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*** Russian Prime Minister Vladimir centered on the effects of the global financial downturn on Russia, and how his government intends to address them in his speech at the New World Economic Forum in Davos, Switzerland. Putin admitted Russia's commodity-based economy had been hit particularly hard by the crisis, with plummeting oil prices and an excessive reliance on raw materials the key negatives. He said his government would respond to the crisis by helping to refinance debts and loan liabilities of companies, primarily with foreign lending institutions. He said the crisis is highlighting the need to consolidate Russia's financial sector, and called for a re-thinking of the way international institutions manage the global economy. Putin warned against isolationism and called for a move to several reserve currencies. He stressed Russia's economy remains open to foreign investment, but urged Western companies to abandon their "colonial" attitude to Russia.
*** Alisher Usmanov, the co-owner of the Metalloinvest holding, this week made a formal merger proposal to the shareholders of MMC Norilsk Nickel, Vladimir Potanin and Oleg Deripaska. The offer to Norilsk shareholder proposes consolidation at a ratio of 2:1 and could see the two companies' debt converted into state involvement. He said the state could get as much as 25%-30% of the merged company and that Norilsk and Metalloinvest combined should be worth $30 billion-$50 billion.
*** The financial crisis is hitting the commodities sector particularly hard, and Alisher Usmanov, co-owner of the Metalloinvest holding, told the Vedomosti newspaper this week that the construction of a mining complex at the giant Udokan copper field in Russia's Chita must be postponed. Planned investment in the project was slated at over 100 billion rubles and Metalloinvest and Rosnedra are drafting new terms for the license agreement in view of the crisis. Meanwhile, Metalloinvest could have EBITDA of less than $1 billion in 2009, after posting a figure more than 5 times that for 2008, he said.
*** Russia's number one gold producer, Polyus Gold, announced this week that it edged gold output up to 38 tonnes in 2008 and that capex last year amounted to $443 million. It also said it has compiled a short list of five potential acquisition targets and that it could decide against buying a controlling stake if the holders of KazakhGold bonds do not waive early redemption of those bonds. Polyus has also signed a protocol of intent to form a joint venture with Kinross to develop the Nezhdaninskoye gold field, Russia's third largest.
*** Lukoil sunsidiary ArkhangelskGeolDobycha this week signed a contract with France's FORACO to perform follow-up exploration at the Grib diamond field in the Arkhangelsk region. Lukoil and Archangel Diamond Corporation (ADC), which is owned by De Beers, called off a deal for ADC to buy 49.99% of AGD from Lukoil earlier in January due to a lack of state approval. FORACO will now drill 11 vertical boreholes 24 inches in diameter and up to 600 meters deep between April and October in order to verify the quantity and quality of the field's diamond reserves as part of a 10.5 million-euro contract.
*** Russia's state-owned uranium mining holding- Atomredmetzoloto is buying up the Russian stakes in two Kazakhstan-based uranium mining joint ventures from Vasily Anisimov, co-owner of the Metalloinvest holding. The deals will see ARMZ purchase a 50%-interest in TOO Karatau and 25% of JSC Akbastau from Anisimov's Effective Energy N.V. for an undisclosed amount and consolidate all of Russia's Kazakhstan-based uranium mining assets with these acquisitions. Kazakhstan's national nuclear corporation, Kazatomprom, holds Kazakhstan's 50%-stakes.
*** Several Russian metallurgical companies in the second half of January started raising prices on several product types despite weak purchasing power, with MMK and Mechel subsidiary CHMK among them. Increases in product pricing came to around 10%. Analysts surveyed by Interfax said that the price increase was driven largely by the weakening position of the ruble, which coupled with some increased demand on export markets, has made steel prices inside Russia less than on world markets.
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Putin stresses Russia open to investment, warns against isolationism at Davos
MOSCOW. (Interfax) - Russian Prime Minister Vladimir centered on the effects of the global financial downturn on Russia, and how his government intends to address them in his speech at the New World Economic Forum in Davos, Switzerland.
Putin admitted Russia's commodity-based economy had been hit particularly hard by the crisis, with plummeting oil prices and an excessive reliance on raw materials the key negatives. He continued to push Russian calls for new gas pipeline routes to Europe, and also suggested a gas pipeline could be built alongside the ESPO oil route to China and the Pacific in the long-term.
He said his government would respond to the crisis by helping to refinance debts and loan liabilities of companies, primarily with foreign lending institutions. He said the crisis is highlighting the need to consolidate Russia's financial sector, and called for a re-thinking of the way international institutions manage the global economy.
Putin warned against isolationism and called for a move to several reserve currencies. He stressed Russia's economy remains open to foreign investment, but urged Western companies to abandon their "colonial" attitude to Russia. He called for a reliable and equal partnership with the West in place of being offered help, and said he hopes the new U.S. administration will demonstrate an interest in joint efforts to tackle the problems facing the international community.
Energy
The falling price of oil has hit the Russian economy particularly hard, and Putin said he believes that the unpredictable fluctuation of fuel prices is a destabilizing factor which should be met with a return to prices balanced by supply and demand.
"Every one of us understands that sharp and unpredictable fluctuations in fuel prices are the most powerful destabilizing factor in the world economy," he said.
He also responded to the recent Russia-Ukraine gas dispute by putting forward a suggestion for the development of a new international legal groundwork in energy security.
"We suggest getting down to the development of new international groundwork of treaties and laws in the sphere of energy security. If implemented our initiative could play an economic role comparable in effect with an agreement on founding a European coal and steel association," he said.
He again pushed the case for Russia's proposed new export pipelines.
"Some of our European partners are suggesting increasing the capacity of the South Stream and Nord Stream natural gas pipelines. We are giving consideration to those proposals and think that they come at the right time, Putin said.
He also said that a natural gas pipeline could in the long term be laid parallel to the Eastern Siberia-Pacific Ocean (ESPO) oil pipeline, currently under construction, and that such a pipeline would carry gas "in the direction of the Pacific Ocean and China."
"The project for the first section of the Eastern Siberia-Pacific Ocean pipeline system is in its final phase. Its final point will be a new oil port and an oil refinery in the vicinity of Vladivostok. In the long term, a gas pipe may be laid in the direction of the Pacific Ocean and China parallel to the oil pipeline," Putin said.
Putin's meeting with Chinese State Council Premier Wen Jiabao, in which the two were expected to discuss several energy issues including the loans for crude proposal, was cancelled after bad weather delayed the Russian prime minister's flight from Moscow.
Putin also said Russia, Turkmenistan and Kazakhstan are beginning to put the Caspian Pipeline project into practice.
He also pledged government support to help refinance coroporate debts, including those of commodities companies.
Finance
The government will "help refinance the debts and loan liabilities of companies, primarily [debts] with foreign lending institutions," and that $50 billion had been allocated for the purpose and "a special mechanism of support has been created," he said.
He also suggested "hopeless debts and bad assets" be written off for companies at the current time of financial crisis. "Not everyone is willing to do this, fearing to lose their capitalization, their bonuses, and simply their prestige, but to evade cleaning up one's assets means to conserve and drag out the crisis," Putin said.
Putin said his government would "support all financial institutions that have proved to be viable."
The global crisis is highlighting the need to consolidate Russia's financial sector. "We have long been setting ourselves the task of enlarging the financial sector, and we will do that," he said.
Measures to that end would be implemented "carefully, in view of the certain specific character of the finance system in Russia," Putin said. "Regional banks are still carrying out a large volume of work in the provinces."
Putin believes that the development of a new, more effective architecture of the world economy requires the rethinking of the role of international institutions.
"So that the unipolar world would not become a world of chaos and uncertainty the system of global regulators based on international law and a system of multilateral agreements must be strengthened. That's why it is so important to rethink the role of several leading international organizations and institutions," he said.
Putin expressed confidence that the international community can develop a more fair and effective architecture of the world economy.
"Apparently in such a system all countries should have guaranteed access to the necessary life-support resources and also to new technologies and sources of development. Guarantees should be given that would help minimize the risks of the recurrence of crises," he said.
Putin also called for the transition to the coexistence of several reserve currencies and stressed that the issuers of these currencies should observe macroeconomic discipline.
"The excessive dependence on a single reserve currency is dangerous for the world economy, therefore it would be useful to promote the objective process of the appearance of several strong regional currencies in the future," he said.
Crisis
Putin set out Russia's interpretation of the causes of the world financial crisis.
"From our point of view, the crisis has been caused by a combination of several factors - the collapse of the financial system that has taken shape and low-standard regulation, as a result of which enormous risks were outside proper registration and control," Putin said.
One more reason for the crisis are "tremendous imbalances, primarily those between the scale of financial operations and the fundamental cost of assets, between higher demand for loans and sources of funding them," he said.
"The system of global economic growth has itself miscarried seriously. It is a system where one center prints money and consumes benefits practically without any restriction or control and the other produces inexpensive goods and saves money issued by other states," Putin said.
Furthermore, there has been uneven distribution of wealth both among various population strata within the same country and among various countries and world regions, he said.
"Comfortable housing, education and high-standard medicine remain inaccessible to a considerable proportion of mankind. Nor has the global upsurge of the past few years brought about any qualitative change in this situation," Putin said.
He described the crisis as "a product of excessive expectations."
"There has been an unjustifiably inflated corporate appetite for continuously growing demand. The race of stock exchange indexes and capitalizations has apparently come to dominate increases in productivity and the true efficiency of companies," he said.
Excessive expectations in business stimulated personal consumption, primarily in industrialized countries, Putin said.
"This was not well-earned welfare but welfare on credit, at the expense of future generations. This pyramid of expectations was bound to collapse sooner or later, something that is actually happening before our eyes," he said.
The crisis "has, of course, affected us as well, and in an extremely serious way. The crisis has exposed our problems" - excessive domination of raw material production in the economy, an excessive role of raw materials in exports, and "a weak financial market," Putin said.
"Also, the problem of development of fundamental market institutions, primarily a competitive environment, is becoming more acute," Putin said.
He said Russia has, however, financial reserves to dampen the effects of the crisis.
Openness
Putin said that it is important not to bow to isolationism or excessive interference of the state in the economy due to the crisis.
"One should not roll down to isolationism or unrestrained economic selfishness," he said.
"Even if in conditions of crisis a certain increase in protectionism proves unavoidable which we unfortunately are witnessing today, we should all have a sense of proportion here," Putin said.
Russia is determined to remain open to foreign investment. "We will keep up the policy of openness to foreign investment," he said.
"We are convinced that those who create attractive conditions for global investment today will become the leaders in restoring the world economy," Putin said.
Russia is building an open economy and an open state. "We all are going through difficult times, which have been prompted by the financial crisis, which has now turned into an economic one, and we could have taken a number of steps that would have seem logical in this situation. I mean, for instance, a return to the restriction of free flow of capitals, but we have deliberately not done this," Putin said.
"We did understand that we would see capital outflow in this situation and that it would be quite significant, too. And this has happened indeed. The outflow is large, it amounts to some $130 billion," Putin said.
"But we have done so deliberately, bearing in mind that these steps by the government should send a clear message that we remain committed to our obligations. And we will be making our economy and our country open," Putin said.
Dialogue
Putin also spoke of Russia's relation with foreign countries in light of the crisis, urging Western companies to abandon their "colonial" attitude to Russia.
"This colonial practice must stop. One has to respect laws of the country of company operation and act in a civilized way," he told members of the International Business Council in Davos.
"Business must be mutually beneficial," he said.
"We have had a number of illustrious examples of reviewing terms of our interaction with partners formulated in the early 1990s. I can assure you that our partners understood our reasons perfectly," he said.
"We agreed to form the Caspian Pipeline Consortium, a pipeline from the Caspian Sea to the Black Sea region. What has been done? Peculiar terms of loans will not bring even minimal profits to Russia within the next 25-30 under the current transit charges. Why did we do that?" he wondered.
"Obviously, we reacted when we realized the real state of affairs. There must be no cajoling. There must be civilized and honest work," Putin said.
"The colonial ideology of grabbing and running away must stop," he said.
"The world is turning global, and this mutual relationship is of a long-term nature. If we want civilized relations, we must define them first," he said.
"Our German partners and ourselves had been discussing terms of the construction of the North European gas pipeline across the Baltic Sea for a long time. We developed terms of a civilized partnership after long and very constructive negotiations," Putin said.
"In fact, a swap of assets took place. For the first time in the entire history of our gas industry we permitted our partners to have a rather large stake in the company that develops one of the largest fields in Russia, Yuzhnorusskoye. We granted 49% access to the gas transportation network itself, and Gazprom received a stake in the gas distributing network of Germany instead," Putin said.
"We regard this situation as a very partner-like and scrupulous attitude to long-term mutually beneficial relations. If we act in the same way, we will create the mutual dependence I suggested at the forum opening ceremony yesterday. If that happens, we will have genuine partnership not only in energy but also in high technologies and other areas," he said.
"For instance, our dialog with EADS on aircraft building is progressing with much difficulty. Yet I think that our relations with any partners must be the same they are between European participants," he said.
"We must do that if we want long-term interaction," Putin concluded.
The Western partners should think about the image of their companies in Russia rather than about the image of Russia itself, he said. "You should not tease us and pretend that you are OK," he said.
"If we want the world to change...
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