Business Report
THE ECONOMIC TIMES IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA
WEDNESDAY NOVEMBER 13, 2013
MARKET: Alrosa’s $1.3 billion pickings open the door for sale of more state-owned assets
IPO jackpot: Russian firms raise billions Billions of dollars raised by Russian companies in public stock offerings in October underline that Russia remains a fertile source of fresh equity for capital markets.
STATISTICS
Tinkov, the son of a Siberian miner, has run an eclectic range of businesses, including self-branded breweries, bottled beer, frozen foods, restaurants and electronics retail chain. TCS is cashing in as Russian consumers’ spending power grows and incomes rise in Europe’s largest country by population. In recent years the country has emerged as Europe’s largest retail market for products ranging from automobiles to children’s toys to mobile phones. Unsecured lending to Russian households expanded by as much as 50 percent last year.
Ruble/Rupee dollar rates
Selling shares: Moscow vs London Observers said Alrosa may one day follow TCS to a listing abroad, in London or New York. “Alrosa has now established a beachhead on the local exchange,” Weafer said. “I would expect to see further sales of the state’s equity in the company as it establishes a public track record and as investor appetite for both Russia risk and unique assets, such as diamonds, grows in the future.” Russia accounts for roughly a quarter of foreign IPOs on the London Stock Exchange. In recent months the government has scaled back plans to privatise legacy staterun firms from the Soviet era. Tens of billions of dollars in Russian stateowned assets have been earmarked for sale, but the programme has been on hold for much of this year as Russian equities have fluctuated. The Finance Ministry had originally planned to raise $13.5 billion from equity sales in 2013, but trimmed its forecast to just $1.5 billion. The Alrosa sale “is a relatively small step in terms of the $100 billion list of assets which needs to be sold,” Weafer said. “But it helps counter the concerns that there is no appetite for Russian state assets and boosts the arguments made by the reformers within government.” Alrosa remains controlled by the federal and regional authorities. The national government holds 43.9 per cent, while the region of Yakutia maintains a 25 per cent stake. Various Yakutia municipalities hold an additional 8 per cent. The Russian national government and the regional government of Yakutia each sold 7 per cent of Alrosa, while Wargan Holdings, an Alrosa subsidiary, put another 2 percent on the block.
Diamond production
DAVID MILLER RIBR
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Siberian diamonds The Alrosa deal opened up a portion of the diamond trade that has long been tightly controlled by the Russian government and effectively closed off to the international community. Alrosa mines rich deposits in Siberia, accounting for 26 per cent of global production. Its main rival, South Africa’s De Beers, is in second place with 22 per cent.“It is no surprise that the Alrosa issue was successful,” said Chris Weafer, Founder and Senior Partner at Macro Advisory. “It is a unique asset.” Other investors in Alrosa included Oppenheimer Funds Inc. and the Russian Direct Investment Fund. “The fact that the deal was oversubscribed, and the quality of the investors, are proof that the sale was successful,” first Deputy Prime Minister Igor Shuvalov said. Observers said government officials had hoped that holding the Alrosa sale inside Russia would help lure international players
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t’s the season of IPOs in Russia , a trend that has been aided by a surge of enthusiasm among US and international investors. The state-controlled Alrosa, the world’s largest diamond producer, listed 16 per cent of its shares on the Moscow Stock Exchange, raising $1.3 billion. Moscow-based lender Tinkoff Credit Systems pulled in just over $1 billion selling shares on the London Stock Exchange. US investors, including the ‘Lazard asset management group’, bought as much as 60 per cent of the shares sold by Alrosa, according to Reuters.
Russia’s Deputy Prime Minister Igor Shuvalov (left) and President of AK Alrosa Fyodor Andreev celebrate the company’s IPO at the Moscow Stock Exchange.
into the country’s stock exchanges. “The deal went well and created interest in the Moscow Exchange on the part of foreign investors,” Alexey Germanovich, a director at airline Aeroflot, told news agency RBC. Russian stocks have rebounded in recent months alongside a rally in global equities, as the U.S. Federal Reserve postponed tapering its bond-buying economic stimulus plan. Russia’s MICEX stock index is up about 20 per cent from its lowest point this year in June, and is up about 10 per cent since the beginning of the year. The Alrosa offering is the biggest sale
of Russian equity since state-controlled Sberbank, the largest bank in Eastern Europe, sold a 7 per cent stake last in 2012. From beer to credit cards Tinkoff Credit Systems, or TCS, priced its IPO at $17.50 per global depositary receipt in London in October, valuing the firm at $3.2 billion. The company was founded by Russian entrepreneur Oleg Tinkov in 2007. Today, TCS is a top-three credit card issuer in Russia, with a 7.7 per cent market share and over 3.5 million credit cards issued, according to the company.
Diamond price trend
INS Vikramaditya In September, Vikramaditya finished series of full-power and aviation trials in the White and Barents seas.
Finally, India to get Vikramaditya on Nov 16 The refurbished aircraft carrier has passed trials successfully, and will reach Mumbai by February. RIBR
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ceremony to hand over the refurbished aircraft carrier Vikramaditya (former cruiser Admiral Gorshkov) to the Indian Navy will be held at the military shipyard Sevmash in the city of Severodvinsk, northern Russia, on November 16. “High on the agenda of the ceremony are a festive line formation of Russian and Indian Guards of Honour, the hoisting of the flag of the Indian Navy and
the signing of official documents,” the press service of the shipyard told Itar-Tass. Russian Deputy Prime Minister Dmitry Rogozin has said that INS Vikramaditya will head for India on November 30. He underlined that the trial tests of the aircraft carrier eliminated all malfunctions and stressed that the speed of the warship has been made more than 29 knots.
Read more indrus.in/defence-and-security
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SERGEY PETROV
NATALIA MIKHAYLENKO
BIG PICTURE
AfPak riddle: Tough choices await India M. K. BHADRAKUMAR Foreign policy analyst
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he former Pakistani ambassador to Washington, Husain Haqqani, has disclosed that President Barack Obama once made an offer of American help to bring India to settle the Kashmir problem if only Islamabad cooperated with his AfPak strategy. But Pakistan rejected the overture. The year was 2009. Nonetheless, successive US special representatives on AfPak have continued to remain rooted in the belief that unless Kashmir problem is resolved and India-Pakistan ties improved, the stabilisation of Afghanistan will remain elusive. Curiously, the idea was originally mooted in October 2001 by the then Pakistan president Pervez Musharraf to George W. Bush administration as a “pre-condition” of his support for the war on terror. But Bush instead
proceeded to invade Iraq in 2003 and, even more galling for Pakistan, seized the window of opportunity presented by the appointment of Manmohan Singh as India’s prime minister to enter into a 10-year defence cooperation agreement with New Delhi and begin discussions that culminated in the nuclear deal in 2008. In sum, Pakistan spurned Obama’s 2009 offer against a combinations of circumstances adversely affecting its core interests. Five years later, the big question is how would Pakistan respond if Obama were to repeat the offer? As a matter of fact, he just did. The US-Pakistan joint statement issued after Pakistan Prime Minister Nawaz Sharif’s talks with Obama in Washington last month made thinly veiled references to the imperatives of Kashmir settlement, while underscor-
ing the need of “strategic balance” and “strategic stability” in South Asia. It hinted at a US-Pakistan nuclear deal and promised long-term US military assistance for Pakistan. Suffice to say, Obama has improved upon his 2009 offer, but then, his timeline today is short and Pakistan has brilliantly succeeded in regaining lost ground by advancing its “strategic assets” on the Afghan chessboard. Obama’s agenda is to wind up the war, but ensure that the NATO’s credibility isn’t impaired; and, secondly, to establish military bases in Afghanistan but with US troops not involved in combat missions. Obama is a realist and he understands the criticality of an enduring US-Pakistan partnership. On the other hand, Pakistan’s core expectations out of any coalition government in Kabul (which includes the Taliban) are two-fold: exorcise India’s influence in Afghanistan and ensure security along the Durand Line and there is no clash of interests here between Washington and Islamabad. A sense of frustration is apparent in India. The pundits are self-righteously fulminating against Pakistan’s political economy. But, honestly, did Pakistan have a choice or, put differently, did India offer a road that was not taken? Frankly, what is the net gain out of the $1.5 billion spent on Afghanistan since 2002 – or the hundreds of millions of dollars wasted in the late 1990s to support the “anti-Taliban” resistance?
The really important thing is to be introspective. India’s Afghan policies suffered severe “collateral damage” from the US-India nuclear deal. The period 2005-2008 was the time the Taliban staged the comeback but India felt obliged to “harmonise” with the US’ regional policies. It’s possible to view the paradigm through the Indian prism. But the continued ambivalence over the establishment of the American military bases in Afghanistan suggests that strategic
The continuing ambivalence over the establishment of US military bases suggests strategic clarity in lacking.
clarity is still lacking. There is nothing like absolute security in today’s world and the US’ rebalance has already introduced high volatility in the AsiaPacific and destabilized that region. This can as well repeat in Central Asia of which Afghanistan becomes a crucial geopolitical template. India should reach out to regional powers that are stakeholders in regional stability.
Read the author’s blog indrus.in/blogs/realpolitik
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IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA
Business Report WEDNESDAY NOVEMBER 13, 2013
TRADE: India keen to seal FTA with grouping; debate rages on about merits of expanding membership
Russia moves up in “ease of doing business” ranking
MIKHAIL MORDASOV
Russia moves ahead of its fellow BRIC countries in the World Bank’s latest Ease of Doing Business ranking as the country fights to attract investment. Russia jumped 20 places in the World Bank’s Ease of Doing Business survey to number 92 out of 185 countries following a concerted reform effort. The ranking places China at number 96. RIBR
Will Customs Union invite India to join?
The proposed Eurasian Economic Union may invite India, Turkey and Syria to join the grouping. VIKTOR KUZMIN RIBR
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elarus, Kazakhstan, and Russia are mulling their next step towards greater economic integration. The Customs Union (CU), of which all three countries are the founding members, will be replaced with the Eurasian Economic Union (EEU) by 2015. The planned format change was first announced at the Customs Union summit in Minsk in late October. It was also there that the three leaders of the future EEU voiced their intention to invite Turkey, India, and Syria to join, in addition to Armenia, Kyrgyzstan, and Tajikistan, whom the Customs Union is currently courting for membership. All the national-level approval procedures required for the signing of the EEU agreement should be completed by late spring 2014. “Any [regional] integration process involves several phases, from a preferential trade area and a customs union on to a single economic space and a currency union,” says Valery Abramov, professor at the Russian Presidential Academy of National Economy and Public Administration (RANEPA). “We see that Russia, Kazakhstan, and Belarus are now using the model which was used in laying the foundation of the European Union.” “Russia, Belarus, and Kazakhstan are transiting from the preferential trade area to an institutionally formalised Customs Union. The next step will bring even greater integration, not only in the form of a [single] customs area but also in the
Antony to discuss India’s share in FGFA project Indian engineers and designers should be able to raise its share from 15 to 50 per cent in research-and-development work for the joint Fifth Generation Fighter Aircraft (FGFA) project, says Igor Korotchenko, a leading military expert. According to The Economic Times, India’s Defence Minister A.K. Antony is expected to raise the issue of India’s role in the project during his visit to Russia beginning November 15. RIBR
World’s largest nuclear-powered ice-breaker on way Russia has started building the world’s largest universal nuclear-powered icebreaker capable of navigating in the Arctic and in the shallow waters of Siberian rivers. The ship, being built by the Baltiysky Zavod shipyard in St Petersburg, should be ready by 2017. In August 2012 Atomflot signed a $1.2 billion contract to begin construction of a “universal” vessel. RIBR
fields of scientific-technical cooperation [and a single] fiscal and economic policy,” says Abramov. The synergistic effect of the Customs Union has, however, not been particularly great. The combined GDP within the union grew by just 1.7 per cent in January through June 2013, and mutual trade, other than in energy resources, increased by just 2 per cent in the first eight months of the year. The figures could have been higher but for the serious problems experienced by the global economy, especially in Europe. On the other hand, the Customs Union member nations have enough of their own problems. For example, Kazakhstan’s President Nursultan Nazarbayev has recently complained that his country is seeing more negatives than positives from its membership in the Customs Union: exports have shrunk while imports have grown. It is possible that this statement is a part of Nazarbayev’s strategy to prepare the ground for future negotiations. The Russian media has been reporting that Kazakhstan has turned into the primary beneficiary of Moscow’s new anti-alcohol campaign over the past two years: a sharp increase in Russian alcohol excises led Kazakhstan to boost domestic production and export to Russia, where its brands compete in price not only with high-end products but also with semi-legal cheaper spirits. Russia’s trade with the other Customs Union countries decreased by 4.5 per cent in January through August 2013, says the Federal State Statistics Service. This is the result
PHOTOSHOT/VOSTOCK PHOTO
NEWS
From left to right: President of Belarus Alexander Lukashenko and President of Russia Vladimir Putin at the Supreme Eurasian Economic Council’s meeting.
of a dramatic decrease in trade with Belarus in the aftermath of the socalled fertilizer war between the countries. In the meantime, trade with Kazakhstan grew by nearly 16 per cent over the same period. There also remain unresolved issues related to
India’s potential accession to Union is seen as a useful counterweight to the growing influence of China in Central Asian countries. the transportation of oil, railroad tariffs, and power supplies. Alexander Razuvayev, chief analyst at forest broker Alpari, is convinced that so far the Customs Union is only benefiting Belarus. The greatest sensation of the Minsk summit was Nazarbayev’s proposal to consider the possibility of inviting Turkey and Syria to join the future
EEU. It is true, however, that the statement was made during Nazarbayev’s emotional rejoinder to critics of the Customs Union as a “reincarnation” of the Soviet Union. Later on, Russian President Vladimir Putin said that the Indian prime minister had asked him to consider the idea of signing a free trade agreement between his country and the Customs Union. Russian experts are, however, sceptical of the prospects of the EEU taking on India, Turkey, and Syria. Says BCS Premier expert Sergey Deyneka: “These countries will not join in the foreseeable future. There is nothing more to it than proposals at this point, there are a lot of arguments against such a move, and there are countries that would be much more interested in joining, whose candidacies will most likely be given top priority.” Agrees Razuvayev: “The main idea of the Customs Union is to integrate former Soviet territories. Neither India, nor Turkey, nor Syria has ever been part of either the Russian Empire or the USSR.”
New Delhi’s potential accession to the union is seen as a useful counterweight to the growing influence of China, which is strengthening its economic ties with most Central Asian countries. Says Vincenzo Trani, chairman at Concern General Invest: “Unlike, say, Italy, which mainly exports exclusive products, India and China are seeking new markets for their commodities now that the U.S. consumer demand has declined. Russia is their first choice after the US. India joining the EEU would help that country beat China to a leading position on [the Russian] market.” RANEPA’s Abramov says Russia and India have a successful history of arms trade and enjoy solid long-term economic ties: “Therefore, India’s possible membership will have to be considered in terms of its restrictive potential, first of all in terms of giving India preferential treatment. This is not something prohibited by international relations, including by the WTO.”
LIFESTYLE: As the overheated market slows down, sellers of economy clothes pitch their tent in Russia
Street fashion chic: How to dress for less
More Russian tourists will head to India in winter
The Russian apparel market, after a spell of double-digit growth, is showing signs of saturation. But it’s not all that bleak: niche segments in accessories like budget jewellery and clothes are growing. VIKTOR SEMENOV RIBR
AFP/EASTNEWS
Russian travel agencies predict more Russians will visit India on holiday this winter, according to Russian operators, who spoke to Interfax. “Package deals to India are becoming increasingly popular,” Alexander Tugolukov, Managing Director of the Biblio Globus travel agency, said. A package tour of India – “The Golden Triangle (Delhi, Agra, Jaipur) and a resort stay at Goa” – is the most popular choice. RIBR
SHUTTERSTOCK/LEGION MEDIA
The Russian government is keen to work with Kerala to integrate ayurveda with the allopathic system. A nine-member Russian delegation, led by Sergei Kalashnikov, chairman of the parliamentary committee on health, met Kerala Chief Minister Oommen Chandy and sought his support to popularise ayurveda in Russia and the CIS countries. RIBR
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Russia seeks Kerala’s support to promote ayurveda
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y closet is full, but I’ve got nothing to wear, – this is a common complaint Russian men often hear from their wives; it looks like this is a fitting description for the general condition of the Russian apparel market, too. Many global brands have a heavy presence here; giant malls operate at full occupancy, yet a third of Russians still prefer to buy their clothes at street markets. Russia’s apparel market has been growing by double-digit rates over the past couple of years and has clearly overheated, expanding just 2.3 per cent over the first eight months of 2013. “Of course this is far from the downturn some retailers were so afraid of, but this is no growth either. A 2.3 per cent growth pace for a market that is used to double digits is stagnation, there’s no doubt about it,” Darya Yadernaya, Managing Director of fashion industry consultancy Esper Group, told RIBR. Women’s clothing, the largest segment with more than 55 per cent of the market, is saturated and has been consolidating more than it has been growing this year, FIBO Group analyst Eric Nyman added. The men’s apparel sector (approximately 30 per cent of the total) is set to face the same fate a year or two from now. Children’s apparel is the fastest-growing sector (with around 15 per cent of the market) and one that still has room for growth. It expanded 21 per cent in 2012 on the back of the first surge of the country’s birth rate in years. A total of 1,896,000 births were reported that year – 102,500 more than in 2011. However, the headline statistics only give a rough picture of what is going on in the apparel market. Each of the segments has various niches that may report substantial increases or decreases
Russian women are closely following the latest trends in the apparel market and are willing to try new brands.
Russian consumers are trendy and focused on brands and quality, say Indian businessmen Akashdeep Singh, Chairman and Managing Director, Vulkan-A, LLC: Russian textile market is very dynamic. That’s why if you fall a little bit behind, you can drop off the market. One of the difficulties of working here is that there are no long-term statistics which could help to make forecasts about people’s preferences. Secondly, there is no stability with the customs law. So it’s hard to make definite plans for your actions. There is also a staff problem. There are some university graduates with certificates but they don’t understand much about the real life. As to the current trends in the Russian textile market, it seems to me that
now is the time to try to surprise our customers. That’s why every brand is trying to find its own pitch for a customer. Men’s clothes segment grows more or less because men in Russia are paying more attention to what they wear nowadays. Women’s wear segment doesn’t grow that fast. Children’s wear is a promising segment. I hope that with the introduction of school uniform this segment will grow. The casual and smart-casual clothes segment is in vogue now. Ravi Navlani, head of Surya Group: Russia is the best performing market in the CEEMEA Region at the moment. Indian companies are actively expanding their presence in Russia. The Indian
business community is limited but very focused. India’s light industry is very well established from price and quality stand point in comparison to China and other countries exporting to Russia. Russian consumers are very trendy and quality conscious. Most of the global brands have experienced exponential growth since 2000 in Russia. E-commerce is the next big thing in Russia. The consumer is ready to pay the price for the latest brands, trends & service. In comparison to the BRICS countries, Russia is a very quality conscious market. The middle class continues to grow in Russia, and the consumer’s expectations are more focused on quality, brands, emotional value attached to the product. Most of the supplies are import based, and the volumes are expected to be growing in the near future.
in sales. For instance, a drop has been reported for the ‘medium plus’ segment, including underwear and home clothes, as well as for the ‘premium’ shoes segment. Substantial growth continues in accessories, especially inexpensive jewellery (11 per cent), budget and mass-market clothes (6 per cent), and medium-priced underwear (6 per cent). The budget segment is perhaps the least crowded and most appealing for international brands right now. Whereas large city dwellers still have opportunities to buy branded clothes at affordable prices, in medium-sized and smaller towns they are opting for street markets. According to Yadernaya, a considerable portion of Russians (29 per cent) still buy their clothes there (compared to 37 per cent in 2008). What is more, street markets remain a source of high street fashion knock-offs and counterfeit goods. Young and savvy Russian customers partly offset the short supply of budget clothes by shopping online. “However, online shopping isn’t going to fully meet demand for the obvious reason that – unlike electronic gadgets – clothes need to be tried on. Yet web shopping has had a certain positive effect on the market. 100–120 per cent surcharges, as in 2009, are no longer possible. According to Yadernaya, companies offering labels in the range from ‘medium plus’ (Karen Millen) to premium and luxury target a price differential of no more than 20–30 per cent (attributable to import duties plus VAT at 18 per cent). The sellers of economy clothes are still trickling into the Russian market. The likes of Oodji, Sela, Bershka, Stradivarius, Incity, River Island, New Yorker, as well as certain Russian brands such as Sportmaster, are already operating here. Germany’s Takko Fashion entered the market this year. Takko Fashion Russia Marketing Director Veronika Goryachaya says her company is betting on Russia in a big way. A store of the American brand Forever 21 is also set to open soon.
IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA
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Business Report WEDNESDAY NOVEMBER 13, 2013
ENERGY: The cost of developing oil is estimated to be $200-300 per barrel
GAS: Final choice by December-end
Arctic oil: The price puzzle Russia has emerged as the only serious player in exploring the Arctic hydrocarbon reserves. MARIA KARNAUKH RIBR
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Expensive oil However, developing Arctic oil fields turns out to be so expensive that experts polled by RBTH doubt the feasibility of such an undertaking. According to the International Energy Agency’s 2006 estimate, oil and gas production in the Arctic will only be worthwhile if the cost of extracting one barrel drops below $60. At present the figure is three to five times higher than that. “The cost of developing Arctic oil stands at $200 to $300 per barrel,” says Alexey Knizhnikov, WWW Russia’s oil and gas environmental policy officer. This is because the harsh Arctic environment calls for special technologies and requires additional expenses. “Extracting oil and gas out at sea, 650 to 750 km away from the coast and in 200-300 meters of water, involves a lot of challenges. You cannot expect a
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trillion cubic metres of gas reserves are present in the international portion of the Arctic Ocean, according to US Geological Survey.
44bn barrels of gas condensate reserves available in the Arctic basin. The Arctic region has 13 per cent of global non-discovered reserves of oil. repair team to arrive urgently, and you cannot lay a pipeline along the seabed,” says Mikhail Krutikhin, partner and analyst at RusEnergy consultancy. Knizhnikov estimates the cost of building an Arctic oil rig at $5-6 billion. No rivals? No wonder, then, that foreign companies are not queuing to join the Arctic oil foray. “There is simply no competition to Russia in the Arctic at this point in time,” says WWF’s Krutikhin. Shell has been forced to put its drilling plans on hold earlier this year, after the US Department of the Interior found irregularities related to the company’s safety and operational management systems. BP and Rosneft have discontinued the Sakhalin-4 project after learning, five years on, that the shelf oil field contained much less hydrocarbon resources than originally believed. Cairn Energy tried its luck in 2011 by investing $1 billion in geological survey operations off the coast of Greenland,
only to find no oil there. The foreign companies still intent on venturing into the Arctic prefer to do so in conjunction with Russia’s concerns. China’s CNPC, for one, is planning to participate in Russian Novatek’s Yamal LNG project, while Total of France is set to increase its stake in Novatek.
million tonnes of crude and 57 billion cubic meters of gas in the Arctic. Russia is building its military presence in the region in order to demonstrate the seriousness of its Arctic ambitions. Arctic-motorised infantry brigades have been formed, air defences deployed on Novaya Zemlya, and bomber airfields built. Just to make sure the West takes notice of these measures, the heavy nuclear-powered cruiser Peter the Great in August 2013 became the first warship ever to navigate the Northern Sea Route without icebreaker support. The West did take notice but did not react in any way. Experts believe that, even though both Norway and the US are eager to tap into the Arctic hydrocarbon reserves, these countries would rather let Russia take the first step. The ball is now in Moscow’s court to use its territory and deploy its own investments to figure out how much it will cost to produce Arctic oil and gas and make it profitable.
Political economy So Russia is the only serious player in exploring the Arctic hydrocarbon reserves. Steps are already being taken in this respect: the Russian government in 2012 discussed a programme to develop the country’s continental shelf through to 2030. In February 2013, President Vladimir Putin signed a strategy to develop Russia’s Arctic areas and ensure national security through to 2020. Prime Minister Dmitry Medvedev expects the country to be annually producing 66.2 million tonnes of Arctic oil and 230 billion cubic meters of gas 17 years from now. In 2011, Russian companies produced 11
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barrels of oil the Arctic Ocean is estimated to possess.
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any countries would like to tap vast Arctic hydrocarbon resources, but only Russia has risked hefty investments in the region. Experts wonder whether Moscow will be successful in selling Arctic oil at $200 or more per barrel. According to the U.S. Geological Survey, the international portion of the Arctic Ocean may contain 90 billion barrels of oil, 1,669 trillion cubic meters of gas, and 44 billion barrels of gas condensate. This translates to 13 per cent of the global non-discovered reserves of oil, and 30 per cent for gas. The Russian Geographical Society claims that most of these resources belong to Russia. “The areas [Russia] already controls and those to which it claims rights, contain more than 250 million barrels of crude and gas in oil equivalent terms, or 60.1 per cent of all the Arctic reserves,” reads the society’s report. The value of these resources will be hard to estimate until they have been proven and termed as reserves.
Race for Arctic gas: India, China in fray Novatek is ready to reduce stake in Yamal-LNG project, but says no decision yet on Indian firms VIKTOR KUZMIN RIBR
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n energy race is shaping up for stakes in the Yamal-LNG project, one of the largest industrial undertakings in the Arctic. According to Indian media reports, a consortium of three Indian companies -- ONGC Videsh, the Indian Oil Corporation and Petronet LNG -- wants to secure a 9 per cent share in the project and is also prepared to purchase 5,000,000 tonnes of liquefied natural gas (LNG). The cash-rich Chinese companies and a Japanese consortium comprising Mitsui and Mitsubishi are also looking to get piece of the cake. However, OAO Novatek, the largest independent and the second-largest natural gas producer in Russia, is not yet ready to confirm India’s participation in the project. The company’s press service confirmed to RIBR that Novatek is willing to reduce its stake in the Yamal LNG upto 51 per cent, but refused to comment on with whom it’s currently negotiating with. Novatek owns 80 per cent of Yamal LNG, with French energy company Total owning the remain-
ing 20 percent. The Yamal-LNG project proposes extraction of natural gas from the Yuzhno-Tambeysk natural gas field, with reserves estimated at 907,000,000,000 m3 and the construction of a gas liquefaction plant over three phases with output of 16,500,000 tonnes of LNG per annum. In September, Novatek and the CNPC signed a buy and sell agreement, and the deal is due to be concluded by December 1. Negotiations are continuing on the CNPC’s interest in acquiring 20 per cent stake in the project. After closing the deal with CNPC, Novatek will choose the third partner for the remaining 10 per cent minus 1 share. Earlier, Chairman of the Board of Novatek Leonid Michelson said that the last foreign partner must be determined before the end of the year. Rusenergy partner Mikhail Krutikhin suspects that talks with potential Indian partners could be used as a handle in negotiations with the Chinese companies. “It’s not a very powerful lever, but it does work,” he told RIBR. The expert agreed that although Chinese companies are working more actively in Russia, Indian energy firms also have the potential to outflank the Chinese in the race for the Arctic gas.
TRENDS: From India, China, Britain and Bangladesh to Belarus, Poland and Finland, new atomic power plants are being built.
ALEKSANDER YEMELYANENKOV RIBR
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hen Russian President Vladimir Putin met Indian Prime Minister Manmohan Singh in Moscow for their annual summit last month, they were informed online of the long-awaited connection of the first unit of the Kudankulam Nuclear Power plant to the grid. It was a moment of rejoicing for the two countries which have made civil nuclear energy as the frontier area of their strategic partnership. The joint statement struck an upbeat note, saying the two parties agreed to take all the necessary steps to complete the construction of the second unit. They also agreed to complete the General Framework Agreement and to prepare technical and commercial proposal for the 3rd and 4th units of the same plant “at an accelerated pace”. They reaffirmed the commitments undertaken in previous agreements on cooperation in the construction of additional power units at the Kudankulam site, and in the construction of nuclear power plants based on Russian designs at new sites in India. It may have escaped notice, but in a curious symbolic coincidence, the test connection of the NPP Kudankulam to the grid coincided not only with the Russian-India summit, but with other important developments, showing an increasing level of confidence in nuclear energy that suffered a severe setback in the aftermath of the 2011 Fukushima radiation disaster. Here are some examples: the UK government and French EDF Group
reached an agreement on conditions for the construction of two new nuclear power units of the Hinkley Point C NPP on the British Isles. The Office of Nuclear Regulation of the UK has issued a site suitability license for the construction of a NPP for the first time in 20 years. London has allowed Chinese corporations not only to invest in its nuclear power industry, but also
Time-tested Russian reactor designs are in demand by those building new atomic power plants.
The last days of 2013 rebutted sceptics who predicted a fast decline in demand for nuclear power. to own the majority stakes in companies operating the NPPs that will be constructed in Britain. In China itself, ending the post-Fukushima moratorium on the construction of new nuclear plants, the active phase of work on the construction of the third and fourth units began on the site of the Tianwan NPP, next to the two already operating VVER-1000 reactors that were built, based on the same Russian design as in Kudankulam. Thus, the high reputation of Russian nuclear technology and the demand for design solutions that had passed
the test of time were once again confirmed. There was more positive news to report: the construction of the first nuclear power plant was started in Belarus, where, following the example of India and China, they preferred Russian nuclear technologies. The plan to construct a nuclear power station in neighbouring Lithuania – in place of the Ignalina NPP, which was stopped at the request of the European Union, gathered apace. Recently, it was reported that the Ministry of Economy of Poland approved a programme for the development of nuclear energy. In early October, the head of Rosatom Sergey Kirienko and Bangladesh Prime Minister Sheikh Hasina opened the construction site at the Ruppur Nuclear Power Plant, which would be the first in this Asian country. The preparatory work at the site is scheduled to begin in early 2014, and the starting of the main phase is scheduled for 2015. Two power units with VVER reactors with the total capacity of more than 2 gigawatts will be built in Bangladesh. The Information Center for Nuclear Energy State Corporation Rosatom has opened its office in Dhaka to create public awareness about the nature of the nuclear industry operation and the development of the nuclear energy. In Finland, the Fennovoima Concern selected Rosatom as a supplier of nuclear technology for a new Hanhikivi-1 Nuclear Power Plant. Besides, just days after the first connection of the Kudankulam NPP to the grid, it became known that the Russian proposal was given preference in the international tender for the construction of the first NPP in Jordan. In other words, the last days of 2013, after the first unit of Kudankulam was started, fittingly rebutted sceptics who
MIKHAIL A. RAPOTA Trade Commissioner of the Russian Federation in India
At the annual summit in October, India and Russia confirmed their commitment to the 2010 road map, which provides for serial construction of up to 14–16 nuclear power plants based on Russian designs in India, including at new sites. This forms basis for an optimistic assessment of the prospects for cooperation in this area. predicted a fast decline of nuclear power and who wittingly or unwittingly fuelled the protests of residents living near the new nuclear generation projects. Relying on the same factual logic, Sergey Kirienko underlined that the global forecast for the construction of nuclear power plants by 2030 has
Finally, Kudankulam Unit I operational
AP
The operationalisation of KNPP I has coincided with the worldwide revival of atomic power.
REUTERS
Nuclear power trust bounces back to pre-Fukushima level
The Nuclear Power Corporation of India Ltd. (NPCIL) carried out the first connection of Unit No. 1 of the NPP Kudankulam to the grid on October 22 at 02:45 local time. “The synchronization of the first unit with the grid was made at the
returned to the pre-Fukushima level.“It is clear that this forecast does not include Germany, Japan and several European countries. However, there is Great Britain, which was not there before Fukushima,” said Kirienko at the “Nuclear Facilities, Society and Security” Forum at the end of October
power levels of 75 megawatts,” said R.S. Sundar, the director of the station. A little later, the executive director of corporate communications and planning of NPCIL N. Nagaych said that during the first synchronization of the unit with the grid, the power of the reactor was brought up to 160 megawatts. In the near future, the company is planning to stabilize the unit at the power of 410 megawatts to conduct a series of experiments within the start-up program. He said that in the course of such tests, they will carry out several planned halts, and the entire program of a gradual power gain prior to the commercial operation will last from two to three months.
in St. Petersburg. A few days later, the same idea was accentuated by the international congress “AtomEco 2013” in Moscow. Kirienko has assured that all nuclear power plants being constructed in Russia and abroad based on Russian design adhered to the postFukushima safety requirements.
IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA
L |I |F |E |S |T |Y |L |E
Business Report WEDNESDAY NOVEMBER 13, 2013
CULTURE TALK
BUSINESS: To succeed in Russia, you need a flair for innovative and lateral thinking
How to clinch a deal: 5 golden rules
Rule No. 3: Straight to business The more Russians trust their counterpart, the less they are inclined to waste time on formalities and polite small talk. They get straight to the point and only later ask how things are going, or chat about the weather. As Fentham-Fletcher has learned from personal experience, business matters are often discussed outside the office.“Business dinners are the norm; the business day starts slightly later but runs late night. Restaurants can be full of business people doing deals at all times of the day, whereas, in London or NY, the deals are more likely done during the day and in the office,” says Simon.
The old stereotypes about how Russians do business are far removed from realities. Here is a primer for entrepreneurs to rise and thrive...
MIKHAIL MORDASOV
ANNA KUCHMA RIBR
I
n the 90s, the images of Russian business people were overwhelmingly negative – they were portrayed as hardened criminals, or, at best, compromised entrepreneurs, working in an environment where any attempt at running a legitimate business failed because of impenetrable walls of bureaucracy and corruption. It wasn’t true then and is especially totally wrong now. Things have changed, and many foreign entrepreneurs who have gone to Russia to do business have been in no hurry to leave. “It is not at all like the stereotype portrayed in the media,” says Simon Fentham-Fletcher, a financier from Manchester. “I originally thought I would be here for two years, and now I am seven years and counting. It has given me a lot of fun and interesting challenges that have made me a better business-
man and problem solver, in that I have upped my game to match what is here.” There is no arguing, however, that, to be a successful businessman in Russia, one must learn the unspoken rules of the game here. Rule No. 1: Success through trust Simon is a portfolio manager and chief of front office staff at Renaissance Asset Managers. He began his career in Russia from banking, offering new ideas that were all the rage in London at the time.“It was amazing: At first they were logically sceptical, but what surprised me was how they grasped the potential, how we could grow things,” says Simon. It is typical for Russians to be wary and on their guard at the beginning of negotiations; the habit goes back to Soviet days. “Trust is a critical quality to a Russian businessman that can come quickly and, once earned, will last a lifetime,” Simon says.
Rule No. 2: Emotional bonding Once trust has been established, it is common for Russians to display a lot of emotion. It is nothing unusual for Russians to stand much closer to each other during an involved conversation than Western etiquette requires, or to slap each other on the back. That is the
Trust is a critical quality to a Russian businessman, which, once earned, can last an entire lifetime. norm in Russia. “Of course, it depends on personality,” says Russia-born Polina Lagudina, who now works in Melbourne for PwC, a global professional services group. But traditions also prescribe not to reveal happiness or pride, because someone can get jealous and, eventually, the reason for your pride will be taken away.”
Rule No. 4: Assertiveness, creativity and drive These three qualities are some of the most useful traits that distinguish Russians, Simon believes.“In Russia, there is always opportunity; people don’t wake up and think this can’t be done as so often happens in Europe. Rather the opposite: Opportunities are always being looked for,” he says. “I might argue that Russian entrepreneurship has to be creative, because previously there was none and so it has had to invent itself. This is a great attribute.” The need for innovative solutions and lateral thinking also has to do with the fact that, in Russia, the straight path is not always the quickest.“Entrepreneurs here still have to battle quite a large state sector in many industries. This means that they have to be adaptable and deliver, so that the ‘safer’ state option isn’t chosen,” says Fentham-Fletcher. The age group of your Russian business partner can make a great deal of difference. People over 50 are loath to take risks and tend to coast along on their past achievements. “Those in their 40s also have a ‘number’ that will make them stop — it’s just that the number gets larger with each new deal!” the financier says. Rule No 5. Always ready with a bit of advice The word Soviet means “council” or “advice” in Russian. Born in the Soviet Union, Russians always seem to have a bit of advice ready for each other, even if the matters they are advising upon are well outside their field of expertise. Polina recalls how this habit used to drive her Australian friend Darren mad, but then she slowly learnt that “this is a way of them showing how they care — a sign of friendship and no ego is involved.”
Welcome to Russia: Attitude matters AJAY KAMALAKARAN Journalist
O
ne of the most annoying questions that I have been asked in India is whether Russians like Indians. Depending on who asks the question, I chose whether to give a tongue-in-cheek response or engage the person in conversation. Personally, I believe that there is very little difference between getting preferential treatment because of your nationality/race and getting discriminated against because of the same. In all fairness, I’d like to believe that I’ve been treated wonderfully well in Russia because I respect the country, its culture and its people, and not because there is some sort of privilege that comes with the Indian prime minister and the Russian president being good friends. Experiences of most Indian visitors, especially those who speak Russian, to Russia tend to be positive. The ones who have had bad experiences don’t necessarily attribute them to their being Indian. It would be fair to assume that India’s reputation for spirituality, openness and being a “good” country does help an Indian traveller. This good impression has a lot to do with the universal appeal of Indian culture, music, films, history and yes, cinema. Those in Russia, who loved India before the collapse of the USSR, did not suddenly develop cold feelings for the country once Boris Yeltsin came into power. Similarly, the friendship between Manmohan Singh and Vladimir Putin isn’t going to make Indophiles out of Russians who don’t have a particular fascination for the East. A case in point: Russia and China are experiencing a political bonhomie that was unthinkable around 15 years ago. Their riverine border in the Far East was heavily fortified for decades and mutual suspicions were very high. Now, both trade and diplomatic ties are at an all-time high between the two giants, but
this may not necessarily translate into Chinese citizens from the other side of the Amur to get a red carpet welcome when they cross over to Russia. At one time, it was believed that there were more than 3 million Chinese citizens in Siberia and the Russian Far East and there was some kind of a ridiculous fear of a Chinese takeover of the region. While most people have understood that there is no official policy in Beijing calling for a demographic invasion, a Chinese person may not find places in the Russian border regions very open. The situation is obviously different for Indians who visit the Russian Far East since no one could possibly imagine them to be a threat. If a person tends to have unique features
India’s cultural attractions help an Indian traveller, but how you get treated depends on your outlook. and completely stands out, he or she naturally would be a subject of a lot of attention. When it comes to Russians visiting India, it’s more likely that someone from Russia may feel more welcome in a place like Bangalore than he or she would be in Goa. The local drug mafia and some unscrupulous politicians have been working extra hard to convince the laidback people of Goa of a “Russian invasion.” Given the large number of Russians in Goa and the fact that they are not really exotic in the state, they could expect a variety of experiences. People in other parts of India that are not used to seeing Russians would be more curious and open. All these factors balance each other out, and in the end it’s really one’s own attitude that determines how he or she gets treated in a foreign country, regardless of the relationship between governments and regimes.
In Russia, the snowy winter often lasts from November-end to the beginning of April. Many themed sites are open in Moscow throughout the winter, where visitors can play sports in the fresh air, take part in an array of master classes and also purchase unusual souvenirs and gifts. It’s time for merry-making and celebrations!
ruise aking cthe Moskva e r b e : Ic oat trips on scow has a River o rb Mosktvseason of winte ber 17, 2009. MRoyal Mos-
The firs ned on Novem ers ‘Raddison nest pleafi e k River op eet of icebrea ing five of the ver even in fl s ri its own fleet, compri ute along the s” protect w his cow’. T ers, carves a ro oramic windo is n . sure cru ts and the “pa d and the cold in os thick fr rs from the w ge passen
Ring in the New Year
s in Moscow e Christma ir museum The Whiten n-skoe’ open-a r with won
rk in winte The ‘Kolom tmas trees. sprawling pa turns into a , illuminations and Chris Alekse eyy ar ns Ts er h nt ug la l ro rfu th k de pect to wal e quarters. ex at n iv ca pr s d st an Gue ms in Russian h’s stateroo Mikahylovic a rides, or you can soak ik tro e . ar ns e tio er di Th tra d New Year Christmas an
The New Year celebration s in Moscow are one big citywide festival, wh ich takes place from 20th December - 8th Jan uary. There are 1,300 events to be enjoyed by upto 5,000,000 people every year. The New Yea r spirit is infectious - you can savour it in the me tro, in the parks, theatre s, museums, ice-rinks and squares.
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Fairs and bazaars: Shop till you drop
Free museums, fil
ms, theatre In accordance wit h est 90 museums in the ablished tradition more than capital are free be tween January 2- 8. Apart from tha t, Moscow theatres offer free excursions, during which visitors are shown behind the scenes. The loc al cinemas also off er a free programme, screenin g Russian films an d also classics of Soviet cinema.
Fairs open in Moscow one after another in the run up to the New Year celebrations. You can purchase designer Christmas tree decorations, porcelain knickknacks, warm clothing and many other useful items at the ‘Christmas market’, which opens each year in November in the Vserossiysky Vystavochniy Tsentr (All-Russian Exhibition Centre).
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