5 Gazetny pereulok, Moscow 103918, Russian Federation Phone: (095) 203-88-16 Fax: (095) 202-42-24 E- Mail: todorov@iet.ru 1 Politico-Economical Developments of September 2005........................................................................ 3 On the Course of Reforms in August- September 2005.......................................................................... 5 Budgetary and Fiscal Policy.................................................................................................................... 7 Monetary Policy in the Russian Federation........................................................................................... 10 Financial Markets.................................................................................................................................. 12 Investment in the real sector of the economy........................................................................................ 21 Foreign investment in the Russia's economy........................................................................................ 24 The Real Sector of the Economy: Major Factors and Trends............................................................... 29 IET Business Survey: Industry in September of 2005.......................................................................... 32 Foreign Trade........................................................................................................................................ 34 An Analysis of the Forecast of Socio-Economic Development of the Russian Federation for 2006 and Feasibility of Macroeconomic Pre-conditions of the Draft Federal Budget of 2006..................................................................................................... 37 Issues discussed at the meetings held by the Government of the Russian Federation on September and 29 of 2005....................................................................................................................................... A Review of the Russian economic laws issued in September 2005.................................................... Politico-Economical Developments of September In September the possibility of the third presidential term of Vladimir Putin was continuing. On the fifth of September Putin stated at a meeting with the group of western politologists (all of them were unanimous in treating his words) that УRussia needs a stability, and a pledge of such stability - no changes in the constitutionФ. Talking of 2008, V. Putin stressed - УI am going to leave the Kremlin, but not Russia. And this is also one of the factors of stabilityФ. As concerns his plans for the future he expressed hope that his Уknowledge and experienceФ will be called for by the Russians.
This statement sounded rather unexpectedly at the background of August Уartillery preparationФ (a series of decisions of the local legislative bodies, who recommended to formalize relevant changes in the legislation). In parallel with that, indicative is also the audience of this statement - a group of western experts, and that it was presented not in the form of direct speech of Putin, but some kind of declarations before the foreign public, which was more and more concerned of late by the situation in Russia. However, the meeting received wide coverage in the mass media.
In reality, one should not attach special attention to those statements - it is known that the power often acts Уat the request of working peopleФ. In 2003 Putin denied, for example, switching to assigning of governors (that was prepared at that time) and, in proof of impossibility of such an action, referred to the RF Constitution. Nonetheless, such declaration is important - no such thing could be remembered for about a year. It opens the next round of struggle for the right to become a successor and seriously complicates the possibility of the ruling group to retain power. Besides, this means a potential destabilization of the system.
On September 23 the Moscow City Court (Mosgorsud) considered the cassation appeal of Mikhail Khodorkovsky lawyers against the judgment. Mosgorsud approved the judgment slightly reducing (by one year) the term of imprisonment to the former oligarch. A little earlier, Khodorkovsky announced about his wish to run for a deputy to the State Duma at a by-election (before the judgment came into force he had had the right), and it was obvious the power was not going to drag our the trial until the fourth of December. Considering the length of the case - 450 volumes of KhodorkovskyТs case, records of trial of Meshchansky court and 700 pages of cassation appeals, it was expected that the case could be considered until mid-October, which would give a chance to Khodorkovsky to take some preelection political actions for a time. However, the case was УconsideredФ in a day.
In September 2004 it was announced about the biggest transaction on the oil market of the RF.
Gazprom and Millhouse Capital (that manages the assets of R. Abramovich and associates) announced that writings obligatories were signed to acquire 72.63% of shares of oil company Sibneft - i.e. the whole package of R. Abramovich. In this case, Gazprom will have over 75% shares, because it acquired part of the shares on the market in the the last few months, which excludes existing of the owner of the package of shares.
No exact parameters of the transaction have yet been announced, but it is expected that its financing will be made by Gazprom by attracting a loan from the syndicate of west banks - ABN Amro and Dresdner Bank, Citigroup, Credit Suisse First Boston, Goldman Sachs, Morgan Stanley (even without that the GazpromТs own debt makes over $22 bn) The transaction is not reflected in the GazpromТs investment program and not approved by Gazprom Board of Directors and most probably the Federal Antimonopoly Service (FAS), but despite it, most probable the transaction will be performed if Gazprom succeeds in finding the financing. Earlier, Putin said he was not against the transaction if it is market oriented.
Selling Sibneft to Gazprom is rather important both from the point of view of economics and politics. First, itТs absolutely clear that Russian authorities (i.e., the State) will take full control of the production of hydrocarbons - regardless of any governmental declarations. In the last two years the assets of two of the five largest private oil companies - Yukos and Sibneft, turned out to be under control of the government companies. Second, Gazprom is being transformed into a large monopolistic holding type structure, that controls assets from production of oil and gas to the electric power industry, metallurgy, mass media, etc., managed by PutinТs assignee. This structure is absolutely free in its financial operations, a guarantor for which is, in fact, a controlling shareholder - the State. Plus, the presence of considerable number of minority shareholders (among them foreign ones) and regular payment of dividends serves a definite and essential indicator that the Russian economy is market oriented. In so doing, any commercial conflict with Gasport (including outside of Russia) becomes extremely difficult. It is indicative that one of the branches of the ruling group, I. Sachem Group, tries to establish a similar competing holding structure on the basis of Rosneft, which, in case the information is confirmed about the partial IPO, should also have (owned preferably to foreign investors) a blocking holding of shares. However, taking into account the size, financial position,,and reputation of Rosneft, it wonТt be soon that it can be compared with Gazprom.
As concerns politics, we observe the largest legal (authorized by power) exports of capital by a private person outside the country1. The donor of such operation is Gazprom, - the company that has the state-owned stake. The completion of management of R. Abramovich and Sibneft partners marks off the attempts to treat the power redistribution of large property, taking place of late, as based on any principles (of social justice or economic efficiency, for example). This transaction will become an example of doubtful management from both the point of view of free management of the government property for magnetization of assets of R. Abramovich, and - crying mismatching of the government policy towards different private companies, for example, Sibneft and Yukos. The act of the government-private beneficence is all the more so interesting, because Sibneft found itself in not a simple legal position - from the use of similar to Yukos and even УrougherФ schemes of tax avoidance to holding of $3 bn2 of funds of Yukos shareholders inside of the association, broken down by R.
Abramovich structures.
And, being prepared for a long time and still not bought in transaction on selling of R. Abramoovich Russian assets means for the powers a risk of his potential unpunished political investments. The only thing that makes oligarch not to leave the country - is the post of a governor of Chukotka autonomous area, which is not at all profitable, but rather Уloosing moneyФ vacancy. Of course, one should not discard the factor of personal relations or personal obligations. We also should remember that itТs because of his talant of a political investor and caused by it his immunity for rivals and 8the lawenforcement system that Abramovich could earn the biggest (to date) fortune in Russia.
The new president of the Russian Union of Industrialists and Entrepreneurs (RUIE) was elected. It is A. Shokhin, the head of the Board of Supervisors of УRenaissance CapitalФ, who released from duty oil lobbyist A. Volsky. Many observers expect this will help breathe a new life into the RUIE project, that was actually УfrozenФ after the arrest of M. Khodorkovsky and loss of the need for the power to conduct a dialogue with big business. Such an estimation is not well-grounded. The policies of the power have not changed - still less ground exists to believe that business will be ready in these conditions for self-organization to defend its interests. The past congress showed that a competitiveness still exists between the participants of RUIE (thus, a sudden rivalry to Shokhin turned to be I. Yurgens, his colleague from the Renaissance Capital, who almost left him behind, but refused, eventually, from the struggle), some carelessness of existing rules and many other things, without which УreanimationФ of "oligarch trade unionФ is impossible.
In September a pre-election scheme became apparent at the forthcoming (in December election) to the Moscow City Duma - one of the finishing campaigns of this year, which attracted attention not only because of significance of Moscow, but also a strongly marked presentability of this campaign in the conditions of new antidemocratic election legislation that prohibits blocks, introducing machines for Уelectronic counting of votesФ, expanding the number of voters of the constituency to more than half a million, etc. Thanks to consistency of a federal legislator, just late in the year Moscow succeeded to retain prohibitive 10% barrier, that would be impossible neither after 2005, nor, in the majority of locations, - before. In fact, the power did not hide that it plans to help to be elected to the legislative bodies exclusively the ruling party УSingle RussiaФ, which representing an inevitable3 evil of small but loyal party (the head of Single Russia, Boris Gryzlov, who is not aware in the niceties of legislation, even stated that they pretended to have all 35, i.e. 100% seats). In late summer it became clear that LDPR, with V. Zhirinovsky to head the list, is planned to be a reserve party.
No data exist of new business projects of R. Abramovich in Russia, though not long ago, he made acquisitions in Kazakhstan, Eastern Europe etc.
This amount had been transferred for 20% of shares of Sibneft and was not returned to date.
Even if 10% barrier is overcome by a party, the party next to previous is allowed to distribute seats according to party lists.
Preparing for the election looked like a special operation. Initially they said the barrier would be lowered to 7%, and the regional power would kindly take passing in the legislative bodies not only the Single Russia, but also Yabloko and Rodina - the parties which were successful in Moscow in 2003. Having spent on useless bargaining with the Mayor's Office of Moscow the time and resource, all activists and sponsors of the subjects of this political process were forced out to the УSingle RussiaТ, while its candidates were headed by popular in Moscow mayor Louzhkov - who, himself, is not going to any legislative body. In this situation, the political partiesТ behavior was quite the opposite.
Having impeded the start of the elective company and defeated as regards their hopes to have separate talks with the Mayor's Office, the leaders of Yabloko and SPS, G. Yavlinsky and N. Belykh formed a single list basing on Yabloko party, led by the current party members - the Moscow State Duma (MSD) deputies. They refused the idea of УlocomotivesФ because of their obvious antirating and suggested a strict opposition program. The attempts to ruin negotiations, playing on the known jealousy, were not a success - 10% barrier had an effect of a wake-up call. As concerns the largest opposition party - "RodinaФ, which collected in Moscow (in 2003) over 15% of votes, it behaved the other way round. The list was headed neither by D. Rogozin nor by S. Glaziev (that people talked much about), but by MSD deputy (who suffered a Уxenophobia diseaseФ), Yu. Popov, while the old colleague of Vl.
SurkovТs, A. Atones, became number two in the list. In the campaign it was decided to lay stress on the theme of illegal migration, which had a minor effect on the power. Almost the same tactics was also employed by communists, who suggested the list headed by the vice-chairman of the Central Committee of KPRF, MSU Professor, I. Melnikov.
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