Russia 090421 Basic Political Developments

Business, Energy or Environmental regulations or discussions

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Aeroflot, TNK-BP, Gazprom, Mosenergo: Russian Equity Preview

By Paul Abelsky

April 21 (Bloomberg) -- The following companies may have unusual price changes in Russia trading. Stock symbols are in parentheses, and share prices are from the previous close.

The 30-stock Micex Index fell the most in three weeks, declining 4 percent to 895.35 in Moscow. The dollar-denominated RTS Index dropped 4.1 percent to 800.22.

OAO Aeroflot (AFLT RX): The Czech government didn’t allow Russia’s biggest airline to proceed to the second round of the bidding process for a majority stake in national carrier Ceske Aerolinie AS, Finance Minister Miroslav Kalousek said.

Aeroflot fell 2.1 percent to 34.43 rubles in Moscow.

TNK-BP (TNBP RU): BP Plc’s Russian joint venture is trying to get a three-year $300 million pre-export credit line from banks, the Wall Street Journal reported, citing unidentified people familiar with the matter.

TNK-BP was unchanged on the RTS.

OAO Gazprom (GAZP RX): Nord Stream AG, the natural-gas pipeline venture led by Russia’s state-owned gas export monopoly, will contribute to European energy security, President Dmitry Medvedev said today in Helsinki at a joint press conference with Finland’s President Tarja Halonen. Finland would give its approval for the project to connect Russia directly with Germany via the Baltic Sea if the pipeline can be completed in an environmentally safe way, Halonen said.

Gazprom declined 6.6 percent to 133.97 rubles on the Micex stock exchange.

OAO Mosenergo (MSNG RX) and OAO OGK-3 (OGKC RX): First Deputy Prime Minister Igor Shuvalov will chair a meeting tomorrow on Russia’s power retail market after a steep rise in electricity prices in recent weeks, Interfax reported.

Mosenergo, the power generator serving Moscow, fell 7.6 percent to 1.332 rubles, its biggest decline in three months. OGK-3, the generator part-owned by mining company OAO GMK Norilsk Nickel, dropped 12 percent to 0.693 ruble.

To contact the reporter on this story: Paul Abelsky in St. Petersburg at

Last Updated: April 20, 2009 22:00 EDT
RTS Opens Dollar Platform

RTS share market, whose dollar-denominated trading platform was once Russia's most liquid, will launch a new ruble-based platform this week to win over broker volumes, RTS officials said Monday.

The new system, RTS Standard, will offer ruble-denominated trading in Russia's 20 most liquid shares and eventually expand to include all the components of Russia's main RTS share Index.

Trades on RTS Standard, to be launched on Thursday under the auspices of FORTS, the futures and options section of the RTS, will be used for the benchmark index, the RTS said.

Settlement dates will be on the fourth day following the trading dates, an unusually long settlement cycle, to help participants avoid failed trades. But participants can conduct operations with purchased securities before their physical delivery.(Reuters)
Russia, Airbus sign $4 bln titanium deal

17 hours ago

MOSCOW (AFP) — Russia on Monday inked a four-billion-dollar contract with Airbus to supply the European aircraft manufacturer with titanium for its planes over the next decade.

The agreement, hailed as a landmark deal between a European company and Russia, was signed at a ceremony in Moscow attended by Russia's powerful Prime Minister, Vladimir Putin, an AFP correspondent reported.

Under the deal, Russian state metals firm VSMPO-AVISMA will supply Airbus with titanium through 2020. VSMPO-AVISMA is part of the state industrial holding Russian Technologies.

"We started with small steps but this is a great step forward," said Airbus chief executive Thomas Enders, who inked the contract with Russian Technologies head Sergei Chemezov.

"This is an important strategic deal."

Putin declared the total value of the bilateral deal to be worth four billion dollars and said that Moscow intended to deepen its cooperation with the European aerospace group EADS, Airbus's parent firm.

He added that Russian trade with EADS had grown 20 times since the first bilateral deals signed in the early 1990s.

Russia currently manufactures components for Airbus planes and converts Airbus' A320 passenger liners for freight use.

The parties said in a statement Monday that the deal was the biggest and longest term contract "in the history of Airbus/EADS cooperation with Russian industry."

The contract -- initially discussed at the Farnborough airshow in 2008 -- provides for Russian Technologies to supply Airbus with titanium used in the production of all its aircraft, including a new longhaul model, the A350 XWB.

VSMPO-AVISMA is the world's leading producer of titanium, valued in the aerospace industry for being light-weight and resilient. About 70 percent of the titanium producer's yearly output goes to export.

"The signed agreement demonstrates that Russia can offer high technology products to the world markets," Chemezov said in the statement. "During a period of economic crisis, having stable orders is extremely important."

Chemezov, who also heads a startup airline company Rossavia, said that his firm was looking to buy planes from Airbus.

"Today, we put an inquiry to Airbus for a whole range of its airplanes," Chemezov said at the signing ceremony.

Rossavia needs around 200 planes to build up its fleet, he said, adding that the airliner would not exclusively purchase Airbus's planes but also place orders with other airline manufacturers.

Airbus has suffered from production delays of its giant A380 superjumbo project in recent years.

Now in the thick of the global financial crisis, many of Airbus's clients, including Russian state-controlled airline Aeroflot, are wavering on going through with their orders facing new financial constraints.

Electricity demand falls sharply in Siberia

Rencap, Russia

Monday, April 20, 2009

According to a press release issued by the Wholesale Market Council, electricity consumption in Russia for the week 10-16 April declined by 4.7% YoY. European Russia saw a slight improvement over the previous week, with demand 3.2% below last year. However, demand in Siberia has fallen sharply in the past two weeks and was 9.9% below the 2008 level. Meanwhile, we estimate European Russian electricity market prices are around 19% higher YoY, while prices in Siberia are flat YoY.

While the main burden of reduced demand falls on Russia's fossil-fuel generators, we think electricity prices have held up well, due perhaps to the large numbers of combined-heat-and-power plants being taken out of commission as the winter heating season ends. Although the sharp fall in demand in Siberia is a reminder that there is little sign of recovery in industrial output.

Putin’s Tariffs Stall Russian Growth for Caterpillar (Update1)
By Melita Marie Garza and Paul Abelsky

April 20 (Bloomberg) -- Prime Minister Vladimir Putin’s trade measures are starting to keep Deere & Co. combines and Caterpillar Inc. trucks out of Russian wheat fields and coal mines, dimming the companies’ prospects for expansion abroad.

Deere and Caterpillar, reeling from the longest U.S. recession in a quarter century, were the companies most affected by loan restrictions and tariffs of as much as 25 percent that Putin imposed this year, according to a U.S. Chamber of Commerce survey of the top 50 American businesses operating in Russia.

Putin is trying to boost Russian industries with tariffs on everything from drugs to farm equipment as declining oil revenue saps the nation’s economy. The policies are hurting sales by Caterpillar, Deere and Agco Corp. in a market where revenue was forecast to rise as much as sixfold in the next decade.

“The new tariffs kicked these guys in the knees when they were down,” Larry De Maria, a New York-based analyst with Sterne, Agee & Leach Inc., said in a telephone interview. “Russia was supposed to be a $3 billion market in 2008 with potential to grow to $20 billion, possibly in as little as a decade.”

Emerging-market sales likely fell so far this year for Deere and Caterpillar, which reports first-quarter earnings tomorrow, De Maria said. Caterpillar is expected to report profit excluding certain items of 5 cents a share, the average estimate of 20 analysts surveyed by Bloomberg. The company earned $1.45 a share a year earlier.

“We are really going to struggle this year in Russia,” Ken Harding, Caterpillar’s regional execution manager for the Commonwealth of Independent States, said in a telephone interview.

‘Low’ Expectations

Caterpillar’s “expectation is low” that it will sell any of its 60-ton trucks, used for quarry and construction work, in Russia this year after selling eight last year, Harding said.

Starting in January, Peoria, Illinois-based Caterpillar and other foreign makers of off-highway trucks faced duties of 25 percent, an increase from 5 percent last year. BelAZ, a Belarusian equipment producer that dominates the region’s truck industry, isn’t subject to the tariff and will benefit, Harding said.

Caterpillar declined 59 percent on the New York Stock Exchange in the 12 months through April 17. Deere fell 56 percent, and Agco dropped 64 percent.

Deere, the world’s largest maker of agricultural equipment, and Duluth, Georgia-based Agco are being hurt by a program that gives Russian farmers a 20 percent discount on loans from Russia’s Central Bank if they buy domestic machines.

Loan Program

The deal is for loans made through OAO Sberbank, Russia’s largest lender, and Rosselkhozbank, the Russian Agricultural Bank, which both have local offices that farmers rely on for financing, Michael Considine, director of EurAsia issues for the Washington-based Chamber of Commerce, said in an interview.

“If a Russian farmer had the cash to buy a Deere combine, it would cost substantially more because of the tariff increase,” Considine said. “And if you didn’t have the money, you could just forget about it because you’d only be able to get the money to buy something made in Russia.”

Putin undertook the measures after a December visit to Rostov, Russia-based Rostselmash, the country’s leading combine maker.

Putin’s press secretary Dmitry Peskov wasn’t available for comment. Valeriy Khromthenkov, a Russian official in Washington with oversight of agricultural issues, declined to comment. A spokesman for Finance Minister Alexei Kudrin, who also is deputy prime minister, wasn’t available to comment.

‘Dramatically Reduced’

Agco’s sales are “dramatically reduced” in the region, because borrowing for a foreign tractor is now almost impossible, Greg Peterson, Agco’s head of investor relations, said in a telephone interview.

In its first-quarter earnings announcement in February, Moline, Illinois-based Deere said sales will decline in Central Europe and the Commonwealth of Independent States for the year. Ken Golden, a spokesman for Deere, declined to comment.

“Our main problems have been the lack of state subsidies on loans combined with insufficient operating cash and the general economic downturn, not the import tariffs,” Alexander Altynov, the general director of AgroSnab, an official John Deere dealer in Russia, said in a telephone interview.

Market Decline

Altynov predicted the foreign machinery market in Russia will decline as much as 75 percent this year.

Deere was expected to post second-quarter profit excluding certain items of $1.08 a share, the average estimate of 17 analysts in a Bloomberg survey.

The U.S. Trade Representative has worked with the U.S. combine harvester industry and at a meeting in Moscow in March expressed concern about the tariff, Nefeterius McPherson, a spokeswoman for the trade representative, said in an e-mail.

The tariff runs counter to Russia’s G20 pledge to avoid protectionist measures and is contrary to a November 2006 bilateral agreement that Russia will maintain a 5 percent tariff on combines until it joins the World Trade Organization, McPherson said.

The ruble’s 31 percent decline against the dollar since July also has made foreign products more expensive. Russia’s Economy Ministry estimates that imports have tumbled more than 30 percent in the first quarter of this year.

Last month, Russia allocated 25 billion rubles ($746.7 million) to OAO Rosagroleasing, the nation’s largest farm- equipment leasing company, and 45 billion rubles to state-run Rosselkhozbank as part of a 3 trillion-ruble stimulus package.

Rosagroleasing spent the money on Russian-made equipment, including 5 billion rubles on OAO KamAZ trucks, Agriculture Minister Yelena Skrynnik told Putin during a meeting on April 17, according to a transcript on the government’s Web site.

Farm Equipment

Russia’s Union of Farm-Equipment Producers, known as Soyuzagromash, asked the government last week to extend the 15 percent import duty on combines to all farm equipment. The tariffs may boost domestic market share for farm machines to 60 percent, the union said.

“The government wants both to help the domestic producers and keep the state funds allocated to the agricultural sector inside Russia,” said Mikhail Pak, an analyst with IFC Metropol in Moscow.

Putin’s efforts may hurt U.S. companies’ operations in the rest of the world, said De Maria, of Sterne Agee.

“There is a worry that these measures could spread to China and other emerging-market countries,” De Maria said. That “would be a blow to the Deere brand and others, stifling their growth strategy as local companies build share.”

To contact the reporter on this story: Melita Marie Garza in Chicagot ; Paul Abelsky in St. Petersburg at

Last Updated: April 20, 2009 07:59 EDT
Microsoft Plans to Invest 10 Billion Rubles in Russia (Update1)

By Maria Ermakova

April 20 (Bloomberg) -- Microsoft Corp., the world’s largest software maker, will invest 10 billion rubles ($296 million) in Russian projects to tap growth in the country’s technology industry, Chief Executive Officer Steve Ballmer said.

“We view Russia not only as a market of great strategic importance for Microsoft, but also as an important center for future innovation, entrepreneurship and economic growth,” Ballmer said at a press conference in Moscow today. “Despite the challenges we face, we are extremely optimistic about the long-term future” in Russia, he said.

Microsoft’s investment in Russia is planned for the next three years, Ballmer said. The company, based in Redmond, Washington, set up a representative office in Russia in 1992 and has been expanding in the country as demand for computers and services increases.

The company’s Russian investment program includes raising the amount of centers for improving computer literacy skills to 100 from 60, offering advanced programs through Microsoft’s IT Academies in Russian universities and developing its Technologies Center in Moscow, the company’s first in eastern Europe, according to Ballmer.

“The most important messages” we are getting from studying the Great Depression in the U.S. of the 1929 are “cut expenses but keep investing in innovation,” the CEO said. The company will invest “over $9 billion in research and development this year, constant from last year,” he said.

Online Services

Ballmer said that now is time to invest in online services, where the company is unprofitable at the moment, “but we will be making money.” The “partnership with Facebook is part of that,” he said.

Microsoft will also work with the Russian government and small enterprises on ways to improve the country’s healthcare system and support the 2014 Winter Olympics that Russia will host in Sochi on the Black Sea cost, Ballmer said. He met with First Deputy Prime Minister Igor Shuvalov as part of this trip to Moscow and said he had “a very good set of discussions,” without elaborating.

Microsoft has also signed an agreement today with the Russian Academy of Science’s Space Research Institute to set up a scientific research center that will study climate change, Ballmer said.

Speaking about his personal investments, Ballmer said 80 percent to 85 percent is in Microsoft. As for the remainder, “I do believe in the general long-term economic growth of the world, so I am invested in a set of index funds that represent global traded financial securities,” he said.

To contact the reporter on this story: Maria Ermakova in Moscow at

Last Updated: April 20, 2009 11:20 EDT

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