LUKOIL closes in on Gazprom
The total earnings posted by Russia's largest companies fell in 2009, according to Finance-500, an annual rating issued by The Finance journal. Despite repeated statements by businesses that they are cutting costs, Russian companies failed to improve this index. But they did demonstrate a growth in their total assets. Despite the continuing crisis, mergers and acquisitions also continued.
The total earnings reported by the largest Russian companies covered by the rating were 31.42 trillion rubles, or 3% less than last year. Gazprom accounted for one-third of this decline in comparison with a 31.6% growth in 2008. On the other hand, the companies' total assets, according to Finance-500, increased by 7.6%, rising to 60.38 trillion rubles. In 2008, this figure stood at 27.1%.
Despite their clear desire to cut costs, they made little progress as this indicator failed to grow - the companies' net profit remained stable at 2.4 trillion rubles (in 2008, they posted a drop of 30.6%). Gazprom leads the Finance-500 rating table, followed by LUKOIL, which, however, dramatically closed the gap (0.42 trillion rubles) between itself and Russia's natural resources giant.
The rating's authors say their table has now acquired 123 new entries. Part of the explanation for this, they say, lies in changes in the companies' "accounting policy." For example, for the first time MRSK Holding published its reports in line with International Financial Reporting Standards (IFRS) and made the top ten with earnings totaling 461.66 billion rubles. At the same time, its nine regional subsidiaries all lost their places. Another 'ratings war' took place over the TAIF Group's subsidiaries.
The one exception was AFK Sistema, which, despite using IFRS rules, has an unplaced entry in the rating. Otherwise this corporation owned by Vladimir Yevtushenkov would have ranked seventh, right after Sberbank. Those behind the rating explain this by saying that TAIF and MRSK Holding comprise companies from the same industry, while Sistema is a mix of assets from diverse segments of the economy.
Finance-500 experts also deemed it necessary to single out two newcomers on the rating, although they only won places at the bottom of the list. This is a reference to Yandex and Kaspersky Laboratories, which rank 491 and 398, respectively. Those behind the rating add that the Mail.ru Group (formerly DST Russia) could have claimed a place if it had posted its consolidated financials.
Russia ready to meet Chinese natural gas demands
Russia has voiced its readiness to meet China's entire natural gas demand. Oil and gas supply agreements and those stipulating the construction of additional nuclear reactors in China were signed in Beijing following President Dmitry Medvedev's official visit.
On Monday, President Medvedev concluded his negotiations with the President of the People's Republic of China Hu Jintao. Over ten agreements and contracts were signed after the talks.
Russian Deputy Prime Minister Igor Sechin told journalists that Moscow hoped to reach final gas supply agreements by mid-2011, and that it stands ready to meet China's entire demand for natural gas.
"We would like to confirm that Russia is ready to meet China's entire gas demand," Sechin said. He said that cooperation in the gas sphere had strategic prospects.
China primarily uses coal as fuel, with gas accounting for 7%-8% of its total fuel consumption. "This means that there is virtually nothing standing in the way of greater gas consumption in China," Sechin said.
He said China annually consumes 90 billion cubic meters of gas, and that nationwide gas consumption had soared by 100% in the past two years.
Sechin said China annually produced 82-83 billion cubic meters of gas, and that it had now expanded its gas output by 100%. China also annually imports seven billion cubic meters of gas.
Russian energy giant Gazprom would like China to buy Russian gas at the European price of $300 per 1,000 cubic meters. China wants to pay much less, noting that it buys gas from Turkmenistan at $160 per 1,000 cu. m.
"The question is whether Gazprom wants to get a high price for its gas or to gain an opportunity to sell it [i.e. by entering this market]," Mikhail Korchemkin, head of East European Gas Analysis, a consulting company specializing in cost-benefit and financial analysis of natural gas projects in the former Soviet Union, told the paper.
He said that Gazprom simply faces the choice of either refusing to make any concessions and insist on high prices or giving in and selling its gas, and that this latter would be impossible without concessions.
Nikolai Tokarev, CEO of Russia's transport monopoly TransNeft, and Jiang Zemin, CEO of the China National Petroleum Corporation (CNPC), signed a general cooperation agreement during the launch of crude-oil deliveries along the Skovorodino - Mohe pipeline.
Eduard Khudainatov, CEO of Rosneft, Russia's largest state-controlled oil company, and CNPC CEO Jiang Zemin signed an oil delivery contract making it possible to fill the Skovorodino - Daqin pipeline to capacity.
Russia's investment paradox
Although investors around the world praise Russia as a tourist destination, they stop short when it comes to investing their money in our markets.
The latest UNCTAD world investment report ranked Russia among the five most attractive investment destinations. Experts from the United Nations Conference on Trade and Development canvassed 236 transnational corporations and 116 investment agencies, coming up with a list of the most attractive countries for foreign direct investment, where China, India, Brazil and the United States came ahead of Russia.
In reality though, investors are doing the opposite: according to UNCTAD data, total FDI in Russia was $130 billion in 2007-2008 and $38 billion in 2009, before plunging another 11% to $5.4 billion in the first half of this year - about the monthly FDI amount in China.
Direct investment might remain a problem because Russia has not yet recovered from the global downturn, and investors have good reason to be cautious when buying assets or building industrial facilities, but market speculators seem to be ignoring this country as well, even though there are objective reasons to intensify investment in Russian paper.
The dollar is ceding positions: once the Federal Reserve System expressed worry about deflation, the markets immediately swung toward commodities. While the dollar plunged 4.5% against the currency basket and 6.5% against the euro in two weeks, gold and silver beat their years-old highs, and other metals gained between 10% and 20%. Oil went up as well. Analysts at international investment banks keep praising emerging markets, especially commodity markets.
Their forecasts materialize everywhere but in Russia. Russia's RTS market index remains 40% below its 2008 high and seems in no hurry to move upward.
Last week, the funds that have invested in Russia grew a mere $100,000, not much compared with other BRIC countries, Reuters said. China's funds raised $502 million in a week, India's $303 million and Brazil $58 million.
This situation is even more of a paradox because, apart from the generally favorable situation on emerging markets, Russia has other advantages that should attract investors. Russian paper is undervalued, and the macroeconomic situation is good enough. Russia, unlike many other countries, spent its own reserves rather than borrowing to support the national economy through the recession. Russian companies have emerged from the plunge as net creditors due to government support, and the country's gross sovereign debt is below 10% of its GDP.
Russia launches new offensive to join WTO
Acting on the instructions of President Dmitry Medvedev, the Russian government has started bid to join the World Trade Organization (WTO). Agriculture Minister Yelena Skrynnik assured the Untied States and 19 other countries in Geneva on Monday that Russia would not increase state subsidies to farmers until 2012 and will cut them by more than 50% between 2013 and 2017.
First Deputy Prime Minister Igor Shuvalov said in parliament that Russia's WTO accession talks would end soon, and there is evidence that this could be so. Minister Skrynnik became the first official representative of the Russian government to attend the Geneva round of the WTO accession talks
Ms Skrynnik said her meetings with representatives of the 19 agricultural exporting countries in the Cairns Group and the United States was very positive.
"We told our partners about the agricultural situation in Russia, in particular after last summer's drought, and presented our stance based on three key aspects," she said. "First, government support to agriculture has been reaffirmed at $9 billion annually until 2012. Second, subsidies will be cut to $4.4 billion in accordance with the 2013-2017 timeframe we have supplied. And third, we don't subsidize exports in full compliance with WTO regulations."
"The Cairns Group and the United States support our stance. Experts will soon work out the technical details. Overall, we have settled all questions regarding agriculture," the minister said.
Skrynnik added that the problems of poultry exports from the United States to Russia had been resolved too.
In the past, Russia insisted that it must at least preserve its farming subsidies. The previous agriculture minister, Alexei Gordeyev, energetically advocated an increase in such subsidies. He said in 2006 that a reduction for the sake of joining the WTO would cut Russia's share in global agricultural exports from 1.3% to 1%, increase imports from 1.9% to 2.3% and cost Russia $4 billion.
The Russian government has refused to say which official will soon announce new compromises with the Untied States and other WTO countries.
Russia's rapid entry into the organization at the initiative of President Medvedev is also a factor of the domestic policy. During the September 22 meeting on CKD assembly in the Russian automobile industry, Prime Minister Vladimir Putin said he doubted that Russia would join the WTO by January 1, 2011.
If Russia's push succeeds, the accession procedure, which started with consultations in 1994 and talks in 1996, will end in early 2011.
Soaring gasoline prices make cars a luxury
Nationwide gasoline prices continue to skyrocket. The Federal Service for State Statistics (Rosstat) said car-fuel prices have climbed in virtually every region of the country over the past few months.
Since early 2010, the consumer gasoline price index has risen to 103.7%. And car owners are in for another price hike after new fuel excise taxes are introduced in January 2011.
Local gas stations now charge nigh on 30 rubles ($0.98) per liter for gasoline. Twenty-five percent of motorists think this price is exorbitant and are considering stopping driving for good.
A recent survey conducted by influential pollster the All-Russian Public Opinion Research Center (VTsIOM) in late August and published the other day said that 60% of Russians were concerned by rising car-fuel prices. Rosstat has confirmed these popular fears, estimating the August 2010 gasoline consumer-price index at 100.4%.
Consumer prices for gasoline are highest in the Chukchi Autonomous Area, the Kamchatka Territory and the Magadan Region in Russia's Far East, where they total 38.64 rubles ($1.26), 31.07 rubles ($1.01) and 29.87 rubles ($0.97) per liter of AI-92 regular gasoline, respectively.
The lowest prices are posted in the Samara and Kemerovo Regions, totaling 21.11 rubles ($0.68) and 21.21 rubles ($0.69) per liter of AI-92 regular gasoline, respectively.
Gas station prices will continue to increase in the medium term. Yevgeny Arkusha, vice president of the Russian Fuel Union, said gasoline prices would soar by 1.5 rubles ($0.05) per liter in January 2011.
This new price will be linked to the introduction of a new system for levying fuel excise taxes prioritizing the gasoline's environmental impact.
Currently the fuel excise tax stands at 3,900 rubles ($127.4) per metric ton of gasoline. This tax will increase by 1,700 rubles ($55.5) with the introduction of the new system, to 2,000 rubles ($55.3) including VAT.
Analysts predict higher excise tax will raise gas station prices nationwide by five rubles ($0.16) per liter of gasoline, and that prices will climb to 30 rubles ($0.98).
Many Russian motorists consider 30-ruble prices an important psychological threshold.
An opinion poll conducted by the Superjob.ru portal's research center for this paper revealed that 25% of car owners were ready to stop driving for good, if gasoline prices exceed 30 rubles ($0.98) per liter. Another 5% said they had already stopped driving due to these exorbitant gasoline prices.
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MOSCOW, September 28 (RIA Novosti)