31 May 2006

State Venture Fund to Start at $550M

Apparently they are looking to find 15 investment management teams.  If there are 15 people in Russia who understand venture capital in a Russian and global context I would be surprised; actually shocked.  Three of the four who do understand work for one fund and the fifth is employed elsewhere.

Let's hope that $550mn will educate the next generation without putting the government off too much.

State Venture Fund to Start at $550M:

The government will create a 15 billion ruble ($556 million) venture capital fund by the end of June to help set up new high-technology businesses, Deputy Economic Development and Trade Minister Andrei Sharonov said Tuesday.

Fifteen independently run sub-funds will select the projects to benefit from the fund to reduce the risk of corruption.

The government will supply as much 49 percent of the capital, with private venture capitalists providing the remainder. Each sub-fund is expected to invest in 10 to 15 businesses.

“The program's aim is not to replace the natural flow of investment but to act as a catalyst and an instrument for reducing the risk,'' Sharonov said.

Russia is trying to diversify its economy and reduce its dependence on oil and gas. Along with the new fund, the government has created six special economic zones that offer tax breaks to stimulate the technology industry.


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Russian Corporatism: Investors do not fear the 2008 elections - comment

Update: Al Breach of UBS, who always writes amusingly and well, has this to say;

“Being too sanguine about market performance in the run-up to transfers of power in emerging markets has rarely paid off.”

Viewed from this point in the cycle being sanguine may work.  By end 1Q I'll bet investors are a little less sanguine.

From Russian Corporatism.  I'll take a small bet that M&A dries up after 1Q 2007 and the market goes sideways at best, assuming always that oil isn't Goldman Sachs-ing its way to $105/bbl.  In amongst the sideways will be more than a little up and down as we Russia watchers/livers get to play the “will he / won't he” game (stay as President.) On this issue RC and I are on different sides of the fence.  Bragging rights to the victor.

Russian Corporatism: Investors do not fear the 2008 elections - comment:

Russia, in the eyes of investors, has reached its most stable political and economic situation since the collapse of the USSR. Only 35 percent of investors (down from 54 percent in 2005) consider Russia to be a higher risk country compared to other emerging markets. Even the upcoming 2008 elections do not seem to scare investors away, as many of them predict that the stability will not be challenged by the difficult electoral process. Over 90 percent of investors say they will expand their dealings in Russia in the next few years.

2005 has been the best economic year for decades, buoyed by high commodity prices and the stock market has soared. Political stability has also been achieved, albeit drawing criticism of rolling back on democracy. The sheer size of the market attracts investors the most, with other 90 percent saying that it has influenced their decision to invest. Stable economic progress has attracted 82 percent of investors whilst 48 percent approve of the political stability.

Corruption is the most negative occurrence in the country with the over 82 percent (up from 72 percent in 2005) of the participants expressing worry about it. Undemocratic values of the governing elite rile 67 percent of investors, while lack of law and fair courts – 72 percent.

RC, Vedomosti, Gazeta.ru

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Yandex Map Redirecting Traffic

That's all well and good but why should I share the back roads with drivers who are willing to sit with their minds in neutral in the choke points.

Yandex Map Redirecting Traffic:
The heavily trafficked Yandex Internet portal is looking to combat congestion on Moscow's notoriously clogged streets with a map showing which routes drivers should avoid.


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30 May 2006

Apologies

If you read my blog via a feed reader.  Blogspot firstly incorrectly posted two posts from this morning, which I then reposted all of May's posts.

Not my fault guv, honest.


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Reiman vs Alfa - Ongoing

Deep in the 5th set Reiman has returned to his old stamping grounds to get what will presumably be a favorable hearing from the courts in St. Petersburg.  Which are, from first hand experience, not exactly impartial to a little Uncle Sam.

Alfa's stake in Megafon ultimately involves Russian companies; by finding Reiman not guilty of whatever he is not guilty of, and Alfa guilty of whatever they are guilty of could see its ownership stake ultimately long-term frozen - thereby creating the basis for a negotiated peace settlement.

The caveat being that Alfa have been allowed to take Reiman this far.  Their protection (krysha) might allow a no-result.  Po smotrem.

St. Pete Court Will Hear MegaFon Case:


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Russian Corporatism: Investors do not fear the 2008 elections - comment

From Russian Corporatism.  I'll take a small bet that M&A dries up after 1Q 2007 and the market goes sideways at best, assuming always that oil isn't Goldman Sachs-ing its way to $105/bbl.  In amongst the sideways will be more than a little up and down as we Russia watchers/livers get to play the “will he / won't he” game (stay as President.) On this issue RC and I are on different sides of the fence.  Bragging rights to the victor.

Russian Corporatism: Investors do not fear the 2008 elections - comment:

Russia, in the eyes of investors, has reached its most stable political and economic situation since the collapse of the USSR. Only 35 percent of investors (down from 54 percent in 2005) consider Russia to be a higher risk country compared to other emerging markets. Even the upcoming 2008 elections do not seem to scare investors away, as many of them predict that the stability will not be challenged by the difficult electoral process. Over 90 percent of investors say they will expand their dealings in Russia in the next few years.

2005 has been the best economic year for decades, buoyed by high commodity prices and the stock market has soared. Political stability has also been achieved, albeit drawing criticism of rolling back on democracy. The sheer size of the market attracts investors the most, with other 90 percent saying that it has influenced their decision to invest. Stable economic progress has attracted 82 percent of investors whilst 48 percent approve of the political stability.

Corruption is the most negative occurrence in the country with the over 82 percent (up from 72 percent in 2005) of the participants expressing worry about it. Undemocratic values of the governing elite rile 67 percent of investors, while lack of law and fair courts – 72 percent.

RC, Vedomosti, Gazeta.ru


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25 May 2006

MegaFon's Partners Could Face Scrutiny

Um no they thought they were representing a crap Danish lawyer.  Lets get serious.

MegaFon's Partners Could Face Scrutiny:
Questions surface about whether Commerzbank knew it was acting on behalf of the IT and communications minister.


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Russian Academy of Science Voting for New Members

Glad to see that RAS is still able to close ranks.  It sits on a huge property portfolio, including the land on which my dacha sits.  My guess is that getting to the Council is more about real estate than research.

Academy Voting for New Members:
Some of the political and business leaders who had been running for membership in the Russian Academy of Sciences were eliminated in an early round of voting late Tuesday, an academy spokeswoman said Wednesday.


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23 May 2006

Defrauded Apartment Buyers Demand to Meet Putin

Good to see grass root complaints against blatant fraud.

From these small shoots grow....society?

Defrauded Apartment Buyers Demand to Meet Putin:
Defrauded home buyers demanded Monday that President Vladimir Putin meet with them and personally make sure they are compensated.


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Reiman vs Alfa - A continuation Update

Having said that I would be posting light - this beauty dropped in to my feed reader this morning.

The truth will out.

I'll update when I find a link to the news in English.  And here it is courtesy of The New Russia Corporatism.

A Swiss business arbitration tribunal has ruled that Russian Telecommunications Minister Leonid Reiman used money-laundering schemes in a bid to purchase a stake in mobile phone network operator OAO Megafon.

“The tribunal's decision has confirmed that the only beneficiary of the Bermuda-based IPOC fund and its alleged option over a 25 percent stake in MegaFon is Reiman,” said LV, which has been embroiled in a dispute with IPOC over the stake for nearly three years, in a statement late Monday.

It also said that the Zurich tribunal found that the money used by IPOC to make the down payments on the stake option payments had been “criminally sourced”.

The financial-industrial holding Alfa Group, now the owner of LV, was accused of using “bribery and corruption” to try to derail the legal proceedings.
Свидетель № 7 - Арбитраж Цюриха признал его бенефициаром IPOC:
Свидетель № 7Свидетель № 7, в котором легко узнается министр связи Леонид Рейман, организовал незаконные сделки, деньгами от которых пытался оплатить акции “Мегафона” бермудский фонд IPOC, и сам был конечным бенефициаром этого фонда и еще ряда офшоров – это говорится в решении арбитражного трибунала в Цюрихе. Вчера арбитраж отказал IPOC в притязаниях на 19,4% акций “Мегафона” – большую часть блокпакета сотовой компании, который летом 2003 г. приобрела “Альфа-групп”.

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20 May 2006

Posting

I am really working - expect posting to be light-to-non-existant until I can work out a new modus operandi.


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16 May 2006

Russia and the West; In search of a Putin policy

This week's Economist leader includes Russia and the West; In search of a Putin policy.  I have posted it below for your edification.  I read it last night just before going to sleep, and woke up thinking about it with the sun this morning.  Which is to say that I am not in entire agreement with the leader writers.

The Economist has failed to include economics in its discussion of Russia's place in the world (note to Editors - remember your title).  In addition, certain of the Russian blogging community would have every right to accuse the leader writers of a degree of Nelsonian blindness.

Missing Economics
Russia's recent refound confidence, which is causing such concern in the West, is proportionate to the economic rebound.  The West's concerns are also directly proportionate to Russia's economic influence.  No one could give a damn whether Russia was democratic, which it was not, when oil was $10/bbl.  Yes we could all be paternalistically concerned over those poor Russians who drank a lot of vodka and allowed us to buy cheap caviar - but as a country its global impact was close to irrelevant.

This is no longer true. Failing to discuss Russian economics misses the point about Russia and its relationships with everyone else. Substantially all the major headlines emanating from Russia are essentially economic-political related (or the ones I read anyway) - gas supply and pipelines, IPO's (Comstar, NMLK, Rosneft), GAZP share deregulation and the use of natural resources as a political weapon both in the “near abroad” (Georgia & Ukraine) as well as playing Europe, the US and China/India off against each other.  With oil and other commodities at or just short of historic highs in both nominal and real terms, Russia matters.  It is also clear that economics and money (in Swiss bank accounts preferably) matter to Russia.  The West can jump up and down and scream about media control and worry about racism, but until Europe and the US frees itself of oil & gas dependency and no longer queues up to invest in Rosneft's IPO it (the West) will have little impact.  My assumption is that the two events will happen simultaneously and will be directly linked to the commodity price cycle.

Like F&C I believe that the West should demand an enormous risk-premium for investing in Rosneft - nothing else will convince the current administration that behaving in favor of the shareholders will create greater value.  It is about as likely as me suddenly discovering a sunny disposition.

Nelsonian Politics
The Economist would like to see the West present a unanimous face, which in itself would be a remarkable achievement, over Russia revanchism and economic bullying.  Angela Merkel comes under some criticism for her breaking of ranks.  The economic cynic in me finds it strange that the two loudest voices are the US and Britain.  The home of, Exxon Mobil, Chevron, BP and Shell - the largest players in Russian oil who are being denied access to reserves.  The revanchism charge has merit - if you have ever driven here you will know that penis-size matters - banning Borjormi is ego politics.  I struggle with the economic bullying argument.  Russia has lots of oil & gas and has a responsibility to achieve the best value for its stakeholders - otherwise known as the narod.  The US is not exactly shy about using its own economic strength to achieve other political aims.  What is good for the goose is good for the gander.  If the West wants to apply political pressure to Russia then that pressure would be better received if it were uniformly applied.

The caveat.  Many of the Economist's charges carry weight but as I have argued previously the easy headlines (media control and controlled freedoms) lack the nuance required to fashion a rationale response.

THROUGHOUT its turbulent history, Russia has been prickly. At various times it has bullied, invaded or fought against almost all its neighbours. Yet at the same time it has demanded to be treated with respect, as a great power with a rightful place in the high chancelleries of Europe and the world. And for that reason, it has been surprisingly sensitive to outside criticism.

In his annual state address this week, President Vladimir Putin inveighed against those who clung to an era of global confrontation, and against enemies who would weaken his country. This followed the furious reaction in Moscow to last week's speech in Vilnius by Dick Cheney, in which the American vice-president criticised the Russian government for restricting the rights of its own people, interfering in neighbouring countries and exploiting its oil and gas reserves as tools for intimidation and blackmail. The Russians indignantly reject such charges; some even talk of a revival of Russophobia.

Many Russians also accuse the Americans of hypocrisy. The United States uses energy as a political tool, it influences and even invades other countries, its criticism of Russia is not matched by attacks on other autocratic governments such as Azerbaijan's or Kazakhstan's. A lot of Europeans share these criticisms, and they also question the wisdom of provoking Moscow when not only is their energy dependence on Russia increasing, but the West needs its help over Iran.

Given these reactions, it is worth emphasising that Mr Cheney's analysis was spot on. Admittedly, not everything has gone wrong in Russia. Thanks in good measure to high energy prices, the economy is growing fast and living standards are rising. Mr Putin still seems popular with ordinary Russians, who like the stability he has brought (though most see and hear only what the Kremlin wants them to). A respectable case can also be made for raising Russian gas prices to wean its near neighbours off their Soviet-era subsidies.
Living with a bear

Yet it is clear that Russia under Mr Putin has moved sharply away from the chaotic but recognisable democracy that he inherited, and towards a centralised and intolerant autocracy that stamps on the merest hints of independent opposition. The country is also drifting into a resurgent form of virulent nationalism, with a nastily racist edge to it (see article). Russia's bullying of small fry such as Georgia or Moldova continues apace. And it is pursuing an overt agenda of divide-and-rule when it comes to reminding both its near neighbours and the big countries of western Europe of their dependence on imports of Russian gas.

The real question for the West should no longer be: is Mr Putin's Russia heading in the wrong direction—for the answer is unarguably yes. Instead it should be: what can we do about it? One answer may be “not much”. Russia no longer needs the West's economic and financial help, as it did in the Yeltsin years. It is not going to shed its new-found self-confidence and assertiveness just because of a few speeches.

Even so, as his address this week confirmed, Mr Putin is by no means impervious to outside criticism. He is more likely to be impressed if such criticism is unanimous. Over the past five years disappointingly few European leaders have spoken as forthrightly as Mr Cheney did—indeed, nor has Mr Cheney's boss, George Bush. Worse, several countries have connived in Russia's divide-and-rule approach—notably Germany, which even under its new chancellor, Angela Merkel, has been far too keen on bilateral deals, such as the building of a new under-sea pipeline, heedless of the concerns of its nearest eastern neighbours. If western Europeans are to counter Russian aggressiveness over energy, they must present a united front: for example, by making clear that, should the Russians ever threaten to cut off energy supplies to individual countries, including former parts of the Soviet Union that are not yet in the European Union, their western friends will step in to help.

Should tougher sanctions be wielded, such as boycotting the G8 summit in St Petersburg in July, or obstructing Russian membership of the World Trade Organisation? No, for any such threats would serve only to encourage the paranoid view of some in the Kremlin who believe that the West will always be their enemy. The right approach is to engage constructively with Russia while not being afraid to criticise it—and to try hard to persuade the Russians that the West can be a friend, not an enemy, if only their country resumes its path towards being a properly functioning democracy.


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From Russia, With Dread

I have not seen headlines like this for a while. A measure of the Western/Russian animosity?

From Russia, With Dread:
Mike Matthews, owner of a Russian vacuum tube factory, has encountered an increasingly common problem here: someone is trying to steal his company.

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13 May 2006

15% of web-surfers access Internet via Wi-Fi

James Enck wants to know if anyone has come across Golden Telecom's wif fi network.  I haven't - seems odd that you can not find 500 hotspots....

15% of web-surfers access Internet via Wi-Fi:
As part of April online-survey ROMIR Monitoring Research Holding asked active Internet users to answer several questions about their ways of Internet access and data transfer via Wi-Fi. The results show that wireless access is used by 15% of Internet browsers. And one third of them use Wi-Fi for Internet access every day, and every fourth – 2-3 times a week…


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Kremlin Derails Vodafone MTS Merger

Why?  Are they worried that control of downloading ring tones might expose their government as being the Emperor with no clothes?


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12 May 2006

Russian legislators say “nyet” to foreign software

United Russia are urging the Government to use locally developed software.

Russian legislators say “nyet” to foreign software:

I assume that will return government to using paper and pencil.


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11 May 2006

Comstar UTS - 2005 Results

The brokers put out the usual self-congratulatory notes on their 2005 forecasts for Comstar.

Here are the things they did not say.  Whilst they are not meaningful in the context of the 2005 results they are in terms of forecast growth prospects.

EOY Broadband subscribers - 250k - in line
Broadband ARPU's - $18.6 - forecast $23.5 (-21%).  Compare these with Okado and Ethernet ARPU's.
PayTV Subs - 6.7k - Forecast 14.6k (-54%).  Still no understanding of how to sell cable TV to Moscovites.

EBITDA looks (overly?) strong but there are warnings of changes in accounting practices - not unheard of in Sistema companies.

Running a very limited survey over the holiday weekend at the dacha (survey sample 3) we discovered 100% dissatisfaction with StreamTV.  Complaints ranged from something less than 100% up time (100% of respondents) to appalling customer service (66.67% of respondents).  And this in a country where customer service expectations are low.


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Sistema Telecom Rebrands

Sistema Telecom includes MTS and UT Comstar.  Vedomosti reports that the branding has not gone down universally well (Russian only).

I would suggest that this is another case of mis-management or power management at Sistema over MTS and Comstar.  Power does not equal competence.


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Russian Talents Shine in IT Contests

A number of these type of headlines recently; Russian Talents Shine in IT Contests:

Moscow State University student Pyotr Mitrichev, 21, took the gold this month at a major programming competition in the United States. His prize was the latest in a string of victories by Russian programmers.

Googling Pyotr Mitrichev suggests that this is not his first go at this sort of thing.

However, quality of programming is a necessary but not sufficient condition for building entrepreneurial businesses that  can compete in global markets.

I am glad that VVP emphasized IP issues again.  As I have written a number of times the issue is not in the law as it is written, though it could do with some cleaning up.  The issue is implementation; either in the courts or in the perehods (underpasses) or at Gorbushka.  This only requires Government competence.


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07 May 2006

Flow of Funds

Two of the best i.e. returns significantly greater than the index, investors I have ever worked with in the tradeable market were 'flow of funds“ investors.  Which is why this paragraph from the Economist caught my interest:

Moreover, Mr Miller observes that the big slosh of liquidity circulating around the world is beginning to drain away. Interest rates have been steadily rising, and sectors that had experienced large price gains, such as housing and Middle Eastern equity markets, have cooled to a greater or lesser degree. Today, Mr Miller says, the common thread among the most popular asset classes, including commodities, emerging markets and smaller stocks, is a lack of liquidity. In a world where central banks are draining liquidity, Mr Miller argues, ”relatively illiquid assets are likely to begin to lose their allure. Liquidity will become more valuable.“


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The New Yorker: Turkmenbashi

The New Yorker's (small hint as to my politics) David Remnick (who knows a little about Russia) writes amusingly about Turkmenbashi - the leader of all Turkmen's.  (Or was that David Remnick's New Yorker?) And there is plenty to be amusing about.

My first investing success came from a company whose principal asset was, and is, based in Turkmenistan.  (oh the hours camped outside minister's offices, plof and my first introduction to Armenian Brandy - see Churchill was a genius.) I bumped in to the CEO (F. O' Blarneystone) on a flight to Moscow recently and asked if life had got worse.  His take was that for most it was a lot better.  Which when you are starting from close to zero is not hard - a mathematician would suggest that it is infinitely better.

When you compare this with the horror stories that the author of this FT story tells about Kazakhstan (better offline than on) maybe not all that bad.  Dick “Duck Hunter” Cheney, who according to my del.icio.us feed on Russia, said some bad things about Russia, but not about Kazakhstan, seems to think that Turkmens and Russians are bad and Kazakhs and (boil me) Uzbeks are OK.

Can we please have some intelligence for a global foreign policy?

It is a beautiful country - I love the mountains rising to the Iranian border and the beauty of the “Persians.”


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06 May 2006

Trading in Transneft preferred shares suspended

What's the back story?  Who owns too much of Transneft (albeit non-voting) and why are they being hurt?

Trading in Transneft preferred shares suspended :

MOSCOW, May 5 (RIA Novosti) - Two major Moscow markets Friday suspended trading in preferred shares of state pipeline monopoly Transneft (RTS: TRNFP), following a Moscow district court decision to freeze the shares as part of a criminal investigation
Moscow Interbank Currency Exchange (MICEX) said it stopped trading the shares at 5:30 p.m. local time (1:30 p.m. GMT), while Russia's main stock market, the RTS, said it had interrupted trading in Transneft preferred shares until detailed information on the case was provided.
“We heard about the court's decision, but we have no documents confirming the news, which is why we have decided to suspend dealing until the circumstances are revealed,” an RTS spokesperson said.
Moscow's Basmanny district court ruled Friday to freeze shares in the pipeline monopoly after the Prosecutor General's Office launched a probe into illegal privatization of shares and abuse of office.
A court source said the shares had been illegally distributed among various companies and were later discovered at Registrator ROST, one of Russia's largest companies that services share registers.
MICEX announced earlier Friday it would continue trading in Transneft preferred shares until notice from the court or regulatory border.
“We can suspend trading after we receive the relevant documents from the court or recommendations from the regulatory body,” Vadim Yegorov said.
Ilya Zafakayev, head of Registrator ROST's PR service, said the company had suspended transactions in Transneft preferred shares.
The news that Transneft preferred shares have been frozen has already sent them 7-8% down on stock exchanges.
But Transneft vice President Sergei Grigoryev said the suspension of trading would not affect its activity, as the shares are preferred and not voting shares.
“These shares are held by individuals and are not voting [shares], and the company's management has nothing to do with them,” he said, adding that the state held 100% of voting shares.


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The Day of the Oslo Warning

Jerome a Paris, one of the most knowledgeable writers on Russian/FSU gas issues and Peak Oil writes this story The Day of the Oslo Warning.

Read and smile and then worry.


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05 May 2006

Demonizing Russia

Lifted straight from Konstantin's Russia Blog.  Good point well made.  Does the current Energy Spat fit the bill?

Demonizing Russia:
I couldn't help but post this comment made by Patrick Armstrong, analyst for the Canadian government, from Untimely Thoughts (Peter Lavelle's project).

There's always a standing bill of indictment against Russia, although the details continually change. In 2001 the Washington Post warned that Russia would default on debt repayments; the Kursk sinking prompted reflections on the “callous disregard for human life” of Russia's leadership (Knight 2000); in 1997 Kissinger was complaining about Russia's “refusal” to demarcate its borders; no Russian leader had ever left power voluntarily and neither would Yeltsin, warned Stephen Cohen in 1994. Most charges prove ephemeral or false - nuclear tests in Nova Zemlya, the Security Council as the “new Politburo”, war over the Black Sea Fleet - but others come up again and again. Some charges have validity. The war in Chechnya was certainly very brutal. Putin has centralized power and tightened control over the media. But, when these charges appear on the bill of indictment, they appear without context. The Russian army is brutal in Chechnya not necessarily because it wants to be, but because bad armies are brutal. And, despite “fabricated rumors of a Chechen-al Qaeda nexus” (Washington Times, 2002), we know better. Nor do we hear as much about “unresolved” (Guardian, 2000) apartment bombings when there have been so many jihadist bombings of nightclubs, railway stations, tourist resorts and mosques. Putin is centralising because he (and, be it clear, most Russians) agree that the 1990s were frighteningly chaotic. A centralised media is not desirable but neither was the media of the oligarch wars. Too many governors were the pawns of local hoods. Putin does have reasons, good or bad, for what he does: saying “tight-lipped 47-year-old KGB staffer” (Guardian, 2000) or “Andropov redux” (Gaffney, 2000) is not an explanation. When Brzezinski last year stormed that Moscow refused to repudiate the Hitler-Stalin pact, it wasn't just “nostalgic efforts by Vladimir Putin to restore Moscow's control”: no country will assume responsibility for historical malfeasance when it knows the next step will be reparations claims.

While charging Putin with bringing back the “Soviet anthem” (Wall Street Journal, 2000), the fact that all the other state symbols were lifted straight from the Tsars was not mentioned. This is not argument, it is advocacy. The essence of the charge sheet style is that the conclusion determines the evidence. Take the everlasting assertion that Russia is naturally imperialist: this is the oldest of the charges - experts “knew” that Gorbachev would never leave Germany - and as time moves on, the accusation remains. The format is the same: Russia's so-called nostalgia for empire is asserted (Jonathon Eyal in 1993, Pipes in 1994 and 1998, George Tenet in 1997, Paul Goble 2000) and examples are filled in as needed: “democratic Georgia” today, the Baltics yesterday, Germany the day before. As the troops leave one country, another place is found to prove the point. The “energy weapon” is deployed against contumacious neighbors like Ukraine (but be careful not to mention that Gazprom is raising the price for “friends” like Armenia and Belarus, too). The charge predates Putin ЁC in 1993 The Economist decided that Georgia's independence had been already snuffed out and the energy wars have been going on since 1991.

Rarely, however, is it pointed out that Russia's neighbors are more independent each year and that Russian troops are leaving them too. Or that while Ukraine needs Russian energy, Russia needs Ukrainian pipelines to move its gas to those who actually pay for it. The boot here is actually on both feet. “Imperialist Russia”, it is clear, is a premise, not a conclusion. The repetitive bills of indictment have a cumulative effect - people forget the alarums that never came to pass but remember the underlying message that Russia is a menace. Why try to take an objective look at the whole of Russian reality when “traditional Russian imperialism” (Kissinger, 1997) is all you need to know? A great deal of opinion in the USA and the West has been shaped by the continual drum roll of warnings, accusations and indictments. Eventually the message gets stuck in: Russia is an enemy.

Putin hires a Western PR company to help improving Russia's image in the world. Absolutely hopeless. I think it's better to forget about “image problems” and go our own way. Собака лает - караван идет.

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Demonizing Russia

Lifted straight from Konstantin's Russia Blog.  Good point well made.  Does the current Energy Spat fit the bill?

Demonizing Russia:
I couldn't help but post this comment made by Patrick Armstrong, analyst for the Canadian government, from Untimely Thoughts (Peter Lavelle's project).

There's always a standing bill of indictment against Russia, although the details continually change. In 2001 the Washington Post warned that Russia would default on debt repayments; the Kursk sinking prompted reflections on the “callous disregard for human life” of Russia's leadership (Knight 2000); in 1997 Kissinger was complaining about Russia's “refusal” to demarcate its borders; no Russian leader had ever left power voluntarily and neither would Yeltsin, warned Stephen Cohen in 1994. Most charges prove ephemeral or false - nuclear tests in Nova Zemlya, the Security Council as the “new Politburo”, war over the Black Sea Fleet - but others come up again and again. Some charges have validity. The war in Chechnya was certainly very brutal. Putin has centralized power and tightened control over the media. But, when these charges appear on the bill of indictment, they appear without context. The Russian army is brutal in Chechnya not necessarily because it wants to be, but because bad armies are brutal. And, despite “fabricated rumors of a Chechen-al Qaeda nexus” (Washington Times, 2002), we know better. Nor do we hear as much about “unresolved” (Guardian, 2000) apartment bombings when there have been so many jihadist bombings of nightclubs, railway stations, tourist resorts and mosques. Putin is centralising because he (and, be it clear, most Russians) agree that the 1990s were frighteningly chaotic. A centralised media is not desirable but neither was the media of the oligarch wars. Too many governors were the pawns of local hoods. Putin does have reasons, good or bad, for what he does: saying “tight-lipped 47-year-old KGB staffer” (Guardian, 2000) or “Andropov redux” (Gaffney, 2000) is not an explanation. When Brzezinski last year stormed that Moscow refused to repudiate the Hitler-Stalin pact, it wasn't just “nostalgic efforts by Vladimir Putin to restore Moscow's control”: no country will assume responsibility for historical malfeasance when it knows the next step will be reparations claims.

While charging Putin with bringing back the “Soviet anthem” (Wall Street Journal, 2000), the fact that all the other state symbols were lifted straight from the Tsars was not mentioned. This is not argument, it is advocacy. The essence of the charge sheet style is that the conclusion determines the evidence. Take the everlasting assertion that Russia is naturally imperialist: this is the oldest of the charges - experts “knew” that Gorbachev would never leave Germany - and as time moves on, the accusation remains. The format is the same: Russia's so-called nostalgia for empire is asserted (Jonathon Eyal in 1993, Pipes in 1994 and 1998, George Tenet in 1997, Paul Goble 2000) and examples are filled in as needed: “democratic Georgia” today, the Baltics yesterday, Germany the day before. As the troops leave one country, another place is found to prove the point. The “energy weapon” is deployed against contumacious neighbors like Ukraine (but be careful not to mention that Gazprom is raising the price for “friends” like Armenia and Belarus, too). The charge predates Putin ЁC in 1993 The Economist decided that Georgia's independence had been already snuffed out and the energy wars have been going on since 1991.

Rarely, however, is it pointed out that Russia's neighbors are more independent each year and that Russian troops are leaving them too. Or that while Ukraine needs Russian energy, Russia needs Ukrainian pipelines to move its gas to those who actually pay for it. The boot here is actually on both feet. “Imperialist Russia”, it is clear, is a premise, not a conclusion. The repetitive bills of indictment have a cumulative effect - people forget the alarums that never came to pass but remember the underlying message that Russia is a menace. Why try to take an objective look at the whole of Russian reality when “traditional Russian imperialism” (Kissinger, 1997) is all you need to know? A great deal of opinion in the USA and the West has been shaped by the continual drum roll of warnings, accusations and indictments. Eventually the message gets stuck in: Russia is an enemy.

Putin hires a Western PR company to help improving Russia's image in the world. Absolutely hopeless. I think it's better to forget about “image problems” and go our own way. Собака лает - караван идет.


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04 May 2006

Report on Freedom of Speech in Russia, Putin Hires U.S. PR Firm

The Russia Blog writes well and logically but has a nasty habit of using somewhat specious arguments (definitions 2 & 3) to make arguments with which I otherwise agree.  I take particular exception to the paragraph quoted below the picture of VVP.

Popular and largest; Echo Moskvy (EM) is popular and RenTV is the largest - these, unfortunately for their owners, are not measures of audience reach or market share.

Recent numbers for leading top 10 Russian radio stations by audience share by market (i.e. city) and for the whole of Russia sees EM creep in at the bottom of the Moscow list and does not feature on the whole Russia list.

RenTV may well have the largest coverage, though I doubt that its technical reach is greater than Channels 1 & 2.  As for all Russia audience share -  5th.  Which in the current Russian market is nowhere - break even at best.

I will agree that there are plenty of outlets for informed/interested Russians to get many different cuts on the news of the day.  The concern (anecdotally) is that too many (young) Russians are neither interested or informed.  No desire to argue why that may be but here's the anecdote;

Applicant for position in PR department of local marketing and PR firm and graduate of prestigious Moscow University claims not to read the newspapers or watch the news.

Report on Freedom of Speech in Russia, Putin Hires U.S. PR Firm:

PutinVladimirV-NiceChair1.jpg


Finally, the report accepts that the government controls all broadcast media in Russia almost as a given.  We have written on this topic in-depth recently at Russia Blog, showing that some of the most popular state-owned media outlets like Echo Moscow Radio have frequently criticized the Kremlin, especially about the war in Chechnya.  The information we presented also undercuts the report's claim that, “TV stations, now all controlled by the Kremlin or government associates, are also subject to very strict censorship.”  The largest TV network in Russia, REN-TV, is privately owned and consists of 406 commercial TV-stations in Russia and the CIS, reaching an audience of 113 million people (the CIA World Factbook pegs Russia’s population this year at 142 million).


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03 May 2006

Gazprom alarm 'absolute nonsense' - Bernotat

A counterweight to MSM rubbish

Gazprom alarm 'absolute nonsense' - Bernotat:
The head of German utility heavyweight E.ON, Wulf Bernotat, has described the recent furor over Gazprom's apparent threat to divert supplies away from Europe as 'absolute nonsense' in an interview.


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Subscribe via Email

I've added a subscribe via email function for those of you who don't like, are barred from using aggregators or just like Outlook.

Courtesy of Feedburner.


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Russian E&P - Disincentives

The two authors from this piece from the Energy Tribune are ex-Yukos executives, so you can hardly expect a glowing review of Russian energy policy.

They make some interesting points;

Russian oil well efficiency runs at 50% of global averages - 14% vs 25%
Export net backs after tax are $6 vs domestic $22
Domestic demand is flat to negative due to efficiency savings - need more research here
Opex rising very very fast! No surprises here

In short, plenty of oil in the ground and they claim plenty of capacity in the pipeline (500,000 bbl/day).  But tax disincentives for export and a state take that is not encouraging capex investment.

And then to the part I don't understand.  They claim that there is plenty of spare capacity in the Transneft pipelines but that due to mismanagement and inefficiencies (same thing surely) that the fastest rising cost element is transportation.

First is the cost of oil transport. Due to the limitations and inefficiencies of the Transneft export system, almost all of the incremental exports since 2001 have been by “combined routes” rather than the Transneft system. The “combined routes” are mostly rail but also include tank cars, barges, pipeline spurs, etc. The cost of the “combine routes” scheme has risen rapidly and is expected to continue to rise at an even faster pace. There is no efficient transport infrastructure for further incremental production. Building a new efficient infrastructure would require a massive investment by the Russian oil companies when cash flows are already under heavy pressure from increasing cost and the current tax regime.


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02 May 2006

A Change of Management Style

Vassily Sidorov's departure is old news; the lesson has not been widely disseminated.

Sources suggest that MTS management could not manage their way out of a damp paper bag.  Vassily Sidorov of MTS paid the price for getting lost.  It will take a lot more than changing the man at the top to change MTS' direction.  It's management have grown up in a vertical (and heavily politicized) management structure.  Every decision required the CEO's input; whether he was qualified to comment or not.

Changing the environment is as important as adjusting to an ex-growth (in a Russian sense) business.  I doubt that Sidorov's replacement is a change of style;



Further increase in the value of the company is possible through efficiency and reorganization. Sistema will probably hire another manager at MTS for that, a strict administrator.“ A source said of Melamed that ”with him, everyone goes to the bathroom according to schedule and strictly according to instructions.“

It will be interesting to see if the vertical, control-oriented style of ”Russian“ management will work in low(er) growth markets.  My take is that it won't.  Vertical never works and slows decision making to a crawl.  If the British Army has worked it out then how far behind will major Russian businesses be?

po smotrem


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Russian Energy Policy - Part 1.0

The caveat emptor issue;

Last week's papers were full of Rosneft and GAZP stories.  Most, including a large portion of Soros' op ed  in the FT, were gash.  Rosneft's IPO has nothing to do with energy security - whether F&C participates in the IPO will have little to do Russia's energy policy.  I also have little issue with investors buying in to a company whose largest producing asset was procured from somewhere else.  After all investors swallowed their concerns once before over a company called Yuganskneftegas - anyone remember a guy called Kenneth Dart?  Investors believe that ethics is a county to the east of London (it's a bad British joke) - at least while the stock is appreciating.  As the leader from the UK's Sunday Times points out greed will overcome fear.  The Russian government knows and understands greed and the cynicism that is required to hold your nose and invest other peoples money.

The real issue is what is an investor buying?  I posted on this previously and nothing that has happened or will happen in the near future will change my mind.  The only impact buyers of Rosneft shares (I can't bring myself to calling them investors) can have on Rosneft's management will be selling or lending the stock to be shorted.  Which will coincide with a drop in the price of oil (and gas) and will not be immediately attributable to management.  So buy if it makes financial sense - just have some shame when the beast turns round and bites you.

I think that this post from Seeking Alpha pretty much sums up how non-Russia related investors view Rosneft.  They may be wrong but don't argue against flow of funds.

Russian Oil: Yukos and Rosneft (YUKOY):

Roger Nusbaum submits: In a big picture sense, oil from Russia is important because there is a lot of it in the ground and in the next few years it looks as though there will be more of that oil being processed and put onto the market for consumption.

That is the simple part. The rest is where it gets progressively more complicated.

Regardless of your opinion about the entire Yukos/Khodorkovsky affair, I have never heard any dispute that Khodorkovsky was told, as were all the oligarchs, to stay out of politics and he did not. I am in no way opining as to whether he should or should not have made comments or anything else and it is possible that what I say is not in dispute is in fact in dispute. I am just trying to relay the facts as I understand them, and I may have facts about Khodorkovsky incorrect but I have seen and read enough coverage that I think I this right.

The fallout of the Khodorkovsky affair was that Yukos was shut down and the assets were later put up for auction. Again, there was politics and controversy surrounding the manner in which this occurred and I don’t want to turn this post into a debate of the politics of it.

The emerging company from all of this with the old Yukos assets is Rosneft. Rosneft is going to have an IPO and July is a possible date for the listing, which is likely to be on the London Stock Exchange. I would like to learn more than what little I know now, but I am interested in the company.

Some of the numbers, if true, are compelling. Earnings in 2005 were $3.9 billion vs $0.8 billion 2004. Revenue was $23.9 billion vs $5.3 billion in 2004. In 2005 the company reduced its debt by $1.7 billion down to $10.9 billion.

I would not get too excited about the growth built into those numbers because the old Yukos’ operations were severely hampered in 2004 and so the company did not do a lot that year.

Some other fun facts about Rosneft include, among Russian companies, it is 2nd in gas production, 8th in oil production, 7th in reserves, and first for oil refining capacity. With the IPO, the company plans to sell 1/3 of the company for about $20 billion. As the company is now state owned, I presume the 2/3rds not sold will be held by the government and possibly sold later.

A lot of people assign a risk to Russian shares because of the Yukos affair. While I certainly cannot say it won’t happen again I think it makes sense to believe that the Russian government does not want it to happen again. A second company being dismantled would probably cause a huge flight of foreign capital, much worse than Yukos. The country, I believe, wants to be a capitalist country with foreign investment.

It’s fair to say they are still learning about capitalism, but anything they do that jeopardizes foreign investment into the country is counter to their own interests. And it is worth pointing out that there are plenty of Russian companies traded on foreign exchanges in the US and in Europe.

Russia wants to be more important in the world economy — not less. Between now and the listing date there will be a lot more to read about Rosneft before making any kind of decision.


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01 May 2006

Outed By the FT

Returning from the UK on a much delayed BA flight, busy transferring printing ink from the FT to my fingers I discover that “Ruminations” has been quoted by the FT in its regular Monday coverage of the blogosphere.  The quotation came from Russian Energy Policy 2.0.  It would appear that the section does not appear online.

The first realization is that I might want to make greater use of a grammar checker....

Being outed is genuinely not a good thing.

Sunday's newspapers were full of Rosneft and Clara Furse's letter to Putin on behalf of Bill Browder (as a lobbying effort it was a mistake.)  I have no desire to lift my head above the parapet, again, and turned down a request for comment to the FT recently on that basis.  This blog makes me no money, gains me no friends, influences no one and adds nothing to my personal wealth.  It would interfere with my day job, if I had one.......

This blog came about because of my interest in the medium and its role in the future of media and the technology industry.  Over time I have found that it is a very useful way to clarify my thinking and poke fun at Russia and the misconceptions about it.  My regular (i.e. return) readership is very small; I either knew you personally already, which is why you are reading this, or have a virtual relationship with you as a result of my meanderings.

My next “big thing” will once again cause my head to be lifted above the parapet.  My initial reaction was to close Ruminations down, but I'll keep it bubbling along - because life is too short.


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31 May 2006

State Venture Fund to Start at $550M

Apparently they are looking to find 15 investment management teams.  If there are 15 people in Russia who understand venture capital in a Russian and global context I would be surprised; actually shocked.  Three of the four who do understand work for one fund and the fifth is employed elsewhere.

Let's hope that $550mn will educate the next generation without putting the government off too much.

State Venture Fund to Start at $550M:

The government will create a 15 billion ruble ($556 million) venture capital fund by the end of June to help set up new high-technology businesses, Deputy Economic Development and Trade Minister Andrei Sharonov said Tuesday.

Fifteen independently run sub-funds will select the projects to benefit from the fund to reduce the risk of corruption.

The government will supply as much 49 percent of the capital, with private venture capitalists providing the remainder. Each sub-fund is expected to invest in 10 to 15 businesses.

“The program's aim is not to replace the natural flow of investment but to act as a catalyst and an instrument for reducing the risk,'' Sharonov said.

Russia is trying to diversify its economy and reduce its dependence on oil and gas. Along with the new fund, the government has created six special economic zones that offer tax breaks to stimulate the technology industry.


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Russian Corporatism: Investors do not fear the 2008 elections - comment

Update: Al Breach of UBS, who always writes amusingly and well, has this to say;

“Being too sanguine about market performance in the run-up to transfers of power in emerging markets has rarely paid off.”

Viewed from this point in the cycle being sanguine may work.  By end 1Q I'll bet investors are a little less sanguine.

From Russian Corporatism.  I'll take a small bet that M&A dries up after 1Q 2007 and the market goes sideways at best, assuming always that oil isn't Goldman Sachs-ing its way to $105/bbl.  In amongst the sideways will be more than a little up and down as we Russia watchers/livers get to play the “will he / won't he” game (stay as President.) On this issue RC and I are on different sides of the fence.  Bragging rights to the victor.

Russian Corporatism: Investors do not fear the 2008 elections - comment:

Russia, in the eyes of investors, has reached its most stable political and economic situation since the collapse of the USSR. Only 35 percent of investors (down from 54 percent in 2005) consider Russia to be a higher risk country compared to other emerging markets. Even the upcoming 2008 elections do not seem to scare investors away, as many of them predict that the stability will not be challenged by the difficult electoral process. Over 90 percent of investors say they will expand their dealings in Russia in the next few years.

2005 has been the best economic year for decades, buoyed by high commodity prices and the stock market has soared. Political stability has also been achieved, albeit drawing criticism of rolling back on democracy. The sheer size of the market attracts investors the most, with other 90 percent saying that it has influenced their decision to invest. Stable economic progress has attracted 82 percent of investors whilst 48 percent approve of the political stability.

Corruption is the most negative occurrence in the country with the over 82 percent (up from 72 percent in 2005) of the participants expressing worry about it. Undemocratic values of the governing elite rile 67 percent of investors, while lack of law and fair courts – 72 percent.

RC, Vedomosti, Gazeta.ru

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Yandex Map Redirecting Traffic

That's all well and good but why should I share the back roads with drivers who are willing to sit with their minds in neutral in the choke points.

Yandex Map Redirecting Traffic:
The heavily trafficked Yandex Internet portal is looking to combat congestion on Moscow's notoriously clogged streets with a map showing which routes drivers should avoid.


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30 May 2006

Apologies

If you read my blog via a feed reader.  Blogspot firstly incorrectly posted two posts from this morning, which I then reposted all of May's posts.

Not my fault guv, honest.


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Reiman vs Alfa - Ongoing

Deep in the 5th set Reiman has returned to his old stamping grounds to get what will presumably be a favorable hearing from the courts in St. Petersburg.  Which are, from first hand experience, not exactly impartial to a little Uncle Sam.

Alfa's stake in Megafon ultimately involves Russian companies; by finding Reiman not guilty of whatever he is not guilty of, and Alfa guilty of whatever they are guilty of could see its ownership stake ultimately long-term frozen - thereby creating the basis for a negotiated peace settlement.

The caveat being that Alfa have been allowed to take Reiman this far.  Their protection (krysha) might allow a no-result.  Po smotrem.

St. Pete Court Will Hear MegaFon Case:


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Russian Corporatism: Investors do not fear the 2008 elections - comment

From Russian Corporatism.  I'll take a small bet that M&A dries up after 1Q 2007 and the market goes sideways at best, assuming always that oil isn't Goldman Sachs-ing its way to $105/bbl.  In amongst the sideways will be more than a little up and down as we Russia watchers/livers get to play the “will he / won't he” game (stay as President.) On this issue RC and I are on different sides of the fence.  Bragging rights to the victor.

Russian Corporatism: Investors do not fear the 2008 elections - comment:

Russia, in the eyes of investors, has reached its most stable political and economic situation since the collapse of the USSR. Only 35 percent of investors (down from 54 percent in 2005) consider Russia to be a higher risk country compared to other emerging markets. Even the upcoming 2008 elections do not seem to scare investors away, as many of them predict that the stability will not be challenged by the difficult electoral process. Over 90 percent of investors say they will expand their dealings in Russia in the next few years.

2005 has been the best economic year for decades, buoyed by high commodity prices and the stock market has soared. Political stability has also been achieved, albeit drawing criticism of rolling back on democracy. The sheer size of the market attracts investors the most, with other 90 percent saying that it has influenced their decision to invest. Stable economic progress has attracted 82 percent of investors whilst 48 percent approve of the political stability.

Corruption is the most negative occurrence in the country with the over 82 percent (up from 72 percent in 2005) of the participants expressing worry about it. Undemocratic values of the governing elite rile 67 percent of investors, while lack of law and fair courts – 72 percent.

RC, Vedomosti, Gazeta.ru


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25 May 2006

MegaFon's Partners Could Face Scrutiny

Um no they thought they were representing a crap Danish lawyer.  Lets get serious.

MegaFon's Partners Could Face Scrutiny:
Questions surface about whether Commerzbank knew it was acting on behalf of the IT and communications minister.


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Russian Academy of Science Voting for New Members

Glad to see that RAS is still able to close ranks.  It sits on a huge property portfolio, including the land on which my dacha sits.  My guess is that getting to the Council is more about real estate than research.

Academy Voting for New Members:
Some of the political and business leaders who had been running for membership in the Russian Academy of Sciences were eliminated in an early round of voting late Tuesday, an academy spokeswoman said Wednesday.


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23 May 2006

Defrauded Apartment Buyers Demand to Meet Putin

Good to see grass root complaints against blatant fraud.

From these small shoots grow....society?

Defrauded Apartment Buyers Demand to Meet Putin:
Defrauded home buyers demanded Monday that President Vladimir Putin meet with them and personally make sure they are compensated.


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Reiman vs Alfa - A continuation Update

Having said that I would be posting light - this beauty dropped in to my feed reader this morning.

The truth will out.

I'll update when I find a link to the news in English.  And here it is courtesy of The New Russia Corporatism.

A Swiss business arbitration tribunal has ruled that Russian Telecommunications Minister Leonid Reiman used money-laundering schemes in a bid to purchase a stake in mobile phone network operator OAO Megafon.

“The tribunal's decision has confirmed that the only beneficiary of the Bermuda-based IPOC fund and its alleged option over a 25 percent stake in MegaFon is Reiman,” said LV, which has been embroiled in a dispute with IPOC over the stake for nearly three years, in a statement late Monday.

It also said that the Zurich tribunal found that the money used by IPOC to make the down payments on the stake option payments had been “criminally sourced”.

The financial-industrial holding Alfa Group, now the owner of LV, was accused of using “bribery and corruption” to try to derail the legal proceedings.
Свидетель № 7 - Арбитраж Цюриха признал его бенефициаром IPOC:
Свидетель № 7Свидетель № 7, в котором легко узнается министр связи Леонид Рейман, организовал незаконные сделки, деньгами от которых пытался оплатить акции “Мегафона” бермудский фонд IPOC, и сам был конечным бенефициаром этого фонда и еще ряда офшоров – это говорится в решении арбитражного трибунала в Цюрихе. Вчера арбитраж отказал IPOC в притязаниях на 19,4% акций “Мегафона” – большую часть блокпакета сотовой компании, который летом 2003 г. приобрела “Альфа-групп”.

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20 May 2006

Posting

I am really working - expect posting to be light-to-non-existant until I can work out a new modus operandi.


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16 May 2006

Russia and the West; In search of a Putin policy

This week's Economist leader includes Russia and the West; In search of a Putin policy.  I have posted it below for your edification.  I read it last night just before going to sleep, and woke up thinking about it with the sun this morning.  Which is to say that I am not in entire agreement with the leader writers.

The Economist has failed to include economics in its discussion of Russia's place in the world (note to Editors - remember your title).  In addition, certain of the Russian blogging community would have every right to accuse the leader writers of a degree of Nelsonian blindness.

Missing Economics
Russia's recent refound confidence, which is causing such concern in the West, is proportionate to the economic rebound.  The West's concerns are also directly proportionate to Russia's economic influence.  No one could give a damn whether Russia was democratic, which it was not, when oil was $10/bbl.  Yes we could all be paternalistically concerned over those poor Russians who drank a lot of vodka and allowed us to buy cheap caviar - but as a country its global impact was close to irrelevant.

This is no longer true. Failing to discuss Russian economics misses the point about Russia and its relationships with everyone else. Substantially all the major headlines emanating from Russia are essentially economic-political related (or the ones I read anyway) - gas supply and pipelines, IPO's (Comstar, NMLK, Rosneft), GAZP share deregulation and the use of natural resources as a political weapon both in the “near abroad” (Georgia & Ukraine) as well as playing Europe, the US and China/India off against each other.  With oil and other commodities at or just short of historic highs in both nominal and real terms, Russia matters.  It is also clear that economics and money (in Swiss bank accounts preferably) matter to Russia.  The West can jump up and down and scream about media control and worry about racism, but until Europe and the US frees itself of oil & gas dependency and no longer queues up to invest in Rosneft's IPO it (the West) will have little impact.  My assumption is that the two events will happen simultaneously and will be directly linked to the commodity price cycle.

Like F&C I believe that the West should demand an enormous risk-premium for investing in Rosneft - nothing else will convince the current administration that behaving in favor of the shareholders will create greater value.  It is about as likely as me suddenly discovering a sunny disposition.

Nelsonian Politics
The Economist would like to see the West present a unanimous face, which in itself would be a remarkable achievement, over Russia revanchism and economic bullying.  Angela Merkel comes under some criticism for her breaking of ranks.  The economic cynic in me finds it strange that the two loudest voices are the US and Britain.  The home of, Exxon Mobil, Chevron, BP and Shell - the largest players in Russian oil who are being denied access to reserves.  The revanchism charge has merit - if you have ever driven here you will know that penis-size matters - banning Borjormi is ego politics.  I struggle with the economic bullying argument.  Russia has lots of oil & gas and has a responsibility to achieve the best value for its stakeholders - otherwise known as the narod.  The US is not exactly shy about using its own economic strength to achieve other political aims.  What is good for the goose is good for the gander.  If the West wants to apply political pressure to Russia then that pressure would be better received if it were uniformly applied.

The caveat.  Many of the Economist's charges carry weight but as I have argued previously the easy headlines (media control and controlled freedoms) lack the nuance required to fashion a rationale response.

THROUGHOUT its turbulent history, Russia has been prickly. At various times it has bullied, invaded or fought against almost all its neighbours. Yet at the same time it has demanded to be treated with respect, as a great power with a rightful place in the high chancelleries of Europe and the world. And for that reason, it has been surprisingly sensitive to outside criticism.

In his annual state address this week, President Vladimir Putin inveighed against those who clung to an era of global confrontation, and against enemies who would weaken his country. This followed the furious reaction in Moscow to last week's speech in Vilnius by Dick Cheney, in which the American vice-president criticised the Russian government for restricting the rights of its own people, interfering in neighbouring countries and exploiting its oil and gas reserves as tools for intimidation and blackmail. The Russians indignantly reject such charges; some even talk of a revival of Russophobia.

Many Russians also accuse the Americans of hypocrisy. The United States uses energy as a political tool, it influences and even invades other countries, its criticism of Russia is not matched by attacks on other autocratic governments such as Azerbaijan's or Kazakhstan's. A lot of Europeans share these criticisms, and they also question the wisdom of provoking Moscow when not only is their energy dependence on Russia increasing, but the West needs its help over Iran.

Given these reactions, it is worth emphasising that Mr Cheney's analysis was spot on. Admittedly, not everything has gone wrong in Russia. Thanks in good measure to high energy prices, the economy is growing fast and living standards are rising. Mr Putin still seems popular with ordinary Russians, who like the stability he has brought (though most see and hear only what the Kremlin wants them to). A respectable case can also be made for raising Russian gas prices to wean its near neighbours off their Soviet-era subsidies.
Living with a bear

Yet it is clear that Russia under Mr Putin has moved sharply away from the chaotic but recognisable democracy that he inherited, and towards a centralised and intolerant autocracy that stamps on the merest hints of independent opposition. The country is also drifting into a resurgent form of virulent nationalism, with a nastily racist edge to it (see article). Russia's bullying of small fry such as Georgia or Moldova continues apace. And it is pursuing an overt agenda of divide-and-rule when it comes to reminding both its near neighbours and the big countries of western Europe of their dependence on imports of Russian gas.

The real question for the West should no longer be: is Mr Putin's Russia heading in the wrong direction—for the answer is unarguably yes. Instead it should be: what can we do about it? One answer may be “not much”. Russia no longer needs the West's economic and financial help, as it did in the Yeltsin years. It is not going to shed its new-found self-confidence and assertiveness just because of a few speeches.

Even so, as his address this week confirmed, Mr Putin is by no means impervious to outside criticism. He is more likely to be impressed if such criticism is unanimous. Over the past five years disappointingly few European leaders have spoken as forthrightly as Mr Cheney did—indeed, nor has Mr Cheney's boss, George Bush. Worse, several countries have connived in Russia's divide-and-rule approach—notably Germany, which even under its new chancellor, Angela Merkel, has been far too keen on bilateral deals, such as the building of a new under-sea pipeline, heedless of the concerns of its nearest eastern neighbours. If western Europeans are to counter Russian aggressiveness over energy, they must present a united front: for example, by making clear that, should the Russians ever threaten to cut off energy supplies to individual countries, including former parts of the Soviet Union that are not yet in the European Union, their western friends will step in to help.

Should tougher sanctions be wielded, such as boycotting the G8 summit in St Petersburg in July, or obstructing Russian membership of the World Trade Organisation? No, for any such threats would serve only to encourage the paranoid view of some in the Kremlin who believe that the West will always be their enemy. The right approach is to engage constructively with Russia while not being afraid to criticise it—and to try hard to persuade the Russians that the West can be a friend, not an enemy, if only their country resumes its path towards being a properly functioning democracy.


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From Russia, With Dread

I have not seen headlines like this for a while. A measure of the Western/Russian animosity?

From Russia, With Dread:
Mike Matthews, owner of a Russian vacuum tube factory, has encountered an increasingly common problem here: someone is trying to steal his company.

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13 May 2006

15% of web-surfers access Internet via Wi-Fi

James Enck wants to know if anyone has come across Golden Telecom's wif fi network.  I haven't - seems odd that you can not find 500 hotspots....

15% of web-surfers access Internet via Wi-Fi:
As part of April online-survey ROMIR Monitoring Research Holding asked active Internet users to answer several questions about their ways of Internet access and data transfer via Wi-Fi. The results show that wireless access is used by 15% of Internet browsers. And one third of them use Wi-Fi for Internet access every day, and every fourth – 2-3 times a week…


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Kremlin Derails Vodafone MTS Merger

Why?  Are they worried that control of downloading ring tones might expose their government as being the Emperor with no clothes?


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12 May 2006

Russian legislators say “nyet” to foreign software

United Russia are urging the Government to use locally developed software.

Russian legislators say “nyet” to foreign software:

I assume that will return government to using paper and pencil.


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11 May 2006

Comstar UTS - 2005 Results

The brokers put out the usual self-congratulatory notes on their 2005 forecasts for Comstar.

Here are the things they did not say.  Whilst they are not meaningful in the context of the 2005 results they are in terms of forecast growth prospects.

EOY Broadband subscribers - 250k - in line
Broadband ARPU's - $18.6 - forecast $23.5 (-21%).  Compare these with Okado and Ethernet ARPU's.
PayTV Subs - 6.7k - Forecast 14.6k (-54%).  Still no understanding of how to sell cable TV to Moscovites.

EBITDA looks (overly?) strong but there are warnings of changes in accounting practices - not unheard of in Sistema companies.

Running a very limited survey over the holiday weekend at the dacha (survey sample 3) we discovered 100% dissatisfaction with StreamTV.  Complaints ranged from something less than 100% up time (100% of respondents) to appalling customer service (66.67% of respondents).  And this in a country where customer service expectations are low.


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Sistema Telecom Rebrands

Sistema Telecom includes MTS and UT Comstar.  Vedomosti reports that the branding has not gone down universally well (Russian only).

I would suggest that this is another case of mis-management or power management at Sistema over MTS and Comstar.  Power does not equal competence.


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Russian Talents Shine in IT Contests

A number of these type of headlines recently; Russian Talents Shine in IT Contests:

Moscow State University student Pyotr Mitrichev, 21, took the gold this month at a major programming competition in the United States. His prize was the latest in a string of victories by Russian programmers.

Googling Pyotr Mitrichev suggests that this is not his first go at this sort of thing.

However, quality of programming is a necessary but not sufficient condition for building entrepreneurial businesses that  can compete in global markets.

I am glad that VVP emphasized IP issues again.  As I have written a number of times the issue is not in the law as it is written, though it could do with some cleaning up.  The issue is implementation; either in the courts or in the perehods (underpasses) or at Gorbushka.  This only requires Government competence.


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07 May 2006

Flow of Funds

Two of the best i.e. returns significantly greater than the index, investors I have ever worked with in the tradeable market were 'flow of funds“ investors.  Which is why this paragraph from the Economist caught my interest:

Moreover, Mr Miller observes that the big slosh of liquidity circulating around the world is beginning to drain away. Interest rates have been steadily rising, and sectors that had experienced large price gains, such as housing and Middle Eastern equity markets, have cooled to a greater or lesser degree. Today, Mr Miller says, the common thread among the most popular asset classes, including commodities, emerging markets and smaller stocks, is a lack of liquidity. In a world where central banks are draining liquidity, Mr Miller argues, ”relatively illiquid assets are likely to begin to lose their allure. Liquidity will become more valuable.“


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The New Yorker: Turkmenbashi

The New Yorker's (small hint as to my politics) David Remnick (who knows a little about Russia) writes amusingly about Turkmenbashi - the leader of all Turkmen's.  (Or was that David Remnick's New Yorker?) And there is plenty to be amusing about.

My first investing success came from a company whose principal asset was, and is, based in Turkmenistan.  (oh the hours camped outside minister's offices, plof and my first introduction to Armenian Brandy - see Churchill was a genius.) I bumped in to the CEO (F. O' Blarneystone) on a flight to Moscow recently and asked if life had got worse.  His take was that for most it was a lot better.  Which when you are starting from close to zero is not hard - a mathematician would suggest that it is infinitely better.

When you compare this with the horror stories that the author of this FT story tells about Kazakhstan (better offline than on) maybe not all that bad.  Dick “Duck Hunter” Cheney, who according to my del.icio.us feed on Russia, said some bad things about Russia, but not about Kazakhstan, seems to think that Turkmens and Russians are bad and Kazakhs and (boil me) Uzbeks are OK.

Can we please have some intelligence for a global foreign policy?

It is a beautiful country - I love the mountains rising to the Iranian border and the beauty of the “Persians.”


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06 May 2006

Trading in Transneft preferred shares suspended

What's the back story?  Who owns too much of Transneft (albeit non-voting) and why are they being hurt?

Trading in Transneft preferred shares suspended :

MOSCOW, May 5 (RIA Novosti) - Two major Moscow markets Friday suspended trading in preferred shares of state pipeline monopoly Transneft (RTS: TRNFP), following a Moscow district court decision to freeze the shares as part of a criminal investigation
Moscow Interbank Currency Exchange (MICEX) said it stopped trading the shares at 5:30 p.m. local time (1:30 p.m. GMT), while Russia's main stock market, the RTS, said it had interrupted trading in Transneft preferred shares until detailed information on the case was provided.
“We heard about the court's decision, but we have no documents confirming the news, which is why we have decided to suspend dealing until the circumstances are revealed,” an RTS spokesperson said.
Moscow's Basmanny district court ruled Friday to freeze shares in the pipeline monopoly after the Prosecutor General's Office launched a probe into illegal privatization of shares and abuse of office.
A court source said the shares had been illegally distributed among various companies and were later discovered at Registrator ROST, one of Russia's largest companies that services share registers.
MICEX announced earlier Friday it would continue trading in Transneft preferred shares until notice from the court or regulatory border.
“We can suspend trading after we receive the relevant documents from the court or recommendations from the regulatory body,” Vadim Yegorov said.
Ilya Zafakayev, head of Registrator ROST's PR service, said the company had suspended transactions in Transneft preferred shares.
The news that Transneft preferred shares have been frozen has already sent them 7-8% down on stock exchanges.
But Transneft vice President Sergei Grigoryev said the suspension of trading would not affect its activity, as the shares are preferred and not voting shares.
“These shares are held by individuals and are not voting [shares], and the company's management has nothing to do with them,” he said, adding that the state held 100% of voting shares.


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The Day of the Oslo Warning

Jerome a Paris, one of the most knowledgeable writers on Russian/FSU gas issues and Peak Oil writes this story The Day of the Oslo Warning.

Read and smile and then worry.


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05 May 2006

Demonizing Russia

Lifted straight from Konstantin's Russia Blog.  Good point well made.  Does the current Energy Spat fit the bill?

Demonizing Russia:
I couldn't help but post this comment made by Patrick Armstrong, analyst for the Canadian government, from Untimely Thoughts (Peter Lavelle's project).

There's always a standing bill of indictment against Russia, although the details continually change. In 2001 the Washington Post warned that Russia would default on debt repayments; the Kursk sinking prompted reflections on the “callous disregard for human life” of Russia's leadership (Knight 2000); in 1997 Kissinger was complaining about Russia's “refusal” to demarcate its borders; no Russian leader had ever left power voluntarily and neither would Yeltsin, warned Stephen Cohen in 1994. Most charges prove ephemeral or false - nuclear tests in Nova Zemlya, the Security Council as the “new Politburo”, war over the Black Sea Fleet - but others come up again and again. Some charges have validity. The war in Chechnya was certainly very brutal. Putin has centralized power and tightened control over the media. But, when these charges appear on the bill of indictment, they appear without context. The Russian army is brutal in Chechnya not necessarily because it wants to be, but because bad armies are brutal. And, despite “fabricated rumors of a Chechen-al Qaeda nexus” (Washington Times, 2002), we know better. Nor do we hear as much about “unresolved” (Guardian, 2000) apartment bombings when there have been so many jihadist bombings of nightclubs, railway stations, tourist resorts and mosques. Putin is centralising because he (and, be it clear, most Russians) agree that the 1990s were frighteningly chaotic. A centralised media is not desirable but neither was the media of the oligarch wars. Too many governors were the pawns of local hoods. Putin does have reasons, good or bad, for what he does: saying “tight-lipped 47-year-old KGB staffer” (Guardian, 2000) or “Andropov redux” (Gaffney, 2000) is not an explanation. When Brzezinski last year stormed that Moscow refused to repudiate the Hitler-Stalin pact, it wasn't just “nostalgic efforts by Vladimir Putin to restore Moscow's control”: no country will assume responsibility for historical malfeasance when it knows the next step will be reparations claims.

While charging Putin with bringing back the “Soviet anthem” (Wall Street Journal, 2000), the fact that all the other state symbols were lifted straight from the Tsars was not mentioned. This is not argument, it is advocacy. The essence of the charge sheet style is that the conclusion determines the evidence. Take the everlasting assertion that Russia is naturally imperialist: this is the oldest of the charges - experts “knew” that Gorbachev would never leave Germany - and as time moves on, the accusation remains. The format is the same: Russia's so-called nostalgia for empire is asserted (Jonathon Eyal in 1993, Pipes in 1994 and 1998, George Tenet in 1997, Paul Goble 2000) and examples are filled in as needed: “democratic Georgia” today, the Baltics yesterday, Germany the day before. As the troops leave one country, another place is found to prove the point. The “energy weapon” is deployed against contumacious neighbors like Ukraine (but be careful not to mention that Gazprom is raising the price for “friends” like Armenia and Belarus, too). The charge predates Putin ЁC in 1993 The Economist decided that Georgia's independence had been already snuffed out and the energy wars have been going on since 1991.

Rarely, however, is it pointed out that Russia's neighbors are more independent each year and that Russian troops are leaving them too. Or that while Ukraine needs Russian energy, Russia needs Ukrainian pipelines to move its gas to those who actually pay for it. The boot here is actually on both feet. “Imperialist Russia”, it is clear, is a premise, not a conclusion. The repetitive bills of indictment have a cumulative effect - people forget the alarums that never came to pass but remember the underlying message that Russia is a menace. Why try to take an objective look at the whole of Russian reality when “traditional Russian imperialism” (Kissinger, 1997) is all you need to know? A great deal of opinion in the USA and the West has been shaped by the continual drum roll of warnings, accusations and indictments. Eventually the message gets stuck in: Russia is an enemy.

Putin hires a Western PR company to help improving Russia's image in the world. Absolutely hopeless. I think it's better to forget about “image problems” and go our own way. Собака лает - караван идет.

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Demonizing Russia

Lifted straight from Konstantin's Russia Blog.  Good point well made.  Does the current Energy Spat fit the bill?

Demonizing Russia:
I couldn't help but post this comment made by Patrick Armstrong, analyst for the Canadian government, from Untimely Thoughts (Peter Lavelle's project).

There's always a standing bill of indictment against Russia, although the details continually change. In 2001 the Washington Post warned that Russia would default on debt repayments; the Kursk sinking prompted reflections on the “callous disregard for human life” of Russia's leadership (Knight 2000); in 1997 Kissinger was complaining about Russia's “refusal” to demarcate its borders; no Russian leader had ever left power voluntarily and neither would Yeltsin, warned Stephen Cohen in 1994. Most charges prove ephemeral or false - nuclear tests in Nova Zemlya, the Security Council as the “new Politburo”, war over the Black Sea Fleet - but others come up again and again. Some charges have validity. The war in Chechnya was certainly very brutal. Putin has centralized power and tightened control over the media. But, when these charges appear on the bill of indictment, they appear without context. The Russian army is brutal in Chechnya not necessarily because it wants to be, but because bad armies are brutal. And, despite “fabricated rumors of a Chechen-al Qaeda nexus” (Washington Times, 2002), we know better. Nor do we hear as much about “unresolved” (Guardian, 2000) apartment bombings when there have been so many jihadist bombings of nightclubs, railway stations, tourist resorts and mosques. Putin is centralising because he (and, be it clear, most Russians) agree that the 1990s were frighteningly chaotic. A centralised media is not desirable but neither was the media of the oligarch wars. Too many governors were the pawns of local hoods. Putin does have reasons, good or bad, for what he does: saying “tight-lipped 47-year-old KGB staffer” (Guardian, 2000) or “Andropov redux” (Gaffney, 2000) is not an explanation. When Brzezinski last year stormed that Moscow refused to repudiate the Hitler-Stalin pact, it wasn't just “nostalgic efforts by Vladimir Putin to restore Moscow's control”: no country will assume responsibility for historical malfeasance when it knows the next step will be reparations claims.

While charging Putin with bringing back the “Soviet anthem” (Wall Street Journal, 2000), the fact that all the other state symbols were lifted straight from the Tsars was not mentioned. This is not argument, it is advocacy. The essence of the charge sheet style is that the conclusion determines the evidence. Take the everlasting assertion that Russia is naturally imperialist: this is the oldest of the charges - experts “knew” that Gorbachev would never leave Germany - and as time moves on, the accusation remains. The format is the same: Russia's so-called nostalgia for empire is asserted (Jonathon Eyal in 1993, Pipes in 1994 and 1998, George Tenet in 1997, Paul Goble 2000) and examples are filled in as needed: “democratic Georgia” today, the Baltics yesterday, Germany the day before. As the troops leave one country, another place is found to prove the point. The “energy weapon” is deployed against contumacious neighbors like Ukraine (but be careful not to mention that Gazprom is raising the price for “friends” like Armenia and Belarus, too). The charge predates Putin ЁC in 1993 The Economist decided that Georgia's independence had been already snuffed out and the energy wars have been going on since 1991.

Rarely, however, is it pointed out that Russia's neighbors are more independent each year and that Russian troops are leaving them too. Or that while Ukraine needs Russian energy, Russia needs Ukrainian pipelines to move its gas to those who actually pay for it. The boot here is actually on both feet. “Imperialist Russia”, it is clear, is a premise, not a conclusion. The repetitive bills of indictment have a cumulative effect - people forget the alarums that never came to pass but remember the underlying message that Russia is a menace. Why try to take an objective look at the whole of Russian reality when “traditional Russian imperialism” (Kissinger, 1997) is all you need to know? A great deal of opinion in the USA and the West has been shaped by the continual drum roll of warnings, accusations and indictments. Eventually the message gets stuck in: Russia is an enemy.

Putin hires a Western PR company to help improving Russia's image in the world. Absolutely hopeless. I think it's better to forget about “image problems” and go our own way. Собака лает - караван идет.


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04 May 2006

Report on Freedom of Speech in Russia, Putin Hires U.S. PR Firm

The Russia Blog writes well and logically but has a nasty habit of using somewhat specious arguments (definitions 2 & 3) to make arguments with which I otherwise agree.  I take particular exception to the paragraph quoted below the picture of VVP.

Popular and largest; Echo Moskvy (EM) is popular and RenTV is the largest - these, unfortunately for their owners, are not measures of audience reach or market share.

Recent numbers for leading top 10 Russian radio stations by audience share by market (i.e. city) and for the whole of Russia sees EM creep in at the bottom of the Moscow list and does not feature on the whole Russia list.

RenTV may well have the largest coverage, though I doubt that its technical reach is greater than Channels 1 & 2.  As for all Russia audience share -  5th.  Which in the current Russian market is nowhere - break even at best.

I will agree that there are plenty of outlets for informed/interested Russians to get many different cuts on the news of the day.  The concern (anecdotally) is that too many (young) Russians are neither interested or informed.  No desire to argue why that may be but here's the anecdote;

Applicant for position in PR department of local marketing and PR firm and graduate of prestigious Moscow University claims not to read the newspapers or watch the news.

Report on Freedom of Speech in Russia, Putin Hires U.S. PR Firm:

PutinVladimirV-NiceChair1.jpg


Finally, the report accepts that the government controls all broadcast media in Russia almost as a given.  We have written on this topic in-depth recently at Russia Blog, showing that some of the most popular state-owned media outlets like Echo Moscow Radio have frequently criticized the Kremlin, especially about the war in Chechnya.  The information we presented also undercuts the report's claim that, “TV stations, now all controlled by the Kremlin or government associates, are also subject to very strict censorship.”  The largest TV network in Russia, REN-TV, is privately owned and consists of 406 commercial TV-stations in Russia and the CIS, reaching an audience of 113 million people (the CIA World Factbook pegs Russia’s population this year at 142 million).


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03 May 2006

Gazprom alarm 'absolute nonsense' - Bernotat

A counterweight to MSM rubbish

Gazprom alarm 'absolute nonsense' - Bernotat:
The head of German utility heavyweight E.ON, Wulf Bernotat, has described the recent furor over Gazprom's apparent threat to divert supplies away from Europe as 'absolute nonsense' in an interview.


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Subscribe via Email

I've added a subscribe via email function for those of you who don't like, are barred from using aggregators or just like Outlook.

Courtesy of Feedburner.


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Russian E&P - Disincentives

The two authors from this piece from the Energy Tribune are ex-Yukos executives, so you can hardly expect a glowing review of Russian energy policy.

They make some interesting points;

Russian oil well efficiency runs at 50% of global averages - 14% vs 25%
Export net backs after tax are $6 vs domestic $22
Domestic demand is flat to negative due to efficiency savings - need more research here
Opex rising very very fast! No surprises here

In short, plenty of oil in the ground and they claim plenty of capacity in the pipeline (500,000 bbl/day).  But tax disincentives for export and a state take that is not encouraging capex investment.

And then to the part I don't understand.  They claim that there is plenty of spare capacity in the Transneft pipelines but that due to mismanagement and inefficiencies (same thing surely) that the fastest rising cost element is transportation.

First is the cost of oil transport. Due to the limitations and inefficiencies of the Transneft export system, almost all of the incremental exports since 2001 have been by “combined routes” rather than the Transneft system. The “combined routes” are mostly rail but also include tank cars, barges, pipeline spurs, etc. The cost of the “combine routes” scheme has risen rapidly and is expected to continue to rise at an even faster pace. There is no efficient transport infrastructure for further incremental production. Building a new efficient infrastructure would require a massive investment by the Russian oil companies when cash flows are already under heavy pressure from increasing cost and the current tax regime.


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02 May 2006

A Change of Management Style

Vassily Sidorov's departure is old news; the lesson has not been widely disseminated.

Sources suggest that MTS management could not manage their way out of a damp paper bag.  Vassily Sidorov of MTS paid the price for getting lost.  It will take a lot more than changing the man at the top to change MTS' direction.  It's management have grown up in a vertical (and heavily politicized) management structure.  Every decision required the CEO's input; whether he was qualified to comment or not.

Changing the environment is as important as adjusting to an ex-growth (in a Russian sense) business.  I doubt that Sidorov's replacement is a change of style;



Further increase in the value of the company is possible through efficiency and reorganization. Sistema will probably hire another manager at MTS for that, a strict administrator.“ A source said of Melamed that ”with him, everyone goes to the bathroom according to schedule and strictly according to instructions.“

It will be interesting to see if the vertical, control-oriented style of ”Russian“ management will work in low(er) growth markets.  My take is that it won't.  Vertical never works and slows decision making to a crawl.  If the British Army has worked it out then how far behind will major Russian businesses be?

po smotrem


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Russian Energy Policy - Part 1.0

The caveat emptor issue;

Last week's papers were full of Rosneft and GAZP stories.  Most, including a large portion of Soros' op ed  in the FT, were gash.  Rosneft's IPO has nothing to do with energy security - whether F&C participates in the IPO will have little to do Russia's energy policy.  I also have little issue with investors buying in to a company whose largest producing asset was procured from somewhere else.  After all investors swallowed their concerns once before over a company called Yuganskneftegas - anyone remember a guy called Kenneth Dart?  Investors believe that ethics is a county to the east of London (it's a bad British joke) - at least while the stock is appreciating.  As the leader from the UK's Sunday Times points out greed will overcome fear.  The Russian government knows and understands greed and the cynicism that is required to hold your nose and invest other peoples money.

The real issue is what is an investor buying?  I posted on this previously and nothing that has happened or will happen in the near future will change my mind.  The only impact buyers of Rosneft shares (I can't bring myself to calling them investors) can have on Rosneft's management will be selling or lending the stock to be shorted.  Which will coincide with a drop in the price of oil (and gas) and will not be immediately attributable to management.  So buy if it makes financial sense - just have some shame when the beast turns round and bites you.

I think that this post from Seeking Alpha pretty much sums up how non-Russia related investors view Rosneft.  They may be wrong but don't argue against flow of funds.

Russian Oil: Yukos and Rosneft (YUKOY):

Roger Nusbaum submits: In a big picture sense, oil from Russia is important because there is a lot of it in the ground and in the next few years it looks as though there will be more of that oil being processed and put onto the market for consumption.

That is the simple part. The rest is where it gets progressively more complicated.

Regardless of your opinion about the entire Yukos/Khodorkovsky affair, I have never heard any dispute that Khodorkovsky was told, as were all the oligarchs, to stay out of politics and he did not. I am in no way opining as to whether he should or should not have made comments or anything else and it is possible that what I say is not in dispute is in fact in dispute. I am just trying to relay the facts as I understand them, and I may have facts about Khodorkovsky incorrect but I have seen and read enough coverage that I think I this right.

The fallout of the Khodorkovsky affair was that Yukos was shut down and the assets were later put up for auction. Again, there was politics and controversy surrounding the manner in which this occurred and I don’t want to turn this post into a debate of the politics of it.

The emerging company from all of this with the old Yukos assets is Rosneft. Rosneft is going to have an IPO and July is a possible date for the listing, which is likely to be on the London Stock Exchange. I would like to learn more than what little I know now, but I am interested in the company.

Some of the numbers, if true, are compelling. Earnings in 2005 were $3.9 billion vs $0.8 billion 2004. Revenue was $23.9 billion vs $5.3 billion in 2004. In 2005 the company reduced its debt by $1.7 billion down to $10.9 billion.

I would not get too excited about the growth built into those numbers because the old Yukos’ operations were severely hampered in 2004 and so the company did not do a lot that year.

Some other fun facts about Rosneft include, among Russian companies, it is 2nd in gas production, 8th in oil production, 7th in reserves, and first for oil refining capacity. With the IPO, the company plans to sell 1/3 of the company for about $20 billion. As the company is now state owned, I presume the 2/3rds not sold will be held by the government and possibly sold later.

A lot of people assign a risk to Russian shares because of the Yukos affair. While I certainly cannot say it won’t happen again I think it makes sense to believe that the Russian government does not want it to happen again. A second company being dismantled would probably cause a huge flight of foreign capital, much worse than Yukos. The country, I believe, wants to be a capitalist country with foreign investment.

It’s fair to say they are still learning about capitalism, but anything they do that jeopardizes foreign investment into the country is counter to their own interests. And it is worth pointing out that there are plenty of Russian companies traded on foreign exchanges in the US and in Europe.

Russia wants to be more important in the world economy — not less. Between now and the listing date there will be a lot more to read about Rosneft before making any kind of decision.


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01 May 2006

Outed By the FT

Returning from the UK on a much delayed BA flight, busy transferring printing ink from the FT to my fingers I discover that “Ruminations” has been quoted by the FT in its regular Monday coverage of the blogosphere.  The quotation came from Russian Energy Policy 2.0.  It would appear that the section does not appear online.

The first realization is that I might want to make greater use of a grammar checker....

Being outed is genuinely not a good thing.

Sunday's newspapers were full of Rosneft and Clara Furse's letter to Putin on behalf of Bill Browder (as a lobbying effort it was a mistake.)  I have no desire to lift my head above the parapet, again, and turned down a request for comment to the FT recently on that basis.  This blog makes me no money, gains me no friends, influences no one and adds nothing to my personal wealth.  It would interfere with my day job, if I had one.......

This blog came about because of my interest in the medium and its role in the future of media and the technology industry.  Over time I have found that it is a very useful way to clarify my thinking and poke fun at Russia and the misconceptions about it.  My regular (i.e. return) readership is very small; I either knew you personally already, which is why you are reading this, or have a virtual relationship with you as a result of my meanderings.

My next “big thing” will once again cause my head to be lifted above the parapet.  My initial reaction was to close Ruminations down, but I'll keep it bubbling along - because life is too short.


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