MOSCOW, September 3 (RIA Novosti) Post-Communist Russia's most predictable election campaign kicks off / Private companies concerned over state sector's growth / E.ON wants sale terms for generator shares altered / Rosoboronexport makes first foreign purchase
Kommersant
Post-Communist Russia's most predictable election campaign kicks off
Tomorrow, following the publication in Rossiiskaya Gazeta of Vladimir Putin's Sunday decree on State Duma elections, the first of two federal election campaigns will officially start. The answer to its main question is already known: United Russia is sure to win more than half the seats in the lower house. Political experts, however, are still searching for intrigue in the parliamentary elections.
Nikolai Petrov, a member of the Moscow Carnegie Center expert council, said: "There are two intrigues. The first is that the Kremlin is behaving uncharacteristically - it is staking on state corporations, rather than on the political machine. The Kremlin no longer needs governors who, using bureaucratic clout, could produce desirable results for the authorities. The stakes have been placed on state monopolies, which can delegate hundreds of their representatives to official posts. The second intrigue concerns the results of United Russia. They will show how close we are to Kazakhstan's option."
Gleb Pavlovsky, president of the Effective Politics Foundation, said: "Depending on the number of parliamentary seats won, the role of United Russia may either grow or diminish. Our election scenario bears some resemblance to the Ukrainian one. It is clear that in Ukraine the Party of Regions will be the first to the finish line, but if it fails to gain an absolute majority, this will be tantamount to a defeat."
Mark Urnov, president of the Expertiza Foundation, said: "Polls conducted by the Levada Center have shown that only pro-government parties will make it to the Duma; even Zhirinovsky is teetering on the brink of the 7% barrier. Faced with such a situation, the authorities may decide against bothering with 'smaller fry' and go over to a two-party system."
According to Dmitry Oreshkin, chairman of the Merkator Group: "Everything is predictable. The only intrigue is how fair the Duma elections will be. Results are always doctored, and the only concern is that their share does not overstep the bearable level. United Russia, I think, will garner 40%, because 50% will be too much."
Dmitry Orlov, a political expert: "I think The Other Russia, the People's Democratic Union and others will try to call the overall election results in doubt. But the main intrigue will concern the jockeying for second place between the KPRF and Fair Russia. The KPRF now has more chances: it is likely to get 15% to 17%, and Fair Russia, 12% to 14%."
Vedomosti
Private companies concerned over state sector's growth
Last week, Vagit Alekperov, CEO of Russia's largest private oil company LUKoil, expressed his concern over the strengthening of state-run companies. Following sales of the Yukos oil company assets, declared bankrupt last summer, state-run Rosneft has become the leader in the sector. Considering oil and gas ambitions of natural gas monopoly Gazprom, private companies are left less and less scope for operation.
Prior to Alekperov, Alfa Bank, one of Russia's largest retail banks in terms of assets, also expressed its concern over the situation. In a June memorandum on its Eurobond issue, the bank's experts cited "expropriation or nationalization" of assets without adequate compensation among current risks. A tendency towards increasing the role of the state in the economy and gradually narrowing the private sector in Russia is clearly seen now. However, neither political parties nor business associations are resisting it. Meanwhile, people react positively to state capitalism, seen by society as a response to disappointment in the results of privatizations.
According to the Federal State Statistics Committee, the size of the state sector in the economy has been growing in absolute terms and has stabilized in relative terms in recent years. Thus, in 2000, 43% of fixed assets (worth 7.1 trillion rubles) were state-owned, and in 2005, 40% (13.9 trillion rubles). However, these indicators do not reflect the real picture. Even Alexei Kudrin, Russia's finance minister, has criticized methods for calculating the size of the state sector, as they understate its real volume.
In 2005, the state became the largest player in the mergers & acquisitions (M&A) market: The purchase of Sibneft alone cost Gazprom $13 billion. According to Mergers.ru experts, the state's total share on the M&A market was 30%.
Against the background of state expansion and mushrooming projects aimed at establishing state corporations, the reverse process, i.e., the privatization of state-owned property, is declining. In 2005, state privatization revenues amounted to 34 billion rubles (less than 80% of the planned target), and in 2006, 18.26 billion rubles (less than 50% of the planned target).
Although Russia's electricity monopoly RAO Unified Energy Systems is trying to reduce the share of the state in the sector by privatizing generating assets, Gazprom is boosting its share, buying ever greater stakes in state companies subject to privatization. Analysts from the Institute of Energy Policy predict that the share of the state and Gazprom in generating capacities will rise to 44%-56% as a result of reform in the energy sector.
Business & Financial Markets
E.ON wants sale terms for generator shares altered
German power company E.ON intends to buy some of the newly-issued stock of OGK-4, a Russian wholesale generating company, but only if electricity giant RAO Unified Energy Systems (UES) changes the conditions of the auction. Market players, however, do not believe that UES will step down, because OGK-4 has no lack of bidders.
UES currently possesses 44,021 billion OGK-4 shares (or 89.6%, with 46.6% state-owned). In placing the new shares on the market, it plans to sell 23,273 billion shares (31.9% of the increased authorized capital). The state's stake will be sold together with the new issue. As a result, the investor will get a controlling stake in OGK-4 (about 60%).
Bidding will close on September 14, and demand is high. Analysts name Basic Element, KES-Holding, Surgutneftegaz, E.ON, and Finland's Fortnum among the most likely contenders.
"We consider Germany's E.ON to be the main bidder for the OGK-4 additional issue," said Andrei Butenko, an Aton analyst. "We have held this view ever since Italy's Enel won a blocking stake in OGK-5 at an auction."
But E.ON wants the auction terms changed. Evidently the Germans fear losing out because of the non-transparent conditions of sale. "E.ON's displeasure is an indicator of the company's interest in OGK-4, and shows that the placement of the company's papers may set new guidelines for Russian power generation value," said Semyon Birg, a Finam analyst.
"UES is unlikely to make concessions, because OGK-4 is not lacking in strategic investors," said Alexander Kornilov, an Alfa Bank analyst. UES representatives were not available for comment on Friday.
The new flotation plans to attract 46.524 billion rubles ($1.8 billion). But analysts think the stake will be sold at a higher price. Kornilov believes that with current market prices the stake can be sold for $2.7 billion. Currently, OGK-4 stock is trading at 3.1 rubles per paper. The price of one share offered as part of the additional issue is 1.99 rubles. Butenko thinks one should expect a market premium of 6.5%, because investors will purchase shares at 3.3 rubles per paper, which corresponds to $700 per kilowatt of installed capacity. As estimated by Birg, the entire controlling stake in OGK-4 may be worth about $5.5 billion.
Kommersant
Rosoboronexport makes first foreign purchase
U.S. computer giant IBM and German semiconductor producer Infineon Technologies recently sold a semiconductor plant near Paris to Russian holding company Global Information Services (GIS), reportedly affiliated to Rosoboronexport, Russia's arms export monopoly.
Experts said the 300-500 million-euro purchase was Rosoboronexport's first foreign acquisition. The Finam brokerage said the company was worth 450-500 million euros. Yevgeny Golosnoi, an analyst with Troika Dialog brokerage, estimated the deal at between 300 and 500 million euros.
"The company would cost less if it had debts," Golosnoi told the paper.
Switzerland's Advanced Electronic Systems AG (AES), which is owned by GIS, bought the plant, and the deal will be closed in the fourth quarter, after being approved by regulators.
AES, which aims to maintain current production levels, will receive the required infrastructure, equipment and key technologies from IBM and Infineon Technologies, and will turn out EU and Russian brands.
Market players and analysts said they had heard nothing about the GIS holding company, and some said on condition of anonymity that the plant had actually been bought by Rosoboronexport.
The Rosoboronexport press service did not refute this report, and said the company did not comment on incomplete projects.
Konstantin Belov, an analyst with Uralsib Financial Corporation, said this was Rosoboronexport's first foreign purchase. He said the deal could fit into the company's strategy aiming to establish the public company Electronic Systems on the basis of the Oboronprom defense corporation.
In February 2007, Rosoboronexport CEO Sergei Chemezov proposed merging UHF, optronic, photo-electronic, quantum-electronic and specialized electronic enterprises under his company's auspices.
Elina Yurina, an analyst with Finam brokerage, said Rosoboronexport could profit from the purchase, whereas it was pointless for a market-oriented commercial company to acquire the semi-conductor plant.
She said the newly-purchased plant could help produce security systems and electronic components for Russian automotive giant AvtoVAZ. "Other sale options are more difficult because the market is controlled by Intel and AMD computer giants," Yurina told the paper.
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