Russia 100304 Basic Political Developments

BizJournals: MAG makes $9M Russian deal

http://www.bizjournals.com/cincinnati/stories/2010/03/01/daily33.html

Business Courier of Cincinnati

MAG Industrial Automation Systems will sell industrial machining tools to Russia’s United Aircraft Corp. (UAC), a contract valued at more than $9 million.

The Erlanger-based machine tool company is providing UAC with three machines to support the aircraft construction company’s production of the MS-21 series of medium-range commercial airliners.

The sale broadens MAG’s footprint in Russia, which was established with the sales of 26 large machine tools to Ural Boeing Manufacturing and VSMPO-Aviation.

“Our newly created aerospace industry team was a key enabler for us in this sale,” said MAG Executive Vice President Chip Storie in a news release. “It brings into focus our strength as the only globally capable company integrating core aerospace manufacturing technologies ... engineered, built and backed by a single source with local sales and service in Russia.”

The machines are scheduled to be delivered in the first quarter of 2011.

MAG, a machine tool and systems company, is part of a machine tool group created by parent company Maxcor, based in New York.

Reuters: Mutual need brings Russia, western car makers closer

http://in.reuters.com/article/businessNews/idINIndia-46629420100304
Thu Mar 4, 2010 9:37am IST

By John Bowker and Helen Massy-Beresford

MOSCOW/GENEVA (Reuters) - Russia is becoming a low-cost yet potentially high-return gamble for foreign carmakers as the government rolls out the red carpet to lure technology and investment.

The state is set to announce a $6-billion investment in the industry this decade, a high ranking government source told Reuters, and while it will rule out selling local manufacturers to foreign rivals it will allow stakes of up to 50 percent to help revitalise the sector.

Western manufacturers that invested before the crisis have been persuaded to stay on in Russia by an amenable state. France's Renault this week committed to its 25 percent stake in loss-making Lada-maker AvtoVAZ -- but made clear it would need substantial state support.

And Italy's Fiat recently signed a joint venture with privately owned Sollers to ramp up production to 500,000 cars per year -- a deal also sweetened by backing from the Russian government.

Analysts say the government's welcoming stance provides a great opportunity for foreign players to gain a foothold -- at low cost -- in a market that has the fundamentals to take off in a few years.

"You have to get in now, get in on the ground floor and I imagine the Russian government is willing to offer all sorts of incentives and tax breaks to attract foreign direct investments," said IHS Global Insight analyst Tim Urquhart.

Almost all major players have their own plants in Russia or are building them, with an eye on the long term.

"Renault would like to turn AvtoVAZ around and make a profit ... with the help of the government," said Moscow-based VTB analyst Vladimir Bespalov.

"Fiat is more a government project -- it's low risk ... they (Fiat) have nothing to lose," he added.

SLOW RECOVERY

Russia's previously booming car market had been tipped to overtake Germany's as Europe's biggest before the crisis hit at the end of 2008.

But as Germany's 2009 sales swelled to 3.8 million units on the back of generous government scrapping incentives Russia's halved to 1.47 million -- a 61-percent slide in monetary terms according to analysts at Renaissance Capital.

The broad consensus among analysts and car-makers is that the Russian market will make only a gradual recovery, but has the right fundamentals.

PricewaterhouseCoopers is forecasting Russian 2010 auto sales up to 15 percent higher than 2009, while the Association of European Businesses has forecast a flat performance.

"We .. believe that the Russian car market has significant potential in the long term," said PWC partner Stanley Root.

VTB and Renaissance analysts don't predict a return to pre-crisis levels before 2013 at the earliest due to the uncertain economic environment.

But Renaissance's Alexander Kazbegi said two metrics show that the Russian car market should still outstrip more developed countries. Russian cars are the oldest in Europe on average at 11.5 years, while Europeans own around 0.5 cars per head compared to the Russian's 0.25.

He said the market for commercial vehicles such as vans or lorries were in an even stronger position, as they could benefit from government haulage contracts.

GREATER INTEGRATION

The 2009 industry downturn threatened the survival of firms such as AvtoVAZ and the livelihoods of tens of thousands of workers at its one-industry base town of Togliatti on the Volga river. The state stepped in to save the firm and avoid public discontent and has continued its generosity in 2010.

Russia's main players have almost all teamed up with foreign players, with Daimler's stake in truck-maker KAMAZ joining the Renault-AvtoVAZ and Fiat-Sollers tie-ups.

That only leaves GAZ -- the group controlled by oligarch Oleg Deripaska. It had hoped to partner Opel if Russian lender Sberbank had succeeded in its pursuit of the General Motors-owned unit last year.

But industry insiders expect the wallflower to find its partner in due course.

"In ten to fifteen years Russia's auto industry will be more or less integrated into the international industry," said Frank Schauff, CEO of the Association of European Businesses (AEB).

Optimism about Russia can even be felt at the ongoing autoshow in Geneva.

"For me it looks as though Russia is normalising and coming back .. It seems that something fundamentally good is happening in Russia and people are buying cars again," said Colin Dodge, an executive vice president of Japan's Nissan and partner of Renault.

(Additional reporting by Gilles Guillaume, editing by Sitaraman Shankar)

(For more news on Reuters Money visit www.reutersmoney.in)

Activity in the Oil and Gas sector (including regulatory)

The Moscow Times: Cabinet to Study Higher Gas Extraction Tax

http://www.themoscowtimes.com/business/article/cabinet-to-study-higher-gas-extraction-tax/400950.html
04 March 2010

Bloomberg

The government will consider raising the gas extraction tax for the first time since 2006 to help close budget gaps left by the country's worst economic crisis on record, a government official said in an interview published Wednesday.

The Finance Ministry will propose raising the mineral extraction tax for gas fields, and failing that, will seek to boost the export tax on the fuel, said the official, who declined to be identified.

"It's one of the options to offset losses from lifting export duties on oil exports from Eastern Siberia," said Valery Nesterov, an analyst with Troika Dialog. "Gazprom's investment needs are more modest now, and it has started earning profit on domestic sales."

The government official declined to specify the timing or the amount of the increase that the ministry will seek, citing continuing analysis of the budgets for 2011 to 2013. The Finance Ministry plans to submit proposals to the State Duma and pass laws that will affect the budget before the end of the spring session, the official said.

Gazprom declined to comment on possible tax increases.

Gazprom defeated the ministry's efforts last year to boost the mineral extraction tax 10 percent to 162 rubles ($5.43) per 1,000 cubic meters and the export tax to 35 percent from 30 percent of the fuel's customs value.

The Finance Ministry had sought to raise budget revenue by 60 billion rubles through the proposed extraction tax increase last year as Russia, the world's biggest gas exporter, experienced its first deficit in a decade.

Gazprom, the gas export monopoly, has delayed some of its major projects, such as the Shtokman development and Bovanenkovo field on the Yamal Peninsula, both located in harsh Arctic conditions, after demand for the fuel slid during the economic crisis.

While Gazprom has traditionally focused on exports for earnings, domestic sales became profitable last year as the government raised tariffs to bring prices at home in line with European prices, excluding transportation costs.

The government granted export tax exemptions for oil from 13 east Siberian fields late last year, which the ministry has criticized for eating into budget revenue. The energy and finance ministers are discussing the fate of the tax break.

Itar-Tass: Azerbaijan ready to transit hydrocarbons from Asia to Europe through its pipes

http://www.itar-tass.com/eng/level2.html?NewsID=14883751&PageNum=0

03.03.2010, 23.29

BAKU, March 3 (Itar-Tass) -- Azerbaijan is ready to lend its infrastructure for the transportation of hydrocarbons from Central Asia to Europe, President of the State Oil Company of Azerbaijani Republic (SOCAR) Rovnag Abdullayev said during Wednesday’s meeting with Minister of State for Energy and Climate Change and Deputy Leader of the House of Lords, Lord Hunt.

“Azerbaijan has all opportunities for the transit of energy resources to Europe,” Abdullayev said.

Touching upon gas projects, the SOCAR president said, “Currently Azerbaijan supplies natural gas to Georgia, Russia, Turkey and Iran. A part of Azerbaijani-produced gas Turkey re-exports to Greece.”

While speaking about the prospects for transportation of Azerbaijani gas, Abdullayev said that his country supports the project of the Southern energy route and has an efficient work with partners within the framework of such gas pipelines, as Nabucco, Turkey-Greece-Italy, and the Trans-Adriatic ones.

The country also had signed memorandums on export of Azerbaijani liquefied natural gas to Bulgaria and Romania, the company's president said.

Now, Azerbaijan has four gas pipelines, which link the country with Russia, Georgia, Turkey and Iran, he said.

Gazprom

Bloomberg: Gazprom Offers Buyers ‘Incentive’ to Exceed Minimum Volumes

http://www.businessweek.com/news/2010-03-03/gazprom-offers-buyers-incentive-to-exceed-minimum-volumes.html
March 03, 2010, 7:24 PM EST

By Ben Farey

March 3 (Bloomberg) -- OAO Gazprom’s introduction of spot gas pricing in some of its European contracts is a temporary “incentive” for buyers to take more of the fuel, according to the head of price formation at the company’s export unit.

Gazprom last month said it concluded talks with European customers, adapting pricing terms in the contracts as spot gas and demand fell in the economic recession.

“We offer incentives to take more than the minimum,” Sergei Komlev, head of contract structuring and price formation at Gazprom Export said today after speaking at the Flame conference in Amsterdam.

European consumers of Russian gas, such as E.ON AG, Germany’s largest utility, have multiyear contracts linked to crude and oil-product prices. Last year a drop in demand and increase in supply cut spot prices to about half the level of long-term contract prices, leading customers to seek more flexible terms from Gazprom, Russia’s gas export monopoly.

Komlev told reporters at the conference that Gazprom’s introduction of some spot pricing in its export contracts will last for three years. European demand for gas will return to 2008 levels by 2013, he said, and spot prices will rise again.

Gazprom’s share of the European gas market fell 2 percent last year, Komlev said, as the recession sapped demand.

Statoil Introduces Spot

Statoil ASA, Norway’s biggest gas producer, said yesterday it reached similar agreements with buyers to include an element of spot pricing in export contracts in return for better access to markets.

“I don’t think the existing price in the spot market is a fair price,” Komlev said. “It’s a disincentive to invest in the long term.”

By 2030, Europe will have a suuply gap of 240 billion cubic meters a year, he said, as indigenous production declines. Buyers haven’t asked Gazprom to reduce the volumes of gas they must take, Komlev said. “We don’t see a catastrophic decline in demand,” he said.

Gazprom isn’t changing its price formula or take-or-pay clauses in its supply contracts, Tatiana Mitrova, head of the Centre for International Energy Markets Studies, said in an interview at the conference.

“It’s a type of goodwill toward the most important consumers,” she said. All the companies in contract negotiations with Gazprom are partners in the Nord Stream or South Stream pipeline projects to bring Russian gas to Europe, she said.

“These are strategic long-term partners for several decades in the European market,” Mitrovsa said. “Building a relationship with them is really important for Gazprom.”

European gas buyers have “missed a trick” in their contract negotiations with Gazprom, said Mike Fullwood, a consultant from Nexant Ltd. They should have pushed for some spot pricing up to the minimum contract level, he said.

U.K. gas for day-ahead delivery fell 40 percent last year to 35.25 pence a therm.

--Editors: Rob Verdonck, Torrey Clark

To contact the reporter on this story: Ben Farey in London at [phone] or [e-mail]

To contact the editor responsible for this story: Stephen Voss at [phone] or [e-mail]

Bloomberg: Gazprom Sees LNG Competing With Shale Gas, Targets U.S. Market

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a_onBJ2IcMCo

By Lyubov Pronina and Anna Shiryaevskaya

March 3 (Bloomberg) -- OAO Gazprom expects liquefied natural gas shipments to compete with rising output of shale gas in the U.S. as the Russian producer aims to expand into the world’s biggest energy market.

“Shale gas and LNG are competitive in one price range,” Gazprom Deputy Chief Executive Officer Alexander Medvedev said in an interview in Paris yesterday. “The market will say who will be in the market and with what.”

Gazprom, the world’s biggest gas producer, plans to gain as much as 10 percent of the U.S. market by 2020. The Moscow-based company’s trading unit in Houston already sells some LNG into U.S. through swap operations.

The company has no reason yet to revise its target for U.S. market share given the costs and possibly negative environmental impact of developing shale gas, Medvedev said. Gazprom’s output will depend on market conditions, he said.

The Russian gas export monopoly and its partners in the Arctic Shtokman field last month delayed production and may scrap a proposed LNG plant in the initial stage of the project after demand fell. The partners, which include Statoil ASA and Total SA, had planned to supply as much as 90 percent of Shtokman LNG to North America.

‘Full Clarity’

The world may have an “acute glut” of gas in the next few years because output of so-called unconventional fuel, such as shale gas, is set to rise 71 percent between 2007 and 2030, the International Energy Agency said in November. Shale gas comes from layers of sedimentary rock difficult to tap with conventional technology.

U.S. shale gas could displace significant volumes of LNG, potentially growing to a similar scale as the entire current global LNG market by 2015, JPMorgan Chase & Co. said in a report on Feb. 9. The unconventional resource is “a complete game changer” in the U.S., BP Plc CEO Tony Hayward said in January at the World Economic Forum in Davos, Switzerland.

Gazprom is waiting for “full clarity” on U.S. developments, and isn’t considering acquiring U.S. shale gas assets, Medvedev said. The company started extracting coal-bed methane, another unconventional source of gas, last month.

Gazprom also plans to move ahead with another Arctic gas development, the Yamal Peninsula, whose 16 trillion cubic meters reserves are more than four times larger than Shtokman’s.

The company needs “a year or year and a half” to decide on foreign partners to help tap the resources of the peninsula, Medvedev said.

“We like it that there is such a big interest,” Medvedev said without naming any companies. Both pipeline and LNG options are under consideration for Yamal fields, he said.

Russian Prime Minister Vladimir Putin discussed possible partnerships with Royal Dutch Shell Plc and Total SA among other international energy producers in September.

GDF Suez SA has been invited by the Russian government to take part in the Yamal project, Chief Executive Officer Gerard Mestrallet said yesterday in an interview in Paris.

“We may be interested in participating, but it’s simply under consideration,” he said.

To contact the reporters on this story: Lyubov Pronina in Paris via the Moscow newsroom at [e-mail]; Anna Shiryaevskaya in Moscow at [e-mail].

Last Updated: March 3, 2010 07:27 EST
Bloomberg: Gazprom Hails Ukraine Gas Pipeline Venture Idea After Disputes

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1RRjszohQy4

By Lyubov Pronina and Anna Shiryaevskaya

March 3 (Bloomberg) -- OAO Gazprom, Russia’s gas export monopoly, welcomed renewed discussion of a venture to run Ukraine’s pipelines after transit disputes disrupted supplies of the fuel to Europe three times in four years.

“It’s very positive that the idea of a gas transportation consortium has emerged from the past,” Gazprom Deputy Chief Executive Officer Alexander Medvedev said yesterday in an interview in Paris. “On the company level, we haven’t got any proposals yet.”

Gazprom, the world’s largest gas producer, moves about 80 percent of its Europe-bound exports of the fuel via Ukraine’s pipelines. Setting up a venture with Gazprom and international companies to upgrade and run the links was discussed under Ukraine’s then-President Leonid Kuchma and rejected after the 2004 Orange Revolution brought in a president who sought closer ties with Europe and the North Atlantic Treaty Organization.

Gas flows to Europe, which gets about a quarter of its gas from Russia, were disrupted during price disputes between Gazprom and Ukraine, including a two-week halt in January 2009 that affected Europe during freezing temperatures.

Ukraine’s new president, Viktor Yanukovych, who lost the 2004 election, said last month that he plans to propose a gas group with Russia and the European Union to upgrade the network. Yanukovych has signaled he wants closer ties with Russia.

“There is a positive precedent,” Medvedev said, citing Gazprom’s Gaztransit venture, which built part of the transit pipeline that joins Ukraine and Romania and carries on to Bulgaria and Turkey.

Dispute Resolution

Gazprom has worked with Ukraine over the past year to stabilize gas deliveries and payment agreements, while seeking to smooth over ill-will created by the disruptions, which led the EU to challenge its reliability as a supplier.

The company expects to settle any disputes with Slovakia over disrupted supplies out of court, Medvedev said, commenting on a report in Interfax earlier this week.

Slovensky Plynarensky Priemysel AS, the dominant gas company in Slovakia, is seeking compensation from Gazprom for disruptions to supplies caused by the pricing dispute with Ukraine in 2009, Interfax reported on March 1. The company, also known as SPP, filed a suit with the International Court of Arbitration of the International Chamber of Commerce in Paris, the news service said.

“We haven’t received any notifications, and it is unlikely we will get them,” Medvedev said.

To contact the reporters on this story: Lyubov Pronina in Paris via the Moscow newsroom at [e-mail]; Anna Shiryaevskaya in Moscow at [e-mail]

Last Updated: March 3, 2010 10:25 EST

Financiarul: Gazprom accepted on Romanian OPCOM market

http://www.financiarul.ro/2010/03/04/gazprom-accepted-on-romanian-opcom-market/

4 Martie 2010

The UK Gazprom Marketing & Trading Ltd subsidiary, owned by the Russian energy giant Gazprom, was granted the right to trade electric power on the bilateral agreement market for the power exchange of Romanian power market operator (OPCOM), daily Financiarul informs.

This comes shortly after the visit of the second most important person of Gazprom, Aleksandr Medvedev, to Bucharest in order to negotiate the Russian company’s expansion in Romania, the quoted daily informs. The source also mentions that one of the set targets is the building of gas power plants.

OPCOM has the power market administrator role, according to the provisions of the legislation in force, providing an organized framework for the development of commercial trades on the wholesale power market, under consistency, correctness, objectivity, independence, fairness, transparency and non-discrimination conditions.