29 September 2005

More Sibneft Thoughts

Failing to come up with anything useful to say about Gazprom's acquisition of Sibneft I am reduced to reproducing other people's thoughts. These are from the Economist
In one of the jokes Russians tell about Roman Abramovich, owner of Chelsea football club and until this week an oil tycoon, he complains that London is an expensive city. Punch-line: “He still can’t buy it.”
Other good lines include this one which link the inverse correlation between state ownership, ownership of cash flow and output efficiency.
The second question is: are the deal, and the trend it represents, good for the Russian oil industry, and Russia itself? After the Yugansk and Sibneft transactions, the share of Russia’s oil production controlled by the Kremlin will approach a third. The state also influences oil exports via its pipeline monopoly; Gazprom has monopolies both on gas pipelines and gas sales outside the former Soviet Union. True, the Russian government still has a weaker grip on the energy sector than the governments of many other petro-states. But as one Moscow-based tycoon puts it, the problem is not with state ownership per se, but with this state in particular. The growth of Russian oil production has already drooped. More state oversight—meaning more graft and less efficiency—is unlikely to help.
My favourite though is the failure to outright say that the rumour doing the rounds in Moscow is that VVP has an economic stake in Sibneft - he owns the people who own the shares sort of thing.
Still, why is Mr Putin, hammer of the oligarchs, letting him walk away with all this cash? With whom will he be sharing it? There are rumours.
There are indeed and they make less than pretty hearing. Anyway good luck to the Kremlin theftocrats why work to make money when you can steal it in the name of your nation instead.

Short, Sharp and too the Point

Couldn't really work out how to describe the Gazprom/Sibneft merger. Adam Landes from Reniassance Capital cuts to the chase.

"Clearly, this deal is way below the market price and below a fair estimate of [Sibneft's] market value," said Adam Landes, an analyst at Moscow-based brokerage Renaissance Capital. "From an industrial point of view, it adds very little for Gazprom, and strategically it's a waste of time."

From the Daily Deal.


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28 September 2005

Raw Materials

If you read my ramblings you probably don't need me to tell you that the domestic economy is booming. Not just in Moscow, but in the Volga heartland, the oil towns and in strange places such as Novosibirsk. The growth in consumer spending is drawing in the multinationals from autos to cheese in search of growing markets and driven on at the board level by Goldman Sachs BRIC report (Brazil, Russia, India and China) (the link is to the original Goldman Sachs pdf report.) Russia provides a surer path to profitability than I & C but worse beaches than Brazil. I have half an eye on Russia's agribusiness industry, in particular the dairy and beef end of the business. Two headlines over the past couple of weeks caught my attention. Chronologically the first was Kraft's that they intend to be a major player in Russia's booming cheese industry. The second and the one that caused me to think about this post was Wimm-Bill-Dann's interim reports. Most analysts tend to focus on WMD's surrendering its leading position in the juice business to Lebedansky. To me the most telling statement related to its dairy business;

Sales in the Dairy Segment increased 20.1% from US$399.1 million in the first six months of 2004 to US$479.5 million in the first six months of 2005, while the average selling price rose 13.7% from US$0.73 per 1 kg in the first half of 2004 to US$0.83 per 1 kg in the same period of 2005. This increase was primarily driven by ruble price increases. Gross margin in the Dairy Segment declined from 24.1% in the first six months of 2004 to 23.8% in the same period of 2005. This change was primarily driven by the increase in raw materials costs and stronger demand for raw milk intensive traditional products in the regions.

In short what drove margins down despite above inflation price rises were a lack of raw materials. Domestic raw milk supplies are effectively flat. Any increase in sales has to be offset by an increase in dry milk crossing the border from the near abroad - Poland and Estonia. The supply problem is further exacerbated by the very poor quality of domestic milk. Maximum bacteria parts per millimeter in raw milk in the US is 100,000. In a dairy plant in western Siberia I trawled recently they were not particularly concerned by the count but did measure it. The average for the hot summers day that we were there was 700,000. Somatic cell counts were also very poor. The long and short of which being that the milk was worse for you to drink than unpasteurized milk and would be useless for dairy products that require high fat content - cheese for example.

I am sure that a behemoth such as Kraft is not going to announce a major expansion in to Russia without first securing its supplies. I just have not seen any evidence that there is meaningful investment in agribusiness that would supply Kraft, WMD et al. WMD made a strategic decision last year not to invest in upstream production. A mistake in my mind if they want to maintain an interest in the dairy business. It will be interesting to see how long WMD can pass on its costs increases to its customers.


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27 September 2005

Idiocy

Maxim Kononenko the author of the smile worthy satirical take on the daily life of Vladimir Vladimirovich Putin vladimir.vladimirovich.ru (Russian only) provides the only logical answer as to why the powers-that-be decided to cancel the visa for Khordokovsky's US/Canadian lawyer, Robert Amsterdam.

Khordokovsky is off to a penal colony somewhere where the sun don't shine for the next 8 years, it looks like his side-kick Platon Lebedev, probably won't come out alive. His appeal was a travesty of justice; fair enough, so was the trial. Why make the news last any longer - it's just plain stupid.

Without translating the whole of Friday's piece a quick synopsis. VVP is talking to Patrushev, the head of the FSB, and asks why they decided to expel Amsterdam. A non-literal translation goes something like this - "we have to do something truly idiotic from time-to-time; they expect less from us as a result."

Could not have put it better myself.

And to ensure that coverage is even a dig at George W. And my favourite joke of the moment.

Donald Rumsfeld is giving the President his daily briefing on Iraq. 
He concludes by saying:  "Yesterday, 3 Brazilian soldiers were killed."
"OH NO!" the President exclaims.  "That's terrible!"
His staff sits stunned at this display of emotion, nervously watching as the President sits, head in hands.
Finally, President looks up and asks, "How many is a brazillion?"


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06 September 2005

The Wheel Turns

Ultra Motors one of my favourite bizarre technologies to emerge from Russia makes its way on to the pages (sic) of Red Herring. Good work by Russian Technologies and Flintstone Technologies.

It has taken a while for the Company to make the break through that it's technology deserves. As always bringing in a good CEO in Paul Dyson seems to have made a huge difference.

They are out looking for cash right now.


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01 September 2005

Reiman Resorts to St. Petersburg Courts to "Prove" that he is Innocent

I should really start a section on the Reiman/Alfa battle. Back from my summer hols, obligatory school essay to follow, to discover that the MinSvyaz has convinced the Prosecutor's office to open a criminal investigation in to kompromat.ru (a Russian-language scandal website) for reporting that documents lodged with the courts in the British Virgin Islands allegedly show that Reiman took a $1mn bribe for easing a British businessman's way to obtain a license. Here's the link in the Moscow Times it will degrade in a day or so. I'll update when I find a permanent link.

The only thing that it proves is that the "law" is whatever the authorities want it to be.

Technorati Tags: ,

29 September 2005

More Sibneft Thoughts

Failing to come up with anything useful to say about Gazprom's acquisition of Sibneft I am reduced to reproducing other people's thoughts. These are from the Economist

In one of the jokes Russians tell about Roman Abramovich, owner of Chelsea football club and until this week an oil tycoon, he complains that London is an expensive city. Punch-line: “He still can’t buy it.”
Other good lines include this one which link the inverse correlation between state ownership, ownership of cash flow and output efficiency.
The second question is: are the deal, and the trend it represents, good for the Russian oil industry, and Russia itself? After the Yugansk and Sibneft transactions, the share of Russia’s oil production controlled by the Kremlin will approach a third. The state also influences oil exports via its pipeline monopoly; Gazprom has monopolies both on gas pipelines and gas sales outside the former Soviet Union. True, the Russian government still has a weaker grip on the energy sector than the governments of many other petro-states. But as one Moscow-based tycoon puts it, the problem is not with state ownership per se, but with this state in particular. The growth of Russian oil production has already drooped. More state oversight—meaning more graft and less efficiency—is unlikely to help.
My favourite though is the failure to outright say that the rumour doing the rounds in Moscow is that VVP has an economic stake in Sibneft - he owns the people who own the shares sort of thing.
Still, why is Mr Putin, hammer of the oligarchs, letting him walk away with all this cash? With whom will he be sharing it? There are rumours.
There are indeed and they make less than pretty hearing. Anyway good luck to the Kremlin theftocrats why work to make money when you can steal it in the name of your nation instead.

Short, Sharp and too the Point

Couldn't really work out how to describe the Gazprom/Sibneft merger. Adam Landes from Reniassance Capital cuts to the chase.

"Clearly, this deal is way below the market price and below a fair estimate of [Sibneft's] market value," said Adam Landes, an analyst at Moscow-based brokerage Renaissance Capital. "From an industrial point of view, it adds very little for Gazprom, and strategically it's a waste of time."

From the Daily Deal.


Technorati Tags: ,

28 September 2005

Raw Materials

If you read my ramblings you probably don't need me to tell you that the domestic economy is booming. Not just in Moscow, but in the Volga heartland, the oil towns and in strange places such as Novosibirsk. The growth in consumer spending is drawing in the multinationals from autos to cheese in search of growing markets and driven on at the board level by Goldman Sachs BRIC report (Brazil, Russia, India and China) (the link is to the original Goldman Sachs pdf report.) Russia provides a surer path to profitability than I & C but worse beaches than Brazil. I have half an eye on Russia's agribusiness industry, in particular the dairy and beef end of the business. Two headlines over the past couple of weeks caught my attention. Chronologically the first was Kraft's that they intend to be a major player in Russia's booming cheese industry. The second and the one that caused me to think about this post was Wimm-Bill-Dann's interim reports. Most analysts tend to focus on WMD's surrendering its leading position in the juice business to Lebedansky. To me the most telling statement related to its dairy business;

Sales in the Dairy Segment increased 20.1% from US$399.1 million in the first six months of 2004 to US$479.5 million in the first six months of 2005, while the average selling price rose 13.7% from US$0.73 per 1 kg in the first half of 2004 to US$0.83 per 1 kg in the same period of 2005. This increase was primarily driven by ruble price increases. Gross margin in the Dairy Segment declined from 24.1% in the first six months of 2004 to 23.8% in the same period of 2005. This change was primarily driven by the increase in raw materials costs and stronger demand for raw milk intensive traditional products in the regions.

In short what drove margins down despite above inflation price rises were a lack of raw materials. Domestic raw milk supplies are effectively flat. Any increase in sales has to be offset by an increase in dry milk crossing the border from the near abroad - Poland and Estonia. The supply problem is further exacerbated by the very poor quality of domestic milk. Maximum bacteria parts per millimeter in raw milk in the US is 100,000. In a dairy plant in western Siberia I trawled recently they were not particularly concerned by the count but did measure it. The average for the hot summers day that we were there was 700,000. Somatic cell counts were also very poor. The long and short of which being that the milk was worse for you to drink than unpasteurized milk and would be useless for dairy products that require high fat content - cheese for example.

I am sure that a behemoth such as Kraft is not going to announce a major expansion in to Russia without first securing its supplies. I just have not seen any evidence that there is meaningful investment in agribusiness that would supply Kraft, WMD et al. WMD made a strategic decision last year not to invest in upstream production. A mistake in my mind if they want to maintain an interest in the dairy business. It will be interesting to see how long WMD can pass on its costs increases to its customers.


Technorati Tags: ,

27 September 2005

Idiocy

Maxim Kononenko the author of the smile worthy satirical take on the daily life of Vladimir Vladimirovich Putin vladimir.vladimirovich.ru (Russian only) provides the only logical answer as to why the powers-that-be decided to cancel the visa for Khordokovsky's US/Canadian lawyer, Robert Amsterdam.

Khordokovsky is off to a penal colony somewhere where the sun don't shine for the next 8 years, it looks like his side-kick Platon Lebedev, probably won't come out alive. His appeal was a travesty of justice; fair enough, so was the trial. Why make the news last any longer - it's just plain stupid.

Without translating the whole of Friday's piece a quick synopsis. VVP is talking to Patrushev, the head of the FSB, and asks why they decided to expel Amsterdam. A non-literal translation goes something like this - "we have to do something truly idiotic from time-to-time; they expect less from us as a result."

Could not have put it better myself.

And to ensure that coverage is even a dig at George W. And my favourite joke of the moment.

Donald Rumsfeld is giving the President his daily briefing on Iraq. 
He concludes by saying:  "Yesterday, 3 Brazilian soldiers were killed."
"OH NO!" the President exclaims.  "That's terrible!"
His staff sits stunned at this display of emotion, nervously watching as the President sits, head in hands.
Finally, President looks up and asks, "How many is a brazillion?"


Technorati Tags: ,

06 September 2005

The Wheel Turns

Ultra Motors one of my favourite bizarre technologies to emerge from Russia makes its way on to the pages (sic) of Red Herring. Good work by Russian Technologies and Flintstone Technologies.

It has taken a while for the Company to make the break through that it's technology deserves. As always bringing in a good CEO in Paul Dyson seems to have made a huge difference.

They are out looking for cash right now.


Technorati Tags: ,

01 September 2005

Reiman Resorts to St. Petersburg Courts to "Prove" that he is Innocent

I should really start a section on the Reiman/Alfa battle. Back from my summer hols, obligatory school essay to follow, to discover that the MinSvyaz has convinced the Prosecutor's office to open a criminal investigation in to kompromat.ru (a Russian-language scandal website) for reporting that documents lodged with the courts in the British Virgin Islands allegedly show that Reiman took a $1mn bribe for easing a British businessman's way to obtain a license. Here's the link in the Moscow Times it will degrade in a day or so. I'll update when I find a permanent link.

The only thing that it proves is that the "law" is whatever the authorities want it to be.

Technorati Tags: ,