Gazprom Invests in Uzbekistan/Economic Growth 2005/WU IncreasesBusness /Buisness Strivesfor Russia

[Rvrwind]

<tit>GAZPROM IS PREPARED TO INVEST $1.5 BILLION IN DEVELOPMENT OF UZBEK FIELDS
Gazprom is gaining a foothold in Central Asia. The company is prepared to invest up to $1.5 billion in development of the Ustyurt fields in Uzbekistan. Experts approve such expenditures of the Russian gas monopoly. Every new project of Gazprom in the region increases its control over transportation and marketing of Asian gas.

Gazprom is the largest gas company in the world. In 2005, it produced 547.2 billion cubic meters of gas. At the beginning of 2005, audited explored and recoverable gas reserves of the company amounted to 25.1 trillion cubic meters and taking into account stakes in other companies they amounted to 28.9 trillion cubic meters. In the first half of 2005, revenue of Gazprom according to international standards amounted to 611.2 billion roubles and profit amounted to 154 billion roubles. The aggregate gas resources of Uzbekistan amounts to 6.3 trillion cubic meters. Annual production of the country to about 60 billion cubic meters of gas. In 2005, Russia bought about 8 billion cubic meters of this quantity. Now RosUkrEnergo purchases the major part of Central Asian gas.

On January 25, President of Uzbekistan Islam Karimov, announced plans of Gazprom to invest up to $1.5 billion in Uzbek fields. Money will be invested in the Ustyurt District of Uzbekistan. The first installment of $260 million will be spent on geological exploration between 2006 and 2008. On January 25, Karimov and CEO of Gazprom Alexei Miller reached an agreement that by the middle of the year Gazprom and Uzbekneftegaz would sign a production sharing agreement for the Ustyurt District. This agreement will be intended for 25 years. If Gazprom discovers gas reserves it will receive an exclusive right in negotiations on their development. Gazprom reports that exclusive rights to sell this gas will belong to its Gazexport subsidiary.

Gazprom named Central Asia a zone of its increased interest a long time ago. So far, the gas corporation succeeded only in three former Soviet republics, namely Kazakhstan, Turkmenistan and Uzbekistan. The number of projects in Uzbekistan is the biggest. The first production sharing agreement of Gazprom in Uzbekistan was the project for restarting of gas production at the Shakhpaty field. The agreement came into effect in spring of 2004. In any case, production at the field is minimal yet amounting only to 0.5 billion cubic meters a year.

At any rate, this is not important for Gazprom at all, as well as investment of additional $1.5 billion in the new Uzbek project, says analyst Dmitry Lukashov of Aton investment company. Gazprom receives the main profit from gas transportation and marketing. However, says Lukashov, whereas in Russia, Gazprom has a political resource for preserving of monopoly position in transport and export, in Asia there are independent players yet which Gazprom cannot influence "politically." The best option for solving of this problem is dependence on technologies of Gazprom. Valery Nesterov, from Troika Dialog investment company agrees with him. The expert comments, "Any investments of Gazprom increases its influence and loyalty of the local authorities. Thus the company simultaneously receives its own gas for sale under production sharing agreements and benefits in transportation, choice of partners and so on." Gazprom already took the first steps in this direction. It signed a partnership agreement on transportation of Uzbek gas for its potential competitor LUKoil. In 2004, LUKoil signed a production sharing agreement with Uzbekneftegaz on the Kandym-Khauzak-Shady project.
<ref>Vedomosti, January 26, 2006; RosBusinessConsulting agency, January 26, 2006


<tit>FEDERAL STATISTICAL SERVICE IS CONTENT WITH SLOWDOWN OF ECONOMIC GROWTH IN 2005<RFN02>
On January 24, Director of the Federal Statistical Service Vladimir Sokolin presented an official report of his service about social and economic results of 2005.

Sokolin started his report from a traditional statement, "Positive dynamic of social and economic development of Russia continued." According to the Federal Statistical Service, in 2005, the GDP grew "about 6%" In 2004, GDP growth amounted to 7.2%. The Federal Statistical Service did not sum up the final results of the changing of the GDP yet but Sokolin promised that deviation from 6%, no matter positive or negative, would be insignificant.

Slowdown of industrial production growth in 2005, which amounted to about 2% in comparison to 2004, according to the statistical service would be more noticeable for the economy than this statistical deviation. Sokolin explained the fact that in 2005, industrial production grew 4% and in 2004, 6% by introduction of ten-day New Year holidays at the beginning of 2005. Meanwhile, in 2006, according to Sokolin industry will survive through the New Year holidays "already much better." So far, officials of the Federal Statistical Service do not know the "accurate breakdown in industries" but on January 24, Sokolin reported that the New Year holidays impacted fuel and energy most of all. According to him, the main slowdown of growth occurred in the fuel and energy sector.

The official does not see "anything terrible" in what is going on. Sokolin explains, "Given such oil prices this is normal behavior in the framework of a marketing economy. It is possible to invest less in development than in the period when oil prices are low." Nonetheless, this does not look very much like "normal behavior in the framework of a marketing economy". When revenues are high, companies usually increase investments (according to the Ministry of Industry and Energy, in 2005, investments decreased) and reduced sales volumes seldom. The real explanation to what is going on is redirection of revenues from super high oil prices to the stabilization fund. Along with this, officials of the Economic Development and Trade Ministry say that the reason for reduction of investment activeness in the fuel and energy sector in 2005 is excessive growth of withdrawal of money through the tax system, which prevents companies from investments in development of new fields and achievement of growth in oil export.

At any rate, the Director of the Federal Statistical Service is quite content with the situation in the fuel and energy sector. Sokolin comments positively on "reduction of the share of the real sector" in the GDP because developed countries are characterized by domination of the share of services sector over the share of industry in the GDP. In any case, so far transition to post-industrial economy did not happen in any country as a result of reduction of industrial production and simultaneous slowdown of GDP growth. The GDP usually grows on account of growth in the sector of services.

Nonetheless, super high revenues from oil sale enabled Sokolin to report about significant improvement in the quality of life of the population. From explanations of Sokolin it turned out that in 2005, real growth of wages in Russia amounted to 9.7% in comparison to 11% in 2004. The interconnection of the slowdown in growth of real wages and slowdown of industrial production growth is obvious. Moreover, it was in industry that wages probably grew slower than in other sectors. In 2005, wages of state employees were raised according to instruction of the President. Sokolin also reported that in 2005, real pensions grew 9.3%. This growth was significant because in 2004, real growth of pensions amounted only to 6%. Thus, figures of the Federal Statistical Agency showed that in 2005, real incomes of the population grew 8.3% in comparison to 8% in 2004.

The Federal Statistical Agency considers the level of inflation in Russia acceptable too. The statistical agency estimated it at 10.9% in 2005. Along with this, Sokolin confirmed that in January of 2006 inflation would be similar to inflation of January 2005, amounting to about 2.6%. According to Sokolin, relying on experience of East European countries Russia could reduce annual inflation to "a one-digit figure but for the crisis of 1998."
<ref>Kommersant, January 25, 2006


<tit>WESTERN UNION WILL WORK IN POST OFFICES ALL OVER RUSSIA
International money transfers Western Union will be available in post offices all over Russia soon. Western Union, one of the leaders in the market of international money transfers reached an agreement on cooperation with Post of Russia, leader of the market of money transfers in Russia. At any rate, bankers say that the alliance will not be a competitor for the systems operating in Russia.

Headquarters of Western Union in Denver, reported about signing of an agreement between Western Union DP Vostok (East European division of Western Union) and Post of Russia on January 24. The press release says, "Western Union will receive access to more than 2,500 post offices in the territory of Russia." The agreement makes provisions for availability of international money transfers in all post offices in Russia.

Representatives of Western Union DP Vostok confirmed the fact of the agreement. President of Western Union DP Vostok Kurt Max said, "We are glad to connect 2,500 post offices to our chain that consists of more than 30,000 branches in Eastern Europe and CIS countries, which will help workers-migrants in this region to support the relatives who remain at home."

Experts of the market of money transfers consider the deal meaningful. Anna Gorodnicheva, director of the department for development of the business project Migom (money transfer system of European Trust Bank), comments, "If the matter is about international transfers this is a sensible scenario of cooperation definitely beneficial for Post of Russia." Suren Ayriyan, director of the department of money transfers Unistream (chain of Uniastrum Bank) comments, "The wish of Western Union to have such company on the list of its agents is quite understandable."

Alexei Abrameitsev, deputy director of the department of commercial financing and interbank relations of Impexbank says that this is not the first experience of cooperation of Post of Russia with the competitor. The first was the agreement signed at the end of August of 2005, with Moscomprivatbank. Abrameitsev is confused, "I cannot say what for does Post of Russia need this. Probably, this is commercially beneficial."

Other bankers point out that Western Union will work with international transfers and Post of Russia will work mostly with transfers inside of Russia and to CIS countries. In 2004, the volume of transfers of Post of Russia amounted to 122.8 billion roubles and international transfers accounted only for 3.1% of the sum. So far, bankers cannot say to which extent the agreement will increase competition on the market of international transfers. One of the market players says, "Knowing the unsatisfactory speed and services of Post of Russia it is necessary to see what kind of cooperation this will be."
<ref>Biznes, January 25, 2006


<tit>LARGEST COMPANIES IN THE WORLD STRIVE TO COME TO RUSSIA
Managers of the largest companies in the world consider Russia to be the most attractive market among the countries of BRIC group (Brazil, Russia, India and China) for attraction of new clients. Such conclusion is contained in the research of PricewaterhouseCoopers presented on January 25, at the world economic forum. In any case, investors do not hurry to come to the Russian market yet.

Time when Russia, Brazil, India and China have been considered the states running of business in which is connected with high risks is gone. A poll carried out by PricewaterhouseCoopers among 1,400 top managers of companies from 45 countries shows that now investors take these countries as countries that open unlimited opportunities for business.

According to the research, 71% of the polled top managers are going to develop their business at least in one of the BRIC countries in the next three years. Along with this, China is the most interesting for 78% of respondents because it opens opportunities for cutting of costs and increase of productivity. According to the poll, 64% of top managers are interested in India, which attracts them by its skilled and cheap labor force. Russia (48%) and Brazil (46%) have the third and fourth positions. They attract the respondents by significant marketing opportunities. Along with this, many top managers take China as the main source of competitive threat.

Russia is the leader in BRIC group as the country most attractive as the source of orders. Over 80% of respondents mentioned "finding new customers" as the main strategic goal of their business in Russia. More than 50% of respondents are already forming or plan to form alliances with Russian partners. Presidents of European companies estimate the potential of Russia higher than managers of companies from other countries. The biggest interest in the marketing opportunities of Russia is registered among top managers from Germany (69%).

According to top managers of Russian companies, Russia is interesting for foreign investors primarily due to its highly skilled labor force. Along with this, only 12% of foreign participants of the poll say that business in Russia is interesting for them from the standpoint of access to skilled human resources. Nike Kubina, head of PricewaterhouseCoopers in Russia, comments, "Presidents of the largest companies in the world do not consider Russia an ideal place for development of a labor force and production. Although managers of Russian companies are more optimistic about this, it is evident that there is a real need for working out and communication of such strategy for attraction of investments to Russia that could be interesting for the international business community. According to Kubina, now Russia is attractive for the largest companies in the world primarily due to good prospects for investments in development of production for the internal market, as well as due to growth of the consumption market. Polled experts share this opinion.

Anton Struchenevsky, expert of Troika Dialog investment company, says, "In Russia Western companies are oriented mostly at the domestic consumer, whereas incomes of private individuals grow annually by 10% in real terms."

In turn, Sergei Belyakov, deputy chair of the tax policy committee of the Russian Union of Industrialists and Entrepreneurs, remarks that Russia is interesting for Western companies also from the standpoint of investments in production. Belyakov adds, "An example is the actively going process of establishment of assembling facilities of foreign automakers." According to him, another advantage of Russia for foreign companies is the fact that these companies are less exposed to risk of non-economic nature connected with incompetence of state officials and corruption. Belyakov points out, "For example, the law application practice of the tax agencies towards foreign companies is, to put this mild, different from the practice towards Russian companies. Russian authorities encourage operations of foreign companies more willingly including incentives in the form of tax allowances."
<ref>Biznes, January 26, 2006

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[Rvrwind]

<tit>RUSSIA AND UKRAINE WILL NOT ESTABLISH A JOINT VENTURE FOR GAS SUPPLIES TO UKRAINE
The gas truce signed in early January of 2006, between Gazprom and Ukraine may not be long. On January 26, the alliance of Gazprom and Naftogaz Ukrainy received the first serious crack. General Director of Ukrtransgaz, Anatoly Rudnik, announced that the Ukrainian-Russian joint venture for gas supplies to Ukraine would not be created. In response, Gazprom said that it was not going to tolerate theft of gas intended for Europe by Ukraine.

RosUkrEnergo with authorized capital of $35 million was registered in Switzerland in 2004. In RosUkrEnergo 50% stakes belong to Arosgas, a 100% subsidiary of Gazprombank, and Centrogas, a 100% subsidiary of Raiffeisen Investment AG being a part of Raiffeisen Banking Group. In 2005, Gazprom reassigned the right to supply Turkmen gas to Ukraine to RosUkrEnergo. For transit services, the company received 12.7 billion cubic meters of gas. A source in the company reported that its net profit in the first half of 2005, amounted to about $370 million.

In early January, Gazprom and Naftogaz Ukrainy signed an agreement under which in the first half of 2006, Ukraine would buy gas on the border with Russia at $95 per 1,000 cubic meters from the Swiss company RosUkrEnergo. To RosUkrEnergo Gazexport and Naftogaz Ukrainy will reassign contracts for 56 billion cubic meters of gas from Central Asia. This is exactly the quantity that Ukraine plans to import in 2006. RosUkrEnergo will also buy 17 billion cubic meters of gas from Gazprom in 2006, at $230 per 1,000 cubic meters and will resell this gas to Europe. According to analysts of UFG, RosUkrEnergo will be able to earn up to $1.5 billion from this operation. According to the agreement of Gazprom and Ukraine, RosUkrEnergo and Naftogaz Ukrainy should establish a joint venture by February 1, and this joint venture will sell gas to Ukrainian consumers.

It was planned to sign an agreement on creation of the joint venture on January 25, but signing of the agreement was postponed indefinitely. A manager of Gazprom explained that Naftogaz Ukrainy offered Gaz Ukrainy, an empty "shell," as a founder of the joint venture instead of itself and Gazprom disagreed with this. On January 26, Anatoly Rudnik, General Director of Ukrtransgaz subsidiary of Naftogaz Ukrainy, announced that the Ukrainian-Russian joint venture for gas supplies to Ukraine "will never be established." Rudnik added that agreement on establishment of the joint venture was not signed because RosUkrEnergo did not disclose the real owners and "nobody wanted publicity in entire Europe because the structure of RosUkrEnergo is definitely unclear." If the joint venture is established, according to Rudnik Ukraine will have "to return to the previous scheme of gas supplies under direct contracts with Russia and Turkmenistan."

Gazprom did not predict if the joint venture will be established or not. Instead, Gazprom threatened Ukraine once again saying that it would solve the problem "of taking of gas intended for Europe." According to Gazprom, due to this taking of European gas without permission European consumers did not receive 326 million cubic meters of gas between January 19 and 25. "We understand that it is cold but it is cold not only in Ukraine. Now we give more gas to all our consumers both in Russia and abroad and are not going to tolerate the situation when gas intended for European consumer's burns in Ukraine and does not even reach the border. Nobody gave the right to Ukraine to take gas exceeding the contracted volumes."

Experts predict that the gas alliance of Ukraine and Gazprom will die soon. Analyst Valery Nesterov, of Troika Dialog says, "We have never shared optimism about the agreement of Russia and Ukraine." Nesterov adds that the future of this agreement depends very much on Turkmenistan that may raise the price of its gas and gas supply to Ukraine at the promised price of $95 million will be unprofitable for RosUkrEnergo. Nesterov concludes that due to a new conflict, relations of Gazprom with European consumers may grow worse.
<ref>Vedomosti, January 27, 2006; Gazeta, January 27, 2006

[marat777]

I wish Gasprom could invest more in Uzbekistan. Uzbeks need Russian money...

[DKMM]

Gazprom's stock has lost 30% of its value in the past 2 months (that's a historical decline of nearly $100 billion).  I should have sold in May...