The Guardian
Comment is free
A year after his arrival, measures from the Russian president suggest a power shift in the Kremlin, and an era of glasnost-lite
By Jason Corcoran
Comments (31) Tuesday 12 May 2009 20.30 BST
A new era of glasnost sponsored by the Russian president, Dmitry Medvedev, is casting light into some of the darkened corridors of the Kremlin. Medvedev has recently made a string of striking public outreach gestures and this week signalled he could ease political restrictions imposed by his predecessor Vladimir Putin.
Some of the measures hark back to the late 1980s when then USSR president Mikhail Gorbachev first announced a policy of glasnost, which translates as openness or transparency. Gorbachev's policy of glasnost, along with his restructuring of the economy and the political system, ushered in a momentous period of change and turmoil, which ultimately led to the break-up of the Soviet Union. Many of the post-Soviet freedoms were subsequently rolled back during Putin's eight-year reign.
A year on from his inauguration, the substance of Medvedev's presidency is beginning to synch with the mood music.
Earlier this week, Medvedev said the 7% threshold for political parties to win seats in the State Duma may be lowered.
Putin had introduced the threshold in the wake of the 2004 Beslan hostage massacre arguing the need to preserve the integrity of the state. The ruling meant that only four political parties – none of them opposed to Putin – surpassed the 7% threshold in the parliamentary elections of December 2007.
Like Gorbachev, Medvedev is a trained lawyer and his pledge last May to eradicate "legal nihilism" no longer seems utterly hollow.
Federal and regional politicians, along with and security figures embroiled in scandals over the last few months, are actually being held to account. Under Putin's reign, many scandals were raked over and the figures would be allowed to carry on as if nothing happened, as long as the party line was toed.
For example, when photos surfaced of a January helicopter crash in Siberia that appeared to involve government officials on an illegal hunt, wildlife campaigners assumed the Kremlin would hush up the incident. Yet state-run media covered the story, a senior official in the region resigned and federal prosecutors investigated.
Another example last month was a decree by Medvedev dismissing Police Colonel General Vladimir Pronin, head of the Moscow directorate of the interior ministry. Pronin had described a police major guilty of a drunken killing spree in a supermarket as "a good professional".
In politics, there is a mountain to climb before Russia's centralised and authoritarian system of "sovereign democracy" breaks down like its Communist forerunner.
Opposition candidates suggested that local officials had fixed the recent mayoral elections in Sochi, the venue of the 2014 Winter Olympics. The Kremlin-backed candidate Anatoly Pakhomov won a landslide victory. Challengers had little space to campaign; local television blacked out news coverage and advertising of opposition candidates. Seven candidates were disqualified due to clerical errors, but at least liberal leader Boris Nemtsov was allowed on the ballot. Opposition figures couldn't get on the ballot during last year's presidential elections.
In the courts, the former head counsel of Yukos, Svetlana Bakhmina, was released on parole in April after being locked up as a young mother years earlier. In the trial of her former boss, Mikhail Khodorkovsky, spectators were surprised when Kremlin opponent Gary Kasparov appeared and publicly blasted the prosecutors. Khodorkovsky's fate, however, is likely to be another stretch for the same tax evasion and fraud charges that he was charged with in 2004.
Gorbachev allowed human rights dissident Andrei Sakharov to return to Moscow in 1986 from his forced internal exile in a move that showed the world that the regime had changed. It would be unthinkable for Medvedev to make such a move as long as Putin remains sitting on his shoulder as the all-powerful prime minister.
There are signs though in the Kremlin that the balance of power could be tipping more to the liberal faction and away from the statists and secret service henchmen. Charges against deputy finance minister Sergei Storchak of embezzling $44m in state funds have been dropped in a case widely perceived to be politically motivated and part of a power struggle between finance minister Alexei Kudrin and Igor Sechin, deputy prime minister and chairman of oil giant Rosneft.
Kudrin, the leader of the liberals, triumphed in the battle over the country's purse strings having argued for steep budget cuts as Russia readjusts its spending plans amid falling oil revenues, which is at odds with the security services' desire for increased funding for defence-related industries.
Russia's small liberal press and its NGOs are enjoying something of a revival under the new regime. Medvedev recently gave a full press interview to liberal paper Novaya Gazeta, his first one-on-one interview to any Russian newspaper. Another departure has been regular meetings with the leaders of Russian NGOs and human rights activists, with the full transcript of meetings and occasional critiques of Kremlin's policies published on the president's site.
Nobody knows how far this glasnost-lite will go. It may just be for the timeline of the crisis or until his mentor Putin decides Medvedev's usefulness has expired.
http://www.guardian.co.uk/commentisfree/2009/may/12/medvedev-russia-glasnost
Showing posts with label Dmitry Medvedev. Show all posts
Showing posts with label Dmitry Medvedev. Show all posts
Sunday, 17 May 2009
Thursday, 5 March 2009
Russia's double-headed eagle
Guardian Unlimited
Jason Corcoran: Rather than reversing Putin's policies, Medvedev has only hinted at reform. Time will tell if he can step out of the shadows
Dmitry Medvedev was destined to be a lame duck leader when he was elected Russia's third president a year ago. His inauguration ushered in a ruling tandem with his mentor and predecessor Vladimir Putin seemingly shifting a gear to become prime minister. Putin, however, has so far done all of the steering while Medvedev has been along for the ride.
Russians have not been duped, judging by the latest opinion poll by the respected Levada Centre, which indicate only 12% believe Medvedev wields real power. Another 34% believe it lies with Putin, while 50% believe it is shared between them.
Buoyed by rising commodity prices, Putin's eight-year reign restored Russia's shattered economy, raised living standards for many and re-established Russia's standing internationally as a power-broker.
A tough act to follow. Unfortunately, events have not been kind to Medvedev; the equity market and economy have collapsed; a war with Georgia and a major gas dispute with Ukraine have soured relations with Europe; a currency crisis has rattled the public; and an oil price that rose steadily through his predecessors' two terms has tanked.
Medvedev's presidency has brought a change of tone but not a change in substance. His response to the January murders of a human rights lawyer, Stanislav Markelov, and the journalist Anastasia Baburova on a Moscow street were markedly more sympathetic than Putin's gruff response to the 2006 murder of journalist Anna Politkovskaya.
Rather than reverse any of Putin's policies, Medvedev has hinted at reform of the judiciary and the political system. He has subtly criticised Putin's cabinet for its handling of the crisis but hasn't sacked anyone in the federal executive for their mishandling of the economy.
Russia's five-day war with neighbouring Georgia in August was arguably Medvedev's toughest assignment, but many doubt the extent of his involvement in the key decisions. It was Putin, not Medvedev, who appeared in a flak jacket among Russian troops after the outbreak of war, in which Russia quickly routed its southern neighbour.Medvedev had never won elected office before becoming president. He owes his dizzy rise in government and his old job as chairman of energy giant Gazprom to Putin. A former lawyer, Medvedev made a commitment to the rule of law and to stamp out "legal nihilism" a central tenet of his inauguration speech last year. A new trial commencing on Wednesday of jailed tycoon Mikhail Khodorkovsky is a chance to show his leadership credentials and whether he is committed to those promises.
Khodorkovsky, the former owner of oil giant Yukos was jailed for eight years in 2005 for fraud and tax evasion in a trial regarded widely as a vendetta by Putin, for his funding of rival political forces. If Khodorkovsky is convicted on new charges, Medvedev will be seen as suffering a setback in his campaign for the rule of law. If the former oligarch is acquitted, the ex-KGB hardliners surrounding Putin will be seen to have lost.
Russia's double-headed eagle is working as a tandem, albeit with one driver and a passenger, who is a spoke in Putin's wheel. Only time will tell whether Medvedev has the capacity to exercise his legs and turn direction.
http://www.guardian.co.uk/commentisfree/2009/mar/04/dmitri-medvedev-vladimir-putin
guardian.co.uk © Guardian News and Media 2009
Jason Corcoran: Rather than reversing Putin's policies, Medvedev has only hinted at reform. Time will tell if he can step out of the shadows
Dmitry Medvedev was destined to be a lame duck leader when he was elected Russia's third president a year ago. His inauguration ushered in a ruling tandem with his mentor and predecessor Vladimir Putin seemingly shifting a gear to become prime minister. Putin, however, has so far done all of the steering while Medvedev has been along for the ride.
Russians have not been duped, judging by the latest opinion poll by the respected Levada Centre, which indicate only 12% believe Medvedev wields real power. Another 34% believe it lies with Putin, while 50% believe it is shared between them.
Buoyed by rising commodity prices, Putin's eight-year reign restored Russia's shattered economy, raised living standards for many and re-established Russia's standing internationally as a power-broker.
A tough act to follow. Unfortunately, events have not been kind to Medvedev; the equity market and economy have collapsed; a war with Georgia and a major gas dispute with Ukraine have soured relations with Europe; a currency crisis has rattled the public; and an oil price that rose steadily through his predecessors' two terms has tanked.
Medvedev's presidency has brought a change of tone but not a change in substance. His response to the January murders of a human rights lawyer, Stanislav Markelov, and the journalist Anastasia Baburova on a Moscow street were markedly more sympathetic than Putin's gruff response to the 2006 murder of journalist Anna Politkovskaya.
Rather than reverse any of Putin's policies, Medvedev has hinted at reform of the judiciary and the political system. He has subtly criticised Putin's cabinet for its handling of the crisis but hasn't sacked anyone in the federal executive for their mishandling of the economy.
Russia's five-day war with neighbouring Georgia in August was arguably Medvedev's toughest assignment, but many doubt the extent of his involvement in the key decisions. It was Putin, not Medvedev, who appeared in a flak jacket among Russian troops after the outbreak of war, in which Russia quickly routed its southern neighbour.Medvedev had never won elected office before becoming president. He owes his dizzy rise in government and his old job as chairman of energy giant Gazprom to Putin. A former lawyer, Medvedev made a commitment to the rule of law and to stamp out "legal nihilism" a central tenet of his inauguration speech last year. A new trial commencing on Wednesday of jailed tycoon Mikhail Khodorkovsky is a chance to show his leadership credentials and whether he is committed to those promises.
Khodorkovsky, the former owner of oil giant Yukos was jailed for eight years in 2005 for fraud and tax evasion in a trial regarded widely as a vendetta by Putin, for his funding of rival political forces. If Khodorkovsky is convicted on new charges, Medvedev will be seen as suffering a setback in his campaign for the rule of law. If the former oligarch is acquitted, the ex-KGB hardliners surrounding Putin will be seen to have lost.
Russia's double-headed eagle is working as a tandem, albeit with one driver and a passenger, who is a spoke in Putin's wheel. Only time will tell whether Medvedev has the capacity to exercise his legs and turn direction.
http://www.guardian.co.uk/commentisfree/2009/mar/04/dmitri-medvedev-vladimir-putin
guardian.co.uk © Guardian News and Media 2009
Thursday, 29 January 2009
Oligarchs beware
Guardian Unlimited
By Jason Corcoran
Vladimir Putin's denial that he is a 'billionaire-slayer' looks increasingly unconvincing
The Russian prime minister Vladimir Putin will have raised someeyebrows amongst west London's oligarchical clique by rebuffing his image as "a billionaire-slayer".
Putin has been wielding his power to lance the ambition of aspirational tycoons for almost a decade and is showing no signs of stopping now. In an interview with Bloomberg, the Russian leader insisted the country's rules and laws are a level playing field for all of its citizens.
Well, tell that to jailed oil tycoon Mikhail Khodorkovsky, who haslanguished in a Siberian prison since 2005 on back-dated charges of tax evasion in what many viewed as an attempt to silence a political opponent. A court rejected Khodorkovsky's parole request last year, citing reasons such as a refusal to take part in a sewing course.
Putin had told a meeting of oligarchs early in his reign in 2000 itwas either his way or the highway. Some of Russia's wealthiest and most prominent businessmen, such as Boris Berezovsky and Vladimir Gusinsky, were forced to flee Moscow soon after. The pair had controlled TV stations which were critical of Putin's leadership.
Magnates such as Chelsea football club owner Roman Abramovich and Viktor Vekselberg opted to play ball. The former agreed to sell his oil company Sibneft to state behemoth Gazprom while Vekselberg impressed by splashing out a fortune to repatriate Faberge eggs to the Kremlin.
The credit crisis has put the current crop of oligarchs under thespotlight as they strain to repay hefty foreign loans and respond to the Kremlin's call to chip in more taxes to help foot the national budget.
The founder of Russia's leading mobile phone chain, Yevgeny Chichvarkin, was last week reported to have fled to London after appearing on the federal wanted list. He is accused of being involved in the kidnapping and blackmail of a former employee in a case with political undertones. Chichvarkin is joined in exile by the former president of the oil company Russneft Mikhail Gutseriyev, who fled 18 months ago in order to avoid tax evasion and other charges. Russneft has since been acquired by Oleg Deripaska, who is considered to be Putin's favourite industrialist.
Putin has the financial wherewithal and the whim to decide which oligarchs survive. Vnesheconombank (VEB), the state development bank charged with bailing out troubled companies, is chaired by the prime minister. More than 100 businesses are believed to have gone cap-in-hand to VEB, which has dished out $1 billion to Evraz, the steel and mining group part-owned by Abramovich. Deripaska, once Russia's richest man, benefitted when VEB stepped in to refinance a $4.5bn loan that he had taken out to buy a 25% stake in the mining company Norilsk Nickel.
The credit crunch has also shown up the first cracks in therelationship between Putin and his protege Dmitri Medvedev, who replaced him as president last year.
Unlike his mentor, Medvedev has never been a member of the spying classes. A lawyer by training, he claims to want a strong independent judiciary to decide the fate of bent businessmen. He has twice subtly criticised Putin's government for its handling of the crisis but it remains to be seen whether the ruling tandem is wobbling from its course. Putin still controls the strings and Medvedev can only become the puppetmaster if he cuts them.
guardian.co.uk © Guardian News and Media 2009
By Jason Corcoran
Vladimir Putin's denial that he is a 'billionaire-slayer' looks increasingly unconvincing
The Russian prime minister Vladimir Putin will have raised someeyebrows amongst west London's oligarchical clique by rebuffing his image as "a billionaire-slayer".
Putin has been wielding his power to lance the ambition of aspirational tycoons for almost a decade and is showing no signs of stopping now. In an interview with Bloomberg, the Russian leader insisted the country's rules and laws are a level playing field for all of its citizens.
Well, tell that to jailed oil tycoon Mikhail Khodorkovsky, who haslanguished in a Siberian prison since 2005 on back-dated charges of tax evasion in what many viewed as an attempt to silence a political opponent. A court rejected Khodorkovsky's parole request last year, citing reasons such as a refusal to take part in a sewing course.
Putin had told a meeting of oligarchs early in his reign in 2000 itwas either his way or the highway. Some of Russia's wealthiest and most prominent businessmen, such as Boris Berezovsky and Vladimir Gusinsky, were forced to flee Moscow soon after. The pair had controlled TV stations which were critical of Putin's leadership.
Magnates such as Chelsea football club owner Roman Abramovich and Viktor Vekselberg opted to play ball. The former agreed to sell his oil company Sibneft to state behemoth Gazprom while Vekselberg impressed by splashing out a fortune to repatriate Faberge eggs to the Kremlin.
The credit crisis has put the current crop of oligarchs under thespotlight as they strain to repay hefty foreign loans and respond to the Kremlin's call to chip in more taxes to help foot the national budget.
The founder of Russia's leading mobile phone chain, Yevgeny Chichvarkin, was last week reported to have fled to London after appearing on the federal wanted list. He is accused of being involved in the kidnapping and blackmail of a former employee in a case with political undertones. Chichvarkin is joined in exile by the former president of the oil company Russneft Mikhail Gutseriyev, who fled 18 months ago in order to avoid tax evasion and other charges. Russneft has since been acquired by Oleg Deripaska, who is considered to be Putin's favourite industrialist.
Putin has the financial wherewithal and the whim to decide which oligarchs survive. Vnesheconombank (VEB), the state development bank charged with bailing out troubled companies, is chaired by the prime minister. More than 100 businesses are believed to have gone cap-in-hand to VEB, which has dished out $1 billion to Evraz, the steel and mining group part-owned by Abramovich. Deripaska, once Russia's richest man, benefitted when VEB stepped in to refinance a $4.5bn loan that he had taken out to buy a 25% stake in the mining company Norilsk Nickel.
The credit crunch has also shown up the first cracks in therelationship between Putin and his protege Dmitri Medvedev, who replaced him as president last year.
Unlike his mentor, Medvedev has never been a member of the spying classes. A lawyer by training, he claims to want a strong independent judiciary to decide the fate of bent businessmen. He has twice subtly criticised Putin's government for its handling of the crisis but it remains to be seen whether the ruling tandem is wobbling from its course. Putin still controls the strings and Medvedev can only become the puppetmaster if he cuts them.
guardian.co.uk © Guardian News and Media 2009
Saturday, 29 November 2008
Russians lose confidence in faltering rouble
Financial News
By Jason Corcoran
24 November 2008
Letter from Moscow
Gambling in casinos has been a popular pastime in Moscow since the fall of communism but a more recent fad is desperate speculation on the currency markets. A slide in the value of the rouble and a deposit run at banks that is gathering momentum has loaded the dice in favour of a punt on the dollar.
The on-off love affair with the greenback dates back to 1998 when a rouble devaluation wiped out people’s savings. Those lucky enough to have withdrawn their money in time transferred funds into dollars.
Popular as Russia’s leaders are, its citizens have learnt not to take any chances by keeping faith with the rouble. Russians are rushing to protect their wealth in global currencies, having seen the stock market plunge by 70%, inflation hovering at 15% and all manner of businesses struggling to make basic payments.
Viewers tuning into national television on November 12 may well have been baffled by a
15-second clip announcing the Government’s widening of the rouble’s trading band by 30 kopeks, in a move seen by analysts as a tacit admission of a gradual devaluation.
Russia’s state-run channels have largely ignored the domestic economic crisis by focusing on Wall Street’s woes. President Dmitry Medvedev has gone as far as urging law enforcement agencies to prosecute anyone spreading malicious rumours that could cause the banks to collapse.
Worsening financial conditions, though, are beginning to eclipse an eight-year commodity boom as problems in financial services and real estate contaminate the real economy. Business professionals reading the financial press are better informed, while ordinary people check currency exchanges for the latest rates.
The state is determined to hold the currency stable and the central bank spent $57.5bn in the currency market to shore up the rouble in September and October. However, the rouble has lost 17% of its value over the past two and a half months despite the interventions. Last Thursday, street kiosks were selling dollars at more than 28 roubles apiece, compared with a low of 23 roubles in mid-July.
The faltering rouble is triggering a deposit run, with reports suggesting a deposit loss of 15% in large retail banks such as Alfa Bank, Austria’s Raiffeisen and Italy’s UniCredit.
Smaller banks are even more vulnerable. Authorities last week pledged to protect only national banks with over $4bn in retail deposits or regional institutions with more than $1bn in savers’ deposits.
While the Russian central bank’s move to increase the rouble’s trading band was intended to absorb some of the pressure on the currency, it had the effect of devaluing it by 1% and the stock market responded negatively. The fear is that if the central bank falters in its defence of the rouble, there could be a full-scale run on the banks and the currency.
The oil price is critical for the rouble. Economists believe the only way pressure for a full devaluation will ease is if the price of oil moves much higher than $60 per barrel.
Prime Minister Vladimir Putin and his presidential successor Medvedev remain popular while the Russian population remains apathetic to any alternatives. In an apparent appeal for calm, Medvedev and Putin said recently they would keep their savings in roubles – and in the bank. But further currency fluctuations, along with spiralling inflation and jobs losses may yet bring out protesting pensioners if their mattress money again proves to be good only for kindling fires on harsh winter days.
http://www.efinancialnews.com/archive/keyword/jason+corcoran/1/content/3352565176
By Jason Corcoran
24 November 2008
Letter from Moscow
Gambling in casinos has been a popular pastime in Moscow since the fall of communism but a more recent fad is desperate speculation on the currency markets. A slide in the value of the rouble and a deposit run at banks that is gathering momentum has loaded the dice in favour of a punt on the dollar.
The on-off love affair with the greenback dates back to 1998 when a rouble devaluation wiped out people’s savings. Those lucky enough to have withdrawn their money in time transferred funds into dollars.
Popular as Russia’s leaders are, its citizens have learnt not to take any chances by keeping faith with the rouble. Russians are rushing to protect their wealth in global currencies, having seen the stock market plunge by 70%, inflation hovering at 15% and all manner of businesses struggling to make basic payments.
Viewers tuning into national television on November 12 may well have been baffled by a
15-second clip announcing the Government’s widening of the rouble’s trading band by 30 kopeks, in a move seen by analysts as a tacit admission of a gradual devaluation.
Russia’s state-run channels have largely ignored the domestic economic crisis by focusing on Wall Street’s woes. President Dmitry Medvedev has gone as far as urging law enforcement agencies to prosecute anyone spreading malicious rumours that could cause the banks to collapse.
Worsening financial conditions, though, are beginning to eclipse an eight-year commodity boom as problems in financial services and real estate contaminate the real economy. Business professionals reading the financial press are better informed, while ordinary people check currency exchanges for the latest rates.
The state is determined to hold the currency stable and the central bank spent $57.5bn in the currency market to shore up the rouble in September and October. However, the rouble has lost 17% of its value over the past two and a half months despite the interventions. Last Thursday, street kiosks were selling dollars at more than 28 roubles apiece, compared with a low of 23 roubles in mid-July.
The faltering rouble is triggering a deposit run, with reports suggesting a deposit loss of 15% in large retail banks such as Alfa Bank, Austria’s Raiffeisen and Italy’s UniCredit.
Smaller banks are even more vulnerable. Authorities last week pledged to protect only national banks with over $4bn in retail deposits or regional institutions with more than $1bn in savers’ deposits.
While the Russian central bank’s move to increase the rouble’s trading band was intended to absorb some of the pressure on the currency, it had the effect of devaluing it by 1% and the stock market responded negatively. The fear is that if the central bank falters in its defence of the rouble, there could be a full-scale run on the banks and the currency.
The oil price is critical for the rouble. Economists believe the only way pressure for a full devaluation will ease is if the price of oil moves much higher than $60 per barrel.
Prime Minister Vladimir Putin and his presidential successor Medvedev remain popular while the Russian population remains apathetic to any alternatives. In an apparent appeal for calm, Medvedev and Putin said recently they would keep their savings in roubles – and in the bank. But further currency fluctuations, along with spiralling inflation and jobs losses may yet bring out protesting pensioners if their mattress money again proves to be good only for kindling fires on harsh winter days.
http://www.efinancialnews.com/archive/keyword/jason+corcoran/1/content/3352565176
Friday, 21 November 2008
Rouble trouble
The Guardian - Comment is Free
A slide in the value of Russian currency has led many to cash out their modest savings and punt for either dollar or euro
By Jason Corcoran
guardian.co.uk, Wednesday November 19 2008 20.00
The financial crisis is quickly transforming Russia into a nation of desperate currency speculators due to a slide in the rouble's value and a deposit run gathering pace at the banks.
For many ordinary Russians, it's a game of roulette as they cash out their modest savings and punt for either dollar or euro.
The cards are stacked in favour of a dollar bet as Russians have a love affair with the greenback dating back to last financial crisis in 1998, when a rouble devaluation wiped out their savings.
Pensioners tuning into national TV last week may well have been baffled by a 15-second clip announcing the government widening the rouble's trading corridor by 30 kopecks, in a move seen by analysts as a tacit admission of a gradual devaluation.
Russia's state-run channels have largely ignored the domestic economic crisis by focusing on Wall Street's woes. Worsening financial conditions, though, are beginning to eclipse an eight-year commodity boom as problems in financial services and the real estate sector contaminate the real economy.
Business professionals who read the financial press will be well-informed while ordinary people are turning to currency kiosks and their chalkboards showing the latest currency rates.
The world's second-largest oil exporter has accumulated reserves of nearly $600bn during an oil and gas boom, but those reserves have fallen by a fifth to $475bn in the last three months largely due to efforts to prop up the rouble.
The Kremlin has spent tens of billions defending the rouble from falling oil and stock prices and capital flight of $150bn since early August.
The state is determined to hold the currency stable is because of the risk that a weak rouble will lead to a loss of confidence by Russian savers in the currency, in the banking system and in the government.
Over the past two-and-a-half months, the rouble has lost over 15% of its value, despite the interventions.
On Tuesday, street exchanges were selling dollars at less than 28 roubles, compared to a 23-rouble high in mid-July.
The faltering rouble is triggering a deposit run with reports suggesting a deposit loss of 25% in large retail banks and 3% in the state banks.
The Russian prime minister, Vladimir Putin, and his presidential successor Dmitry Medvedev remain popular leaders while the Russian population remains hugely apathetic to any liberal, communist or extremist alternatives.
In apparent appeal for calm, Medvedev and Putin said recently they would keep their savings in roubles — and in the bank. "I have kept all my accounts at the bank. I have not taken the money out, not changed roubles into dollars and not bought any shares," Medvedev told the Argumenty i Fakty newspaper.
But further currency fluctuations, along with jobs losses and rising inflation may yet bring out protesting babushkas if their mattress money again proves to be good only for fire tinder.
comments (32)
http://www.guardian.co.uk/commentisfree/2008/nov/19/russia-economics
A slide in the value of Russian currency has led many to cash out their modest savings and punt for either dollar or euro
By Jason Corcoran
guardian.co.uk, Wednesday November 19 2008 20.00
The financial crisis is quickly transforming Russia into a nation of desperate currency speculators due to a slide in the rouble's value and a deposit run gathering pace at the banks.
For many ordinary Russians, it's a game of roulette as they cash out their modest savings and punt for either dollar or euro.
The cards are stacked in favour of a dollar bet as Russians have a love affair with the greenback dating back to last financial crisis in 1998, when a rouble devaluation wiped out their savings.
Pensioners tuning into national TV last week may well have been baffled by a 15-second clip announcing the government widening the rouble's trading corridor by 30 kopecks, in a move seen by analysts as a tacit admission of a gradual devaluation.
Russia's state-run channels have largely ignored the domestic economic crisis by focusing on Wall Street's woes. Worsening financial conditions, though, are beginning to eclipse an eight-year commodity boom as problems in financial services and the real estate sector contaminate the real economy.
Business professionals who read the financial press will be well-informed while ordinary people are turning to currency kiosks and their chalkboards showing the latest currency rates.
The world's second-largest oil exporter has accumulated reserves of nearly $600bn during an oil and gas boom, but those reserves have fallen by a fifth to $475bn in the last three months largely due to efforts to prop up the rouble.
The Kremlin has spent tens of billions defending the rouble from falling oil and stock prices and capital flight of $150bn since early August.
The state is determined to hold the currency stable is because of the risk that a weak rouble will lead to a loss of confidence by Russian savers in the currency, in the banking system and in the government.
Over the past two-and-a-half months, the rouble has lost over 15% of its value, despite the interventions.
On Tuesday, street exchanges were selling dollars at less than 28 roubles, compared to a 23-rouble high in mid-July.
The faltering rouble is triggering a deposit run with reports suggesting a deposit loss of 25% in large retail banks and 3% in the state banks.
The Russian prime minister, Vladimir Putin, and his presidential successor Dmitry Medvedev remain popular leaders while the Russian population remains hugely apathetic to any liberal, communist or extremist alternatives.
In apparent appeal for calm, Medvedev and Putin said recently they would keep their savings in roubles — and in the bank. "I have kept all my accounts at the bank. I have not taken the money out, not changed roubles into dollars and not bought any shares," Medvedev told the Argumenty i Fakty newspaper.
But further currency fluctuations, along with jobs losses and rising inflation may yet bring out protesting babushkas if their mattress money again proves to be good only for fire tinder.
comments (32)
http://www.guardian.co.uk/commentisfree/2008/nov/19/russia-economics
Monday, 18 August 2008
Letter from Moscow
Dow Jones 'Financial News'
By Jason Corcoran in Moscow
Frazzled Russian investors have seen their domestic markets zigzag up and down like an erratic heartbeat on a cardiac monitor for the past month.
The RTS, the benchmark for foreign investors, plummeted by 6.5% to 1722 on August 7 after the outbreak of hostilities in the Georgian breakaway region of South Ossetia while the rouble-denominated Micex index slid by 5.3% to 1360.
The falling markets were resuscitated by Thursday last week after Russian President Dmitry Medvedev halted the invasion of Georgia and called an end to the fighting. The RTS rebounded to around its previous level, passing 1800 by the end of Thursday. The Micex closed at 1445, up 2.3% on the day.
The RTS had seen its value knocked by 24%, or $63bn, on July 24 after Prime Minister Vladimir Putin accused domestic mining company Mechel of price fixing and evading taxes. A few days later, Medvedev stepped in with the defibrillator to assure investors that the country’s stock market remained “one of the most attractive in the world”.
Medvedev appears to be playing good cop to Putin’s bad cop; the President steps in with honeyed words to ease investors’ concerns after the gung-ho Prime Minister has waded in and put the frighteners on everyone.
In Georgia, the roles seem to be reversed with President Mikheil Saakashvili playing the rabble-rousing antagoniser and his Prime Minister, Lado Gurgenidze, acting to soothe investors’ nerves.
The English-speaking Georgian double-act has been honed for the western media. Within hours of the outbreak in South Ossetia, the Bank of Georgia’s investment banking arm, Galt & Taggart, had organised a conference call between Gurgenidze and the country’s biggest investors and rating agencies.
In a live discussion with UBS and other banks, Gurgenidze described the political situation in Georgia and South Ossetia, and spoke about the perceived negligible impact on the domestic economy.
Gurgenidze knows more than most how capital markets respond to political crises, having worked at ABN Amro in various roles, including in its corporate finance department and as head of mergers and acquisitions for emerging European markets.
After Georgia’s Rose Revolution in 2003, Gurgenidze returned to his homeland as chief executive of the London-listed Bank of Georgia.
The bank has been a darling for frontier market investors with some Moscow-based hedge funds notching up a 1,000% return on their original investment. Gurgenidze has even built a celebrity name for himself after hosting Georgia’s version of Sir Alan Sugar’s The Apprentice television programme. Saakashvili nominated him as Prime Minister in November last year shortly after violence erupted on the streets of the capital following disputed election results.
Since the Rose Revolution brought Saakashvili to power, Georgia has become one of the most dynamic countries in the former Soviet Union.
Several reforms have begun to bear fruit, and have been hailed by international financial institutions such as the World Bank. Georgia’s growth stood at more than 10% in 2006 and last year and is expected to be around 8% this year.
Saakashvili and Gurgenidze may have won the heart and minds of the media, but the damage to Georgia’s investment credibility from its military humiliation is incalculable. The country is now counting its dead and licking its economic wounds.
Credit rating agency Fitch has downgraded Georgia’s sovereign debt as a result of the conflict. It has also downgraded the credit outlook for the Bank of Georgia, ProCredit Bank and TBC Bank from “stable” to “negative”.
Meanwhile, it remains unclear whether Medvedev and Putin’s unwieldy presentation of the war will damage Russia’s investment case in the longer term.
http://www.efinancialnews.com/archive/keyword/corcoran/1/content/2451551233
By Jason Corcoran in Moscow
Frazzled Russian investors have seen their domestic markets zigzag up and down like an erratic heartbeat on a cardiac monitor for the past month.
The RTS, the benchmark for foreign investors, plummeted by 6.5% to 1722 on August 7 after the outbreak of hostilities in the Georgian breakaway region of South Ossetia while the rouble-denominated Micex index slid by 5.3% to 1360.
The falling markets were resuscitated by Thursday last week after Russian President Dmitry Medvedev halted the invasion of Georgia and called an end to the fighting. The RTS rebounded to around its previous level, passing 1800 by the end of Thursday. The Micex closed at 1445, up 2.3% on the day.
The RTS had seen its value knocked by 24%, or $63bn, on July 24 after Prime Minister Vladimir Putin accused domestic mining company Mechel of price fixing and evading taxes. A few days later, Medvedev stepped in with the defibrillator to assure investors that the country’s stock market remained “one of the most attractive in the world”.
Medvedev appears to be playing good cop to Putin’s bad cop; the President steps in with honeyed words to ease investors’ concerns after the gung-ho Prime Minister has waded in and put the frighteners on everyone.
In Georgia, the roles seem to be reversed with President Mikheil Saakashvili playing the rabble-rousing antagoniser and his Prime Minister, Lado Gurgenidze, acting to soothe investors’ nerves.
The English-speaking Georgian double-act has been honed for the western media. Within hours of the outbreak in South Ossetia, the Bank of Georgia’s investment banking arm, Galt & Taggart, had organised a conference call between Gurgenidze and the country’s biggest investors and rating agencies.
In a live discussion with UBS and other banks, Gurgenidze described the political situation in Georgia and South Ossetia, and spoke about the perceived negligible impact on the domestic economy.
Gurgenidze knows more than most how capital markets respond to political crises, having worked at ABN Amro in various roles, including in its corporate finance department and as head of mergers and acquisitions for emerging European markets.
After Georgia’s Rose Revolution in 2003, Gurgenidze returned to his homeland as chief executive of the London-listed Bank of Georgia.
The bank has been a darling for frontier market investors with some Moscow-based hedge funds notching up a 1,000% return on their original investment. Gurgenidze has even built a celebrity name for himself after hosting Georgia’s version of Sir Alan Sugar’s The Apprentice television programme. Saakashvili nominated him as Prime Minister in November last year shortly after violence erupted on the streets of the capital following disputed election results.
Since the Rose Revolution brought Saakashvili to power, Georgia has become one of the most dynamic countries in the former Soviet Union.
Several reforms have begun to bear fruit, and have been hailed by international financial institutions such as the World Bank. Georgia’s growth stood at more than 10% in 2006 and last year and is expected to be around 8% this year.
Saakashvili and Gurgenidze may have won the heart and minds of the media, but the damage to Georgia’s investment credibility from its military humiliation is incalculable. The country is now counting its dead and licking its economic wounds.
Credit rating agency Fitch has downgraded Georgia’s sovereign debt as a result of the conflict. It has also downgraded the credit outlook for the Bank of Georgia, ProCredit Bank and TBC Bank from “stable” to “negative”.
Meanwhile, it remains unclear whether Medvedev and Putin’s unwieldy presentation of the war will damage Russia’s investment case in the longer term.
http://www.efinancialnews.com/archive/keyword/corcoran/1/content/2451551233
Tuesday, 24 June 2008
Russia’s stocks rally as Putin passes the presidency to Medvedev
Financial News
Jason Corcoran in Moscow
23 June 2008
Investment climate is steady as new leader continues reform agenda
Russia’s equity markets are enjoying the country’s honeymoon period under its new leadership, but investors remain wary of how the power-sharing arrangement will evolve.
The changing of the guard on May 7 saw Vladimir Putin hand over the presidential mantle to his protégé Dmitry Medvedev. Within hours, Medvedev had nominated his mentor Putin as Prime Minister.
The smooth choreography proved to be a fillip for Russia’s main stock markets and sparked a buying spree by foreign funds.
The MSCI Russia Index was the best performing emerging equity market last month, rising 15.7%, and outperforming the MSCI EM Emea index, which rose 7.3% in the same month. Inflows recorded in the third week of May of $542m (€350m) were the highest in Russia for more than two years, according to data provider Emerging Portfolio Fund Research.
Peter Halloran, chief executive of Russian hedge fund group Pharos Financial, said: “So far, their partnership has been smooth. There has been no discord and they are moving ahead with the reform agenda, which is the trick with emerging markets. It will take at least a year if we are going to see any friction between the two.”
Most investors agree the new order has yet to result in any tangible change to the investment climate due to the continuity in policies and the Government’s team.
Putin unveiled his new cabinet, handing key roles to heavyweight economic liberals, while keeping several hardliners with a secret services background on board.
Yulia Tseplayeva, chief economist at Merrill Lynch in Russia, said the early running indicated Putin was focusing on geopolitics while Medvedev was taking care of institution-building.
She said: “The transfer from Putin to Medvedev hasn’t taken place yet. It’s been a transfer from Putin to Putin-Medvedev. Putin is the main decision-maker and his significant presence is very obvious through the mass media, and the public doesn’t see any difference. It’s essentially the same team, the same policies without any major revisions.”
The best-performing sector over the past month has easily been energy, which was fired up by Putin’s statement that the tax regime in the oil sector would be eased by August. Russian Energy giants Rosneft, Surgutneftegaz, Lukoil, Gazpomneft, Transneft and Novatek rallied by between 23% and 26% last month, after the sector had failed to be swept up by the boom in global oil prices.
Tseplayeva added: “The Government could no longer afford to ignore the oil lobby as its main taxpayer. The plan to cut mineral extraction taxes for the oil sector was announced a year ago but Putin dressed it up in a very investor-friendly way and the markets responded in kind. The 100bn roubles (€2.7bn) a year will be good for the industry but it’s only 0.2% of overall GDP.”
Goldman Sachs reacted by raising its 12-month estimate for the RTS index by 12% to 2750, recommending energy blue-chips. Oil and gas stocks are expected to continue to thrive on the back of the decision to cut taxes, although it might mean other sectors have to take up the slack.
Chris Weafer, chief strategist at financial services group UralSib, believes the mining industries such as coal and metals could be most at risk. He said: “This year, there is less pressure to levy higher taxes to compensate the budget as the oil price is well above the average assumed in the budget. We believe the finance ministry could easily afford to give up $20bn to the oil industry.
“But the ministry will not want to have to bet on the oil price every year and will undoubtedly push hard for the oil tax reduction to be balanced with higher taxes on other parts of the country’s extractive industries.”
The steel sector has also been hit by suggestions the Government is considering higher export duties on steel to compensate for lost revenues from lower oil taxes.
Producers have enjoyed a surge in steel prices, pushing up costs in industries that use the metal in their production. Analysts said the losers would be companies such as Severstal, Magnitogorsk Iron & Steel Works and NLMK.
With the restructuring of the electricity grid UES almost complete, several Russian funds are betting that hydro-electricity company RusHydro will become the new proxy for the sector.
Last month, the RTS was up 15.9% while the Micex exchange’s index was ahead by 15.5%. While the lion’s share of the upside came from oil and gas, financial stocks also powered ahead with the financials index up 10.2%. Fund managers are bullish on banking blue-chips VTB and Sberbank, which have both flagged in value since their combined $18bn listings last year.
Listed construction and real estate developers have also shown signs of life after the Government approved a $570bn programme to overhaul and expand the country’s transportation infrastructure over the next seven years.
The latest GDP data shows household consumption up 13.6% in real terms during late 2007, which helps explain the continued boom in the consumer economy. Investors are keen on Russia’s second-largest retailer Magnit, which raised $490m in an April listing on the London Stock Exchange to fund expansion.
Tseplayeva said: “The consumption boom is shifting away from Moscow to regional cities such as Ekaterinburg, Novosibirsk, Krasnoyarsk and St Petersburg. Food retailers such as Magnit are primed to do well.”
All signs are that the drought of flotations experienced in the first quarter is over. Last month there was the $449m listing by freight operator Globaltrans and the $1.2bn flotation by retail group X5.
In the global capital markets, Russian companies are eyeing an expanding role. Medvedev has called on business leaders to embark on a foreign acquisition spending spree to boost technological expertise and to diversify into new markets.
Russian business conglomerate Sistema has opened its cheque book in foreign markets by taking a majority stake in Indian telecoms operator Shyam Telelink. Russian companies in the metal and steel sectors such as Severstal and Evraz have also begun to invest globally and extend their reach.
Stephen Cohen, chief executive of Troika Dialog’s fund management business, warned this trend could be to the detriment of capitalising on domestic growth. He said: “Return on equity remains high in Russia and as domestic growth remains very strong it may not be easy for Russian companies to find investment opportunities outside Russia that are as attractive as the domestic opportunities.
“Plus buying foreign companies per se does not necessarily reduce reliance on foreign technology. The solution to that problem is probably more to do with greater expenditure at home on research and development and on education and direct hiring of foreign personnel to work in Russia.”
Medvedev’s call has been answered by state-controlled companies such as savings giant Sberbank, which is looking to acquire banks in the Commonwealth of Independent States, eastern Europe and China.
Alexander Kotchoubey, managing director of Renaissance Investment Management, which has more than $6bn in assets under management, said: “Sberbank and VTB are immune to the international credit crisis because of their minimal exposure to sub-prime and they might be able to pick up distressed assets on the cheap in foreign markets.”
Alexei Miller, chief executive of state-controlled Gazprom, announced in late May that the energy giant is aiming to have the largest market capitalisation in the world. Gazprom, which recently overtook China Mobile to become the third-largest global company, is believed to be interested in taking control of TNK-BP, the Anglo-Russian venture.
TNK-BP’s Russian shareholders are embroiled in an ownership dispute with their British counterparts, which analysts say has been caused by Kremlin pressure on both groups to sell out to a state-controlled company. Investors believe events surrounding TNK and Shell’s surrender last year of the Sakhalin-2 project contribute to the wariness among European and US legislators about Russian investment in their countries.
Weafer said in a note: “Prime Minister Putin late last year said the Government believes approximately $50bn of potential Russian investment into Europe is being blocked because of these worries.”
At the economic forum showcase in St Petersburg at the beginning of June, investors were looking for specifics on how the Government plans to progress reforms and investment plans declared before the parliamentary and presidential elections.
Kotchoubey said: “There hasn’t been a clear delineation of how power should be shared between Putin and Medvedev. Investors are aware that the immaculately turned out double-headed eagle hasn’t had its feathers preened yet.”
Jason Corcoran in Moscow
23 June 2008
Investment climate is steady as new leader continues reform agenda
Russia’s equity markets are enjoying the country’s honeymoon period under its new leadership, but investors remain wary of how the power-sharing arrangement will evolve.
The changing of the guard on May 7 saw Vladimir Putin hand over the presidential mantle to his protégé Dmitry Medvedev. Within hours, Medvedev had nominated his mentor Putin as Prime Minister.
The smooth choreography proved to be a fillip for Russia’s main stock markets and sparked a buying spree by foreign funds.
The MSCI Russia Index was the best performing emerging equity market last month, rising 15.7%, and outperforming the MSCI EM Emea index, which rose 7.3% in the same month. Inflows recorded in the third week of May of $542m (€350m) were the highest in Russia for more than two years, according to data provider Emerging Portfolio Fund Research.
Peter Halloran, chief executive of Russian hedge fund group Pharos Financial, said: “So far, their partnership has been smooth. There has been no discord and they are moving ahead with the reform agenda, which is the trick with emerging markets. It will take at least a year if we are going to see any friction between the two.”
Most investors agree the new order has yet to result in any tangible change to the investment climate due to the continuity in policies and the Government’s team.
Putin unveiled his new cabinet, handing key roles to heavyweight economic liberals, while keeping several hardliners with a secret services background on board.
Yulia Tseplayeva, chief economist at Merrill Lynch in Russia, said the early running indicated Putin was focusing on geopolitics while Medvedev was taking care of institution-building.
She said: “The transfer from Putin to Medvedev hasn’t taken place yet. It’s been a transfer from Putin to Putin-Medvedev. Putin is the main decision-maker and his significant presence is very obvious through the mass media, and the public doesn’t see any difference. It’s essentially the same team, the same policies without any major revisions.”
The best-performing sector over the past month has easily been energy, which was fired up by Putin’s statement that the tax regime in the oil sector would be eased by August. Russian Energy giants Rosneft, Surgutneftegaz, Lukoil, Gazpomneft, Transneft and Novatek rallied by between 23% and 26% last month, after the sector had failed to be swept up by the boom in global oil prices.
Tseplayeva added: “The Government could no longer afford to ignore the oil lobby as its main taxpayer. The plan to cut mineral extraction taxes for the oil sector was announced a year ago but Putin dressed it up in a very investor-friendly way and the markets responded in kind. The 100bn roubles (€2.7bn) a year will be good for the industry but it’s only 0.2% of overall GDP.”
Goldman Sachs reacted by raising its 12-month estimate for the RTS index by 12% to 2750, recommending energy blue-chips. Oil and gas stocks are expected to continue to thrive on the back of the decision to cut taxes, although it might mean other sectors have to take up the slack.
Chris Weafer, chief strategist at financial services group UralSib, believes the mining industries such as coal and metals could be most at risk. He said: “This year, there is less pressure to levy higher taxes to compensate the budget as the oil price is well above the average assumed in the budget. We believe the finance ministry could easily afford to give up $20bn to the oil industry.
“But the ministry will not want to have to bet on the oil price every year and will undoubtedly push hard for the oil tax reduction to be balanced with higher taxes on other parts of the country’s extractive industries.”
The steel sector has also been hit by suggestions the Government is considering higher export duties on steel to compensate for lost revenues from lower oil taxes.
Producers have enjoyed a surge in steel prices, pushing up costs in industries that use the metal in their production. Analysts said the losers would be companies such as Severstal, Magnitogorsk Iron & Steel Works and NLMK.
With the restructuring of the electricity grid UES almost complete, several Russian funds are betting that hydro-electricity company RusHydro will become the new proxy for the sector.
Last month, the RTS was up 15.9% while the Micex exchange’s index was ahead by 15.5%. While the lion’s share of the upside came from oil and gas, financial stocks also powered ahead with the financials index up 10.2%. Fund managers are bullish on banking blue-chips VTB and Sberbank, which have both flagged in value since their combined $18bn listings last year.
Listed construction and real estate developers have also shown signs of life after the Government approved a $570bn programme to overhaul and expand the country’s transportation infrastructure over the next seven years.
The latest GDP data shows household consumption up 13.6% in real terms during late 2007, which helps explain the continued boom in the consumer economy. Investors are keen on Russia’s second-largest retailer Magnit, which raised $490m in an April listing on the London Stock Exchange to fund expansion.
Tseplayeva said: “The consumption boom is shifting away from Moscow to regional cities such as Ekaterinburg, Novosibirsk, Krasnoyarsk and St Petersburg. Food retailers such as Magnit are primed to do well.”
All signs are that the drought of flotations experienced in the first quarter is over. Last month there was the $449m listing by freight operator Globaltrans and the $1.2bn flotation by retail group X5.
In the global capital markets, Russian companies are eyeing an expanding role. Medvedev has called on business leaders to embark on a foreign acquisition spending spree to boost technological expertise and to diversify into new markets.
Russian business conglomerate Sistema has opened its cheque book in foreign markets by taking a majority stake in Indian telecoms operator Shyam Telelink. Russian companies in the metal and steel sectors such as Severstal and Evraz have also begun to invest globally and extend their reach.
Stephen Cohen, chief executive of Troika Dialog’s fund management business, warned this trend could be to the detriment of capitalising on domestic growth. He said: “Return on equity remains high in Russia and as domestic growth remains very strong it may not be easy for Russian companies to find investment opportunities outside Russia that are as attractive as the domestic opportunities.
“Plus buying foreign companies per se does not necessarily reduce reliance on foreign technology. The solution to that problem is probably more to do with greater expenditure at home on research and development and on education and direct hiring of foreign personnel to work in Russia.”
Medvedev’s call has been answered by state-controlled companies such as savings giant Sberbank, which is looking to acquire banks in the Commonwealth of Independent States, eastern Europe and China.
Alexander Kotchoubey, managing director of Renaissance Investment Management, which has more than $6bn in assets under management, said: “Sberbank and VTB are immune to the international credit crisis because of their minimal exposure to sub-prime and they might be able to pick up distressed assets on the cheap in foreign markets.”
Alexei Miller, chief executive of state-controlled Gazprom, announced in late May that the energy giant is aiming to have the largest market capitalisation in the world. Gazprom, which recently overtook China Mobile to become the third-largest global company, is believed to be interested in taking control of TNK-BP, the Anglo-Russian venture.
TNK-BP’s Russian shareholders are embroiled in an ownership dispute with their British counterparts, which analysts say has been caused by Kremlin pressure on both groups to sell out to a state-controlled company. Investors believe events surrounding TNK and Shell’s surrender last year of the Sakhalin-2 project contribute to the wariness among European and US legislators about Russian investment in their countries.
Weafer said in a note: “Prime Minister Putin late last year said the Government believes approximately $50bn of potential Russian investment into Europe is being blocked because of these worries.”
At the economic forum showcase in St Petersburg at the beginning of June, investors were looking for specifics on how the Government plans to progress reforms and investment plans declared before the parliamentary and presidential elections.
Kotchoubey said: “There hasn’t been a clear delineation of how power should be shared between Putin and Medvedev. Investors are aware that the immaculately turned out double-headed eagle hasn’t had its feathers preened yet.”
Tuesday, 22 April 2008
Medvedev to maintain Putin’s grip
Wall Street Journal - Financial News
Jason Corcoran in Moscow
21 April 2008
Despite a new President, the Kremlin is likely to increase state control of certain sectors
Medvedev has promised to adopt many of Putin’s (pictured) policies
Russia has a new leader, but the indications are that the country’s business community will have to wait for a new political era. President-elect Dmitry Medvedev may be the first Russian leader to have worked in the private sector, but he owes his victory in the March 2 presidential election to the endorsement of his predecessor, Vladimir Putin, and has promised to adopt his mentor’s policy of tightening control of the country’s companies.
Under Putin, the Russian state has consolidated control over large sectors of the economy and several business leaders have been jailed or have fled the country. Record oil prices first brought creeping nationalisation of energy resources but state intervention is spreading to other sectors and the Kremlin is dictating the rules for foreign investors.
A strategic industries bill, which was approved by the Russian Parliament in early April, will extend state control beyond the commodities sectors. Recent raids by security services on the offices of the Russian-British joint venture TNK-BP and attempts by a federal property agency to seize control of Moscow’s privately owned Domodevo airport suggest the goal posts for investors are moving.
Arnab Das, global head of emerging markets strategy at Dresdner Kleinwort, said: “Russia is reasserting itself as a counterweight to the US and economics is a tool in its armoury. Medvedev and Putin will continue to try to balance geopolitical goals with the need to have free and fair markets.
“The statists, rather than the free-marketeers, may seem to have the upper hand now but the integration of Russia into global financial and trading systems is helping the reform agenda despite the backsliding we have seen with the introduction of price controls.”
The strategic industries law, which was passed in the Duma at the beginning of this month, lists 42 sectors that will be categorised as strategic and in which foreign investments will be either prohibited or limited. The law will require non-state foreign investors to receive permission from the Russian authorities to acquire 50% or more of a company. In the oil and gas sectors, limitations are substantially stricter with the limits of participation set at 10% for foreign companies and 5% for sovereign wealth funds. Foreign investors that already own more than 5% of a strategic company will be required to declare their holdings to the Russian Government.
Igor Lebedinets, analyst at Russian bank Renaissance Capital, said: “We believe the adoption of this bill is mainly aimed at increasing the Government’s influence in major sectors of the economy, including mass-media although the internet sector is excluded from the list. We have a negative view of the bill because we think it might create additional bureaucracy barriers for foreign investment deals and may slow growth in these industries.”
The list has expanded since 2005, when Putin first ordered the legislative changes. In addition to defence, energy, aircraft and aerospace industries, and critical infrastructure – all of which have long been deemed strategic – the legislation accounts for nanotechnology, fisheries and the late inclusion of mobile telecommunication.
The Government says it needs to resuscitate strategic sectors that have suffered from a lack of investment since the collapse of the Soviet Union, but critics argue the policy is anti-competitive and will dissuade foreign direct investment.
Bankers say investors are aware of the state’s increasing role in designated strategic sectors and that the potential benefits of gaining exposure to a country enjoying a prolonged economic boom – where annual gross domestic product is forecast at 7% in 2008 – outweighed the political risks.
Ivailo Vesselinov, senior economist at Dresdner Kleinwort, said: “Foreign companies involved in oil and gas are well aware of the risk factors involved and of the existence of an environmental regulator who monitors the industry, but on a risk-adjusted basis they realise there is nonetheless a lot of profit to be made on the ground.”
Steven Hellman, head of client coverage in Russia for Credit Suisse, said national sponsorship of select industries, or even re-nationalisation, can be positive in the short term if it encourages investment in underdeveloped sectors of the economy. He said: “The technology and automotive industries would be examples. Of course, this must be done in a manner that is fair to all shareholders and there comes a point when market forces should be allowed to take over to ensure efficient development for the future.”
The apparent renationalisation of Russia’s resource sector was a recurring theme during the Putin presidency.
State-controlled gas company Gazprom flexed its muscles last year by taking control of Sakhalin-2, Russia’s largest combined oil and natural gas development, after a campaign against foreign operator Royal Dutch Shell over alleged environmental violations. The Russian-British joint venture TNK-BP is this month likely to finalise the sale of its stake in the Kovykta gas field to Gazprom. TNK-BP, co-owned by BP and a group of Russian billionaires, has been subject to speculation that the Kremlin wants the Russian owners to sell their stakes to a state organisation to let the Kremlin tighten its grip on the energy sector.
Analysts interpreted a recent search of TNK-BP’s offices by the Federal Security Service and the arrest of an employee on suspicion of industrial espionage as signs the Government is increasing pressure on the owners to sell. Russia’s Federal Migration Service said it was not conducting a concerted effort against UK energy group BP, which recalled its 148 foreign employees because of “a lack of clarity over their current visa status”.
Home-grown energy companies and their oligarch owners have also come under the spotlight of resource nationalism.
The Kremlin is seeking the extradition from the UK of Mikhail Gutseriyev, the owner of the oil company RussNeft, who fled Russia last year after accusing the state of forcing him to sell his company through the levying of politicised tax charges.
The RussNeft case echoes that of the oil group Yukos, which ceased to exist from last November following the carve-up of its assets during the summer and the continued incarceration in Siberia of its former owner Mikhail Khodorkovsky on tax evasion charges.
Nick Jordan, head of Lehman Brothers’ Russian operation, said that the apparent renationalisations have involved acquisitions of assets at fair market value. As head of investment banking at Deutsche Bank, Jordan was involved in advising Gazprom on its bid to acquire the Yukos production asset Yuganskneftegas. An auction was later held and Yuganskneftegas was sold for $9bn (€5.7bn) to Rosneft, a rival energy company.
In an interview with Financial News, Jordan said: “The transition from communism to what we have at present has not been perfect but there has been an overly strict focus on this Russian transition. I would say it is fairer to compare the natural resources sector with its emerging market peer group. Look at the Middle East and Latin America and how many of those companies have been sold to foreigners or are public.”
Jordan, who also advised Gazprom-Media on its successful campaign to seize control of independent television station NTV, believes the term renationalisation has been used loosely in Russia.
He said: “It is a term that has been used rather generally here for a number of years. In almost all cases where a company has been brought back under Government control, it has continued to reissue shares to the public or has retained its public share ownership, which means it is not nationalised in technical terms. In each case there has either been an acquisition at fair market value or there has been a local legal process”
In the latest tug-of-war over private assets, East Line, the owner of Moscow’s Domodevo airport, is fighting an attempt by the Federal Agency for Federal Property Management to nationalise some of its assets. The agency claims the terminal was illegally privatised a decade ago. Das said foreign investors and politicians are right to adopt divergent views of such attempts by the state to reclaim prized assets. He said: “Whether renationalisation is creeping or galloping in Russia, it is bad news for what the country wants to achieve economically. The International Monetary Fund, the World Bank and the US Treasury are right to view what is happening in prescriptive ideological terms.
“That is what they are there for, just as bankers and businessmen are right to reconcile what is happening as a function of the state and part of the economic cycle, and should be expected to position themselves to do business in that context.”
Jason Corcoran in Moscow
21 April 2008
Despite a new President, the Kremlin is likely to increase state control of certain sectors
Medvedev has promised to adopt many of Putin’s (pictured) policies Russia has a new leader, but the indications are that the country’s business community will have to wait for a new political era. President-elect Dmitry Medvedev may be the first Russian leader to have worked in the private sector, but he owes his victory in the March 2 presidential election to the endorsement of his predecessor, Vladimir Putin, and has promised to adopt his mentor’s policy of tightening control of the country’s companies.
Under Putin, the Russian state has consolidated control over large sectors of the economy and several business leaders have been jailed or have fled the country. Record oil prices first brought creeping nationalisation of energy resources but state intervention is spreading to other sectors and the Kremlin is dictating the rules for foreign investors.
A strategic industries bill, which was approved by the Russian Parliament in early April, will extend state control beyond the commodities sectors. Recent raids by security services on the offices of the Russian-British joint venture TNK-BP and attempts by a federal property agency to seize control of Moscow’s privately owned Domodevo airport suggest the goal posts for investors are moving.
Arnab Das, global head of emerging markets strategy at Dresdner Kleinwort, said: “Russia is reasserting itself as a counterweight to the US and economics is a tool in its armoury. Medvedev and Putin will continue to try to balance geopolitical goals with the need to have free and fair markets.
“The statists, rather than the free-marketeers, may seem to have the upper hand now but the integration of Russia into global financial and trading systems is helping the reform agenda despite the backsliding we have seen with the introduction of price controls.”
The strategic industries law, which was passed in the Duma at the beginning of this month, lists 42 sectors that will be categorised as strategic and in which foreign investments will be either prohibited or limited. The law will require non-state foreign investors to receive permission from the Russian authorities to acquire 50% or more of a company. In the oil and gas sectors, limitations are substantially stricter with the limits of participation set at 10% for foreign companies and 5% for sovereign wealth funds. Foreign investors that already own more than 5% of a strategic company will be required to declare their holdings to the Russian Government.
Igor Lebedinets, analyst at Russian bank Renaissance Capital, said: “We believe the adoption of this bill is mainly aimed at increasing the Government’s influence in major sectors of the economy, including mass-media although the internet sector is excluded from the list. We have a negative view of the bill because we think it might create additional bureaucracy barriers for foreign investment deals and may slow growth in these industries.”
The list has expanded since 2005, when Putin first ordered the legislative changes. In addition to defence, energy, aircraft and aerospace industries, and critical infrastructure – all of which have long been deemed strategic – the legislation accounts for nanotechnology, fisheries and the late inclusion of mobile telecommunication.
The Government says it needs to resuscitate strategic sectors that have suffered from a lack of investment since the collapse of the Soviet Union, but critics argue the policy is anti-competitive and will dissuade foreign direct investment.
Bankers say investors are aware of the state’s increasing role in designated strategic sectors and that the potential benefits of gaining exposure to a country enjoying a prolonged economic boom – where annual gross domestic product is forecast at 7% in 2008 – outweighed the political risks.
Ivailo Vesselinov, senior economist at Dresdner Kleinwort, said: “Foreign companies involved in oil and gas are well aware of the risk factors involved and of the existence of an environmental regulator who monitors the industry, but on a risk-adjusted basis they realise there is nonetheless a lot of profit to be made on the ground.”
Steven Hellman, head of client coverage in Russia for Credit Suisse, said national sponsorship of select industries, or even re-nationalisation, can be positive in the short term if it encourages investment in underdeveloped sectors of the economy. He said: “The technology and automotive industries would be examples. Of course, this must be done in a manner that is fair to all shareholders and there comes a point when market forces should be allowed to take over to ensure efficient development for the future.”
The apparent renationalisation of Russia’s resource sector was a recurring theme during the Putin presidency.
State-controlled gas company Gazprom flexed its muscles last year by taking control of Sakhalin-2, Russia’s largest combined oil and natural gas development, after a campaign against foreign operator Royal Dutch Shell over alleged environmental violations. The Russian-British joint venture TNK-BP is this month likely to finalise the sale of its stake in the Kovykta gas field to Gazprom. TNK-BP, co-owned by BP and a group of Russian billionaires, has been subject to speculation that the Kremlin wants the Russian owners to sell their stakes to a state organisation to let the Kremlin tighten its grip on the energy sector.
Analysts interpreted a recent search of TNK-BP’s offices by the Federal Security Service and the arrest of an employee on suspicion of industrial espionage as signs the Government is increasing pressure on the owners to sell. Russia’s Federal Migration Service said it was not conducting a concerted effort against UK energy group BP, which recalled its 148 foreign employees because of “a lack of clarity over their current visa status”.
Home-grown energy companies and their oligarch owners have also come under the spotlight of resource nationalism.
The Kremlin is seeking the extradition from the UK of Mikhail Gutseriyev, the owner of the oil company RussNeft, who fled Russia last year after accusing the state of forcing him to sell his company through the levying of politicised tax charges.
The RussNeft case echoes that of the oil group Yukos, which ceased to exist from last November following the carve-up of its assets during the summer and the continued incarceration in Siberia of its former owner Mikhail Khodorkovsky on tax evasion charges.
Nick Jordan, head of Lehman Brothers’ Russian operation, said that the apparent renationalisations have involved acquisitions of assets at fair market value. As head of investment banking at Deutsche Bank, Jordan was involved in advising Gazprom on its bid to acquire the Yukos production asset Yuganskneftegas. An auction was later held and Yuganskneftegas was sold for $9bn (€5.7bn) to Rosneft, a rival energy company.
In an interview with Financial News, Jordan said: “The transition from communism to what we have at present has not been perfect but there has been an overly strict focus on this Russian transition. I would say it is fairer to compare the natural resources sector with its emerging market peer group. Look at the Middle East and Latin America and how many of those companies have been sold to foreigners or are public.”
Jordan, who also advised Gazprom-Media on its successful campaign to seize control of independent television station NTV, believes the term renationalisation has been used loosely in Russia.
He said: “It is a term that has been used rather generally here for a number of years. In almost all cases where a company has been brought back under Government control, it has continued to reissue shares to the public or has retained its public share ownership, which means it is not nationalised in technical terms. In each case there has either been an acquisition at fair market value or there has been a local legal process”
In the latest tug-of-war over private assets, East Line, the owner of Moscow’s Domodevo airport, is fighting an attempt by the Federal Agency for Federal Property Management to nationalise some of its assets. The agency claims the terminal was illegally privatised a decade ago. Das said foreign investors and politicians are right to adopt divergent views of such attempts by the state to reclaim prized assets. He said: “Whether renationalisation is creeping or galloping in Russia, it is bad news for what the country wants to achieve economically. The International Monetary Fund, the World Bank and the US Treasury are right to view what is happening in prescriptive ideological terms.
“That is what they are there for, just as bankers and businessmen are right to reconcile what is happening as a function of the state and part of the economic cycle, and should be expected to position themselves to do business in that context.”
Monday, 3 March 2008
Poster power looms large in Putin’s Russia
Financial News
By Jason Corcoran
03 March 2008
Letter from Moscow
A massive billboard featuring President Vladimir Putin walking next to a grinning Dmitry Medvedev looms large on the plaza leading to Red Square.
The words underneath the image of the outgoing President and his hand-picked successor read: “Together we will win.”
Yesterday’s presidential election wasn’t a question of if President Putin’s protégé would win, but by how much.
A carefully choreographed campaign and a near monopoly by the Kremlin ruling party of television and outdoor advertising almost guarantees Medvedev will be confirmed as the next President of Russia this week.
The image of Medvedev and Putin adorning the scaffolding of the city’s forthcoming Four Seasons Hotel had replaced a Rolex ad featuring tennis player Marat Safin in action.
A Moscow advertising source claimed officials from Putin’s United Russia party had secured billboard space for the elections in locations around the city at well below market rates.
Advertising has become big business in a city where designer brands have become important status symbols for nouveau riche Russians and the wannabes.
Companies spent a record 123bn roubles on advertising in Russia in the first nine months of last year, 24% higher than in the same period last year, according Russia’s Association of Communication Agencies.
Russia’s biggest player in billboard advertising is News Outdoor Group.
Its parent said last year it might sell the company, which owns more than 50,000 ad displays on billboards and bus shelters throughout Russia and the other Commonwealth of Independent States countries. Goldman Sachs has been retained to look at “strategic options”, which could also include attracting private equity partners.
The Moscow City Government claimed the company owed about $15.5m in unpaid fees for advertising space. It said the company has unjustly claimed discounts of up to 90%.
News Outdoor denied an inspection by ministry officials was related to the payment demands and assured customers and partners the incident would have no impact on its work.
Gallery Group, Russia’s second-largest operator recently acquired small operator Gorod Media and is plotting an initial public offering to fund more acquisitions and to challenge News Outdoor’s position.
While other forms of advertising on television and online are growing, the outdoor market in Moscow seems to be reaching saturation point.
Pressure on the industry is due to increase following the Government’s announcement it will create three advertising-free zones by the end of year.
The first zone being proposed is the area around the Kremlin’s embankments and the nearby Cathedral of Christ the Saviour.
Other zones concern the space surrounding the city’s Novodevichy Convent and Kolomenskoye Estate.
This move will require the demolition of thousands of advertising hoardings, which generate their owners an estimated $15m a year.
The operators generally have five-year contracts to operate the billboards and are expected to receive some form of compensation.
It is not yet clear whether the Moscow authorities will preclude Government-sponsored advertising in these zones. Some of the most pervasive advertising over the past few months has been for “Putin’s Plan”, “Medvedev’s Course” and, last summer, for VTB’s “People’s IPO”.
By Jason Corcoran
03 March 2008
Letter from Moscow
A massive billboard featuring President Vladimir Putin walking next to a grinning Dmitry Medvedev looms large on the plaza leading to Red Square.
The words underneath the image of the outgoing President and his hand-picked successor read: “Together we will win.”
Yesterday’s presidential election wasn’t a question of if President Putin’s protégé would win, but by how much.
A carefully choreographed campaign and a near monopoly by the Kremlin ruling party of television and outdoor advertising almost guarantees Medvedev will be confirmed as the next President of Russia this week.
The image of Medvedev and Putin adorning the scaffolding of the city’s forthcoming Four Seasons Hotel had replaced a Rolex ad featuring tennis player Marat Safin in action.
A Moscow advertising source claimed officials from Putin’s United Russia party had secured billboard space for the elections in locations around the city at well below market rates.
Advertising has become big business in a city where designer brands have become important status symbols for nouveau riche Russians and the wannabes.
Companies spent a record 123bn roubles on advertising in Russia in the first nine months of last year, 24% higher than in the same period last year, according Russia’s Association of Communication Agencies.
Russia’s biggest player in billboard advertising is News Outdoor Group.
Its parent said last year it might sell the company, which owns more than 50,000 ad displays on billboards and bus shelters throughout Russia and the other Commonwealth of Independent States countries. Goldman Sachs has been retained to look at “strategic options”, which could also include attracting private equity partners.
The Moscow City Government claimed the company owed about $15.5m in unpaid fees for advertising space. It said the company has unjustly claimed discounts of up to 90%.
News Outdoor denied an inspection by ministry officials was related to the payment demands and assured customers and partners the incident would have no impact on its work.
Gallery Group, Russia’s second-largest operator recently acquired small operator Gorod Media and is plotting an initial public offering to fund more acquisitions and to challenge News Outdoor’s position.
While other forms of advertising on television and online are growing, the outdoor market in Moscow seems to be reaching saturation point.
Pressure on the industry is due to increase following the Government’s announcement it will create three advertising-free zones by the end of year.
The first zone being proposed is the area around the Kremlin’s embankments and the nearby Cathedral of Christ the Saviour.
Other zones concern the space surrounding the city’s Novodevichy Convent and Kolomenskoye Estate.
This move will require the demolition of thousands of advertising hoardings, which generate their owners an estimated $15m a year.
The operators generally have five-year contracts to operate the billboards and are expected to receive some form of compensation.
It is not yet clear whether the Moscow authorities will preclude Government-sponsored advertising in these zones. Some of the most pervasive advertising over the past few months has been for “Putin’s Plan”, “Medvedev’s Course” and, last summer, for VTB’s “People’s IPO”.
Sunday, 20 January 2008
Putin puts Russian sovereign wealth fund back on agenda
Financial News
Jason Corcoran in Moscow
21 January 2008
Analysts hope the vision of a Norwegian-style investment strategy will prevail
Plans are back on track to spin off a sovereign wealth fund from Russia’s $150bn (€101bn) oil reserves to invest in foreign stocks and bonds after President Vladimir Putin’s decision to nominate a successor, according to Moscow analysts.
The aim of Finance Minister Alexei Kudrin to set up a Norwegian-style future generations fund next month looked uncertain when Sergei Storchak, the minister responsible at the Stabilisation Fund, was arrested on charges of embezzlement, which he denies.
Concerns emerged after an Israeli fund manger said Kremlin officials had given him the go-ahead to conduct a “velvet reprivatisation” in strategic industries and suggestions the fund should pay off oil group Rosneft’s debt.
But Kudrin was bolstered last month when Putin nominated Dmitry Medvedev, a liberal reformer close to Kudrin, as his favoured presidential successor.
Yaroslav Lissovolik, chief economist of Deutsche Bank in Russia, said: “The Stabilisation Fund is the anchor of Russian macroeconomic policy. There has been some disagreement about its future but the changes in the top echelons of government have given me added conviction the Minister of Finance’s vision will prevail.”
The Stabilisation Fund will be divided into the Reserve and National Prosperity funds from February 1. The Reserve Fund, expected to total 10% of Russia’s GDP, will perform a similar role to the Stabilisation Fund, cushioning the federal budget in the event of an oil price plunge.
Oil and gas revenues above this limit will supplement budget spending and will go to the National Prosperity Fund, which could be seeded with between $25bn and $30bn.
This month the Finance Ministry said the Reserve Fund would follow the same investment rules as the Stabilisation Fund – with at least half going into developed countries’ sovereign bonds – but it is devising the Prosperity Fund’s investment strategy with other ministries and the central bank. While a detailed investment model has yet to be seen, finance ministry officials have indicated the fund will initially adopt a cautious approach.
A spokeswoman for the ministry said the fund would not immediately invest in foreign equity. She said: “The rules are not ready yet, due to a delay, but we will go ahead when they are.” She said the state prosecutors had extended the detention of Storchak until April 9.
Kudrin wants the investment structure of the Prosperity Fund to resemble Norway’s state pension fund, 60% of which is invested in stocks and 40% in bonds. He has suggested a special agency or a private asset management company might manage the fund’s assets.
The overhaul of the Stabilisation Fund has been a point of political contention and disagreement continues about how it should be used. Pressure has been increasing on Kudrin to loosen the purse strings ahead of the presidential elections but he has consistently voiced fears about irrational domestic spending, which could overheat the economy and further fuel inflation.
The Government wants to revitalise the country’s industrial base and diversify the economy from energy exports towards investing in high-technology projects. It has drawn $12.3bn from the Stabilisation Fund to seed investment in infrastructure projects and nanotechnology.
Funds from oil revenues have found their way into the Russian Venture Company, a state fund created in August to support start-ups. US venture capitalist group Draper Fisher Jurvetson, Russia’s VTB Asset Management and Israeli financial services group Tamir Fishman have entered into deals with the RVC. Under these arrangements, the firms will create a fund with their money and state money. By the end of next year, the RVC hopes to have alliances with between seven and nine more funds.
The RVC initiative suffered a setback when Tamir Fishman pulled out of the deal, following comments made by its Russian minority partner Oleg Shvartsman of fund manager Finans-Group. In an interview with Kommersant newspaper, Shvartsman said the Government had authorised him to acquire the assets of some firms and then give them to an asset management group on what he called “a voluntary-coercive basis”, which he described as “velvet reprivatisation”.
The Russians could learn from Azerbaijan how best to spend their oil riches. The former Soviet state set up the State Oil Fund of the Republic of Azerbaijan in 1999 to transfer the benefits of energy exports to future generations.
The fund’s assets are used to finance capital budget expenditure – particularly related to infrastructure – and projects aimed at stimulating small to medium enterprises, reducing poverty and addressing other social problems.
Its main source of revenue is income from oil contracts, including proceeds from the sale of profit oil, which account for about 75% of its annual revenues.
Katya Malofeeva, chief economist for Russia at Renaissance Capital, said: “So far, the inflow of oil revenues has been only a fraction of the expected total inflow as commercial oil only started flowing last year. The country expects to receive $150bn to $200bn in the next 20 years through existing projects.”
www.efinancialnews.com
Jason Corcoran in Moscow
21 January 2008
Analysts hope the vision of a Norwegian-style investment strategy will prevail
Plans are back on track to spin off a sovereign wealth fund from Russia’s $150bn (€101bn) oil reserves to invest in foreign stocks and bonds after President Vladimir Putin’s decision to nominate a successor, according to Moscow analysts.
The aim of Finance Minister Alexei Kudrin to set up a Norwegian-style future generations fund next month looked uncertain when Sergei Storchak, the minister responsible at the Stabilisation Fund, was arrested on charges of embezzlement, which he denies.
Concerns emerged after an Israeli fund manger said Kremlin officials had given him the go-ahead to conduct a “velvet reprivatisation” in strategic industries and suggestions the fund should pay off oil group Rosneft’s debt.
But Kudrin was bolstered last month when Putin nominated Dmitry Medvedev, a liberal reformer close to Kudrin, as his favoured presidential successor.
Yaroslav Lissovolik, chief economist of Deutsche Bank in Russia, said: “The Stabilisation Fund is the anchor of Russian macroeconomic policy. There has been some disagreement about its future but the changes in the top echelons of government have given me added conviction the Minister of Finance’s vision will prevail.”
The Stabilisation Fund will be divided into the Reserve and National Prosperity funds from February 1. The Reserve Fund, expected to total 10% of Russia’s GDP, will perform a similar role to the Stabilisation Fund, cushioning the federal budget in the event of an oil price plunge.
Oil and gas revenues above this limit will supplement budget spending and will go to the National Prosperity Fund, which could be seeded with between $25bn and $30bn.
This month the Finance Ministry said the Reserve Fund would follow the same investment rules as the Stabilisation Fund – with at least half going into developed countries’ sovereign bonds – but it is devising the Prosperity Fund’s investment strategy with other ministries and the central bank. While a detailed investment model has yet to be seen, finance ministry officials have indicated the fund will initially adopt a cautious approach.
A spokeswoman for the ministry said the fund would not immediately invest in foreign equity. She said: “The rules are not ready yet, due to a delay, but we will go ahead when they are.” She said the state prosecutors had extended the detention of Storchak until April 9.
Kudrin wants the investment structure of the Prosperity Fund to resemble Norway’s state pension fund, 60% of which is invested in stocks and 40% in bonds. He has suggested a special agency or a private asset management company might manage the fund’s assets.
The overhaul of the Stabilisation Fund has been a point of political contention and disagreement continues about how it should be used. Pressure has been increasing on Kudrin to loosen the purse strings ahead of the presidential elections but he has consistently voiced fears about irrational domestic spending, which could overheat the economy and further fuel inflation.
The Government wants to revitalise the country’s industrial base and diversify the economy from energy exports towards investing in high-technology projects. It has drawn $12.3bn from the Stabilisation Fund to seed investment in infrastructure projects and nanotechnology.
Funds from oil revenues have found their way into the Russian Venture Company, a state fund created in August to support start-ups. US venture capitalist group Draper Fisher Jurvetson, Russia’s VTB Asset Management and Israeli financial services group Tamir Fishman have entered into deals with the RVC. Under these arrangements, the firms will create a fund with their money and state money. By the end of next year, the RVC hopes to have alliances with between seven and nine more funds.
The RVC initiative suffered a setback when Tamir Fishman pulled out of the deal, following comments made by its Russian minority partner Oleg Shvartsman of fund manager Finans-Group. In an interview with Kommersant newspaper, Shvartsman said the Government had authorised him to acquire the assets of some firms and then give them to an asset management group on what he called “a voluntary-coercive basis”, which he described as “velvet reprivatisation”.
The Russians could learn from Azerbaijan how best to spend their oil riches. The former Soviet state set up the State Oil Fund of the Republic of Azerbaijan in 1999 to transfer the benefits of energy exports to future generations.
The fund’s assets are used to finance capital budget expenditure – particularly related to infrastructure – and projects aimed at stimulating small to medium enterprises, reducing poverty and addressing other social problems.
Its main source of revenue is income from oil contracts, including proceeds from the sale of profit oil, which account for about 75% of its annual revenues.
Katya Malofeeva, chief economist for Russia at Renaissance Capital, said: “So far, the inflow of oil revenues has been only a fraction of the expected total inflow as commercial oil only started flowing last year. The country expects to receive $150bn to $200bn in the next 20 years through existing projects.”
www.efinancialnews.com
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