MOSCOW, November 24 (RIA Novosti)
Better prices help Russia penetrate Latin American arms market / Prime Minister Putin announces major tax reform / Gazprom needs insurance against price and revenue decline / A bailout for Abramovich's business / Russian stores overstocked with spirits / Labor market tightens in Russia /
Vedomosti
Better prices help Russia penetrate Latin American arms market
The global financial crisis can help Russian producers of tanks, aircraft, warships and other arms to rival U.S. and Brazilian producers on the Latin American market.
According to the Russian Center for Analysis of Strategies and Technologies (CAST), many Russian defense producers have been affected by the slow movement of money through banks, shortage of loans and other consequences of the crisis. They are also spending more on components and transportation because of inflation.
CAST analysts say the Russian government should more promptly take anti-crisis measures in the defense sector, where some plants can suspend production or even close down.
The crisis will halt the rapid growth of the global arms export/import market, which has grown from $22 billion in 2000 to $55.1 billion in 2007. Russian arms sales have grown from $3.7 billion to $7.5 billion.
Many countries have curtailed acquisitions of aircraft, warships, tanks and other arms. But this may benefit the Russian defense sector, and the visits of Russian President Dmitry Medvedev to Brazil and Venezuela next week are indicative in this respect.
Those countries which did not renew or modernize their military hardware in the prosperous years will now have to continue their rearmament programs or face a decline in the combat ability of their armies.
This concerns Argentina, Brazil, Colombia and Mexico, not to mention Venezuela, which "has already spent over $4.4 billion on Russian hardware over the past three years," according to Forecast International, Inc., a leading provider of market intelligence and analysis in the areas of aerospace, defense, power systems and military electronics, based in Newtown, the United States.
Most Latin American countries bought U.S.-made aircraft, warships and other arms. But Brazil, for one, has entered into a phase of self-sustainment in which future procurements will either be produced domestically or involve intensive technology transfer.
Russian arms may have a better chance against U.S., European and Brazilian armaments during the crisis. Russian aircraft, helicopters, armored vehicles, air defense systems, and small arms are comparable with U.S. and European samples in terms of quality and are 20%-40% cheaper. They are also easier to operate by medium-skill crews, and can be repaired with available spares in field conditions.
Brazil, which is only designing its own fighter planes and needs considerable R&D allocations, may agree to buy the Russian Su-35 aircraft and accept Russian assistance in building a submarine.
Vedomosti
Prime Minister Putin announces major tax reform
Prime Minister Vladimir Putin needs to exercise a lot of cunning and political wisdom so as not to intrude on the competence of his superior, President Dmitry Medvedev.
It was clearly tactful of him to choose the congress of the United Russia party to make his truly revolutionary statement of a real tax reform which will hopefully rescue real businesses. What a lot a profit tax cut is worth!
But, since a congress is an intraparty event, it did not sound like Putin was speaking to the nation, but rather explaining a couple of important points to his party fellows, who will then forward their leader's enlightening ideas to the masses.
To observe the leadership balance, the constitutional reform will be left to the president to handle. It's only fair that he should reform something he guarantees.
It sounds like a classical joke of leadership in a household. The husband says he is the leader, naturally, because he handles important issues while the wife takes care of minor ones. The important ones, he adds, include the U.S. invasion of Iraq, HIV proliferation in South Africa and the World Soccer Championship, while minor issues are choosing their next summer's vacation destination, a good college for their son or pretty furniture for their house.
The preparation for the tax reform was under highly professional cover in the run-up to the party congress. It was said that the event wouldn't be a really important one and that Putin's program until 2020 wouldn't be discussed.
The announcement proper was made in Putin's former presidential manner, that is, absolutely unexpectedly, with the audience taken aback. Government officials later congratulated themselves on preventing any leaks.
That is probably the reason why we do not know the true author of the tax blessing. First Deputy Prime Minister Igor Shuvalov said the Finance Ministry had been estimating the possible budget shortfall which would result from the tax reform.
He also said that the government was at a loss what to do next because they couldn't determine the trend as all economic convention was broken, but they still wanted to work out the best solutions and hoped they would be able to use the situation in the right way.
It was probably Putin who has shown enough political will and determination to make a decision in an uncertain environment. He will probably go down as the father of this reform, despite the way it was presented through the ruling party.
$martMoney
Gazprom needs insurance against price and revenue decline
Russian gas monopoly Gazprom wants Ukraine to repay its $2.4 billion gas debt as soon as possible. It has every reason to expect problems next summer, when gas prices may plunge to $200 per 1,000 cubic meters from the planned $500.
Since gas prices are linked to global oil prices, with a lag of six to nine months, Gazprom will feel the first effects of the 66% fall in oil prices next spring. Additional pressure will come from a decline in gas demand owing to a warm winter and the economic crisis.
The energy giant should consider curtailing expenses and reviewing its investment program.
Gazprom's investment requirements have been growing for the past few years, because production at old fields is going down. It will produce only 552-553 billion cubic meters instead of the planned 561 billion cu m this year.
Development of the Bovanenkovo deposit on the Yamal Peninsula in northwest Siberia will cost at least $100 billion.
Gazprom once easily borrowed abroad, but has problems now. Four Russian banks have recently opened a loan facility for the gas monopoly worth a total of 50 billion rubles ($1.8 billion), but this is still only about 50% of what Ukraine owes.
Even a theoretical possibility of insuring one's business against a future price and revenue plunge is vital in this situation. Gazprom does not want to fall as badly as the oil companies have. This is why the idea of a gas cartel has acquired a clear outline. The charter of the gas-exporting forum may be coordinated already this week and approved at the meeting of energy ministers in Moscow in late December.
The Gas Exporting Countries Forum (GECF), which was established in Tehran in 2001, includes Russia, Iran, Algeria, Indonesia, Libya, Malaysia, Nigeria, the United Arab Emirates, Qatar, Egypt, Trinidad and Tobago, and Venezuela.
Russia, Algeria and Nigeria account for approximately 70% of European gas imports. Europe's remaining requirements are satisfied by Norway, which attends GECF meetings as an observer, and the Netherlands.
Gas producers say this is not price collusion, and that they have other means to strengthen their positions. For example, they may agree to divide export markets, which will effectively put an end to the European dream of diversifying its gas supplies to lower its dependence on Russia.
Vedomosti
A bailout for Abramovich's business
The Evraz Group has won a lifeline from Vneshekonombank (VEB). On Friday, the state corporation's supervisory board approved a $1.8 billion loan for the mining and metals group.
VEB's supervisory board has approved the refinancing of some deals concluded by mining and microelectronic companies for a sum of $2 billion, the state corporation reported on Friday. VEB is not disclosing who will receive the funds. But a source close to the board added that one of these companies is the Evraz Group. The holding had asked for $1.8 billion and will receive this amount, the manager of one of the metal companies that applied to VEB said. He had heard one of the VEB staff saying this. The sources did not give the details of the loan. The group's spokesmen declined to comment.
The Evraz Group is 72.9% owned by Lanebrook Ltd. (Roman Abramovich and his partners, Alexander Abramov and Alexander Frolov). Its capitalization is $1.65 billion. Earnings in the first nine months of 2008 were $17.1 billion (according to company figures).
The Evraz Group's debts at the end of September totaled $10.24 billion. Of that sum, $4.14 billion is a short-term debt; the company is to pay $2.2 billion before the end of the year. Of that sum, $800 million is part of the money borrowed to purchase Ipsco's Canadian assets, said Uralsib analyst Dmitry Smolin. According to his information, these assets are kept as a collateral with the bank: without repaying the loan Evraz could lose them.
"This is A1 news," Smolin said. "It means that the state is ready to support metals and mining companies in the crisis."
Since there is not enough money to go around, this is important, agrees Alexander Pukhayev, a VTB analyst.
The state has provided VEB with $50 billion to refinance company and bank debts. Friday's decision has already allocated $10 billion. In October, VEB approved $7.5 billion in loans: $4.5 billion went to RusAl and $2 billion, to Alfa Group. At the end of October, VEB chairman Vladimir Dmitriyev said the bank had received applications for over $100 billion.
Among the steel-makers, Severstal, Mechel and Tube Metallurgical Company (TMK) are also negotiating loans with Vneshekonombank. VEB is not against granting them financing, say sources in the companies. Their requests were not examined on Friday, the sources said. But their needs are not pressing.
Severstal is asking for $325 million to repay its Eurobonds. The payment is due in February, said Pukhayev. TMK's aggregate debt is $3 billion, of which $1 billion was taken out to buy Ipsco plants in the United States. Part of this debt, $300 million to $400 million, is already refinanced. The remaining $600 million is to be repaid in the spring. Mechel's total debt is $4.8 billion, including a short debt of $2 billion. The sum of $1.5 billion is to be paid in April-May of 2009.
Novye Izvestia
Russian stores overstocked with spirits
According to Russia's National Alcohol Association, the stock of spirits in Russian stores is four to six times larger in November than in the same period a year ago. People are spending less on spirits because of the crisis, analysts say, although some think Russians are only buying less certified products.
Vadim Drobiz, chairman of the alcohol subcommittee at the Russian Chamber of Commerce and Industry, said: "We are overstocked with spirits, but not vastly."
He also said the demand had not fallen at all, and they expected an increase in sales as the New Year holidays approach.
Drobiz said the crisis had changed the market structure, with certified vodka production down 10%-15% in October and a decline in sales of certified brands.
"But this does not mean the alcohol market has shrunk, as the falling sales of certified vodka are accompanied by growing sales of uncertified products," Drobiz said.
"Vodka production has fallen because of more expensive loans, which has affected both producers and retailers," he said. "The production of brandies and sparkling wines stopped growing in October, and crisis and high inflation have forced many people to convert from cheap certified vodka brands (75 rubles, or $2.70 per half-liter bottle) to even cheaper counterfeit brands."
Forecasts do not offer reasons for optimism. According to the latest report by the center analyzing the federal and regional alcohol markets, Russia will have an alcohol crisis next year. Shortage of available loans (the interest rate for the sector is nearly 30%) will push many companies to the edge of bankruptcy.
The number of alcohol producers may drop by 50% in 2009, while prices of certified alcohol may be pushed up 50% by expensive loans, the Finance Ministry plan to raise excise taxes by 10%, growing prices of raw materials, and inflation.
As a result, the market segment of vodkas priced at up to 100 rubles ($3.60) may be fully stocked with counterfeit spirits (the current figure is 40%).
The alcohol market analysis center forecasts that people will stop using bars, cafes and other catering establishments that add 300%-500% to alcohol prices. Instead, they will drink at home.
RBC Daily
Labor market tightens in Russia
Unemployment in Russia grew by 1.7%, to 4.624 million people in October, according to the state statistics service, Rosstat. However, the number of formally registered jobless people keeps declining.
The Healthcare and Social Development Ministry, the Russian Union of Industrialists and Entrepreneurs and trade unions have agreed to meet weekly to exchange information and select struggling companies in non-financial sectors requiring urgent assistance.
Until last week, official estimates said the liquidity crisis was not affecting the labor market. In early November, Deputy Healthcare Minister Maxim Topilin said with conviction that they were not expecting employment layoffs to be higher than statistical average.
The reduced working week at industrial giants KamAZ, GAZ or MMK had been long planned according to him.
However, the Independent Trade Unions Federation said business activity was plummeting in various sectors of the national economy, including metals, construction, engineering and the automobile industry, and that settlements were delayed under contracts including state orders (in the light industry and in radio electronics).
As a result, companies resort to shortening working hours or cutting personnel.
And yet, the number of people registered as unemployed keeps decreasing, to 1.245 million in October from 1.552 million at the beginning of this year.
The number of companies which have reported major personnel-cut plans to the ministry has reached 4,000 in two weeks, a nearly four-fold increase, Fyodor Prokopov, vice president of the Russian Union of Industrialists and Entrepreneurs, said after a hearing at Russia's three-party commission on social and labor relations.
"The risk of terminating or suspending operations and cutting working hours is becoming more real," he said.
Moscow-based recruitment agency Ancor has estimated that 30% of Russian companies are cutting personnel or are planning layoffs. Most of these companies are in the non-financial sectors: in production, trade, logistics, etc. Some of them send their employees on forced vacations without pay, in addition to personnel cuts.
"The government has given banks money for lending, but it seems like the cash has never reached companies, or, if it did, the interest rates must be exorbitant, say over 30%," said Mikhail Shmakov, head of the Federation of Independent Trade Unions. "There are no companies in the real sector which can afford such loans."
RIA Novosti is not responsible for the content of outside sources.
