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Saturday, April 29, 2006

The Ill-Being Disease

04-27-2006 Kommersant - The lifetime of Russians is from 10 years to 15 years shorter than in the developed countries. In part, the gap could be attributed to social and economic features. Another reason is the condition of Russia's health system, which efficiency has stalled since mid.-1960's. The high death toll in Russia is often explained by the reasons of no apparent bond with the health service. Those are diseases of the social ill-being. According to Human Demography and Ecology Center, the incidence of the homeless disease, pediculosis, grew from 150 cases per 100,000 people in 1997 to around 210 per 100,000 past year. The number of consumptives nearly doubled in 1999 vs. 1990 and has stood still ever since. The analysts say today's situation in Russia resembles the period of 1965 to 1980, when in time of skyrocketing revenues derived from the oil and gas exports, the alcohol consumption and death toll in the working age group were stepping up as well. Still, the health system's performance appears equally vital. For curable diseases, Russia and Great Britain had almost the same lethal level in 1965, just around 400 deaths per 100,000 residents a year, say analysts of High School of Economy. In the mid.-1990's however, Russia had the same 400 deaths per 100,000 residents, while Great Britain curtailed the death toll to 250 on improvement of health service. The situation is equally disappointing when it comes to the life duration. For Russia's man, the lifetime slid from 64.66 years in 1965 to 63.75 years in 1990, while Great Britain had 68.31 years and 72.95 years respectively. The gap has extended once the economic reforms commenced. By the mid.-1990, the number of deaths from curable diseases went up to 600 per 100,000 residents in Russia, but shed to 200 per 100,000 in Great Britain. The duration of a man's life averaged 75.02 years in 1999 in Great Britain and just 59.89 years in Russia.

Wednesday, April 26, 2006

Gazprom still mulling Centrica purchase - senior official

LONDON, April 25 (RIA Novosti) - Gazprom Deputy Chairman Alexander Medvedev said Tuesday that the Russian energy giant was still deliberating over the possible purchase of Britain's largest gas distributor, Centrica. "I won't deny that Centrica is seen as a potential acquisition target," he said in an interview with the BBC's Hard Talk program during the Russian Economic Forum in London. But he dismissed media reports that Gazprom, which provides a quarter of Europe's gas, was in talks with Centrica.

Gazprom suggests new company could join European gas pipeline

LONDON, April 25 (RIA Novosti) - A third company could be invited to join a project to build a major gas pipeline stretching from Russia and Europe, a deputy board chairman of Russian energy giant Gazprom said Tuesday. Gazprom is project manager for the $10.5-billion North European Gas Pipeline project that will eventually see 55 billion cubic meters of Russian natural gas pumped to Germany across the Baltic Sea floor. The company has a 51% stake in the project, with Germany's BASF and E.ON acting as the second partner, each with stakes of 24.5%. "We are not ruling out that a third party could be attracted to this project with Gazprom keeping its share," Alexander Medvedev told the Russian Economic Forum in London. "This decision will be made by July." The project construction plan includes two parallel gas pipeline legs, each 750 miles long. The first stage will see construction of one leg with capacity of 27.5 billion cu m, and the second phase will double it. The pipeline, which will bypass transit countries like Ukraine and Poland, is expected to come on stream in 2010. Russian gas currently reaches western Europe by pipelines through Ukraine and Belarus, and anxiety was raised across the continent following January's spat between Russia and Ukraine that saw supplies to the former Soviet republic cut off. Russia says the NEGP will guarantee reliable supplies to European consumers, and reduce dependency on transit countries.

Tuesday, April 25, 2006

Foreign investors more positive on Russia

April 2006 - Analytical department of RIA RosBusinessConsulting - Foreigners have a low opinion on Russian authorities' efforts to improve investment climate in the country. The Economy Ministry hopes to solve this problem by creating a new government agency
Foreign investors are becoming more positive on Russia, an opinion poll has shown. The results of the investment survey of foreign companies were announced at the meeting of the Consultative Council for Foreign Investment last week. Most respondents said they planned to expand their business in Russia over the next three years. At the same time, they pointed to Russia's traditional problems such as red tape, corruption, selective interpretation of law and poor business ethics. Respondents said Russian authorities were using very ineffective methods to attract foreign investors. Economy Ministry officials suggest creating a separate government agency that would be responsible to attracting foreign investment. If the government supports the initiative, the new agency might appear in Russia before the end of this year.
The International Monetary Fund published a report last week showing that Russia's investment climate needs improvement. "Investment in Russia is not as active as we would like it, and one reason for it is investment climate that needs to be improved," said Raguram Rajan, Economic Counselor and Director of Research at the International Monetary Fund. The country's investment climate is not good for Russians, either, judging by complaints from the members of the Russian Union of Industrialists and Entrepreneurs. Yet, the latest investment survey shows a more optimistic picture. The research was prepared by the Consultative Council for Foreign Investment based on a research by PBN Company, which covered 155 international companies. Fifty one percent of companies operating in Russia or planning to open business here are optimistic about the country's future, fourteen percent expect the investment climate to change for the worse and 27 percent do not expect any changes at all.
The main advantages in the eyes of foreign investors are rising personal incomes, the large size of the market, vast natural resources, qualified staff, and economic stability. Among problems respondents named administrative barriers (licensing, getting work permits and red tape), corruption, inadequate and contradictory legislation, selective interpretation and application of laws and poor business ethics. Economy Minister German Gref expressed satisfaction with the survey results. "I might have doubted the results had the research not been carried out by independent experts, he said. Deputy Economy Minister Kirill Androsov said foreigners investing in emerging economies used different assessment criteria than their Russian colleagues. "Russian investors were born here, they formed their capital here, and some things they take for granted are seen as an advantage by foreigners. "I do not think Russian companies are seriously considering investing in other developing countries," he said. Some analysts say foreigners focus on areas other than Russian investors, and it is not quite correct to compare their assessments. Attitude to foreign investors in Russia is different, too. One source who asked not to be named said Russian businessmen were forced into bribery more often than foreigners. According to the Consultative Council for Foreign Investment, corruption exercises certain influence on the activities of fifty percent of foreign investors, it has strong influence on eleven percent of investors, and 39 percent are unaffected by it. German Gref assured foreign businessmen present at the meeting that the government would take effective measures against corruption this year. Only 24 percent of foreign respondents assessed the Russian government's efforts to attract foreign direct investment as effective, while 76 percent criticized them as ineffective. Kirill Androsov hopes the situation will improve after a separate government agency is set up to oversee foreign investment issues. "We are considering the concept of this agency," he said. If the government supports the idea, the agency could appear before the end of this year. Its officials will instruct foreigners on how to open business in Russia. Natalya Orlova, chief economist at Alfa Bank, welcomed the initiative: "This agency would be very useful. Today many companies spend a year or even more trying to understand what they need to do to start business in Russia."

New Russian index RUXX unveiled on NYSE

NEW YORK, April 25 (RIA Novosti) - Russia’s finance minister has unveiled a new tool for gauging Western investor confidence in the Russian economy during a visit to the New York Stock Exchange. Alexei Kudrin said Monday that the Russian Industrial Leaders Index (RUXX), calculated by Dow Jones & Company for all Russian companies listed overseas, would serve as an additional guarantee of their financial transparency. “A very good new tool has been created on the New York Stock Exchange, which tracks the development of Russian business,” Kudrin told a NYSE news briefing. “The Russian stock market has posted strong growth in the past year. This goes to show that Russia has received a good mark from the [world] business [community] and that investment in Russian corporate shares has become very profitable.” The minister said he was confident that the Russian share market would continue to grow. Kudrin said he was certain that the RUXX index would draw more attention to investment in the Russian stock market, all the more so since starting in January 1, 2007, “Russia will lift all restrictions on the circulation of capital and the ruble will become a convertible currency.” RUXX has been calculated in U.S. dollars since January 1, 2006, and has been available for all global trading systems since February 1 this year. It had an initial base of 500 points and rose by 30% in the first quarter. It is a composite economic index of Russian companies with financial instruments (shares and depository receipts) placed on major world trading floors, including the New York Stock Exchange, the London Stock Exchange, Nasdaq and AMEX. The index includes 17 Russian companies listed abroad: Tatneft (NYSE, LSE), MTS (NYSE), Rostelecom (NYSE, LSE), VimpelCom (NYSE), Wimm-Bill-Dann (NYSE), Mechel (NYSE), Gazprom (LSE), LUKoil (LSE), Novatek (LSE), AFK Sistema (LSE), Golden Telecom (Nasdaq), Rambler Media Group (LSE), Norilsk Nickel (LSE, Nasdaq), Mosenergo (LSE, NYSE), Novolipetsk Steel (LSE), Unified Energy System (LSE, NYSE), and Surgutneftegas (LSE). RUXX was launched by Press Release Group, a New York-based communications company, and RIA Novosti. It is calculated and disseminated by Dow Jones & Company. The index is based on companies' weight depending on their market capitalization. The higher the market capitalization, the larger the company's share in the index, with a weight cap of 20% for each company. Market capitalization and share weights in the index are changed quarterly. The index is published daily at 05.55 p.m. EST by the Dow Jones ITC 2.1 data feed system and the Chicago Board of Trade.

RUXX � New index of investment attractiveness of Russian companies on foreign marke

RUXX Moscow, February 16, 2006 -– Russian Industrial Leaders Index (RUXX) is a composite index of Russian companies trading on global exchanges. It is calculated in US dollars starting January 1st,, 2006 and is available from all major data vendors as of February 1st, 2006. The index growth for the first month was 15.946%, from 500 to 579.73 points. The DJIA growth was only 1.371% for the same period.
RUXX is a capital-weighted Index. The higher is the free-float market capitalization of the company, the higher is its respective weight in the Index. However, a 20% weight cap factor is applied to the Index constituents. Usually, changes in the market capitalization and weights are implemented during quarterly review of the Index.
The Index is computed using the last sale price for the trading day (5.30PM New York time). Its constituents include Russian companies whose depositary receipts are listed on global exchanges: (New York Stock Exchange, London Stock Exchange, Nasdaq, AMEX) The Index value is published daily at 5.55PM New York time in the Dow Jones ITC 2.1 data feed and Chicago Board of Trade (CBOT). It is available via data vendor networks such as Reuters, Bloomberg and others.
As of January 1st, 2006 the Index is comprised of 12 companies:
Mobile TeleSystems
Wimm-Bill-Dann Foods Mechel Steel Group
Rambler Media Group
Golden Telecom

The RUXX Index was commenced by Press Release Group, a New York-based communications company, and the Russian News and Information Agency RIA Novosti. The RUXX Index is calculated and disseminated by Dow Jones & Company. The Index is a unique indicator of demand for Russian companies from foreign investors, both institutional and private. It is also an international benchmark tracking the rate of trust of western financial community into the Russian economy.
Dmitry Surkov, Deputy General Director, RIA Novosti: “We think that there are clear prerequisites for the Index, created by joint efforts of three companies is set to become an essential tool for the foreign investors. We believe this is the perfect time for The Index to appear because many Russian companies are going to list their shares on the foreign exchanges over the next two years. The participation of Dow Jones will ensure that the Index will become one of the leading indicators of the demand for the Russian companies” .
Ilya Merenzon, General Director of the Press Release Group: “The RUXX Index is going to fill an important information gap and become an indispensable tool for international market players. Using the Index, the global financial media will track investors’ confidence in the Russian economy as well as emerging markets’ economies in general; traders and analysts will use it as a financial indicator. Finally, politicians and economists will be able to gauge the attractiveness of the Russian economy and of the attitude of private investors towards changes in Russia. It will become possible, for example, to track the reaction of western investors to government actions or to the changes in the political or social situation”.
Index name for the Exchange – RUXX
Official name in English: Russian Industrial Leaders Index
Index Name: Russian Industrial Leaders Index action
Ticker: RUXX
Data feed Output Symbol: rCW1AACMP

Russia To Simplify Access for Foreign Investments

14.04.2006 09:52 [Neftegaz.ru] - Russia will make it easier for foreigners to buy small amounts of stock in banks, Andrei Kozlov, the Central Bank's deputy chairman said. As he said, the Bank plans to allow foreigners to buy less than 1 percent of a bank’s shares without informing regulators, Kozlov said. At the moment notification is required for the purchase of even a single share. Foreigners will still need to receive permission from the Central Bank for any purchase of more than 10 percent of a Russian lender, he said.

Russia To Invest In High Tech Businesses

20.04.2006 10:41 [Neftegaz.ru] - The Russian government plans to put up $500 million into a venture capital fund that will invest in innovative projects, the country's Economy Minister German Gref said yesterday. "We will allocate up to half a billion dollars for this purpose next year," Gref said, quoted by RIA Novosti. Gref said the fund would encourage venture investment, and added that a strategy was being drafted to foster the development of venture infrastructure in 2006-2008. Ten percent of all transnational corporations would enter the Russian market in the next three or four years, Gref said.

Europe Wasted Billions In Vain

21.04.2006 10:42 [Neftegaz.ru] - The European Union has wasted billions of euros as part of its assistance program to Russia and other republics of the former Soviet Union, the European Court of Auditors said on Thursday, April 20, Mosnews.com reported. The European Court of Auditors painted a bleak picture of how 7 billion euros ($8.6 billion) of EU assistance money - about 40 percent of which was allocated to Russia — had been spent since 1991. The British Financial Times newspaper reported that the auditors had called the effectiveness of spent money as "very low". The report prepared by the auditors highlighted the unrealistic and vague content of many EU projects, poor implementation and the lack of communication between Brussels and Russian officials. Furthermore, the report found that some beneficiaries - including a city that received funding for a heating and power project - had never actually asked for funds. However, Jacek Uczkiewicz, in charge of the court’s report, said that there was no evidence that fraud was responsible for the misuse or unaccountability of some of the EU funding. The auditors did not specify how much money had been lost. Their probe concluded that only five EU projects out of a sample of 29 completed by the end of 2003 could be considered “sustainable’’. For 12 of the audited projects, "objectives were not met at all".

Tuesday, April 18, 2006

Economic Prognosis for April

Economic Prognosis for AprilApril, 2006 The Kommersant - by Sergey Minaev -
April has come and Vlast weekly presents its traditional prognosis for the upcoming month. We will pose the following questions: where will the ruble go against the dollar in April? What will the inflation rate be on the Russian consumer market? How will the dollar and the euro behave on the international currency market? But first, let us have a look at major economic events of the month.
Russia’s talks on the accession to the WTO have to be considered the main economic event of March. The Russian delegation met with their U.S. counterparts in Geneva and took part in a session of a working party which represents 58 nations and prepares a report on Russia’s trade policy determining conditions of the accession. Russia pinned all its hopes on talks in March. If the country had reached an agreement with the United States and coordinated a major part of the report on trade policy, the accession to the WTO in 2006 would be a decided matter. It has been crucially important for Russia to join the WTO, an organization which embraces most countries, this year when Russai presides at the G8 and receives major world leaders.
Yet, all the attempts failed again. The Russian delegation hoped to find an agreement on 13 sections of the working party’s report but managed to coordinate positions only on three of them. As a result, only 19 sections of 48 are now amended. Among other things, other countries are concerned about Russian customs service, and consultations on customs issues have been put off till late April. “Russia has made good progress at bilateral talks but I would like to underline the need to accelerate work on the multilateral front,” Stefan Johannesson, the chair of the working party, said. Yet, it is quite doubtful that any progress has been made at the U.S.-Russian negotiations. Both U.S. and Russian delegations, indeed, repeatedly underscored the progress at the bilateral talks but did not specify. In contrast, Russian President Vladimir Putin said at a meeting with Russian businessmen on March 29 that the United States intentionally impedes Russia’s accession to the WTO. “We have received a list of items from our American partners, which require more coordination and which we thought was settled long ago. We are being artificially held back in the negotiating process,” Putin said. The president emphasized that Russia is interested in the accession but can agree to enter the organization only if the membership is beneficial for all parties, and primarily for Russia and its economy.
Besides that, Georgian officials stated in March they were ready to review the settled agreement on Russia’s joining the WTO saying Russia did not fulfill the terms. Meanwhile, the European Union reminded that Russia does not take any steps to lift payments for flights via Siberia, which European airlines companies had been pushing for. The fact makes the agreement that Russia and the EU reached senseless. The March talks did not become decisive for Russia’s accession to the WTO. Quite on the contrary, they showed that nothing has changed and Russia is still on the brink of trade war with the rest of the world.
The position is all worse as China, a WTO member, waged trade wars with both the United States and China in March. Europeans complained that Chinese sell shoes at dumping prices and scale back autoparts imports. U.S. Commerce Secretary Carlos Gutierrez even took a trip to Beijing and called on China to liberalize its foreign trade threatening with protective measures against Chinese goods. China vehemently argued with the West claiming that anti-dumping shoe duties of the European Union run against the WTO’s regulations and infringe rights of European customers. Suffering from the situation with China, the West appears to be increasingly reluctant to accommodate Russia. Furthermore, Russia and China are very similar in the eyes of U.S. Congressmen, for example, and primarily as far as the issue of violating copyright is concerned. The Congress has passed a resolution insisting that the U.S. administration should not open the path to the WTO for Russia until Russians present irrefutable proof of effective fighting against piracy.
Should Russian join the WTO or fail to do it, consequences will be virtually the same. If the West, the United States, first of all, agrees to accept Russian to the WTO this year, this will be purely a political move. Hardly anything will change for Russian citizens as the authorities will still keep a ban on foreign banks and will wage a bogus war on piracy. Should the West persist, Russian officials will take an unbending stance emphasizing that they are unwilling to open the Russian financial market and giving the Russian economy a more civilized look. It is beyond Russia’s interest, they would claim. If you don’t want to see us at the WTO – all right, then. This is actually the position that emerging nations at the WTO took at the Doha round of talks. They make it quite clear that the West forced them to join the WTO some time ago and now insist that they have already opened their markets enough and do not need further liberalization. All attempts to build their economics in Western patterns are sure to fail, they persist.

1. What will happen to the ruble exchange rate?
We forecasted that the dollar may fall below 28 rubles on the Russian market in case of the weak dollar on world markets. The prognosis proved to be true. The dollar indeed got weaker on the international market and cost under 28 rubles on the Russian market. The exchange rate came to 27.80 ruble against $1, as of March 29.
As the dollar slipped below 28 rubles, Russians got apprehended about their dollar savings. Russia is still a country where no money has a stable price. The ruble is depreciated because of inflation while the dollar declines, pressed by the policy of the Russian Central Bank. In theory, only overseas businessmen can benefit in this situation as they sell goods in Russia for rubles and convert them into dollars later. The Central Bank is also at the winning end replenishing the gold and currency reserves. The reserves surpassed the mark of $200 billion in March, for the first time in the Russian history. A week earlier, the coffers had grown $3.8 billion of the $19.5 billion rise since the beginning of 2006.
Yet, Russian banking authorities prefers to avoid steps that can be predictable for currency stags and raise or lower the ruble rate in turns. Anyway, the Central Bank hinted in March that the further strengthening of the ruble should not be expected.
Our prognosis: we should believe the Central Bank this time that the dollar will not fall below 27.6 rubles in April.

2. What will happen to Russian prices?
We suggested that inflation in March may reach 1.4 percent as the recent inflation situation in Russia had been greatly reminiscent of the one in 2005 when the rate was more than 1 percent. Apparently, the Economic Development and Trade Ministry expected the same thing. At any rate, Minister German Gref mentioned in his economic report to President Vladimir Putin the following. “We forecast that inflation will amount to 0.6 percent by the end of March, which is half as much as was planned and half as much as the February rate.” Our speculation and the economic ministry’s initial evaluation proved to be inaccurate. The authorities say that inflation was lower than 1 percent in March, which means a dramatic slowdown or even a halt in price hikes in Russia.
We can certainly surmise that Russian traders got ashamed of their vim in the first two months of the year when prices grew 4.1 percent and decided to take a respite. Even if the inflation does not reach 0.6 percent and the rate of the three months totals 5 percent, the planned 8.5 percent of the annual inflation will still remain a dream. As a matter of fact, German Gref now expresses only a hope that inflation in 2006 will be lower than in 2005. The rate was 10.9 percent then so the authorities can expect, say, 10.5 percent, which is the figure the European Bank for Reconstruction and Development predicts for Russia.
Russian officials got engaged in a heated discussion on the nature of inflation in Russia in March. Anatoly Chubais, the head of RAO UES of Russia, made it clear that the inflation depends on monetary factors rather than on growing prices on the natural monopolies market. German Gref replied: “At the end of the day, monetary factors are really decisive for inflation… But the influence of tariffs in natural monopolies is crucial here.” Finance Minister Alexey Kudrin said, on the contrary, that if the economy does not get additional money, rising prices on gas and electricity will increase expenses of households reducing their spendings on other goods and services.
Our prognosis: sellers of goods and services will not be looking for causes of inflation in April but will simply drive up prices at any suitable occasion. Inflation will exceed 0.6 percent.

3. What will happen to world oil prices?
We indicated in our forecast for March that oil prices would surpass $57 per barrel despite good reserves of oil producers. Market players are too nervous, and oil cannot be cheap in these circumstances. The prognosis was on the mark. Oil cost over $60 per barrel all the month through, going up $1.91 on March 28 and touching the notch of $66 per barrel. It concerned U.S. light crude oil while Northern Sea’s Brent cost some $65. Players at the world oil marked pushed prices up referring to unrests in Nigeria and events in Iraq and Iran. Hiroyuki Kitakata, director of commodities business at Barclays Capital in Japan, said: “The main drivers were geopolitical issues and I think sentiment is still more bullish than bearish.” The approaching summer car season in the United States played its part as well.
Oil producers were so satisfied with the prices that the OPEC decided against scaling back production at a conference on March 8, despite speculations about a declining demand. Kuweit’s Oil Minister Ahmad as-Sabah said that the country “would face overproduction in the second quarter. It will amount to 1.5 or 2 million barrels a day from April to June.” He made it a point, however, that the OPEC should preserve its aggregate quotas of 28 million barrel a day “to keep prices more stable.”
Our prognosis: geopolitical tensions will remain in April, investment funds will invest heavily into oil driving it above $60 a barrel.

4. What will happen to the dollar-euro exchange rate?
We predicted that the euro would not to fall below $1.18, since the appointment of Ben Bernanke as the new head of the U.S. Federal Reserve System and a possible hike in U.S interest rates were no longer a surprise. The prognosis came true. The dollar began to decline early last month. The euro climbed to $1.20 from $1.18 on March 2 alone. The U.S. and European currencies closed the month at that level
Quite predictably, the Federal Reserve System raised the interest rate to 4.75 percent on March 28, which was the highest boost over the past five years. Everyone understood that the new head of the Feds would start out showing the adherence to the policy of Alan Greenspan who had been known to use hikes in interest rates to battle inflation though it was low in the United States under Mr. Greenspan irrespective of the changes. On the contrary, a rise in interest rates to 2.5 percent in the Euro-zone had a considerable impact on the currency market. Market watchers thought that the time of the permanent growth of European interest rates has come as the rate was last increased in December. There is also a good pretext for that – inflation in the Euro-zone is going up. The inflation rate reached 2.2 percent annually last December growing to 2.4 percent in January but falling to 2.3 percent in February. As European Central Bank is supposed to keep inflation at the level lower than 2 percent, it is bound to raise interest rates. None of 54 economist Dow Jones Newswires contacted for predict a decrease in interest rates. 12 of those surveyed said the rates will be preserved till the end of the year, 18 people think the rates will be boosted to 2.75 percent while 18 believe the rates will climb to 3.0 percent.
Our prognosis: the euro will rise above $1.19 following the growing attention to the European interest rates.

Private Loans Increase Russia's Foreign Debt

April 17, 2006 The Kommersant – Private Loans Increase Russia’s Foreign Debt Loans of Kremlin-friendly companies is augmenting Russia’s external debt The RussianCentral Bank. disclosed data on Russia’s foreign debt as of January 1, 2006, on Saturday. While the state has cleared the debt ahead of schedule, banks and nonfinancial enterprises have bor...
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