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You can order analytical surveys and economic Now the default, which many analysts feared with good rea- analyses according to your fields of interest son, has reached Russia, although from an unexpected di- and needs by contacting us at [email protected] rection. The government has so far enough funds to pay its debts, and only a few banks and leading companies have se- rious problems. But the stock market has collapsed, endan- gering the future of the most successful and pro-market Russian companies. The country is facing a liquidity crisis, which may grow – or has already grown – into a full-blown banking crisis.

Prime Minister Vladimir Putin has said the country has a way to stabilise the situation. We do have safety bags, but unfor- tunately they may prove not enough for the many economic entities that may need them. The government is now using non-market regulation tools, the same as all other countries. Compared with the Paulson Plan and the US $700 billion bailout programme, the Russian measures are much less radical.

Russian companies' capitalisation in October 2008, % against August 1 100 86,34 80 72,73 70,16 69,7

ECONOMIC SURVEY 60 50,13 53,1 49,26 48,27 48,27 46,17 41,25 GLOBAL 40 32,82 20

FINANCIAL 0 LUKoil Aeroflot Rosneft Rosneft Gazprom RusHydro CRUNCH HITS Sberbank Mosenergo Polyus Gold Norilsk Nickel Gazprom Neft RUSSIA Surgutneftegaz Yet many analysts cringe at the unprecedented rights granted to the Central Bank and the Finance Ministry. They believe that the domination of the gas, energy and railway Following the Black Tuesday September 16, when trading monopolies is now being complemented with similar meas- was suspended on the RTS and the MICEX, Russia was hit by ures in the financial sphere. the Black Friday October 3, following which the exchanges collapsed on October 6. This could be a good solution in a critical situation, although when the financial crisis reached Russia in August 1989 the The RTS index plunged to 866.9 points and the MICEX index, government first of all monopolised foreign trade and cur- to 752 points. Trading has been stopped several times on rency regulation. At that time, Russia had modest interna- the two exchanges, and the government approved billions of tional reserves and was not integrated in the global econ- roubles of financial injections into lending institutions. Rus- omy as strongly as it is now. sia has seen several hikes followed by deep falls, along with the rest of the world where exchanges are tottering at the However, in 1989 we mustered the courage to refuse West- edge of collapse. ern financial assistance, which would have spurred infla- tion in Russia’s unbalanced economy. Today the Russian The current global financial crisis is not only very strong, but economy is balanced much better, has eased its depend- will also last long. Back in March, FC Novosti predicted, ence on the commodities sectors, and does not need finan- alongside other analytical agencies, “The global negative cial assistance. processes are running so strong that many fear a lasting re- cession that will undercut the economy not by percentage Analysts wonder why the Russian government has not cho- points but several-fold. Most of those who make these nega- sen to rely on the experience it gathered in 1989. They hope tive forecasts would like to be proved wrong, but…” that the anti-crisis measures will be temporary, just as the weakening of the Central Bank’s reserve requirements and After that, we saw an upward jump in May and a smooth taxes on lending organisations are temporary. glide down in the summer. 3

Besides, the Russian stock market is only part of the Russ- measures to stop the collapse of the US market and prevent ian economy, which also has strong defence and nuclear it from hitting their national economies. sectors, the insurance market, the consumer sector and small businesses, as well as the banking sector where Sber- At the same time, we must remain calm and confident, if we bank, VTB and the Bank of Moscow are not the only lending want to minimise losses from the crisis. The Russian govern- organisations. ment has rapidly drafted and approved additional measures to support companies working in crucial sectors, notably The Russian market is highly volatile because it is small in small and medium businesses. It has also proclaimed readi- terms of turnover and the number of securities floated. It re- ness to stimulate investors who channel funds into eco- acts nervously to any negative and positive foreign news, nomic modernisation. and was seriously affected by the flight of foreign investors before the September financial shocks, encouraged also by For their part, businesses have expressed solidarity with the the war in the Caucasus. country’s authorities and readiness to work jointly to over- come problems. It would not be right to blame the collapse of the Russian market on foreign investors, because the majority of them Prime Minister Vladimir Putin said at a meeting with foreign withdrew their money from Russia’s “safe haven” long be- businessmen in Sochi, on the Black Sea coast: “We see ten- fore Georgia started bombing South Ossetia. The fall of sion also on our trading floors, but we have reasons to think Russian ADRs on foreign exchanges could not capsize the that it is not due to our problems. There are no systemic MICEX and the RTS. problems in the Russian economy. All of its economic indicators are normal.” Russian stock indices, August-October 3 2008 3 000,00 The second anti-crisis package, which the Russian lawmak- ers have promptly approved, does not at all contradict Putin’s idea, although some may not like it. 2 500,00 They stipulate that any Russian bank or company can appeal to Vnesheconombank (VEB) for a loan to repay or refinance 2 000,00 its foreign loans taken out before September 25, 2008. The loans will be issued on commercial terms. To ensure this, the Central Bank will open deposits with VEB for these loans, 1 500,00 whose total upper limit will not exceed $50 billion.

1 000,00 The Central Bank has been allowed to issue loans to commercial organisations without a pledge, which will quickly in- ject enough liquidity into the banking sector. To maintain the 500,00 interbank lending market, the Central Bank may sign agreements with banks on repaying part of potential losses from lending to other financial organisations. 01.08.2008 08.08.2008 15.08.2008 22.08.2008 29.08.2008 05.09.2008 12.09.2008 19.09.2008 26.09.2008 03.10.2008 MICEX RTS And lastly, RUR250 billion ($9.54 billion, or €7.04 billion) MICEX 10 RTS 2 has been appropriated in the 2008 and 2009 federal budgets for supporting the stock market. As much as RUR75 billion will be used this year to increase the authorised capital Don’t look for speculators’ collusions against Russia either. of VEB, which has started insuring the leading banks’ efforts Some of them decided to go the whole hog, so as to gain from to support the stock market. the inevitable subsequent growth of the market. But many shares can turn into cheap newsprint because of bankruptcies. Amidst the high seas of the global crisis, the Russian Central Bank and Finance Ministry have rapidly learned to use long- The fall on the Russian market on September 16 was pro- term tools for influencing the situation. Therefore, we are voked by the US exchanges’ reaction to the bankruptcy of convinced that the Russian stock market will resume normal Lehman Brothers, but the events of October 3 have deeper operation relatively quickly. Since the situation in the world roots. That day, all companies around the world fell, but will change, this will make Russia an even more attractive Russian companies fell the hardest, as they usually do. destination for foreign investment.

The fact that Russia is part of the global economy – even though it is not a WTO member – does not mean that the same crisis management scenario can be applied to all countries. The difficult part is to choose the right direction at a time when the majority of countries are taking emergency 4

rates on some loans for legal entities, Nomos Bank, Petrocommerce, You can order updated Irina Kibina, head of the bank’s public Promsvyazbank, Raiffeisenbank Aus- data blocks and information relations, told the Interfax news tria, Rosbank, Rosselkhozbank, Russ- according to your fields agency. Terms of some loan agree- ian Standard, Rus Bank, Sberbank, of interest and needs ments with corporate clients allow the Sviaz-Bank, Citibank, TransCreditBank, by contacting us at bank to change the cost of the loan Bank Trust, Uralsib, URSA Bank, Unias- [email protected] unilaterally, she said. trum Bank, and UniCreditBank.

Sberbank may take advantage of this This list has not change from July 1, right if the Russian Central Bank signif- 2008. icantly changes the refinance rate, she explained. ADG Group Borrows $45mn to According to the Central Bank’s statis- Build Shopping Centre in tics for July 1, 2008, the total sum of Novosibirsk loans Russian banks issued to domestic companies was RUR8.8tn OOO Ploshchad Marksa, which is part ($348.38bn, or €242.62bn), with of the ADG group, and UniCredit Bank Sberbank accounting for RUR3.6tn, or have signed a loan agreement on fi- 41%. nancing a project to build a shopping and entertainment centre Kapital in BANKING On January 1, 2008, the bank’s share Novosibirsk. The $45mn loan is pro- AND FINANCE was 43.4%. vided to the company for seven years. Experts believe the main reason for the By now, Kapital has 80% of the neces- Sberbank to Borrow $1bn for current increase in the interest rates is sary leasers. The anchor leasers are Three Years that loan resources have become more the Megas hypermarket (5,300 sq m), expensive for Sberbank itself, as well the nine-hall movie theatre Kinomax Sberbank is taking a $1bn syndicated as for the entire banking system. (3,600 sq m), the children’s entertain- loan for three years at LIBOR + 85 ment zone Igromax (800 sq m), and basis points, two bankers from the the M-Video and Sportmaster stores. banks arranging the loan told Vedo- Top 30 Banks Net $8.8bn i The centre will also have a six-concept mosti. The effective rate including the Profits in Seven Months food court. commission fee will be around LIBOR + 2%, said a banker familiar with the The Russian Central Bank has published The ADG group launched the Kapital progress of the transaction. consolidated statistics on the country’s project in February 2007. The centre is top 30 banks as of August 1, 2008. expected to open in the second half of According to Reuters, the syndicate’s 2009. It consists of four levels, three of arrangers are the Bank of Tokyo – Mit- According to it, these banks’ profits in which accommodate shopping areas subishi, Barclays, Deutsche Bank, DZ the first seven months of 2008 and one (the basement) a parking lot Bank, ING, JPMorgan and SMCE. A amounted to RUR226.5bn ($8.8bn, or for 400 cars. The centre’s aggregate manager from one of them said the €6.3bn), up 24.2% from RUR182.4bn area is 50,700 sq m, the shopping syndicate included 12 banks, the man- in the same period of last year. In July area is 27,200 sq m and the area of date was signed on September 2, 2008, their profits grew by 12.4%. the shopping gallery is 12,200 sq m. 2008, and funding was planned for early October. The banks’ assets as of August 1, 2008 totalled RUR16.0982tn. Out of Putin Promises Banks Sberbank, Russia’s largest state- this sum, monetary funds, precious Compensations from Central owned savings bank, has been active metals and stones accounted for Bank on debt markets this year. In July, it RUR265.478bn, funds on accounts placed $500mn worth of Eurobonds at with the Central Bank for The Russian government is prepared to 6.468% and its supervisory board de- RUR490.625bn, correspondent ac- do much to help Russian banks and re- cided to issue RUR60bn worth of Russ- counts for RUR214.5529bn, and turn money to the inter-bank credit ian bonds. stocks for RUR1.57628tn. market.

Russia’s top 30 banks on August 1 in- Prime Minister Vladimir Putin said at a Sberbank Raises Loan Rates for cluded Absolut Bank, AK Bars, Alfa conference held to discuss the devel- Legal Entities Bank, Bank Saint Petersburg, VTB opment strategy until 2020 and meas- North-West, the Bank of Moscow, ures to support financial markets that Russia’s largest state-owned savings BSGV, Vozrozhdenie, VTB, VTB24, the Central Bank would be able to bank Sberbank has raised interest Gazprombank, Bank Zenit, MDM Bank, compensate the banks’ possible 5 losses on the market of inter-bank and a two year budget for 2010-2011 credits. MACRO- at a plenary meeting Friday. "To support the market of inter-bank ECONOMICS The 2009 federal revenues are credits, the Central Bank will be al- planned at RUR10.927tn ($428.7bn, lowed to sign agreements with certain or €301.4bn), or 21.2% of the coun- banks to repay part of their losses Russia’s Positive Trade Balance try’s gross domestic product, and ex- from crediting other lending organisa- Up 60% in Seven Months penditures at RUR9.025tn ($354bn, or tions, should they sustain such €249bn), 17.5% of GDP. The budget losses," Putin said. surplus will be RUR1.902tn ($74.6bn, Russia’s Federal Customs Service said or €52.5bn), or 3.7% of GDP. the country’s foreign trade turnover in According to the prime minister, this January through July 2008 was is one of the four new proposals of $433.8bn, up 51.4% from the same Oil and gas income will be RUR4.693tn the government and the Central period last year. Exports amounted to (9.1 % of GDP) in 2009, RUR4.526tn Bank aimed at supporting financial $282.3bn (up 53.2%) and imports to (7.7%) in 2010, and RUR4.637tn (6.9 markets. $151.6bn (up 48.2%). %) in 2011.

Russia’s positive trade balance grew Interest expenditures are expected Government to Invest $1.7bn in 59.5% year on year, to $130.7bn from at RUR198bn in 2009, RUR233 in Offshore Prospecting until 2020 $81.9bn. 2010 and RUR308bn in 2011, and non-interest expenditures The government will provide RUR8.827tn, RUR10.086tn, and RUR43bn ($1.7bn, or €1.2bn) until Arctic Development Russia’s RUR11.009tn, respectively. 2020 to finance geological explo- Strategic Task ration of Russia’s offshore areas, Russia’s Reserve Fund will grow to while RUR570bn ($22.8bn, or Russian President Dmitry Medvedev RUR5.147tn ($202bn, or €142bn) in €15.6bn) will come from non-budget has instructed the government to draft 2009, RUR5.914tn in 2010, and sources, Deputy Natural Resources a plan on state policy regarding Arctic RUR6.761tn in 2011, each amount Minister Sergei Donskoi said at the development by December 1, 2008. representing 10% of relevant GDP. government hour meeting in the parliament’s upper house. The Arctic region is of strategic impor- Russia’s National Welfare Fund will be tance for the country and should be- RUR3.331tn ($130.7bn, or €91.9bn) The ministry estimates Russia’s recov- come its resource base in the 21st in 2009, RUR4.588tn in 2010 and erable offshore reserves at 100 billion century, he said. RUR6.08tn in 2011. metric tons (735bn bbl) of oil equiva- lent, including around 17bn tons of oil To ensure this, Russia needs to tackle The budgets are based on projected and gas condensate and around 82 a number of issues, notably create a GDP growth of 6.7% next year, 6.6% in tcm (2894.6 tcf) of natural gas, includ- firm legal framework to regulate activi- 2010 and 6.2% in 2011, and on tenta- ing free and dissolved gas. ties in the Arctic and secure external tive global Urals price of $95 per bbl in borders of Russia’s continental shelf, 2009, $90 in 2010 and $88 in 2011. and reduce the disproportion in the de- Alfa Bank to Finance Acquisition velopment level of Arctic territories and of Serbia’s Ikarbus other regions. Russia’s International Reserves Down Due to Capital Flight Alfa Bank has completed the deal to Medvedev focused on the development provide a €13mn long-term loan to Av- of Arctic transport infrastructure, the According to the Central Bank of Rus- todetal-Service for acquisition of backbone of which is the Northern Sea sia, capital flight in August reached ap- 100% in Ikarbus AD, a Serbian pro- Route. To modernise its infrastructure, proximately $5bn due to a decline in ducer of modern buses well known in the country needs a cutting-edge navi- prices of the main Russian exports, East and West Europe, the bank said gation and search & rescue system. It which reduced the country’s interna- in a statement. also needs to expand its port network tional reserved by $14.264bn. and develop the route as its strategic Avtodetal is a major producer of auto national route, the president said. The figures were provided in the report parts and components and part of the on monitoring the economic situation AMS Group holding company. It is also in Russia in the first eight months of the general producer and supplier of Parliament Approves 2010-2011 the year prepared by the Economics the Ulyanovsk Automobile Plant. Federal Budget Ministry and published on its site on September 29. The acquisition will allow the group to The State Duma, the Russian parlia- set up full-cycle production and enter ment’s lower house, adopted in the In January to the end of August, inter- the Russian bus market. first reading the 2009 federal budget national reserves have grown by 6

$103.748bn, compared with ministries. After endorsement by the Pipeline Ventures (a JV with KazMu- $112.308bn in the same period of last Justice Ministry, it will be submitted naiGaz, 1.75%). The British oil major year. As of September 1, 2008, they to- to Prime Minister Vladimir Putin for owns 46% and 19% in these compa- talled $581.638bn. signing. nies respectively.

Experts say some offshore licences "At present, BP is considering two vari- Russia’s Trade Balance Up 70%, that have been disputed by Russia’s ants: selling its stake or giving it in to $138.1bn, in Eight Months largest state-controlled crude producer trust management to LUKoil," the Inter- Rosneft and energy giant Gazprom fax news agency reported. Russia’s trade balance in January to may remain in reserve for many years. the end of August 2008 was positive and totalled $138.1bn, an increase of WGC-2 Considers Purchase of 70% year-on-year, according to the Russia Needs to Encourage Coal Companies Economic Development Ministry. Small, Medium-Sized Oil Producers Wholesale generating company WGC-2 The figures were provided in the report is considering acquisition of coal com- on monitoring the economic situation Over half of oilfields in the Khanty- panies to ensure fuel supply to its in Russia in the first eight months of Mansi Autonomous Area are past power plants, the company’s CEO, the year prepared by the Economics their peak production, said Alexander Stanislav Neveinitsyn, said. Ministry and published on its site on Filipenko, governor of the West Siber- September 29. ian region. "We are looking for coal assets that would be of interest for both existing The trade balance was growing due to In his opinion, the problem can be plants (Troitsk, Serov) and new ones," an increase in the positive balance of solved by changing taxes. he said. commodities, which account for a sub- stantial part of Russia’s foreign trade. "Tax reduction will attract small and The Troitsk district power plant con- At the same time, negative balance in medium-sized businesses to the sec- sumes 6mn metric tons of coal annu- the export of machinery, equipment tor and encourage development of in- ally and the Serov plant 2mn metric and consumer goods was growing. dependent oil companies," he said. tons. Besides, WGC-2 is currently "This will allow raising the number of building a new coal unit at the In the reporting period, Russia’s foreign operating wells to approximately Troitsk plant. trade totalled $524.6bn, up 49.2% 17,000, which will yield 5-8 metric compared with a growth of 18.8% in the tons of oil daily." The company’s current coal supplier is first eight months of 2007. Rusal. But if it buys a coal asset, it may Filipenko added that investment in in- not need its services any longer. Exports reached $329.8bn, up 50% novative oil production technology was (9.3% in January-August 2007), due necessary to increase oil recovery and WGC-2, established in 2005 as part of to growing prices of the main Russian solve some other pressing problems. the restructuring of Russia's electric exports. power sector, operates five hydropower At present, the Khanty-Mansi area plants in different Russian regions. accounts for 58% of Russia’s oil output and 7.5% of the world’s. Invest- ment in the area’s economy this year will amount to RUR400bn ($15.5bn, FUEL AND or €11.1bn). ENERGY NEWS OF KEY LUKoil May Manage BP’s Stake COMPANIES in CPC Russia to Set up Federal Hydrocarbon Reserves British Petroleum may pull out of the Comstar Takes Control over Caspian Pipeline Consortium either by Stream TV Regional Assets A national mineral reserve fund for fu- selling its stake or by giving it in trust to ture generations may be set up in Rus- its partner in the project, LUKoil, a Comstar – United TeleSystems, Rus- sia before the yearend. It will include a source in the CPC told the Oil News sia’s leading integrated telecommuni- significant part of offshore fields. Agency. cations operator, said in a press release that it has started the The government resolution on forming BP holds a stake in the CPC through integration of regional operators of the fund, drafted by the Natural Re- two companies, LUKARCO BV (its joint Sistema Mass Media (SMM) that pro- sources Ministry, has been coordi- venture with LUKoil; share in the con- vide cable TV and broadband Internet nated with specialised agencies and sortium 7.5%) and Kazakhstan access services in 40 Russian cities 7 with a total population of over 15mn estimated at 5.52mn metric tons. The without penalty. However, the com- people. average copper content is estimated at pany will lose its down payment, 1.56%. The starting payment for the which in such cases goes to the fed- Comstar is taking over the manage- deposit is RUR4.5bn ($175.9mn, or eral budget according to established ment of Stream TV Group, the largest €124.3mn). The winner will receive a procedure. pay TV operator in Russia. licence for 20 years. In Mechel’s case, the loss will be Approximately 30% of Stream TV’s net- Investment in the project will amount around $2mn. work has been modernised to provide to some $1.6bn. It will create several triple play services (VoIP, Internet and thousand new jobs and bring the Russ- According to expert estimates, the pay TV). Comstar-UTS and Stream TV’s ian government over $3bn in revenues. Undytkanskoe auction held in April-July combined share of regional broadband was one of the largest and longest. The market stood at 13% as of the end of bidders made over 7,000 auction last year. Yandex to Build Data Centre in steps, and the lot was sold for a record Moscow Region price of RUR35.195bn ($1.4bn, or The management agreement was ap- €968.5mn). proved by the Comstar and SMM Yandex, a leading Russian Internet and boards of directors. technology company, has launched the Apart from Mechel, the bidders in- construction of another data centre in cluded holding companies Sakha Ugol, The next stage of the integration Ivanteyevka northeast of Moscow. The Yakutugol and Kolmar Project. process will be the acquisition of new data centre will begin operation Stream TV Group from SMM. The struc- before yearend. ture of the deal is currently under dis- cussion and the assets are being inde- The new 2,500 sq m (26,910 sq ft) 4 pendently valued by Ernst & Young. MW facility, connected to Yandex’s fibreoptic main, will house over Comstar expects to complete the deal 7,000 servers, the company said in MERGERS AND by the end of 2008. a statement. ACQUISITIONS Investment in modernisation of Yandex operates Russia’s largest Inter- Stream TV’s infrastructure may reach net search engine, with daily audience AvtoVAZ Agrees to Pay $300mn $60mn, said Comstar president of 8mn people. As of August 2008, for Izhavto Sergei Pridantsev. Yandex had approximately 55% of the Russian search market, compared to AvtoVAZ’s board of directors will con- Google’s 21%. sider a deal to buy 100% of car manu- Alisher Usmanov Wins Udokan facturer Izhavto from the SOK Group Tender The company employs over 1,000 peo- on October 1 in Paris, the Vedomosti ple in six offices in Russia and Ukraine. business daily reported. The Mikhailovsky mining and dressing plant (GOK), which belongs to Russian The Samara-based SOK Group, a diver- billionaire Alisher Usmanov and is part Mechel Waives Yakutian Coal sified private industrial holding focused of the Metalloinvest holding company, Licence on car manufacturing and retailing, of- has won the tender for the Udokan- fered AvtoVAZ to acquire Izhavto for skoye copper deposit. The results of Russia’s mineral resources regula- $500mn at the beginning of this year. the tender were announced in Moscow tor, Rosnedra, had to cancel the re- on September 10. sults of the bidding for the Undytkan- Russia’s largest automaker asked the skoe coalfield in Yakutia, with Troika Dialog brokerage to evaluate the The state-owned corporation Russian estimated P3 reserves of 905mn asset. After a due diligence process Technology earlier promised Metal- metric tons. that lasted several months, sources loinvest to provide assistance in de- close to Troika cited a preliminary esti- veloping the deposit if it won the ten- The auction winner, Tula Incom, mate of $350mn. der. The parties even prepared a joint which is affiliated with Mechel, one feasibility study for the project. De- of Russia’s leading metals and min- However, the AvtoVAZ board does not tails of the corporation’s participation ing groups, issued an official state- plan to approve a price higher than are not disclosed. ment giving up the right to develop $300mn, a source close to the board the asset. said. The low price is attributed to According to the Russian Federal Izhavto’s encumbrances and debt. Agency on Subsurface Use, the de- The Yakutian division of the regula- posit’s B+C1 reserves totalled tor said that a winning bidder has a AvtoVAZ and Troika have declined to 14.43mn metric tons of copper as of legal right to relinquish the licence comment, and SOK has ignored the re- January 1, 2008. Its C2 reserves are won without stating reasons and quest as well. 8

Polyus Gold to Buy into As soon as they close the deal and re- instalments in amendments to the Tax KazakhGold ceive regulatory approval, Onexim Code (Part Two, Article 174) to be de- plans to ask the Central Bank if they bated at the lower house of Russia’s The board of directors of Polyus Gold, could use the name MFK. parliament (State Duma). Russia’s leading gold producer, will meet on September 30 to consider the The original MFK bank, founded by The bill is designed to make VAT de- acquisition by the company or its sub- Prokhorov and his partner Vladimir ductions to the federal budget more sidiary of 50.1% of the issued and to Potanin in the 1990s and folded into regular. be issued share capital of KazakhGold. Rosbank in 2001, will now be resur- rected as a new financial conglomer- The Tax Code says VAT should be paid KazakhGold has confirmed that the ate, Onexim said in a statement. during the sale of goods (work, serv- parties are negotiating the partial ices, property rights) in the country and offer. Onexim plans to boost the bank’s eq- for work or services for one’s own uity to $500mn as part of its 2009 de- needs according to the results of the Polyus Gold will buy the stake with own velopment strategy. tax period (three months) not later funds and shares. than the 20th day of the month following said tax period. KazakhGold Group Limited is the largest gold mining company in Kaza- MPs Yuri Vasilyev, Yevgeny Fyodorov, khstan with three principal operating Gleb Khor and Andrei Makarov pro- mines, Aksu, Bestobe and Zholymbet, pose that a procedure be adopted in and a further eight new properties ac- LAW AND which the size of the VAT calculated quired in 2005. Its primary objective is LEGISLATION by taxpayers according to quarterly to become the leading low-cost gold tax declarations is to be paid to the producer in central Asia. budget in equal monthly instalments Financial Security of Tour (not later than on the 20th day) dur- Before 1990, the three mines pro- Operators to Be Increased 15-fold ing three months following a corre- duced approximately 7 metric tons of sponding tax period. gold a year. A bill increasing the financial security of tour operators in international busi- KazakhGold, the parent company of ness by 15 times has been submitted Severstal to Increase Steel Kazakhaltyn, one of Kazakhstan’s to the State Duma, the lower house of Output to 13.4mn Tons by 2018 largest gold producers, is listed on the Russia’s parliament. London Stock Exchange (KZG). Severstal plans to increase steel out- The proposed amendments to Article put at its subsidiary, the Cherepovets 17 of the federal law on the tourist steel works, to 13.4mn metric tons a Russian Billionaire Plan business increase the operators’ finan- year within a decade. Cast iron produc- Banking Group cial security to RUR150mn ($5.9mn, or tion will reach 9.6mn metric tons, An- €4.14mn) from RUR10mn. drei Lutsenko, the company’s technical Onexim Group, the investment vehicle director, said at the international con- of billionaire Mikhail Prokhorov, has Vladislav Reznik, the author of the bill gress on modernisation of Russia’s acquired 100% of APR Bank, a small and chairman of the house committee steel industry through reconstruction, Moscow lender. on the financial markets, said the commissioning of new facilities, con- amendments should improve protection struction of mini plants and develop- Prokhorov needs a banking licence to of Russian tourists and service stan- ment of service steel centres. set up a banking group to service his dards in the Russian tourist business. holding company, which controls miner In the sector of hot- and cold-rolled Polyus Gold and the TGC-4 utility as An appendix to the bill mentions the steel, 100% of casting will be made well as other assets, and other clients. situation with Detur, the Russian sub- into rolled steel. The production of sidiary of Turkey’s Vasco Detur, which cold-rolled steel will be increased to The new banking group, MFK, will be went bankrupt in summer 2008 affect- 4.3mn metric tons, of moulded sec- set up through a merger of APR and ing thousands of tourists, who have tions to 704,000 metric tons and of other banking assets, including Ros- filed claims by far exceeding the opera- coated cold-rolled steel to 1.4mn met- bank Asset Management Company. tor’s financial security standards. ric tons annually.

MFK will focus on corporate banking, Severstal is a leading international asset management for individuals and Russian Parliament Proposes VAT steel producer by profitability. Its focus companies, and private banking. The Payment by Instalments on high value-added products in attrac- chairman of its board will be Sergei tive niche markets and successful Koshelenko, a former Rosbank deputy A group of parliamentarians have pro- track record of acquiring and integrat- chairman. posed payment of value added tax by ing high-quality assets in America, 9

Italy, France and the UK has enabled About 700,000 sq m of housing will be Production there will continue for 57 Severstal to earn more than other built on an area of 190 hectares years and should yield 112.6mn metric Russian steel producers. (about 470 acres) by the end of 2012. tons (827.6mn bbl) of oil. The social infrastructure facilities to be built in the Western District will include three schools, six kindergartens, one Guta Clinic to Invest $100mn in fitness centre, an outpatient clinic and New Medical Centre a large shopping centre. Guta Clinic plans a new medical centre INVESTMENT Investment in the construction in the in Rublevskoye Shosse, an elegant PROJECTS Western District will total $1.6bn. suburb west of Moscow. Eurasia City and Eurasia Logistic are Investment in the project is esti- Inter RAO to Build Windmill Farm controlled by a co-owner of Kaza- mated at $100mn, which is a record in Jordan khstan’s bank TuranAlem. investment in Russia’s private health services. Russian electricity export-import oper- The Tashir Group was set up in 1999 ator Inter RAO UES will bid in the ten- to build shopping and office prem- According to its investors, the centre der for the construction of a wind park ises. Its main beneficiary is Samvel will be fitted out with most cutting- project at Al Kamshah in Jordan. Karapetyan. edge equipment, up to the highest international standards. The winner is to design, build, supply equipment, operate and service wind Zarubezhneft to Set up Joint Guta Clinic President Yelena generators and an auxiliary power Venture with Rusvietpetro Gushchina said that Moscow residents plant. The project will be implemented with high and middle incomes would according to the build-own-operate An agreement on PetroVietnam’s ac- be able to afford its services. (BOO) principle within 20 years. quisition of a 49% stake in Rusviet- petro is to be signed in late October. "An average bill in this new clinic If Inter RAO wins the tender, it will reg- will be $250-$300, considering the ister a 100% subsidiary in Jordan to Zarubezhneft, a leading foreign trade general growth in prices three years operate the project. company in Russia’s oil and gas sector, from now. I mean outpatient serv- set up the Rusvietpetro venture in July ices, of course, as hospital prices The results of the tender are to be an- this year to develop four blocks of the will be much higher," she told Busi- nounced in October 2008. According to Central Khoreiver Depression in the ness FM. its conditions, Jordan’s Energy Ministry Nenets Autonomous Area, in the north will buy the electricity produced at the of European Russia. The project will begin bringing profit in wind farm. five years, according to expert esti- Zarubezhneft has informed the Viet- mates. namese partner about the terms on Eurasia City, Tashir to Build which PetroVietnam is to join Rusviet- Guta Clinic is part of the Gosincor- Satellite Town near Moscow petro, Nikolai Brunich, head of the Holding Financial and Investment Cor- Russian company, said at a meeting of poration, a group of companies con- The Tashir Group and development the Russian-Vietnamese intergovern- trolled by Russia’s State Investment company Eurasia City have set up a mental subcommission in Hanoi. Corporation. parity venture for implementing the Konstantinovo project, Tashir’s press Oil production in the Central Khoreiver service said. Depression is to begin in 2011. AMUR to Acquire Australia-based Zarubezhneft plans spend about Mitsubishi Plant and Galant The project provides for developing $200mn on building a required infra- Platform areas in the Domodedovo District of structure. Proven oil reserves of the the Moscow Region, 11 km (7 miles) four blocks total 100mn metric tons The Automobiles and Motors of Urals from the Moscow Ring Road (MKAD). (735mn bbl). (AMUR) in Novouralsk, the Sverdlovsk Region, is considering a possibility to A satellite town for 150,000 people is The venture is to start oil production establish a car manufacturing facility to be built on an area of 3,087 in 2011 and to increase it to 6.44mn and is negotiating with Mitsubishi ac- hectares (7,413 acres). The total de- metric tons per year (129,682 bpd) quisition of the equipment of the plant velopment area will be 6.5mn sq m of by 2017. it has closed in Australia. housing and 2.6mn sq m of commercial real estate. Investment in the proj- Within five years after the companies The Japanese corporation assembled ect will exceed RUR375bn ($14.66bn, receive licences, they are to explore Mitsubishi 380 (Galant) cars at Mit- or €10.36bn). the blocks and drill exploration wells. subishi Motors Australia Ltd. 10

Apart from the equipment, AMUR in- It is also planned to build a plant to General Motors, GAZ Group tends to acquire the Mitsubishi 380 produce technical gases jointly with Agree on Joint Ownership of VM platform. Italy’s Siad, a leader in the field of air Motori separation plants. The facility will pro- The outcome of the talks will be known duce 8,000 cu m of oxygen, nitrogen US automaker General Motors and the in the second half of October. and argon per hour, which is enough to Russian GAZ Group, Russia’s largest supply the smelter and other con- producer of light commercial vehicles Russia is one of the few countries sumers in the region. owned by billionaire Oleg Deripaska, where Mitsubishi delivers US-assem- have agreed on the joint ownership of bled Galant cars. But merely 1,667 Investment in the construction will be VM Motori, a diesel engine designer Galants were sold in the first seven as much as €50mn. and manufacturer in Italy. months of this year. GAZ has purchased the remaining 50% The design capacity of the Australian of the company from Penske Corpora- plant is 30,000 cars annually, but it tion, a diversified transportation firm, produced only 10,000 Mitsubishi 380 which operates more than 300 fran- cars in 2007 and was closed in March, chised dealerships in 19 states, Puerto Russia’s Autostat (Automotive Statis- INTERNATIONAL Rico, the United Kingdom, Germany, tics) analytic agency reports. COOPERATION and Brazil. GM bought half of VM Mo- tori from Penske Corporation last year. The equipment and the platform are estimated at about $100mn. Russian Railways Builds Railway GM has partnered with VM Motori for in Libya the past 10 years to produce diesel en- AMUR plans to produce sedans, of- gines for its Opel cars, develop technol- froaders and minivans. Earlier it was A groundbreaking ceremony for a new ogy for GM Daewoo, and design the going to invest $150mn in the project, railway line has been held in Libya. new 2.9L V-6 turbo diesel for the Euro- but its net profit last year was merely pean 2009 Cadillac CTS, which will RUR570mn ($22.6mn, or €15.6mn) Russian Railways will build a 554-km emerge on the European market al- and revenues totalled RUR2bn (344-mile) 1435 mm twin-track line ready next year. ($79.5mn, or €54.9mn). between Sirt and Benghazi in Libya on the Mediterranean coast. It will con- "This equity ownership agreement en- AMUR needs co-investors, and the nect the country’s major cities and in ables GAZ Group to access world- administration of the Sverdlovsk Re- the future will form part of the interna- class diesel engine design and manu- gion and the TGI Group are looking tional transport corridor in northern facturing," said Sergei Zanozin, CEO of for them. Africa. GAZ Group.

The four-year construction project will Mike Arcamone, vice president of GM Estar Metallurgical Group Breaks cost €2.2bn and will be carried out by Powertrain Europe, said: "Our joint ven- Ground for €350mn Rostov Russian specialists working with ture agreement with GAZ Group pro- Smelter Libyan companies. vides business opportunities to expand our diesel engine business with Estar, a major Russian metallurgical The project will require 30 rail and 23 new customers." group, has begun the construction of road overpasses, as well as four major an electrometallurgical plant, Yuzh- railway terminals and 24 stations, of norussky, in southern Russia. which 14 will service passengers, two Russia-Venezuela Consortium to passengers and cargo, and four cargo. Lead in Latin America’s Energy Investment in the project, which is to The railway will also have four opera- Sector be completed in about three years, will tions stations. be €350mn-€370mn. The oil and gas consortium of Russia Construction will require over and Venezuela, to be established next The new facility, designed by German 203,000 cu m of concrete and spring at the latest, may in future be- engineers Concast AG of the SMS 40,000 metric tons of metal. Diesel come the leader in Latin America’s oil group, will employ 1,500 people and traction will be used at the first and gas sector, Russian Energy Minis- produce 960,000 metric tons of steel stage of the project and at the sec- ter Sergei Shmatko told the press. a year. ond stage the line will be converted to electricity. He said the intergovernmental agree- Its products will mainly include concast ment the sides plan to formulate and billets, I-beams, H-beams, and angle "This is the first major transport project sign would be open to other players. and channel beams. It will make in the history of the two countries," "As we see it, the companies will sign a around 900,000 tons of medium sec- said Vladimir Yakunin, President of special intergovernmental agreement tion products a year. Russian Railways. in oil and gas cooperation, which is 11 very significant in political terms," the Russian Jewellers’ Consumption The NRA upgraded IDGC Centre follow- minister said. of Gold Up 8.6% and Silver Up ing the establishment of the unified 17% in 1H08 operating company and due to the im- Shmatko earlier said that the draft proved quality of its corporate gover- Russia-Venezuela intergovernmental The Russian jewellery industry in the nance and increased transparency. agreement to establish an oil and gas first half of this year increased the con- consortium would be ready before the sumption of gold by 8.6%, to 38.238 IDGC Centre operates through 11 end of October and would be submit- metric tons, and of silver by 17%, to branches and two subsidiaries. It was ted for consideration of the bilateral in- 122.9 metric tons year-on-year, Boris a subsidiary of electricity monopoly tergovernmental commission and sub- Borisov, first deputy head of the Russ- RAO UES, whose reform stipulating the sequently the governments of both ian Assay Office, said. spinning off of nearly all its assets countries. ended on July 1, 2008. The Assay Office tested and stamped Russia will invest "tens of billions of dol- 23.33mn Russian gold jewellery lars" in the consortium, Shmatko said. pieces weighing a total of 63.73 metric S&P Upgrades UniCredit Bank to tons. On the average, each piece con- BBB+ tains about 60% of pure gold. Standard & Poor’s Ratings Services It also examined 19.91mn Russian- raised its long- and short-term counter- made silver articles weighing a total of party credit ratings on Russia-based 132.86 metric tons, which contain ap- UniCredit Bank to BBB+/A-2 from INDUSTRY proximately 92.5% of pure silver. BBB/A-2. The outlook is stable, the REPORTS bank said in a press release. The Assay Office also stamped 9,220 platinum jewellery pieces and "The upgrade reflects the bank's Share of National Footwear Pro- 3,250 palladium articles, their total progress in expanding its business and ducers in Russia Dropped to 10% weight being 67.53 kg and 18.35 kg maintaining a healthy financial profile," in 2007 respectively. S&P credit analyst Elena Romanova said.

The footwear market in Russia, includ- A total of 22.65mn Russian gold jew- The Stable outlook reflects S&P’s con- ing the "shadow sector," increased ellery pieces weighing 58.682 tons fidence that its firm position and good 15.1% in physical terms in 2007, inde- and 15.785mn silver jewellery weigh- knowledge of the Russian banking pendent surveyor Express-Obzor has ing 113.47 tons underwent expert ex- services market, combined with sup- reported. In terms of value, footwear amination at the Assay Office in the port from the UniCredit Group, should sales totalled almost RUR435bn first half of 2007. help UniCredit Bank to develop accord- ($17.26bn, or €11.9bn). ing to the chosen strategy, provided it maintains a balanced attitude to risk Russia imports most of its footwear. management, she said. Last year, Russian producers met merely 10% of the demand, less than in 2006. In 2007, official production in S&P Puts Moscow Region and physical terms dropped by almost 50% RATINGS Associated Companies on of output in real terms. CreditWatch List

Most footwear was produced last year NRA Upgrades Individual Standard & Poor’s has placed the in the Central Federal District (40.4%) Solvency Rating of IDGC Centre Moscow Region’s BB long-term credit and the Southern Federal District rating and local scale ruAA rating on (30.5%). China was the main footwear The National Rating Agency (NRA) has CreditWatch with a Negative outlook. exporter to this country in real terms upgraded the individual reliability rat- (82% of all imported footwear) and in ing of the Interregional Distribution The ratings agency also put on the terms of value (71%). Grid Company of the Centre (IDGC Cen- CreditWatch the companies associated tre) to A+ (high reliability, first respon- with the Moscow Region – the Moscow Among other significant footwear ex- sibility level). Regional Investment Trust Company porters are Italy, Turkey and Germany. (MOITK, B-/-, ruA-), the Mortgage Cor- A company with the high reliability level poration of the Moscow Region (IKMO, In the next two years, the growth can meet all its credit and debt obliga- B-, ruBBB), and Mostransavto, a state- rate of the footwear market will slow tions without losing solvency and fi- owned company for passenger bus down, and will reach 9% in real nancial stability. It has a small risk of transport in Moscow (CCC+; ruBB+). terms by the end of 2009, which is losing solvency in the event of an in- evidence of a gradual saturation of creased debt as regards the existing By putting the Moscow Region’s rat- the market. obligations. ings on the CreditWatch list, S&P’s 12 expressed its concern that the region Sitronics to Spend $1bn on istry signed a memorandum of cooper- will have to render considerable sup- Microelectronics Plant in ation at the Fifth Baikal Economic port to the regional companies which Voronezh Forum to build a new airport in the find it increasingly difficult to borrow East Siberian region. independently because of increased Russia’s third microelectronics plant is interest rates. to be established at the Sitronics plant The airport project was developed at in Voronezh, central Russia. Moderni- the request of Prime Minister Vladimir sation will require around $1bn. Putin.

Sitronics is a supplier of telecom, IT A total of RUR16bn ($633.41mn, or and microelectronic solutions to Rus- €441.14mn) will be allocated from the sia, the CIS, Central and Eastern Eu- federal budget for the construction of REGIONS rope, the Middle East and Africa. It has airport infrastructure in 2010-2015. over 3,500 clients and offices and out- lets in 32 countries, exporting its prod- The Baikal Economic Forum is one of Hydro Considers Building Plant in ucts to more than 62 countries. Russia’s biggest business forums. It is Murmansk Region held in Irkutsk once every two years beginning in 2000. Hydro, a Fortune Global 500 supplier Russia’s Largest Biofuel Plant to of aluminium and aluminium products, Be Built in Ivanovo Region is considering building an aluminium Pskov Region to Have Municipal plant with a design capacity of The Ivanovo-BioToplivo limited liability and Farm Machinery Plant 450,000 metric tons in the Murmansk company has decided to build a biofuel Region, northwest Russia. plant in Teikovo, in the Ivanovo Region Poland’s PRONAR plans to build a (central European Russia). plant to produce municipal and farm The Norwegian company is studying machinery in 2010, with investment of various scenarios, including the The plant worth RUR5bn ($198.33mn, around €60mn maximum, in the Pskov supplies of local raw materials and or €136.65mn) is to be built within two Region, northwest Russia. deliveries from Northern Europe years. The main investor is the and Brazil. Moscow-headquartered Konti Group PRONAR is one of Europe’s largest specialising in housing construction manufacturers of farm machinery, using modern technologies. mostly tractors for municipal purposes Eclipse 500 Jets to Be and farming with a capacity of 35-260 Manufactured in Ulyanovsk in hp, as well as 86 types of multipurpose Late 2009 Kolmar Holding Borrows $70mn trailers with a lifting capacity of be- from Korea Development Bank tween 1.5 metric tons and 35 metric By the end of 2009, a plant for the tons. manufacture of Eclipse 500 very light The Kolmar Holding has taken a loan jets (VLJ) will be commissioned in of $70mn from the Korea Develop- Ulyanovsk (Volga Region). ment Bank (South Korea) to finance Rostov Region to Present over 15 the construction of the Ingalinsky coal Investment Projects at Sochi The project will attract investment of mining and processing facility in the Forum RUR5bn ($198.3mn, or €136.7mn) to Republic of Sakha-Yakutia (northeast the region. Siberia), said Lev Kuznetsov, Kolmar’s The Rostov Region (in southern Russia) director general. will present over 15 investment proj- It was presented at the VII Interna- ects at the VII International Investment tional Investment Forum Sochi-2008 in The project will comprise a mine and a Forum Sochi 2008, to be held on Sep- Sochi in September 2008. Total invest- coal preparation factory with an annual tember 18-21. ments in the project will amount to capacity of 3.2mn metric tons. Financ- $300mn. ing for the project will total $300mn. Another participant, the Aston company, intends to sign a memorandum Eclipse 500 manufactured by Eclipse The Kolmar Holding has been investing on cooperation with the Rostov Re- Aviation is a small business jet pow- in coal mining projects in South Yaku- gion’s government to implement four ered by two turbofan engines. tia for several years now. investment projects in the region worth a total of about $150mn. Jet engines provide a service ceiling of 12,500 m (41,000 ft), maximum Memo to Build Airport in Irkutsk The projects include building a factory speed of 685 km/h (425 mph) and a Signed to produce starch products and glu- range of 2,084 km (1,295 miles) with cose-fructose syrups at the Novoalek- three to six passengers. Its maximum The administration of the Irkutsk Re- sandrovsk industrial zone in the takeoff weight is 2,710 kg. gion and the Russian Transport Min- Stavropol Territory, building a 6 MW 13 thermal power plant, that will use a fabrics based on petrochemical prod- stages. The capacities of the plant’s cardinally new type of fuel – sunflower ucts would be built within the textile in- first stage will ensure an annual seed shells, for the Morozovsk sun- dustrial cluster in the next four or five turnover of €25mn. The plant will man- flower oil extraction plant, building years. ufacture engine support systems, en- greenhouses jointly with the Dutch gine mount dampers, muffler supports Agrotech Didam BV, and modernising Among other things, his company is and other components. the Millerovo oil extraction plant within willing to manufacture polyester, which two years without stopping production. is now the most popular fibre in the in- Russia’s largest automobile manufac- dustry whose quality is similar to that turer AvtoVAZ will be the main cus- The Aston group of companies, head- of cotton, he said. tomer of Anvis Rus. They have signed quartered in Rostov-on-Don, is a large, contracts for the development and dynamically developing multirole agro- manufacture of components for Lada industrial holding that has been on the St Petersburg Developer to Build Priora and Lada Kalina cars, the future market since the early 1990s. It is one $431.5mn Logistics Park in Lada 2116 family, and Lada 4x4 (Niva) of the largest operators on the Russian South Russia cars. grain and oil markets. M-Industry, a St Petersburg-headquar- Anvis Rus will also cooperate with the tered development and investment GAZ Group, Russia’s second largest Water Park Worth $109mn to Be group, has started the construction of automaker, and is negotiating compo- Built in Novosibirsk Yuzhny, a Class A logistics park in the nents supplies with the GM-AvtoVAZ Teuchezhsk District of the Republic of plant in Togliatti, the Sollers (formerly The investment council of West Siberia’s Adygheya (North Caucasus). Severstal Auto) plant in Yelabuga, and Novosibirsk Region led by Governor Vik- the Volkswagen plant in Kaluga. tor Tolokonsky supported a project to The company said the groundbreaking build the city’s first water park. ceremony for the project worth RUR11bn ($431.5mn, or €303.4mn) Poseidon Park, to be divided into four took place on September 17, 2008. zones with 42 perimeter amusements, will be built in the Leninsky District of The logistics park will include a total of the city on an area of 54,000 sq m. De- 300,000 sq m of office buildings and signers say it will be one of the largest warehouses to be built on an area of 60 water amusement parks in Russia. ha; offices will take up 15,000 sq m.

The project, worth RUR2.8bn The first stage of the project will be ($109mn, or €77.6mn), will be imple- completed by 2010, and the second mented in two stages, first the sports one will last from 2009 to 2011. The block to be built by 2010, and then a developer plans to commission the fa- hotel. The Poseidon water park will cility in the fourth quarter of 2011. host synchronous swimming events and training of rowing teams. The park’s convenient geographical lo- cation close to the M4 Don highway is By decision of the investment council, one of the project’s strengths: its ter- RUR57mn will be allocated for the proj- minals will handle the heavy cargo traf- ect from the regional budget. fic moving along the federal route link- ing central and southern Russia.

Ivanovo Region to Have Petrochemical Plant New Auto Components Plant to Be Built in Togliatti The international holding Indorama to- gether with its Russian partner, the Eu- Anvis Rus, a 100% subsidiary of the roplast association, plans to launch German Anvis Group, formerly Woco petrochemical production in the Michelin AVS BV, has launched the Ivanovo Region within the local textile construction of a plant in Togliatti cluster. (Samara Region), which will manufacture anti-vibration auto components. Investment in the project will total RUR50bn ($1.96bn, or €1.38bn). The plant is to be commissioned in the third quarter of 2009, but it will start pro- Indorama CEO Aloke Lohia said a plant duction in January on the leased premises. to manufacture synthetic fibres and The construction will proceed in three