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WEDNESDAY OCTOBER 15, 2014
Business Report RUSSIA&INDIA THE ECONOMIC TIMES IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA
joint projects, production of commercial aircraft, and talks gas cooperation DIPLOMACY: Focus Russia,onKazakhstan, Belarus and Armenia have joined the oil union; on with India, Israel and Vietnam
Eurasian Economic Union: Will it create a new EU or USSR? The Eurasian Economic Union can be a game-changer in promoting regional integration and emerge into an EU-like organisation with unified economic space. ALEXEY LOSSAN RIBR
KONSTANTIN ZAVRAZHIN / RG
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he presidents of Russia, Belarus, Kazakhstan, Kyrgyzstan and Tajikistan met in Minsk on October 10 and formally dissolved the Eurasian Economic Community (EurAsEC) in order to prepare for the Eurasian Economic Union. Russia, Belarus and Kazakhstan signed the treaty to create the Eurasian Union in May and have already ratified the document, which is expected to come into force on January 1, 2015. “This marks our transition to a new and higher integration stage that will make us more effective in modernising our countries’ economies and making them competitive,” Russian President Vladimir Putin at the summit said. The Eurasian Economic Union agreement brings together 170 million people onto a common market, making it a new powerful centre for economic development. Earlier on October 10, leaders of the EEU signed an agreement on Armenia’s accession to the EEU Treaty. The EurAsEC, during the 14 years of its existence, has contributed a great deal to the Eurasian integration processes, the formation of the Customs Union, the Common Economic Space of Russia, Belarus and Kazakhstan and the creation of the Eurasian Economic Union Within the next decade, the new union should become the foundation for the emergence of an association similar to the European Union. In particular, it prescribes the gradual rejection of protective measures and creation of a common market, including
Leaders gather in Minsk for CIS and Eurasian Economic Community Summits. in the most regulated sectors: pharmaceutics, electric energy distribution, financial services, and the market for oil products. “The Eurasian integration project is not a total copy of the European Union, although in our work we try to take the European experience into consideration and avoid making the same mistakes as much as possible. In the EU, supranational institutions have much broader powers. They conduct a common foreign policy. There is a common currency. This is a whole different level of integration,”
Andrei Slepnev, Russia’s Minister for Trade for the Eurasian Economic Commission, told RIBR. The key objective of the new union says the minister, is to create a unified economic space for the members where the concept of four key freedoms would be manifested: free movement of goods, services, capital and investments, and labour. According to Slepnev, positive results for the economies of the state members have already been observed in the example of the new union’s goods market. “In 2011 mutual
trade began growing faster than external trade – and in 2012 it grew at three times the rate. This jump in turnover is the result of removing the trade barriers and creating a single trade regulation,” he says. The minister underlined that the long-term effects of integration can already be seen. Kyrgyzstan may become a member of the union in 2015, says Slepnev. ”Another effect is the growth in the number of countries and associations that are expressing interest in expanding their partnership with us even as far as concluding free trade agreements. In total there are nearly 40 such partners,” he added. Free trade negotiations, according to Slepnev, are currently underway with Vietnam and a joint study group with Israel and India will soon begin its work. “According to the theory of economic integration, there are five stages of integration: the first stage includes the creation of free trade zones; the second is a trade union; the third is a single economic space; the fourth is an economic union; and, finally, the fifth involves adding political integration to the economic one,” says Alexander Mikhailenko, a professor in the Department of Russian Foreign Policy at RANEPA. He explained that if the EU is at the fifth stage, the Eurasian Economic Union will only go as far as the fourth. “From an economic point of view, this is the highest level of integration. Going to the fifth stage is perfectly appropriate, but Belarus and Kazakhstan have the experience of the Soviet Union hanging over them and worry that Moscow would try to take over again,” observes Mikhailenko.
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ONGC offered a piece of Siberian oil pie Experts say the sanctions-hit Rosneft’s strategy is to expand the share of Russian oil in the Indian market. VIKTOR KUZMIN RIBR
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ussian energy giant Rosneft has made ONGC, an Indian state-owned company, an unexpected offer to acquire stakes in two Siberian oilfields, nearly 49 percent in Yurubcheno-Tokhomskoye and 10 percent in Vankor, Reuters cited its sources as saying. Rosneft is seeking financial resources, and they are searching for partners, say the sources. They want to demonstrate to the US and Europe that they’ve got partners, one of them said. The sanctions of the US and the European Union have cut Rosneft’s access to Western financing and technologies necessary for the development of hard-to-recover oil reserves. Some
Western partners of Rosneft had to freeze their joint projects, agency Prime noted. Partner of RusEnergy, Mikhail Krutikhin, somewhat agrees with the above version. He is convinced that there is no economic logic to these offers. It is not clear why India would acquire equity participation in stationary mining projects that do not need investments and development. Moreover, a large part of their reserves are already sold to Chinese companies. Russia’s offer is pure PR, intended to show the West that even under sanctions there is cooperation, he said. Konstantin Simonov, the CEO of the National Energy Security Fund, has shared his own version with RIBR: “It’s a bonus; a gift; staking out a position on the Indian oil market,” he said. The expert believes that by
attracting a state-owned Indian company Rosneft counts on help in expanding the share of Russian oil on the Indian market. Oil production from these fields presents two challenges - the Siberian climate and the large gas cap over the oil reservoirs, says Oleg Dushin, the Deputy Director of the Regional Investment Company. According to him, the cost of production in such areas rises 2-3 times and is conservatively estimated at $22-25 per tonne. The chief of FOC Macroeconomic Forecasting Department, Ivan Zavision, is convinced that these fields can be quite attractive for the Indian company: high quality oil, enough acceptable risks and major accomplishments in international cooperation between Russia and India. He contends that Rosneft’s key interest today is to attract funds for promising projects. The sanctions have deepened this problem, triggering a more proactive search for Asian partners.
Oil fields: Fact File The Vankor field is located in Krasnoyarsk region of Russia (West Siberia). In the beginning of 2011 its oil reserves under ABC1+ C2 categories of Russian classification were estimated at 3.5 billion barrels (490 million tonnes). Yurubcheno-Tokhomskoe oil and gas field is the second largest project of Rosneft in Eastern Siberia after Vankor. Its development began in 2009 and the reserves under C1+ C2 categories are estimated at 321 million tonnes. Both fields are export-oriented and produce high quality oil. Find more information at in.rbth.com/economics/cooperation
Opinion: What Russians think of sanctions
NATALIA MIKHAYLENKO
PERSPECTIVE
The Russia factor in India-China ties PETR TOPYCHKANOV Foreign policy analyst
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eptember turned out to be a complex time for India-China relations. On the one hand, India and China held successful talks during President Xi Jinping’s trip to New Delhi. However, successes on the diplomatic front were tarnished by a three-week standoff between India’s and China’s armies at the Chumar border crossing in Leh. Without a doubt, India and China will try to avoid an escalation of security crises in order to insulate their burgeoning trade and economic ties. In the long term, China will remain a key trading partner for India. Xi’s visit demonstrated that India and China intend not only to stop the slide in bilateral trade seen in the last two years, but also to give a strong impetus to trade and economic ties. However, there is also no doubt that both countries have their own worries. India is wary of not only China’s
territorial claims, but also the latter’s potential regarding nuclear forces and general-purpose forces. India is also uneasy about China’s cultivation of military cooperation with its neighbours, especially Pakistan and Bangladesh. In New Delhi, there are also questions being raised about the nature of the military cooperation between China and Russia. In 2013, exports to China of Russian goods and services through the military-technical cooperation exceeded $1.8 billion. India paid particular attention to two developments on this front: first, in 2012, Russia and China signed an agreement for Amur1650 class multipurpose submarines. Second, Russia approved the supply to China of C-400 air defence systems. India’s concerns about these systems is partly groundless. China is interested in the Amur and C-400 with regard to the situation on its eastern, not its
southwestern, borders, and around Taiwan and the disputed islands in the East China and South China Seas.India’s misgivings stem from two reasons. First, China is free to change the deployment of the weapons and military technology it purchases from Russia. Second, China is free to transfer to third countries military technology acquired from Russia. Moscow can hardly promise New Delhi that Russia-China defence contracts will not result in modern military technologies falling into the hands of China’s allies surrounding India. Not because it does not want to, but because after transferring military technologies to China, Russia is left with either too few or no mechanisms to monitor the subsequent fate of these technologies. Moscow’s military-technical cooperation with both New Delhi and Beijing, therefore, does not allow Russia to stand apart from India-China disagreements. Russia is actually exerting an influence on the balance of power between India and China. This influence is far from being resolved, but it must be reckoned with in both New Delhi and Beijing. Furthermore, Beijing might have many more reasons to worry than New Delhi. The military-technical cooperation between Russia and India is significantly larger than that of Russia and China. In 2013, Russian exports to India through the military-technical cooperation amounted to $4.8 billion (30.6 percent of the total amount). Russia is cooperating with India in domains
in which there is no partnership with China, such as missile production, the construction of nuclear submarines and aircraft carriers. The Russian-Indian military-technical cooperation has two distinctive features that are unacceptable when it comes to cooperation not just with China, but with any other country. First, Russia is willing to develop with India projects that have strategic significance like cruise missiles and nuclear submarines. Second, both countries are interested in jointly developing and producing military technologies. Against this backdrop, Russia should reassure India that technologies with strategic importance will not be transferred to China. Russia could insist on China’s strict adherence to a ban on transferring Russian military technologies to third countries. Russia, India and China could initiate an intensive programme of trilateral military exercises that would bolster trust among their armed forces. Russia’s status as a supplier of military products to both India and China should not be seen as a source of anxiety by either New Delhi or Beijing. This status gives Russia the potential to play a more visible role in stabilising relations between India and China. However, it will be ultimately up to India and China to maintain balance in their relations.
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IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA
E |C |O |N |O |M |Y WEDNESDAY OCTOBER 15, 2014
INTERVIEW
India to set up PSU consortium to buy stake in potash firm
ALEXEI ULYUKAYEV
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Russia not severing business ties, ready to attract more investments Minister of Economic Development Alexei Ulyukayev spoke to RIBR about the prospects of Russia’s economic revival in the wake of sanctions. VIKTOR KUZMIN
India and Russia will soon sign a protocol, under which a newly established consortium of Indian public sector undertakings will buy a 30 percent stake in Acron, Russian fertiliser and potash giant. The protocol could be unveiled during Russian President Vladimir Putin’s visit to India in December for the summit meeting with Narendra Modi. RIBR
RIBR
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Russian Ambassador Kadakin awarded Order of Friendship Russia’s Ambassador to India Alexander Kadakin was awarded the Order of Friendship by Russian President Vladimir Putin. The award recognises Kadakin’s immense contribution to the implementation of Russia’s foreign policy in India and many years of meritorious activities as a diplomat. Ambassador Kadakin has served in India in many capacities for over 25 years. This is his second stint in India as ambassador. RIBR
n what ways has the Russian economy been impacted b y international sanctions? We are observing a dual impact of the sanctions on the Russian economy. On one hand, there is the inevitable decline in growth rates, higher inflation, ruble volatility and reduced liquidity. On the other hand, these same new realities are capable of helping overcome the structural imbalances that have long been inherent in the Russian economy. I am, first and foremost, talking about the excessive pegging to fuel and commodity exports, as well as the orientation towards imports of a wide set of goods — both producer and consumer demand. The Russian economy possesses a sufficient reserve of durability, which allows it to ensure future growth. In the World Economic Forum’s Global Competitiveness 2014–2015 report, Russia rose by 11 ranks to 53rd (64th last year) out of 144. The high level of education enjoyed by Russians and the country’s innovation potential have been identified among its competitive advantages. In that case, how fast will the Russian economy be able to overcome the crisis period?
Moscow’s nuclear deterrence set to be upgraded by 2020
Our economic development forecasts are based on the premise of relative stabilisation and a lack of more serious sanctions. Capital outflow may decrease substantially by 2017. The GDP dynamic is expected to rise to 1.2 percent in 2015, versus 0.5 percent in 2014. Faster GDP growth will primarily be connected with the investment dynamic, which will grow by 2 percent in 2015, versus a 2.4 percent decrease in 2014. We are continuing to work on improving the investment climate, so that businesses feel comfortable and safe in all respects. Russia is not fencing itself off from the outside world and is not breaking business ties.
Russia’s introduction of tit-for-tat sanctions on imports from the US, Canada, Norway and the European Union, we have a unique opportunity to develop the most crucial industries, such as agriculture and food processing. In your opinion, which Russian regions might be attractive to foreign investors? The dynamic development of Siberia and the Far East is a national priority, and a decision has been made to introduce profit tax breaks for new investment projects being implemented in this region. The next step will be to spread them throughout the Eastern Siberia. Besides that, right now, the possibility of creating so-called “priority development territories” in the Far East and Eastern Siberia is being considered, with special conditions for launching non-extractive production facilities oriented towards exports. Five-year holidays are being provided on the profit tax, mineral extraction tax (with the exception of oil and gas), and the land and property taxes, and discounted insurance premiums are being given to new companies located in the priority development territories. We plan to create business conditions in these territories that can compete with the key business centers in the Asia-Pacific region, including proce-
How can Russia solve the structural economic problems? Russia has entered a period of new economic conditions, and the government needs to tighten its belt. The situation with the budget is compounded by the fact that the country’s revenues will continue to decline relative to previous periods in the long-term, which will prevent Russia from counting on any changes due to a lack of significant shifts in the government’s economic and budget policy. At the same time, the present moment seems the best to make the most effective investments in the country’s development. With
SYNERGY: India has an edge in pharma, leverages Russia’s IT market
India Show: Linking business, creating new B2B networks
Moscow is accelerating the renewal of its nuclear deterrence capacities, with the complete renewal of the power groupings due to be finished by 2020, says Deputy Prime Minister Dmitry Rogozin. Setting up US Missile Defence System in Poland, Romania and possibly the Baltic countries is a direct security threat for Russia, says Viktor Yesin, ex-director of the headquarters of the strategic missile forces. RIBR
ter visits New Delhi for the annual summit in December. Bisaria underscored that the two sides should focus their attention on boosting bilateral trade and enhancing areas of economic cooperation regardless of the global geopolitical and economic situation. “India-Russia relations need to develop on the trade and economic side with greater energy,” Bisaria said. “I think the Western sanctions are not the issue, they will come and go. The strategic aim should be for India and Russia to increase substantially the level of trade and investment. We see several opportunities: more than $15 billion, in the pharma sector where India has huge competitive advantages; we see opportunities in the Russian IT market, which is in the range of $15-20 billion.” Prashant Choudhury, head of Salvia Group, an Indian tour company, highlighted the enormous potential that is waiting to fructify in the area of tourism. “The number of tourists from India is increasing every year but there is still a lot of scope. You can say Russia remains unexplored for Indians. Kerala is a new popular destination for Russians,” Choudhury said. He stressed it has done aggressive marketing in India for the promotion of inbound tourism to Russia. “We’re planning to organise exhibitions and road shows in metro cities to create more awareness and you will see more and more Indians in Russia in the future,” he said.
Promoting direct contacts between industries holds the key to boosting India-Russia trade
Modified Mi-17 V5 helicopters to ferry Indian PM, President
ELENA KROVVIDI RIBR
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TASS
Modified versions of Russian Mi-17 V5 helicopters will ferry Indian President Pranab Mukherjee and Prime Minister Narendra Modi around India, according to media reports. “The Mi-17 V5s will replace the existing Mi-8s, which have almost outlived their operational life, as an interim measure,” IAF chief Air Chief Marshal Arup Raha said. RIBR
ith the governments of India and Russia setting ambitious targets to scale up bilateral trade, the India Show, an exhibition of Indian products across the spectrum, was held at Moscow’s popular business and cultural hub Crocus Expo on September 24-26. The exhibition was organised with the help of the Federation of Indian Export Organisations (FIEO). More than 100 small, medium and big Indian enterprises showcased their diverse products and services to visitors. The exhibition aimed at forging new business synergies and saw a slew of B2B meetings and deal-making between businessmen of the two countries. The importance of this trade show was evident from the presence of senior officials from both sides. India’s Commerce Secretary Rajeev Kher,
India’s Ambassador to Russia P.S. Raghavan, Rafeeque Ahmed, president the FIEO, and Suren Vardanyan, vice-president of the Russian Chamber of Trade and Industry addressed questions and elaborated on the prospects of cooperation in various industries. The Indian envoy underlined the importance of the India Show for bolstering the India-Russian business ties. “I believe in an event like this, India Show will play a huge role in bridging the awareness gap between businesses and industries of India and Russia by showcasing Indian technologies, products in Russia, by enabling Russian businesses to talk directly to Indian businesses to understand what is available in India,” he said. Ajay Bisaria, joint secretary in charge of Eurasia in India’s Ministry of External Affairs, said India is looking forward to the upcoming talks between Prime Minister Narendra Modi and Russian President Vladimir Putin when the lat-
‘India keen to buy MiG fighter jet simulator’ MiG Chief Executive Sergey Korotkov says that the simulator would help train and upgrade skills of pilots operating aircraft on INS Vikramaditya. DMITRY LITOVKIN VPK
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ndia leads the list of countries that has shown an active interest in buying Russian Aircraft Corporation MiG’s fighter jet simulator. “India has taken an interest in the device, as it has proven to be highly effective during the training of navy pilots on the aircraft carrier INS Vikramaditya,” MiG Chief Executive Sergey Korotkov told Tass. “We intend to sell such simulators. As a part of the contractual obligations with India, we use this simulator for training two groups of pilots. The Indians loved it. I think as soon as they sign the contract for another batch of fighters, hopefully, they will start buying,” he added. The simulator, jointly developed
A feature of the new MiG-29 is a possibility of aircraft landing and refuelling in air with the Moscow Aviation Institute, is a close replica of a real fighter cockpit. The model enables a large screen reproduction of the entire flight: take-off, landing, refuelling, aerobatics and ma-
noeuvres. The trainee uses 3D glasses at the moment, but in the future, they will be replaced by a pilot helmet with a special visor that wouldn’t distort the image and wouldn’t limit the head
movements. “We have developed many features and now are working on the interface of the pilot and all the equipment,” Korotkov said. The simulator can be used for beginners’ training as well as for upgrading skills of experienced pilots. Most importantly, it is possible to practice the aircraft carrier landing and refuelling in the air, the features that the old 2D image simulators couldn’t offer, he added. India will receive six-decked MiG29K/KUB fighters by the end of the year for INS Vikramaditya, which can carry 30 of these fighters. Indian naval pilots continue to be trained by MiG to operate these aircrafts. A service centre for MiG-29 aircraft will be operational in India from next year. Besides refurbishing the MiG-29UPG and MiG-29K/ KUB aircrafts, the centre will provide advisory services for Indian technical staff. The Russian company also wants to build a consignment warehouse for aircraft spare parts in India.
OLESYA KURPYAEVA / RG
NEWS
Alexei Ulyukayev, Russia’s Minister of Economic Development, sees sanctions as an opportunity to spur the country’s development dures for securing construction permits, connecting to power grids and going through customs. In what way is Russia currently attractive to foreign investors? In the UNCTAD [United Nations Conference on Trade and Development] World Investment Report 2014, Russia is named as one of the most attractive economies in transition for foreign investors. Our advantages lie in the high return on energy projects, as well as projects associated with natural resources. Not only oil and gas, but also metals and timber attract
foreign investors. Unfortunately, we are still seeing only individual examples of enterprises being created that produce high value-added products. Russia is objectively interested not only in attracting financial capital, but also in new technology, know-how and best management practices that would allow it to bring entrepreneurial activity to a new level of efficiency. In order to reduce the country’s dependence on commodity exports and hightech imports, and to increase the share of high value-added products, Russia needs to attract investment into modernising industry and agriculture.
Russia’s defence spending to increase by one-third next year Putin says around $75.5 billion will be used for modernising military industrial enterprises. ALEXEY LOSSAN RIBR
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ith Russia looking to modernise its military-industrial complex, the country’s military spending will increase by 33 percent to $ 82.7 billion in 2015. The share of the defence expenditure will increase from 17.7 percent to 21.2 percent, according to the appendices to the draft law on the federal budget for 2015-2017, which the government first introduced to the State Duma the lower house of the Russian parliament, Kommersant reported. As President Vladimir Putin stated at the Russia Calling Investment Forum in Moscow on October 2, about 3 trillion rubles ($ 75.5 billion) of this amount would be spent on modernising the military industrial enterprises, some of which would later be corporatised and privatised. Moreover, today 25 percent of production of military enterprises account for civilian use, said Putin. The real share of national defence spending in Russia is growing. If in 2011 the defence spending was 2.8 percent of GDP, it will rise to 3.8 percent by 2016, said Alexander Deryugin, the director of the Center for Regional Reform Studies at the Russian Presidential Academy of National Economy and Public Administration. For comparison, the US defence spending is 4.4 percent of GDP and that of Britain 2.5 percent. However, in the 1990s, the UK was also spending about 4 percent of GDP on defence. Russian military spending is less than 5 percent of GDP -- almost equal with the US. However, in absolute terms, the US leaves everyone else far behind with its nearly $ 600 billion allocated for defence needs only in 2013, which exceeds the entire ten-year Russian military modernisation programme. Thus, we can say that Russia is in line with the global trends, says Anton Soroko, an analyst at Finam Investment Holding. According to Alexander Deryugin, the increase in defence spending in Russia is a part of a large-scale rearmament programme worth around $
503 billion. Back in 2011 Alexei Kudrin, the then finance minister, quit in protest over the above programme. These funds were allocated for the 2011-2020 state arms procurement programme. In addition, about 3 trillion rubles were earmarked for developing the militaryindustrial complex. Putin has said that some defence companies or a part of their assets may be sold on the market. It creates more favourable conditions for development. The state invests considerable resources in the defence industry for the near future, said the president. He stressed that the Russian defence industry releases some 25 percent of products for civilian purposes. Among the most prominent examples in this category is Sukhoi Civil Aircraft, the manufacturer of medium-range aircraft Sukhoi Superjet 100 and the shareholder for Sukhoi Holding, known primarily for its fighter jets. Experts have different opinions on Russia’s growing defence expenditure. The spiralling spending for federal defence has caused federal budget deficit. At the regional level, the investment costs have been reduced, says Deryugin. He added that the studies on how much defence spending increases GDP showed that it has no positive impact on the economy or it is insignificant. “As for long-term investments, they should be made in education and health,” he says. According to Anton Soroko, currently the growth in the military-industrial complex expenditure coincides with social budget cuts, and this is puzzling. However, the Russian government thinks otherwise. According to the Ministry of Industry, the defence contracts secured the growth of Russian industry in the first half of the year. During January-August 2014, the manufacturing of ships, aircraft, space vehicles and other vehicles increased by 26.9 percent. This industry segment includes manufacturing of railway cars, planes, helicopters and submarines. As a result, during this period, the industrial production growth in Russia amounted to 1.5 percent compared to the corresponding period in 2013, while the GDP growth is nearly half of it - 0.8 percent.
IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA
I |N |D |U |S |T |R |Y WEDNESDAY OCTOBER 15, 2014
RESOURCES: As western sanctions target Russian energy, arms and finance firms, metal producers work quietly and focus on profits and restructuring
Metals & mining industry: Minting a new future amid difficult times DAVID MILLER, ALEXEY LOSSAN RIBR
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ussia’s metals and mining industry, the country’s second-most important sector after oil and gas, has faced its share of adversity since the salad days of the past decade, when commodity prices were driven skyward by a sharp hike in demand from China and India. Today, as lower commodity prices put pressure on resource-producers around the world, many Russian metals and mining companies are nevertheless
Aluminium prices have been rising. “The global aluminium industry has turned a corner,” says Rusal CEO, Oleg Deripaska.
INTERVIEW
Change in price of Russian commodities: The last 5 years
NATALIA MIKHAYLENKO
showing respectable profit margins, after shedding non-core operations and taking difficult steps towards rebuilding operations. Iron ore prices fell to a five-year low in September as the Chinese demand slackened off and economic activity in Europe and Japan remained weak. But for Russian firms, the future may be looking a little brighter, in some areas. “The global aluminium industry has turned a corner,” declared Rusal CEO, Oleg Deripaska in a statement this
summer after the firm, which produces almost 9% of the world’s aluminium, posted an income of $116 million in the second quarter of 2014. Those results marked the first time Rusal had reported a quarterly profit in over a year. Meanwhile, aluminium prices have been rising in the third quarter. “Positive price momentum is supported by strong fundamentals,” said Deripaska. The fastest growth in demand for aluminium came from China (13%), Japan and South Korea (10%), and Central and South America (5%). “The completely gloomy picture of the aluminium market in the beginning of the year has changed today to a rapid price increase,” says Ilya Balakirev, chief analyst at Moscow brokerage UFS IC. Another factor that brightens the outlook for metal and mining companies is that it is better insulated from the pressures of Russian politics than their cousins in the hydrocarbon trade. As US and European officials pursue sanctions against Russian energy, arms and finance firms, the producers of Russian steel, coal, diamonds, iron, palladium, aluminium and potash labour quietly in the background — not fully removed from politics, but farther away from the heat. Coal, especially, may be due for a renaissance in Russia, thanks to new investment plans in the country’s eastern regions, even as coal miners in the US and Australia face some of the most difficult years in the history of their industry.
GETTY IMAGES/FOTOBANK
Amid falling commodity prices, Russian metal firms have managed to thrive by cutting costs.
National gold mine Russia, the largest land mass in the world, sits atop of some of the planet’s biggest reserves of minerals and natural resources, with 25 billion tonnes of iron ore, the third largest reserves in the world after Australia and Brazil. High up in the frozen north, above the Arctic Circle, a company called Norilsk Nickel produces 14% of the world’s nickel and 41% of its palladium. Norilsk is also a top-four producer of platinum, with 11% of global output, and a significant player in the copper industry, with 2% of world supply. State-controlled Alrosa, the world’s biggest diamond miner, taps rich deposits in Siberia to yield 26% of global diamond production. Despite years of tight control by the Russian government, Alrosa finally opened to public investment last year, raising $1.3 billion in an Initial Public Offering (IPO) on the Moscow Stock Exchange and reportedly selling some 60% of shares to U.S. investors. Amid this trove of underground resources lie the crown jewels: the largest reserves of natural gas in the world and the eighth-largest reserves of crude oil. The outsized importance of oil and gas in Russia’s economy has led the Kremlin to take a stronger hand there than in other commodities. Russia’s two largest energy producers –- gas giant Gazprom and oil champion Rosneft –- are both majority state-owned. Efforts have been underway among Russia’s big steelmakers to sell assets, cut costs and refocus their efforts domestically. Novilipetsk Steel, aka NLMK, became the world’s most profitable large steelmaker in August after cutting costs. This summer, Severstal, the steel/mining firm majority-owned by billionaire Alexey Mordashov, reached agreements to sell its North American assets in Columbus, Missouri, and Dearborn, Michigan, for $2.3 billion, and used $1 billion of the funds to pay a special dividend.
VLADIMIR POTANIN
The co-owner of the world’s largest nickel producer outlines his firm’s growth strategy
affect the company’s activity, since the company is deeply integrated in international economic processes.
ALEXEY LOSSAN
How much is the company tied to European and American consumers? How will the expansion of sanctions impact the company? Nornickel actively sells its products in Europe and the US; for example, we supply palladium for the production of car exhaust systems. Palladium is used for the production of carbon dioxide emission traps, which is not big, but nevertheless an important element in automobile production. If a car that costs $30,000 does not have a $1,000 catalytic converter, it cannot be sold. Nornickel feels comfortable in the current conditions and we do not expect that sanctions or any other political-economic measures will affect us.
specially for RIBR
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ladimir Potanin, co-owner and general director of the world’s largest nickel producer, Norilsk Nickel (NN), and who, according to Forbes, is worth $12.6 billion, spoke with RIBR about the sale of foreign assets of the company, as well as his drive to improve the firm’s efficiency. In the last year, you successively sold some foreign assets. Why did your company leave these markets? We are actively getting rid of unprofitable assets, which were dragging the
company backwards. That is why we completely left the investment projects in Australia, keeping only one Australian licence, and are currently working to leave the African projects. How much has the political turbulence influenced Norilsk Nickel’s work? We are a private and a law-abiding company, we are incorporated in all the regulatory mechanisms and we are represented on international stock exchanges. The company’s production is very important for the economy. Nornickel supplies Europe with nickel for the steel industry. The political tension we are experiencing should not
MINING: Russia is now the world’s third-largest gold-producing country
Bottomline: How Russian gold producers are squaring higher output with price LEONID KHOMERIKI Specially for RIBR
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ver much of the past decade, the rising price of gold made it a safe haven for investors wary of the volatility of stock markets. But in 2013, gold prices began to fall, and many market forecasters today think this trend is set to continue – partly due to a glut of gold in the market. Russian gold producers, however, remain undeterred. By the end of 2013, for the first time in 25 years, Russia surpassed the US in the total output of mined gold, reaching third place among gold-producing countries. According to the Federal State Statistics Service, also known as Rosstat, the amount of mined gold was 12 per cent
in 2013 and 7 per cent in 2012. Russian Gold Producers Union says gold extraction and production in the first half of 2014 increased 27 per cent in comparison with the same period the previous year and exceeded 116.7 tonnes. “We see that the consumption of physical gold is stable,” says Nikolai Zelensky, general director of Nordgold. “It is mostly consumed by developing countries such as China and India. Gold production in Russia will continue growing in the upcoming four or five years,” adds Zelensky. Russian regions are expected to continue increasing their gold extraction. The increase in volume has, however, done nothing to reverse the sharp fall in the price of gold. From 2012 to 2013,
Was the decision to transfer some of the payments to Hong Kong dollars a part of the new strategy? Yes, our plans to concentrate on the Asian markets were determined some time ago, when Vladimir Strzhalkovsky was general director. This is a natural increase in attention toward markets that are the main drivers of the world economy, as well as the prices of our products. However, I would not label this as a reorientation from west to east. Most likely it’s just a search for our niche in the east, and because of
Vladimir Potanin, General Director, Norilsk Nickel, is upbeat about the company’s future and is improving corporate governance in Russia.
the geopolitical turbulence, we had to accelerate the process. Currently, we have converted a part of our available resources into Asian currency, the Hong Kong dollar and the Yuan. This is a rebalancing of our interests. You said that Norilsk Nickel is the second most efficient company in the world. Do you plan to surpass BHP Billiton?
Business is not a sport where there is no room for those who don’t come first. My friend, the world-famous hockey player Vyacheslav Fetisov, said that the first step off the pedestal is down. Now we have set a target to keep our profitability at 40% for firstrate assets. Business is not a sport, but the earning of money, and BHP Billiton should not be relaxing.
Forging new synergies: Russian coal to fuel Asian economies’ rise
With an eye on the growing Asia-Pacific economies, Russia is planning a sharp increase in production of coal to get a bigger share of this market.
ANNA GRINETZ
PHOTOSHOT/VOSTOCK-PHOTO
The market can recover only after a worldwide reduction in production of gold: Polymetal CEO
However, we do have a plan B, which foresees the diversification of currencies in which we keep our resources, as well as the reorientation of our company towards Asian markets in case of problems in other markets.
NIKOLAY KOROLYOFF
‘Sanctions won’t impact Nornickel, we are focusing on Asia market’
specially for RIBR
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In 2013, Russia was ranked as the third largest gold producer globally. the average price of gold decreased by 24 percent, while silver fell by 38 percent. In his interview with Kommersant, Vitaly Nesis, CEO of Polymetal, said that if the market price for gold falls below $1,000 an ounce, some production operations will have to be closed. According to Nesis, the economic incentive to launch new enterprises exists only when the price of gold rises to $1,500-$1,600 an ounce. Therefore, the recovery of the market will happen after a worldwide reduction in the production of gold/silver, says Nesis.
uch has been made of the potential synergy between Russia’s colossal oil and gas reserves and Asia’s fast-growing, energy-hungry economies. However, not much has been said about the potential for Russian coal exports to Asia. The potential in this area is huge. Today, Russia is the world’s sixthbiggest coal producer, with the planet’s second-largest coal reserves, according to the U.S. Energy Information Administration. Around 352 million tonnes of coal are mined in Russia every year. About 40 percent of that is exported. The global coal market recently saw a drop in prices due to the rapid development of shale gas in the US and the resulting drop in gas prices. In 2013, prices in the world coal market reached a three-year low, falling to $72 and $99 per tonne for thermal and
coking coal respectively. However, this change opens new doors for Russia’s coal companies, including the possibility of attracting new investors. By 2030, the Russian government aims to increase production volume to 530 million tonnes, and increase exports by 70 million tonnes. To meet this target, $5.4 billion (250 billion rubles) will need to be allotted from the state budget. The goal here is, in part, to lower the amount of natural gas that is used for domestic consumption and replace it with an increase in coal and renewable energy. Sales of natural gas to Europe are a key Russian economic mainstay, and reducing domestic use would free up gas for export. Consequently, the quantity of coal in Russia’s domestic energy consumption should increase from 26 percent in 2014 to 36 percent in 2030. It is expected that by 2030, the amount of coal being exported will rise to 44 percent. Currently, some 90 percent of
Russia’s coal is mined in regions far to the east of Europe but relatively close to the countries of the Asian Pacific rim. What’s more, 99 percent of reserves likely to be used for increasing production in the future are likewise concentrated in Siberia and the Far East. Russia is, therefore, eyeing Asia and the Pacific countries as the prime markets for these new exports. Russia’s biggest clients for coal have always been South Korea and Japan. But these were recently surpassed by China, which in 2013 imported roughly 12 million tonnes. Coal consumption in Asian countries is anticipated to grow and should total 80 percent of world consumption by 2030. Russia may be able to expand its share of this market from the present 6 percent to 15 percent by 2030. Besides, the Russian coal sector can already boast successful examples of mining projects in collaboration with Asian companies.
IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA
F |E |A |T |U |R |E WEDNESDAY OCTOBER 15, 2014
ALEXANDER KADAKIN
FASHION: Blending Indian aesthetics with the West
Kurta, jacket sari: Indian clothes are elegant and practical
ALESSANDRO BELLI specially for RIBR
What is your favorite article of Indian clothing? Do you wear it? Out of Indian clothes, the kurta pajama is, of course, dearest to me. At one time, when I was still a student-trainee, I wore it regularly. It is, of course, the greatest invention of the Indian mind, and much more. It is indispensable for hot weather, absolutely universal. If it is a thin cotton kurta, then you can wear it at home, instead of European pajamas or home wear. Of the “heavier” varieties, I like the achkan, which Jawaharlal Nehru always wore. Jackets with a stand-up collar are also elegant; they are popular in Russia now, too. The most important thing in Indian wear is practicality – which is always fashionable. Before, they also used to produce
gauze shirts, which for some reason are not around anymore. In the late 1970s and in the 1980s, they were very popular in the USSR. With floral prints, they were made out of the same materials as the kurta. The Soviet youth wore them gladly and I brought dozens of such shirts to Moscow as gifts. It was really the ‘in’ thing then. You have socialised with many Indian politicians, starting with Indira Gandhi and ending with Narendra Modi, the current prime minister. Were there any memorable outfits? Indira Gandhi always looked absolutely impeccable. Her saris and the accessories to them were selected with such taste. She always looked modest while also supremely elegant. It is interesting that Indira Gandhi never wore jewellery. I recall when the famous Russian artist Ilya Glazunov painted her portrait.
Ace designer Ritu Kumar talks to RIBR about what makes the Indian fashion industry unique. ALESSANDRO BELLI Specially for RIBR
PRESS PHOTO
RIBR decided to find out from famous Russians, who have been to India, about their opinion on Indian cloths. We kick off the series with Russia’s ambassador to India Alexander Kadakin, who spent more than 25 years in India.
Bringing colour to ramp, Russian-style
Russia’s long-time ambassador to India Alexander Kadakin loves dressing in kurtapyjamas and is amazed by the sheer diversity of fashion in India.
She showed up in a ceremonial, rich, expensive sari – unbelievably bright. But she was such a strong political figure that she was able to lend brightness to that sari, and stay elegant. During her visits to Russia, she always amazed us with her ability to pick a sari and this flawlessness was passed on to Sonia Gandhi. Rajiv Gandhi was always immaculately dressed whether in European or Indian clothes. His jackets were chosen to the millimeter. Even before he became prime minister, he was able to dress well in simple jeans and a shirt. And, of course, we now observe Narendra Modi dressing with great elegance and taste.
not seem possible to combine them, but unique patterns are often found on fabrics that are one of a kind. Each sari is different in some way, and the woman who wears it is also unique in her own way. I’ve always been amazed at how high the artistic taste of this nation is. You won’t see anything like this anywhere in the world. Chinese fashion stands apart, but the kaleidoscope and sheer diversity of Indian dyes are not to be found in it or any other. In this context, the words of the famous Russian painter Nicholas Roerich come readily to my mind. He said it insightfully that “beauty resides in the Indian people.” This beauty is in the simple working women of Rajasthan and in the inhabitants of the Himalayan valleys dressed in Kullu shawls. We see this beauty every day walking around New Delhi.
Do you agree with the assertion that in India, every woman is glamorous in her own way? I agree entirely. India is an extraordinary riot of colors and hues. It might
At the moment, you are not only one of the most popular but also one of the most well-known and experienced Indian designers. Can you recall the most significant changes in the Indian fashion world during the last 20 years? It is quite a miracle that India has an indigenous fashion industry since generally all around the world, the situation is very different. The global industry has been taken over by multinational conglomerates, where most of the fashion that we see around the word comes from France, Italy or America. We don’t really have indigenous fashion any more in the world. In this scenario, India still has one and this in itself is quite phenomenal. As we move into the second decade of the 2000s, we are looking at an India, which has exponentially changed in its fashion tastes and preferences. In fact, more has happened in Indian fashion in the last two decades than in the last two hundred years. The changes that have come about post-independence are due to a host of factors. The younger generation of India has had a lot to do with this kind of change. Along with independence from decades of colonial rule, the youth of the country began to find its indigenous identity. Unlike the earlier generations who looked towards the West for inspiration and confidence, the reverse began to happen.
GETTY IMAGES/FOTOBANK
INTERVIEW
Ritu Kumar, the first woman Indian designer to introduce the ‘boutique’ culture in India The label line has been conceived to fill in the need for contemporary European clothing with an Indian sense of aesthetics. I see that as the future of our brand. You worked a lot with Indian film stars. Who did you like the most and why? They are all interesting and getting very professional. No favourites. All bring some energy to the table. How do you feel dressing up, for example, Aishwarya Rai? Is it a huge responsibility or just a routine job for you? It gets professional once you know the person you are designing for. The most popular models in Europe are either from Asia or Russia. Could you explain this phenomenon? What is your personal experience of working with Russian models? They bring colour and diversity to the ramp. They are also able to carry off more looks.
Many Indian girls are known to prefer European clothes to traditional ones. How do you see the future of fashion in India in this sense?
What is your source of inspiration? Indian textiles.
COMMUNITY: Besides Bengalis and the Indian community, many Russian Indologists, professors and students participate in the annual puja celebrations
Over the last 25 years, the Puja in Moscow has blossomed into a socio-cultural-religious event. DADAN UPADHYAY RIBR
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housands of miles away from home, Bengalis living in Moscow know how to recreate the magic of the Durga Puja, with its mix of religious fervour, fun and festivity. This year too, Bengalis and the Indian community bonded together to make the Puja celebrations memorable. The Durga Puja celebration has an interesting history. The first Durga Puja was organised in 1989, in a local House of Culture as an Indian cultural event, for which two priests were specially flown in from Kolkata. After changing several venues of puja,
for about a decade, it started to be held in the Inter-Club of the Peoples’ Friendship University. “The main purpose of starting Durga Puja in Moscow was to bring a flavour of Bengali Durga Puja at a home away from home,” says Nitin Aurangabadkar, General Secretary of Moscow Puja Committe. The first Durga Puja was inaugurated by Swami Lokeswarananda of Ramakrishna Mission. Since then Swami Jyotirupananda, the president of the Moscow Durga Puja Committee and the founder of Moscow Ramakrishna Mission, has annually conducted the puja. The puja is organised by the Moscow Durga Puja
Committee. It’s funded by voluntary contributions from Bengalis and the other members of the Indian community, living in the Russian capital. The Indian Embassy in Moscow assists the committee in bringing the Durga idol and the other special things used for puja from Kolkata. Purchased from Kumhartoli in Kolkata, the Durga idol is usually changed every three years. To mark the Silver Jubilee this year, the Puja Committee has brought a new Durga idol, which is the biggest, so far, compared to previous idols, in Moscow. “In the last 25 years, the Durga Puja has become increasingly popular year by year,” says Aurangabadkar, who is married to a Bengali. “At present, more and more members of Indian commu-
© RIA NOVOSTI
Recreating Durga Puja magic in Moscow
Durga Puja celebrations are becoming increasingly popular in Russia.
(MGIMO) who study Bengali also take part in the Durga Puja celebrations. In Moscow, the Puja is performed on the very “actual dates” of the Navratra. During puja days, a number of cultural functions are organised, which include presentation of songs, dances, holding of contests and quizzes and reciting poems, in particular, Rabindra Sangit. “Traditional aarti, puja, bhog, Sandhi puja with the 108 lamps, Sindur Khela and symbolic immersion are carried out every year,” says Rathin Chatterjee. Chatterjee, who is a senior member of the Puja Committee, performs the Puja rituals at the special pandal. “Our puja conveys a strong message of harmony and goodwill among diverse people, participating in the puja,” he said. To mark the Silver Jubilee, the Ananda Mela, is organised as a special event. “Special Bengali food stalls, cultural programmes, traditional rites and rituals create the perfect ambience for the celebrations,” says Mrs Krishna Roy.
nity, people from other states in India, join the puja celebrations and different festivities devoted to Navratra,” he added. “Today, the Durga Puja in Moscow, has grown into a social-religious-cultural event, bringing together different people from India, which also renews fellow-feeling among members of Indian community,” Auranagabadkar noted. “For Bengalis, the Durga Puja changed the ethos of their lifestyle in Moscow.” According to Puja Committee, in Moscow, there are about 20 Bengali families, but during the puja days upto 1,000 people participate in the festivities, including Indians and Russians. Many Russian Indologists, professors and students of the Moscow State Institute of International Relations
Get ready for a treat of Russian films: War and Peace, The White Tiger ALEXANDER KORABLINOV RIBR
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ndian cinema-lovers are poised for a rare treat of Russian classics as well as a clutch of new experimental films. The 16th Mumbai Film Festival, which will be held on October 14-21, will have a special section featuring Mosfilm classics titled ‘Retrospective of Russian Cinema’, which comprises of ten Russian films. “The festival offers a rare opportunity to watch films like
Sergei Eisenstein’s Alexander Nevsky on the big screen,” a spokesman for the festival told RIBR. “There has been a serious demand for us to feature Russian classics.” The classics include two films by Sergey Bondarchuk, including War and Peace, which won the Oscar for Best Foreign Language Film in 1969. The film will be shown in two three-hour parts with English subtitles. Another Oscar-winner, Vladimir Menshov’s Moscow Doesn’t Believe
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in Tears, will also be screened at the festival. The film that traces the lives of three women in the capital in two different periods of history won the Best Foreign Language Film in 1980. Those interested in Russia’s history will get a chance to see auteur Andrei Tarkovsky’s Andrei Rublev. The film is based loosely on the life of the 15th century’s iconic painter and gives viewers a glimpse of medieval Russia. The Mumbai Film Festival will also feature a few new Russian films. Karen Shakhnazarov’s The White Tiger, an action film set during the Second World War. It was Russia’s official entry for the Oscars in 2012. Another Shaknazarov
film, A Rider Named Death, is also on the list. Soviet filmmakers did not have many opportunities to cooperate with their foreign counterparts, but one rare occasion provided an Oscar-winning classic. Dersu Uzala, a 1975 JapaneseSoviet co-production, was directed by the legendary Akira Kurosawa. This was the auteur’s first non-Japanese language film and his only 70-mm film. The film is based on a book by explorer Vladimir Arsenyev and depicts the wildest parts of what is now the Primorye territory and the Khabarovsk region. The film was shot completely in the wilderness of the Russian Far East, when the area was closed to outsiders.
Must-see: A journey inside the Russian soul The Oscar-winning film Moscow Doesn’t Believe in Tears vividly portrays the daily life in the USSR in the 19501970s. The film evocatively depicts dreams and struggles of Russian women. The heroines are strong-willed, affectionate and yearn for happiness, despite all the trials that the big city has in store for them like raising a child alone. Ronald Reagan watched the film several times before meeting Soviet leader Mikhail Gorbachev in order to get a better understanding of the mys-
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LEGION MEDIA
The Oct 14-21 Mumbai Film Festival will showcase Russian classics and new offerings.
terious “Russian soul”. The film was awarded the Golden Bear at the 30th Berlin International Film Festival.
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