November August 27, 30, 2009 2010 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. Russia's agribusiness drought loss to hit 33 bln rbls says Russian Agriculture Ministry 2. Chinese, Russian companies ink deals worth $800mn 3. COMMENT: Wirefire's impact on harvest uncertain 4. Corporate profits off 5.2% 5. EU presidency says European enlargement train should not stop 6. Gazprom promises cheap gas for Ukraine after JV with Naftogaz 7. Guta invests in Africa 8. Increasing share of Russia's imports coming from China 9. Long-term effects of the heat wave 10. Pace of economic recovery varies across Russian regions 11. Power blackout paralyzes St. Petersburg 12. Rice and buckwheat prices double in Russian Far East 13. Rosneft and Rostekhnologii discuss major projects with UAE 14. Rostekhnologii and Cresent Petroleum set up $500m fund for infrastructure 15. Russia received $30.384bn foreign investments in H1, 2010 16. Russia to step up environmental control over Arctic shelf development 17. Russia won't import grain despite drought 18. State investment agency announces tender to select investment projects 19. Ukraine wants a review of the base gas price in Russia-Ukrainian contracts 20. Medvedev halts highway after shock appeal from Untied Russia SECTOR Gas 21. A new gas bubble inflates over emerging Europe 22. Altai gas pipeline by 2018 23. Construction of gas pipeline to China included into Russian Gas Industry Development Plan 24. Court orders Trans Nafta unit to repay RUB640.5mn to Volga Gas 25. Gazprom doubles Blue Stream gas supply to Turkey 26. Gazprom may sue Lithuania over natural gas reform 27. Gazprom sees strong domestic gas demand this year 28. Gazprom unit to build LNG facilities in Kaliningrad Region 29. Nabucco gas pipe consortium delays plans to include Iran in project 30. Novatek may buy out Yamal project 31. Official sees South Stream gas pipeline running across Albania 32. Russia may build Chinese pipeline before South Stream - paper 33. St Pete to invest RUB2bn in gas distribution system 34. SurgutNG's production continues to fall 35. Volga Gas takes an upper hand in Trans Nafta dispute SECTOR Oil 36. CPC may borrow $1 billion to fund expansion
37. July 2010 drilling up 14% YoY 38. LUKOIL and PetroKazakhstan resolve 5-year conflict 39. PetroNeft Resources: Year-round production commences in Licence 61 40. Pipeline gets new lease on life 41. Russia, Bulgaria to hold Burgas-Alexandroupolis talks Sept 8-9 - Transneft 42. Russian ministry proposes incentives for shelf exploration SECTOR Metals and Natural Resources 43. MMK starts Mill-2000 construction 44. Polymetal launches Omolon 45. RMK seen investing RUB20bn in Chelyabinsk Region copper deposit 46. Russia's long steel products segment - Growing buyer interest 47. Steels at their best: 2Q10 preview 48. World Gold Council's 2Q10 statistics: robust 2010 outlook 49. World Steel Production in July SECTOR Nuclear 50. Bushehr power plant: Russia balances on the edge of a sword 51. India still 'hopeful' about nuclear plant despite Russian calls for relocation - paper 52. Iran eyes nuclear fuel consortium with Russia 53. Natural uranium futures suffered a downward correction, but we believe the decline is short term and will not harm Priargunsk Plant's shares 54. Russia asks India to move site for nuclear plant - paper 55. Russia to load nuclear fuel into Iran's Bushehr NPP 56. Russia, Armenia sign deal on NPP reactor construction SECTOR Power 57. China to build power plant in Russia 58. FGC UES to spend RUB48bn to improve St Pete power supplies 59. Government approves genco obligatory investment program 60. Kazan-based Grid Company to up investments 22% on year in 2010 61. Sub-station failures cut power to St Petersburg 62. Thermal energy, electricity tariffs for Belarusian companies up 20.9% Friday SECTOR Retail, FMCG, Phrama 63. Authorities accuse pharmaceuticals suppliers of being in collusion with Ministry for Health 64. Chinese computer, TV monitor maker TPV eyes plant in Russia 65. Consumer rights watchdog will not visit Moldovan wine enterprises 66. Ozon.ru revenue up 36% on year in January-June 67. Reduction in alcohol sales hours to lead to moonshine revival - Russian upper house chair 68. Russian baker lobby says bread prices won't rise in August - September 69. Seventh Continent resumes Danone dairy products sales after pricing row 70. U.S. guarantees safety of poultry exports to Russia SECTOR Telecom, Internet 71. AMCU sees Alfa controlling Astelit 72. Distribution of 4G frequencies delayed once again 73. LTE decision postponed 74. Mobile sector: Subscriber growth continues, but lacks importance 75. Telco Minister not ruling out possibility of new players in 4G SECTOR Transport 76. GAZ Group wins another tender to build Moscow's bus fleet 77. Global airlines continue their strong growth in July 78. Minister promises solution to one of Russia's 'two woes' 79. Putin urges ecologists not to politicize highway construction issue 80. Russian Railways BoD approves the creation of Freight Two
81. Russian Railways sells 10,000 open rail cars for RUB1.073bn SECTOR Agriculture 82. Consumer watchdog may ban U.S. poultry imports after salmonella outbreak 83. Grain harvest down 38% this year 84. Medvedev inks decree to subordinate forestry agency to govt 85. Ministry says no grain imports in 2010 86. Number of U.S. companies supplying poultry to Russia may be increased sanitary watchdog 87. Putin calls on promoting fishing industry 88. Rice, buckwheat prices double in Russian Far East 89. Russia lifts ban on poultry imports from 4 more U.S. plants 90. Russia plans to be poultry exporter from 2012 91. Russia to return to global grain market 92. Russia's grain harvest down 27.6% on year as of August 19 93. Russian grain lobby sees no shortages of buckwheat 94. State grain trader starts domestic supplies 95. Altai gas pipeline by 2018 SECTOR Automotive 96. Avtovaz breaks even in 7 months 97. AvtoVAZ to stop production of classic Lada cars in 2011 98. AvtoVAZ turned profitable in January-July 2010 99. Ford to launch restyled Mondeo production in Russia 100. Hyundai to produce special Russian car 101. IzhAvto to agree on resuming assembly of Kia, Hyundai vehicles soon 102. MAZ to assemble vehicles in Russia's Kursk 103. Mitsubishi Motors to start car assembly in Russia's Kaluga September 104. Nissan expects Russian sales to double to 100,000 cars in `10 FY 105. Putin praises Russian car on 2,000-km drive in Far East 106. Renault may buy rights to produce AvtoVAZ' new low-cost model 107. Russia's car output up 70% on year in January-July 108. Russia's car tire output up 39% on year in January-July 109. Share of ,,cash for clunkers" sales to fall September-November 2011 110. Sibur Russian Tires starts tire supplies to Avtoframos 111. Sollers CFO comments at auto show SECTOR Aviation and defence 112. Agency to auction gold license in Russia's Sakhalin Region October 28 113. Avianova plans to carry 1.2 million passengers in 2010 114. Changes proposed to Russia's military procurement system - paper 115. India to get Russian nuclear submarine on lease in fall 116. Kremlin denies plans to halt missile sales to Syria 117. No decision made on Russian S-300 deliveries to Iran - defense minister 118. NPO Saturn starts mass deliveries of engines for the SSJ-100 119. Putin stresses importance of new Far East space center 120. Russia plans to spend up to an extra USD 25bn annually from 2013 on modernising the army 121. Russia to hold competition to choose new Navy corvette - paper 122. Russian airlines fly 30% more passengers in 7 months 123. UTair European unit to acquire six helicopters SECTOR Media 124. RBC: Business Audience Rapidly Expands In July SECTOR Coal 125. Raspadskaya CEO elucidates on mine restoration SECTOR Chemicals, Fertliser
126. Court supports Federal Anti-Monopoly Service decision on fines for Uralkali and Silvinit 127. Uralkali: Arbitration court rules in favor of company GOVT REFORMS, REGULATIONS, ECONOMICS, REGIONS 128. Customs Union interior ministers to discuss steps against illegal trafficking 129. Economy Ministry working on bill on public-private partnership 130. Retailers complain to government about wholesale food price hikes 131. Telecoms Ministry plans to boost LD hot choice UKRAINE INVESTMENT 132. Alchevsk Steel to raise output sharply in Aug-Sept 133. Astarta's early crops harvest declines 28% yoy to 160 ths mt 134. Bogdan Corporation plans to raise production 2.5 times by 2015 135. Belarus' MAZ to assemble vehicles in Russia's Kursk 136. Bogdan Motors certified its trolleybuses in the EU 137. Cabinet approves 94 types of economic activities that require permits 138. Centrenergo obtains electricity distribution license 139. Domestic oil price at $60.8/bbl, 15% below Urals 140. Donetsk authorities increase expenditure on Euro 2012 141. Donetskstal to boost coal extraction in Russia 142. Harvest update: Weather matters 143. Kyivenergo needs state support for modernization before holding of Euro 2012 144. Large solar power plant key in bid for energy independence 145. Luhanskteplovoz's parent plans 150 locomotive orders in 2011 146. MMK Illicha sees September output flat m-o- m 147. Modernization of Kyivenergo for Euro 2012 to fail if land for new objects allocated after September 148. Naftohaz Ukrainy seeks projected volumes of natural gas consumption in 2011 149. Pivnichniy GOK expects stable September output 150. State moves to pay down GenCo debts 151. National investment project priorities set 152. Ukraine harvests 29.2 m tonnes of grain as of August 26, 2010 153. Ukraine harvests 29.2 Mt of grain as of Aug. 26 - down 21% 154. Ukraine names 10 national projects 155. Ukraine to raise annual coal production to 90 mln tons by 2015 156. Yanukovych pushed for educational reform 157. KAZAKH INVESTMENT 158. Kazakhstan might expand grain export market 159. Kazakhstan protecting its interest in Karachaganak talks - Mynbayev 160. Kazakhstan to boost power production 161. Kazakhstan to build new crop-duster aircraft CENTRAL ASIA INVESTMENT 162. Gazprom's Uzbek find 163. GM Uzbekistan to start exporting Chevrolet Sparks to Russia in 2011 164. Turkmenistan: ExxonMobil to open office 165. Uzbekistan: GM Uzbekistan launches Chevrolet Spark production BELARUS INVESTMENT 166. Belarus adds 5 projects totaling BR64.3bn to list of key invest project 167. Belarus adopts list of energy facilities to be built using Chinese loans 168. Belarus agrees to create JV to sell power from future nuclear plant 169. Belarus may abolish Beltelecom's monopoly over connection to foreign networks 170. Belarus may allow entrepreneurs to hire workers other than family members 171. Belarus plans spending on nuclear plant at $9.334bn in 2011-2020
172. Belarus plans to build LNG terminals in Lithuania or Poland 173. Belarus plans to create wholesale electricity market by 2015 174. Belarus will use special agency to use foreign loans for investment projects in 2011 175. Belarus' retail sales up 15.1% on yearr in January-July to BR36.964 trillion EURASIA INVESTMENT 176. Azerbaijan invested $ 29.8 mln in economy of Georgia, 2009 177. Azerbaijan: ADB decreases investment in Azerbaijan 178. Azerbaijan: Top tens investors in Azerbaijan determined 179. Azerbaijan: WB’s investment in Azerbaijan rises by 20% 180. Azerbaijan: “India intends to invest in Azerbaijan’s oil and gas sector” - Indian FM 181. Azerbajan: Indian industrialists intend to expand collaboration with Azerbaijan 182. Georgia pours green into Black Sea tourist spot 183. Georgia: Rompetrol modernises Tbilisi storage depot SOUTHEAST INVESTMENT 184. After Iran-Turkey pipeline explosion, Gazprom increases gas transfers 185. Albania reaches 629 in energy investments this year 186. Bulgaria begins international promotion campaign 187. Starbucks postpones opening in Croatia 188. Croatia - Starbucks indefinitely postponed Croatian entry 189. Problems in Kosovo a ticking bomb 190. Romania - The new stage in Bucharest malls' life: one in five stores, vacant 191. Romania may produce 74% more cars in 2014 than last year 192. Romania Profitable wind power investments at the seaside 193. Romania restore power of EU mandated anti-corruption agency 194. Romania Valvis to launch mineral water brand 195. Germany to tell Serbia to move on over Kosovo 196. Blic says Serbia willing to work on resolution with EU 197. Slovakia against recognition of Kosovo 198. Foreign Trade Minister says Turkey to exceed year-end Target 199. Gazprom interested in Turkish gas distributor 200. Turkey attention focuses on Istanbul's gas distributor sale 201. Vietnam targets $1 billion in trade with Turkey in 2011 CENTRAL EUROPE INVESTMENT 202. Audi said to mull bringing complete car production to Gyor in Hungary 203. CEZ said to plans to cut investments by up to EUR 4bn over next five years 204. Lithuania investigation started regarding money laundering in Naftos Grupe 205. Slovakia government says IBM mulls further investment 206. Value of investments via CzechInvest down at CZK 7bn in H1 TOP STORY INVESTMENT 1. Russia's agribusiness drought loss to hit 33 bln rbls says Russian Agriculture Ministry RIA Novosti August 23, 2010 Losses sustained by Russia's agribusiness this summer as a result of the worst drought in decades are estimated at 32.7 billion rubles ($1.07 billion), Deputy Agriculture Minister Alexander Petrikov said on Monday.
"The year 2010 is the most difficult year in the history of our agriculture. The drought hit 35 regions, which sustained losses of about 32.7 billion roubles," Petrikov said. Analysts polled by RIA Novosti earlier in the day said the overall economic cost of the drought might amount to $7-15 billion, with the worst damage sustained by the country's agribusiness. Central Russia, the Volga region and southern Urals were hit hardest. The abnormal heat has destroyed grain crops on an area of almost 11 million hectares or 26 percent of cultivated land, Petrikov said. "As of August 19, agricultural enterprises threshed 40.3 million tons of grain, which is 15.4 million tons less than last year," Petrikov said, adding that grain had been threshed on less than half of the sown area. The ministry expects the grain harvest to reach from 60-67 million compared with 97 million tons harvested in 2009. With domestic consumption of 77 million tons, carryover stocks of about 23 million tons and another 9.5 million tons in the country's intervention fund, Russia's predicted grain harvest in 2010 will suffice to meet the country's needs, Petrikov said. 2. Chinese, Russian companies ink deals worth $800mn bne August 21, 2010 Russian Economic Development Minister Elvira Nabiullina has said that Chinese and Russian companies on Friday signed deals worth about $800mn, reports Prime-Tass. The news agency says that Nabiullina was speaking after meeting of a RussianChinese intergovernmental commission.
3. COMMENT: Wirefire's impact on harvest uncertain Dimitri Kryukov, CIO Verno Investment Management August 23, 2010 The summer 2010 heat wave in Central Russia was caused by a huge weather system that ranged approximately from Rostov-on-Don to Saint Petersburg, cities 1,500 kilometers apart from each other. This high pressure system pumped in air from the south-east, blocking the more normal cooling weather patterns from the west. The extreme heat lasted for nearly two months, leading to a series of record high temperatures, at times reaching above 40C (104F). The summer was deemed to be the hottest in the entire history of observations. This was accompanied by severe droughts, causing wild-fires in forests and abandoned dry peat bogs, which produced heavy smoke that at times obscured Mos-cow. It appears that the situation is now under control. Notwithstanding the dramatic images and human toll, the long-term economic im-pact of the drought is not clear. As temperatures subside, the key questions that still remain are the degree of damage caused by the drought and whether increases in the price of grain and re-
lated products are speculative and short term in nature or justified in the longer term. At this time, slightly more than 20% of grain-sown land is known to have been damaged. While food producers are reportedly complaining about a dramatic increase in the cost of grain, state officials claim that such price action is totally unreasonable since there is no shortage. The Federal Anti-Monopoly Service (FAS) has initiated several investigations into pricing levels. Our analysis is as follows. Estimates of the opening reserve balance for the 2010 harvest year (which started July 1st) range from 17 to 24 million tonnes of grain - approximately half of which (9.5 million tonnes) is owned by the State Grain Interventions Fund. To date, 54% of the total crop has been harvested, resulting in 40.1 million tonnes of grain collected. This is a yield of 2.1 tonnes per hectare, a nearly 25% decline y-o-y. The 2010 forecast has been drifting downwards week after week, but now appears to have settled at 60-65 million tonnes of grain (70 million tonnes is the optimistic scenario) com-pared to 97 million tonnes harvested last year. To cope with po-tential shortages, Prime Minister Putin imposed a grain exports ban effective from August 15th until the end of the year. Exports prior to enforcement of the ban were 3-4 million tonnes. Conse-quently, the 2010 domestic grain supply (opening balance + crop - exports) will be somewhere in the range of 73-91 million tonnes of grain - an extremely wide band. The final figures will not be available until the fall. Internal grain consumption was 76 million tonnes in 2009, includ-ing 41 million tonnes of wheat. 2010 grain consumption is ex-pected to be 73 million tonnes, including 45 million tonnes of wheat. Under the conservative scenario, the domestic supply/demand grain balance, imports aside, is very tight, making the food producers nervous. However, grain market participants be-lieve that there will likely be a surplus of roughly 5 million tonnes of grain. The potential shortages are creating additional chal-lenges as, for example, the purchasing price for raw milk has reportedly risen to 14 RUB/litre from the previous level of 11 RUB/litre, a 27% increase, on stockbreeder speculation that a shortage of fodder grains will negatively impact livestock. In our view, a wheat price of 5,000-7,000 RUB/tonne (165-230 $/tonne) appears to be justified given that the unit cost of the mar-ginal supplier has increased dramatically due to crop damage. If it turns out, however, that the marginal supplier has only experi-enced minor losses, high-cost suppliers will be eliminated from the market and the surge in the wheat price will prove to be specula-tive and unjustified. The Institute for Agricultural Market Condi-tions (IKAR) price estimate for the 2010 wheat crop is 5,500-6,500 RUB/tonne (180-215 $/tonne). As a basis for comparison, last year's price of approximately 4,000 RUB/tonne (120 $/tonne), was pushed down to 3,500 RUB/tonne in spring of 2010 based on high crop expectations. When the export ban was announced, wheat prices stood at 6,500-7,000 RUB/tonne (215-230 $/tonne). Additionally, the agricultural producers' debt burden, lack of funds to finance sowing, and expected decline of yields on land that was damaged by drought and fires can also affect prices. In many areas the soil is in poor condition and producers will not have enough time to sow winter wheat, which yields 1.5 times more than summer wheat. This could result in an approximate 20% decline in the countrywide grain yield in 2011 making it unlikely that the 2011 harvest will materially exceed that of 2010. To miti-gate this, the government has approved a RUB 35 billion support package consisting of RUB 25 billion of 3-year loans and RUB 10 billion of subsidies. Banks, primarily Sberbank and Rosselkhoz-bank, will have to extend RUB 127 billion
of agriculture loans - approximately 14% of total agricultural loans, which in turn make up 5.2% of Russia's total bank loans. Another question that arises is whether imports will ease the situa-tion and put a downward pressure on domestic prices. Neighbor-ing Kazakhstan is expecting a good 2010 harvest and could possi-bly deliver wheat priced at around 200 $/tonne, (6,000 RUB/ tonne). While Ukraine, like Russia, faced abnormal weather condi-tions that exclude the possibility of a good harvest, the FOB price in the port of Odessa is 265 $/tonne, or approximately 300 $/tonne or 9,000 RUB/tonne including transportation to Russia. On a separate note, the State Grain Interventions Fund will be released at some point. Rumors are that food-quality wheat prices are set to be 5,300-5,500 RUB/tonne (175-180 $/tonne) and 5,000 RUB/ tonne (165 $/tonne) for fodder wheat. This information, however, is as yet unconfirmed. In conclusion, we highlight the following. Firstly, the inflationary effect cannot be avoided, but its degree will only become clear after the harvest. VTB analysts have calculated that products sensitive to grain prices, such as bread, pasta, dairy products and meat, account for about 16% of the CPI basket. Meat products alone make up almost 10% of the CPI basket. Assuming that the price of grain is up 50% y-o-y and accounts for about 25% of the shelf price of affected products, we arrive at a potential blended price increase of 12.5%, and believe that the additional inflation-ary impact will be about 2 percentage points - to be distributed over 2010 and 2011. Secondly, there is likely to be an impact on GDP, which is so far assessed as a decrease of 0.5-1.0 percent-age points from 2010 growth. Thirdly, we expect agricultural and food producer stocks to enter a period of increased volatility due to the fact that some agricultural producers (such as Black Earth Farming) have experienced more pronounced damage than oth-ers (such as Razgulay). Companies have not yet disclosed exact figures, however, providing grounds for speculation. Food produc-ers also have uncertainty over input costs going forward. The only sector that could potentially benefit is the retail sector. Historically, retailers have been able to utilize higher inflation by exerting some influence on their suppliers and increasing their mark-ups.
4. Corporate profits off 5.2% bne August 24, 2010 The State Statistics Service says that Russian companies' consolidated profits declined 5.2 percent in the second quarter from the year-earlier period to RUB1.26 trillion ($41.1bn), reports The Moscow Times. Citing the service, the newspaper report says that in the first half, consolidated profits increased 63.2 percent from the same period in 2009 to RUB2.7 trillion.
5. EU presidency says European enlargement train should not stop bne August 27, 2010 Belgium said on Thursday it wants to make sure that during the six months it holds the European Union presidency, the train of enlargement will move forward for all candidate countries, Xinhua reported. "The idea, of course, is that the European train should not stop, that we should be able to give a clear message in favor of change in the good direction for each and every of these candidate countries," said Steven Vanackere, Belgium Foreign Minister, after talks in Nicosia on the priorities of the European Union presidency with his Cypriot counterpart Marcos Kyprianou. He said moving forward in the enlargement process applies to all candidate countries, including Turkey. "We want to make sure that all the candidate countries continue to hear in the EU not a message of enlargement fatigue .. but instead a full conviction that every country that is willing to do the effort .. to go the road .. to get closer to the acquis communautaire, has a place in the European Union," he said. "Croatia is almost at the end station, we have just started with Iceland .. and I am also talking about Turkey and I make no exception," he noted. "We (the Belgian presidency) insist on the fact that each candidate country has, in a large part, its future in its own hands by establishing progress within itself," Vanackere underlined, adding "we want to encourage each candidate country to continue in the process." The European Union has laid down provisions that Turkey must help solve the Cyprus problem and extend recognition to Cyprus, where it sent troops in 1974 in response to a coup by Greek army officers. Vanackere said each country is in a specific situation but no country will be treated more severely or with some kind of preference. He sidestepped a question whether Turkey can join the European Union while the Cyprus problem remains unresolved by saying that problems are not solved with a bang but by a step-by-step approach. The Belgian Foreign Minister said his talks with his Cypriot counterpart included progress in the Cyprus peace talks and proposals put forward by Cypriot President Demetris Christofias aimed at speeding up the negotiating process. "It is an element which should be taken into account, very interesting and clear sign that the willingness to go forward is still present," he said in reference to the proposals. They include linking the thorny properties issue with related topics, like territorial adjustments of areas to be controlled by each community and repatriation of
mainland Turkish settlers, handing the fenced empty city of Famagusta to the United Nations and convening an international conference to discuss security and guarantees arrangements. 6. Gazprom promises cheap gas for Ukraine after JV with Naftogaz RIA Novosti August 28, 2010 A joint venture of Russian energy giant Gazprom and Ukrainian state oil and gas company Naftogaz will enable Ukrainians to buy Russian gas at the price of about $60 per 1,000 cu m, Gazprom CEO said. Gas prices for Ukrainian consumers now vary from 725.4 hryvnas ($91.9) per 1,000 cu m to 2,954.1 hryvnas ($374.5) per 1,000 cu m. "Gazprom's point of view is that we could set up a joint venture of Gazprom and Naftogaz of Ukraine... In this case, the Ukrainian population could buy gas at the price for Russian consumers. Gas prices in Russia are fixed by the state and now stand at 1,880 rubles per 1,000 cu m. It is slightly more than $60 per 1,000 cu m," Alexei Miller told the Vesti TV channel. The Ukrainian government had to introduce a 50% increase in gas prices for individuals and heating enterprises from August 1, and plans a further 50% increase from August 1, 2011. The price hike was one of the conditions under which the country could receive a $15.15-billion loan from the International Monetary Fund. While Gazprom CEO Alexei Miller said the companies should push for a joint venture, Russian Prime Minister Vladimir Putin proposed a merger, something that the Ukrainian opposition fears would put the country's sovereignty at risk. A Ukrainian delegation headed by Ukrainian energy minister Yury Boiko, arrived in Moscow on Friday for talks with Gazprom management on gas issues. "We are now conducting an intensive dialog to boost our cooperation, and various options are being considered. The key requirement is to find a solution to benefit the two companies and consumers of the two states," Boiko said. In April, Russian President Dmitry Medvedev and his Ukrainian counterpart Viktor Yanukovych agreed during their meeting in Kharkov in east Ukraine that Russia would grant Ukraine a 30% discount on the gas price of $330 per 1,000 cu m over the next ten years. Ukrainian Prime Minister Mykola Azarov said earlier in the week that Ukraine is seeking to revamp the current gas contract it has with Russia as it is "enslaving" and could possibly lead the country into an economic collapse. 7. Guta invests in Africa bne August 24, 2010 Guta Group, a Russian company with holdings including confectionaries, will spend 65.5bn CFA francs ($126.6mn) to build a cocoa-processing factory in Ivory Coast, reports The Moscow Times.
The newspaper report says that the company is also planning to establish a cocoa plantation.
8. Increasing share of Russia's imports coming from China Bank of Finland August 27, 2010 Russian customs reports that in the first half of 2010, the value of total imports hit $95 billion, an increase of 32 % y-o-y for the period. Imports from CIS countries climbed 56 %, while imports from EU countries were up 19 %. The high growth rates represent a recovery after a sharp dip caused by the recent economic downturn. Russia's largest source of imports was China with a 17 % share, followed by Germany (11 %), Ukraine (6 %), Belarus (5 %) and the United States (5 %). Finland ac-counted for just under 2 % of Russian imports. CIS coun-tries together accounted for 15 % of Russia's imports, while the EU provided a 40 % share. Russian imports from China increased in the first half of 2010 by 71 % y-o-y. The economic development minis-try of Russia reports that 75 % of imports from China consisted of machinery & equipment and transport vehi-cles, 8 % chemical products and 4 % foodstuffs. During the 2000-2008 period, the value of Russia's imports from China grew at an average rate of 52 % a year. In the same period, Russian imports overall increased at an average pace of 28 % a year. During last year's eco-nomic downturn, Russian imports from China contracted 34 %, while Russian imports overall shrank 37 %. Russia saw substantial increases in imports also from some other countries in the first half of 2010, including traditional raw-material exporting CIS countries such as Turkmenistan (170 %), Uzbekistan (121 %) and Kazakh-stan (81 %). Russian exports in the first half reached $189 billion. The EU remained Russia's prime export destination with a 55 % share. The share of the CIS was 14 %. Russia's top export destination in the EU was the Netherlands (14 % of total exports), home to the Port of Rotterdam, a major location for oil refineries and oil transhipment. Italy ac-counted for 7 % of Russian exports and Germany 5 %. China had a 5 % share.
9. Long-term effects of the heat wave RIA Novosti August 23, 2010
10. Pace of economic recovery varies across Russian regions Bofit August 23, 2010 Industrial output growth varied widely across re-gions in the first half of the year. While Russian industrial output (including mineral extraction, manufacturing and supply of electricity, gas, heat and water) was up 10 % y-o-y in the first half the highest growth (35-40 %) was registered in the industrial oblasts of Kaluga, Kaliningrad and Ulyanovsk. In those regions, manufacturing increased 40-50 %, spurred partly by strong growth in the car manu-facturing. Industrial output growth exceeded 20 % in several in-dustrial towns around Moscow and to the east in the Volga Federal District (e.g. Bryansk, Orlov and Perm oblasts). In Russia's Northwest Federal District industrial output increased at about the national average. Above-average growth was registered in the Republic of Karelia (16 %), while growth reached 9 % in the Leningrad oblast, 8 % in the city of St. Petersburg and 5 % in the Murmansk oblast.
Russia's most important energy-producing areas are situated in Western Siberia in the Khanty-Mansi autono-mous okrug, the Yamalo-Nenets autonomous okrug, and the Sakhalin oblast in the Far East Federal District. In these regions, mineral extracting industries (including oil drilling) account for 50-65 % of GDP. Industrial output growth turned positive in all these regions in the first half of 2010. Growth was highest in the Sakhalin oblast due to increased crude oil output. Industrial output in Khanty- Mansi was modest as oil production levels flattened. Khanty-Mansi oil production accounted for over half of Russia's total oil production in 1Q10. Industrial output fell further in seven of Russia's 83 administrative regions. Production declined e.g. in the politically unstable Caucasian regions of Chechnya, Dagestan and Ingushetia, as well as in the economically backward Altai and Khakasia republics in Siberia. The contraction of industrial output continued also in Moscow. Most GDP generated in the Moscow city derives from services. Retail sales increased 5 % y-o-y in 1H10, somewhat above the national average.
11. Power blackout paralyzes St. Petersburg RIA Novosti August 23, 2010 An electricity blackout caused by a failure at two substations near St. Petersburg affected most regions of Russia's second largest city, a spokesman for a local power grid said on Friday. The blackout, which lasted for more than an hour, brought buses and subway and commuter trains to a standstill during rush hour. Some 30 commuter and long-distance trains were delayed, while many passengers on St. Petersburg's subway - the world's deepest - had to walk along the tunnels and up the escalators to get out.
Traffic lights were off on Nevsky Prospekt, the city's central avenue, causing traffic jams. Almost half of the city, which has a population of 4.5 million, was left without water supplies. Power supplies have been restored in all parts of the city, a spokesman for the power grid said, adding that preliminary causes of the outage will be known tonight or tomorrow morning. However, the Emergencies Ministry said the city's historic center is still suffering from power cuts. Local bloggers complained of failures of mobile and Internet communications comparing the situation with the 900-day siege during World War II. This is the largest blackout in Russia since one in May 2005 that affected the Moscow Region. That power outage left more than 150 hospitals without electricity and caused major disruptions to commuter traffic. About 4 million people were affected. 12. Rice and buckwheat prices double in Russian Far East RIA Novosti August 24, 2010 Prices of rice and buckwheat in the Russian Far East city of Vladivostok have increased almost twofold in a week as a result of drought in western Russia and flooding in southern China. The average retail price of the two grains has reached 60 rubles ($2) a kilogram against 35 rubles ($1.1) one week ago. The abnormal heat and drought in Russia this year has destroyed a quarter of the country's crops, forcing the government to ban grain exports and the Agriculture Ministry to cut its grain forecast to 60 million tons from 97 million tons last year. The state statistics service registered an acceleration of weekly consumer price growth to 0.2 percent between August 3 and 9 for the first time in the last few months as grain, flour and cereals prices increased. Previously, weekly inflation rates did not exceed 0.1 percent. The government has repeatedly said there are no grounds for bread prices to rise. President Dmitry Medvedev has ordered the government and the prosecutor's office to monitor prices on the agriculture market and foil those trying to cash in on the situation. 13. Rosneft and Rostekhnologii discuss major projects with UAE RIA Novosti August 23, 2010 Middle East oil and gas company Crescent Petroleum discussed in Moscow on Saturday two major projects with state-owned Russian oil company Rosneft and Russian state cooperation Rostekhnologii, the deputy prime minister said on Saturday.
Crescent Petroleum and Rostekhnologii agreed to implement transportation projects on Russian territory. "Today, a preliminary agreement of the investment fund statutory documents was made. It includes Rostekhnologii and the shareholders of Crescent Petroleum, with a total of $500 million. The Fund will implement transportation and logistics projects in Russia," Igor Sechin said. The final agreement will be signed in September at a forthcoming business forum in Sochi, he said. The Middle East company discussed with Rosneft the joint development of a gas field in United Arab Emirate Sharjah with expected investment of $630 million. Gas reserves in the deposit account for around 70 billion cubic meters and 16 million tons of condensate, said Sechin, who is also chairman of the Rosneft board of directors. Gas extraction for the project, which is the first joint venture between the two companies, is expected to start in 2013. Rosneft will have a 49 percent share, Sechin said. Gas production is expected to begin in 2013, he added. Russian Prime Minister Vladimir Putin discussed potential cooperation projects in Iraq and the Middle East on Saturday with Chairman of the Board of Directors at Crescent Petroleum Hamid Jafar and former Iraqi Prime Minister and a member of the country's parliament Ayad Allawi. The three also discussed the supply of equipment, cooperation in gas sphere, and the development of new deposits. During discussion it was noted that bilateral projects could help to bring stability to Iraq and the rest of the Middle East, Sechin said. Crescent Petroleum is the oldest private oil and gas company in the Middle East. It has held operations in Egypt, Pakistan, Yemen, Canada, Tunisia, Argentina, Iraq and the United Arab Emirates for more than 40 years. The company's headquarters are located in the emirate of Sharjah. 14. Rostekhnologii and Cresent Petroleum set up $500m fund for infrastructure bne August 23, 2010 State holding Rostekhnologii is to set up a fund alongside UAE oil and gas company Crescent Petroleum to build transport infrastructure projects in Russia, a Russian deputy prime minister said on Saturday, according to RIA Novosti. "Today, we arrived at preliminary agreement on the statutory documents of an investment fund. The fund will include Rostekhnologii and the shareholders of Crescent Petroleum, with a total of $500 million, and will implement transportation and logistics projects," Deputy-PM Igor Sechin told reporters.
A final agreement will be signed in September at a business forum in Sochi, Sechin added. The deal was also discussed at a meeting between Russian Prime Minister Vladimir Putin and former Iraqi Prime Minister Ayad Allawi, who is on the board at Crescent.
15. Russia received $30.384bn foreign investments in H1, 2010 bne August 24, 2010 In the first half of 2010, Russia received foreign investments to the amount of $30.384bn which is 5.5% less than their inflow in the same period of 2009, reports local media. Reports suggest that direct investments to the country for the period under review amounted to $5.426bn which is 11% less than in the first half of 2009
16. Russia to step up environmental control over Arctic shelf development RIA Novosti August 27, 2010 Russian authorities will increase environmental control while developing its Arctic continental shelf, Deputy Natural Resources Minister Sergei Donskoi said on Friday. The ministry has already prepared a draft aimed at protecting the marine environment from oil contamination, Donskoi said. The draft stipulates financial liabilities for companies to include insurance against risks and possible negative consequences of shelf exploration. In accordance with the draft, each Arctic mineral developer will have to draft a special plan outlining environment protection measures in case of possible oil spills or other negative ecological events. "The draft is currently being coordinated," the ministry said in a press release. "The disaster in the Gulf of Mexico once again highlighted nature's vulnerability from humans. In the extreme environment of the Arctic with its permanent glaciers, even smaller disasters could lead to serious problems," Donskoi was quoted as saying by the ministry's press service. The explosion in the BP-owned Deepwater Horizon oil rig on April 20 in the Gulf of Mexico triggered an environmental tragedy in the region. Estimates show that 4.1 to 4.9 million barrels of oil ended up in the waters of the Gulf of Mexico. The oil spill may reach other territories and environmentalists have said this may be echoed in the Arctic. Russia needs a total of 9.3 trillion rubles ($310 billion) to fully implement its program for the study and development of its continental shelf, Donskoi said in October 2009.
17. Russia won't import grain despite drought RIA Novosti August 23, 2010 Russia will not import grain this year despite drought wiping out a quarter of its crops, Russian Agriculture Ministry official Oleg Axyonov said on Friday. "Russia will not import grain. We have enough grain," Axyonov told RIA Novosti. Local newspapers have said Russia, the world's third largest grain exporter before it banned exports this month, could import five or more million tons of grain in 20102011. "This spoof was started by unscrupulous grain traders to raise the market temperature, and trigger a crazy demand for grain," Axyonov said. Wheat futures fell in Chicago on Friday, wiping out previous gains, on speculation that rains in Russia this week could help the planting of winter crops. Rain fell in dry areas in Russia's central wheat belt on Thursday and more is forecast for the next week, the national weather center said. Russia banned grain exports this week due to the effects of the drought. 18. State investment agency announces tender to select investment projects bne August 26, 2010 The state agency for investment and development has announced a tender to select investment, innovation and infrastructure projects that in 2010 will be issued state guarantees for their financing or support using funds from the national budget's stabilization fund, reports Interfax. Citing media reports, the news agency says that the projects can be submitted until December 15, 2010.
19. Ukraine wants a review of the base gas price in Russia-Ukrainian contracts Alfa Bank August 26, 2010 Ukraine has once again raised the topic of gas prices, indicating that it would like to review the base rate used in contracts with Russia, various media speculate today. We note that Ukraine already enjoys export-duty free supplies from Russia with a maximum discount of $100 per mcm; however, the base price embedded in the contract is $450 per mcm, which was the average price in 2008 and was initially used as the basis for the agreement. This means that all price fluctuations are made based on an extremely high base price, a factor that Ukraine was initially unhappy with and said on numerous occasions that it would try to revise. We therefore do not find it surprising that Ukraine is returning to the topic ahead of the heating season, particularly as prices in 4Q10 are expected to reach almost $390 per mcm (less $100 discount).
We believe it is likely that Gazprom may reduce the base price in the contract, as it is unreasonably high, in our view. It would also have a political aspect to it, as it would improve relations with Ukraine. We believe the news overall is NEUTRAL for Gazprom, although it may cost the monopoly approximately $2.7 bln per year in lost revenues. 20. Medvedev halts highway after shock appeal from Untied Russia bne August 26, 2010 After many months of protest, out of the blue the authorities moved to put an instant stop to a controversial road building project on Thursday. United Russia shocked many when it made an appeal to President Medvedev to halt the construction of the first leg of the Moscow - St Petersburg highway through Khimki Forest. Almost as stunning was that by early evening the president had signed a decree to suspend the project. The move has some theorizing that the authorities are increasingly concerned by protests over the issue, although other gossip suggests the roots may lie closer to self interest among party officials. The news is even more surprising given that it could disrupt Russia's nascent private-public-partnership (PPP) program, a pet project of Untied Russia head Prime Minister Vladimir Putin. "United Russia has turned to the President of Russia, D.A. Medvedev, with the request to halt the construction of the highway through the Khimki forest," the ruling party said in a statement on its website, although statements later in the afternoon from the party chairman appeared to try to soften its stance on the project, which has seen protest against it growing, the last incident being a large gathering at a concert on August 21 on Pushkin Square. "We have different opinions within United Russia about this question. But the situation does not look simple," chairman Boris Gryzlov said in a statement. "We think that it is necessary to carefully deal with the question and accordingly either change the route of the construction of the road or continue the work taking account of a deeper study of this question," he added. The motivation behind the request from the party and decree is unclear; some suggest that it represents concern on the part of the authorities over rising protest on the issue, particularly as the country's forests have become such headline news this month after so many of them burned. That said, protest, which appeared to be expanding in the spring, has been swiftly suppressed and continues to be so. Some note that the latest gathering on Pushkin Square - although the actual concert was stopped at the last minute - was given the go ahead by Moscow city authorities, who are noted for refusing permission for protests of practically any kind. There are suggestions that this surprising decision was courtesy of the antipathy of Moscow Mayor Yuri Luzhkov towards the governor of the Moscow Region Boris Gromov, in its turn provoked by a 'business' disagreement on the route of the road. Its hard not to ask if others may have been drafted in at this late stage to help, although Luzhkov is hardly popular in the Kremlin right now.
Yet the comments of activists, that have been facing vicious treatment at times in their long fight opposing the route through Khimki Forest, illustrate the mysterious timing of the intervention. Whilst conceding that the move is "better late than never," Ivan Blokov, head of Greenpeace Russia called it "incomprehensible how a party of such a size did not notice this problem earlier." Certainly it's an issue dear to Putin's heart, given that the first stage of the highway was one of the first PPP projects to be successfully agreed, under a program he has personally been pushing for years in a bid to update Russia's crumbling infrastructure. Earlier this year, the North-Western Concession Company consortium, led by French infrastructure giant Vinci, signed off on final documents to build the stretch of road. According to The Moscow Times, the JV is linked to Putin's friend Arkady Rotenberg. Russia is talking with investors on several other major roads that have been delayed for some time, after managing to force the bare minimum of supporting legislation for PPP through the State Duma earlier this year. Those potential investors will be alarmed that the ruling party has come out at this late stage to question a project that's been on the drawing board, and supported by the authorities, for so long. SECTOR Gas 21. A new gas bubble inflates over emerging Europe Derek Brower in London August 23, 2010 The economies and citizens of emerging Europe can rest easy. As autumn approaches, another winter gas war between Russia and Ukraine is not looming over the region. For the first time in years, the outlook for energy supplies looks stable. And new drilling in countries such as Poland could even end the domination of Russia over the region's energy supplies. Credit for much of this goes to the advent of new technology in the gas industry and the lingering hold of the recession, which has wiped billions of cubic metres (cm) from demand. It's a combination that has created a global glut of gas, led by the opening of unconventional reserves in the US and that country's effective disappearance from the liquefied natural gas (LNG) import market. The domino effect has spread across the Atlantic and into Europe, leaving an abundance of cheap LNG on the market, and demolishing notions that Russia's pipelines would forever dominate the energy supplies - and the politics - of the continent. Along with cargoes of LNG, new expertise is also flooding into the European energy market. Across Central and Eastern Europe (CEE), oil and gas firms have arrived to apply the same techniques that triggered the US shale-gas bonanza - horizontal drilling to tap wide subterranean gas reservoirs and hydraulic fracturing to bust open lowpermeability rocks - to exploit promising gas-rich deposits. Hungary, Austria and Bulgaria have already attracted prospectors, but the most promising country is Poland. In mid-August, the US oil services firm Halliburton carried out a hydraulic fracture on behalf of Poland's state company PGNiG at the Markowola-1 exploratory well, located near Kozienice in Lublin province. The results haven't been released, but the
involvement of PGNiG, long Gazprom's partner as an importer of Russian gas, is telling. Meanwhile, a host of smaller firms drilling Polish shale have been joined by heavyweights such as ConocoPhillips and Chevron, two of the largest gas producers in the US. Another shale-gas expert from North America, Canada's Talisman Energy, says its drilling programme in Poland, which begins next year, could bring production on stream by 2013. The reserves in its Gdansk W, Braniewo and Szczawno licences could amount to 1.5 trillion cubic feet, more even than the company holds in the Marcellus shale in the US northeast, now the world's second largest gasfield. Polish shale is expensive now, and analysts say major production is unlikely within a decade. But if drilling results arriving in coming months are positive, this will change quickly, as it did in the US. Most analysts say Poland's unconventional reserves could be around 3 trillion cm. Greg Pytel from Poland's Sobieski Institute reckons they could be far larger - at around 10 trillion cm, 10 times greater than the estimate in BP's statistical annual and sufficient to meet not only Polish domestic demand (13.7bn cm in 2009), but support an export industry too. He speculates that the endgame for ExxonMobil, Chevron, ConocoPhillips, Marathon and other large firms drilling shale in CEE isn't the domestic Polish market, but the European one. Polish gas, he believes, could eventually be exported to the lucrative markets of Western Europe. That's highly speculative, but that such ideas are now gaining currency shows just how much flux has been introduced into the European gas-supply picture, thanks to the shale gas revolution and the depression in demand. Above all, new infrastructure to import gas from Russia, such as the proposed second tranche of the Nord Stream pipeline through the Baltic Sea and the South Stream link into Central Europe, has become much less pressing. Foot off the gas European gas demand fell by around 6.4% in 2009, according to Eurogas, an industry body. But this masks far greater declines in CEE. There, consumption slumped, with Bulgaria (-21.8%), Estonia (-15.1%), Hungary (-13.7%) Lithuania (16%), Latvia (-9.9%), Romania (-14.8%), Slovakia (-10.5%) all recording huge drops, between them wiping some 6bn cm a year (cm/y) from demand. Forecasts for 2010 suggest that a recovery will be weak. IHS Global Insight, a consultancy, reckons that the rush to tie up new supplies in recent years now means that the EU is over-contracted for gas to the tune of 110bn cm this year (compared with demand of 413bn cm in 2009). In 2012, the figure will still be 70bn cm/y. And that doesn't include any assumptions about Poland or any other consumer developing its own domestic supplies. For Gazprom, the Russian gas export monopoly that just two years ago was forecasting a tripling of gas prices in Europe and its own ascent to become the world's first trillion-dollar company, this shift in the fundamentals has been disastrous. As demand slumped in Europe, so did the company's sales - and its market share, which came under threat from LNG and new supplies out of Norway. The company's aggressive stance also disappeared: as spot-gas prices have fallen sharply in the past year, Gazprom's gas looked too pricey for its customers, so it reformulated them, injecting elements of the spot price to satisfy customers. At the same time, its boss Alexei Miller has warned buyers that such arrangements will still apply when the spot price rises. More bullish than most analysts, it also expects
strong growth in its sales to Europe, rising from 160.8bn cm/y in 2010 to 170.9bn cm/y in 2012. Nonetheless, its appetite for another reputation-damaging spat with Ukraine has also disappeared. The new relations between Naftogaz, the state Ukrainian firm, and Gazprom were consolidated in April, when the two countries agreed a deal to give Ukraine a 30% discount on the gas it imports in exchange for a 25-year extension to Russia's lease of the Black Sea naval base in Sevastopol. The agreement confirmed two things - the intrinsic link between Russian energy policy and its diplomatic strategy in the "near abroad"; and that the gas war era is over. Pipe dreams Beyond the relief this offers to consumers in CEE, the Ukraine deal has even bigger strategic consequences for the region. The Ukraine transit problem was behind Gazprom's strategy to diversify its import routes into Europe - and the EU's desire to broaden its range of suppliers. Yet, points out Naftogaz, Ukraine's gas transit system has 80bn cm/y of spare capacity, more than the combined capacity that would be added by the EU-backed Nabucco pipeline (31bn cm/y) and the proposed second Nord Stream link (27.5bn cm/y). Add to that the European Commission directives to increase energy efficiencies and renewable energy, says Edward Christie, a Viennabased energy economist, and the need for pricey new pipelines becomes even less compelling. If these measures take hold, EU gas import needs in the next decade could be a third lower than previously forecast. Of the infrastructure most put at risk by this combination of a global gas glut, potential new domestic supplies, Ukraine's re-emergence as a viable transit state, and EU measures that could yet dampen long-term gas demand, Nabucco stands out. Nabucco's six shareholders, led by Austria's OMV, continue to talk up the pipeline's prospects, saying construction will start next year and first gas will flow in 2014. Yet the problem of finding adequate gas supplies in the upstream to justify the €7.9bn investment continues to undermine it. A new round of sanctions levied against Iran by the EU and US has exacerbated Nabucco's dilemma, because that country was to have been a supplier. Iraqi gas remains possible, and small volumes of Azerbaijani gas will also feed into the first phase of Nabucco. But the main hope for Nabucco has been to draw in exports from Central Asia. In July, Turkmenistan, that region's biggest potential exporter, opened its upstream for the first time to Western companies. Yet other forces now in play mean Turkmenistan's gas - even if US firms help develop it - will flow either to China or to Russia. Indeed, for all Gazprom's troubles in the past two years, it has secured a new strategic hold over Central Asian gas exports, on which it depends for onward supplies to Ukraine and Europe. Its decision last year to revamp the pricing structure for gas it buys in Central Asia (abolishing the cost-plus system and installing a netback regime) has wiped out the competitive price advantage that European importers could have offered to Turkmenistan. Gazprom must now pay more for Turkmenistan's gas, but in doing so it has dissuaded Turkmenistan from pursuing more complex export arrangements, such as building a trans-Caspian pipeline to link up with Nabucco in Turkey.
That leaves Nord Stream's second phase and South Stream. Gazprom's decision to postpone development of its giant Shtokman field in the Barents Sea may yet affect Nord Stream's progress with the second half of its project (the first line is already being built). That field was to have supplied phased two. The consortium building it are adamant that the line will go ahead. Meanwhile, despite South Stream's estimated €24bn price tag, it has garnered support from countries in CEE aware that 63bn cm/y of new supplies would bring them yet more abundance. And, suggests Jonathan Stern, a Gazprom expert at the Oxford Institute for Energy Studies, South Stream was no bluff by Russia to bring Ukraine into line. "Russia's game is chess, not poker." The project will still proceed, he says, even if Gazprom has scaled back its forecast for exports to the West. That leaves CEE's gas supply outlook in a far healthier state than anyone expected during the height of the EU's rhetorical wars with Gazprom. Some countries, such as Bulgaria, will still depend on Russia for all of their gas imports (unless domestic production takes off there, too). But the dash for gas is now over. Eurogas says that while demand will recover in the coming years, growth could be 20% lower than expected before. A new era of abundant cheap gas supplies has arrived in CEE. 22. Altai gas pipeline by 2018 bne August 27, 2010 The Energy Ministry plans for a gas pipeline to be built to China through the Altai republic by 2015 to 2018, possibly faster than the South Stream link to Europe, reports The Moscow Times. Citing media reports, the newspaper report says that the ministry will submit its draft, which is based on data provided by state gas exporter Gazprom, to the government by the end of August.
23. Construction of gas pipeline to China included into Russian Gas Industry Development Plan VTB Capital August 24, 2010 News: According to Vedomosti, the Gas Industry Development Project through 2030 envisages launching the Altai gas pipeline in 2015-18. Altai is the new pipeline transmission system to transport natural gas to China from the Unified Gas Supply System via two routes: the Western route (from Russia's conventional gas fields in West Siberia) and the Eastern route (from the Sakhalin fields). The gas trunkline will stretch about 2,800km with a capacity of around 30bcm on the Western route and 38bcm on the Eastern. Vedomosti writes that back in 2006, the estimated cost of constructing the Altai pipeline was USD 12bn. Our View: Gazprom is still negotiating with China over gas supplies, with the main topic being price. We believe that Gazprom will only start the Altai project once a contract has been signed, which might happen in the next two years.
At the moment, we do not include the construction of the Altai pipeline and supplies to China in our model, as there are too many uncertainties about the contract prices, cost of construction and timing. Lev Snykov 24. Court orders Trans Nafta unit to repay RUB640.5mn to Volga Gas bne August 23, 2010 The Moscow Arbitration Court ruled on Monday that Gazneftedobycha, a unit of Russian natural gas trader Trans Nafta, must repay RUB640.5mn to Gasnefteservice, a unit of U.K.-registered Volga Gas, in connection with an agreement to build a gas refining facility in the Volgograd Region, reports Prime-Tass. The news agency says that the court partially upheld the lawsuit filed by Gasnefteservice, which sought a repayment of RUB708.2mn, including RUB600mn of principal debt and interest.
25. Gazprom doubles Blue Stream gas supply to Turkey bne August 26, 2010 Gazprom has doubled gas deliveries to Turkey through the Blue Stream pipeline, reports Interfax. The news agency quoted an unnamed Gazprom source as saying that an explosion in the pipeline supplying Iranian gas to Turkey had forced Botas to ask Gazprom to increase gas deliveries through Blue Stream until the end of repairs.
26. Gazprom may sue Lithuania over natural gas reform bne August 26, 2010 Russian natural gas giant Gazprom may file a lawsuit against the Lithuanian government with an international arbitration court over Lithuania's plans to reform its natural gas industry, says Sergei Kupriyanov, a Gazprom spokesman, reports Prime-Tass. The news agency quoted Kupriyanov as saying that Gazprom and German energy company E.ON Ruhrgas would soon publish an open letter on the issue.
27. Gazprom sees strong domestic gas demand this year VTB Capital August 24, 2010 News: During a meeting with President Dmitry Medvedev, Gazprom's CEO Alexei Miller said that due to the abnormal heat, domestic natural gas consumption increased 5% in July-August 2010. At the same time, he indicated that the key
factor behind the sharp rise in domestic gas consumption was not the abnormally high temperatures, but economic growth. He added that Gazprom was now supplying 14bcm more of gas to the domestic market than in the same period last year. Miller noted that the increase has been registered in the power industry, metallurgical, petrochemical, and cement industries. Our View: We expect Gazprom's domestic sales volumes to increase 29bcm, or 11% YoY, in 2010. This is in line with Miller's statements. We believe domestic tariff growth and a recovery in demand will be the key contributors to the overall revenue increase within Gazprom's gas segment, while European prices and volume growth are likely to be marginal additions this year (given the currently weak demand/pricing growth outlook for 2010). 28. Gazprom unit to build LNG facilities in Kaliningrad Region bne August 24, 2010 Gaz-Oil, a subsidiary of Russian gas giant Gazprom, plans to soon start building facilities to produce liquefied natural gas (LNG) in the Kaliningrad Region, reports Prime-Tass. Citing Gaz-Oil, the news agency says that the first facility is expected to have a capacity of about 22,000 tonnes of LNG per year.
29. Nabucco gas pipe consortium delays plans to include Iran in project Ria Novosti August 24, 2010 A consortium of companies building the Nabucco gas pipeline designed to pump natural gas from the Caspian region to Europe bypassing Russia has delayed its plans to include Iran in the project, the consortium said on Monday. The consortium decided to continue the construction of two pipeline sections from Georgia and Iraq to Turkey and concurrently suspended a plan to build a pipe section from Iran, the consortium said in a statement. Christian Dolezal, a spokesman for the consortium, said Nabucco no longer planned to construct a pipeline section from Iran as the consortium was acting in accordance with international laws and rules, adding that the consortium could not comment on its further possible actions. According to the Dow Jones agency, the consortium's decision may be connected with UN sanctions imposed on Iran, which western nations suspect of developing nuclear weapons. Iran insists its nuclear program is intended for peaceful purposes only. The Nabucco project, which is designed to pump gas from the Caspian region to European countries via Azerbaijan, Georgia, Turkey, Bulgaria, Hungary, Romania and Austria is a key element of western strategy to cut Europe's dependence on Russia's energy supplies.
The 7.9 billion euro pipeline is expected to have an annual capacity of 31 billion cubic meters of gas, which will not exceed five percent of Europe's gas consumption in 2020. MOSCOW, Aug 23 (RIA Novosti) 30. Novatek may buy out Yamal project bne August 26, 2010 Novatek may buy out its partners in a project on the Arctic Yamal Peninsula to liquefy the fuel for export by tanker as it seeks investors with the necessary technology, reports The Moscow Times. The newspaper report quoted chief executive officer Leonid Mikhelson as saying that Russia's second-largest natural gas producer, which last year bought 51 percent of the Yamal LNG project, plans to use its option to buy 24 percent more and does not exclude acquiring the rest.
31. Official sees South Stream gas pipeline running across Albania bne August 26, 2010 The yet-to-be-built South Stream gas pipeline, a joint project between Russia's Gazprom and Italy's Eni, is expected to run across the territory of Albania, reports Prime-Tass. The news agency says that the pipeline's section between Greece and Italy is expected to run through the Albanian port town of Vlore.
32. Russia may build Chinese pipeline before South Stream - paper RIA Novosti August 24, 2010 Russian energy giant Gazprom may build a gas pipeline from Russia to China before it implements the South Stream project, planned for gas transportation across the Black Sea, a business daily said on Tuesday. The Altai pipeline is expected to be launched between 2015 and 2018, while the launch of South Stream is not planned until 2015-2024, Vedomosti said, citing the latest draft of a gas sector development plan through 2030. The Russian Energy Ministry, which penned the draft, will submit it to the government by the end of August, Vedomosti quoted a ministry official as saying. Gazprom refused to comment. But with China already investing heavily in the two biggest energy suppliers in Central Asia, Turkmenistan and Kazakhstan, the Altai pipeline will be a white
elephant, experts say - costly, fraught with environmental risks and ultimately useless. Russia agreed to build a gas pipeline to China as far back as 2002, but has haggled with Beijing over the gas price ever since. And the odds are that this will go on for quite some time, experts say. Russia wants to sell at European prices, something China is not going to consent to, as it is already getting cheap Central Asian gas. Gazprom's South Stream pipeline will run under the Black Sea through Turkish waters to Bulgaria, Serbia, Greece, Hungary, Slovenia, Croatia and Austria. 33. St Pete to invest RUB2bn in gas distribution system bne August 26, 2010 The government of Russia's St. Petersburg plans to invest RUB1.8bn in the reconstruction of the city's gas distribution system in 2011-2015, reports PrimeTass. Citing the government's press service, the news agency says that under the project, the government plans to launch over 105 kilometers of gas pipelines with varying degrees of pressure, among other projects.
34. SurgutNG's production continues to fall Alfa Bank August 26, 2010 For the first time in the past seven years, Surgutneftegas has disclosed its operational performance on a field-by-field basis, today's Vedomosti reports. The company's major Fedorovskoye field, which accounts for as much as 15% of SurgutNG's total crude oil output, has been in production since the early 1970s and at its peak it was yielding some 36 mln tons per annum, while in 2009 it produced only 8.9 mln tons. The Morning Brief 5 August 26, 2010 In addition, the current inflation rate is not yet reflecting the increase in meat prices, which are currently almost flat, but only due to the ongoing slaughter of livestock in parched areas and the resulting excess supply. With the ensuing reduction in supply, meat prices - the largest single food contributor to inflation with a weight of 10% - will tend to grow, leading to faster and less containable price growth towards the year-end. This may put our September and annual inflation target currently set at 0.2% and 7.5%, respectively, at risk. This news does not come as a major surprise to the market, in our view. Everyone is aware that the West Siberian resource base is fairly depleted and the main part of its fields is currently at the declining stage; posting an average annual decline rate of 35%. In this sense, SurgutNG is not an exception. In 2009, the company's crude output declined 3.1% y-o-y, the third consecutive year of production declines. While SugutNG does have several greenfield projects in the East Siberia region (namely the Talakan field), West Siberia remains its main producing area and the company faces production problems common for the region's producers.
We do not believe the news will have a major effect on the stock, the performance of which, particularly during volatile times is driven by its huge cash pile, which is seen as a safeguard against harsh times. However, in the long run, we once again stress that Surgutneftegaz lack drivers and catalysts that can improve its business, and is likely to continue to post lackluster upstream dynamics, which is a long term negative. Pavel Sorokin 35. Volga Gas takes an upper hand in Trans Nafta dispute Renaissance Capital August 25, 2010 Event: Volga Gas announced yesterday (24 Aug) that the Moscow Arbitration Court had ordered Trans Nafta to pay RUB640mn (about $21mn) to Volga Gas in a legal dispute over the ownership of the Gas Processing Unit (GPU). Separately, VGAS announced that test production had started from VM#1 well of the VostochnyMakarovskoye (VM) field. Action: We believe the news is positive for Volga Gas, and maintain our BUY rating. Rationale: Trans Nafta and VGAS agreed in Nov 2008 to transfer the ownership of the GPU into a JV owned 75% by Volga Gas and 25% by Trans Nafta, as part of the resolution of a legal dispute over the original sale agreement for the VM field. The launch of the VM field has been delayed three times to-date - most recently in May 2010 - due to the delayed closure of the JV, causing VGAS to commence legal proceedings against Trans Nafta to recover RUB640mn it had pre-paid for the 75% stake in the GPU. The favourable court ruling, announced yesterday, could eventually lead to the resolution of the GPU ownership dispute and the start of commercial production from the VM field, in our view. In the meantime, test production of VM #1 well should allow the company to evaluate the production potential of the field and estimate the future production rates from wells VM #1 and VM #2. Alexander Burgansky SECTOR Oil 36. CPC may borrow $1 billion to fund expansion SRI August 25, 2010 The Caspian Pipeline Consortium (CPC) plans to invest up to $4.6 billion by 2014 to increase the capacity of the CPC pipeline which connects oil fields in western Kazakhstan with the Russian Black Sea port of Novorossiisk, CPC head Aleksander Tarakanov said on Tuesday. The consortium may borrow around $1 billion in 2012-2013, Tarakanov told journalists. “I believe that we won’t go beyond $4.6 billion, but we will know better by the end of the year […] We will try to avoid additional financing, but there could be the need (to borrow) some $1 billion in 2012-2013,” he said.
The CPC shareholders are expected to finalize the expansion plan by December 15, 2010. Once approved, CPC pipeline’s capacity will rise to 67 million tons of oil per year by 2014. CPC’s sovereign shareholders are Russia with 31 percent and Kazakhstan with 19 percent. The remainder of the consortium consists of private companies: Chevron Caspian Pipeline Consortium Company (15%), LUKOil (12.5%), Rosneft-Shell Caspian Ventures Limited (7.5%), Mobil Caspian Pipeline Company (7.5%), Agip International (N.A.) N.V. (2%), Oryx Caspian Pipeline LLC (1.75), BG Overseas Holdings Ltd (2%), and Kazakhstan Pipeline Ventures LLC (1.75%). 37. July 2010 drilling up 14% YoY VTB Capital August 27, 2010 News: Yesterday, CDU TEK released drilling statistics for July 2010, which confirmed the 1H10 trends. Development drilling for 7mo10 was up 13% YoY, while July 2010 volumes alone increased 14% YoY. Exploration drilling slowed, with July 2010 volumes down some 26% YoY. However, we would need to see a longer time series before deciding if this is a change in the trend. Our View: Eurasia Drilling's key customers underperformed the overall market, which resulted into its market share slipping to 22.6% in July 2010 (from 23.6- 23.8% in 1Q10-2Q10). In particular, LUKOIL has further cut its drilling programme: volumes in July 2010 were down 5% MoM and as much as 18% YoY. We are somewhat concerned that Eurasia Drilling's backlog might fall slightly short of our initial expectations, although 1H10 volumes accounted for 49% of the backlog while the company has taken on more contracts for 2H10 (in particular for TNK-BP and some smaller oil companies). Drilling demand from smaller oil companies remains strong, with 7mo10 volumes up 207%. In addition, Surgutneftegaz and TNK-BP demonstrated above average growth rates of 17% and 15%, respectively. Olga Danilenko 38. LUKOIL and PetroKazakhstan resolve 5-year conflict VTB Capital August 23, 2010 News: LUKOIL and PetroKazakhstan have resolved a 5-year conflict about the ownership in Turgay Petroleum. In 2005, when CNPC acquired a controlling stake in PetroKazakhstan from private investors, LUKOIL filed a lawsuit in court requiring the priority to buy the stake (according to the shareholder agreement). After a five-year debate, it was agreed that the shareholder structure of Turgay Petroleum would remain unchanged (it is a joint venture between LUKOIL and PetroKazakhstan on a parity basis) and LUKOIL would receive USD 438mn. Our View: We welcome the resolution to the conflict, considering the chunky compensation which LUKOIL is to get in the near term. It is also positive that two major international investors in Kazakhstan (LUKOIL and Chinese CNPC, which has
67% in PetroKazakhstan) do not have any major disputes after this agreement. In our view, this will allow them to cooperate even more successfully within the Turgay Petroleum joint venture and look for other opportunities in Kazakhstan. Lev Snykov 39. PetroNeft Resources: Year-round production commences in Licence 61 Renaissance Capital August 24, 2010 Event: PetroNeft Resources (PTR) announced this morning (24 Aug) that year-round production has commenced on its Licence 61 in Tomsk Oblast from four wells, following the completion of production facilities. Current production stands at 1.1 kbpd and is expected to reach 4.0 kbpd by YE10, from 11 wells. Separately, the company reported that drilling of the seventh production well (Well 116) at the Lineynoye oilfield has been completed ahead of schedule. Preliminary log and survey data indicate that the well encountered the thickest net pay to date in the development programme, with net oil pay of 17.9 metres. Action: We believe the news is positive for PTR and reiterate our BUY rating. Rationale: In our view, PTR continues to deliver strong operating performance, on or ahead of schedule. We believe the launch of year-round commercial production is a major milestone in the company's investment proposition, reducing future development risks for investors and highlighting the quality of the management team. In addition, we think positive drilling results from Well 116 confirm the high quality of the company's resources, further increasing our confidence in our operating and financial forecasts. Alexander Burgansky 40. Pipeline gets new lease on life bne August 24, 2010 Transneft says that it would make another effort to convince Bulgaria to allow part of an oil pipeline to transit its territory — giving a new lease on life to a project that Sofia all but rejected earlier this year, reports The Moscow Times. The newspaper report says thatthe Russia-backed Burgas-Alexandroupolis route, which also involves Greece, would play a key role in stepping up Russian and Kazakh oil exports to the Mediterranean Sea area.
41. Russia, Bulgaria to hold Burgas-Alexandroupolis talks Sept 8-9 Transneft RIA Novosti August 24, 2010 A Bulgarian delegation will hold talks in Moscow on September 8-9 on construction of the Burgas-Alexandroupolis oil pipeline, its joint project with Russia and Greece, Igor
Dyomin, an official representative of Russia's oil pipeline monopolyTransneft, said on Tuesday. Bulgaria's Deputy Prime Minister Simeon Dyankov will head the delegation, Demin told RIA Novosti. "The Bulgarian officials will see a presentation of the Burgas-Alexandroupolis project," he said. Russia, Greece and Bulgaria signed a contract in 2007 on a joint construction of the Burgas-Alexandroupolis oil pipeline to bypass the busy Black Sea. The pipeline's capacity will be 35 million tons per annum with a possible expansion to 50 million tons. Its construction was complicated since 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 construction of BurgasAlexandroupolis. In July, Bulgaria agreed to pay a 6.5 million euro contribution to the operating costs of the project, but its participation is still uncertain. 42. Russian ministry proposes incentives for shelf exploration bne August 26, 2010 Russian Deputy Natural Resources and Environment Minister Sergei Donskoi has said that Russia's Natural Resources and Environment Ministry has proposed introducing incentives for natural resource exploration on the continental shelf, reports Prime-Tass. The news agency quoted Donskoi as saying that the ministry suggested introducing a system under which investors who discover natural resource deposits get either a share in a consortium that develops shelf fields or fair compensation.
SECTOR Metals and Natural Resources 43. MMK starts Mill-2000 construction VTB Capital August 24, 2010 News: MMK has started to build Mill-2000, according to a company announcement reported by Interfax. The first line is expected to be launched in 2011, with total capex estimated at USD1.5bn. Our View: The new mill will produce cold-rolled and galvanised sheet for the automotive and construction industries, which will clearly provide strong support for its product mix in the longer term. MMK continues to improve its product mix, with the output of downstream products increasing at an impressive 22% in 2Q10 (while the production of low margin slabs and billets remained near zero). As a result, high value added products already accounted for 35% of the product mix (vs. 30% in
1Q10). Furthermore, capacity utilisation at the recently started Mill-5000 continues to increase. We welcome company's growth initiatives and highlight its track record. MMK has continued to invest actively in its major projects, even during the dark days of the crisis in 4Q08-1Q09 (namely into Mill-5000). Apart from Mill-2000, MMK is currently developing its MMK-Atakas project, a resource base at its iron ore subsidiary and is investing into Belon (its own coal supplier). Following the relocation of equipment in 4Q09, the latter has reached an attractive EBITDA margin of 50%. Alexander Pukhaev 44. Polymetal launches Omolon Troika Dialog August 27, 2010 Polymetal yesterday announced the official commissioning of the Kubaka mill, which forms an integral part of its Omolon project. All assets now comprising Omolon were acquired by Polymetal over 2008__09, including the fully refurbished Kubaka mill previously owned by Kinross Gold. The mill is expected to be used as a processing hub for several neighboring assets, including Sopka and Birkachan. The mill is currently in ramp__up mode and is processing low__grade stockpiles. Its design capacity is 850 kt of ore, and processing of high__grade ore from Birkachan should commence in October 2010. In addition to processing ore at the Kubaka plant, Polymetal is planning to heap leach 1.3 mln tonnes of low__grade Birkachan ore from 2011. The run__rate production at the asset is expected at 200 koz of gold equivalent from 2012, with total cash costs at $400__450/oz at the Kubaka mill and $550__600/oz at the heap leach, which is in line with our numbers. Overall, this is a positive development that highlights the operational team's strength and sizable value accretion from acquisitions made by Polymetal during the very trough of the market. We expect the company to boost output from 750 koz in gold equivalent in 2010 to 1.3__1.4 mln oz in 2013. Mikhail Stiskin 45. RMK seen investing RUB20bn in Chelyabinsk Region copper deposit bne August 21, 2010 Oleg Grachyov, the region's vice governor, says that Russian Copper Company, or RMK, is expected by 2013 to invest RUB20bn in the development of the Mikheyevskoye copper and molybdenum deposit in the Chelyabinsk Region, reports Prime-Tass. The news agency quoted Grachyov as saying that he company plans to build an ore and dressing plant at the deposit with an annual processing capacity of 18 million tonnes of ore, one of the largest in Russia.
46. Russia's long steel products segment - Growing buyer interest Renaissance Capital August 23, 2010 Event: Metal Expert issued its monthly report on CIS long steel last week (20 Aug). According to the report, Russia's rebar and wire-rod production volumes went up 11% MoM and 8% MoM, respectively, in July. Domestic rebar prices were up 4% MoM for August contracts. Metal Expert sees billet prices for September and October contracts climbing to $560/tonne and $600/tonne (FOB), respectively. With tightening construction steel inventories, Metal Expert reports growing demand from local metal traders, driven by further price-hike expectations in September-October. Action: In our view, the news is positive for Evraz (BUY, target price [TP] $33/GDR), Mechel (BUY, TP: $31/ADR) and NLMK (BUY, TP: $36/GDR). Rationale: Rebar output rose at ZSMK (Evraz), ChMK (Mechel) and Nizhnie Sergi (NLMK) in July by 24% MoM, 10% MoM and 26% MoM, respectively. Having bottomed by the end of June at $180-195/tonne, domestic scrap prices have risen to $269-288/tonne in mid-August. The scrap price rally makes BF-based integrated steel-mills (Evraz and Mechel) more competitive. NLMK's long steel division benefits from the second-largest scrap collecting and processing network in Russia, which includes more than 300 scrap yards. Domestic long steel consumption remained nearly flat in July, while concrete product plants demonstrated solid performance, with steel purchases rising 26% MoM. The pace of recovery in the long steel segment remains slow, due to relatively low activity in the Russian construction sector. However, as we mentioned in our 28 July report (click here to view CIS ferrous and carbon - 3Q10: At inflection point), any signs of sustainable recovery in the construction sector may become essential triggers for major local long steel producers. Evraz still trades at only 22% of its pre-crisis highs. Boris Krasnojenov 47. Steels at their best: 2Q10 preview Troika Dialog August 26, 2010 Now that summer is drawing to a close, we have approached another reporting season for Russian metals and mining companies. In this report, we summarize our expectations for the 2Q10 financial results of five Russian steelmakers. We expect Severstal to demonstrate the most impressive results in the sector, which could help the stock re__rate to a higher valuation multiple. We also expect strong performances from Mechel and Novolipetsk Steel, though this might already be partly priced in by the market. _ From an analytical perspective, the 2Q10 results should have exceptional significance. Bearing in mind the decline in steel prices and demand that occurred this summer, the numbers will probably be the strongest quarterly results in the current financial year, unless we see a really strong rebound in 4Q10, which is still not in the cards. Besides, we expect most companies to provide earnings guidance for 3Q10, which should reduce the task of forecasting 2010 earnings for the sector to a few basic assumptions about steel markets in 4Q10. In this regard, the 2Q10 numbers are going to be a test for analysts' expectations for the whole year.
_ As usual, our focus will be on EBITDA rather than net income, as the latter will be significantly distorted by non__operating items, like forex gains or losses. We expect Severstal to post the highest EBITDA in the sector, exceeding that of the nearest competitor by some 20%, although the margin is not going to impress. Mechel should demonstrate the strongest earnings momentum, with 2Q10 EBITDA growing some 150% Q__o__Q, although the results will probably be reported too late in 4Q10 to make any real difference for the stock. We expect Novolipetsk Steel to remain the most profitable company in the sector with an EBITDA margin in the range of 30%, although this should be well anticipated by the market. _ We expect companies to guide to 30__35% Q__o__Q drops in EBITDA in 3Q10, reflecting a weaker steel market environment during the period. For most of them, this would imply net income remaining well above 1Q10 levels, Magnitogorsk Steel likely being an exception. This time around, forward__looking statements will have special significance for the market, shaping investors' expectations for 2010 and possibly setting the tone for a year__end rally, if one materializes this time. 48. World Gold Council's 2Q10 statistics: robust 2010 outlook UralSib August 26, 2010 2Q10 gold demand rose 34% YoY. Yesterday, World Gold Council published its quarterly update on the gold market and gold supply and demand, which showed further improvement. Total gold demand in 2Q10 rose 34% YoY to 1,047 tons, largely re- flecting strong gold investment demand, which grew 118% YoY to 534 tons, with the largest increase of 411% YoY to 291 tons coming from ETFs. Jewelry demand dropped just 8% YoY to 406 tons. On the other side, supply increased 18% YoY to 1,132 tons, mostly driven by a 36% YoY increase in gold scrap sales, while mine supply added only 3% YoY to 659 tons. Bright outlook for the gold price for the remainder of 2010. The agency sees robust fundamentals for the sector in the com- ing months, underpinned by the anticipation that China and India will continue to provide the main thrust of overall demand growth, particularly for gold jewellery, while retail investment in Europe will continue to be a substantial source of gold demand in the region. Moreover, industrial demand for gold is looking good, having almost reached pre-crisis levels. In the long run, China, which plans to develop its domestic gold market, should provide additional demand volumes. 5Time to think gold again, we choose Petropavlovsk and Polymetal. Given the uncertainty hanging over global stock markets and their performance outlooks for the reminder of this year, we believe investors might again turn to gold stocks, which are among the more resilient ones in such an environment. Russian gold stocks, for instance, offer a very robust production growth prospects. From the Russian gold universe, we prefer Petropavlovsk, which, in our view, offers the best value after the low point of its 1H10 financials. Polymetal also looks good, but the name is relatively expensive now and unlikely to outperform signifi- cantly. Polyus Gold might have been a good bet on its 2H10 production growth outlook, but for the ongoing conflict in Kazakh- stan that is putting strong downward pressure on its share price. 49. World Steel Production in July Aton
August 23, 2010 The World Steel Association (WSA) released steel production statistics for July on Friday (20 Aug). Total global steel production amounted to 114.8mn tonnes, which represented 9.6% YoY growth but a 3% MoM decline. China, the world's largest steel producer, reduced production by 4% MoM to 51.7mn tonnes. Production in the US declined by 5.6% MoM to 6.7mn tonnes. Russia's output was up by 3.7% MoM to 5.6mn tonnes. Bottom line We view the overall weakness in July as largely the result of seasonality. Low consumer activity has led to adjustments across the whole supply chain: metal service centres have mostly been destocking while steel producers have had to cut production by idling capacities. Hence, July's world steel capacity utilisation rate declined to 75%, the lowest level YtD. However, we expect steel producers to see increased business starting in August as a result of higher consumer activity and restocking by metals traders. Furthermore, we note that the 7M10 production numbers suggest that all steel producing countries, with the exception of China and some Middle East countries, have not yet reached their pre_crisis output levels.
SECTOR Nuclear 50. Bushehr power plant: Russia balances on the edge of a sword Ria Novosti August 24, 2010 Last Saturday, Iran saw the physical startup of the first power generating unit of the Bushehr nuclear power plant. This never-ending construction project has long become the talk of the town, brought up anytime the Iranian nuclear program is discussed. It is finally nearing completion in a highly complicated political environment. Russian-Iranian cooperation began in the 1990s, when Iran was ruled by liberals led by Ali Akbar Hashemi-Rafsanjani, the country's richest tycoon and an implacable and vindictive rival of conservative leader Sayyed Ali Khamenei (the successor of Ayatollah Khomeini, the founder of the Islamic republic). Hashemi-Rafsanjani was very pragmatic in most of his policies aimed at liquidating the "excesses" that remained from the Islamic Revolution as well as the gradual constructive consolidation of the country's role in the Middle East and Central Asia.
Despite a series of economic blunders and corruption scandals, his policy remained fairly attractive and was consistently implemented by the next president, Seyed Mohammad Khatami, who took over when his patron Hashemi-Rafsanjani took a backseat. It was during Khatami's tenure that the Bushehr nuclear project began, after the principal decision was made in 1995. The fifteen years of Tehran's moderate policies generated a hope for an adequate and positive dialogue on the nuclear and other issues; therefore, Moscow unfailingly shielded Iran from Washington's swipes in the UN Security Council and other organizations. However, in 2005, Iranian conservatives put Tehran Mayor Mahmoud Ahmadinejad, a young, ambitious reactionary, into the presidential office. The new leader added a hysterical note to Iran's foreign policy as he took office. Simultaneously, Iran began boosting its own nuclear program. Moscow's pro-Iranian position then looked ambiguous. When it became clear that authoritarian populist Ahmadinejad was consistent in his policies and that the reform-minded wing of the local nobility was not strong enough to stand up to him, Russia began breaking Bushehr project deadlines against the back-drop of mutual accusations of mala fide abidance of the contract's financial terms. The Bushehr power plant turned into the metaphoric white elephant - a valuable possession of which its owner cannot dispose. Russia, in turn, kept telling the world that the Bushehr plant would absolutely be commissioned. The official U.S. position regarding Bushehr was formal and optimistic, with the Department of State cautiously approving Russia's attempts to "civilize" Iran's nuclear drive. However, along with that, U.S. authorities were gradually shaping a negative sentiment in the mass media and expert community, persistently creating a link between the potential startup of the Russian-built power plant and the possibility of Tehran making a nuclear bomb. This rhetoric was absolutely untrue. Light water reactors like the Russian VVER-1000 cannot be used for production of weapon-grade materials. True, the spent nuclear fuel from a VVER reactor contains about 0.6% plutonium-239, which could possibly be utilized for nuclear warheads, but it is very difficult to separate from other isotopes, which essentially brings its combat value to naught. The Bushehr plant operation envisaged tight technological control, including delivery of fuel from Russia and the return of the appropriate amount of spent fuel. Any attempt to take energy-grade plutonium from a spent fuel storage site or to unload fuel rods from the reactor beforehand would have been immediately exposed. Strictly speaking, the Bushehr power plant and the Natanz fuel enrichment facility, which could potentially produce weapon-grade uranium, are two different aspects of the Iranian nuclear problem and therefore should be discussed separately. On the other hand, the assertion that the controlled turnover of fresh and spent uranium fuel for Bushehr would pacify Iran's voluntarism and make it drop further enrichment plans, naturally calls for some sound skepticism. The centrifuges in Natanz were not built so quickly to provide fuel for the country's would-be nuclear energy sector, for which the plans remain vague despite the monstrous state program to build 20 generating units or so.
Tehran's interest toward building its own heavy-water reactors must have similar roots. Although these reactors' use in power generation is questionable, they are extremely convenient for commercial production of weapon-grade plutonium. What's more, these reactors make it possible to manipulate fuel assemblies "on-the-go," which is also convenient when dealing with all sorts of international inspectors, who do not have to be shown everything that's going on at the plant. Iran's nuclear program is predominantly defense-oriented, and this cannot be changed. Although Ayatollah Khomeini's statement that "Islam does not allow us to use weapons of mass destruction" has not been officially abandoned, it is being creatively reworked now. Uncharacteristically, this is where the liberal and conservative wings of the Iranian nobility find common ground. It is hard to determine the extent to which this policy is the result of Tehran's ambitions to become South Asia's regional superpower. Some of this was certainly spurred by the United States' and Israel's hard-line position, which cannot be ignored by any Iranian government, moderate or not, in line with the realpolitik principle. All the parties involved have sunk too deeply into this confrontation to ever get out. Under these circumstances, Russia had no choice but to dissociate itself publicly from Ahmadinejad's regime, which was accomplished in spring 2010 along with a breakthrough in U.S.-Russian nuclear reduction talks. After that, Russia refrained from blocking UN Security Council Resolution 1929, tightening sanctions against Iran. This decision in fact suspended several lucrative military equipment contracts with Tehran. Yet, Russia had to coordinate the drastic condemnation of Iran's nuclear program with the justifiable desire to complete the Bushehr project. The Rosatom state corporation's commercial interests were not the only factor that determined Moscow's policy on the issue, although a number of commentators directly hinted at the opposite. By breaking Washington's resistance to Bushehr, Moscow in fact sends a very clear message: Russia advocates controlled cooperation of peaceful nuclear technology with emerging countries. To what extent will emerging economies be allowed to develop their own nuclear energy? This issue has in fact dominated the recent battling for the top post in the IAEA. By supporting Bushehr, Russia has indicated that it is willing to support the construction of peaceful light-water reactors in any interested countries. This ambiguous position can significantly harm Moscow's international image, unless given special attention, as the public is largely reluctant to get too deeply into fine issues like the differences between the peaceful and military uses of nuclear energy. The same may happen if a media campaign is organized similar to the notorious search for weapons of mass destruction in Iraq. However, balancing on the edge of this sword probably has no alternative if Russia wants to extract any positive outcome from the Iranian nuclear deadlock, while at the same time consolidating its own foothold in the global nuclear energy market. Konstantin Bogdanov for RIA Novosti 51. India still 'hopeful' about nuclear plant despite Russian calls for relocation - paper RIA Novosti
August 24, 2010 India hopes Russia will go ahead with the construction of a nuclear power plant at Haripur in eastern India, despite Russia's concerns over ongoing local protests, the Times of India newspaper reported on Tuesday. "The Russians are concerned about the situation but we have told them that we are still hopeful about it," a senior government official said. Russia is worried that protests over the construction of the plant are becoming too political. A local opposition party has recently joined fishermen in protests against a possible rise in the temperature of seawater in the Bay of Bengal. The concerns have forced the Russian Federal Atomic Energy Agency, Rosatom, to ask the Department of Atomic Energy of India (DAE) to consider another site for the plant. The construction of the plant was given environmental clearance in January. Rosatom head Sergei Kiriyenko said previously that a total of 12 reactors were to be built at Haripur and a second site, Kudankulam, in eastern India. A third site would be allotted soon, Kiriyenko said, bringing the total number of reactors to 16. Atomstroyexport, Russia's nuclear power equipment and service export monopoly, has been building two reactors for the plant since 2002 in line with a 1988 deal between India and the Soviet Union and an addendum signed 10 years later. 52. Iran eyes nuclear fuel consortium with Russia RIA Novosti August 26, 2010 Iran has proposed to Russia establishing a nuclear consortium to supply fuel to the Bushehr plant and other nuclear power plants that will be set up in the future, Iran's nuclear chief said on Thursday. "We have put forward a proposal to Russia... Moscow is studying the proposal now," Ali Akbar Salehi, head of the Atomic Energy Organization of Iran (AEOI), was quoted by Iran Press TV as saying. Fuel was loaded into the Bushehr Nuclear Power Plant on August 21 but Iran says it will continue uranium enrichment since it cannot depend on foreign sources forever to get the required fuel. "Suppose we receive the required nuclear fuel for the plant from the Russians for the next ten years, what are we going to do for the next 30 to 50 years?" Salehi said before the Bushehr plant was launched. Western powers suspect Iran of seeking to build nuclear weapons under the guise of its nuclear program, which Tehran says is aimed at the peaceful generation of civilian energy. On June 9, 2010, the UN Security Council approved a fourth round of sanctions against Iran over its nuclear program, including tougher financial controls and an
expanded arms embargo, as well as an asset ban on three dozen companies and a travel freeze on individuals. Later, the United States and the European Union imposed extra sanctions against Iran, including tougher restrictions on the energy sector and a tougher trade embargo. The construction of the Bushehr Nuclear Power Plant has not been affected by the sanctions. 53. Natural uranium futures suffered a downward correction, but we believe the decline is short term and will not harm Priargunsk Plant's shares Metropol August 26, 2010 Natural uranium futures declined yesterday with five month futures suffering heavy losses, falling by 5.4% to USD 44 per lb, the lowest level since the end of July 2010. We believe the downward correction was driven by the recent oil price drop. In our view, the decline should be short-lived, as uranium fundamentals remain strong due to the positive outlook for new reactor construction, primarily in China, India, South Korea, the USA and Russia. We believe the uranium futures decline will not harm Priargunsk Plant's shares, which should benefit from ARMZ's (a Priargunsk Plant parent company) decision to sell uranium to both international and domestic consumers at the international market price in 2010. As a result, the domestic price discount to the international price should decline. We reiterate our Buy recommendation on Priargunsk Plant with a fair value of USD 601 per share. 54. Russia asks India to move site for nuclear plant - paper RIA Novosti August 23, 2010 Russia has asked India to shift the site of a nuclear power plant at Haripur in eastern India, for which Russia has constructed two reactors, the Times of India paper reported on Monday. Russia is concerned that protests over the construction of the plant are becoming political, the paper said. A local opposition party has recently joined local fishermen in protests against a possible rise in the temperature of seawater in the Bay of Bengal. The concerns have forced the Russian Federal Atomic Energy Agency, Rosatom, to ask the Department of Atomic Energy of India (DAE) to consider another site for the plant. The construction of the plant was given environmental clearance in January. A source in the Indian government said the DAE commission is monitoring the situation.
The Indian government has not commented on the Russian request yet. Rosatom head Sergei Kiriyenko said previously that a total of 12 reactors were to be built at Haripur and a second site, Kudankulam, in eastern India. A third site would be allotted soon, Kiriyenko said, bringing the total number of reactors to 16. Atomstroyexport, Russia's nuclear power equipment and service export monopoly, has been building two reactors for the plant since 2002 in line with a 1988 deal between India and the Soviet Union and an addendum signed 10 years later. 55. Russia to load nuclear fuel into Iran's Bushehr NPP RIA Novosti August 23, 2010 Russia is completing final preparations to load low-enriched uranium fuel into Iran's first civilian reactor at the Bushehr NPP later on Saturday. If the operation goes smoothly, Bushehr will be qualified as an operational nuclear power plant. It is expected to start producing electricity late this year or early next. A Russian delegation headed by Rosatom chief Sergei Kiriyenko will attend the launch ceremony. The Iranian delegation will be led by Ali Akbar Salehi, vice president and Director of the Atomic Energy Organization of Iran (AEOI). Western powers suspect Iran of pursuing nuclear weapons under the guise of its nuclear program, a charge Tehran strongly denies, saying the program is aimed at the peaceful generation of civilian energy. On June 9, 2010, the UN Security Council approved a fourth round of sanctions against Iran over its nuclear program, including tougher financial controls and an expanded arms embargo, as well as an asset ban on three dozen companies and a travel freeze on individuals. Later, the United States and the European Union imposed extra sanctions against Iran, including tougher restrictions on the energy sector and a tougher trade embargo. The construction of the Bushehr facility was not affected by the sanctions. Russia has said that all the fuel for Bushehr will be supplied by Russia and all the spent fuel will be returned to Russia. The fuel deal made the project acceptable to Washington and Russian Foreign Minister Sergei Lavrov said earlier this week that the Bushehr plant contributes to the nonproliferation regime. However, Salehi said on Friday the Islamic republic does not necessarily have to buy fuel from Russia. "Enrichment [of uranium] for producing fuel for the Bushehr plant and other plants will continue," he was quoted as saying by state news agency IRNA on Friday.
"The Bushehr plant has a lifespan of 60 years and we plan to use it for 40 years. Suppose we buy fuel for 10 years from Russia, what are we going to do for the next 30 to 50 years?" the Iranian official added. The construction of Iran's first nuclear plant was begun in 1975 by several German construction companies. They pulled out following a U.S. embargo on hi-tech supplies to Iran after the 1979 Islamic Revolution and the subsequent U.S. Embassy siege in Tehran. Russia signed a contract with Iran to complete construction in February 1998. Russian experts praise the end of Bushehr construction as another successful example of Russian nuclear technologies. "We undertook to do what others failed. And we successfully coped with the difficulties. Rosatom demonstrated its highest competence while building the Iranian NPP," said Valentin Mezhevich, deputy chairman of the Federation Council's fuel and energy committee. Alexander Uvarov, who heads the Atominfo Center NGO, said Bushehr NPP was a "unique" project as Russian specialists had to assemble together Russian and German equipment. "Only Russian specialists could bring this project to life. The German reactor design was integrated with a Russian PWR [pressurized water reactor]. They used equipment which was stored at the construction site for a long period, and its reliability had to be checked," "I'm sure that there will be no such example of integrating various technologies in the foreseeable future," the expert said. The head of the Russian union of energy efficiency, Semyon Dragulsky, added that the successful completion of the Bushehr project would strengthen Rosatom's positions at other international tenders to build nuclear power plants. 56. Russia, Armenia sign deal on NPP reactor construction bne August 24, 2010 Russia and Armenia have signed an agreement on the construction of a new power unit at an Armenian nuclear power plant, reports Interfax. The news agency says that the document was signed by Rosatom chief Sergei Kiriyenko in the presence of the two countries' presidents.
SECTOR Power 57. China to build power plant in Russia bne August 24, 2010
Huadian, a Chinese power company, agreed to build a RUB20bn ($655mn) plant in the Yaroslavl region with TGK-2, a generator controlled by Sintez Group, reports The Moscow Times. Citing the companies, the newspaper report says that the power plant will have a capacity of 450 to 490 megawatts and will be built by 2013. 58. FGC UES to spend RUB48bn to improve St Pete power supplies bne August 24, 2010 Russia's Federal Grid Company of Unified Energy Systems (FGC UES) plans to spend RUB48bn to make power supplies in the city of St. Petersburg more reliable, reports Prime-Tass. Citing the company, the news agency says that no timelines were provided.
59. Government approves genco obligatory investment program UralSib August 26, 2010 24.2 GW capacity to be commissioned by 2017. The government yesterday disclosed detailed information on new projects (construction and modernization of generation capacities) that thermal gencos (OGKs, TGKs, and InterRAO) are obliged to undertake. The list was approved by the government on 11 August. The gencos are to commission 24.2GW of new capacity (mainly gas-fired) by 2017, peaking in 201014. Capacity-market introduction to secure new projects' profitability. The approval of the projects is a step towards the intro- duction of the long-term capacity market to be launched next year. The launch will help gencos to ensure that the new projects are profitable, as they will be able to generate up to 15% returns on investment in generation capacity. Also, the investment pro- gram will guarantee the construction of generation capacities needed by the economy. All gencos will sign contracts with the sys- tem regulator that define new projects' key price parameters and potential fines if a genco misses deadlines for commissioning energy units. Generally positive - more clarity on further sector development. Although the list does not introduce any radical changes to the sector's overall investment program (key projects have already been disclosed by individual companies in their annual reports and analyst meetings), we consider the news to be generally positive for the sector. The approval of the projects will finally clarify gencos' investment needs and the benefits of undertaking the projects, which could make them more attractive to investors. We retain our top sector picks, including OGK-4 (OGK4 RX - Buy), OGK-5 (OGKE RX - Buy), OGK-2 (OGK2 RX - Buy), and TGK-1 (TGKA RX - Buy).
60. Kazan-based Grid Company to up investments 22% on year in 2010 bne August 24, 2010 Boris Zabelkin, the First Deputy CEO of Russia's Kazan-based Grid Company, says that the company plans to invest about RUB5bn in the development of the power grid complex in 2010, up 22% on the year, reports Prime-Tass. The news agency quoted Zabelkin as saying that the company plans to focus on the construction and upgrades of power facilities prior to the World Student Games to be held in Kazan in 2013.
61. Sub-station failures cut power to St Petersburg Renaissance Capital August 23, 2010 Event: Simultaneous failures at two electricity sub-stations cut power to around 40% of St Petersburg on Friday at 18:40 local time, cutting the water supply, blacking out metro stations and halting the city's trolleybuses. The supply interruption lasted less than an hour. Local media reported that the failures were technical in nature and had not been the result of fire or terrorist action. Action: Positive for electricity distribution companies (MRSKs), in our view. Rationale: Unwelcome as it was, we believe the power cut provided compelling evidence to Russia's government that only significant investment in the electricity grids can forestall widespread blackouts, as Russia's ageing grids fail to meet the safety and reliability standards needed to meet growing electricity demand. In our view, the event may well influence regulators and ministers who have recently seemed to waiver over how aggressively to introduce long-planned rate-of- return tariff regulation for the distribution companies. It is perhaps instructive that in the wake of the industrial accident at the Sayano-Shushenskaya hydro plant in August last year, government vowed to bring forward the new tariff methodology for electricity grids and put in place plans for full implementation from 1 Jan 2011. Vladimir Sklyar
62. Thermal energy, electricity tariffs for Belarusian companies up 20.9% Friday bne August 21, 2010 Belarus' Economy Ministry has issued a resolution to increase starting Friday thermal energy and electricity tariffs for corporate consumers 20.9%, reports PrimeTass. The news agency says that the ministry attributed the move to hikes in natural gas prices.
SECTOR Retail, FMCG, Phrama 63. Authorities accuse pharmaceuticals suppliers of being in collusion with Ministry for Health VTB Capital August 23, 2010 News: Vedomosti reports today that the authorities have found violations in the organisation of government tenders and have accused the Ministry for Health and Social Development (MHSD) and leading pharmaceuticals suppliers (including Pharmstandard) of being in collusion. Our View: MHSD is the main government institution which purchases pharmaceutical products (in 2009, it accounted for 26% of total government purchases) while Pharmstandard is one of the government's ten largest suppliers. Even if the authorities proceed with the investigation and prove violations, we do not believe that serious penalties are likely for the company. At this stage, we see no risks for Pharmstandard's operations at this stage, although the news might create some short-term negative sentiment. Ivan Kushch 64. Chinese computer, TV monitor maker TPV eyes plant in Russia bne August 26, 2010 Chinese computer and TV monitor manufacturer TPV Technology Ltd. plans to set up a manufacturing facility in Russia, reports Dow Jones Newswires. The wire service quoted the company's head Jason Hsuan as saying that they see big growth potential in Russia. It could be the next China.
65. Consumer rights watchdog will not visit Moldovan wine enterprises RIA Novosti August 23, 2010
Russian Federal Service for Consumer Rights and Human Welfare Protection (Rospotrebnadzor) will refrain from visiting Moldovan wine producing enterprises, the service's chief Gennady Onishchenko said. The visit might have become a step towards solving of a problem with Moldovan imports to Russia, he said. "Moldovan authorities' behavior, especially at the end of the last week, outweighed the scales in a direction to abstain from further actions, bearing in mind that the nature of their statements did not have any constructability and would turn our expert efforts into a waste of time," Onishchenko said. Rospotrebnadzor experts discovered dangerous ingredients in 18 batches of Moldovan wine imported between June 30 and July 2, 2010, just after Moldova's acting President Mihai Ghimpu declared June 28, 1940, as the Day of Soviet Occupation. He signed the decree on June 24. The degree, which has been widely criticized by Moldovan citizens, established June 28 as Soviet Occupation Day and ordered a Monument to the Victims of Soviet Occupation to be erected in front of the government building, mourning ceremonies across the country and that national flags be flown at half mast. The president also demanded that Russian troops be immediately withdrawn from the republic. Moldova's Constitutional Court ruled on July 12 that a decree issued by the country's acting president was unconstitutional. "The only thing, which could justify such logic of behavior, could be a fact of an indirect evidence of a cumulative impact of harmful substances, which we constantly find in the desired output [Moldovan wine], on a health status [of Moldovan authorities] and, therefore, [their] mental processes," Onishchenko said. Russia, which previously imported 80% of all wine produced in Moldova, imposed an embargo on all Moldovan imports in March 2006. The ban dealt a severe blow to the small, impoverished ex-Soviet nation's economy, bringing many winemaking enterprises close to bankruptcy. The ban was introduced after tests revealed the presence of pesticides and heavy metals in Moldovan wine. Russia resumed imports in 2007 of Moldovan wine, meat, apples, grapes, tobacco, and sunflower seeds but imposed strict quality control standards. In July 2009, Russia lifted all restrictions on the import of Moldovan wine and was even prepared to open extra customs points. Moldovan exporters and Russian wine importers accuse Russia of banning Moldovan wine for political, rather than health reasons. 66. Ozon.ru revenue up 36% on year in January-June bne August 23, 2010
The revenue of Russian online store Ozon.ru rose 36% on the year to RUB1.8bn in January-June, reports Prime-Tass. Citing a statement issued by the company, the news agency says that the accounting standards used were not provided.
67. Reduction in alcohol sales hours to lead to moonshine revival - Russian upper house chair RIA Novosti August 23, 2010 The reduction in hours when shops may sell hard alcohol may lead to a revival of brewing moonshine, Russian Federation Council Speaker Sergei Mironov said in his blog on Monday. Last week, Moscow authorities shortened the period of when shops may sell hard alcohol in line with the Kremlin-led campaign to crack down on alcohol abuse. Currently, Muscovites are not allowed to buy alcohol from 11:00 p.m. to 8:00 a.m. The new rules extend the period by three hours, making alcohol sales illegal between 10:00 p.m. and 10:00 a.m. and will come into force in September. "Those who want to drink [alcohol], will have to buy alcohol in after hours clubs at exorbitant prices, and [this will] revive bootleggers and moonshine," Mironov said. "I think the measures suggested by the Moscow authorities will not turn people from drinking," he continued, adding that better measures would be to ban retailing alcohol in unauthorized places. Mironov also said that authorities should consider the recreation of occupational therapy rehabilitation centers that existed during the Soviet era. The document also bans prefectures from issuing permits to sell alcohol round-theclock in local shops. Beer, wine and bottled alcoholic "light" cocktails with no more than 15% alcohol content are not affected by the new law. Restaurants and nightclubs are also not affected by the new law and may serve alcoholic beverages 24 hours a day. The Russian government has declared an anti-alcohol campaign and aims to halve consumption by 2020 and root out illegal production and sales. However, one in four Russians believes no measures taken to fight alcohol abuse will be effective. In April 2010, the Moscow Region authorities banned alcohol sales from 9:00 p.m. to 11:00 a.m. However, there is no nationwide legislation on the issue in Russia, and in many other regions alcohol is still available 24 hours a day. Official statistics in Russia show more than 23,000 people die of alcohol poisoning annually. In an effort to fight bootlegging, Russia introduced on January 1 a minimum price for vodka.
Alcohol consumption in Russia per capita is currently about 18 liters a year, twice the critical norm set by the World Health Organization. 68. Russian baker lobby says bread prices won't rise in August - September bne August 25, 2010 Vasily Molodykh, first vice president of the Russian Bakers Alliance, has said that bread prices are not expected to rise significantly in Russia in late August and September, reports Prime-Tass. The news agency quoted Molodykh as saying that however, this assumption was conditional on raw material, electric power, and transportation costs not rising.
69. Seventh Continent resumes Danone dairy products sales after pricing row RIA Novosti August 23, 2010 Seventh Continent, one of Russia's biggest grocery store chains, has resumed sales of French food giant Danone's dairy products, after retracting earlier claims about unjustified price increases. On August 12, Seventh Continent declared an official cessation of work with Danone and Unimilk-2000, which are now uniting their CIS assets, over a significant increase in purchase prices for milk and dairy products, claiming it had come under pressure from the two companies. Seventh Continent also said that it intended to apply to the Federal Antimonopoly Service for an explanation of the circumstances of the price rises, which it called "excessive." "The statement dated August 12 might have left the impression that the refusal to work with Danone was associated with a price increase. The company is not pursuing these objectives and did not make such statements. The company has no reasons to accuse Danone of concerted actions with Unimilk. The publicly available information on the forthcoming merger made similar conclusions possible but they are wrong," Seventh Continent said in a statement on Friday. The retailer said price rises had amounted to just four percent on average, while the highest increase was nine percent. "Due to the current situation on the dairy products market, Danone and the Seventh Continent have prepared a long-term strategy aimed at two-way work to offer consumers the best prices on Danone products." Danone owns such brands as Activia, Danissimo, Marshmallow Froot Loops, Danakor, Actimel. Unimilk owns Buttermilk, Bio-Balance, Actual, Smeshariki and Petmol brands. 70. U.S. guarantees safety of poultry exports to Russia RIA Novosti August 25, 2010
The U.S. Poultry and Egg Council (USAPEEC) has given assurance that all poultry meat products exported to Russia contain no salmonella bacteria, the council said in a statement. The USAPEEC statement came in response to fears that poultry exported to Russia may contain salmonella after some 550 million eggs were recalled in the United States that were distributed in 14 different states. The United States has not exported eggs to Russia since the end of 1999. "We would certainly characterize this as one of the largest shell egg recalls in recent history," Sherri McGarry of the Food and Drug Administration told CNN in a conference call on Thursday. USAPEEC President Jim Sumner said earlier the production of chickens and eggs are two separate arms of the American Poultry Industry which are overseen by two separate federal agencies, furthermore making any risk of cross-contamination highly improbable. "In light of reports in the U.S. media of an outbreak of salmonella caused by contaminated eggs, we are assessing the situation to find out if there is a need to toughen [regulations on] poultry imports from the United States," Russia's chief sanitary official, Gennady Onishchenko, announced on Monday. On Monday, Russia's sanitary watchdog, Rosselkhoznadzor, expressed concerns over the outbreak of the salmonella virus in the United States. Russia has asked the American Food and Drug Administration to submit a list of the farms that announced product recalls. U.S. poultry accounts for almost 80% of poultry imports to Russia. The U.S. import quota amounts to 600,000 tons in 2010. On Jan. 1, 2010, Russia introduced new sanitary standards, banning the treatment of meat with chloride of a higher concentration than in drinking water. A difficult negotiating process between Russia and the United States began, while Russia was also negotiating poultry supplies with other states as well as trying to increase domestic production.
SECTOR Telecom, Internet 71. AMCU sees Alfa controlling Astelit VTB Capital August 23, 2010 News: According to Vedomosti, the Ukrainian Anti-Monopoly Committee (AMCU) has announced that it has materials which might prove that Alfa Group controls Turkcell (which is a 54% owner of Astelit, the third biggest mobile operator in Ukraine). Our View: Given the current Turkcell shareholder structure and the fact that Alfa Group has not (yet) won a lawsuit against Cukurova Group over the latter's stake in Cukurova Telecom Holding, the AMCU statement looks peculiar. We think that it is
probably another attempt to put pressure on Alfa Group and Vimpelcom Ltd. as concerns the frequency/licence terms of the latter. We still expect that, as a consequence of the AMCU investigation over Alfa Group's/Vimpelcom Ltd.'s ownership of telecom operators in Ukraine, Vimpelcom Ltd. might have to give some of its frequencies back to the state or, in the worst case scenario, sell Ukrainian Radio Systems (OJSC Vimpelcom's daughter company, with an equity value of around 1% of Vimpelcom Ltd.'s market capitalisation, according to our calculations). However, we do not see any chance of Vimpelcom Ltd.'s creation being reversed.
72. Distribution of 4G frequencies delayed once again VTB Capital August 23, 2010 News: Vedomosti has quoted unnamed sources close to the State Commission on Radio Frequencies as saying that the Commission has decided not to include the point on distributing 4G frequencies into the agenda of the Commission's meeting. According to one Vedomosti source, this step was taken after a decision by the Head of the Commission, the Minister of Telecommunications. Our View: This development is positive for the Big Three operators as the decision to distribute the frequencies could have meant two unknown companies (Osnova Telecom and RusEnergoTelecom) getting all the available 4G frequency band (at the expense of the Big Three operators) without any tender or auction. We now expect the Commission to develop a clear mechanism for distributing the frequencies and we expect that it will be quite hard (although not impossible) to give the frequencies to the unknown companies while not giving them to the Big Three operators. We note that, according to Vedomosti's sources, the decision to postpone the distribution of 4G frequencies was made after Vladimir Yevtushenkov, the major owner of AFK Sistema, and Mikhail Fridman, Chairman of Alfa Group's Board of
Directors, met Prime Minister Vladimir Putin and First Deputy Prime Minister Igor Shuvalov, which might show the businessmen's ability to lobby their interests effectively. Victor Klimovich 73. LTE decision postponed bne August 24, 2010 Billionaires Mikhail Fridman and Vladimir Yevtushenkov met with Deputy Prime Minister Igor Shuvalov to persuade the government to offer frequencies for fourthgeneration LTE networks in a tender, reports The Moscow Times. The newspaper report says that the state's radio frequencies commission did not reach an agreement to hand the bandwidths to state-run Osnova Telecom and Rusenergotelecom.
74. Mobile sector: Subscriber growth continues, but lacks importance UralSib August 24, 2010 Penetration in Moscow finally reaches saturation. The number of active SIM-cards in Russia continued to expand in July to 216 mln, up 0.8% MoM, pushing the country's total mobile penetration up 1.2 ppt to 148.5%, according to ACM-Consulting data released yesterday. Penetration in Moscow declined from a peak of 197% in June 2010 to 196% indicating that the mobile market in the capital is saturated; however, mobile penetration continued to rise in St Petersburg (up 1.5 ppt MoM to 194%) and the regions (up 1.0 ppt MoM to 139%). Tele2, Russia's fourth-largest mobile operator posted 24% of the net additions in Russia, lagging behind MegaFon (49%) and VimpelCom Ltd (27%), while MTS posted a net outflow of 120,768 SIMcards. Ukraine: less competition from Astelit. Astelit, the third-largest mo- bile operator in Ukraine, has been losing market share for six consecutive months. The outflow of clients in May reached 170,000, reflecting a shift away from the company's aggressive pricing policy and reducing competition for MTS and Kyivstar (a subsidiary of VimpelCom Ltd), which hold 32% and 40% of the market there, respectively. The popu- larity of cheap on-net calls in Ukraine is a key factor benefiting the larg- est networks, namely MTS and Kyivstar. Little market reaction expected. Since the Big-Three operators - MTS (MBT - Buy), VimpelCom Ltd (VIP - Buy) and MegaFon (Not Traded) - have formed their subscriber bases in Russia and have a firm hold on their positions, client quality is becoming more valuable than shear num- bers, and the market is now focusing on operators' ability to get loyal subscribers and stimulate ARPU growth rather than growth in the customer base. Hence, we do not expect the announced num- bers to have a strong impact on stock performance. We retain our optimistic outlook on MTS and VimpelCom Ltd, as they are capable of obtaining a substantial share of the rapidly growing 3G market (projected to be 15% and 14%, respectively, of total mobile sales in Russia by 2013). Currently, both MTS and VimpelCom Ltd look undervalued, trading at a 2011 EV/EBITDA of 4.3 and 3.5, respectively, versus 5.4
for their emerging market peers. We retain our Buy rating on both names, but believe MTS is a safer investment at this stage. 75. Telco Minister not ruling out possibility of new players in 4G VTB Capital August 27, 2010 News: Yesterday, Interfax quoted Igor Schegolev, the Minister of Telecommunications, as saying that he did not rule out the possibility of new players in the development of the 4G network, reviving competition in Russian telecommunications. He also admitted to the news agency that the State Commission on Radio Frequencies was not ready to discuss the point on redistributing 4G frequencies. Our View: The Minister's statement is in line with the tone of the latest statements by the Ministry and President Dmitry Medvedev. However, we doubt that it will lead to a real increase in competition in the Russian telecommunications space in the near term (due to the potential timeframe for 4G network roll-out and the potential growth of 4G devices' penetration). We also think that the local competition is currently at a proper level (prices continue to decline) and mobile operators are effectively employing their lobbying power in a high capex stage. In addition, the potential of rolling out the 4G networks and further developing broadband networks in the regions will result in the real modernisation of the Russian economy. Victor Klimovich SECTOR Transport 76. GAZ Group wins another tender to build Moscow's bus fleet bne August 25, 2010 GAZ Group has won a tender to supply Moscow City government with over 100 buses, the company's press office announced on Tuesday. This is the second large order from the city this summer after the Russian automotive group, controlled by oligarch Oleg Deripaska, won a tender in June to supply 86 buses to Moscow's transport and communications department, reports Prime Tass. The latest order will see GAZ sell the Russian capital 107 LiAZ-6213 buses at a cost of RUB1bn. The contract signed in June is worth RUB850m. 77. Global airlines continue their strong growth in July VTB Capital August 26, 2010 News: Yesterday, IATA released its global airlines traffic statistics for July. Passenger turnover (RPK) was up 9.2% YoY, having slowed slightly from the 11.6% YoY increase in June, bringing the YTD growth figure to 8.1%.
Our View: The data shows that the airline industry continues its strong growth. We do not see the slowdown in the rate of growth as a cause for concern since it can be explained by the retreating low base effect (airline traffic started to rebound a year ago). We expect Russian airlines to follow the global trend, but with the slowdown in the growth rate probably being more pronounced due to the higher base effect. However, even then Russian airlines would continue outperforming the global industry by far, with RPK growth of almost 40% YoY. Aeroflot has recently demonstrated more resilient traffic growth than the industry and so the national champion might become one of the fastest growing airlines globally. This supports our positive view on the company. Elena Sakhnova 78. Minister promises solution to one of Russia's 'two woes' RIA Novosti August 28, 2010 Nikolai Gogol, the 19th century Russian novelist, once claimed that Russia had two woes - its roads and fools; on Saturday the country's finance minister pledged to rid the nation of one of them by 2020. Speaking in northeast Siberia's Yakutsk, Alexei Kudrin, who is also a deputy prime minister, said that the creation of a Federal Road Fund in 2011 would see the country's main roads and highways attain European levels in "the next ten years." "This is not too far off - we will resolve this task in the next ten years," he told journalists at a news briefing. He also pointed out that Russia would increase excise taxes on petrol in 2011. The minister clarified that "all roads will be flat and you will be able to drive on them without getting stuck in potholes." Kudrin previously said the Federal Road Fund will amount to 377 billion rubles ($12.6 bln) in 2011, 348 billion rubles in 2012 and 408 billion rubles in 2013. 79. Putin urges ecologists not to politicize highway construction issue RIA Novosti August 27, 2010 Prime Minister Vladimir Putin said the government was ready to take into account environmentalists' concerns over the construction of the controversial Moscow-St. Petersburg highway, but warned them against politicizing the issue. The statement followed Thursday's order by Russian President Dmitry Medvedev to suspend the construction of the highway, which threatens a forest north of Moscow, as a result of a large-scale grassroots protest movement. "Problems always emerge when it comes to development and environmental protection," Putin told reporters in the Far Eastern city of Khabarovsk.
"Sometimes this ecological problem is used for political purposes," Putin said, adding that in order to find a compromise, both politicians and ecologists should restrain their "ambitions." The construction of the Moscow-St. Petersburg highway through the Khimki forest, part of Moscow's so-called greenbelt, began in 2006, sparking public protests against the destruction of a section of the centuries-old forest. Environmentalists have maintained a round-the-clock vigil at the forest since July 15 in order to stop "illegal" attempts to cut down trees. Russia's Supreme Court has ruled that the decision to build the road does not violate the law. Medvedev decided however to suspend the construction and hold additional public and expert discussions on the issue. "They [the talks] have already been held, but because of the increased public response, I do not see anything bad in returning to the talks once again...in order to dot the i's and cross the t's," the president said in his video blog on Thursday. Putin agreed with Medvedev's decision. "This is normal. This is right," he said. However, he said, the Moscow-St. Petersburg highway should still be constructed as it was "necessary for economic development." Following Medvedev's order, the Russian Natural Resources Ministry said it was ready to join discussions on new possible routes for the highway. 80. Russian Railways BoD approves the creation of Freight Two VTB Capital August 27, 2010 News: Yesterday, Russian Railways' Board of Directors approved the creation of Freight Two. The company will operate 180,000 railcars (87% of them owned) controlling around 50% of the Russian railway transportation market. It will be registered in the Sverdlovsk region and thus enjoy the beneficiary tax regime. We guesstimate that this will help Freight Two to save RUB 10bn (USD 324mn) over ten years for capex needs. According to Interfax, the company is targeting an EBITDA margin of 39% . Our View: Freight Two is being created in line with the previously announced schedule. It is set to enjoy significant tax benefits (the savings alone are enough to renovate 4% of its fleet) and special relations with railcar and locomotive producers located in the Sverdlovsk region (Uralvagonzavod and Sinara Transportation plants). The intended profitability level is impressive and we note that it is close to the 41% unadjusted EBITDA margin which Globaltrans reported in 2009. Although the government has not yet decided on how to control Freight Two's transfer into private hands, we expect the choice to be made around the end of this year. We remind investors that there has been speculation in the Russian broadsheets that the key candidate to acquire Freight Two is Globaltrans. Were this to be the case, we would consider it to be positive for Russia's largest private rail operator since the recently released details imply that the new asset might be even more attractive than we thought. 81. Russian Railways sells 10,000 open rail cars for RUB1.073bn bne
August 24, 2010 State-owned Russian Railways has sold 10,000 open rail cars for RUB1.073bn at an auction, reports Prime-Tass. Citing a statement issued by the company, the news agency says that the starting price for the lot was set at RUB1.003bn.
SECTOR Agriculture 82. Consumer watchdog may ban U.S. poultry imports after salmonella outbreak RIA Novosti August 23, 2010 The Russian consumer rights watchdog may ban U.S. poultry imports after half a billion U.S. eggs were recalled last week amid a salmonella outbreak, the service's chief said on Monday. The U.S. egg producers recalled 550 million eggs last week after reports of salmonella poisoning in several states. "In light of reports in the U.S. media of an outbreak of salmonella caused by contaminated eggs, we are assessing the situation to find out if there is a need to toughen [regulations on] poultry imports from the United States," Gennady Onishchenko said. He said the outbreak justified the sanctions Russia earlier imposed on chlorinetreated poultry imports from the United States and called on the U.S. government to provide more information. Russia banned imports of U.S. poultry as of January 1, citing new safety requirements. U.S. poultry has traditionally accounted for almost 80 percent of Russia's poultry imports. The ban has since been lifted on poultry imports from 72 U.S. companies, but retained on a remaining 15 companies that do not meet the country's safety requirements. In late June, Russian President Dmitry Medvedev and U.S. President Barrack Obama announced that Moscow and Washington had agreed to restart U.S. poultry imports to Russia. 83. Grain harvest down 38% this year bne August 24, 2010 Russia has enough grain to cover its needs after harvesting 38 percent less in 2010, a senior official said Monday, but his data indicated that the former exporter is likely to import millions of metric tons, reports The Moscow Times.
The newspaper report says that Russia, which had been the world's third-largest wheat exporter, was hit by a severe drought in many producing regions that destroyed large parts of its crop and raised the issue of imports.
84. Medvedev inks decree to subordinate forestry agency to govt bne August 27, 2010 Russian President Dmitry Medvedev says that he had signed a decree to subordinate the Federal Forestry Agency directly to the government in an effort to improve forest oversight, reports Prime-Tass. The news agency quoted Medvedev as saying that the agency reported to the Agriculture Ministry. ,,...the current (forestry) system has demonstrated its weaknesses, especially in emergencies.
85. Ministry says no grain imports in 2010 bne August 24, 2010 Russia will not import grain in 2010, an Agriculture Ministry spokesman said Friday, adding that traders had been spreading rumors of imports to heat up the market, reports The Moscow Times. The newspaper report says that U.S. wheat futures slipped 0.33 percent Friday, tumbling more than 3 percent for the week, as Russia said it would not import grain this year and Statistics Canada forecast a bigger-than-expected crop.
86. Number of U.S. companies supplying poultry to Russia may be increased - sanitary watchdog RIA Novosti August 26, 2010 The number of U.S. companies allowed to export poultry to Russia may be increased by the end of the week, a representative for Russia's sanitary watchdog, Rosselkhoznadzor, Alexei Alekseyenko said on Thursday. On August 16, Russia lifted a ban on poultry imports from 68 U.S. companies whose production processes met Russian requirements and continued the ban on the remaining 19 companies that have not met the country's sanitation demands. Currently, the number has been increased to 74. "The [U.S. poultry] producers held inspections, eliminated the flaws that were there and provided us with detailed material on each company," Alekseyenko said. "We will make a decision after we study these materials." Earlier Rosselkhoznadzor expressed concerns over the outbreak last week of the salmonella virus in the United States. Russia has asked the American Food and Drug Administration to submit a list of the farms that announced product recalls.
Russia expressed fears that poultry exported to the country from the United States may contain salmonella after some 550 million eggs were recalled in the U.S that were distributed in 14 different states. The U.S. Poultry and Egg Council (USAPEEC) assured that all poultry meat products exported to Russia contain no salmonella bacteria. U.S. poultry accounted for almost 80% of poultry imports to Russia. The U.S. import quota amounts to 600,000 tons in 2010. On Jan. 1, 2010, Russia introduced new sanitary standards, banning the treatment of meat with chloride of a higher concentration than in drinking water. A difficult negotiating process between Russia and the United States began, while Russia was also negotiating poultry supplies with other states as well as trying to increase domestic production. In June 2010, Russian President Dmitry Medvedev and U.S. President Barack Obama agreed to lift the ban, but imports did not resume because of the high concentration of chloride in U.S. meat. 87. Putin calls on promoting fishing industry bne August 24, 2010 Russian Prime Minister Vladimir Putin has called on promoting the country's fishing industry, reports Prime-Tass. The news agency says that in particular, Putin proposed introducing additional measures to support the construction of fishing boats.
88. Rice, buckwheat prices double in Russian Far East Ria Novosti August 24, 2010 Prices of rice and buckwheat in the Russian Far East city of Vladivostok have increased almost twofold in a week as a result of drought in western Russia and flooding in southern China. The average retail price of the two grains has reached 60 rubles ($2) a kilogram against 35 rubles ($1.1) one week ago. The abnormal heat and drought in Russia this year has destroyed a quarter of the country's crops, forcing the government to ban grain exports and the Agriculture Ministry to cut its grain forecast to 60 million tons from 97 million tons last year. The state statistics service registered an acceleration of weekly consumer price growth to 0.2 percent between August 3 and 9 for the first time in the last few months as grain, flour and cereals prices increased. Previously, weekly inflation rates did not exceed 0.1 percent.
The government has repeatedly said there are no grounds for bread prices to rise. President Dmitry Medvedev has ordered the government and the prosecutor's office to monitor prices on the agriculture market and foil those trying to cash in on the situation. VLADIVOSTOK, August 24 (RIA Novosti) 89. Russia lifts ban on poultry imports from 4 more U.S. plants RIA Novosti August 27, 2010 Russia's sanitary watchdog has approved four more U.S. facilities for the export of poultry to Russia, leaving a ban in place for just five plants, Rosselkhoznadzor said in a statement on Friday. On January 1, Russia introduced new sanitary standards, banning the treatment of meat with chloride of a higher concentration than in drinking water. A difficult negotiating process between Russia and the United States began, while Russia was also negotiating poultry supplies with other states as well as trying to increase domestic production. In June 2010, Russian President Dmitry Medvedev and U.S. President Barack Obama agreed to lift the ban. On August 16, Russia lifted a ban on poultry imports from 68 U.S. plants whose production processes met Russian requirements. The U.S. side complained that 60 were merely cold-storage facilities and 19 of 27 processing plants were still barred from exports. After Thursday's move, 22 of 27 processing plants are approved for exports to Russia. Earlier this week, Russia expressed fears that poultry exported to the country from the United States may contain salmonella after some 550 million eggs were recalled in the U.S that were distributed in 14 different states. Russia asked the American Food and Drug Administration to submit a list of the farms that announced product recalls. The U.S. Poultry and Egg Council (USAPEEC) assured that all poultry meat products exported to Russia contain no salmonella bacteria. U.S. poultry accounted for almost 80% of poultry imports to Russia. The U.S. import quota amounts to 600,000 tons in 2010. 90. Russia plans to be poultry exporter from 2012 bne August 26, 2010 Russian Deputy Agriculture Minister Alexander Belyaev says that Russia plans to become a poultry exporter beginning in 2012, reports Interfax. The news agency quoted Belyaev as saying that they currently supply ourselves with roughly 70% of our total demand for poultry meat.
91. Russia to return to global grain market Ria Novosti August 27, 2010 Has Russia lost its position on the world grain market and how soon will it be before it resumes grain exports? RIA Novosti finds out in an interview with Agroinvestor's editor-in-chief, Nikolai Lychev. RIA Novosti: In recent years Russia has been a reliable grain supplier to countries in North Africa and the Middle East. The ban on grain exports came into effect on August 15. Is the export ban undermining Russia's international image as a reliable grain supplier? Nikolai Lychev: I would not say that Russia has built up a solid position on the world grain market. Rather, we have managed to become an interesting and promising partner for many grain importers. So we have not had the chance to consolidate this position yet. Russia has not yet become a traditional exporter, like the United States, the European Union, and some other countries and regions. In the past, Russia would import grain and only about five years ago became a grain exporter. Incidentally, we are returning to that status of being an importer, and will probably import over 5 million tons of different kinds of grain this year. Before this current period of poor harvests, we were simply one of the largest grain exporters, no more than that. In short, I cannot say that Russia has managed to acquire a solid position [on the world grain market]. However, the ban on grain exports and especially the speed with which it was introduced - two weeks after the prime minister ordered an export embargo - was an unpleasant surprise not only for those selling grain, but for our international partners as well. Here I have in mind, first of all, such countries as Egypt and large companies based there that buy grain for private and state needs. Many market participants - domestic exporters, agricultural producers, as well as the buyers of Russian grain - were not prepared for this development. As for the possible harm done to Russia's image as a reliable grain supplier, there will be problems, of course. It should be up to the government, which after all initiated this measure, to resolve these problems, not the market participants. First, it should explain to international grain importers why this embargo was needed. Last week, Deputy Prime Minister Viktor Zubkov held a telephone conversation with [Russia's] Egyptian partners. I think the Ministry of Agriculture, the Ministry of Foreign Affairs, and our trade representatives should all have this kind of regular contact with buyers. The way we explain the necessity of this measure backed up with convincing arguments will influence the way our partners respond to this sudden ban. This measure was indispensible for the state. In July, it became clear that Russia is in for a large-scale drought and that the harvest would decrease by 20-25%, which in turn led to speculation on the domestic market. Grain prices started to rise: the price of flour grew by several dozen percentage points, bread became more expensive in some areas, not to mention grain. Speculative expectations were unreasonably strong. In particular, agricultural producers in Russia's central regions told Agroinvestor off the record that wheat [for human consumption] cost up to
10,000 rubles ($324.7) per ton in 2008, and that they expected similar prices this year and refused to sell their grain at lower prices. Flour producers, bakers, and retailers all had their own reasons to raise their prices. All this could trigger a rapid growth in inflation (in just one week from August 10 to 16, inflation rose to 0.2% from 0%, according to the Federal Service for State Statistics), and this is something the government could not allow. So in order to neutralize all this speculation on the agricultural market and prevent a rapid growth in inflation, the government acted quickly to introduce a ban on grain exports until the end of the year. It would seem agricultural producers should actively sell their grain and earn money. But most are hoarding their grain, as they continue to expect to see consistent growth in grain price, if not throughout the whole season, then for some lengthy period. This unwise sales strategy has led to a stagnation on the market. Domestic sales are very low in volume, and grain is rarely sold at economically sound prices. It will take time for market participants to understand that the grain prices have stabilized and that unless they start selling grain again, they will lose more than they earn. I think the state will not be a passive onlooker here either: The government has already warned that it can, at any time, start selling grain from the intervention fund (that contains 9.6 million tons, according to official data). Selling grain from the intervention fund could weaken purchase prices for grain, and those who do not want to sell grain now will not earn anything, at least until the end of the year. RIA Novosti: What can you say about our competitors, such as the United States and the European Union countries? Will they lure our grain customers away? Nikolai Lychev: I would not phrase the question like that. Right now our consumers have no choice. Grain is not gas. It is clear that those who buy Russian grain, primarily Egypt, will search for other options and will surely find them. Still, I am sure that many of our buyers will go back to trading with Russia once the ban is lifted, as Russian grain is the most competitive out there on the global market in terms of quality and price. We have been selling ordinary-quality cereal grains for five years, mainly wheat, purchased to form milling blends together with betterquality grains often purchased from other countries. We have been selling mediumquality grain abroad in recent years, and that became our niche. This year our traders won the most challenging and largest tenders in Egypt, offering a few dollars less for one ton of grain than our competitors. As soon as Russia lifts the ban, we will return to this market, with temporary image problems, of course. Our exporters have taken pains to establish contacts with some countries, which are very exacting clients, like Egypt, and it will certainly take time to restore these relations. The question is when we will be able to return to the world market. I would not rule out the option that the ban will last through to the end of the agricultural season (June 30, 2011). RIA Novosti: How long will it take Russian companies to restore the contracts they had? Nikolai Lychev: In order to answer that question, one needs to know how long the export ban will last. And, this is a question for market regulators rather than analysts. Assuming that the ban is lifted on January 1, 2011, Russian exporters will take one season, maybe more, to partly recover their former position. But this will also depend on the situation on the Russian market and grain prices, as the margin
between the domestic and international price constitutes an exporter's income, and it also depends on the 2011 harvest, that is, on how much grain Russia will be able to export next year, if any. In fact, it is already obvious that next year's harvest is not going to be a large one. RIA Novosti: But, as you say, Russian companies still have a chance of restoring their grain export level by next season, don't they? Nikolai Lychev: Theoretically, yes. We may see a partial recovery in exports over the next agricultural year starting from July 1, 2011. But this season will see a significant drop, according to various estimates down to between 2 and 8 million metric tons, from over 20 million tons the year before. RIA Novosti: And the last question, when Russia finally regains its foothold on the international grain market, will it offer special, privileged, terms to its former largest grain importers such as Egypt and Turkey, or will it give preference to other customers? Nikolai Lychev: There is no room here for favoritism, and even less so for privileges, as Russia is a commercial grain trader. There are around ten large grain traders in Russia, most of them units of major international trading companies such as Glencore, Louis Dreyfus and others. Commercial traders are guided by commercial interests. A trader gives preference to the customer that gives the best offer in terms of price, amount, terms of delivery and other characteristics. If Egypt makes the best offer, the grain will be shipped to Egypt; if, say, Indonesia does, then Indonesia will have the grain. Let me repeat, it is in a commercial trader's interest to profit from the price margin. There is a state grain trader, the United Grain Company, which supplies grain to customers while also keeping in mind Russia's national interests. It can also supply grain as part of relief aid and under inter-state contracts. This company is not focused on commercial interests, and it does not make a profit in the above cases. Even when it operates as a commercial trader, it remains to a large extent a state development institution. From this perspective, the drought and crop failure will not overrule the president's orders. He said last year that Russia should boost grain exports in the next five to seven years and become one of the world's top grain exporters. The current export ban is a temporary measure and will be lifted; and so Russia will return to the global grain market sooner or later. 92. Russia's grain harvest down 27.6% on year as of August 19 bne August 27, 2010 Russian Deputy Agriculture Minister Alexander Petrikov has said that Russia's grain harvest amounted to 40.3 million tonnes as of August 19, down 27.6% on the year, The news agency quoted Petrikov as saying that 19.3 million hectares, or 48% of the planted area, had been harvested so far.
93. Russian grain lobby sees no shortages of buckwheat bne August 26, 2010 Russian Grain Union believed there would be no shortages of buckwheat, reports Prime-Tass. The news agency quoted a spokesperson for the union as saying that rumors about alleged shortages of buckwheat were a ,,farce" and added that they had been triggered by incorrect information published by the media, speculation among retailers, and panic among customers.
94. State grain trader starts domestic supplies VTB Capital August 23, 2010 State grain trader United Grain Company (UGC) has started domestic grain supplies with a delivery to a flour mill in a drought-hit regions in central Russia, UGC said on Monday. "The situation we are currently facing on the Russian grain market means we must organize grain supplies to the most distressed consumers with the utmost efficiency. One of UGC's current tasks is to eliminate regional imbalances between grainproducing and grain-refining regions," UGC Chief Executive Officer Sergei Levin said. The government has recommended UGC work out a grain supply scheme to meat and poultry producers in the country's most drought-hit regions. Russia is striving to preserve dairy cattle stocks in conditions of a lack of feed grain after the worst ever drought and heat has destroyed nearly a quarter of the harvest. 95. Altai gas pipeline by 2018 bne August 27, 2010 The Energy Ministry plans for a gas pipeline to be built to China through the Altai republic by 2015 to 2018, possibly faster than the South Stream link to Europe, reports The Moscow Times. Citing media reports, the newspaper report says that the ministry will submit its draft, which is based on data provided by state gas exporter Gazprom, to the government by the end of August.
SECTOR Automotive 96. Avtovaz breaks even in 7 months bne August 26, 2010
Viktor Komarov, the president of Avtovaz says that the company had net profit of RUB24mn in January-July, reports Interfax. The news agency says that sales revenue was RUB71.5bn in the seven months.
97. AvtoVAZ to stop production of classic Lada cars in 2011 bne August 26, 2010 Igor Komarov, the President of Russian carmaker AvtoVAZ, says that the company plans to stop production of the old-style low-cost Lada models in 2011, reports Prime-Tass. The news agency quoted Komarov as saying that AvtoVAZ plans to continue supplying kits to assemble the older Lada models to IzhAvto in September.
98. AvtoVAZ turned profitable in January-July 2010 VTB Capital August 27, 2010 News: AvtoVAZ's CEO announced yesterday that in January-July 2010, the company's bottom line turned profitable under RAS, earning less than USD 1mn on sales of USD 2.3bn . During his visit to the Moscow International Auto Show, Igor Komarov also mentioned that the company was considering a price increase in September 2010 and planned to transfer production of the outdated Lada Classik models to a production facility in Izhevsk as early as next year (a year earlier than previously planned). Our View: We see no reasons for optimism over AvtoVAZ moving into the black since the reported net income was immaterial in volume and artificial in nature. The company was one of the key beneficiaries of the cash for clunkers programme (which accounted for around 80% of all vehicles that it sold), which explains the improvement in profitability. However, although the resulting cash injection helped to make P&L more appealing for a while, it has not led to any material changes in the company's operations. Furthermore, a second price increase in five months (were it to happen) would not improve the situation. We expect AvtoVAZ to sink back below the waterline in the near future and forecast that the company will post a huge loss of around USD 0.7bn for FY10. The company is still unable to earn the money necessary to carry out the badly needed (and massive) technological upgrade or repay its huge debt burden and will continue to cling on to the straws of state financing. Elena Sakhnova 99. Ford to launch restyled Mondeo production in Russia RIA Novosti August 25, 2010
Ford plans to launch production and sales of a restyled Mondeo saloon model at its plant near St. Petersburg in October, Ford Russia's Managing Director Mark Ovenden said on Wednesday. Production of a new Ford Focus will be launched in 2011, with sales starting in the second half of that year. Russian sales would amount to 1.6-1.7 million vehicles in 2010, Ovenden said, adding that the company is hiring 240 people and is considering introducing a night shift. The plant, which employs 2,400 and started operations in the Leningrad region in 2002, produces Focuses and Mondeos. Its annual capacity amounts to about 125,000 cars. 100. Hyundai to produce special Russian car RIA Novosti August 25, 2010 South Korean carmaker Hyundai Motor plans to produce a new car designed specially for Russia, at its factory near St. Petersburg, Managing Director of Hyundai Motor CIS Denis Petrunin said on Wednesday. The car will be given a commercial name in September, Petrunin said, adding the price would be competitive with the Volkswagen Polo Sedan budget car. Russia's subsidiary of Hyundai Motor, Hyundai Motor Manufacturing Rus, is building a plant in St. Petersburg, where a production line was launched in a test mode in May 2010. The plant will produce C class sedans with an engine volume of 1.4 -1.6 liters. Mass production will start in January 2011. The company expects to reach its production capacity of 100,000 cars in late 2011 and to increase it further to 150,000 cars and operate three shifts. 101. IzhAvto to agree on resuming assembly of Kia, Hyundai vehicles soon bne August 26, 2010 Russian automaker IzhAvto plans to reach agreements on resuming production of South Korea's Kia cars and Hyundai trucks within two weeks, says Igor Kulgan, CEO of United Automobile Group, which manages the plant, reports Prime-Tass. The news agency quoted Kulgan as saying that IzhAvto also plans to resume the assembly of AvtoVAZ' Lada-2104 models on September 1 to September 3.
102. MAZ to assemble vehicles in Russia's Kursk bne August 26, 2010 Belarusian Prime Minister Sergei Sidorsky says that Belarus' Minsk Automobile Plant, or MAZ, is expected to launch a facility to assemble its vehicles in Russia's Kursk, reports Prime-Tass.
The news agency quoted Sidorsky as saying that they have agreed to organize MAZ' production in Kursk.
103. Mitsubishi Motors to start car assembly in Russia's Kaluga September bne August 24, 2010 Mitsubishi Motors President Osamu Masuko says that the company plans to start car assembly at a plant in the Russian city of Kaluga in September, reports Prime-Tass. The news agency quoted Masuko as saying that the company plans to start complete knock down production of Mitsubishi Outlander crossover at the plant.
104. Nissan expects Russian sales to double to 100,000 cars in `10 FY bne August 26, 2010 Japanese automaker Nissan plans to more than double its sales in Russia to over 100,000 cars in the 2010 fiscal year from around 45,000 cars in the 2009 fiscal year, reports Prime-Tass. The news agency says that the 2010 fiscal year started on April 1 and is to end on March 31, 2011.
105. Putin praises Russian car on 2,000-km drive in Far East RIA Novosti August 27, 2010 Russia's car industry had a pleasant surprise for Vladimir Putin on Friday as the prime minister was moved to praise the Lada Kalina he is driving through four Far Eastern Russian regions. Stopping to fill up the tank at a gas station almost 400 kilometers into his 2,000kilometer trip along the newly-completed highway from Khabarovsk to Chita, Putin praised his Lada Kalina to a group of tourists. "Unexpectedly, it turned out to be a very convenient, comfortable and reliable car," Putin said when asked why he had chosen the latest offering from Russia's car giant AvtoVAZ, which started selling the model in 2005. "Try buying this car. I assure you, you won't regret it," he said. He added that he would have been happy driving any AvtoVAZ car. While western experts say the outlook for Russia's indigenous car industry is grim, with some arguing the Russians only buy domestic cars because they cannot afford foreign marques, the Kremlin continues to put on a brave face.
Billions of rubles have been earmarked to help struggling automakers, and AvtoVAZ has been the main beneficiary of the country's cash for clunkers scheme, which gives people trading in old cars 50,000 rubles towards the purchase of a Russian-made car. These days, Russian-made vehicles include thousands assembled from imported knocked-down kits by Renault, Ford, Daewoo and many other international carmakers. Despite the low price tags, many Russians remain wary of the Ladas and Volgas that have in various forms rolled off production lines for over 30 years now. Even the country's bureaucrats have resisted the allure of a domestic set of wheels several feeble attempts to force them into Ladas and Volgas over the past decade have not gone beyond high-flown patriotic words in the parliament. Instead, the elite have grown even more attached to their jet-black Mercedes and BMWs. 106. Renault may buy rights to produce AvtoVAZ' new low-cost model bne August 26, 2010 French carmaker Renault could buy the rights to produce and sell Russian automaker AvtoVAZ' new low-cost model Lada Granta in third countries, reports Prime-Tass. The news agency says that AvtoVAZ is expected to start producing Lada Granta cars based on the Lada Kalina platform in late 2011.
107. Russia's car output up 70% on year in January-July bne August 24, 2010 The Industry and Trade Ministry said in a monitoring report that Russia's car output rose about 70% on the year to 599,000 units in January-July, reports Prime-Tass. The news agency says that output of foreign-branded cars increased about 90% on the year to 309,400 units in the period.
108. Russia's car tire output up 39% on year in January-July bne August 25, 2010 Russia's car tire output rose 39% on the year to 13.88 million tires in January-July, reports Prime-Tass. Citing a report issued by the Economic Development Ministry, the news agency says that output of tires for trucks, buses and trolley buses was up 9.4% on the year to 4.170 million units in this period.
109. Share of ,,cash for clunkers" sales to fall September-November 2011 bne August 26, 2010 The share of cars sold under the Russian government's ,,cash for clunkers" program is expected to fall to 7%-8% of total car sales by September-November 2011, reports Prime-Tass. Citing a statement issued by the Industry and Trade Ministry, the news agency says that since the launch of the program on March 8 over 260,000 certificates for bonuses to buy new Russian-made cars in exchange for recycling old cars have been already issued, agreements to buy 230,000 cars have been concluded and customers have received over 120,000 cars.
110. Sibur Russian Tires starts tire supplies to Avtoframos bne August 23, 2010 Russian tire manufacturer Sibur Russian Tires has started supplying tires to Moscow-based car maker Avtoframos, controlled by France's Renault, reports PrimeTass. Citing a statement issued by Sibur Russian Tires, the news agency says that Sibur Russian Tires started supplying tires under the Cordiant sub-premium brand for Renault Logan and Renault Sandero cars.
111. Sollers CFO comments at auto show Renaissance Capital August 26, 2010 Event: In a speech at the Moscow International Auto Show, Sollers CFO Nikolay Sobolev said that the company would break even on the net level in 2010 and would be profitable on the operating level, although he did not specify the numbers, according to a report by RBC Daily. Sobolev also said that Sollers plans to launch SUV production in Kazakhstan in 2011, with 10k output at the first stage (2011). Sollers will have a 50% stake in the Kazakhstan JV, and the other 50% will be held by Saryarka-Auto. The JV is seeking financing. Citing CEO Vadim Shvetsov, PrimeTASS reported that management thinks VEB will decide whether to participate in the Sollers-Fiat JV to produce passenger cars within half a year; Sollers plans to disclose the business plan of the project in October. Action: We reiterate our BUY rating on Sollers. Rationale: We expect Sollers to be profitable at the operating level this year, but to be loss-making at the net level. Still, valuation-wise we think the 2011 numbers are more relevant; in 2011, we think Sollers should improve its profitability further on the back of a structural demand recovery, good product mix, and high level of localisation. In Kazakhstan, the JV will not be massive, at least at the first stages,
and it needs to secure financing. One of the major potential upcoming catalysts for the stock would be the October release of the business plan for the Sollers-Fiat JV, which is to produce 0.5mn passenger cars per year. Ivan Kim SECTOR Aviation and defence 112. Agency to auction gold license in Russia's Sakhalin Region October 28 bne August 26, 2010 Russia's Federal Mineral Resources Agency plans on October 28 to hold an auction for a license to explore and develop the Severo-Kunashirsky field in the Sakhalin Region, reports Prime-Tass. Citing documents issued by Russia's Natural Resource Ministry, the news agency says that bids for the auction are to be accepted by September 27.
113. Avianova plans to carry 1.2 million passengers in 2010 bne August 26, 2010 Vladimir Gorbunov, the CEO of Russian low-cost airline Avianova, says that the airline plans to carry 1.2 million passengers in 2010, reports Prime-Tass. The news agency quoted Gorbunov as saying that the airline, which started operations on August 27, 2009, has carried 900,000 passengers since then.
114. Changes proposed to Russia's military procurement system - paper RIA Novosti August 27, 2010 The Russian Federal Service for Defense Contracts (Rosoboronzakaz) has proposed changes to the country's procurement system, a business daily said on Friday. Rosoboronzakaz wants to bring the scheme in line with the U.S.'s Defense Federal Acquisition Regulation Supplement (DFARS), Vedomosti said. The Defense Procurement Law presupposes market mechanisms of price formation, Rosoboronzakaz Deputy Director Vladimir Muravnik said, adding that these mechanisms have little if nothing to do with what actually goes on. There are only three suppliers at the very most, so there is no competition, he said. He claimed that one result of this was "numerous cases of contract overpricing". This is also due to the fact that defense procurement is monitored by Rosoboronzakaz, not the Federal Anti-Monopoly Service, Muravnik said. The DFARS develops uniform acquisition policies, demanding suppliers, or in most cases one supplier, to justify their pricing by providing the proper documentation as well as drawing on labor input and profitability rates.
Pricing should be flexible and account for expenses, Muravnik said. The majority of the Pentagon's contracts with Boeing, Northrop Grumman and General Dynamics are flexible, meaning that the pricing changes after all of the expenses are accounted for. If a supplier has raised the price, as is often the case, it should be penalized, Rosoboronzakaz said. Any distortion in accounts should be likewise punished, it added. President Dmitry Medvedev saw red recently over an overpricing row in the south Russian Rostov region, where several X-ray machines were bought on a government contract for three times the original price. Rosoboronzakaz said that if the proposals go through, it will help save some 10% of budget funds allocated for defense procurement. Russia plans to spend more than 600 billion rubles ($19.4 billion) on defense procurement this year. The government has not yet made any decision on the proposals, Prime Minister Vladimir Putin's spokesman told Vedomosti. While leading suppliers, including NPO Saturn, are in favor of the changes, there are fears they may increase the amount of red tape and paperwork. 115. India to get Russian nuclear submarine on lease in fall RIA Novosti August 23, 2010 The Russian K-152 Nerpa nuclear attack submarine, which is currently carrying out workup trials in the Russian Far East, will be transferred to India on a 10-year lease in the fall, a spokesman for the Amur Shipbuilding Plant said on Friday. The workup includes a training program for the Indian crew to ensure they can operate the submarine's systems, the spokesman said. The lease contract, estimated at some $900 million, was drawn up following an agreement between Moscow and New Delhi in January 2004, in which India agreed to fund part of the Nerpa's construction. The Nerpa was scheduled to be introduced into the Indian Navy as INS Chakra by mid-2008 but technical problems stalled the process. Twenty sailors and technical workers were killed onboard the submarine shortly after the start of sea trials in November 2008, due to a toxic gas leak when the automatic fire extinguishing system malfunctioned. The boat is now fully operational following repairs. 116. Kremlin denies plans to halt missile sales to Syria RIA Novosti August 28, 2010
Russia stands by its international obligations and has no plans to stop an arms deal with Syria, a Kremlin aide said on Saturday. Sergei Prikhodko said recent reports in some Israel media outlets misrepresented Russia's position on cooperation with Syria. The Haaretz daily reported on Friday that Israel was working to "thwart a Russian arms deal with Syria" and that Prime Minister Benjamin Netanyahu had asked his Russian counterpart, Vladimir Putin, to stop the sale of advanced P-800 Yakhont supersonic cruise missiles. "Lately, some Israeli media outlets have been actively disseminating information distorting Russia's position on the implementation of its obligations to Syria, including in the sphere of military and technical cooperation," Prikhodko said. "I would like to stress that the Russian Federation honors all the agreements that were previously signed between Russia and Syria." He said Russia's military cooperation policy is shaped by the president and is not directed against third countries. 117. No decision made on Russian S-300 deliveries to Iran - defense minister RIA Novosti August 23, 2010 No decision has been taken yet on the delivery of S-300 air defense systems to Iran, Russian Defense Minister Anatoly Serdyukov said on Friday. Russia signed a contract on delivering at least five S-300 systems to Iran in December 2005, but the contract's implementation has so far been delayed. On June 9, the UN Security Council approved a fourth round of sanctions against Iran over its nuclear program, including tougher financial controls and an expanded arms embargo. Later, the United States and the EU imposed extra sanctions against the Islamic republic. The sale of S-300 air defense systems is believed to fall under the sanctions, though Russia said the delivery would not be affected since the weapons are not included in the UN Register of Conventional Arms. The head of the Russian State Technology Corporation Rostekhnologii, Sergei Chemezov, said in July that the contract had not been cancelled. 118. NPO Saturn starts mass deliveries of engines for the SSJ-100 Renaissance Capital August 25, 2010 Event: Yesterday (24 Aug), Prime-TASS reported that NPO Saturn has started mass deliveries of SaM146 engines for Sukhoi SuperJet 100 (SSJ-100) aircraft. The SaM146 engine was created by NPO Saturn in cooperation with French company
Snecma. Tthe engine has been certified by the European Aviation Safety Agency, and on 13 Aug 2010 it was certified by the Aviation Register of the Interstate Aviation Committee of Russia. These certifications permit the use of these engines on aircraft without additional certification in Russia, the CIS and Europe. Currently, NPO Saturn is producing 50 engines for delivery in 2010-2011, including 13 engines for delivery in 2010. Action: The news is positive for NPO Saturn and for United Aircraft Corporation (UAC), in our view. Rationale: One of the reasons for the delay in launching commercial production of the SSJ-100 was a delay in the certification of the SaM146 engine. We expect that UAC, as planned, will start to deliver the SSJ-100 this year. UAC currently has 161 orders for SSJ-100 aircraft, and plans to deliver the first three SSJ-100 this year. At the end of June, the SSJ-100 had completed 70% of its certification programme. Mikhail Safin 119. Putin stresses importance of new Far East space center RIA Novosti August 28, 2010 Prime Minister Vladimir Putin underlined on Saturday the significance of a planned new space center in Russia's Far East. "We began talking about the necessity of building such a space center in 2005," Putin, speaking at the Amur Region site where the Vostochny Space Center is to be built, said. Russia currently uses two launch sites: the Baikonur space center in the Central Asian Republic of Kazakhstan, which it has leased since the collapse of the Soviet Union, and the Plesetsk space center in northwest Russia. "The creation of a new space center...is one of modern Russia's biggest and most ambitious projects," Putin went on. "It will give us the opportunity not only to confirm Russia's leading technological status...but will give hundreds, perhaps thousands, of young specialists the chance to prove their talents." He also said that while Russia had signed an agreement with "friendly" Kazakhstan on the continued use of Baikonur until 2050, the Kazakh center alone was not sufficient for "such a powerful space force as Russia." Deputy Prime Minister Sergei Ivanov said earlier in the day that all Russian manned space fights would be launched from the Vostochny Space Center from 2018, He also said that cargoes and satellites would be launched from the space center from 2015. The new space center, which will employ 20,000-25,000 people, will ensure Russia's independence in the launch of piloted space vehicles, currently carried out at Baikonur.
Construction is expected to start in 2011, with design and survey work already under way. Putin said in July that Russia would allocate 24.7 billion rubles (around $811,000) for the next three years for the construction of the space center. 120. Russia plans to spend up to an extra USD 25bn annually from 2013 on modernising the army VTB Capital August 25, 2010 News: Vedomosti has run a story about the reform of the German army, which aims at increasing efficiency and saving about EUR 8.3bn through 2014. Russia is also planning to modernise its armed forces. At the same time, expenditures on defence are to increase dramatically, from USD1,264bn in 2010 to USD 2,026bn in 2013. Our View: Despite the talk about curbing the budget deficit and the need to keep expenditures low, under the current Fiscal policy guidelines for 2011-13 spending on defence is to increase 60% in the next three years. Hence, by 2013 Russia plans to spend an extra USD 25bn (EUR 20bn) per year on the army (compared with 2010). We note that this compares with the combined budget of the Presidential Committee for Modernisation and Skolkovo of about USD 2bn a year in 2011-13. At the same time, most technological breakthroughs (and particularly in the Soviet Union) have been achieved in the military. Aleksandra Evtifyeva 121. Russia to hold competition to choose new Navy corvette - paper RIA Novosti August 23, 2010 The Russian Defense Ministry will hold a competition in September to select a new corvette for the Navy to replace the Project 20380 class, a business daily said on Monday, citing sources in the shipbuilding industry. The competition should produce a mobile, fast-moving ship with a helicopter hangar and a distinct modular layout for weapons, Kommersant said. The Project 20380 corvette is deployed to destroy enemy surface ships, submarines and aircraft, and to provide naval gunfire support for beach landings. It uses stealth technology to reduce the ship's secondary radar signature, as well as its acoustic, infrared, magnetic and visual signatures. Five design centers are likely to take part in the competition, the paper said. Three belong to Russia's United Shipbuilding Coorperation: Zelenodolsk, Severnaya Verf and Almaz. A fourth unnamed foreign shipyard, which specializes in small civilian vessels, is a likely participant, the paper said. The first Project 20380 corvette, the Steregushchy, entered service with Russia's Baltic Fleet in October 2008. The second, the Soobrazitelny, was launched on March 31, and two other ships of the same series, the Boyky and the Stoyky, are under construction.
The Russian Navy needs around 50 Project 20380 vessels to ensure the protection of its coastal waters, as well as its oil and gas transportation routes, especially in the Black and the Baltic seas. However, a shipbuilding industry source told Kommersant that the Project 20180 ship "does not meet modern requirements" and a new class is therefore required. If the competition in September is successful, the approved project "will determine the shape of surface shipbuilding for the next 15 years", the source told Kommersant. 122. Russian airlines fly 30% more passengers in 7 months bne August 26, 2010 Rosaviatsia, the federal aviation service has said that Russian airlines flew 31.168 million passengers in January-July, up 29.8% from the same period of last year, reports Interfax. The news agency says that passenger turnover grew 35.2% in the 7M to 80.211 billion passenger-km, including growth of 142.9% to 47.743 billion passenger-km on international flights.
123. UTair European unit to acquire six helicopters bne August 23, 2010 UTair Europe, the European subsidiary of Russian airline UTair, has signed an agreement to acquire six Ka-32 helicopters from Russian aviation equipment leasing company Avialeasing, reports Prime-Tass. Citing a statement issued by UTair, the news agency says that the helicopters are to be supplied in 2011.
SECTOR Media 124. RBC: Business Audience Rapidly Expands In July VTB Capital August 27, 2010 TNS-Gallup has released its Russian internet audience estimates for July, for the 1254 year old age bracket. RBC's audience estimation began in April 2009 and by July RBC has managed to roughly double the business audience of its two flagships RBC (a business news web- site) and RBC-Daily (a business daily newspaper). Again this underpins the strength and competitiveness of RBC's exposure to premium, highincome audience. In addition, the numbers support our bullish view on RBC, Russia's only public stock with exposure to the rapidly growing domestic internet ad market.
Taken together, the audiences of RBC.ru and RBC-Daily (6.7mn and 1.8mn, respectively) soared 59% YoY. On an annual basis, the monthly audience of RBC.ru swelled 64% YoY, way beyond the 20% YoY rise in total Russian monthly internet audience. The combined monthly internet audience of RBC's 26 websites gained 15% YoY, to about 36% of Russia's internet audience, slightly behind the 20% YoY domestic internet audience expansion. Disappointment continues to be seen in RBC's nonbusiness web-sites (Figure 4). However, they are not part of the central theme of our RBC investment case and fail to materially impact our valuation. Russia's monthly internet audience saw a 56% share. Yandex.ru and Mail.ru remain the largest websites for Russian internet market growth, accounting for 48% and 44.4% of the audience share, respectively, healthy improvements from last year's 35.9% and 35.6%. Their closest peer's market position, Rambler.ru, has immaterially risen to 16.2% (from 16.0% last year). The Russian internet market remains the fastest growing ad segment across Russia's ad universe: in 1H10 it expanded 34% YoY (in RUB terms). The Russian internet ad market remains small: at RUB 18.9bn (USD 600mn) in 2009, it accounted for just 9% of total ad spending. However, in our view, it will expand six-fold over the next five years on the back of Russian broadband penetration surging from the current 23% to over 60% by 2014.
SECTOR Coal 125. Raspadskaya CEO elucidates on mine restoration Alfa Bank August 27, 2010 Yesterday Raspadskaya published a local press interview with CEO Gennady Kozovoy. In the interview, Mr. Kozovoy stated that a detailed proposal for the first stage of the mine restoration will be delivered to the regulatory body GlavGosExpertiza in September. We conclude from these remarks that the mine will unlikely be restarted in September this year, as was recently stated by Kemerovo region governor Aman Tuleev. We continue to consider our base case (the restart of mine in November) as the most likely scenario, and thus treat the news as mostly NEUTRAL for the stock. Barry Ehrlich SECTOR Chemicals, Fertliser 126. Court supports Federal Anti-Monopoly Service decision on fines for Uralkali and Silvinit VTB Capital August 27, 2010 News: The Moscow Arbitration Court has upheld the decision by the Federal AntiMonopoly Service (FAS) to fine Uralkali RUB 103mn (USD 3.5mn) and Silvinit with its domestic trader a total of RUB 161mn (USD 5.5mn). The fines were imposed in April when FAS ruled that the companies were abusing their monopoly positions and
jointly setting a higher price on potash delivered to the domestic complex fertilisers industry in 2009. Our View: This seems like a case of deja-vu: in 2007, FAS adjudged Uralkali and Silvinit liable to pay USD 2mn and USD 5mn, respectively, to the budget, following an application by Acron. However, they successfully challenged that decision in court and escaped with fines of USD 1-2mn. Even if the latest fines were to be imposed, their financial impact on the potash producers would be negligible: we estimate that the amounts equate to less than 1% of their net income. Elena Sakhnova 127. Uralkali: Arbitration court rules in favor of company UralSib August 23, 2010 Court nullifies decision from Federal Tax Service. On Friday, Uralkali (URKA LI - Buy) announced that the Federal Arbitration Court has ruled that the claim of the Third Inter-district Inspectorate of the Federal Tax Service for Major Taxpayers, that it must pay $26 mln in taxes and pen- alties, be held null and void. Taxes and penalties would have made up 4% of 2010E net income. Back in January, Uralkali announced that the Federal Tax Service had decided that it must pay $26 mln (RUB803 mln) in taxes and penalties for 2005-2006. This amount consisted of $20 mln (RUB604 mln) in unpaid mineral extraction taxes from October 2006 (the tax period dur- ing which the Mine 1 flooding accident occurred), in addition to a pen- alty charge and interest. The total amount of the taxes and penalties would have accounted for 4% of projected 2010 net income. Thus, even if the Arbitration Court had ruled against Uralkali, we do not think the Uralkali would have had any difficulty making this payment. News marginally positive for the stock. We view the news as marginally positive for Uralkali stock, however, this development was expected following the change in shareholder structure. We reiterate our Buy recommendation for the stock. Anna Kupriyanova GOVT REFORMS, REGULATIONS, ECONOMICS, REGIONS 128. Customs Union interior ministers to discuss steps against illegal trafficking RIA Novosti August 24, 2010 The Russian, Belarusian and Kazakh interior ministers will meet on Tuesday in Astana to discuss joint measures aimed at preventing a possible rise in illegal goods trafficking within the Customs Union, the Belarusian Interior Ministry has said. The Customs Union between Russian, Belarus and Kazakhstan became fully operational in early July, when the three countries ratified the Customs Code. The countries plan to scrap their customs borders on July 1, 2011, which may lead to an increase of illegal immigration and trafficking of various goods within the union.
According to the ministry, illegal imports from third countries have already resulted in a shortage of tax and customs revenues in Belarus's state budget. Belarusian police fear smuggling of alcohol and cigarettes, as well as illegal car trade, would increase in Belarus after the customs borders are scrapped. This may also result in illegal exports of precious metals from the Customs Union to Europe. "There are indications that a possibility of free movement of these goods within the Customs Union would aggravate the problem," the ministry said in a statement. On Tuesday, the Russian, Belarusian and Kazakh interior ministers, Rashid Nurgaliyev, Anatoly Kuleshov and Serik Beimaganbetov, are also expected to meet with Kazakh President Nursultan Nazarbayev. 129. Economy Ministry working on bill on public-private partnership bne August 27, 2010 Belarusian Deputy Economy Minister Andrei Tur has said that the Belarusian Economy Ministry in association with concerned agencies is working on a bill on public-private partnership (PPP), reports Prime-Tass. The news agency quoted Tur as saying that the Belarusian legislation contained legal norms that stipulated the key types of public-private partnership.
130. Retailers complain to government about wholesale food price hikes RIA Novosti August 24, 2010 Russia's largest grocery retailers have appealed to the Federal Antimonopoly Service and a government working group over what they say are unjustified and excessive cases of wholesale food price hikes, Ilya Belonovsky, director of the Retailers' Association said late on Monday. Retailers said they counted on the state services to decide if it was economically justified to raise food prices, which are now under close scrutiny from the authorities due to the record drought which has hit the country destroying a quarter of crops. President Dmitry Medvedev has ordered the government to monitor pricing on agricultural products to prevent price-gouging. "Today, chains are besieged by suppliers' requests to raise their wholesale prices. Not only those who suffered from the drought are raising their prices, but also those who have nothing to do with the drought. We do not accept the increase in wholesale prices, we maintain our prices," Belonovsky told a news conference adding that even suppliers of honey, beer and salt were trying to charge more. From July to August 2010, large retail chains almost never raised prices, he said. "The main increases have occurred in unorganized retail outlets and in small chains, because they don't have the economic clout to rebuff suppliers' price increases," Belonovsky added.
X5 Corporate Relations Director Mikhail Susov said there were no reasons for price increases in any segments but buckwheat and milk, adding that if the government took the "necessary measures" prices would grow just 5-10 percent. 131. Telecoms Ministry plans to boost LD hot choice VTB Capital August 25, 2010 News: Vedomosti has quoted an unnamed Ministry of Telecommunications representative as saying that the Ministry plans to make amendments to the current edition of the Rules for rendering local, intrazonal and other long distance (LD) telecommunication services. These would allow telecom operators' customers to change their contracts with operators via the internet (including changing the longdistance provider). Our View: The potential amendments might play in favour of MTS (through Comstar UTS) and Vimpelcom in the regions as both operators continue to develop their own LD networks. However, we do not expect the effect to be significant for the operators' OIBDA due to the inertia of regionals' customers, the high competition in the segment and the still quite low penetration of internet services (compared with voice telephony). We also see the potential amendments possibly putting additional pressure on Rostelecom as the operator is still the leader in the LD segment. Victor Klimovich UKRAINE INVESTMENT 132. Alchevsk Steel to raise output sharply in Aug-Sept BG Capital August 25, 2010 Alchevsk Steel (ALMK) plans to increase monthly pig iron production 52% m/m to 182,000t in August, and a further 108% m/m to 380,000t in September, MetalCourier reported. Eugen Dubogryz: Alchevsk recently reached an agreement with Metinvest (METINV) to renew iron ore supplies, and we expect the former will restart all 4 of its blast furnaces in September (only 2 are currently in use). The August target of 182,000t looks realistic, however, we believe the company has set its September bar too high - we see September pig iron output at 270-300,000t (+55% m/m, 27% below management's forecast). Alchevsk's key concern at the moment is the still-unpaid US$ 145mn fine to Metinvest, which in our view, carries a risk of another breakdown in input supplies from Metinvest. Even after incorporating a near-term increase in production, we expect Alchevsk's FY10 output to remain flat y/y (3.2mmt of pig iron and 3.6mmt of crude steel), mainly due to the plant's weak output through 7M10 caused by a shortage of both working capital and inputs in 1H10.
133. Astarta's early crops harvest declines 28% yoy to 160 ths mt Concorde Capital August 27, 2010
Astarta (WSE: AST PW) collected 160 ths mt (-28% y-o-y) of early crops from 53 ths ha (-10% y-o-y) planted this year. Average winter wheat yields declined by 24% yo-y to 3.4 mt/ha, while barley yields fell 13% y-o-y to 2.6 mt/ha, which is still 2025% above average yields in Ukraine. Ruslan Patlavskyy: According to company management, Astarta's wheat harvest this year contains ~80% of food quality wheat vs. ~50% in 2009, additionally increasing its monetary value. Since domestic wheat prices (2 grade, ex-works) reached USD 190 per mt (+47% y-o-y) and barley export prices skyrocketed to USD 245 per mt (+81% yoy), this should fully offset the unusually high crop loss rate for the company this year, according to our estimates.
134. Bogdan Corporation plans to raise production 2.5 times by 2015 Sokrat August 27, 2010 Bogdan Corporation, owner of Bogdan Motors [LUAZ UZ], has announced its plan to increase car production at the Cherkassy plant to 5,000 units per month by the year 2015. Next year, the company aims to produce 2,500 - 3,000 cars per month. From 2012 - 2015, Bogdan Motors will incrementally increase production to reach 5,000 units per month by 2015, which is the car production breakeven point for the plant. 135. Belarus' MAZ to assemble vehicles in Russia's Kursk bne August 26, 2010 Belarusian Prime Minister Sergei Sidorsky has said that Belarus' Minsk Automobile Plant, or MAZ, is expected to launch a facility to assemble its vehicles in Russia's Kursk, reports Prime-Tass. The news agency quoted Sidorsky as saying that they have agreed to organize MAZ' production in Kursk.
136. Bogdan Motors certified its trolleybuses in the EU Astrum August 25, 2010 According to the press service of Bogdan Motors, the Company has successfully certified the trolleybus model T701 (produced jointly with Cegelec (Czech Republic) in the EU. Astrum's perspective: Accomplished trolleybus certification allows Bogdan Motors to participate in EU tenders and opens new perspectives for LUAZ. In particular, the Company plans to participate in several tenders in Lithuania by the end of 2010. At the same time, LUAZ sales of trolleybuses to the EU should provide a moderate positive effect for the Company's net sales. In particular, Bogdan Motors plans to deliver 30 trolleybuses in 2010 and 100 units in 2011 to the EU that should generate 4% and 8% of Company's net sales respectively. Igor Bilyk
137. Cabinet approves 94 types of economic activities that require permits bne August 26, 2010 The Ukrainian cabinet has approved a list of types of economic activities that require permits, while the remaining economic activities are carried out in line with declarative principle, reports Interfax. The news agency says that the list is approved under cabinet resolution No. 725 of August 25, 2010.
138. Centrenergo obtains electricity distribution license Astrum August 27, 2010 The National Electricity Regulatory Commission has granted Centrenergo (CEEN: BUY) permis- sion to obtain an electricity distribution license valid for the next three years. Astrum's perspective: According to Centrenergo, the Company acquired the license in order to be able to trade electricity during the first stage of electricity sector reform. The market re- form, planned for 2011-14, should contribute to the deregulation and price liberalization of the electricity market. During the first stage of the reform, Centrenergo plans to trade up to 7 mln kWh annually, which represents only 0.05% of CEEN annual electricity output. We be- lieve that this news is POSITIVE and expect that CEEN will be able to trade up to 20% of its electricity production through bilateral contracts once the first stage of electricity sector reform is completed. Yan Lipchinsky 139. Domestic oil price at $60.8/bbl, 15% below Urals Dragon Capital August 25, 2010 Domestic oil prices averaged $60.8/bbl at the latest auction on Aug. 20, increasing 1.3% compared with the July auction's average price and bringing the 8M10 average to $55.6/bbl (+202% y-o-y and +34% YTD). Ukrnafta [Buy; FV $44.7] accounted for the bulk of the auction's total sales volume of 1.5 MMbbl. The latest auction price implies a 15.4% discount to Urals FOB Novorossiysk. (Interfax) The YTD average oil price exceeded our current full-year forecast for Ukrnafta of $55/bbl. We will upgrade our projections for the company. Dennis Sakva 140. Donetsk authorities increase expenditure on Euro 2012 bne August 23, 2010
The session of the Donetsk municipal council has amended a special-purpose program for preparing the 2012 European football championships, reports Ukrainian Times. The news agency says that aggregate expenditure on the city is increased from 12mn to some 16bn hryvnias.
141. Donetskstal to boost coal extraction in Russia Astrum August 25, 2010 According to Metal-Courier, the Donetskstal-owned Zarechnaya Coal intends to launch Karagailinsk Mine (Kemerovo Region, Russia) in 2011. The project is worth USD 50m, and the Mine's project capacity should be above 1.2 mln tonnes of Zhgrade coal p.a. Zarechnaya Coal focuses on coking coal extraction and includes Zarechnaya, Aleksievskaya, Oktyabrskaya and Karagailinskaya mines. In 1H10, Zarechnaya Coal boosted coal extraction by 59% y/y to 4.25 mln tonnes. Astrum's perspective: We expect that Karagailinsk Mine will produce 0.2-0.4 mln tonnes of Zh-grade coal in 2011 and 0.8-1.2 mln tonnes in 2013. This should allow Donetskstal group to cover 35-65% of needs in Zh-grade coal for its Yasynivka Coke (YASK: BUY) and Makiivkoks (both are Ukraine-based) by 2013. Given that a reduction in coke production costs will be relatively distant in time, this news is NEUTRAL-to-POSITIVE for YASK. Yuriy Ryzhkov 142. Harvest update: Weather matters BG Capital August 24, 2010 Ukraine's grain harvest is poised to fall 9% y/y, our estimates show, as adverse weather conditions weigh on crop yields. Our look at the possible impact on listed crop names shows that Agroton and MCB Agricole should see yields fall in-line with the Ukrainian average, while Mriya, Sintal, and Landkom are set to report aboveaverage drops in yields. Stronger grain prices, though, will offset the hit. The impact on food producers MHP and Avangard will be broadly neutral, while Kernel should cash in on the coming bumper crop in sunflower seeds. Grain harvest to fall 9% y/y on weather As of August 16, Ukraine completed 97% of its wheat and barley harvest, with reported yields down 8-10% y/y. We estimate yields on corn (gathered in the fall) will decline 10%, resulting in a final grain harvest of 42mmt, down 9% y/y. High crop prices to mitigate yields decline Stronger grain prices should offset the impact of weaker yields in crop growers' financials, in our view. We see grain prices 35-40% higher y/y in 2010/11, even though there is a good chance of a downward correction from current levels in the 3Q. Sunflower harvest poised for 70-year record In contrast to grains, the sunflower harvest is on pace to reach 7mmt (+10% y/y), a 70-year record for Ukraine. A
weather-prompted improvement in yields and the 5% y/y growth in the crop's harvested area will be the main drivers. A2TA, 4GW1 suffer less; SNPS, MAYA, LKI most Based on regional harvest stats, listed crop producers' geographic distribution, and actual data from certain companies, we estimate Agroton (A2TA GR) and MCB Agricole (4GW1 GR) will see yields fall at a slower pace than the national average. Sintal (SNPS GR), Mriya (MAYA GR), and Landkom (LKI LN) will likely see above-average declines. Food names resilient to crop price hike Ukraine's listed food players should be able to defend their margins despite an expected spike in COGS on the back of higher crop prices. MHP (MHPC LI) is self-sufficient in crops, while Avangard (AVGR) reportedly signed forward contracts at attractive prices for the bulk of its crop needs back in April. Kernel (KER PW), in contrast, is poised to benefit from the current weather conditions - the expected record sunflower seed harvest will allow it to increase capacity loads at its sunflower oil facilities.
143. Kyivenergo needs state support for modernization before holding of Euro 2012 bne August 26, 2010 Kyivenergo, which runs Kyiv's energy network, needs state support to implement a modernization program for holding the Euro 2012 European Football Championship in Ukraine, says Chairman of the Board of Kyivenergo Eduard Sokolovsky, reports Interfax. The news agency quoted Sokolovsky as saying that the program envisages the construction and modernization of ten objects worth UAH1.857bn.
144. Large solar power plant key in bid for energy independence bne August 27, 2010 One of the largest solar power plants in Europe should be up and running in Ukraine by the end of the year, President Vitktor Yanukovych claimed on Wednesday, according to media reports, as the government rolls out a strategy to become energy independent by 2020. Speaking at a meeting of the Economic Reform Committee, Yanukovych said that the alternative energy plant would be built in Crimea. However, reported details are scant. He also announced that "a plant producing solar panels will be commissioned in September," and that many new schemes would be "opened in the near future," reports Ukrinform. Yanukovych said earlier that the development of alternative energy was one of the most important national priorities, suggesting that solar energy, alongside wind and hydropower are to become key to securing energy independence in the next decade. The development of shale gas and methane production are other pillars of the strategy, it is claimed. 145. Luhanskteplovoz's parent plans 150 locomotive orders in 2011 BG Capital August 25, 2010 Transmash-Holding, which in June won a privatization auction for Ukrainian locomotives producer Luhanskteplovoz (LTPL), announced it expects to order 100 locomotive sections for Russian Railways and another 50 sections for Mongolia's railway monopoly from the Ukrainian plant in 2011, according to Interfax. Transmash-Holding revealed the potential orders in a letter to Ukraine's President Viktor Yanukovych in which the company also outlined its worries that the validity of Luhanskteplovoz's recent re-privatization auction could be challenged in court.
146. MMK Illicha sees September output flat m-o- m Dragon Capital August 26, 2010 MMK Illicha expect to increase pig iron production in August by 10% m-o-m to 399 kt (+17% y- o-y), implying capacity utilization of 82%. (Metal Courier) This preliminary production number is slightly below the company's earlier projection of 405 kt due to technical problems at one of its five blast furnaces. MMKI forecasts its September output to be flat m-o-m. We maintain our full-year pig iron production forecast for the company at 4.25 Mt (+18% y-o-y). Sergiy Gayda 147. Modernization of Kyivenergo for Euro 2012 to fail if land for new objects allocated after September
bne August 26, 2010 Kyivenergo, which operates the Kyiv energy complex, will not manage to realize a program of modernization for the Euro 2012 European Football Championship if land plots for new objects are allocated later than September 2010, says Board Chairman Eduard Sokolovsky, reports Interfax. The news agency quoted Sokolovsky as saying that the agreement of all permission documents will take 1-1.5 years.
148. Naftohaz Ukrainy seeks projected volumes of natural gas consumption in 2011 bne August 26, 2010 The Naftohaz Ukrainy national oil and gas company urges Ukrainian industrial companies to inform the company about the projected volumes of natural gas consumption in 2011 to calculate the volume of purchase of natural gas from Russia's Gazprom gas monopoly in 2011, reports Ukrainian News Agency . The news agency quoted Yurii Kolbushkin, deputy board chairman of Naftohaz Ukrainy, as saying that they have sent out inquiries to companies and the Industrial Policy Ministry to find out how much natural gas they can take in 2011... and then we will be able to calculate precisely the volume of imported natural gas expected for the next year.
149. Pivnichniy GOK expects stable September output Dragon Capital August 27, 2010 Pivnichniy GOK, Ukraine's largest pellet company, expects to produce 825 kt of pellets in September (unchanged m-o-m and -14% y-o-y). (Metal Courier) Its iron ore concentrate production, though, may fall 5% m-o-m in September to 1.2 Mt due to scheduled repairs at the enrichment plant. We maintain our positive view on the company and expect it to report strong financial performance in 3Q10 as domestic iron ore pellet prices remain strong at $110-115/t on the back of solid demand for the commodity. We reiterate our Buy recommendation on the stock. Sergiy Gayda 150. State moves to pay down GenCo debts BG Capital August 27, 2010 Energorynok, the state-controlled wholesale electricity market operator, has been cleared to attract a UAH 350mn (US$ 44mn) credit facility to help pay off debts to state-controlled GenCos, UkrNews reported. Centrenergo (CEEN) will receive UAH 70mn (US$ 9mn), Dniproenergo (DNEN) UAH 100mn (US$ 13mn), Zakhidenergo (ZAEN) UAH 50mn (US$ 6mn), and Donbasenergo (DOEN) UAH 30mn (US$ 4mn).
GenCos are scheduled to redeem the loans in the 2010/11 fall-winter season. As of July 1, Energorynok owed UAH 1.4bn to Centrenergo, UAH 3.0bn to Dniproenergo, UAH 1.2bn to Donbasenergo, and UAH 0.4bn to Zakhidenergo. 151. National investment project priorities set bne 26 August, 2010 The economic reform committee has set out four priorities for the implementation of national investment projects, reports Interfax. Speaking ahead of a meeting of the committee in Kiev on Wednesday, President Yanukovych outlined the areas that national projects aim to cover first. "These are new energy, where projects will give an answer to issues of the energy security in Ukraine. These are a new quality of life, where such issues as affordable housing, high-quality medical services throughout Ukraine, a transition to international standards of education, as well as the environment, should be resolved," he said. Infrastructure development was named as a third priority, with Yanukovych insisting Ukraine should regain its role in international traffic flows, pointing at navigation on the Danube River as a primary issue. "We will resolve this issue without paying any attention to 'cheap pressure' that was placed on the Ukrainian government and the Transport Ministry regarding navigation on the Danube River. We want everybody to understand that any discussions about this issue won't stop us. Do you know to whom I'm addressing? I'm addressing those who executed the order to stop Ukraine in this issue," Yanukovych said. In other words, Yanukovych hopes to make it clear that the barb is specifically aimed at his predecessor Viktor Yuschenko, rather than the EU, with which the president is busy trying to ingratiate himself. Ukraine inaugurated work on the Bistroe Channel, to provide an additional navigable link from the Black Sea to the Ukrainian section of the Danube Delta, in 2004. The EU advised the country to halt work due to concern over the impact on the fragile ecosystem of the area, and Romanian officials threatened to take the issue before the International Court of Justice. Then-President Leonid Kuchma was scathing in response, but Yuschenko stopped the project in 2005. The bid to host the 2022 Winter Olympic Games in the Carpathians was named the fourth priority. Yanukovych claimed that the experience of preparing for the Euro 2012 European Football Championship would open up "a lot of new things." The president went on to insist that he personally take control of all national investment projects, saying he will ".. keep this issue under tight control. I'll work as the president on the one hand, and as executor on the other." He added that the state should provide guarantees as a signal to investors and in particular, that the government will finance "a certain part of these projects." 152. Ukraine harvests 29.2 m tonnes of grain as of August 26, 2010 bne August 26, 2010 The Ukrainian Agriculture Ministry has reported that Ukraine harvested 29.2 million tonnes of grain and leguminous crops in Ukraine as of August 26, 2010, which was 21% down on 2009, reports Interfax. The news agency says that the crops were harvested from an area of 11.8 million hectares, which is 80% of the forecast.
153. Ukraine harvests 29.2 Mt of grain as of Aug. 26 - down 21% Dragon Capital
August 27, 2010 As of Aug. 26, Ukrainian farmers harvested 29.2 Mt of grains, down almost 21% y-oy, with an average yield of 2.47 t/ha (vs. 3.0 t/ha as of the same date in 2009). (Interfax) Grains were collected from 11.8 Mha or 80% of the total area under grain crops (including early and late crops). The wheat harvest reached 17.9 Mt, collected from 6.3 Mha (99% of the area to be harvested), with a yield of 2.85 t/ha. Barley was collected from 4.3 Mha (99%), with the yield totaling 9.2 Mt (2.1 t/ha). Farmers also started harvesting corn on Aug. 20, with 0.2 Mt already collected from 0.04 Mha (4.1 t/ha). Sunflower was harvested from 0.04 Mha, to 0.06 Mt (1.6 t/ha). We expect Ukraine to harvest 40 Mt of grains in 2010 (-13% y-o-y) and export around 16-17 Mt in the 2010/11 marketing year (July-June). Tamara Levchenko 154. Ukraine names 10 national projects bne August 26, 2010 The construction of a marine terminal capable of receiving 10 billion cubic meters of liquefied petroleum gas (LPG) a year, the construction of solar and wind power plants with capacities of 2 GW, and the establishment of the national information and communication network based on 4G technology are among ten national projects of Ukraine, reports Interfax. The news agency says that at the second meeting of the committee of economic reforms chaired by the president in Kyiv on Wednesday, the head of the ad hoc group on national projects, Vladyslav Kaskiv, said that the construction of affordable housing, which will cost from UAH 3,000 to UAH 4,000 per square meter, the drafting of a strategic plan for urban development, programs for solid waste processing and the provision of drinking water are also among these ten projects.
155. Ukraine to raise annual coal production to 90 mln tons by 2015 RIA Novosti August 28, 2010 Ukraine plans to increase coal production to 90 million tons a year by 2015, President Viktor Yanukovych said on Saturday. "The government has developed a new program... to drastically modernize the industry and upgrade the existing coal mines," he said. In 2009, Ukraine produced about 70 million tons of coal. The president stressed that the coal industry is a key component of the state's energy security. 156. Yanukovych pushed for educational reform bne August 27, 2010
President Viktor Yanukovych criticized the quality of higher education in Ukraine and called for the number of universities and other higher education establishments to be cut, reports Interfax. "Do we need so many education establishments, [which are] as a rule, of poor quality? The answer is obviously no," the president said at a meeting of the public humanitarian council in Kyiv on Thursday. The news wire says that there are 862 higher education establishments in Ukraine. Calling for at least three Ukrainian institutions to ear a ranking amongst the world's top 500 universities - currently none are represented in the list - the president then suggested looking at a scheme to offer autonomy to universities. "Perhaps we should also be ready to grant leading universities the right to form their academic programs independently and determine and change their organizational structure," he said. 157. Sintal harvests early crops: winter wheat yield down 36% y-o-y Concorde Capital August 25, 2010 Sintal Agriculture (FSE: SNPS GR) completed its early harvest for this year, collecting 145.9 ths mt of crops from 56.1 ths ha of land, which represents 62% of total cultivated area. Yields were generally below management expectations, although corn, sunflower and soybeans are reportedly in a good shape. Sintal plans to start oilseed harvesting in September. Ruslan Patlavskyy: According to the data, Sintal's winter wheat yield decreased by 36% y-o-y to 3 mt/ha, while barley and peas yields fell by 51% and 31% to 1.8 mt/ha and 1.1 mt/ha, respectively, this year. In our view, the current prices for wheat of UAH 1,493/mt, +61% y-o-y), barley (UAH 1,428/mt, +87% y-o-y), peas (UAH 1,738/mt, +32% y-o-y) and rapeseed (UAH 3,500/mt, +37% y-o-y) mitigate the consequences of the unusually high crop loss rate this year. At the same time, we do not rule out a temporary negative reaction by the market to this news.
KAZAKH INVESTMENT 158. Kazakhstan might expand grain export market bne August 25, 2010 Kazakhstan may expand its grain export market in light of Russia's decision to ban grain exports and Ukraine's decision to limit the amount of grain it could export this year, says Daulet Uvashev, the managing director for commercial matters of the Food Contract Corporation, which serves as the operator of procurements to the state grain reserve, reports Interfax. The news agency quoted Uvashev as saying that as Russia has imposed a ban on imports of its grain and Ukraine, which is also a major grain producer, has imposed restrictions on export volumes, Kazakhstan has a chance to expand its market.
159. Kazakhstan protecting its interest in Karachaganak talks - Mynbayev bne August 25, 2010 Kazakhstan is protecting its interests in talks with the international consortium operating the Karachaganak gas condensate field, KazTAG quotes Oil and Gas Minister Sauat Mynbayev as saying. “I can neither confirm nor deny it. We are in process of active talks. They struggle for their interests, and we protect our interests,” Mynbayev told the newswire. Earlier this month, Reuters reported that the Karachaganak Petroleum Operating consortium had agreed to give up a 10% stake to Kazakhstan. 160. Kazakhstan to boost power production bne August 26, 2010 Kazakhstan is to increase production of electric power to 97.9 billion kWh by 2014, according to Vice Minister of Industry and New Technologies, Duisenbay Turganov. “We developed a branch program for 2010-2014. According to the program we plan to reach production volume to 97.9 billion kWh, while the forecasted consumption volume makes 96.8 billion kWh,” KazTAG quotes Turganov as saying. 161. Kazakhstan to build new crop-duster aircraft RIA Novosti August 24, 2010 Kazakhstan is to set up a production plant to produce a family of light multirole agricultural aircraft as replacements for the aging Antonov An-2 crop duster, including a new aircraft known as Sunkar. The new aircraft will be produced at a new facility costing 3.75 billion tenge ($25 million) in the town of Novouzenka in Kazakhstan's Karaganda region. A foundation stone was laid at the site on August 22 by Kazakhstan's Transport Minister Abdelgazi Kusainov. "This will not be just assembly work, but full-cycle production from a national design bureau to the production factory," the Kazakh Transport Ministry says. The aircraft will be produced by KazAviaSpektr in partnership with Russia's MVEN, a Kazan-based manufacturer which produces composite-structure light aircraft and parachute-rescue systems for light aircraft. Workers for the Kazakh plant will be trained at MVEN's Kazan facility. Series production is planned to begin in 2011, and the firm hopes to build 50 singleengine Famer 2 and Farmer 500 aircraft in the first year.
The Kazakh national agricultural holding KazAgro says it will set up a leasing scheme to enable Kazakh farmers to buy the aircraft. CENTRAL ASIA INVESTMENT 162. Gazprom's Uzbek find bne August 26, 2010 Gazprom says that an exploration venture with state-controlled Uzbekneftegaz has made a commercial discovery of the fuel on the Central Asian nation's Ustyurt Plateau, reports The Moscow Times. The newspaper report says thatthe Dzhel-2 well found four structures below 2,390 meters, which yielded flow rates of 500,000 cubic meters of gas per day.
163. GM Uzbekistan to start exporting Chevrolet Sparks to Russia in 2011 bne August 25, 2010 GM Uzbekistan (formerly UzDaewooAuto based in Asaka in the Andizhan region) will start exporting Chevrolet Spark cars to Russia in 2011, reports Interfax. Citing an unnamed source at Uzavtosanoat, the news agency says that sales of Chevrolet Spark will start on August 26 on Uzbekistan's market.
164. Turkmenistan: ExxonMobil to open office bne August 26, 2010 ExxonMobil is planning to open an office in the Turkmen capital Ashgabat this year, according to Bloomberg. New newswire quotes an ExxonMobil spokesperson as saying the company is interested in upstream opportunities in Turkmenistan. 165. Uzbekistan: GM Uzbekistan launches Chevrolet Spark production bne August 26, 2010 GM Uzbekistan has exhibited its first Chevrolet Spark at Tashkent Uzexpocenter. The Spark is the seventh model to be produced by the US-Uzbek joint venture, and is due to go on sale across Uzbekistan today, UzA reports. Production of 50,000 Sparks is planned in 2011. BELARUS INVESTMENT 166. Belarus adds 5 projects totaling BR64.3bn to list of key invest project bne August 21, 2010
The Belarusian government has included five new investment projects worth a total of BR64.3bn in the list of key investment projects, reports Prime-Tass. Citing the resolution #1184 of the Council of Ministers dated August 11, The news agency says that the original list of 60 projects totaling BR2.765 trillion was approved by resolution #169 dated February 10, 2010.
167. Belarus adopts list of energy facilities to be built using Chinese loans bne August 26, 2010 The Belarusian government has approved by its resolution #1210 the list of 34 energy facilities that will be built using Chinese loans, reports Prime-Tass. The news agency says that Brestenergo will build six facilities: a 400 MW combinedcycle plant at Berezovskaya power plant, Brestskaya TETs, Baranovichi TETs and 330 kV power lines.
168. Belarus agrees to create JV to sell power from future nuclear plant bne August 26, 2010 Russian Ambassador Alexander Surikov has said that Belarus is ready to establish a joint venture with Russia to sell the power that will be generated by its first nuclear power plant, reports Prime-Tass. The news agency quoted the diplomat as saying that they have received an update recently that the Belarusian side is negotiating the details of the establishment of a joint venture that will sell power from the nuclear plant.
169. Belarus may abolish Beltelecom's monopoly over connection to foreign networks bne August 24, 2010 Belarus may abolish the monopoly of Beltelecom, a state-controlled telecoms operator, over transmission of traffic and connection to networks of foreign operators, reports Prime-Tass. Citing the bill amending the law on telecommunications, posted on the legal Internet portal of Belarus, the news agency says that the bill eliminates the provision of the law that grants the national operator the exclusive right to transmit traffic and connect to networks of foreign operators.
170. Belarus may allow entrepreneurs to hire workers other than family members bne
August 27, 2010 Belarusian Deputy Economy Minister Andrei Tur has said that the Belarusian authorities plan to allow individual entrepreneurs to hire workers other than family members; relevant regulatory amendments are being prepared now as part of presidential directive #4, reports Prime-Tass. The news agency says that the directive will include some revolutionary changes, especially the possibility for entrepreneurs to hire workers.
171. Belarus plans spending on nuclear plant at $9.334bn in 2011-2020 bne August 25, 2010 Belarus plans to spend $9.334bn on its nuclear power plant in 2011-2020, according to the Strategy for the development of the Belarusian energy potential approved by resolution #1180 of the Council of Ministers dated August 9, 2010, reports PrimeTass. The news agency says that in 2011-2015, spending is projected at $3bn, and in 2016-2020, at $6.334bn.
172. Belarus plans to build LNG terminals in Lithuania or Poland bne August 25, 2010 Belarusian plans to build LNG terminals in Lithuania or Poland for regasification of imported liquefied gas, in accordance with the Strategy for the development of the Belarusian energy potential approved by resolution #1180 of the Council of Ministers dated August 9, 2010, reports Prime-Tass. The news agency says that the construction of terminals is expected to diversify Belarusian gas imports. Belarusian organizations will be taking part in prospecting and production of natural gas abroad and supplies of liquefied gas to Belarus, including via Ukraine.
173. Belarus plans to create wholesale electricity market by 2015 bne August 24, 2010 According to the Strategy for the development of the Belarusian energy potential approved by resolution #1180 of the Council of Ministers dated August 9, 2010, Belarus plans to create a wholesale market of electrical power by 2015, reports Prime-Tass. The news agency says that the Belarusian energy sector will be reformed within the next five years; there will be three stages of the reform.
174. Belarus will use special agency to use foreign loans for investment projects in 2011 bne August 21, 2010 Belarus will be using foreign loans provided by international financial institutions and foreign states for financing of investment projects via a special financial agency in 2011, reports Prime-Tass. Citing the explanatory note by Finance Minister Andrei Kharkovets accompanying the draft state budget for 2011 sent to the lower chamber of parliament, the House of Representatives, the news agency says that Belarus plans to create a special financial agency to deal with loans for state programs.
175. Belarus' retail sales up 15.1% on yearr in January-July to BR36.964 trillion bne August 21, 2010 Belarus' retail turnover, including the public catering sector, went up 15.1% on the year in January-July 2010 to BR36.964 trillion, reports Prime-Tass. Citing an unnamed official with the National Statistics Committee, the news agency says that the increase in retail sales is projected at 14%-15% in 2010.
EURASIA INVESTMENT 176. Azerbaijan invested $ 29.8 mln in economy of Georgia, 2009 APA August 26, 2010 According to information for 2009, Azerbaijan has invested $ 29.8 mln in Georgia’s economy, Georgian National Statistics Service reported. Azerbaijan is 8th among the countries which invested in Georgia’s economy. UAE, Turkey and Panama are in first three places. 177. Azerbaijan: ADB decreases investment in Azerbaijan APA-Economics August 20, 2010 Asian Development Bank invested AZN 12 529.2 thousand capital in Azerbaijan during January-July, 2010. State Statistical Committee says the ADB’s investments in Azerbaijan rose by 12.9% compared with a year ago. ADB’s share in foreign investments makes 1.3%. Azerbaijan has been the member of ADB since 1999.
178. Azerbaijan: Top tens investors in Azerbaijan determined APA-Economics August 24, 2010 Great Britain leads the list of foreign investors in Azerbaijan’s economy. State Statistical Committee says the investment of Great Britain in Azerbaijan made AZN 434342.7 thousand up 27.1% compared with a year ago. USA is second. Its investment in Azerbaijan rose by 75.6% to AZN 198 426.7 thousand. Japan is third. Investment of Japan in Azerbaijan made AZN 103898.8 thousand, Horway invested AZN 64 321.4 thousand, Turkey invested AZN 57 314.0 thousand. Total sum of investment in Azerbaijan during January-July made AZN 976 mln, up 37.4% compared with a year ago.
179. Azerbaijan: WB’s investment in Azerbaijan rises by 20% APA-Economics August 19, 2010 The volume of the World Bank’s investment directed to main capital in Azerbaijan made AZN 49 911.7 thousand during January-July, 2010, up 20.2% compared with a year ago, State Statistical Committee told APA. The share of World Bank in foreign investments made 5.1%. Azerbaijan has been in cooperation with WB since 1992. 180. Azerbaijan: “India intends to invest in Azerbaijan’s oil and gas sector” - Indian FM APA August 25, 2010
India intends to invest in oil and gas sector of Azerbaijan, Joint Secretary (Eurasia Division) in the Ministry of External Affairs, Mr. Ajay Bisaria said at the meeting with a group of journalists from CIS countries. According to him India’s Indian State Oil Company holds talks with State Oil Company of Azerbaijan. He noted that Indian construction companies would participate in the construction fo oil and gas pipelines: “Recently, Azerbaijani Deputy Foreign Minister will pay a visit to New-Delhi. 4 problems will be discussed during the visit.” 181. Azerbajan: Indian industrialists intend to expand collaboration with Azerbaijan APA August 26, 2010 Indian industrialists intend to develop the collaboration with Azerbaijan. According to APA, a group of journalists from CIS countries held meeting in The Confederation of Indian Industry (CII). CII has been in operation since 1985. It operates more members, 65 offices inside of country, 10 in outside of the country, 250 partners across the world. India’s trade turnover with Iran, Pakistan and Turkey will reach $ 600 bln, recently. They have opportunities to collaborate in oil and gas sphere. India’s Sinkx bank plans to launch a branch in CIS countries. CII delegation will be in Baku for the invitation of Azerbaijan Trade-Industry Chamber by the end of the year. 182. Georgia pours green into Black Sea tourist spot bne August 18, 2010 Batumi, capital of Georgia's tiny autonomous Black Sea region of Adjara, is hoping to capitalize on its position as President Mikheil Saakashvili's pet project by trying to reclaim its 19th century glory days and become an important commercial and tourism hub within the next 10 years. Adjara became Saakashvili's biggest domestic diplomatic success after a tense 2004 stand-off between Georgian forces and separatist strongman Aslan Abashidze was peacefully solved without seeing the region secede. It stands in marked contrast to Abkhazia and South Ossetia, the breakaway regions that were lost in August 2008's disastrous war with Russia. Since then, Saakashvili has championed Adjara as a potential economic powerhouse to show how an autonomous region can thrive within Georgia. Adjara, now run by Saakashvili ally Levan Varshalomidze, has a population of just 140,000. But a deepwater oil port that was one of the world's busiest up until the Soviet period, a border with Turkey, and the tourism potential of its sultry capital city and lush coastline should see that figure rise to half a million by 2020, Deputy Economy Minister Grigol Tsamalashvili tells bne in an interview. "There has been talk
that we have the potential to be a new Singapore or Monte Carlo, but we just want to create a new destination for tourism and business meetings. We want to be the new place to visit," he says. Foreign direct investment (FDI) in Adjara is expected to reach $158m this year, Tsamalashvili says, up from $140m in 2009 and $50m in 2004 when the terms of its current autonomy were defined. Total investments including state contributions came to $242m in 2009. Turkish tourists About half of Adjara's FDI is going into tourism, and numbers visiting Batumi and its surrounding coastline are growing fast, according to Temur Diasamidze, head of the region's tourism board. "We're expecting 800,000 tourists this year, that's up 135% on last year, and the figure should rise to 1.7m by 2012," he says. Revenues from tourism will be GEL45.4m this year, rising to GEL53.1m in 2011 and GEL62.2m in 2012. The forecasts are impressive, but for the moment most of Batumi feels like a building site, and accommodation options outside the city itself are basic. The parts of Old Batumi that have been restored are picturesque, and a new boulevard that will eventually run 20 kilometres to the Turkish order is well underway. A five-star Sheraton Hotel opened at the start of this summer season, and the building, designed to look like a lighthouse, now dominates the Batumi skyline. Three more international five-star hotels - a Radisson, a Kempinski and a Hyatt - will open within the next three years, as well as two less expensive options. Further ahead, there are plans to build more hotels and a marina along the coast outside Batumi. For now, most tourists come to Adjara from Turkey, Armenia, Azerbaijan and Iran, but the goal is to cast the net wider to attract visitors from Poland, Ukraine, the Baltics, Israel and Kazakhstan. The tourism board is offering free customer service courses to anyone who is interested to try to ease out Soviet manners. Tsamalashvili says Adjara's administration is confident that this pace of development is sustainable until the whole project is completed. "Yes, buildings are going up fast and we're growing fast, but FDI has been increasing steadily despite the world financial crisis and I have no fear of a slowdown for us," he says. "So many projects are well underway that only a force majeur could stop us." Adjara can also depend on oil revenues. Batumi terminal ships around 7m tonnes of crude and oil products a year, with some volumes being shipped across the Caspian Sea from Central Asia in small tankers, unloaded in the Azeri port of Baku and then sent by rail to Batumi for re-export to the Mediterranean. Saakashvili continues to lend his support to Adjara. He moved the Constitutional Court of Georgia to Batumi from Tbilisi in July 2007, and is spearheading a push to turn Batumi into Georgia's entertainment capital. Georgia's annual Jazz Festival moved to Batumi from Tbilisi in 2008, and while a plan to bring Stevie Wonder there to play a concert this July fell through, Chris de Burgh made it there in August. "In terms of public relations, the fact that President Saakashvili is here so much is of course very good for us. But he's not doing it artificially, Batumi is a relaxing place and by 2020 is going to be a really wonderful city," Tsamalashvili says.
183. Georgia: Rompetrol modernises Tbilisi storage depot bne August 24, 2010 Rompetrol Georgia has carried out a $2m modernisation of its petrol storage depot near Tbilisi International Airport. The depot’s storage capacity has been increased from 6,000 to 9,500 cubic metres, according to Tank Storage magazine. SOUTHEAST INVESTMENT 184. After Iran-Turkey pipeline explosion, Gazprom increases gas transfers bne August 27, 2010 According to Hurryiet Daily News, Gazprom is increasing the amount of natural gas it transfers to Turkey after an explosion occurred on the Iran-Turkey natural gas pipeline. Gazprom spokesman Sergei Kupriyanov said the transfer of natural gas to Turkey via the Blue Stream pipeline had been doubled to 37 million cubic meters as of Wednesday. Noting that there was a rise in Gazprom's natural gas transfer to Turkey, Kupriyanov said the situation showed the Turkish economy was rapidly recovering after the global economic crisis. Kupriyanov said the explosion on the Iran-Turkey natural gas pipeline increased Turkey's natural gas demands on Russia. On Aug. 24, terrorists staged an attack on the Iran-Turkey natural gas pipeline near the Catalpƒ±nar village in Turkey's eastern province of Agrƒ±. The pipeline‚Äôs natural gas flow was halted due to the explosion. 185. Albania reaches 629 in energy investments this year RBS August 23, 2010 Energy investments in Albania thus far this year reached a value of Euro 629 million, says Albanian Minister of Economy and Energy Dritan Prifti to MIA. In the past seven months 51 requests have been submitted for construction of hydroelectric power stations, 19 contracts for their constructions have been signed. Euro 258 million are envisaged for construction of hydroelectric power stations, Prifti stated. Moreover, there is a Euro 434 million investment for the construction of eight parks with windmills. 30 hydroelectric power stations have been built from earlier concessions. Some of them have been put into use and others are expected to launch production by year's end. 186. Bulgaria begins international promotion campaign bne August 26, 2010 From September 2010, four international television channels, Euronews, National Geographic Channel, Discovery Channel and Eurosport, air advertisements about Bulgaria, Bulgarian National Television (BNT) reported on Aug 26. Launched by the Ministry of Economy, the initiative is worth 7.5 million leva, financed by the Regional Development operative program, the report said. The promotional clips will feature Bulgaria's summer and winter tourist destinations, environmental and rural tourism and the country's cultural historic heritage. The clips will be aired 3166 times in total, in two phases ‚Äì from Sept 6 until Dec 26 and from Jan 31 until Mar 27 2011. It is expected that the campaign will reach about 608 million European households. The clips are in Bulgarian, English, German, Russian and French, 30 seconds in length and will be aired during prime time hours, the report said. 187. Starbucks postpones opening in Croatia bne August 23, 2010 Starbucks has "indefinitely" postponed the opening of a franchise in Croatia after initially planning its arrival in the Croatian market this October. The company released a statement saying it had reached its
decision after careful monitoring of the market last year. "We believe that Croatia has good potential for Starbucks because Croats value good coffee. We will continue to evaluate the market and open a store in Croatia when the time is right," a Starbucks spokesperson said, according to BBJ. 188. Croatia - Starbucks indefinitely postponed Croatian entry bne August 23, 2010 The American coffee chain Starbucks has "indefinitely" postponed the opening of a franchise in Croatia after having planned its arrival in the Croatian market this October. The company reached its decision after careful monitoring of the market last year. "We believe that Croatia has good potential for Starbucks because Croats value good coffee. We will continue to evaluate the market and open a store in Croatia when the time is right," a Starbucks spokesperson said. 189. Problems in Kosovo a ticking bomb bne August 23, 2010 Serbian Ministry for Kosovo State Secretary Oliver Ivanovic has told FoNet that Serbia "has no intention of accepting this status", and that talks "on issues that matter" on Kosovo's future should commence between Serbs and ethnic Albanians. "Albanians think those are only the technical questions, since they believe that they have resolved the status, but it seems to me they subconsciously know that the status has not been determined," Ivanovic was quoted as saying. He also rejected claims that by fighting for Kosovo, Serbia was "closing the door toward the EU". "Serbia is a selfrespecting state, and as such, has the respect of others, especially since it is seriously trying to make progress in those areas that are set by the EU as a condition (for membership)," said he, but added: "However, if renouncing Kosovo is a condition to join the EU, I'm convinced that 90, if not more, percent (of citizens) will be against our joining the EU." Ivanovic noted that this was something that should be seriously considered by the international community, "since it's important to sustain euro-enthusiasm, if they wish a stable Balkans". "The strategy for solving the Kosovo and Metohija issue is Serbia's entry into the EU. The issue of Kosovo cannot be solved without Serbia, whether Europeans like it or not," he said. According to the state secretary, growing social problems in Kosovo are tantamount to a "ticking bomb", that authorities in Pristina do not care about sufficiently, and asserted that if "(ethnic) Albanians engaged is social unrest, Serbs could be the collateral damage". The recent decision of the Kosovo Albanian government in Pristina to "ban" Serbian officials from entering Kosovo was "proof of a lack of political maturity, and inertia on the part of the international community", stated Ivanovic. "The international community, that wishes to lecture us about democratic principles, does not apply appropriate measures when those principles are violated in such a crude manner," he told the news agency. Ivanovic also said that Hashim Thaci was trying to "make cheap political points", and advised him "not to strain relations with someone he will negotiate with, ahead of those negotiations". "No decree brought here forbids Serbian officials from visiting Kosovo," the official noted. As for the Belgrade-Pristina talks, Ivanovic stated that their format was unknown, and that the Serbian side insisted on negotiations that would include representatives of the UN, EU and the U.S. "I suggest that there must be three international community representatives, and the Serbian and Albanian sides." He also commented on the phantom "declaration of independence of northern Kosovo
municipalities", that was reported about in the media, and the authors of which remain unknown. Ivanovic noted that no party supported the alleged document, and that, "in itself", the paper had no significance. However, he described the ethnic Albanian UDI as "the opening of Pandora's Box, that will not be closed easily", but concluded that the "declaration" would not increase tensions in Kosovo and Metohija. 190. Romania - The new stage in Bucharest malls' life: one in five stores, vacant Mirzon August 26, 2010 In Bucharest malls, where Romanian or foreign shareholders have invested over 1.1bn euros, something is happening every week: a store opens, another is moved, others close, but most of the times business goes on. To observe how much life there is in these projects, how tenants adapt to more easily go through this period and consumption tendencies, Business Construct magazine will periodically analyse the situation of available spaces in malls. The first step was taken in April, when around 171 spaces were vacant in the 8 malls of Bucharest. Four months on, in mid-August, their number rose by 18% to 202, six of the 8 analysed projects having rising available space. Overall, the 8 malls have approximately 1,000 spaces for stores, according to the figures announced by mall managers, meaning that one in five would be available. Just two malls of Bucharest boast a better situation against April: Bucure_ti Mall of Vitan, the first mall of Romania, has only 6 vacant spaces, compared with 7 in April, while in Sun Plaza the number of available spaces dropped from 24 to 17 in the wake of several openings operated by retailers with older contracts. 191. Romania may produce 74% more cars in 2014 than last year Mirzon August 26, 2010 The total production of cars in Romania may reach 520,000 units annually in 2014, according to a PwC study. That would mean a 74.5% increase as compared to the car production of 2009, when the total number of units stood at 300,000.__The domestic production would increase due to Ford, a company which this year only produced 4,000 cars, but expects to deliver 225,000 units by 2013. The PwC study expects Romania to reach sixth place among countries in the region when it comes to car production, overcoming Hungary, Ukraine and Slovenia.__The PwC analysis notes that Romania would have the third fastest pace of growth of its car production capacity among CEE countries, after Ukraine and Russia. 192. Romania Profitable wind power investments at the seaside Mirzon August 23, 2010 CEZ energy company is building the biggest inland wind power farm in Europe on the Romanian seaside at Fantanele, Le Monde informs, being quoted by Realitatea.net. Construction works started in November 2008. The project comes as a blessing for the villagers that placed their plots of land at the company's disposal because they receive up to EUR 3,000 per year. The first stage of the CEZ project was completed this year, with 115 of the 139 wind turbines having being installed. CEZ plans to build another 101 wind turbines in Cogealac village by 2011. The 240 turbines will have an overall power of 600 MW, a quantity equivalent to the one
generated by one nuclear reactor in Cernavoda. Fantanele's success story drew the attention of other energy sector investors. Thus, Spain's Iberdrola, the number one company on the market, opened an office in Bucharest and announced that it is ready to invest approximately EUR 2 bln in a wind power farm located close to the Black Sea. 193. Romania restore power of EU mandated anti-corruption agency bne August 25, 2010 According to ZF, yesterday Romania's senate restored the powers of a EU mandated anti-corruption agency, which is key to fighting graft in one of the bloc’s most corrupt members. The National Integrity Agency (ANI) is allowed to check politicians’ wealth and monitor corruption. Romania came under criticism from the European Commission earlier this year when the country’s constitutional court ruled ANI’s investigation work overlapped with that of legal authorities, rendering it virtually powerless. "It was a responsible vote and ... Romania now regains part of the credibility it lost," Prime Minister Emil Boc told reporters. “We will now rebuild Romania’s credibility both domestically and abroad on the judicial side.” The agency's secretary general Horia Georgescu also said the bill will ultimately bring "gains in the fight against corruption". Along with Bulgaria and Greece, Romania ranks as the EU’s most corrupt state, according to Transparency International. 194. Romania Valvis to launch mineral water brand bne August 24, 2010 According to ZF, Jean Valvis, a Greek-born Swiss businessman, who built two powerful Romanian brands, Dorna and LaDorna Lactate (LaDorna dairy products) will launch a premium mineral water brand called Aqua Carpatica in September. The new brand will compete with Dorna, the water that Valvis sold to Coca-Cola in 2002, on a market valued at about 300 million euros. Valvis is building a factory near Vatra Dornei in Suceava county. The factory is almost finished and is testing the first products, with about 20 employees working there at the moment. The nearly 10 million euro project will be the second major greenfield investment in the mineral water industry started in a time of crisis, after the Bilbor factory of URBB, the Tuborg brewer. 195. Germany to tell Serbia to move on over Kosovo bne August 26, 2010 Guido Westerwelle, the German foreign minister, will become the latest Western diplomat to urge Serbia to accept the reality of an independent Kosovo when he travels to Belgrade on August 26 as part of a three-day Balkans tour, RFE/RL reports. He's got more muscle than most. Germany holds the key to two issues close to Belgrade's heart -- money and its EU bid. "Germany is the No. 1 trade partner of Serbia. It's the No.1 provider of international assistance. And it's the fourth-largest investor," says Irena Cerovic, a Serbian political analyst currently based in Berlin. "In addition, it has a certain weight within EU decision-making," she adds. "Germany is one of the countries that is concerned about the speed of the process of enlargement, and Westerwelle has repeatedly said that it is not going to be speeded up."
Westerwelle's trip -- which includes additional stops in Croatia, Bosnia-Herzegovina, and Kosovo -- was planned more than six months ago. But it falls at a pivotal moment in the long and complicated arc of Serbia-Kosovo relations, as Belgrade attempts to reopen the debate on Kosovo's status by putting forward a resolution at the UN General Assembly next month. The resolution, which dismisses unilateral secession as an "acceptable way for resolving territorial issues," calls on the UN's 192 member states to return to the question of whether Pristina's 2008 independence declaration was legal. The resolution has rankled many Western UN members, who see Belgrade's fixation on Kosovo as a tiresome impediment to progress in the Balkans. To that end, analysts and officials expect Westerwelle to ask Belgrade officials to soften the tone of the resolution, if not scotch it altogether. Serbian officials have indicated they are open to talks on revising the resolution, but have flatly refused to withdraw it. Deputy Prime Minister Bozidar Djelic, in an interview earlier this week, said reaching an agreement would be the "best" outcome. But, he added, "we cannot accept the point of the document itself to be changed." 196. Blic says Serbia willing to work on resolution with EU bne August 27, 2010 Local publication Blic claims to have learned from a high source that Serbia is ready to work on a resolution together with the EU to moderate its stance towards Kosovo. In a speech to students at Belgrade University, German Foreign Minister Guido Westerwelle said that 'a ticket to the EU is acceptance of reality,' that 'confrontation does not lead to Europe' and that 'independence of Kosovo is a finished matter' as well as an appeal 'please, accept your future.' According to Blic the speech was an opportunity to for him to send a clear message before meeting with top Serbian officials that Belgrade must stop insisting on keeping Kosovo as part of its territory if it wants integration with the EU. 'Serbia has a perspective in the EU but that does not happen automatically. The path is difficult and criteria are to be fulfilled. There are no new conditions, but there shall be no moderation of criteria either because our citizens would not accept it. A path to the EU is based on a model of cooperation and not a model of confrontation. Who wants to join the EU has to lead balanced policy and not policy of confrontation. The EU and Germany have offered direct talks between Belgrade and Pristina but we are not interested in a conference table in New York but in Brussels, although it now may seem like utopia,' Westerwelle said. German Foreign Minister also pointed out that 'the geographic map of Europe has been finished," that ‘the independence of Kosovo is a reality' and that 'the opinion by the ICJ which confirmed the independence has one meaning only." The high source quoted by Blic said that there was a private meeting between Westerwelle and Serbian President Tadic. In the meeting, Westerwelle promised that Germany shall not set a condition that Serbia has to recognize Kosovo and a conclusion that "Serbia and the EU are ready to find a way that a dialog between Belgrade and Pristina for finding solutions is opened through a resolution at the UN." "We are ready for constructive talks on any topic, including resolution, but we cannot support eventual conclusion which would confirm Kosovo independence," Serbian Foreign Minister Vuk Jeremic said at a press conference. He also said that "Serbia shall not withdraw the resolution it has filed to the UN General Assembly." 'Serbia cannot become a member of the EU without full support
by Germany and that is of key importance,' Jeremic said adding that "understanding between Berlin and Belgrade improved after today’s meeting." 197. Slovakia against recognition of Kosovo bne August 24, 2010 Slovakia's Minister of Foreign Affairs Mikulas Dzurinda has said that his country is against recognition of Kosovo's independence and stressed that the unilateral secession is not in the interest of Europe, newswires reported. Slovakia's Minister of Foreign Affairs Mikulas Dzurinda has said that his country is against recognition of Kosovo's independence and stressed that the unilateral secession is not in the interest of Europe. If Serbs now feel cheated, I can understand, Dzurinda said in an interview with the Austrian Die Presse, recalling that Resol 1244 envisages only a 'substantial autonomy' for Kosovo. Commenting on a statement that Slovakia supported the military intervention in Kosovo, the foreign minister said that he strongly supported offering Slovakia's air space to NATO because he was convinced at the time that Milosevic's ethnic cleansing was a very bad thing. Durinda said that he is convinced that the decision was right. But with the same devotion to the values and principles I now believe that the unilaterally proclaimed independence of Kosovo without Serbia's consent or consideration is unfair, Dzurinda said. 198. Foreign Trade Minister says Turkey to exceed year-end Target bne August 23, 2010 Foreign Trade Minister Zafer Caglayan has said Turkey will surpass its year-end export target of $107.5 billion, according to Today's Zaman. Caglayan said that by the end of last week Turkey’s exports had exceeded $70 billion, which shows that the year-end target will also be exceeded. He said that this figure was reached despite contraction in the European market, a further weakening of the euro against the dollar and the high value of the Turkish lira. Caglayan also criticized the Turkish Central Bank's monetary policy, which he said is responsible for the overvalued lira, for the difficulties exporters face. Evaluating the country’s general economic performance since the current government took office in late 2002, Caglayan said the private sector has played an important role in the success seen thus far. Emphasizing that producers are making great strides despite difficulties, he noted that Turkey should market its products in the most effective way possible. In that regard, Caglayan said his "greatest dream" is to have an international fair center in Ankara. The necessary steps for this, he added, will be undertaken in Parliament right after the summer recess that ends in October. 199. Gazprom interested in Turkish gas distributor bne August 25, 2010 Russia's Gazprom, along with another 20 large companies, are lookingto buy Turkish gas distributor Igdas at a tender, Turkish newspaper Zaman reported Tuesday citing an unnamed representative of the Istanbul Metropolitan Municipality authorities. The date of the tender is expected to be announced soon, the newspaper said. France's Gaz de France, Italy's
Eni, Germany's EWE, and a number of Turkish companies are among the other corporations interested in Igdas. Igdas services almost 4.2 million customers and annually distributes 4 billion cubic meters of natural gas. 200. Turkey attention focuses on Istanbul's gas distributor sale bne August 24, 2010 Domestic and foreign groups are focused on Istanbul's gas distributor IGDAS, as the country further nationalizes its power grids. Servicing almost 4.2 million customers and with annual distribution of 4 billion cubic meters of natural gas, IGDAS is twice as big as Başkent DoGalgaz, 80 percent of which was bought by MMEKA machinery for $1.21 billion in a sale Aug. 16. According to Today's Zaman, over 20 large companies are seeking to buy IGDAS at a tender whose date will soon be announced. Among these corporations are Russian Gazprom, French Gaz de France, Italian Eni and German EWE and ENBW as well Koç Holding, Limak Yatırım, AKSA Dogalgaz, Yıldızlar SSS Holding, Akfen Holding, the Oyak Group and Zorlu Holding from Turkey. MMEKA machinery has not yet decided to bid for IGDAG. Company Chairman Mehmet Kazancı told Today’s Zaman that they are focusing on financing the Baskent Dogalgaz acquisition. The Is-Kaya Insaat-MMEKA joint venture won tenders for two major power distribution grids the week before. The consortium bid approximately $5 billion in privatization tenders to operate Turkey’s largest power grids, Bogazici and Gediz, in some of the country's largest cities, Istanbul, Izmir and Manisa. Speaking to Today’s Zaman on condition of anonymity, an official with the Istanbul Metropolitan Municipality said the date for the IGDAS tender will be announced in the days ahead after a meeting with Mayor Kadir Topbas. The revenue from the IGDAS sale will go entirely to the municipality and will be used to invest in the metro system and other infrastructure in the city. IGDAS earned over TL 2.84 billion last year and paid more than TL 24.4 million in corporate taxes, becoming the 71st largest corporate taxpayer in Turkey. The company sells natural gas to half of all clients in the country. IGDAS employs 2,176 personnel. 201. Vietnam targets $1 billion in trade with Turkey in 2011 Fortis August 27, 2010 The Vietnamese Ambassador to Turkey Duong Huynh Lap announced on Thursday that Vietnam expects to boost its trade with Turkey and reach an annual trade volume of $1 billion in 2011, according to Today's Zaman. The trade volume between the two countries was around $600 million in 2009 and will reach $700 million this year, Lap told reporters The Vietnamese ambassador informed Turkish businessmen of his country's economy and said Vietnam, with its population of 86 million, offers great opportunities for Turkish companies. He commended Turkish Airlines (THY) for planning to launch direct flights from İstanbul to the Vietnamese capital Hanoi soon. Lap said those flights will also contribute to growing bilateral relations. CENTRAL EUROPE INVESTMENT 202. Audi said to mull bringing complete car production to Gyor in Hungary bne August 24, 2010 Audi is planning to build another factory in Gyor that would make the city a site for complete car production, according to German weekly Automobilwoche, Hungary Around the Clock reported.
Such a project would explain the carmaker's recent purchase of a construction site in Gyor, Napi Gazdaság observes. Audi already makes engines and assembles cars in Gyor, but the addition of chassis manufacturing and a painting facility would make full car production possible. If the report is true then Gyor has apparently been chosen ahead of a site in the US. Gyor benefits from such assets as the existing and strong supplier network, and a pool of skilled workers in both production and development, the newspaper adds. 203. CEZ said to plans to cut investments by up to EUR 4bn over next five years bne August 23, 2010 Czech power group CEZ (PRG:BAACEZ) aims to cut its investments by up to CZK 100 billion (USD 5bn/EUR 4bn) over the next five years, local daily Lidove Noviny reported last week, ADPnews reported. CEZ initially planed to allocate CZK 430 billion for capital expenses in the 2010-2015 period, but now sees capital expenses in the range of CZK 350 billion to CZK 370 billion, the daily reported, quoting an unnamed source. Lidove Noviny also quoted another source as saying the company would try to lower the final figure to CZK 330 billion. The savings would mainly come from investment abroad, as well as through lower supplier prices and operating costs. 204. Lithuania investigation started regarding money laundering in Naftos Grupe bne August 24, 2010 Lithuanian oil products supply company Naftos Grupe has appeared in the centre of investigation regarding money laundering, Lithuanian Financial Crimes Investigation Group announced, IntelliNews reported. The company announced that such investigation is a misunderstanding or intentional trial to bankrupt the company, yet the company indicates that it has not received any claims as a corporation, while its owners and workers are in the centre of the investigation. The company indicates that it will continue its operations despite of the investigation. 205. Slovakia government says IBM mulls further investment bne August 27, 2010 US computer giant IBM is considering boosting its investment in Slovakia, the economy minister said on Thursday, AFP reported.
"Slovakia is one of five countries shortlisted for IBM investment," Economy Minister Juraj Miskov said after meeting company representatives. "If the company picks Slovakia, the investment would probably go to central or eastern Slovakia, regions with high unemployment," the ministry said in a statement. Within three years, the investment could bring 3,000 new jobs, adding to the 4,000 people already employed by IBM in Slovakia, the Hospodarske Noviny daily reported earlier on Thursday. IBM Slovakia spokeswoman Stanislava Sucha declined to comment on the company's investment plans in the country. Slovakia has attracted major automakers, including South Korea's Kia, PSA Peugeot Citroen of France and Germany's Volkswagen to build plants in the country and is now trying to bring in higher-added-value investors, the ministry added. 206. Value of investments via CzechInvest down at CZK 7bn in H1 bne August 27, 2010 The value of investments the Czech Republic gained through the CzechInvest agency fell to Kc7bn in H1 2010 against Kc10.5bn a year ago, CzechInvest spokeswoman Stepanka Filipova told CTK. The number of investment projects decreased to 125 against 140 a year ago. Thanks to this year's investments, over 4,500 new jobs will be created, Filipova said. "Almost nine out of every ten new projects concerns research and development or services," CzechInvest head Alexandra Rudysarova said. According to CzechInvest's latest statistics, firms most often invest in information technologies and software development in the Czech Republic. Investment in these sectors accounted for more than one third of all investment projects. The second most popular sector for investors was the engineering industry, in which 19 new projects appeared in H1. The engineering sector registered one of the most significiant investments in the Czech Republic in the past years. !It is the project of US company Caterpillar, more specifically its subsidiary Solar Turbines, which plans to repair its industrial turbines from all over Europe, Africa and Middle East in the Triangle industrial zone in Zatec," Rudysarova said. The third most important sector from the viewpoint of investments was the electronic industry with 15 new projects creating the biggest amount of new jobs, nearly 1,500. Most of new projects in H1 were registerde in the Jihomoravsky region, southern Moravia, where 1,021 new jobs are to be created. The biggest volume of investments is, however, heading for the Ustecky region, northern Bohemia, in which three companies have pledged to invest a total of Kc1.208bn.
A total of 1,481 investment projects worth Kc672bn that have created over 210,000 jobs have been mediated by CzechInvest since 1993.
