Russia & India Report by Russia Beyond

Business Report

THE ECONOMIC TIMES IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

WEDNESDAY MARCH 13, 2013

DIPLOMACY: Development Bank poised to be the show-stealer, greater focus on security issues

NEWS IN BRIEF

BRICS’ moment under the sun

World’s largest diamond miner worth $10 billion Russian diamond company Alrosa’s base value is estimated to be $10 billion. The Federal Agency for State Property Management (Rosimushchestvo) and the Yakutian Property Management Ministry may get upto $1.5 billion for their 14% stake in the enterprise. Sources indicate that Rosimushchestvo has evaluated the world’s largest diamond miner at 7 EV/ EBITDA, for its shares to be listed on the Moscow exchange in November 2013. With EBITDA of $2-2.2 billion, the company has been valued at $14-15.4 billion. But this does not include around $4.6 billion debt. RIBR

The Durban summit will cap the process of investing 5-nation grouping with political and strategic content.

he BRICS moment to bask in the global sun is here again. With most of the developed world embroiled in a festering recession and grappling with the inexorable shifts of power, all eyes will be on the 5th BRICS summit of the leaders of five emerging economies in Durban on March 26-27. It will be more than a glorified photo-up as the summit is expected to unveil new pathways of synergy and cooperation among the global South and the emerging world. The agenda is still evolving, but one can safely make some broad brushstroke projections about possible outcomes of the summit of the leaders of Brazil, Russia, China, India and South Africa.

The BRICS’ success will lie in generating fresh mortar and cement to build an inclusive and a democratic world oder. BRICS Development Bank: The BRICS Bank or South-South Bank is poised to be the showpiece outcome of the Durban summit. While it remains a work in progress and the modalities will be firmed up only after a meeting of the finance ministers of BRICS countries, the Bank is a potential game-changer in the BRICS’ larger project of remapping the global financial governance architecture and in spurring infrastructure building in the developing world. There is no

clarity on the corpus of the fund, but it could be in the range of $50 billion, with equal contributions from all BRICS countries. Despite the slowdown, the $12 trillion grouping will also seek to scale up intra-BRICS trade to $500 billion by 2015 and promote intraBRICS trade in local currencies. Reform of global governance: With nearly $4 trillion in foreign exchange reserves, the BRICS economies will be pitching hard at the Durban summit for greater voting quota for emerging powers and developing countries in the West-dominated Bretton Woods institutions. India will be looking to leverage the Durban summit for building the critical mass required to advance the reforms and expansion of the UN Security Council. Syria and Iran: With the growing unease about the infiltration of al-Qaeda elements in the ranks of the rebels in Syria, one can expect a strongly-worded resolution in the Durban declaration that outlines the urgent need to end violence for advancing the Syrian-led national reconciliation process. Similarly, the BRICS countries will oppose the West’s sanctions-driven approach and back resolution of the Iranian nuclear impasse through diplomacy. The African Agenda: Pretoria has made the African agenda the showpiece of the Durban BRICS summit. Given its robust multi-faceted economic, political and strategic ties with the resurgent continent, India will pitch itself as a preferred partner in the African resurgence. China, which played a pivotal role in getting South Africa into the BRICS, is understood to be actively promoting the African agenda. Above all, the Durban summit, the first one

Kremlin to deepen cultural links with India

Leaders of BRICS countries vow to remap the global governance architecture.

to be hosted on the African soil, will mark the political maturation of a multilateral grouping which was born in the crucible of the global financial crisis in the Russian city of Yeketerinburg in 2009 and had remained focused on economic issues for the first three years. The next two summits in Sanya and New Delhi saw the BRICS countries leveraging their growing clout to shape international discourse on key global issues. The Durban summit will cap this process of investing the grouping with greater political and strategic content and coherence. The 5th summit will see a convergence of views on a host of cross-cutting security issues like terrorism, piracy, and dealing with new age threats

ITAR-TASS

RIBR

ITAR-TASS

MANISH CHAND

The Moscow Kremlin is planning some initiatives to widen cultural links between Russia and India, the museum’s director Elena Gagarina told Itar-Tass. The museum would like to bring its treasures for an exhibition in India. It also requested the Indian government to consider lending several objects from the Nizam Collection for a major exhibition of Indian jewellery to be held in Moscow in 2014. The exhibits include the works of two major Indian jewellers - Munnu Kasliwal, who passed away last year, and Viren Bhagat whose jewellery is so popular that the rich and famous around the world yearn to get a glimpse of it. RIBR

like cyber warfare by setting up an emergency response team. Russian President Vladimir Putin is expected to underline the need for greater intra-BRIC cooperation on security issues. Initially dismissed as a talk shop, the BRICS has emerged as a powerful platform for creating a counter-narrative to the West-dictated agendas on regional and international issues.The West and reigning powers, enfeebled by the prolonged global slowdown and sterile interventionism, are trying hard to arrest what is clearly a defining shift of power from the West to the rest. The success of the Durban summit will lie in generating fresh mortar and cement to rebuild a more inclusive and democratic world order.

Russia to buy radar computers from HAL Irkut Corporation of Russia has confirmed purchase of 34 sets each of Radar ComputerI & Radar Computer-II for Russian Air force requirements from HAL, with delivery schedule commencing from January 2014 onwards, the Indian state-owned aerospace company said. Till date, 300 of these computers have been produced by the HAL for various aircraft programmes of Indian Air Force, Algerian Air force and Russian Airforce through Rosoboronexport. HAL is in-charge for licence-producing the Su-30MKIs for the IAF and has been working towards indigenising several components of the aircraft. RIBR

POLITICS: President Putin has submitted an anti-corruption bill before the Russian parliament

Scam-ﬁxing engulfs State Duma In the wake of a high-profile case last year, accusing a fellow lawmaker of corruption and stripping him of his seat have become handy weapons in intra-party squabbles. RIBR

KOMMERSANT

t’s the season of scam-fixing in Russia. If you wish to finish off your political opponent, just fix him with corruption charges. Experts say the State Duma, Russia’s lower house of parliament, opened a can of worms after fellow deputies stripped Gennady Gudkov of his parliamentary seat last September. Never before has so many charges been levelled against Duma’s deputies for violations of the law, from illegal entrepreneurship to hiding property to gross fraud. Ironically, even the head of the parliamentary commission on ethics, Vladimir Pekhtin, a prominent member of the United Russia ruling party, fell victim to a corruption scandal. After the famous Russian blogger and opposition politician Alexey Navalny claimed that the lawmaker owned real estate in Florida, Pekhtin was forced to announce that he would be vacating his parliamentary seat. Navalny cited documentary evidence to accuse Pekhtin and his son Alexei of owning two apartments in Miami, as well as a house and a plot of land on Ormond Beach, worth $2,225,900. None of those properties were listed on the deputy’s official property declaration, which he and his family members are required to file annually. Pekhtin has denied allegations and has asked the relevant Duma commission to look into his case to see if he

Expulsion of several high-profile politicians charged with graft opened a Pandora’s Box. is guilty of any wrongdoing. But eventually he was forced to resign. Almost simultaneously with the Pekhtin scandal, opposition politicians, Konstantin Shirshov of the Communist Party and Oleg Mikheev from A Just Russia, were stripped of their parliamentary immunity at the request of the Prosecutor General’s Office. Parliamentary immunity guarantees that State Duma deputies can only be held criminally liable with the State Duma’s consent.

Gennady Gudkov, a prominent member of the opposition and A Just Russia representative, was stripped of his status last autumn after law enforcement agencies accused him of illegal entrepreneurship. United Russia deputy Aleksei Knyshov was suspected of the same violation and left the Duma voluntarily soon afterwards. Experts polled by RIBR believe the deputies themselves are to blame for the campaign unleashed against them after the expulsion of Gudkov.

“There were bound to be some repercussions for the State Duma following the Gudkov incident,” said Alexey Mukhin from the Centre for Political Information. The Pekhtin scandal is the opposition’s response to the “screw tightening” by the ruling party, while Shirshov and Mikheev fell victim to intra-party squabbles within the State Duma. Agrees Aleksei Makarkin, Vice President of the Center for Political Technologies: “The sixth Duma showed from the outset that parliamentary immunity could no longer be taken for granted. Deputies used to balk at letting their peers go, even if the culprit belonged to a different political party.” “There was an understanding that everybody should band together, and that lifting the immunity of any one deputy would put the others at risk too. But the expulsion of such a prominent politician as Gudkov has opened a Pandora’s Box,” said Makarkin. It seems to be a free-for-all now. Unable to achieve the dissolution of the Duma, the opposition has decided to knock deputies off one by one, Mukhin explained. Meanwhile on February 12, President Vladimir Putin submitted an anti-corruption bill to the State Duma which seeks to prohibit state officials from owning foreign bank accounts and holding securities abroad. Among other things, it does not contain a ban on owning real estate abroad.

MTS to continue operations in 8 cities

ALAMY/LEGION MEDIA

OLGA DORONINA

Sistema Shyam TeleServices Ltd (SSTL), which provides telecom services under the ‘MTS’ brand, the sole bidder in the second round of spectrum auctions, won airwaves in eight circles for Rs 3,639 crore. The circles are Delhi, Kolkata, Gujarat, Karnataka, Tamil Nadu, Kerala, Uttar Pradesh (West) and West Bengal. The current customer base of SSTL operating in India under the MTS India brand exceeds 14 million subscribers. RIBR

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IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

Business Report WEDNESDAY MARCH 13, 2013

Capital ﬂight: Sifting facts Has $350 billion fled Russia since 2008 global crisis? Think again; the actual figure is much lower.

$80

billion is total capital outflow leaving Russia in 2011 that is widely cited in international media.

$40 billion is the actual figure of capital outflow, according to a new study. GETTY IMAGES/FOTOBANK

“The twin factors driving capital outflows from Russia are an aggravation of the Eurozone crisis and the poor investment climate at home,” says Central Bank Chairman Sergei Ignatiev

BEN ARIS Special to RIBR

round $350 billion has fled Russia since the 2008 global crisis. But things aren’t as bad as they seem. Genuine capital flight is only half the official figure, according to a new study by Ernst & Young and the Russian Direct Investment Fund and Moscow State University’s Intelligent Reserve Center. Instead of $80 billion leaving Russia in 2011, the report says, when accounting quirks, offshore M&A deals and errors and omissions are taken into account, the real outflow was $40 billion. The backstory of Russia’s capital flight harks back to the 1990s, when businessmen simply grabbed as much cash as they could and whisked it away to an offshore haven. Hundreds of billions of dollars fled Russia, but began to return during the boom years of the 2000s, when entrepreneurs realised they could make handsome profits from domestic investments. With the 2008 crisis, capital flight began again. It

peaked at $134 billion in 2008, but fell to $56 billion in 2009 and $34 billion in 2010, after the economy bounced back. The figure grew again in 2011 on fears triggered by the eurozone crisis, reaching $80 billion. Last year the outflows slowed again, to $57 billion, according to Central Bank estimates. Most experts see outflows falling slightly again in 2013, to about $50 billion. Capital flight now is also very different from in the 1990s. “You have to remember that, in proportion, the current capital flight is a much smaller proportion to the size of the economy than in the 1990s,” says Ivan Tchakarov, chief economist at Moscow investment bank Renaissance Capital. Russia’s GDP had grown to just under $2 trillion last year - around twentyfold since the 1990s - while capital flight has stayed approximately the same. Not all the capital leaving is actually Russian, either. In 2011, the biggest outflows came from Russian subsidiar-

ies of foreign banks, making loans to their parent banks in the West, says Andrei Klepach, a deputy economic development minister. Another big source of capital flight is the profits of Russian overseas holdings that are reinvested into that foreign holding, or Russian companies paying off foreign loans. Analysts estimate another $20 billion of capital flight is actually reinvested foreign earnings. Even when the accounting quirks and other distortions are taken into account, however, $40 billion in outflows is still a lot of money, and it is mostly leaving because of the poor investment climate, corruption and uncertainty over Russia’s future. Central Bank chairman Sergei Ignatiev said in January the worsening of the eurozone crisis and poor investment climate at home are twin factors driving capital outflows from Russia. Ernst & Young’s report, however, differs. “There is no statistical link between investment climate indicators

BIG PICTURE

India must speak out on Syria crisis

Syria is hardly audible and it cannot even forcefully condemn the external intervention in Syria with the specific purpose of imposing a regime change? The two Arab regional states spearheading the assault on Syria’s sovereignty – Qatar and Saudi Arabia – cynically insist that they are promoting democracy and human rights! They are in actuality using Salafist fighters and the affiliates of al-Qaeda as instruments of policy with sectarian motives aimed at curbing the exuberance of the grow-

in regions such as Uttar Pradesh or Kerala, and our savvy politicians know very well what is good for them in this coalition era. Meanwhile, yarns have been spun conveniently to make it out to be that India and Saudi Arabia are strategic allies in the struggle against terrorism. In reality, though, Riyadh fights terrorists only on its soil who threaten the survival of the regime, while the same elements masquerading as radical Islamist forces readily become hand tools for Saudi regional policies in Afghanistan, Iraq or Syria. In the ultimate analysis, however, this goes beyond a question of the nexus between the Saudis and religious circles in India or the weakening moral fibre of the Indian politician and his compulsion to tap into identity politics. Simply put, it is a matter of principle that India should voice its disquiet over the blatant Saudi-Qatari intervention in Syria, which is destabilizing a staunchly secular country, and Syria also happens to be a friendly country that stood by India – ironically, even to the extent of helping our efforts to frus-

The Saudi-Qatari agenda is antithetical to India’s core interests and vital concerns. But India seems to have lost the plot.

India should voice its disquiet over foreign intervention in Syria which is destabilising a staunchly secular country

ing Shi’ite empowerment in the region. This is not dissimilar to what Saudi Arabia did in the 1990s by injecting Wahhabist ideology into Afghanistan (which was rooted in moderate Sufi Islam), which ultimately manifested as the grotesque Taliban movement. Of course, the Saudis lost nothing in that ghastly enterprise and, in fact, are today, along with Qatar, happily back in the game by re-integrating the Taliban into the Afghan power structure. The Saudi-Qatari regional agenda is antithetical to India’s core interests and vital concerns. But India seems to have lost the plot. Somehow the Saudis have come to cast their shadow on our so-called identity politics

trate Saudi-driven charades in the Organization of Islamic Conference over our Kashmir problem. India cannot afford to fail in defining its self-interests when the flame of Islamist militancy lurches across the so-called Greater Middle East. Syria has always been the “beating heart of the Arab world” and if the barricades in Damascus get overrun, the battle against Islamist radicalism is lost in the region. The views expressed in this column are of the author’s only.

M. K. BHADRAKUMAR Foreign policy analyst

yrian special envoy Bouthaina Shaaban visited New Delhi last week to make the demarche that India should raise its voice and help the BRICS summit meeting in Durban (March 26-27) make a “very strong decision” aimed at helping end the violence in her country that has killed 70000 people. But, alas, Prime Minister Manmohan Singh couldn’t receive her. In particular, Shaaban harped on the multi-ethnic and plural character of the Syrian society, its adherence to secular values and its abhorrence of radical Islamism (“Wahhabi fundamentalist terrorists”) and the blatant external intervention and, most tragically, the injection of the sectarian Shia-Sunni virus to fragment the Syrian nation, similar to what was done to Iraq through the past decade. Woven into the narrative is the great game over the massive energy reserves of the Levant Basin, which the West aims to control. India chose to meander through the past couple of years – at one point even identifying itself as one of the “Friends of Syria” forum that unabashedly proclaimed its objective of regime change. The trapeze acts by Indian diplomats have been so cheeky that one gasped for breath. Sadly enough, going by the South Block’s anodyne statement on Wednesday regarding Shaaban’s visit, revisionism permeates the current Indian stance. It is appalling that the MEA statement did not even care to mention the root cause of the bloodbath in Syria, namely, external intervention and the push for regime change. Why is it that India’s voice on

Read the author’s blog at www.indrus.in

$20 billion - is the amount Russian overseas companies have reinvested in their foreign holdings. and the estimated real capital outflow figures,” the report says. Alexei Devyatov, an economist with Moscow investment bank Uralsib, estimates that one percentage point decrease in the eurozone composite industrial production index leads to an extra $300 million to $500 million of capital outflows from Russia. Another big change is that higher oil prices lead to bigger outflows, while in the past more petrodollars meant more economic growth. “Expensive oil is no longer viewed as a growth catalyst,” says Devyatov. “ Uralsib remains pessimistic, foreseeing capital outflows reaching $50 billion-$60 billion in 2013 and $40 billion-$50 billion in 2014-15, versus the official forecast of zero capital outflows in 2013 and $30-40 billion in 2014-15. “Russia’s capital outflow situation is comparable to that of the many export-oriented economies, such as Kuwait, Norway and Japan,” says Alexander Ivlev, Ernst & Young’s managing partner in Russia.

Severstal suspends mega project in India ‘India project faltered due to weak global steel demand and differences with NMDC’ IVAN PETROV RIBR

ne of the world’s iconic metal companies, Russia’s Severstal is suspending foreign projects in India and Trinidad and Tobago, after failing to reach agreements with its partners abroad. A drop in profits, and weak global demand and prices are understood to have forced a change in Severstal’s investment plans. Aleksey Mordashov, Severstal’s main shareholder, said recently that his company was suspending its foreign projects in India and Trinidad and Tobago, which were estimated to be around $3 billion in investment. According to Mordashov, the Indian project faltered when the Indian partners refused to give control of the project over to the Russian company. It was initially planned that Severstal and India’s NMDC will invest $5 billion to build a plant with a capacity to produce three million tonnes annually. Work on the project is currently suspended. In Trinidad and Tobago, Severstal had planned to invest $600 million and build an iron plant with 1.5 million tonnes capacity per year. In the results published a week ago, Russia’s second biggest steel

producer showed a loss of $150 million in the fourth quarter of 2012, which was caused by weak demand and falling prices. The company expects the unstable global economic backdrop impact negatively on steel prices in 2013, Gazeta.ru reports. In order to go back to the target level of debt-to-EBITDA ratio of 1.5, Severstal has slashed investment in 2013 to $1.3 billion from the previously planned $1.7 billion. China and Europe’s debt crisis also contributed to the decline in the steelmakers’ business as it affected construction and industrial production. Severstal is one of the world’s largest steelmakers operating in Russia, Ukraine, the US and Europe. In 2009 Severstal was ranked 409th in the Fortune Global 500 annual ranking. Severstal went public with a London listing in November 2006. In the same year it approached Arcelor, one of the world’s biggest steelmakers with a merger proposition. The merger could have created the world’s biggest steelmaking business, with production capacity of 70 million tonnes per year. However, the deal was declined by Arcelor in favor of purchasing Mittal Steel, creating ArcelorMittal.

CEO Mordashov optimistic about spike in global demand in steel in 2013

ITAR-TASS

FINANCE: A new study shows how accounting quirks, M&A deals distort the picture

“Global economic conditions remain uncertain for the steel industry. However, we believe that we could see some improvements over 2013 in steel, iron ore and coking coal demand. We will continue to do our best to maintain a prudent investment profile and maximize cash generation,” Severstal’s CEO Aleksey Mordashov said last week.

IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

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Business Report WEDNESDAY MARCH 13, 2013

ENERGY: Don’t get distracted by China and Japan, focus on India, says expert

BUSINESS: Production to start in 2015

Gazprom eyes LNG exports

SIBUR, RIL to start rubber production

Russian gas major’s Israel deal has bolstered the company’s chances in LNG markets of Asia-Pacific OLGA SAMOFALOVA Vzglyad

azprom Marketing & Trading Switzerland, Russia’s gas major’s trading arm, has struck a deal for the exclusive right to sell LNG produced at the Tamar, Israel’s largest offshore gas field, and Dalit deposits. The agreement for a 20-year period was signed with Levant LNG Marketing, set up by the Tamar upstream consortium, which owns the rights to develop the gas field. Levant is also in collaboration with South Korea’s Daewoo, which is set to build a floating terminal for the liquefaction, storage, and transportation of LNG. Besides buying fuel from this floating LNG plant, Gazprom will be responsible for finding customers. The Israel deal has bolstered Gazprom’s prospects of gaining a foothold in the LNG market of the AsiaPacific, as well as removing a potential competitor from the European market. The gas supplies from the Tamar field are to begin in 2017 with a capacity of 3 million metric tons of LNG per year. The plan is to ship 4.2 billion cubic meters (bcm) to the Asian countries. The Russian authorities have been exhorting Gazprom to change its export strategy and seize a slice of the LNG market, of which Russia’s share is still negligible. Russian LNG currently makes up less than 5% of global sales, which are estimated at more than 300 bcm per year, notes Nikolai Podlevskikh, Zurich Capital Management analyst. “Foreign” LNG could allow Gazprom to assume a

Gazprom is trying to stake a claim to the APR markets with the help of foreign LNG

more commanding position in the market, he says. India could be an emerging focus market, says energy expert Konstantin Simonov. “Everyone gets distracted by China and Japan, forgetting about India, which is actually China’s energy

twin. India relies very heavily on coal, so demand for natural gas will grow swiftly,” opines Simonov. “Moreover, the country has no gas of its own. It is a given that gas consumption in India will rise, so the market needs to be staked out while the opportunity exists, using

The JV will build one of the world’s largest butyl rubber plants in Jamnagar

foreign gas to begin with, if necessary,” he elaborates. Gazprom’s expansion was checked last year by Australia’s largest oil and gas company Woodside Petroleum. Australia agreed to purchase 30% of another large Israeli gas field, Leviathan (estimated reserves of 481 bcm.) Gazprom, which supplies a third of all gas consumed in Europe, also pitched for the project. The failure to clinch the deal could impact its long-term position in the European gas market. Leviathan could potentially supply upto 200 bcm of gas to Europe over the next couple of decades. This will scale up the market supply of LNG and could lower gas prices for European consumers, say experts. Therefore, the deal over Israel’s other major deposit is crucial. Gazprom believes that its latest contract to supply gas from the Tamar field will help bolster its positions in the rapidly growing LNG market. “Gazprom takes a lot of flak for not showing enough flexibility and energy in the LNG market. Disregard of LNG is a nationwide problem, we understand that Russia will have no new LNG plant in the next 2-3 years. Therefore, Gazprom is trying to stake a claim to the APR markets with the help of foreign LNG,” says Simonov. “It is looking to enter these markets initially as a vendor, so as to have the option to supply its own gas in future.” Simonov suggests that Gazprom’s Israeli project is an attempt to kill two birds with one stone: “The idea is to divert Israeli gas from Europe to Asia in preparation for shipments of Russian LNG,” he added.

OLGA MORDYUSHENKO Kommersant

IBUR, Russia and Eastern Europe’s largest petrochemical company, and India’s Reliance Industries Ltd (RIL) have started construction in one of the world’s largest butyl rubber plants with a production capacity of 100,000 tonnes per year near Jamnagar in Gujarat. India is projected to be a key market for its products, which will mainly be used to manufacture tube-type tires. The Indian synthetic rubber market is the world’s fastest-growing. On February 2, SIBUR CEO Dmitry Konov and RIL Executive Director Nikhil Meswani were present at a ceremony to lay the foundation stone for the plant, which will be India’s largest producer of butyl rubber. The Indian side estimates construction will cost approximately $450 million, while SIBUR has declined to comment on it. The production is scheduled to start in 2015. The project goes back to the spring of 2010 when SIBUR and RIL had signed a memorandum of intent to establish a rubber joint venture in India. Finally, the JV was set up in February 2012. RIL holds a 74.9% stake in the JV, while SIBUR holds 25.1%. SIBUR Petrochemical India, a SIBUR subsidiary, started operating in August 2012 in Mumbai. Konov is upbeat and says his company has already completed the basic design for the new plant. The working design phase is under way, and orders are being placed for equipment that will take a long time to manufacture. “SIBUR’s technology as well as the butyl rubber production engineering expertise accumulated by our managers over many years together with our partners’ feedstock capabilities, efficient site, and understanding of the market will help the joint venture

OVL has done initial evaluation of Magadan’s promising offshore oilfields OLGA SENINA RIBR

osneft has invited ONGC to take part in joint development of two offshore areas in the Sea of Okhotsk, which has enough reserves to meet India’s oil consumption for eight months. If the deal goes through, the Indian state-owned company will gain access to new oilfields, while Rosneft will raise the investment it needs for geological exploration. Upbeat on scaling stakes in oil exploration in Russia, Dinesh Sarraf, Managing Director of ONGC Videsh (OVL), has projected that “Russia will be the key point for an aggressive expansion of our project portfolio over the next few years.” In a letter to members of parliament in late December, Minister of Petroleum and Natural Gas Veerappa Moily said that the OVL was

studying the opportunities offered by the Magadan-2 and Magadan-3 offshore areas in the Sea of Okhotsk. OVL representatives have since visited the oilfields and conducted a preliminary evaluation, which, according to Moily, concluded that the risks were high. India is forced to take the risk because it currently imports up to 80% of its crude oil and is constantly on the lookout for more sources. Magadan2’s recoverable reserves are estimated at 78.9 million tonnes of oil, and Magadan-3 is estimated to have 31 million tonnes of oil and 105.5 billion cubic metres of natural gas. The offshore areas of Magadan, Kamchatka, and Sakhalin are considered quite promising. Similar areas in the North, Norwegian, and Kara Seas, as well at the northern Alaskan incline, have yielded good results. Yet

the areas offered to OVL have hardly been studied at all. Working conditions there are extremely harsh, second only to the Arctic. This implies high costs. The price of drilling a single exploration well is estimated at $150 million plus infrastructure – ten times more expensive than on the mainland, says Sberbank SIB analyst Valery Nesterov. Anyone joining the project should realise that the minimum exit price would be at least $200 million. If initial drilling yields good results, geological exploration could be expanded to $1 billion. On February 1, Russia’s Prime Minister Dmitry Medvedev signed a decree granting Rosneft 12 offshore licences without tender for 5.37 billion roubles. The company now holds 29 offshore licences with estimated reserves of 190 billion barrels of oil equivalent and has filed for 14 more.

This means that Rosneft’s current partners could probably count on expanded cooperation in new oilfield development, the expert added. OVL owns 20% of the Sakhalin-1 project, as well as the Imperial Energy production company, which OVL bought in January 2009 for almost $2 billion. Oil output there may have reached 635,000 tonnes last year and is unlikely to increase in 2013. Foreigners are routinely invited to join Russian offshore projects. They get 33.3% stakes each and pay for geological exploration. Last May, OVL asked Rosneft to let it participate in one of the projects already under development by ExxonMobil, ENI, and Statoil at the expense of Rosneft’s share in it. If this is denied, the Indian company has expressed interest in one of the 12 future projects, and has even agreed to take an 8% stake.

‘SIBUR’s technology and RIL’s feedstock capabilities, efficient site and understanding of the market will help JV’ jured up an optimistic picture of the plant’s prospects. He says the plant’s location is favourable and promising given that India’s overall demand for rubber stands at 400,000 tonnes (of which imports account for 70%). Demand for butyl rubber amounts to 60,000 tons and is fully covered by imports. Kostin attributes the surging demand for rubber in India to the country’s rapid industrialisation. He believes the plant’s construction could cost less than $450 mn since production equipment prices are low. Moreover, India is the least expensive country in terms of construction costs because of its cheap labour.

PRESS PHOTO

Rosneft’s win-win oﬀer to ONGC

become a leader in its segment in India and elsewhere in Asia,” says the CEO. Meswani is confident that the JV’s sales revenue could reach $700 mn in its first year of operations. The price of feedstock coming from Reliance’s oil refineries, says Konov, will be set under a formula contract. The JV partners could also consider expanding butyl rubber production at the Indian plant and making new kinds of rubber used to manufacture tubeless tires. Konov has rejected speculation about increasing its current equity stake. “If we had wanted to obtain a larger stake, we would have done so at the joint venture’s formation stage,” he says. The plant is expected to reach full capacity four to five months after construction is completed. Andrei Kostin of Rupec has con-

SIBUR President Dmitry Konov and Reliance Industries Executive Director Nikhil R. Meswani

ENERGY: KNPP has adhered to all post-Fukushima safety compliance directives, can withstand a massive earthquake

Kudankulam plant passes stress, endurance tests ANDREI REZNICHENKO RIBR

he safety of nuclear facilities in the wake of the Fukushima radiation disaster two years ago continues to be of enduring concern for nuclear operators everywhere, but especially in countries that are erecting new plants. The Kudankulam Nuclear Power Project, built by Russia’s Rosatom in Tamil Nadu, has faced sev-

Russian anglers’ body says local fishermen needn’t worry and can go to Russia to enjoy fishing competitions in ponds of nuclear plants eral delays due to protests, but is now poised to be commissioned by April. “All efforts are being made to commission units 1&2 of Kudankulam Nuclear Power Project by April 2013 and October 2013 respectively,” Minister of State in the Prime Minister’s Office V. Narayanasamy told the Indian parliament’s lower house in a written reply recently. The minister added

that the 2000 megawatts of electricity to be generated by the two units will be shared by Tamil Nadu (925 MW), Kerala (266 MW), Karnataka (442 MW) and the Union Territory of Pondicherry (67 MW). The safety concerns will, however, persist and need to be addressed upfront. According to experts, the Kudankulam plant is in full compliance with all safety standards and requirements set forth by the International Atomic Energy Agency after the earthquake in Japan. India and Russia have ensured that the power station is equipped with the very latest safety systems. The plant is fitted with dual-action localising and protective shells which is able to withstand the impact of an airplane; hydrogen recombiners prevent explosions from within (which is what occurred at Fukushima); the passive heat extraction system cools the reactor even in the absence of an external power supply, and a device to localise molten material in the active zone — the so-called “melt trap” — prevents the release of radioactivity beyond the unit even in the event of a hypothetical failure of the reactor vessel. In addition, the station will operate a desalination system in full compliance with all

GETTY IMAGES/FOTOBANK

After many delays, Kudankulam Nuclear Power Plant is poised to get commissioned in April

The Kudankulam Nuclear Power Plant in Tamil Nadu has incorporated stringent safety requirements. requirements. This has led to a rise in the project cost. The Nuclear Power Corporation of India Limited (NPCIL) has made maximum use of local building and construction organisations in the project. Indian firms now have expertise in the construction of nuclear power plants based on Russian technologies, which means that the next

units will be built more quickly. After the Japanese accident, all atomic stations worldwide underwent stress tests. Kudankulam was no exception. Despite the fact that the station was initially designed to comply with all safety requirements of the IAEA and the Indian and Russian oversight bodies, additional testing

was carried out. The inspection found the station to possess a very high level of “endurance.” However, even if all the power and water supply systems were to malfunction for an extended period of time, the station could still stop the nuclear fission reaction, withdraw residual heat, and ensure all necessary safeguards in offline mode. If this sta-

tion had been on site at Fukushima in March 2011, it would have withstood the impact of the disaster. There is now a special post-Fukushima safety compliance directive. Moreover, as a result of the stress tests, a set of recommendations was developed for the Indian operator of the station and adopted. Protests by local fishermen delayed the final commissioning of the unit. Kanyakumari is full of fishing villages, and rumors had circulated that the KNPP could lower their catches. This is, however, muddying the waters. These protesters need to see fishing competitions, which are held at the cooling ponds of nuclear power plants in Russia every year. The Russian Anglers’ Federation says that it’s a pleasure to fish at Rosatom’s reservoirs. Similarly, at the Russian-built Tianwan plant in China, the shrimp yield has not decreased. Incidentally, Rosatom arranged a fishing trip for Indian colleagues from Chennai to the Tianwan site to see it for themselves. Indian experts carried out similar research of their own in the vicinity of the NPP site at Kalpakkam with the same result: no negative impact on the local aquatic fauna.

Read more at www.indrus.in

IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

F |E |A |T |U |R |E

Business Report WEDNESDAY MARCH 13, 2013

TOURISM: Indian food an issue for some, but that’s no deterrent

CINEMA: Hollywood ﬁlm revisits tragedy

Ural pass mystery Russia, the emerging tourist hotspot for Indians returns to haunt... The dramatic deaths of 9 ski-hikers at Dyatlov Pass in 1959 continue to trigger conspiracy theories and tease students of the paranormal.

Mysterious and covered in stereotypes, Russia is now attracting more Indian travellers looking for cheaper ways of spending a holiday and hosting business meets and conferences.

ANNA ARUTUNYAN

rradiated corpses, rotating fireballs in the sky, a cursed Mountain of the Dead, military experiments and a Soviet cover-up! It’s the mother of all mysteries – the strange deaths of nine ski-hikers in the Ural Mountains continue to spark fevered speculation in Russia, where films, documentaries and websites devoted to “Dyatlovmania” abound. The mystery, which has undertones of the paranormal, has now come back in the recreation of the incident in Hollywood director RennyHarlin’s film “The Dyatlov Pass Incident.” But neither Harlin’s film nor a book just out detailing a possible connection to the American spy agency CIA have brought anyone closer to the truth. Soviet investigators cryptically described “an elemental force [the hikers] were in no state to overcome”. According to the official Soviet investigation, in February 1959 nine students from the Ural Polytechnic Institute in Sverdlovsk (today’s Yekaterinburg) failed to return from a ski hike in the northern Urals. The first bodies of the group, led by Igor Dyatlov, a student at the radio technology faculty, were found on February 27 – four weeks after pitching their last camp at Kholat Syakhyl, which translates from the language of the indigenous Mansi people as “Mountain of the Dead”. The hikers’ tent was discovered slashed from the inside with a knife, with most of their belongings still inside. Some bodies showed signs of hypothermia and blunt trauma, while others had broken ribs, a crushed

million Indian tourists travelled abroad in 2012, with this number likely to grow to 50 million in 2020 at over 10% per annum.

47.5

thousand Indians only travelled to Russia in Jan-Sept 2012 while 160,000 Russians visited India.

ITAR-TASS

ALEXANDRA KATZ

Indians looking for new thrills and experiences are trooping to Russia.

2.6

million was the number of foreign tourists visiting Russia in 2012 , mostly from Germany, Finland, China.

MANISH SINGHAL Director of Dimaz Group

“There are many Indians who have visited Europe, US, Asia, but Russia is an unexplored place for them. If the Russian language was a barrier earlier, today it is not. Everywhere in Russia, in the airport and hotels, people will speak English." since the Soviet times, has several partners in India, most of them located in Delhi and Mumbai. “Today most Indian tourists come to Russia through us and our partners,” says Tatiana Oleinikova, manager of the China, India and Asia department of Intourist. In July 2011, Intourist and the Thomas Cook Group forged a joint venture. “We often work with large operators acting either as a supplier because of our connections in Russia or as their consultant,” says Manish Singhal, director of Dimaz

Group, one of Intourist’s partners. Aleksey Mzareulov, Deputy Consul General of the Russian Consulate in Mumbai, admits that some problems like food need to be addressed. “We have not yet developed a taste for Indian food, it becomes a real problem for Indian guests,” says Mzareulov. There are a dozen Indian restaurants in Moscow and St Petersburg. However, most of them don’t cater to large groups, and the prices for Indian food in Russia are as much as they would be for French or Japanese food in India, industry experts say. Singhal, who used to study and live in Russia,feels that the food issue is exaggerated. “All Indian restaurants in Russia are owned by our good friends…we all studied together. So for us arranging Indian food is not a big deal. If we consider big groups, we can take our cooks from India. All the arrangements can be done.” Many large Indian corporations like Asian Paints, Hero MotoCorp and Axis bank have already tried the taste of India in Russia.In 2012, Hero

MotoCorp organised a conference in St. Petersburg, inviting over 125 top component suppliers from India, China, Thailand. “They spent over $3 million in Russia just in 3 days,” says Prashant Chaudhary, managing director of Salvia Travels.He says Russia with its advanced technology and facilities, warm hospitality, personalised services coupled with immense natural beauty and rich cultural heritage has become a good alternative for MICE (Meetings, Incentives, Conferences, and Exhibitions) tourism. “There are many Indians who have visited Europe, US, Asia, but Russia is something completely new. If the Russian language was a barrier earlier, today it is not. Everywhere in Russia, in the airport and hotels, people will speak English,” Singhal says. Although Moscow and St Petersburg remain favourite destinations for Indians, the next big thing could be Sochi, the Black Sea resort and home of the 2014 Winter Olympics, which was showcased at an exhibition recently held in Mumbai.

PRESS PHOTO

RIBR

alk Russia, and it evokes mixed feelings among Indians. A country known for its beautiful architecture, spectacular beauty and warm-hearted people, it also conjures up images of freezing cold and reports of mafia shoot-outs.As countries in Southeast Asia and the Middle East become routine and Western Europe seems far and expensive, Indian tourists may look at Russia as a fanciful mixture of European and Asian cultures and a considerably cheap way of spending a holiday. There is good news on this front. In the first 9 months of 2012 the number of Indian tourists coming to Russia doubled from the same period in the previous year, says the Russian tourism ministry. “From 2007 to 2011 the number of Indians visiting Moscow remained constant, about 35 000 each year. In 2012 it grew to 47,500. India is ranked 16 in the list of countries whose citizens are visiting Russia,” says Olesia Aliferenko of the Russian Federal Agency for Tourism. Russian Intourist, the only official inbound travel agency

skull and facial injuries. Some hikers were in their underwear, with burns on their hands and feet, and a strange, orange-crimson tan. The first theory, that the deaths came after an avalanche, was widely disputed. Various people in the area at the time reported seeing flashing lights in the sky, while post-mortem examinations allegedly revealed small traces of beta radiation, fuelling rumours of military experiments. The mystery deepened after the Soviet leader Nikita Khrushchev declared the case classified, while the area was declared off limits. In the years since, the conspiracy theories have multiplied. Oleg Kashin, a journalist who wrote the foreword for a new book about the incident, says the legend fills a deep national yearning for myth – and for a new perspective on Soviet history. Billed as one of the greatest unresolved mysteries of the last century, Yuri Yarovoi published in 1967 a fictionalized account inspired by the mysterious events, called “Of the Highest Rank of Complexity.” “How long can you argue about Stalin?” Kashin says. “Dyatlov Pass is still relatively fresh.” In Harlin’s movie, a group of American students shoot a documentary about the incident and find history repeating itself. The Die Hard 2 director says: “I was fascinated by this story, which remains one of the great unsolved mysteries of modern paranormal lore. The facts, the script and the very dramatic setting convinced me that there is a thrilling movie there, just waiting to rivet audiences.” No release dates for the movie have yet been announced.

The Moscow News

Death mountain: The hikers’ tent was slashed from the inside.

HEALTH: More than 1,000 patients get treatment in private clinics, dialysis facilities to grow by 10 per cent in Russia per year

An Indian healing touch for kidney patients in Russia Dr Sudhanshu Tyagi, an alumnus of a Russian medical school and a health entrepreneur, blazed a new trail in 1990s by opening private dialysis clinics ELENA KROVVIDI RIBR

What do you expect from the upcoming BRICS summit in Durban?

clinic became operational in Moscow in 1998. Dr Tyagi’s company started investing in dialysis clinics in different regions of the country. “The idea is creating a public private partnership wherein we invest and create state of the art dialysis facilities and provide the health authorities dialysis services on a turnkey basis,” he says. “The health authorities pay for the dialysis at a fixed negotiated price... The patients get the treatment free. We do not charge any fees to the patients.” Russia today treats approximately 30 percent of its dialysis patients in such clinics, he says. His business surged over the next few years. “At present we operate 13 clinics where about 1000 patients get high class treatment. We are planning to have 25 clinics by the year-end, which will treat more than 3000 patients at full capacity,” he says. He projects an increase of 10% in the dialysis

SOURCE: B.BRAUN AVITUM RUSSLAND

n Indian doctor making it big in the US or the UK wouldn’t surprise anyone, but Russia, too, has its share of Indian doctors and entrepreneurs who have carved a niche. Dr Sudhanshu Tyagi, who now heads the operations of the German healthcare multinational B Braun Avitum AG in Russia, has vivid memories of how he started off as a nephrology entrepreneur in the 1990s when there was a disruption of medical equipment supplies in Russia following the collapse of the Soviet Union. At a time when health authorities were hostile towards private medicine, Dr Tyagi opened the first private dialysis clinics in the country. He had just completed his Ph.D in Nephrology from the First St Petersburg Medical Institute and found a new business opportunity in

supplying dialysis equipment and disposables to the clinics. Braving difficulties, Dr Tyagi established the business in St. Petersburg and focused on maintaining a continuous supply to the city’s clinics. At the same time, in a joint venture with the St Petersburg State Medical University, the enterprising Indian started a private clinic in a picturesque location on the outskirts of the northern capital. This was a holiday dialysis clinic for patients from all over the world travelling to St Petersburg and the first private clinic of its type in Russia. In 1994 Dr Tyagi’s company started distributing dialysis equipment and disposables of the German company. Given the fierce opposition of the health authorities to private medicine, it took him some time to find his feet. Things, however, gradually started looking up and the first private dialysis

Dialysis facilities in one of Dr Tyagi’s clinics. Dr Sudhanshu Tyagi (inset).

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facilities in Russia per year. “Russian authorities are very cooperative in the regions which lack dialysis facilities and we really work in close partnership and support from local authorities,” he says. When Dr Tyagi realised that there was a shortage of well-trained medical staff in Russia in the field of dialysis, he started collaborating with the North West State Medical University in St Petersburg to train the doctors, nurses and technicians in this area. The new clinic building not only has dialysis facilities but also training and educational facilities where their own specialists as well as specialists from all over the country can undergo training programs in dialysis. The renowned nephrologist is now confident of expanding this to new facilities in Novosibirsk in Siberia and Khabavorsk in the Russian Far East.

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