WEDNESDAY, FEBRUARY 9, 2011

...Marching towards a common future

BUSINESS REPORT IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

TIM GOSLINGBUSINESS NEW EUROPE

The twin BP and Pepsi deals

have bolstered confidence

of global investors in Russia.

The FDI spike is set to boost

the modernisation drive by

bringing cash and expertise.

If sceptics thought President Medvedev was doing a hard-sell in Davos, they are a bit out of sync. Big-ticket multi-billion FDI deals preceded Medvedev’s trip to the Swiss resort, underlining an in-creasing global confi dence in Russia's business climate. Oil giant BP’s share swap deal with Russian state-con-trolled oil company Rosneft kicked off 2011 with the same message that Pepsi’s $3.8 billion record breaking investment into juice-maker, Wimm-Bill-Dann offered at the end of last year – Russia is a “must-do” investment for leading strategic investors. The two deals have been wel-comed by the Kremlin that launched a major initiative to modernise the country last year by luring large investors that bring not just cash, but badly needed technology and management skills. Modernisation climbed to the top of Russia’s political

Russia bounces back, mega FDI deals pump up confidence

Trends $34bn M&A deals were struck in last quarter of 2010 alone, modernisation drive gets boost

Biz Diplomacy Unfazed by Moscow attack, Medvedev tells global elite 10 good reasons why they should invest in Russia

Davos calling: Invest, we are the way we are

Unfazed by a deadly bomb blast at a Moscow airport that killed 36 people, Rus-sian President Dmitry Med-vedev flew to Swiss ski re-sort Davos on Jan 26 for the annual edition of the World Economic Forum and made a vigorous pitch for Russia’s ongoing modernisation and privatisation drive. Speak-ing to the global business elite, he said the terrorists had expected him to cancel his trip to Davos, but point-ed out that they had "miscal-culated" and allayed fears of political instability in the wake of the terror attack.In a keynote speech, Medve-dev listed pivotal areas where the Russian leader-ship is gradually strengthen-ing the economy while also improving the investment climate. "The main goal is to make the companies themselves more efficient and improve the competitive environment for business in our country," he said.Medvedev spelt out ten rea-sons why foreign investors should feel much better deal-ing with Russia. Russia has slashed the number of its

TAI ADELAJARUSSIA PROFILE

In a stirring speech at

Davos, Medvedev made it

clear to critics that Russia is

pressing ahead with its

modernisation drive and

aksed foreign investors to

bet big on his country.

strategic companies fi vefold – mainly those that cannot be privatised and those in which foreign investment is complicated, Medvedev said. The president fi rst told del-egates at the St. Petersburg International Economic Forum last summer that he had signed a law that reduc-es the number of strategic enterprises from 208 to 41. Secondly, Russia is set to em-bark on a large-scale sell-off of state assets to modernise its country. The privatisation could see assets of such po-tentially attractive compa-nies as the Aerofl ot airline,

television company Channel One, telecoms operator Svyazinvest, oil producer Zarubezhneft and oil pipe-line monopoly Transneft in private hands. The government is expected to raise one trillion rubles ($32 billion) from selling stakes in ten state assets by 2013, Economic Develop-ment Minister Elvira Nabi-ullina said. Medvedev also said Russia is poised to cre-ate a “special sovereign fund” to attract foreign capital. The president forcefully re-iterated at Davos that Russia will refrain from imposing a

special tax on banks and the fi nancial sector to attract ad-ditional capital into the country. Analysts say the move could give Russia some competitive advantages over other countries which are planning to impose regula-tory restrictions on banks in the wake of the global fi nan-cial crisis. Meanwhile, the Kremlin is pressing ahead with efforts to transform Moscow into one of the top ten global fi -nancial centers as part of a drive to diversify the econo-my away from energy ex-ports. Experts say that huge-ly undervalued blue-chip companies, such as Gazprom and Rosneft, could benefi t in the form of higher market capitalization if they oper-ate in a developed fi nancial environment.Medvedev also reaffirmed Russia's ambition to join the World Trade Organization and the Organization for Economic Cooperation and Development, as well as to establish a common eco-nomic area with the Europe-an Union. Eight, Russia is presently de-veloping a mechanism that would help it share technol-ogy – especially military technology – with other na-tions, as exemplified in In-dia-Russia deals and a re-cent deal which saw France selling advanced military technology to Russia. France won a tender in December to build a Mistral-class assault

eyeing Russia’s abundant natural resources and its 142m-strong population. Analysts expect the pace to pick up this year and Medve-dev attended the signing of $1 billion joint venture be-tween Exxon Mobil and Ros-neft at the forum itself. “The deals don’t necessarily mark a turnaround in sentiment,” suggests Pavel Sorokin, an analyst at investment bank Alfa, “but may be a fi rst step. These deals are being made in strategic enterprises which are the pillars of the Russian economy.”Last year’s focused drive for high-tech investment has provoked pledges from the likes of IBM, Siemens, Phil-lips, and Microsoft to open R&D facilities. This year, the hot sectors are likely to be transport and infrastructure; late January already saw a plan to build a 50 billion euro high-speed rail network for the 2018 World Cup, with pri-vate companies contributing a third of the fi nancing. Russia is best known for its natural resources, but the PepsiCo deal highlights that Russia’s emerging middle class is now capturing the at-tention of multinationals like PepsiCo, which has be-come Russia’s biggest food producer after the deal. Ital-ian bank UniCredit is also rapidly expanding to tap into the pool of household money, saying it will add hundreds of retail branches in Janaury. And the Thomas Cook Group travel company has also taken the plunge into a country widely pre-dicted to become the biggest consumer market in Europe within a decade.

NEWS IN BRIEF

Head of the Russian Nanotechnology Corporation (Ros-nano) Anatoly Chubais is holding talks with the chiefs of the industry during his fi ve-day visit to India. The program of the visit includes meetings at the Center for Nanotech-nology Research of the Indian Institute of Technology, talks with the representatives of HAL, Indian Space Research Organization, the Defense Research and Development Or-ganization and other companies. RIA Novosti

Nanotechnology head meets

Indian industrial magnates

Russia’s federal operator of Glonass, the NIS company, is strongly interested in India’s market, the deputy head of the NIS company Vladimir Vozhzhov said. Last year the Russian Federal Space Agency, the NIS company and ISRO signed a MoU to establish a JV that would provide naviga-tion services on Indian territory. A draft agreement has been fi nalized already and now is due to be considered in Delhi. Voice of Russia . Read more on Indrus.in

Russia, India bet on GLONASS

tively poor track record in attracting FDI, weighed down by a reputation for bu-reaucracy, sleaze and poor corporate governance. While the levels of FDI started to recover to $40 billion in 2010, the second highest amongst all emerging markets, it is still half that of 2008. How-ever, the pace picked up fast at the close of the last year. A third of global M&A deals were struck in emerging markets last year, but Russia closed $34 billion of transac-tions in the last quarter of

2010 alone, on a par with China’s $38 billion and well ahead of Brazil and India. "We are being asked what has changed in Russia, why now all these deals are being signed. The regulations have changed considerably; nor-mal conditions have been created," BP Chairman Carl-Henric Svanberg said in Davos.Indeed, while the total vol-ume of deals remains de-pressed, the size of the deals is going up as strategic in-vestors commit themselves,

agenda following the 2008 economic crisis, which ex-posed the flaws of the eco-nomic model built since 2000. “The slump proved that the model was not capa-ble of delivering stable long-term growth,” says Roland Nash of Verno Capital.Foreign investors can also bring in more efficient man-agement, expertise and tech-nology. At the same time, they bring capital and com-petition to spur growth. The twin BP and PepsiCo deals hold the key as they will bol-

ster the confi dence of other strategic investors to invest in Russia, but many com-mentators were more con-cerned with the Russian gov-ernment’s entry through the stock swap. “Very few see this deal for what it was -- the next logical step in the mod-ernisation of Russia and a milestone in attracting large-scale foreign direct invest-ment (FDI) into the Russian economy,” says Plamen Mon-ovski, chief investment offi-cer at Renaissance Asset Mangers. Russia has a rela-

warship. Russia continues to invest heavily in its human resources, the president stressed, including trying to educate future businessmen and officials abroad. "Our task is to make Russia more attractive for foreign experts to work in," Medve-dev said. Medvedev, an avid Internet user who loves to tweet and blog, fi ercely op-posed any attempt to curb the freedom of the Internet, and backed disclosures by WikiLeaks. And fi nally, Rus-sia is also pushing to interest

investors in projects related to the development of sports and large athletic events in preparation for the Olympic Games. Russia will host both the 2014 Winter Olympics and the 2018 World Cup. He defended Russia, which is trying to be an open mod-ern and innovative country under his dispensation, against critics. “Russia is re-buked for the lack of democ-racy, authoritarian tenden-cies and the weakness of the judicial system," he said. "Today we are the way we

are. Russia indeed faces many difficulties in building the rule of law. " "But one thing should be un-derstood. We are moving ahead in fi ghting corruption and modernising the judicial system, although we have not yet scored tremendous success. But we will perse-vere. We are ready to receive friendly advice, but we do not need lecturing," he said in a veiled criticism of West-ern media that never gets tired of portraying Russia in a negative light.

Infl ation may derail recovery

As Russia emerges from the economic crisis, it’s running straight back into more tra-ditional tussles. With food prices soaring, inflation now threatens to become a real drag on a return to strong economic growth, whilst cap-ital inflows threaten more bubbles. Inflation came in at 8.8% last year, after run-ning in double digits for more than two decades. However, at the same time, the price of the monthly basket of ba-sic goods used to define the

poverty level jumped 22%, to $87.50. “The reappearance of inflation could derail Russia’s economic recovery as it hits the Russian consumer’s pock-et directly. With oil prices ex-pected to be more or less flat in 2011, it will be the strength of internal consumption that will set the pace for economic growth this year,” says Alex-ey Moiseev, chief economist at VTB Capital. “The rise in food prices is the major con-cern and a part of the current global upward trend," he said.

The Russian government plans to raise $32 billion by selling stakes in 10 state assets by 2013.

in THE TIMES OF INDIA Every last Wednesdaysince March www.indrus.in

Oksana

AntonenkoRUSSIA PROFILE

or insurgency (reorienta-tion). If we apply Cronin’s methodology, we can say that many of these approaches have been tried, but failed. Russia has tried repression and decapitation, which have given some results – the elimination of terrorist lead-er Shamil Basayev, for ex-ample, helped to stop the number of attacks in the short-term, but in the long-term, these measures led to the mutation of a more con-solidated nationalist cam-paign with clear goals to a more dispersed movement. The fact that no one clearly understands the underlying objectives of the Domodedo-vo bombing – unlike, for ex-ample, the Beslan hostage taking – illustrates this trend. Now, it’s critical to ad-dress some pressing ques-tions: Which constituency supports terrorism? How can their grievances be ad-dressed by the state, civil so-ciety and public-private partnerships? And fi nally, it’s important to help bring about the internal implosion of groups engag-ing in terror. It’s critical to understand the groups, to collect credible intelligence and to analyze their struc-

tures, which are much more akin to a mini Al-Qaeda than to the IRA or ETA, or even PKK. Also, it is important to analyse their recruitment techniques and fi nd ways to prevent the future expan-sion of these groupings.We know that a lot of young people join out of revenge or by succumbing to pressure and blackmail. There should be clear alternatives for these people to protect their digni-ty and that of their families. The results of this strategy are likely to be seen in one or two generations, not in one or two years. Moreover, its im-plementation is closely con-nected with other key politi-cal and economic reforms in Russia – enhancing the rule of law, fighting corruption and improving regional gov-ernance. Investment in eco-nomic development, im-proved education and promoting inter-ethnic inte-gration through internal mi-gration programs in the North Caucasus are also im-portant as key enablers of this strategy. Finally, more ef-fective work from law en-forcement and security ser-vices in preventing actors of terrorism and managing its consequences are required.

The bombing at the international air-port at Domodedo-vo near Moscow on

January 24, killing 36 and injuring over 150 people, is the latest reminder of Russia’s vulnerability to terrorist threats. Despite recent efforts to target the leaders of militant groups waging terrorist campaigns across Russia and Presi-dent Dmitry Medvedev’s initiative to address the root causes of violence in the North Caucasus, the scale of the terrorist threat has not diminished.Today, the cancer of insecu-rity has spread from the south to the very heart of Russia. Even more damag-ing than the acts of terror-ism themselves is the wide-spread perception that Russia’s leaders have no clear strategy on dealing with the insurgency. Prime Minister Vladimir Putin promised that the second war in Chechnya would help restore security, but whatever positive effects came from it were soon su-perseded by the spread of violence beyond Chechnya. President Medvedev was correct to bring the Cauca-sus problems back onto the federal policy agenda and openly acknowledge that instability there poses a strategic challenge to Rus-sia’s future development. Yet his measures – replac-ing some regional leaders and pledging more funds for economic programmes – have made so far little real difference. The impor-tant task for any govern-ment is to help define a strategy to end terrorism and accelerate that pro-cess. Some tips for this strategy can be taken from Profes-sor Audrey Cronin’s book. She analyses 457 terrorist campaigns, explaining how they can be understood as a “triad” of interaction be-tween three actors: the group, the government and the audience. Cronin iden-tifi es six patterns that have contributed to the ultimate demise of terrorist cam-paigns: capture or killing of a group’s leader (decapita-tion); entry of the group into a legitimate political process (negotiation); achievement of the group’s aims (success); group’s im-plosion or loss of public support (failure); its defeat and elimination through brute force (repression); and lastly, transition from terrorism into other forms of violence, such as crime

BEYOND TERROR

An elusive resilience

PepsiCo Inc has established itself as Russia’s largest food-

and-beverage business with a $3.8 bn takeover of juice and

dairy king Wimm-Bill-Dann.

Klaus Schwab, Executive Chairman of

the Davos Forum and Dimitry Medve-

dev, President of the Russia during

the 'Opening Address' of the Forum. The important task is to define a strategy to end terrorism.

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RussiaIndia

REPORT

Energy BUSINESS REPORT IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

WEDNESDAY, FEBRUARY 9, 2011

Gas supplies to India and Pakistan are likely to increase significantly reaching a total of

100 billion cubic metres per annum

Geopolitics Russian giant invited to partner in 2 Indian offshore, onshore fields

There are three key areas in which the 'gas dialogue' be-tween Russia and India is ac-tive today: gas exploration and production, LNG sup-plies and gas transport proj-ects. With its ambitious plans to expand into the Asia-Pa-cific region, Russian gas giant Gazprom sees India as an important and a promis-ing partner.None of this comes as a sur-prise. The stagnation in the European gas market and booming Indian and Chinese economies are radically transforming the global en-ergy market. Access to the Indian wholesale and retail markets will allow Gazprom to become a much more prominent player in the re-gion before international en-ergy giants such as Exxon, Chevron, BP and the Chinese state oil company CNPC get a toehold in it.Sergey Pravosudov, the Gen-eral Director of the National Energy Institute, feels it

With the European gas

market stagnating, Russian

giant Gazprom is upping

stakes in the Indian market to

spread its wings in the region.

would be more practical for Gazprom to produce gas in India. “Gazprom-Zarubezh-neftegaz’ s fi rst offshore ex-ploration experience in the Bay of Bengal, however, was not satisfactory. This does not mean that other projects

would be unsuccessful,” said Pravosudov. Between 2006 and 2010, Gazprom drilled three offshore wells in the Bay of Bengal, but failed to fi nd any commercially recov-erable gas reserves. At the end of last year, it was reported that Oil India invit-ed Gazprom to become an operating partner on two projects, one offshore and one onshore. Dmitry Ku-manovsky, Head of Research at the LenMontazhStroi In-vestment Company, said that

the focus is on the Krishna Godavari offshore field lo-cated in the country’s south-east and on another fi eld in India’s north-eastern Miz-oram state. The offer is being considered, but a fi nal deci-sion is yet to be made.There are currently 34 oil and gas blocks available for development in India, in-cluding eight deep-water, seven shallow water and 19 onshore sites. Besides Gaz-prom, Zarubezhneft, Ros-neft, Stroytransgaz and other

Russian companies are ex-ploring opportunities. LNG is another sunshine area of bilateral cooperation. India is potentially a large LNG market that the Rus-sian gas giant intends to start tapping as early as this sum-mer. In December last year, Gazprom Marketing & Trad-ing and Gujarat State Petro-leum Corporation signed an agreement whereby the Rus-sian holding company is planning to supply 300,000 tonnes of LNG to India in the next two years. In 2009, Gazprom and its Sakhalin-2 partners fi nished building the first Russian LNG plant on Sakhalin Is-land. The project made it possible to start supplying Russian LNG to the Asia-Pacifi c markets on a regular basis. Part of Gazprom’s strategy is to up its LNG pro-duction to 80-90m tonnes per annum, thus gaining a 25% share in the world LNG market. “India is a strategic market for us. GSPC is a key player in the Indian natural gas and LNG market,” said GM&T’s Executive Director Frédéric Barnaud. Russia’s involvement in the Trans-Af-ghanistan pipeline connect-ing Turkmenistan, Afghani-stan, Pakistan and India (TAPI) has also opened up new possibilities. In Decem-ber last year, India invited Gazprom to participate in the project; in one of the in-terviews that followed, Pres-ident Dmitry Medvedev stat-ed the company was ready to accept the offer. Gazprom can be involved at all stages of the project, from engineer-ing and construction to pro-duction and sales to Afghan-istan, Pakistan and India.

Asia-Pacific energy race hots up, Gazprom bets big time on India

VENERA REZTSOVA RIBR

Tie-ups Trebs and Titov oil fields may need $5-6 billion

Russian President Dmitry Medvedev’s visit to India in December last year saw a landmark pact between JSFC Sistema, a Russian conglomerate and India’s state-run Oil and Natural Gas Corporation Ltd. (ONGC), a key step that will boost energy cooperation be-tween the two emerging economies. Under the framework agreement, Sistema, the owner of the Indian mobile service provider MTS, is prepared to pool its shares in Bashneft and RussNeft with those of ONGC’s wholly-owned subsidiary Imperial Energy, currently a major in-dependent producer in West-ern Siberia. The parties have agreed to outline the trans-action terms, which have not yet been released, by the summer this year. ONGC is interested in Bashneft’s proj-ects, including the lucrative Trebs and Titov oilfields in the Nenets District of north-ern Russia. The fi eld reserves are estimated at 140-200 million tonnes of oil (about 1.4 billion barrels).

ONGC used its subsidiary Nord Imperial to bid in the field development tender. The Russian regulatory au-thority, however, rejected the bid. Eventually, Bashneft won the right to develop the strategic field. The agree-ment showed that India was not intending to give up the opportunity of developing this major Russian oil fi eld. “The negotiations have been rather dynamic, but it is still too early to discuss specifi c details; joint-venture op-tions may also be consid-ered,” a source close to Sistema told Kommersant newspaper.Bolstered by the partnership, Bashneft, in which Sistema has a 75% direct stake, will be able to mitigate its opera-

tional and fi nancial risks on the Nenets District fi eld. As reported earlier by Bash-neft director David Yako-bashvili, developing the fi eld may require $5–6 billion in investment. But it would be worth it, as the fi eld reserves would provide enough oil for Bashneft’s own refineries. Besides, cooperation with Imperial Energy will en-courage Bashneft, which produces 13 million tonnes of oil from fi elds in Russia, to shift its focus from produc-tion to processing, which is a profi table business. Most im-portant, ONGC, which has been eying a share in Bash-neft for a long time, will give the latter access to the inter-national market, where it is not currently represented.

ONGC win-win deal with Sistema

The Trebs and Titov reserves are estimated at 1.4 bn barrels

Bilateral energy cooperation

got a boost with a pact

between ONGC and JSFC

Sistema during Medvedev's

visit to India last year.

NATALIA FEDOTOVARIBR

Access to India's gas and LNG market will make Russian gas giant a prominent player in the region.

Petro Prosperity Russia set to ramp up energy supplies to energy-deficit Southeast Asia, which is projected to provide 75% of world demand by 2030

Someone peeping through a second fl oor window of the large office on the embank-ment opposite the Kremlin on a cold evening in Decem-ber would have been puzzled by a group of people excited-ly huddled around someone. The offices were those of Rosneft, Russia's largest oil company, and the person who was the centre of attrac-tion was Eduard Khudaina-tov, the company's jocular new president. He was out-lining his vision for the com-pany and his assessment of 2010 — the year that saw oil extraction in Russia peak to a post-Soviet record high — to a crowd of journalists and industry analysts. Khudain-atov, a graduate of Russia's orphanage system, stressed specially on Rosneft's goal to become a global producer cutting across continents.In mid January, he proved as good as his word with the announcement of the biggest deal in Rosneft's corporate

Russia's oil giant Rosneft's

deal with BP has whetted

global appetite of Russian

energy companies. The East

is their new promised land.

history, tying the company to international oil giant BP.Rosneft is not alone in outing its global ambitions. Last year saw TNK-BP's acquisi-tion of assets worth $1.8 bil-lion in Venezuela and Viet-nam while Lukoil said in September that it sees more potential petroleum in West Africa than in West Siberia.“The oil industry is ready to expand abroad,” said Lev Snykov, an analyst at VTB Capital, “and this will be a

trend of the coming year.” The forces driving oil and gas companies away from Russia, home to one of the world's biggest reserves of energy, include high domes-tic tax levels and uncertainty over future burdens.Many companies control re-serves that are on the verge of profi tability, but are hold-ing off investment decisions in the face of the state's un-clear taxation plans. The head of Surgutneftegaz,

Vladimir Bogdanov, said in December last year that the company “could achieve growth by enhanced recov-ery, which would not be prof-itable with today's tax bur-den.” Rosneft-BP deal, which will see joint exploitation of large untapped reserves on Russia's Arctic shelf, was ac-companied by a promise from Prime Minister Vladi-mir Putin that the govern-ment will create a “very fa-vourable tax regime for the realisation of the project.”Following the marriage of BP and Rosneft, other key is-sues to be resolved in 2011 include potential partner-ships. The decision of who will join Bashneft in its ex-ploitation of the huge Trebs and Titov fi eld is signifi cant. Many consider Lukoil the most likely contender.Novatek, the largest inde-pendent gas company, is also likely to seek a partner this year, possibly a foreign one, to assist with extraction work on the Yamal Peninsu-la. For the gas industry, a de-fining moment will take place in the second half of the year when gas supplies start to fl ow through the fi rst line of the Nord Stream pipe-line connecting Russia di-

viability because of the fall in demand for LNG in the US, which is increasingly turning to unconventional gas reserves, including shale gas. The fi nal investment de-cision on Shtokman, the fi rst phase of which has a price tag of $15 billion, will be taken in spring 2011.Asia is an important desti-nation as Russia looks to in-crease energy supplies to the East. Gazprom head Alexei Miller said in November 2010 that “the volume of Russian gas supplies to the Asian market may reach the volume of gas supplies to Europe in a very short period of time.”Oil exports, however, shot up first. Barely had Russians turned off their televisions after the president’s annual

rectly with Germany via the Baltic Sea, as the $10 billion project nears completion.Many big-ticket decisions loom for the country's ener-gy strategy in the mineral-rich but largely unexploited Arctic region. Presently, at-tention is focused on the enormous Shtokman gas field in the Barents Sea — operated by Gazprom, Total and Statoil — which last year postponed its start date for gas deliveries to 2016.“Will Russia produce LNG in the Arctic within the framework of this project, which has been complicated by the state of the US mar-ket,” asked Maria Kutuzova, editor of Russia's Oil. “That remains an open question.”Doubts have been voiced over the project's financial

From Arctic to Asia, oil & gas go up and east

HOWARD AMOSTHE MOSCOW TIMES

New Year’s Eve congratula-tions when at 00:30 on Jan. 1, crude oil began to flow to China through a new pipe-line. The Skovorodino-Daq-ing pipeline, built by Transneft and China Na-tional Petroleum Company, was christened by Russian President Dmitry Medvedev and his Chinese counterpart Hu Jintao in September, 2010. In January alone, 1.3 million tonnes were expect-ed to fl ow through the pipe and across the border.Moscow's increasing interest in the East is underwritten by predictions that South-east Asia's energy deficit could grow sevenfold over that of Europe and Ameri-ca's during the next 20 years and that the area will pro-vide 75% of world demand growth through 2030.Finally, there are predictions about the volatile price of crude oil — the key for a gov-ernment that receives 45% of its federal revenues from oil. In 2010, the average price for a barrel of crude was $77.50, but a steady five month rise saw the price close at $100.37 recently, a 27-month high.Analysts at JP Morgan and Goldman Sachs have said the oil price will continue to soar in 2011, reaching $120 sometime in 2012. The Eco-nomic Development Minis-try is less bullish, predicting that the average price per barrel in 2011 will be $81.Not everyone, however, agrees that the high oil price is good for Russia in the long-term. “From the standpoint of health and the quality of the economy, I would prefer to see the government trying to fi nd solutions using fi scal instruments rather than re-lying on an increase in oil prices to solve all problems,” said Cherepanov of UBS.

Big-ticket deal on Arctic shelf oil

BP and Rosneft will work together in the explora-tion and development of a 125,000-square-kilometer ar-ea of the Kara Sea on Rus-sia's Arctic continental shelf — one of the world's last re-maining unexplored basins. This is the first time a foreign company has been granted such extensive access to Rus-sia's Arctic resources. Prime Minister Vladimir Putin said the area contains some 5 bil-lion tonnes of crude oil, about one-tenth of Russia's Arctic zone's 51 billion tonnes, which is enough to fully meet global demand at current levels for about five months.

The two companies also an-nounced plans to establish an Arctic technology center in St. Petersburg that will liaise with research institutes and devel-op specialised technologies.To cement the agreement, BP will swap 5% of its shares, valued at $7.8 billion, for 9.5% of Rosneft. BP will become the biggest nonstate equity holder in Ros-neft, a company 75% con-trolled by the government, while Rosneft will have the second-largest stake in BP, af-ter Blackrock Inc., with 5.93%. The shares are subject to mu-tual lock-in restrictions for a period of two years.

BP Chief Executive Bob Dudley

and Rosneft president Eduard

Khudainatov sign an agreement

at BP headquarters in London

Russian gas supplies to Asia may reach the same level as that of Europe in a very short time.

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BUSINESS REPORT IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA Economy

WEDNESDAY, FEBRUARY 9, 2011

Viktor LitovkinJOUNALIST

SPECIALLY FOR RIBR

selves with the technology and manufacturing equip-ment and received all the documents required for them to make the right decision. Therefore, there is no point in spending more money to fl aunt its excellent fl ight and handling qualities yet again at the Bangalore exhibition. Yet, there is another point of view that has recently been voiced by an Indian military publication. In its January issue, Strategic Affairs re-ferred to an advisor to the Minister of Defence of the country, who spent several weeks in the US and alleg-edly guaranteed Boeing that its F/A18E/F Super Hornet aircraft would win the MMRCA tender. Such speculation, regardless of whether they are true or not, are at odds with the ro-bust defence relations be-tween India and Russia. The recently signed contract for building a 5th generation one-seated aircraft on the 5th generation T-50 platform that will ensure high tech-nology contracts for dozens of Indian enterprises within HAL (Hindustan Aeronau-tics Limited) and unique air power for the Indian air forc-es, is a sign of genuine trust between Russia and India.At the same time, the Rus-sian design bureaus and de-fence enterprises should keep their eyes open. The competition for the Indian arms market is growing by the day as India is striving to diversify its defence supply base so that it does not put all its eggs in one basket. American fi rms are particu-larly active. As soon as the US Senate lifted some re-strictions on cooperation with Delhi, Boeing, Lock-heed Martin and big corpo-rations such as Northrop Grumman, Sikorsky, Mc-Donnell Douglas opened their representative offices in Delhi, looking for access to senior officials and local movers and shakers to pro-mote their companies. Washington is not only seek-ing to conquer the Indian arms market, but also to cre-ate a powerful competitor to China. According to experts, Delhi is not ready to “sink into Washington’s arms” though, and is still resisting closer military and technical cooperation with the US. India knows that the White House and the Senate can, at any time and at the slightest pretext, impose sanctions against its enterprises, whereas Moscow has never done and will never do any-thing like that. Moreover, the US, while cooperating with India, never stopped arms and weaponry supplies to Pakistan – a rival and a head-ache for India. Again, this is not the case with Moscow.Therefore, exhibitions are exhibitions, and a splash, in the end, is nothing new. But India knows the value of long-lasting and reliable military and technical coop-eration with Russia.

Aero India-2011, which opens in Bangalore today, will host big stars

of Russia’s aircraft indus-try, including Sukhoi Com-pany, IRKUT Corporation, Ilyushin Aviation Complex, United Industrial Corpora-tion Oboronprom, and oth-ers. Their products will mainly be exhibited as scale models, stands, various equipment and existing models. Rosoboronexport experts say that bringing real prototypes to the other end of the world is not ec-onomically feasible. India, after all, accounts for upto one third of Russian defense exports, valued at over $40 billion. Unlike other coun-tries, Russia generously transfers licenses and tech-nologies as well as arms and weaponry to India.Many types of Russian weaponry and equipment are used by the Indian Air Force, including Sukhoi SU-30MKI fighters pro-duced by Irkut Corpora-tion and assembled under the Russian license by HAL. Russia has supplied cutting-edge weaponry to India l ike MiG 29K seaborne fi ghting aircraft that Moscow delivered to Delhi for the INS Vikrama-ditya, currently being ret-rofitted in Severodvinsk, and the BrahMos super-sonic anti-surface missile. However, Aero India-2011 will see a whole new splash, and a very odd one at that. The aerospace exhibition in Bangalore will not host the MiG-35 prototype, a modern Russian fighter. The strange part is that Russia announced this combat aircraft as a part of its bid to provide 126 me-dium range multifunction-al fighters under the MMRCA (Medium Multi-Role Combat Aircraft) pro-gramme to Delhi. Six com-bat fi ghters - American F/A18E/F Super Hornet by Boeing and F-16IN Super Viper by Lockheed Martin, French Rafale by Dassault Aviation, European Euro-fighter EF-2000 Typhoon by EADS, Swedish Gripen NG (Saab) and Russian MiG-35 – will participate in the bid for the $11 billion long-term contract. It was MiG-35 that the sponsors of the air show in Banga-lore did not hesitate to call “the absolute best” while speaking on the radio dur-ing Aero India-2009. Can this omission be ex-plained by pragmatic cost-cutting? Russian Aircraft Corporation MiG con-fi rmed that. They say that MiG-35 passed all neces-sary tests, including arma-ment tests, in India. Avia-tion experts from Delhi spent many weeks in Mos-cow and at the MiG facili-ties, familiarised them-

A Russian splash at Bangalore, sans MiG-35

OPINION

PHOTO

Mining Russia has the second largest explored reserves of rare earth metals; Great potential for tie-ups with India

China's dramatic export cuts

of rare earth metals have

opened a new window of

opportunity for Russia to

raise production of REMs.

In a dramatic move, China announced last year that it will further reduce exports of rare earth minerals (REMs) by 10% in 2011. The decision sent shockwaves across the industrialised world as world manufactur-ers are heavily dependent on China for these minerals, which are essential for mak-ing a range of sophisticated electronic goods, such as TVs and PC monitors.What compounded the wor-ries was that China enjoyed a virtual monopoly, provid-ing 97% of the world's sup-ply of these minerals. Bei-jing’s decision was strategic in nature. In July, the Peo-ple’s Daily published an ar-ticle by Li Bing, an interna-tional strategy expert of the Central CPC School. He as-serted that poor China should no longer sell its valu-able resources cheaply to capitalist countries and de-clared that REM exports “must be gradually reduced and, ultimately, stopped”. By August, the Chinese au-thorities announced reduc-tions in export quotas in the second semester by 72%; later, in the fi rst round of ex-port quota distribution for 2011, it cut them by another 11.4%. In September, China completely halted exports to Japan; in October, supply shortages were felt by indus-try in Europe and the USA.“The market did not hesitate to react to the reduced sup-ply with a sharp price rise:

REM crunch, however, may prove to be an opportunity for Russia. Presently, there is practically no REM produc-tion in this country; rare earth metals are mostly pro-duced as a by-product. In Northern Russia, for in-stance, the Lovozersk inte-grated mining-and-process-ing plant mines loparite ores (which contain a wide range of REM: tantalum, niobium, zirconium, lanthanum, ceri-um, etc.) and the Solikamsk Magnesium Plant (SMP) processes concentrates of these. But these facilities focus on magnesium produc-tion; to them, the rare earth business is merely auxiliary.Yet, in terms of explored re-serves of REM, Russia holds the second place globally (about 30%); in terms of an-ticipated reserves, it holds first place (5.2 million tonnes). A good example is the Lovozersk deposit in the Murmansk Region (in North-ern Russia). “It consists of three main minerals in about equal shares,” says Alexandr Samonov, a researcher for Institute of Geology of Ore Deposits, Petrography, Min-eralogy, and Geochemistry of the Russian Academy of Sciences. “Besides loparite, the triplet includes eudy-alite, an exceptionally rare mineral, which, outside the Kola Peninsula, is found in small quantities only at two locations in the world. For the production of rare earths, it is much more attractive than loparite, as the content of REM in it is 2–3%, i.e., twice that in loparite. Ore reserves that can be surface mined are estimated at 80 million tonnes even now. The second gem is the Tomtor de-posit in Yakutia. REM con-

tent in its ores reaches a phe-nomenal 12%. Moreover, its proven reserves amount to 150 million tonnes, while possible reserves virtually exceed all the rest of the world’s reserves combined.Finally, there is another quite promising source: Apatite ores have been mined on a massive scale on the Kola Peninsula to produce phos-phorus fertilisers. Compre-hensive processing of the ap-atite raw material might produce approximately 40,000 tonnes of rare earths a year. REM production fa-cilities in Russia are, howev-er, concentrated in the hands of a few Russian entrepre-neurs, who have been in no hurry to invest in developing the sector. SMP and the Lo-vozersk IMPP are controlled by Suleiman Kerimov’s Syl-vinite. Apatite is controlled by the Fosagro holding com-pany, which has shown no apparent interest in REM. However, the conditions have changed. Unlike fertil-isers, REM are exceptionally expensive and are appreciat-ing by the day. Russia can make good use of the win-dow of opportunity opened by China by leveraging its mining capabilities and as-sociated infrastructure.Moreover, supplying semi-fi nished products to devel-oped countries that face crunch might constitute a good starting point for es-tablishing the advanced stages of the rare earth pro-duction chain in the RF and for spurring production of innovative goods. Russian industrialists should become proactive in establishing a strategic rare earth industry. Our collaboration in this fi eld has also potential.

REM stakes: A rare chance for Russia

Economic concentrations of REM are generally hosted in alkaline igneous rocks and car-

bonatites

IVAN RUBANOVEXPERT MAGAZINE

Russian industrialists should become proactive in developing strategic rare earths industry.

Boards of merged companies have cleared the deal. It's now upto shareholders.

Merger New potassium behemoth can produce 13 mn tones: to focus on BRIC and South-East Asia markets

A new Russian potassium

fertiliser giant is being

created. It is set to give

PotashCorp, the global

leader, a run for its money.

A new international indus-trial giant is being born in Russia. There are only 13 manufacturers of potassium fertilizers in the world, but one of those companies may soon fall out of the ranks. In summer of 2010, Russian oli-garch Suleiman Kerimov heading a group of investors became the majority share-holder of two major Russian manufacturers of fertilizers, i.e. Uralkali and Silvinit, and decided to merge them to create an international po-tassium giant. After merging, the corporation will become one of the top three leading world manufacturers of po-tassium fertilizers and might soon squeeze the global lead-er, Canadian PotashCorp. PotashCorp is the world’s biggest potassium manufac-turer with the production capacity of 12.8 million tonnes, followed by the American Mosaic (11.2 mil-lion tonnes). “Now, the com-bined capacities of Uralkali and Silvinit are 10.6 million tonnes. In 2010, both compa-nies worked close to full ca-pacity (the combined output was approximately 10.3 mil-lion tons). The companies are going to ramp up their facil-ities: the merged company will be able to manufacture additional 13 million tonnes after modernising their pro-duction capacity by 2012,” Vladislav Baumgertner, Di-rector General of Silvinit, told Russia&India Business Report. The Russian giant’s competitors, meanwhile, are far from being complacent: Potash is planning to expand its capacity to 17.1 million

market”, said Mikhail Stiskin, an analyst with Investment Company Troika Dialog.According to industry ex-perts, the global consump-tion of potassium fertilizers was approximately 52 mil-lion tonnes in 2010. 2011 is expected to see an upsurge in demand with some analysts saying potassium chloride market could reach 55-60 million tonnes. Given that in 2008 demand peaked at 57-58 million tonnes, it can be forecasted that the mar-ket will be in full recovery this year, says Baumgertner. “The pricing policies are de-termined by the supply and demand and depend on the market conditions, rather than the expected Uralkali and Silvinit merger. Current-ly, the market is on its way to recovery and, given the grow-ing demand, the potassium prices are to be going up in the mid-term,” he said when asked how the merger could

affect the prices.Apparently, another manu-facturer of mineral fertiliz-ers, PhosAgro, is looking to bolster its positions in the global market. Last year, the company was reportedly considering acquiring Pot-ashCorp. The striking differ-ence in the companies’ val-ues (Potash Corp’s market capitalisation is over $40 bil-lion, while PhosAgro is val-ued at $7-9 billion) was never an obstacle for the ambitious Russian manufacturer. PhosAgro held consultations with the Russian govern-ment, banks and even asked Prime Minister Vladimir Putin for support. Several months ago, PhosAgro also contemplated merging with Silvinit. It is too early, how-ever, to say if PhosAgro would be able to take over the giant, since it usually takes at least several months to arrange such deals.In spite of its size, the merged

Russian giant Uralkali will keep focusing on the most at-tractive markets, in particu-lar BRIC and South-East Asia – the most dynamic de-veloping regions where ana-lysts predict the fastest growth in the demand for fertilizers. Other target mar-kets with a high level of ag-ricultural development and technology include Europe and the United States, said Baumgertner. Belarusian Potash Company is the world’s leading supplier to Brazil and India. These coun-tries have recorded the high-est potassium consumption growth: it doubled there over the last 5-7 years. As for Ar-gentina, the potassium pro-ducers have a different sort of interest: the resources at-tract them rather than po-tassium consumption levels (Argentina’s share in the total sales is not that big). At present, they are at the ex-ploration and preparation-

for-production stage, the launch of which is scheduled for 2014-2015.Now, the most important step for Uralkali, however, is to finalise the merger with Silvinit and shun the temp-tation of further internation-al expansion, at least for the time being. Once the merger is formalised, Silvinit will cease to exist, while share-holders will receive Uralkali shares in exchange for their interest in Silvinit. Uralkali will continue: its ordinary shares will be listed in the Russian stock exchanges and foreign investors will be able to buy and sell depository re-ceipts at the London Stock Exchange. The Russian po-tassium giant will be found-ed in the second quarter of 2011; by this time, the merg-er is due to be completed. The boards approved the terms of the deal, and in early Feb-ruary the companies’ share-holders supported them.

Making of a fertilizer empire

Billionaire Suleiman Kerimov is close to creating a national potash mining champion

NATALIA FEDOTOVARIBR

tonnes by 2015.Uralkali, however, has an-other ace up its sleeve. Belar-usian Potash Company, the Russian giant’s trader in the global market, has its own manufacturing facilities. As a result, Uralkali will control 40-45 pc of the world trade in potassium fertilizers through BPC. “It means that taking into account another 40 pc under direct or indirect control of Canpotex, which is headed by PotashCorp, more than 80 pc of world trade turnover will go through these two traders. There are no similar exam-ples of such an unprecedent-ed market concentration in the iron ore or diamonds

BRIC to drive

up demand

According to the UN Food and Agriculture Organiza-tion (FAO), the consumption of meat and dairy products, grains, oilseeds, fruits and vegetables has tripled over the past 50 years. People in developing countries, particu-larly BRIC, are spending more on food and their diets and are now seeing more variety. The world’s population is con-stantly growing, while arable land is shrinking. That's why land needs fertilizers to en-sure higher crop yields. Po-tassium's main advantages include the capacity to retain water in the soil and improve nutritious value, taste and colour of food products.

BEHIND THE CURTAINBATTLE ON FOR IAF TENDER FOR ATTACK CHOPPERS

The Aero India 2011 will be tense with anticipation over the outcome of the Indian Air Force tender for attack helicopters. In the fray for the $1.5 billion contract are

the United States with AH-64D Apache Longbow and Russia with Mi-28 NE (Night Hunter). The 'Night Hunter' is the latest variant of Mi-28 at-tack helicopter.

Key to electric cars, solar batteries, lasers, magnets

REM include scandium, yttri-um, lanthanum and another 12 lanthanides, cerium being the most widespread. REM are found in nature in dis-persed form. They are present in hundreds of minerals, while not more than 50 are of any industrial significance, and only two — bastnäsite and monazite — are mined on any significant scale. As a minor admixture, REM often play a decisive role in determining the key application character-istics of industrial items.In metallurgy, REM are com-

ing into ever increasing use in the production of cast iron, steel and non-ferrous alloys. It is difficult to overestimate the role of REM in glass produc-tion, where cerium is used. Nearly the entire range of REM is used in laser manufac-turing. In the nuclear indus-try, they are added to control rods to slow down the reac-tion, as well as to special ra-diation protection coatings.For several decades, REM have been used to produce catalysts, primarily for the oil industry. Significant quanti-

ties, above all of samarium and neodymium, are used in manufacturing permanent magnets. One of the most promising areas involving REM is the growing industry of electric and hybrid car pro-duction. The Toyota Prius is a classic example. The design of the latest model includes over ten kilograms of rare earths (mostly lanthanum and neo-dymium) — in the batteries, catalysts and metal alloys. Another innovation topic is use of rare earths to produce solar batteries.

most rare earth products ap-preciated by a factor of 1.5–4; some of them, by an order of magnitude or more,” say analysts of METALRe-search.Beijing’s unilateral quota triggered a hysterical reac-tion and also sparked a search for alternatives. India

has already declared its readiness to export REMs, but it has only some of the rare earth metals supplied to the global market by China. India needs serious invest-ments and technologies, in-cluding ones aimed at ensur-ing environmental safety of production facilities. The

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BUSINESS REPORT IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA Lifestyle

WEDNESDAY, FEBRUARY 9, 2011

Research shows that Rus-sian bonuses are outpacing those in Western countries. After reviewing more than half of Europe’s top 500 companies by market capi-talisation, Hay Group, a global management and consulting fi rm, found that executive compensation packages rose by a median 6 pc in 2010, whereas the total cash increase to Russian ex-ecutives was 19%.“Commodity companies, such as oil and natural gas and metals, naturally pay the highest bonuses, fol-lowed by banks and large fi -nancial institutions,” said Yuri Virovets, president of HeadHunter, an employ-ment website. “Real estate developers and major retail chains come next, while transport and IT companies round out the list.”According to Russian busi-ness media, Oleg Deripaska, owner of aluminium giant UC Rusal, became the high-

Bonanza Pay packets to Russian executives rise by 19%

The long night of recession

seems to be over. Top

Russian executives brace for

hefty multi-million dollar

pay package, outpacing

their European colleagues.

mn); Lev Khasis, the owner of X5 Retail Group, Russia’s largest retail company, took home 545 million roubles ( $ 1 8 . 7 m n ) ; V l a d i m i r Strzhalkovsky, general di-rector at mining and metals group Norilsk Nickel, was ranked seventh with 136.33 million roubles ($4.7 mn); while Gazprom CEO Alexey Miller is 10th with 111.3 mil-lion roubles ($3.8 mn).The financial crisis has shown that a company’s fi -nancial performance is not

always the only deciding factor. “Our bonus pro-gramme is directly linked not only to budget priorities, but it also affords an oppor-tunity to be rewarded for one’s personal contribution towards achieving certain priority business goals set by each structural division of our company," says Mari-na Storozhenko from the Pronto-Moskva media hold-ing company. At times, bonuses are a tool to retain a highly valued specialist, or are evidence of the management’s attitude towards an employee. Sberbank, Russia’s largest bank, has become a pioneer by linking employee salaries to performance. The bank had already introduced in-centives programmes for chief executives: in March, executive compensation was linked to the bank’s key per-formance indicators. Rus-sian senior executives will receive a new portion of their bonuses in four to fi ve months’ time. Says Maksim Lobada, an analyst with In-vestcafe: “Bonuses will rise compared to 2009 if only be-cause markets have been re-covering this year, and many companies dramatically im-proved their performance.”“Only rank-and-file em-ployees, mostly in state-owned companies, got them in 2008. Private-sector man-agers – and far from all of them – saw their bonuses re-turn only at the end of 2009.” He expects that 80–90% of managers will be paid bo-nuses for 2010 from among those who received them in 2007. Some Russian compa-nies, however, prefer to turn to the so-called 13th salary – an annual bonus copycat, whereby an extra month’s salary is paid, most often to regular employees, at the end of December.

Happy days are back: Bonus rains on high-fliers

Oleg Deripaska is laughing all the way to the bank.

NATALYA FEDOTOVARIBR

Deripaska became the highest-paid CEO, with 885.26 mn roubles in bonuses and salary.

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Trends Only 27 pc Russians expect financial boost; retail sector still growing

A new Consumer Survey by Credit Suisse Research Insti-tute found that very few Rus-sians expect their personal financial situation to im-prove in the coming months, while many even expect times to get tougher. The re-port explores the spending patterns and preferences of consumers in the Brazil, Rus-sia, India and China (BRIC) markets as well as Egypt, In-donesia and Saudi Arabia.There is an across-the-board increase in consumer confi -dence in the emerging mar-kets, with 38% of respon-dents saying they expect some improvement in their personal finances over the next six months, compared to 9% who expect some de-terioration, according to the survey. Brazil and China topped the list of countries with the most confi dent con-sumers, with 63% of Brazil-ians and 45% of Chinese say-ing that they expect an improvement in their fi nan-cial situation. 43% of Indi-ans agreed with it. Russia followed Egypt, which sits

Long known for their lack of

thriftiness, Russian

consumers are, however,

cautious as the growth

prospects remain fuzzy.

on the last rung of the con-sumer confidence ladder. Only 27% Russian consum-ers said they expect fi nancial boost, while 10% said they expect it to get worse.A large proportion of house-holds in countries surveyed live on less than $1,000 a month, but those in the high income brackets are expect-ed to continue to see much greater growth than the low-income earners in all mar-kets, the report states. The disparity in income is ex-pected to translate into high demand for essential items such as protein consumption or mobile phones among the low-income earners in India, Indonesia and Egypt, while

Confidence still shaky, shopaholics play safe

TAI ADELAJARUSSIA PROFILE

the consumption of high-ticket items will be more widespread in relatively rich markets such as Russia and Saudi Arabia.“There is no doubt that there is a steady increase in the standard of life for most Rus-sians over the past year, es-pecially for those in the top income bracket. But many Russians do not see any reli-able basis for such growth that could help them make critical decisions about fu-ture consumption. This is why many Russians are very cautious about spending at this stage,” said Marina Krasilnikova, the head of consumer research at the Le-vada Center which conduct-

ed a poll in December last year. The survey notes sub-stantial structural differenc-es in the savings culture across these markets. China and India both exhibit strong savings cultures, while Bra-zil and Russia have low sav-ing habits. Only 24% of households in Russia have bank accounts, compared to 37% in Indonesia and 80% in China. Stock market in-vestments or life insurance policies barely register for the average household in Russia.But while the shopaholic tendencies of early 2008 are still a long way off, analysts said there are many Russians who are willing to open their purses to feed another round of shopping frenzy in the near future. Renaissance Capital consumer-market analyst Natalia Zagvozdina said the modest growth in the economy this year has al-ready boosted consumption in the country’s retail sector. “The retail sector continues to grow at a phenomenal rate in real terms,” Zagvozdina said. “There is more consol-idation in the sector and many big players like X5 and Magnit are expanding mar-ket share or increasing their investment in the sector by several million dollars in the New Year.”

Movies Pact signed for digitisation, financing remakes of Raj Kapoor films

In this story, there are no full stops. Russia’s love affair with Bollywood continues. When the youthful Russian President Dmitry Medvedev dropped in at the famous Yash Raj Studios in Mumbai during his visit to India in December last year, sparks fl ew. A fan of the legendary Raj Kapoor, who enjoyed an iconic status in Russia, it was sheer joy for Medvedev to see his grand-daughter Kareena Kapoor dance with her co-star Shahrukh Khan on the sets of Ra.one, an upcoming Hindi superhero fl ick. “We wanted to shoot the song in his presence, but due to security problems, we just showed him the dance steps we were rehearsing,” said Khan while recalling his chat over coffee with the Russian president. Medvedev spoke fondly about a 24-hour television channel dedicated to Indian movies in his country. “Rus-sians love the bright, origi-nal, ethnic-oriented movies made in India. The symbols depicted in the movies are easy to understand,” he said.

When Medvedev came to

India last year, he visited a

film studio in Mumbai. Not

just stars, but joint ventures

flowed from Bollywood.

“We fi nd the way you dance very interesting and fasci-nating. The love for Indian cinema is long-standing in Russia," he said. But the brief visit to the fi lm studio was not simply nos-talgia and tinsel town talk. Business and diplomacy deftly blended with showbiz. Medvedev spoke about an Indo-Russian venture enti-tled ‘The Hindu’, starring In-dian actress Panchi Bora and popular Russian actors Yegor

Beroyev and Marat Basharov, which is doing well in cine-ma halls in his country. The fi lm is about a great surgeon who tries to create a new im-plant to make broken bones heal quickly. Russians first saw it in October, 2010 on the Rossiya 1 channel. The fi lm is now going to be released in India, with two channels, having purchased rights to screen it. DD plans to show the fi lm in 150 countries. Joint ventures were also fi rmed up and unveiled. Rus-sian World Studios (RWS) and Reliance Media Works Ltd., India's leading cinema

and entertainment company, signed a pact on joint resto-ration and digitisation of fi lms. The joint project will fi nance remakes of fi lms by Raj Kapoor, featuring Rus-sian and Indian actors. The agreement also involved Obyedinennaya Gosudarst-vennaya Kinokollektsia (United State Film Collec-tion), Russia’s federal state enterprise that preserves and manages the Russian fi lm ar-chive. Clearly, many fi lm moguls in Russia are thrilled by the prospect of cooperation with the world’s biggest fi lm fac-tory. “We are ready to pro-vide good conditions for the work of Indian fi lm-makers on our market. Incidentally, we are all interested in regu-lation of the cinema, in the sphere of copyright and fi-nancing opportunities being more transparent, more un-derstandable and more uni-versal,” Medvedev said. Another idea that cropped up during the meeting was to make a sequel to the Soviet-Indian film “A Journey Be-yond Three Seas”, based on the travel notes of Afanasy Nikitin, a Russian merchant from the town of Tver, who visited India in the 15th cen-tury. “I promise that the love affair between our fi lms and your country that began 60 years ago will continue,”

Bollywood bridge gets a new sparkle

Shooting a scene for the TV serial ‘The Hindu’

SVETLANA SOROKINARIBR

Russia's film distribution

market grew by 40% in

2010 to finally breach the $1

billion revenue threshold,

becoming the fifth biggest

in the world, says Russian

Film Business Today.

whilst Russian revenue ac-counts for around 97% of the total. The result represents a strong recovery from last year, when receipts plunged to $736 million from $831 million a year earlier. The rouble’s rapid fall that year played a signifi cant role. Ac-cording to analysts at Neva-fi lm, local currency box of-fi ce revenues still grew by 13 pc. Whilst the fi nancial cri-sis softened consumer spending, the corporates mostly bore the brunt. Ordi-

nary Russians merely tight-ened their belts a little. PricewaterhouseCoopers forecasts that the Russian entertainment & media mar-ket will expand at a com-pound annual growth rate of 9.3% in its report entitled ‘Global Entertainment & Media Outlook 2010-2014’.Higher ticket prices has driven up the revenues. Cin-ema audiences only in-creased by 14.9%, indicating Russian consumers are ready to pay more for higher quality.

No biz like showbiz:$1 bn and growing

TIM GOSLINGRIBR

The fi lm distribution busi-ness has recovered with a vengeance. It is expected to touch around $1.05 billion, says website Kinobusiness.com. Russian distributors dominate the CIS space,

The Russian box office will continue to grow at a simi-lar rate to the overall E&M rate, to the point where it will account for 63% of the total receipt growth in all CEE countries and peak at $1.78 billion by 2014. Mod-ern multiplexes are the big-gest driver of the move to quality and consequent rise in ticket prices, with more than half of Russia’s mod-ern screens now housed in retail and entertainment developments. These mod-ern screens have helped as Hollywood blockbusters such as Avatar and Shrek Forever After demanded 3D presentation. The share of multiplexes in the total number of modern screens in Russia was until recently increasing at a rate of at least 30% per year.

Medvedev spoke fondly about a 24-hour TV channel dedicated to Indian movies in Russia.

Randhir Kapoor, son of Raj Kapoor, star of Awara (The Vagabond), said.Awara became so popular in Russia that it continued to shine on the cinema screens until 1986. It was seen by 10 million people. Looking at it as a good alternative to Hol-lywood, the Soviet govern-ment bought 250 Indian fi lms at one stroke. Jawaha-rlal Nehru, India’s fi rst prime minister, joked that Kapoor was better known in Russia than he was. Building upon this legacy, fi lm makers are thinking up joint projects. “Of course, India and Russia have very different audiences,” says Sapronov, general director of RWS. “Making a joint project that would interest both you and us is a chal-lenge. But opportunities for cooperation do exist.”“Russia is looking for vari-ous forms of cooperation with India. Because Indian cinema was hugely popular in the USSR, it was decided to start from there. India produces as many as 1000 fi lms a year, more than Hol-lywood,” says film critic Daniil Dondurei. "Medvedev naturally be-lieves that India’s leadership could be adapted to our in-terests even though Indian fi lms are not yet bought for distribution,” he added.

Will the state of your fi nances be

better, worse or the same?

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Julia Golikovagolikova@rg.ru

ph. +7 (495) 755 3114

www.rusembassy.in

Website

of the Embassy

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in India

est-paid Russian chief exec-utive in 2009 with 885.26 million roubles (about $30 mn) in salary and bonuses. National Media Group chairman Alexander Rod-nyansky was second with 831 million roubles ($28.5

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