of repro materials while its imports topped 42m. 214. Bulgaria tobnuild a second nuclear power plant at Belene bne October 25, 2010 Parliament Chair Tsetska Tsacheva has announced that Bulgaria will for sure build its second nuclear power plant atbnelene, according to Novinite. After Bulgaria's government of the center-right GERB party hasbneen going back and forth for months on whether the Belene Nuclear Power Plant willbne constructed, in the past couple of days both Prime Minister Borisov and Economy Minister Traikov made hints in favor of the plant. On Sunday, however, Parliament Chair Tsacheva made more definitive statements. "After the visit of Prime Ministerbnorisov to the Free State ofbnavaria, we now have more specifics about the availability of a strategic European investor from Germany," Tsacheva stated in Gorni Dabnik, Pleven District, during the celebrations of the 133 years since a Liberation Warbnattle that took place there. "For the Bulgarian government, it was extremely important to secure the participation of a strategic European investor. We now almost certainly found one," she said. 215. CEE energy giant serious about Turkish refinery bne October 26, 2010

OMV, the Austrian energy company raising its stake in Turkey’s Petrol Ofisi to 95.75 percent, said it will consider building its Turkish business even more by investing in the country’s planned Ceyhan oil refinery project, reported Hurriyet.

“We will look at the project,” Chief Executive Officer Wolfgang Ruttenstorfer said on Monday in a conference call from Vienna. OMV may take a minority stake in the refinery to build “integrated positions” in the oil and natural gas sectors, the CEO said.

OMV, the biggest energy company in central Europe, agreed Oct. 22 to buy Doğan Holding’s stake in Petrol Ofisi for 1 billion euros ($1.4 billion) to tap faster growth in emerging markets. Petrol Ofisi operates 2,500 stations and controls around 27 percent of Turkey’s gasoline market. OMV raised its stake from 41.58 percent.

The Petrol Ofisi shares not owned by OMV will be allowed to continue trading on the Istanbul Stock Exchange, Ruttenstorfer said. OMV is still determining whether it will issue new stock, convertible bonds or hybrid capital to finance the deal, he said.

216. Council underscores 'very positive dynamics' in EU-Moldova relations ENPI October 28, 2010 EU Foreign Ministers meeting in Luxembourg have acknowledged the European aspirations of Moldova and welcomed its "efforts towards political association and economic integration with the European Union." They underlined "the very positive dynamics in EU-Moldova relations during the last year," as well Moldova's active contribution to it, the Foreign Affairs Council Conclusions said. The Council voiced satisfaction that negotiations on the future EU-Moldova Association Agreement "were making very good progress," the Conclusions said. Foreign ministers urged Moldova to continue addressing "important challenges such as strengthening democracy and the rule of law, improving the investment climate, pursuing EU approximation in all areas of the EU- Republic of Moldova Action Plan, fighting corruption and organised crime, and tackling the problem of poverty." The Conclusions said substantial macro-financial assistance ‚Äì 90 million euros in the form of grants ‚Äì would start being delivered to Moldova's state budget in the coming weeks. Ministers reiterated the importance of people-to-people contacts and welcomed the opening in June of the visa dialogue examining the conditions for visa-free travel of Moldova‚Äôs citizens to the EU as a long-term goal. The Council noted that Moldova had taken important steps during the past year in consolidating democracy and expressed hope that forthcoming parliamentary elections, due to take place on 28 November, would "take the country further forward on this path and fully meet international standards for free and fair elections." Foreign ministers also welcomed Moldova's "constructive engagement" in the Transnistria settlement efforts, pledged the EU's continued contribution to a sustainable settlement of the conflict "based on the principles of Moldova's sovereignty and territorial integrity," and called for a resumption of official settlement talks in the 5+2 format as early as possible. 217. Croatia contemplates future EU perks of power EUROPA October 26, 2010 As Croatia gets closer to joining the EU, Prime Minister Jadranka Kosor last week unveiled her country's potential voting quotas as a future EU member as well as its likely number of seats in the European Parliament, the HINA agency reported. As a full-time EU member, Croatia will boast one commissioner and 12 seats in the European Parliament, Kosor said. This is one less than Slovakia and the same as Lithuania and Ireland. Meanwhile, Zagreb would command seven votes in the Council of Ministers, which represents the governments of the 27 EU member states. The country will also have one judge at both the European Court of Justice and the Court of Auditors, which oversee the bloc's institutions. There are also nine seats reserved for the Western Balkan state in lower-level EU consultative bodies ‚Äì the Committee of the Regions and the Economic and Social Committee. "Croatian will become an official EU language," Kosor said, calling on all actors to complete the necessary work for accession "as soon as possible". EU Treaty change could delay Croatia's accession. But the Balkan country's accession timetable could clash with proposed changes to the EU Treaty called for earlier this week by German Chancellor Angela Merkel and French President Nicolas Sarkozy. The two leaders asked for changes to the treaty in order to enforce stricter budget discipline on EU members following the Greek debt crisis. As accession treaties and EU treaty changes both require ratification by all member states, they could be voted on together. Croatia's accession could be delayed if EU countries indeed decide to change the treaties. Merkel and Sarkozy had called for treaty change by 2013, whilst Croatia is expected to complete accession negotiations in the spring of 2011. Hungarian President Viktor Orb√°n has promised to make sure that Croatia's accession talks are completed during his country's EU presidency in the first half of next year. Kosor welcomed the next EU presidency holder's promise as a "friendly gesture confirming good neighbourly relations". Judicial cooperation and competition policy have so far represented the most difficult chapters in the country's accession talks and were the last to be opened, on 30 June this year. However, Kosor said she was "very optimistic" about completing them. Jean de Ruyt, permanent ambassador to the EU for Belgium, the country currently holding the EU's rotating presidency, said on 22 October that full cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY) would be required before Croatia is allowed to close the crucial negotiation chapter on the'Judiciary and Fundamental Rights'. 218. Croatia's economy still in recession bne October 29, 2010 The Zagreb Institute of Economics (EIZ) has announced that Croatia's economy is still in a recession, according to HINA. GDP is expected to decline 1.7% this year. An economic upturn, of 1.7%, is expected only in 2011. The EIZ forecasts a continuation of negative trends on the labour market, with the worst expected next February and March, when the number of the jobless could exceed 330,000 and the registered unemployment rate reach 19%. Lack of readiness of those in charge of the economic policy to launch more comprehensive reforms could lead to a slow and weak economic recovery in coming years, according to the EIZ. This year's second quarter saw the ninth consecutive quarterly decline of GDP, of 2.5%. Despite other negative indicators such as steep declines in construction and investments as well as a reduction in personal and government spending, there are encouraging signals, such as growing exports and a mild increase in retail. Inflation is expected to remain low and the balance of payments deficit to decline, while the fiscal deficit and the public debt are expected to grow markedly. Next year is expected to bring a mild economic upturn due to stronger exports, a recovery of personal spending and more favourable overall trends, in part due to the global economic upturn. On the other hand, 2011 is not expected to see an increase in employment. Growing exports and declining imports will reduce this year's balance of payments deficit to about 3% of GDP, which should markedly slow down external debt growth. Next year, import growth will raise the balance of payments deficit to 3.8%. The EIZ expects monetary support for economic growth to continue, with a significant growth of liquid funds and the credit volume in 2011. The EIZ points to extremely poor investments, a relatively low export growth, which points to problems in competitiveness, and lack of measures to encourage competitiveness. The EIZ also notes the government's unwillingness to launch unpopular reforms, saying this is linked to parliamentary elections, although they are scheduled for the end of 2011. 219. Double-edged decision looming on Serbia EUROPA October 26, 2010 EU foreign ministers, meeting in Luxembourg on Monday, October 25, are expected to finally unblock Serbia's association process, which has been stalled for years over the Netherlands' insistence on seeing war criminal Ratko Mladic brought to justice. Jean de Ruyt, EU ambassador for Belgium, the country currently holding the rotating EU presidency, told the press today (22 October) that an agreement was in sight at the next ministers' meeting in Luxembourg. He added, however, that in return for the deal, the EU would apply "very, very close monitoring" on Serbia's cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY). Nevertheless, De Ruyt said that some member countries were still opposed to introducing a strict conditionality clause referring to the ICTY. This is the first time the term "monitoring" has been used in connection with a Western Balkan country's accession process. De Ruyt admitted himself that such a strict monitoring system had not been applied to Croatia, a country well advanced in its EU accession negotiations. He added, however, that similar conditions would apply for Zagreb in the crucial negotiation chapter of justice and fundamental rights. "The cooperation of Serbia with ICTY is not perfect, but we should decide at the end of the accession process," the Belgian diplomat said. According to De Ruyt's reasoning, each step of Serbia's EU accession process would be conditional on cooperation with the ICTY. All decisions on enlargement-related issues are taken by unanimity, and in a country's accession process, there are over one hundred veto opportunities. De Ruyt explained that the situation in the Netherlands was "complicated," with a new minority government, new ministers responsible for EU enlargement and a Parliament which gave "little window of opportunity" for the cabinet to unblock Serbia's EU bid.In particular, the Parliament had instructed the government to postpone any decision regarding Serbia ahead of the next report on the country by ICTY chief prosecutor Serge Brammertz. De Ruyt said that in theory, the decision regarding Serbia's accession process could be postponed, but there was a sense that "we have waited long enough already". He also insisted that the EU wanted to maintain the political momentum created by Belgrade's acceptance to engage in talks with Kosovo, its former province which declared independence in 2008. As reported by AFP, Kosovo Prime Minister Hashim Thaci has agreed to begin EU-brokered talks with Serbia before early elections in February, despite the current political crisis in Pristina. Kosovo's President Fatmir Sejdiu surprisingly announced his resignation on 27 September, following a constitutional court ruling that prohibited him from serving as head of state and leader of his political party simultaneously. "The [first] meeting between the two sides should happen within weeks," said an anonymous European official, cited by Kosovo daily Koha Ditore. According to the New York Times, Ratko Mladic, one of the two war criminals still at large, was probably hiding in Novi Belgrad, a high-rise suburb of the Serb capital, moving from one non-descript apartment to another. 220. EBRD lowers its forecast for Serbia GDP growth bne October 29, 2010 The European Bank for Reconstruction and Development (EBRD) on Thursday October 28 lowered its forecast for Serbia's GDP growth in 2010 by 0.3 percentage points, to 1.6 percent, according to SeeNews. According to the EBRD's October report on regional prospects, the growth of Serbia's GDP will be 2.9 percent next year, 0.1 percentage points down against the estimate announced in July, but still remains the best result in South East Europe. The region will continue to show specific weaknesses and fall behind other regions in transition in the rate of recovery from the crisis. The estimate of the average GDP decline in South East Europe in 2010 improved from the 1.5 percent forecast in July to 0.6 percent in the October report, whereas 2011 is expected to bring accelerated GDP growth to 1.6 percent. 221. EBRD signs 200m euros worth of loans with Alpha Bank subsidiaries in Romania and Serbia EBRD October 28, 2010 Project Description The EBRD has signed loans worth a total of 200 million euros for Alpha Bank (ABG) subsidiaries in Romania and Serbia, as part of a package approved in July 2010. The aim is to provide medium and long-term debt financing through ABG‚Äôs subsidiaries for on-lending to private businesses operating in the three countries. The EBRD investments are part of the Joint International Financial Institutions Action Plan set up by the EBRD, the World Bank Group and the European Investment Bank (EIB) to provide over 24 billion euros in support of the banking sectors in the region and to fund lending to businesses hit by the global crisis. Transition Impact The credit lines will contribute to the transition process by maintaining an essential flow of lending to enterprises at a time when the availability of credit, particularly to SMEs and corporates has been constrained. The Client Alpha Bank group subsidiaries in two countries of EBRD‚Äôs region. Alpha Bank group is an international banking group with a strong and long-standing commitment to the region with a presence in many countries in Central and South-Eastern Europe, with a total of 6,001 employees servicing its clients through more than 564 branches in this region as oh end-June 2010. EBRD Finance 150 million euros Project Cost 200 million euros Environmental Impact The ABG subsidiaries will be required to comply with EBRD‚Äôs Environmental Performance Requirement (‚ÄúPR‚Äù) 9 when making local loans, conduct their business in accordance with PR 2, adhere to the EBRD's Environmental and Social Exclusion and Referral Lists, and submit Annual Environmental and Social Reports to the Bank. The subsidiary borrowers will be required to comply with applicable national environmental, health and safety and labour requirements. Technical Cooperation None. Company Contact Mr. Sergiu Oprescu - Executive President Alpha Bank Romania 237B, Calea Dorobantilor, District 1 Bucharest 010566 Romania Phone: 00 40 21 455 7001 Fax: 00 41 21 231 6573 Business opportunities For business opportunities or procurement, contact the client company. General enquiries EBRD project enquiries not related to procurement: Tel: +44 20 7338 7168; Fax: +44 20 7338 7380 Email: [email protected] Public Information Policy (PIP) The PIP sets out how the EBRD discloses information and consults with its stakeholders so as to promote better awareness and understanding of its strategies, policies and operations. Text of the PIP Project Complaint Mechanism (PCM) The EBRD has established the Project Complaint Mechanism (PCM) to provide an opportunity for an independent review of complaints from one or more individuals or from organisations concerning projects financed by the Bank which are alleged to have caused, or likely to cause, harm. The Rules of Procedure governing the PCM can be found at www.ebrd.com/downloads/integrity/pcmrules.pdf, the Russian version can be accessed at http://www.ebrd.com/downloads/integrity/pcmrulesr.pdf Any complaint under the PCM must be filed no later than 12 months after the last distribution of EBRD funds. You may contact the PCM officer (at [email protected]) or the relevant EBRD Resident Office for assistance if you are uncertain as to the period within which a complaint must be filed. 222. EBRD-funded OMV Petrom power generation project on track in Romania EBRD October 25, 2010 Romania‚Äôs first ever privately held power generation plant, which is being constructed with the support of EBRD financing, is on track to go into production by the end of 2011 when it will make a substantial contribution to the country‚Äôs energy requirements. OMV Petrom‚Äôs state-of-the-art new plant is a 860 MW combined cycle power gas turbine (CCGT) being built in the town of Brazi, north of Bucharest. When it is completed next year it will provide approximately eight to nine percent of total domestic output. Using the latest available technology, the facility will provide effective and reliable energy with a low environmental impact. The EBRD is co-financing the construction of the energy efficient plant with a ‚Ǩ200 million loan provided in May 2009, alongside a matching ‚Ǩ200 million facility from the European Investment Bank. The plant was visited on Monday by a delegation of the EBRD's Board of Directors who are in Romania to get an update on the on the country‚Äôs investment priorities. In addition, the EBRD is supporting OMV Petrom to set enhanced standards in the industry with regards to environment, health and safety and to increase the energy efficiency. The EBRD financing will support a series of projects that include pollution clean-up, the replacement of outdated pipeline, health and safety measures and moves to increase efficiency. In March 2009, the EBRD provided a 300 million euros syndicated loan to ensure continuous implementation of environmental improvements at OMV Petrom despite limited availability of commercial funding. "We are delighted to see the significant progress in the implementation of these highly important projects for Romania. The EBRD remains firmly committed to supporting further modernisation of Romania's power sector and environmental improvements in the industrial sector," said Claudia Pendred, EBRD Director for Romania. "I would like to thank the EBRD once again for the confidence in the company's potential that they showed through these loans signed in 2009, during a period in which access to financing became extremely difficult. We are continuing our ambitious investments program in Romania and we‚Äôll make all the efforts to achieve high investments of approximately 1.5 billion euros for this year", said Mariana Gheorghe, Petrom‚Äôs CEO. Since the beginning of its operations in Romania, the EBRD has committed over 4.8 billion euros in various sectors of the country's economy, mobilising additional investment in excess of 9 billion euros. 223. IMF predicts Albanian gov debt to be 61.9% by end of 2011 bne October 25, 2010 The IMF sees a 1.3 percentage point year on year increase in Albanian government debt to 61.9% of GDP at the end of 2011, according to Albania Today. This increase will be accompanied by a deterioration in the cash-based budget balance, which is forecasted to account for a deficit of 5% of GDP in 2011, as compared to 4.1% of GDP in 2010. The fund said that Albania was still vulnerable to possible sovereign risk crisis in Europe. The local financial sector could be affected, since its asset portfolio contains a large portion of government securities. On the other hand, the IMF positively evaluated the macroeconomic stability of the country during the period of global crisis. It pointed out that Albania was one of the few courtiers, which achieved positive growth in 2009. The fund projected a 3.2% y/y GDP growth in 2011, boosted by a pick up in domestic demand. 224. Macedonia should keep currency peg, says PM bne October 25, 2010 Macedonia 's Prime Minister Nikola Gruevski has said that the country should keep its dinar pegged to the euro as this best serves the economy, according to SeeNews. The government is analyzing expert opinions for a change in the denar/euro exchange rate and it is not rejecting them completely but at this moment there is no need for the peg to be changed, Gruevski said in a statement on Thursday. He did not elaborate. According to him, the currency peg gives good results and is a nominal anchor of the country's economy. The Macedonian denar has been de facto pegged to the euro since 2002 with the central bank applying an exchange rate-targeting strategy. Under this strategy the exchange rate of the denar against the euro can deviate by one percent on either side of a central exchange rate of 61 denars per euro and its has remained more or less constant at that level since 2002. 225. Macedonia's 2011 census to be held in line with UN recommendations and EU standards bne October 29, 2010 MIA reports that Macedonia's 2011 census to be held in line with UN recommendations and EU standards. EU Ambassador Erwan Fouere stressed it was essential that the census is implemented in an atmosphere of absolute trust, not only in competent institutions, but also confidence by the public. "I urge political parties to work together in building this trust in the census implementation. Parties of the ruling coalition, VMRO-DPMNE [Internal Macedonian Revolutionary Organization-Democratic Party for Macedonian National Unity] and DUI [Democratic Union for Integration - BDI in Albanian], should assume the leading role in this context, through engagement in all sectors of society, thus achieving a climate of trust, which will represent the best possible environment for successful implementation of the census," added Fouere. Vice Premier Abdilaqim [Abdylaqim] Ademi and Minister of Interior Gordana Jankuloska said the government was committed a just and transparent census, which would give a realistic review of the situation, stressing the significance of the campaign on informing the public. 226. Macedonia's M1 money supply up bne October 27, 2010 Central bank data shows that Macedonia's M1 money supply is up, totaling, 53.772 billion denars at the end of September, according to SeeNews. This is up 0.3% from a month earlier. The M2 money supply grew to 195.366 billion denars at the end of September from 193.842 billion denars at end- August. Macedonia money supply (in millions of denars): Sept'10 Aug'10 Sept'09 M1 53,772 53,596 47,909 - currency outside banks 15,945 16,204 14,456 - demand deposits 37,827 37,393 33,453 M2 (M1+short-term deposits) 195,366 193,842 178,596 - short-term deposits 141,594 140,246 130,687 - long-term deposits 26,518 26,123 17,136 M4 (M2+long-term deposits) 221,884 219,965 195,732 227. Minister says agriculture an opportunity in Serbia bne October 29, 2010 Minister of Agriculture, Forestry and Water Management, Sasa Dragin, said that agriculture is the best utilized development opportunity in Serbia, according to the Bosia Daily. This is evidenced, the minister day, by the results achieved in agricultural production over the last two years. Dragin expects that agriculture exports will reach a value of $3bn by the end of this year, with a surplus double that of last year. In 2009 Serbian agriculture recorded exports worth $ 2bn, with a surplus of $650m. COMMENT: With Serbs moving in droves to cities, especially Belgrade, the countryside is in danger of being lost. One Serbian economist recently told bne that every year the country loses the equivalent of one town of 30,000 people either to migration or the country's high mortality rate. The country is fertile with a large amount of open space that can be used for agricultural, but investors remain hesitant due to the general instability of the country and the government's refusal to pass a law on restitution. Pro- EU Serbs see the potential for the country to be some kind of ‚Äúbread- basket‚Äù for Europe, but despite the potential agricultural in Serbia remains very underdeveloped. 228. Moldova budget revenues increased by 14.7% over last year bne October 27, 2010 In comparison to the same period last year, Moldova budget revenues increased by 14.7% over last year, reports InfoMarket. The finance ministry has informed the media that the collected amount of revenues exceeded indices scheduled for this period by 415.7 million lei or by 2,2%. During the same period, the consolidated budget expenditures amounted to 20 billion 608.1 million lei, increasing by 1 billion 201.2 million lei or by 6,2% as compared to the same period of 2009. 229. Moldova sells 110m lei in 3 T-bill issues bne October 28, 2010 Moldova's central bank announced it has sold 110m lei ($9.3m/6.7m euro) in three treasury bill issues which were oversubscribed while yields were mostly flat, reports SeeNews. Primary dealers placed bids for a total of 178.75m lei worth of government securities in Tuesday's auction, the central bank said in a statement. The central bank, which sells Treasury paper on behalf of the Finance Ministry, offered 91-day, 182-day and 364- day T-bills. Yields on the 91-day T-bills were 7.25%, flat from the previous auction on October 19. Dealers placed bids for 54.5m lei worth of T-bills against 38m lei on offer. The 182-day T-bills yielded 7.43%, down from 7.45% at the previous auction on October 19. The central bank received bids for 81.5m lei worth of T-bills, compared to 53m lei on offer. Yields on the 364-day T-bills were flat at 7.47% compared with the previous auction on October 19. Dealers placed bids for 42.75m lei worth of T-bills against 19m lei on offer. 230. Moldova's foreign debt rises to $2.364 bn bne October 29, 2010 Moldova's central bank announced Thursday that the country's foreign debt rose to $2.364 bn (1.7 bn euro) at the end of September from $2.318 bn a month earlier, reports SeeNews. End-of-month foreign debt figures released by the BNM exclude trade credits, non-resident deposits in Moldovan banks and local currency in possession of non-residents. The BNM releases figures for those liabilities quarterly, in a balance of payments report. The central bank does not comment on changes in the country's foreign debt figures. Details follow (in millions of U.S. dollars): End-Sept End-Aug TOTAL 2,363.9 2,318.2 STATE DEBT 1,094.2 1,065.3 DEBT TO IMF 207.3 201.3 PRIVATE DEBT 1,269.7 1,252.9 231. Montenegrin T-bills attracted high level of interest, says government bne October 27, 2010 Montenegro Today reports that the latest issue of 6-month T-bills attracted high interest. The issue was of only 3.59m euros, while the demand reached 9.59m euros. The average interest rate reached 2.58%, compared to 3.43% achieved at the previous auction. This was the seventh issue this year. The previous five, worth a total of 101.2m euros, also enjoyed high demand. We note that the government raised 84.3m euros in seven bond issues in 2009. Previously, the government had not issued T-bills since early 2007, as the state budget was in surplus in the last couple of years. 232. Montenegro attracts 468m in FDI January-September bne October 29, 2010 Data from the Montenegrin Investment Promotion Agency (MIPA) show that the country attracted FDI 468m euros in FDI in the first nine months of the year, reports Montenegro Today. FDI inflow is seen reaching some EUR 660-680m by the end of 2010, MIPA's head, Petar Ivanovic, said. The forecasted inflow for full-2010 is close to the inflow the country reported in 2009, excluding proceeds from the sale of EPCG power utility. Montenegro remains an attractive destination for foreign investors, Ivanovic said adding that the country had the highest FDI per capita among its neighboring countries. 233. Montenegro wants precautionary deal with IMF bne October 29, 2010 In November, Montenegro will hold talks on a possible precautionary funding arrangement with the IMF, reports SeeNews. Unlike an IMF stand- by deal, a precautionary accord is designed for countries which have no apparent disturbances in the balance of payments at the time the agreement is signed but could feel the impact of the economic and financial crisis, news portal Analitika (www.portanalitika.me) quoted the Finance Ministry's press officer Gordana Jovanovic as telling news daily Pobjeda. She added Montenegro has to pursue sound economic policy to be able to qualify for such a precautionary deal with the global lender. 234. Montenegro's foreign trade gap narrows 12.3% in September bne October 26, 2010 Montenegro's trade deficit came in at 113.9m euros in September, narrowing by 12.3% y/y, as compared to the revised 6% annual expansion recorded a month earlier, according to the preliminary data revealed by the statistical office, reports Montenegro Today. Exports soared by 56.5% over the year from the 20.9% annual hike in August. In the meantime, imports fell by 4.2% y/y, following the 8.5% y/y increase a month earlier. The trade deficit totaled 93.3m euros January-September, equaling out to a 1.4% y/y improvement. 235. Romania denies companies moving to Bulgaria bne October 26, 2010 Romania's government has officially denied that thousands of Romanian companies are moving their business to neighboring Bulgaria, according to Novinite. In an official statement, issued by Bucharest, the number of such companies is listed at 284 ‚Äì these businesses have been registered and operating in Bulgaria by July, 2010. "We further want to point out that we cannot even make a conclusion that these 284 companies have been established in 2010 or are the result of their relocation to Bulgaria," the statement reads. It comes on the heels of numerous Bulgarian media reports that nearly 2,500 Romanian companies flocked to the southern neighbor over the spending cuts and austerity measures imposed in Romania, lower taxes and better business conditions across the Danube. In addition, it is much easier to establish a company of Bulgaria where one needs less than a week and BGN 2 as initial capital. 236. September stats for Bosnia bne October 25, 2010 SeeNews reports that Bosnia's trade gap has narrowed to 4.68bn marka ($3.3bn/2.4bn euro) from January to September 2010 from 5.07bn marka a year earlier as exports rose faster than imports. Exports increased by an annual 29% to 5.2bn marka in the first nine months of the year, while imports rose 8.7% on the year to 9.9bn marka, Bosnia's Statistics Agency said on its website. Details of Bosnia's merchandise trade follow (in millions of Bosnian marka): Jan-Sept y/y pct change Exports FOB 5,228.2 +29.1 Imports CIF 9,911.9 +8.7 Deficit 4,683.7 -7.7 237. Serbian gov begins new negotiations with IMF bne October 25, 2010 Today, October 25, the Serbian government and IMF begin negotiations on the sixth revision of the credit arrangement, their main topic being the state budgt. IMF representatives and the government had technical talks several days ago. Budget revision, which envisages higher deficit in the terms of the amount of money and equal deficit in terms of percentage, means that we will have more money but we will not have higher purchasing power. The secret lies in inflation. Economists think that this will be one of the main topics of the talks. "Question which will certainly be opened is why targeted inflation, which was eight percent, will be exceeded, what happened there," said PM‚Äôs economic advisor Jurij Bajec. "Another question that will be discussed is to what extent we will maintain promised fiscal deficit of 4.8 percent of GDP," he explained. It seems that the state has found a way to keep the budget deficit percentage at the same level, to make bigger money supply and to cover expenses. In case the inflation is six percent GDP is RSD 3.23bn, while it amounts to RSD 3.191bn if there is a nine percent inflation. In both cases the budget deficit will be the same ‚Äì 4.8 percent. The arrangement with the IMF will officially expire in April but it does not mean that Serbia will end its cooperation with the IMF. "Our debt is over 200 percent of the quota, a process which will continue until the debts is paid off. The control function of the IMF will continue here regardless of whether the arrangement will continue after 2011 or not," National Bank of Serbia (NBS) Vice Governor Bojan Markovic pointed out. Many experts publically state that it is necessary and useful for Serbia to extend the arrangement with the IMF. The government will make that decision next spring. The IMF representatives will stay in Belgrade until November 2. 238. Tender for Universal Telecoms Service License opens in Montenegro bne October 26, 2010 The Montenegrin Agency for Electronic Communications and Postal Services on Monday opened a tender to award a five-year universal telecoms service license, according to SeeNews. Interested parties should file their offers by November 25 with the top bid to be selected within a month after the tender closes, the Agency said in a public invitation on its website www.ekip.me. Universal service is the provision of telecommunications services permitting access to a defined minimum service of specified quality to all users everywhere. The notion of universal service also includes service to disadvantaged users. Bidders could apply to provide one or more services from the entire universal package in a specific region or across the whole territory of the country, the agency said. The bid should comprise a market overview that includes a SWOT analysis, a marketing plan, projected balance sheet, balance of payments, cash flow statement, a network upgrade and investment plan, among others. The selection criteria will include capabilities to provide the entire universal package or its separate components across a certain area, service costs and pricing. 239. The central bank of Croatia reports drop in total value of assets bne October 28, 2010 Esmerk reports that the central bank of Croatia has announced that the total value of its assets reached $15.34bn at the end of September. This is down 2.2% compared to August. However year on year the figure is up by 19.8% compared to September 2009. The bank said that its annual growth was due to higher foreign asset which account for 99.98% of the total.

CENTRAL EUROPE INVESTMENT 240. Baltics, Czech Republic lead CEE - for shoplifting bne October 27, 2010

The Baltic States share third place for shoplifting in Europe, according to the annual Global Retail Theft Barometer released Monday by a consulting firm in the UK, reported ERR News.

Losses from shoplifting and similar crimes in Europe are down by 3 billion euros from last year (although 31.1 percent of retailers reported an increase in shoplifting).

In Europe, Russian businesses suffered the biggest losses with 1.6 percent in damages. Second was Turkey and third place was shared by the Czech Republic and the Baltic States.

The study, which surveyed 1,103 retailers in 42 countries, measures “shrinkage,” which includes shoplifting, supplier fraud, internal errors and employee theft. The cost of retail crimes globally was down 5.6 percent. The countries suffering the biggest losses were India, Morocco and Brazil, while the lowest rates were in Austria, Hong Kong and Taiwan.

The most popular products to steal were food, alcohol, cosmetics and electronics.

Money spent globally on security rose by 9.7 percent to 19 billion euros.

241. Fiat boss praises Polish productivity bne October 26, 2010

In an with Italian public television that has inflamed domestic opinion, Fiat boss Sergio Marchionne said that the company’s factory in Tychy, southern Poland is up to five times more productive than its Italian counterparts.

Marchionne said that of Fiat’s 2 billion euro forecast operating income for 2010, none of that figure comes from loss-making factories in Italy, as according to the Fiat boss the factories are making a loss.

It would be more profitable for Fiat to stop production in Italy altogether, he said, prompting predictable outrage from Italian trade unions.

Comparing Fiat’s plants in Italy to its factory in Poland, Marchionne said that the 6,100 Polish workers are capable of producing the same amount of vehicles as five such factories in Italy, which employ a combined workforce of 22,000.

242. Germans to build glue factory in Hungary bne October 27, 2010

German household products maker Henkel is moving glue production from Poland and England to a EUR 14.7m plant it is building in Hungary, the company told the MTI news agency on Tuesday.

Henkel will also move glue production from its base in the Hungarian city of Vac to the new plant in Tatabanya, west of Budapest.

The new plant will be closer to Henkel's partners in the electronics industry with bases in Central and Eastern Europe. The number of such partners in Hungary as well as the country's geographical location played a big role in the decision to build the plant in Tatabanya, the company said.

The plant will start operating by 2012. It will be staffed by 80 people.

Henkel Magyarorszag had revenue of HUF 83.9bn in 2009.

243. Lithuania invites Chinese electronics giant bne October 27, 2010

Lithuania's President Dalia Grybauskaitƒó has used a trip to China to invite Chinese telecommunications giant Huawei to expand its activities in Lithuania, local media reported Tuesday.

During a meeting with Huawei's top executives in Shanghai, Grybauskaite invited the company, which is among the leading players in the global telecom market, to establish a center of innovation technologies in Lithuania.

"Lithuania is member of the European Union in full compliance with its legal requirements and criteria. Therefore, Huawei investments in Lithuania will have the same guarantees like in any other EU member state. In our country, we have many educated telecommunications professionals, the best developed fiber optic network in Europe and one of the highest internet speeds in the world. All conditions are in place for telecom companies not only to implement but also to design modern solutions in Lithuania," the President said.

It was officially agreed with the Huawei management that the company would organize and finance a two-week professional training course in information technologies for ten Lithuanian students. 244. Parliamentarians to sort out Poland-Lithuania spat bne October 26, 2010

Plans are being floated to call a bilateral parliamentary assembly to discuss the recent worsening of Lithuanian-Polish diplomatic relations.

Algia Kaseta, the chairman of the Seimas delegation to the assembly of members of the Seimas of the Republic of Lithuania and the Sejm and Senate of the Republic of Poland, told the Baltic News Service he plans to address his Polish counterpart Ewa Kierzkowska with a proposal to deal with the current situation when, in his words, "passions flare up sometimes without any reason."

"Now, when the relations got cold and stagnated, it is better to discuss the situation immediately," Kaseta said.

Poland has criticized Lithuania in recent weeks for its treatment of the country's Polish minority situation in a bizarre spat over the spelling of Polish names using the Lithuanian alphabet.

Rumoured plans that Polish energy giant PKN Orlen will sell off its Lithuanian operation - the biggest taxpayer in the country - have stoked the row.

Vilnius has retorted by accusing Poland of "spreading false information" about the investment climate in the country.

245. Poland-Lithuania row shows little sign of abating bne October 28, 2010

Bilateral relations between Poland and Lithuania are being undermined by a number of unresolved issues, Foreign Minister Radoslaw Sikorski said on Wednesday, reported the Warsaw Business Journal.

The two nations are in the middle of a war of words, with Poland unhappy at its northeastern neighbor's treatment of ethnic Poles living in Lithuania. Poland is also unimpressed with the way Lithuania has handled problems Polish refiner Orlen has encountered with its Lithuanian asset in Mažeikiai, Orlen Lietuva.

Commenting on the fiery rhetoric the two countries have hurled at one another in recent weeks, Sikorski said, “I think, in fact, our relations with Lithuania have been this way for many years, but only now they have been precisely described,” according to Reuters.

“We have had the same catalogue of unresolved problems for years and we would like to see our relations in better shape,” he added.

The Polish minority in Lithuania accounts for around seven percent of the nation's population, but according to some their rights are poorly observed by the government. For one thing, ethnic Poles don't have the right to spell their names on official documents using characters from the Polish alphabet, while disputes over Polish assets confiscated by communist authorities in Lithuania remain unresolved.

Furthermore, Poland wants Lithuania to ensure that state-owned Orlen's loss-making refinery in Mažeikiai gets cheaper and more easily-accessible supplies.

“Here too Lithuania made commitments … and they were not fulfilled either,” Sikorski said.

Lithuania is nevertheless convinced that it is making ground over addressing some of Poland's grievances.

“Negotiations over railway loading tariffs [to take products from the refinery] are under way and the government has just decided to allocate more resources to basically complete the land restoration process within a few years,” Virgis Valentinavičius, a Lithuanian government spokesperson, told Reuters.

246. Slovakia has gained access to gas from the Baumgarten node OSW October 29, 2010

On 24 October, in the Austrian town of Baumgarten, work allowing the direction of gas transport from Slovakia through the branch of the Brotherhood transit gas pipeline to be reversed was completed. The new gas supply direction increases Slovakia's energy security. The Slovak operator Eustream and the Slovak government, which were heavily hit by the gas crisis in 2009, are seeking to accelerate the construction of the connector with Hungary.

The construction of the pumping station will enable transports of gas from Baumgarten to the node in Plavecky Stvrtok in Solvakia. Up to now this gas pipeline (the branch of the Brotherhood transit pipeline) was only used for supplies of gas from Russia to Austria. Currently, it can supply gas from the western direction, especially in case supplies from Russia through the Brotherhood pipeline are disrupted. The Slovak government has emphasised that as a final result, the connector may ensure supplies from the planned Nabucco gas pipeline. Gas supplies to Slovakia are predominantly Russian; it is transported through the Slovak section of the Brotherhood pipeline leading to the Czech Republic. At the beginning of 2009, work allowing gas to be transported in the opposite direction, from the Czech Republic to Slovakia, was completed. The construction of a 115 km- long gas connector with Hungary (Velke Zlievce-Vecses) is now a priority investment. On 15 October, the phase that combines open-season procedures was opened once again, and as part of this, transmission capacities are being reserved for the planned link. The implementation of this project is scheduled for the beginning of 2014.

247. Slovakia to follow Czech Republic on renewables bne October 28, 2010

The Slovak government will copy recent moves by its Czech counterpart and cut drastically the available subsidies for solar power producers, the Hospodarske noviny newspaper reported Wednesday, citing Slovak Economy Ministry official Martin Chren.

Slovak Economy Minister Juraj Misko has introduced a draft of law that would allow support only for solar power plants with a capacity of up to 100 kilowatt hours, the newspaper said.

248. Wind farms planned for Polish lake district bne October 28, 2010

Around 800 high-powered wind turbines are billed for construction in Poland’s Masurian lake district amid glee from local councils, yet anxiety from ecologists reported Polskie Radio on Wednesday.

While Poland’s western Baltic coastal regions already host a number of wind farms, a number of specialist companies have now turned their attention to the north-eastern Masurian lake district.

According to the Institute for Renewable Energy, investors are planning to sink almost 6 billion zloty (1.5 billion euro) into wind farms in the Warmian-Masurian province alone, creating an additional 1000 MW to the national energy grid.

The local council in Ketrzyn, the site of 35 such wind turbines, is expected to rake in 2 million zloty (500,000 euro) from property taxes from the wind farm, amounting to around a third of the council’s budget.

“Thanks to [the income], we will be able to undertake many infrastructure investments,” Roman Rosicki from Ketrzyn town council told the Rzeczpospolita daily.

The largest wind farms are billed for construction in Goldap, near the border with Lithuania, Piecki, as well as in the environs of Olsztyn, in Gorowo and Korsze.

249. Wooden bedsprings put bounce into furniture business bne October 28, 2010

Hungarian furniture maker Bio-Textima has developed a wooden spring for beds and chairs with the support of state and European Union funding, reported MTI on Wednesday.

The spring, made of beech, has many of the same properties as a metal spring, but does not have "harmful magnetic fields", managing director Gyula Voros said.

EU and state grant money covered about half of the HUF 32m cost of developing the spring.

Bio-Textima will show its line of mattresses with wooden springs at a trade fair in Cologne in January.

Bio-Textima sees revenue climbing 5-8pc in 2010 over last year's HUF 500m. Exports are expected to generate 28pc of turnover.

OTHER COUNTRIES 250. Mongolia will help loosen China’s stranglehold on rare earths Monet October 28, 2010

Prime Minister Naoto Kan and visiting Mongolian Prime Minister Sukhbaatar Batbold agreed to begin investigations this month into large deposits of rare earth elements thought to be present in Mongolia.

Japan's vulnerability to China's virtual monopoly on the supply of the elements to its high-tech industries was rammed home when China imposed a de facto ban on shipments last month at the height of the row over the detention of a Chinese trawler captain whose boat collided with two Japan Coast Guard vessels off the disputed Senkaku Islands on Sept. 7.

"To develop Mongolia's high potential for mineral resources will meet the national interests of both countries" said Prime Minister Naoto Kan.

"I hope that the step will lead to further economic exchanges that center on the development of natural resources."

A test drilling is slated from November after sites with particularly high potential for rare earth element mining have been identified using data from satellites.

251. Mongolia: Aspire Mining aims to double resources Frontier Securities October 28, 2010

ASPIRE’S AIM OVER THE NEXT 12 MTHS IS TO AT LEAST DOUBLE THE 330M TNS RESOURCE TO DEMONSTRATE ABILITY TO SUPPORT A LONG TERM (30 YEARS+) MINING OPERATION WITH AN ANNUAL PRODUCTION RATE OF 10-15MT OF HARD COKING COAL TO EXPORT MARKETS IN JAPAN AND STH KOREA.

FRONTIER SECURITIES HAS Q&A WITH ASPIRE, REITERATES ITS VIEW OF ASPIRE AS HIGHLY UNDERVALUED, BELIEVES IN TREMENDOUS VALUATION UPSIDE

On October 14, 2010, when Aspire announced its maiden resource, Frontier Securities viewed that Aspire is “undervalued since, at relative valuation based on trading multiples of global coal companies using mixed coal (not met coal) taking as example Enterprise Value per ton for most conservative example of 0.44AUD per ton of Measured and Indicated for Coal of Africa, Aspire’s valuation would be

For Measured and Indicated: 275.7million AUD For Inferred: 25.3 million AUD

On October 25, 2010, according to Aspire Mining Limited (ASX:AKM) (PINK:ASPXF),“ it has entered into a binding agreement with SouthGobi Resources Limited (TSE:SGQ) (HKG:1878), a leading Mongolian coal producer, that encompasses a A$20.1 million placement and strategic partnership.

Under the agreement, SouthGobi will acquire a 19.9% strategic holding in Aspire through the issue of 105.7 million shares at A$0.19 per share, representing a premium of 8% to the 7-day VWAP of Aspire shares. The 7-day VWAP represents the trading period since Aspire released its maiden 330mt JORC Resource at its 100% owned Ovoot Coking Coal Project ("Ovoot").

The significant cash injection from SouthGobi will provide cornerstone funding and strategic partnership benefits to accelerate the exploration and development of Ovoot through to the Feasibility Study.

SouthGobi is one of the largest coal miners in Mongolia with a market capitalisation of US$2.2 billion and cash reserves of US$744 million as at 30 June 2010. Its shareholders include Ivanhoe Mines (NYSE:IVN) and sovereign wealth fund China Investment Corporation.

Importantly Aspire has been able to attract significant financing while retaining unencumbered control of an emerging coking coal province. As a result, Aspire continues to own 100% of its exciting Ovoot project together with the valuable future marketing and off-take rights. At present only 10% of the existing Ovoot project area has been explored.

According to Mr. Alexander Molyneux, President and CEO of SouthGobi Resources, "SouthGobi's strong financial, technical and commercial capacities have enabled us to assess various growth opportunities. Aspire is an exciting strategic partner for SouthGobi given its large volume of potentially high quality coking coal in Mongolia.

We look forward to sharing our in-country expertise to help fast-track Aspire's Ovoot coking coal project into production."

Mr. David McSweeney, Chairman of Aspire Mining Limited said "This transaction will directly accelerate the transformation of Aspire from a quality coal explorer to a world class coking coal mine developer. Aspire believes this strategic partnership with SouthGobi Resources will add value for shareholders of both companies, and we welcome SouthGobi management as our strategic partner."

Strategic Partnership

SouthGobi has agreed to enter into a strategic partnership with Aspire to assist it with the development of the Company's Ovoot project. The strategic partnership will involve SouthGobi providing technical and other assistance to further the development of Ovoot; assistance and advice in relation to governmental and regulatory issues; and other assistance as reasonably requested from time to time in order to fast-track the development of the Ovoot project. Aspire also expects to benefit from SouthGobi's Asian relationships and experience in developing and financing coal mines in Mongolia.

As part of this partnership SouthGobi will be granted the right to appoint a Non- Executive Director. It is expected that Mr Tony Pearson, SouthGobi's Vice President Corporate Development, will join the Aspire Board post the placement.

Transaction Rights & Obligations

- Top Up Right

Aspire has agreed to provide SouthGobi with a right to maintain its shareholding in Aspire if it is diluted under a placement or new issue. This right to top up will be on the same terms as the new issue and will last for a period of up to two years.

SouthGobi also has a right to top up upon the exercise of options for a period up until February 12, 2015. The issue price for these top up shares is the 30 day weighted average closing price ending on the date of the exercise.

- Standstill

SouthGobi has agreed not to acquire shares which would result in voting power increasing to over 19.9% of Aspire for a period of up to 2 years. In return, Aspire has agreed not to issue shares to competitors except in limited circumstances for a period of up to 2 years.

Other Transaction Terms

The transaction is conditional on FIRB approval, Aspire shareholder approval as well as the granting of waivers from ASX in relation to the Top Up Rights. SouthGobi also has the right to terminate if an issue of shares is made to a competitor or there is a significant adverse change to our coal resource prior to completion of the placement.

Aspire has given usual no talk, no shop and notification undertakings in favour of SouthGobi and has agreed to pay SouthGobi a fee of A$300,000 in the event that these undertakings are breached or shareholders do not approve the transaction.

Next Steps

A shareholder meeting to approve the transaction will be convened as soon as practicable but in any event before the end of calendar year 2010. Aspire has been advised by Argonaut and Corrs Chambers Westgarth in relation to the Transaction

252. Mongolia: Cabinet Announces 26 Projects in 4 priority levels Monet October 28, 2010

Priority 1. “Oyu Tolgoi” Project. Copper Concentrate Plant. Capable to process 100,000 tons of ore a day and 35 million tons of ore a year. The production capacity will be upgraded to 150,000 tons a day and 56 million tons a year. “Tavan Tolgoi” Project. Projected to mine 20 million tons of coal and produce 15 million tons of concentrated coal a year. “Copper Mill” Project. 70 thousand tons of cathode copper will be produced a year. “Black Metallurgical Complex” to melt 2 million tons of steel and manufacture big railroad products, including rails, and some big metal structures. “Coke-Chemical Plant” Project. Production of gas emitted from coke plant, bitumen and other chemical materials. Ore Refinery – its technology relying on domestic resources shall meet international standards. “Coal-Chemical Plant” Project. Chemical plant will be built on coal deposit. “Building Material Plant” Project – the Sainshand Cement Factory will produce 1 million tons of cement a year, while other projected factories will produce 110 thousand tons a year. Building Metal Structure Factory – 2 million tons of metal structures. Ceramic Work Factory – 50 million pieces of work a year. In addition, factories of heat insulation products and blocks materials are planned for construction.

Priority 2. “Healthy Food” Cattle Health Improving and Meat & Milk Production increasing project. Intended to produce 50 thousand tons of meat and 20 thousand liters of milk based on integrated livestock farming. Cow farms of up to 8, 000 heads of cow will be established nearby settled villages. “Irrigated Crop & Vegetables Production Support” Project. Under this project, it is planned to harvest wheat from 25 thousand acres of land, vegetables from 10 thousand acres and cattle fodder from 5 thousand acres, respectively. “Stock Exchange for Agricultural Product & Materials” Project. Designed to produce final products of agricultural raw materials. “High Technology Industrial Complex, Science-Industrial Park” Project. Designed to build 22 high-tech facilities capable to realize sales worth about US$2 million a year altogether.

Priority 3. “Tavan Tolgoi Power Plant” Project. Capable to 400.0MW electricity. It will be connected to central energy system and will employ the latest technology. “New Railroad” Project. It includes the construction of basic infrastructure for the rail line of Tavan Tolgoi – Gashuunsukhait, for the rail line of Nariin Sukhait – Shivee Khuren and for the 400km-long rail line of Tavantolgoi-Tsagaan Suvarga-Zuunbayan- Sainshand. “Water Supply of Gobi Region from the Orkhon River” Project. It is intended to solve the water supply of Gobi region in a complete way, by supplying the water at the capacity of 2.500 liters per second. “Ulaanbaatar City Autoroad Innovation” Project. Designed to re-build existing 350km long asphalt road together with its engineering facility and to build 212km long road with engineering facility, to expand the city’s road network. “Construction of Roads of International, National and Local Significance” Project. Purposed to build 4500 km long asphalt road, covering multiple provinces such as Umnugobi, Dundgobi, Dornod, Bayankhongor, Khuvsgul, Zavkhan, Khovd, Bayan- Ulgii, Gobi-Altai and Uvurkhangai. “Altanbulag-Ulaanbaatar-Zamyn Uud Highway” Project. Construction of 990km long highway. “Power Plant No.5” Project. Intended to build a new source of heat and energy supply. “Population Housing Supply” Project. It includes construction of new apartment blocks, development of ger districts into apartment districts, as well as the construction of big apartment blocks in provinces and satellite cities of the country. Under the project, about 63 thousand apartments will be built. “Production of Energy from Wastes and Biomass” Project. It includes a factory capable to process 1.000.0 tons of wastes a day and a domestic gas by processing 250.0 tons of organic wastes and biomass a day.

Priority 4. “IT Training & Development Vill” Project. An outsourcing center to supply IT products both to domestic and international market and a IT engineers preparation center. “University Campus” Project. It includes training-research-testing complex, hostels for students and teachers, social infrastructure facilities including, entertainment center, as well as parks and other necessary facilities, with complete engineering supply. Accommodation capacity is 20-25 thousand peoples. “Khar Khorum – 13th Century” Tourism Project. Under the government task to receive one million visitors and tourists in a year, it includes construction of museums and sightseeing facilities with state of the art technology, as well as modern hotels and airport, in territory of Kharkhorin Soum, Uvurkhangai Province. “Eco” Domestic and Industrial Waste Water Treatment Project. It is intended to introduce refuse-free technology to drain the waste of settled areas and tour camps, recycle it for agricultural purpose.

253. Mongolia: Ivanhoe Mines - Rio Tinto dispute would not delay Oyu Tolgoi mine construction Visor Capital October 25, 2010

Tom Albanese, the CEO of Rio Tinto, hopes to see first production from the Oyu Tolgoi mine in 2013. We expect positive share impact for Ivanhoe.

According to Reuters, Tom Albanese, the CEO of Rio Tinto (RIO LN)(RIO AU) said on Saturday that their dispute with Ivanhoe Mines (IVN CN)(IVN US) would not delay Oyu Tolgoi mine construction in Mongolia. Mr. Albanese noted that he hoped to see the first production from the mine in 2013.

Last week Ivanhoe announced the launch of a conditional rights offering, in which all existing shareholders could participate on an equal, proportional basis in purchasing additional common shares. The rights offering is expected to raise between approximately US$0.8-1.0bn. Earlier in July 2010 Rio Tinto filed for arbitration against Ivanhoe, accusing it of breaching its rights under the October 2006 private placement agreement between the two companies. In response, Ivanhoe Mines’ Board of Directors authorised the termination of the Strategic Purchaser Covenant of this agreement, which has restricted the ability of Ivanhoe to issue more than 5% of its shares to investors other than Rio Tinto.

We expect positive share impact for Ivanhoe. We currently have Ivanhoe Mines under formal research coverage, available to our clients.

254. Mongolia: Ivanhoe Tension Will Not Stop Mongolian Mine Project Monet October 28, 2010

Rio Tinto chief executive Tom Albanese said ongoing tensions with Canadian partner Ivanhoe Mines would not hold back the Oyu Tolgoi copper and gold project in Mongolia, which he said could be brought on stream early.

Albanese said in a television interview broadcast on Sunday he hoped to see first production from the mine in 2013, and said both Rio Tinto and Ivanhoe Mines were committed to its rapid development despite their disagreements.

“It’s very important for Rio Tinto. It’s very important for Ivanhoe. It’s also very important for Mongolia. It’s a first class mine being built on time,” Albanese told the Australian Broadcasting Corporation (ABC) programme Inside Business.

255. Mongolia: SouthGobi Resources to invest US$20.6m in Mongolian coal producer Visor Capital October 27, 2010

The Company will acquire 105,726,650 common shares (19.9%) of Aspire Mining Limited in a private placement at a price of AUD0.19 per share, for approximately AUD20.1 million. We expect no significant share impact.

SouthGobi Resources (SGQ CN)(1878 HK) yesterday announced that the Company will acquire 105,726,650 common shares of Aspire Mining Limited (AKM AU) in a private placement at a price of AUD0.19 per share, for approximately AUD20.1 million (US$20.6). On completion of the private placement, expected on or before 31 January 2011, SouthGobi will hold approximately 19.9% of Aspire.

According to SouthGobi, Aspire Mining Limited is a coal resource company which owns 100% of the Ovoot Coking Coal Project in Mongolia along with the Nurant and Shanagan Coal Projects. In addition, the company owns a 45% interest in the Windy Knob gold and base metals project in Western Australia. The Ovoot Coking Coal Project has a measured resource of 93.3 million tonnes, an indicated resource of 182.4 million tonnes and an additional inferred resource of 55.0 million tonnes.

We expect no significant share impact for the Company. We currently have SouthGobi Resources under formal research coverage, available to our clients.