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    Russian Press - Behind the Headlines, November 14

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    Federal Space Agency Competes with Foreign Contractors \ New Defense Minister Selects New Deputies \Rosneft Investment Plans Could Equal 30% of Russia’s GDP

    MOSCOW, November 14 (RIA Novosti)


    Federal Space Agency Competes with Foreign Contractors

    Roskosmos is organizing an agency to coordinate Russia’s space industry in foreign markets.

    “The international agreement department of the Federal Space Agency (Roskosmos) is going to coordinate international space activities and the concentration of resources within the space agency,” Head of Roskosmos Vladimir Popovkin told Izvestia. “Projects with the European Space Agency – launches of ExoMars and Soyuz spacecraft from the Guiana Space Center near Kourou in French Guiana – are the first examples of such undertakings. These contracts are being negotiated through the space agency rather than through companies.

    The Federal Space Agency announced plans to promote Russian launch services abroad last year.

    “We plan to take over many functions related to international markets. Unless our actions are coordinated, we would lose too much and that would be to the benefit of our competitors,” Popovkin told Izvestia last December. “Domestic competition should remain. However, in foreign markets, we don’t need to compete with each other.”

    Roskosmos’ plans have raised concerns within the industry because Russian companies already have an agency that is doing quite well in the foreign markets. The Khrunichev Space Center sells Proton launches via its American spin-off company International Launch Services (ILS), while the Energia space corporation sells launches from the Sea Launch mobile sea platform via its subsidiary Energia Overseas Limited (EOL). There are smaller companies that are not directly controlled by large manufacturers of space equipment. For example, International Space Services, which is partially owned by Iskander Makhmudov’s Ural Mining Company, sells Zenit-operated launches from Baikonur.

    The Khrunichev Center is doing the best in the foreign markets. Its Protons are the most successful heavy boosters in the world. The company plans to earn over $800 mln from the launches this year. With four launches a year, EOL’s annual turnover could be as high as $300 mln. Russian launch vehicles generally prevail in the global market of launch services. In recent years, Russia has retained its leading position as the top space launch country with 40-48 percent of the total number of launches.

    If Roskosmos is transformed into a state corporation and comprises some industry-specific enterprises, launches of foreign space vehicles and transportation of astronauts and freight to the ISS will account for the company’s major revenue.

    “Without doubt the international activities of Russian space companies are down to the reorganization of Roskosmos,” Popovkin says. “General functions and the number of deals closed by the international agreement department will depend on what the space agency will be like after reorganization.”

    Manufacturers of space equipment are not expecting any changes in the immediate future. Energia President Vitaly Lopota says his company relies solely on itself for its international activities, without any substantial support from Roskosmos.

    The Khrunichev Center told Izvestia that ILS would retain its status and that it plans to continue the marketing of Protons and Angara rocket family launchers internationally (the first launch of Angara is scheduled for mid-2013).


    New Defense Minister Selects New Deputies

    Defense Minister Sergei Shoigu has chosen his old colleague Ruslan Tsalikov, Deputy Prime Minister of the Moscow Region Government, to deal with the ministry’s finances, and Yury Borisov, first deputy chairman of the federal government’s military-industrial commission, to oversee rearmament.

    According to a source in the minister’s team, Tsalikov is a long-time friend of Shoigu, who “announced Tsalikov’s nomination immediately after Tatyana Shevtsova’s resignation.” In the 1990s, Tsalikov was the Finance Minister in North Ossetia and then headed the Main Financial and Economic Department at the Emergencies Ministry. That is why Shoigu has chosen him, the source said.

    As for Borisov, “he was of two minds about accepting the offer, because he is used to monitoring the implementation of the state defense order by the industry,” the source said. “Besides, it is very difficult to find an equally competent replacement.” However, Borisov’s immediate superior, Deputy Prime Minister Dmitry Rogozin, has been informed of his decision to accept the Defense Minister’s offer.

    The other candidate for the post was Colonel General Oleg Ostapenko, Commander of the Aerospace Defense Forces. Former Defense Minister Anatoly Serdyukov “made a similar decision in 2008, when he proposed appointing Vladimir Popovkin, then Commander of the Aerospace Defense Forces [currently head of Roscosmos – Kommersant], to the post,” said the ministry source. “It was believed that the candidate should have a higher technical education. Ostapenko was ready to accept, but he was ultimately appointed deputy defense minister responsible for military research.”

    The Defense Minister’s deputies Tatyana Shevtsova and Yelena Kozlova may officially leave their posts this week, while the fate of Deputy Minister Dmitry Chushkin has not been decided yet. “Shoigu is still analyzing the results of his work, but he already has questions about some of Chushkin’s responsibilities,” the source said.

    Tsalikov and Borisov will be the fifth and sixth deputies appointed by Defense Minister Sergei Shoigu. The others are Ostapenko, who has been promoted from Commander of the Aerospace Defense Forces to Deputy Defense Minister, Colonel General Valery Gerasimov, who has replaced Nikolai Makarov as Chief of the General Staff and First Deputy Defense Minister, and Colonel General Arkady Bakhin, who has replaced Alexander Sukhorukov as First Deputy Defense Minister responsible for combat training. Secretary of State – General of the Army Nikolai Pankov, General of the Army Dmitry Bulgakov (in charge of logistics) and Anatoly Antonov, who is responsible for international affairs, have kept their posts.

    According to Kommersant sources, the ministry board is to meet on November 28 and it will be attended by the ministry’s senior staff. It is expected that Shoigu will complete all of the planned dismissals and appointments by that date.


    Rosneft Investment Plans Could Equal 30% of Russia’s GDP

    State owned Rosneft has very ambitious investment plans including the takeover of rival TNK-BP. In total, the oil and gas company’s investment plans could add up to an estimated $418-$638 billion, which is about 20-30 percent of Russia’s GDP.

    Rosneft President Igor Sechin estimated the planned development of the offshore project in the Kara Sea at $200 billion-$300 billion. Rosneft and its partner in the project, ExxonMobil, will not make a final decision on this project until late 2016 or early 2017, but Rosneft’s plans look pretty ambitious even without it.

    If the Kara Sea project is deemed commercially viable after geological exploration, it will take another 20 years to fully realize it, said Raiffeisenbank analyst Andrei Polishchuk. He said the company’s annual investment in the project would have to be about $21 billion to $32 billion, which is equal to 1-1.5 percent of Russia’s projected GDP in 2013, or 5-7 percent of the government’s planned spending for next year.

    Rosneft estimates this year’s capex at $15.5 billion. Total expenses will rise to $20.5 billion after the TNK-BP deal, Polishchuk said. “Since this includes offshore projects, geological exploration will be funded by Rosneft’s foreign partners. After that, the two principle companies will finance the development based on their shares, which are 66.7 percent and 33.3 percent,” he added.

    But these plans only remain realistic as long as oil prices hover around the current $110 per barrel level, Nomos Bank analyst Denis Borisov said. “My estimate is that Rosneft’s net debt will grow to $72 billion after the acquisition, which puts its debt-to-EBITDA ratio at 2.2. However, if oil prices sink to $60-$80 per barrel, this ratio could grow to 4.0, in which case it would be difficult for the company to continue paying for its investment projects and repay its debt,” he said.

    Rosneft’s capital expenses could end up equaling those of its partner ExxonMobil. In 2011, the company’s capex stood at $31 billion, according to Bloomberg. Gazprom’s expenditures stood at $53 billion and were the highest among Russian companies, while privately-owned LUKoil spent $8.3 billion last year.

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