High-Tech Ceramic Production Starts in Siberia

NOVOSIBIRSK — A factory producing nanostructured ceramics for orthopedics and dental implants, bulletproof armor and circuit boards opened its doors in Novosibirsk on Thursday as a part of the government's effort to breathe life into domestic manufacturing facilities.

Rusnano chief Anatoly Chubais and Novosibirsk region governor Vasily Urchenko officially switched on the production lines in NEVZ-Ceramics, a 1.5 billion ruble ($45.9 million) joint venture between Rusnano and a 72-year old Siberian electronics and ceramics factory, NEVZ-Soyuz.

Rusnano has invested 790 million rubles ($24.2 million), with the rest coming from private investors and the federal government, including $4.7 million from the Education and Science Ministry and $184,000 from the federal Fund of Assistance to Development of Small Enterprises.

German engineering firm BBL Technology Transfer provided technology to optimize the machines that pulverize raw materials into nanoscopic particles and compress them with other nano additives to reduce porousness and increase strength, resulting in a ceramic material stronger than titanium.

"The factory already had a basic process of ceramics production," said Karl Billau, managing director of BBL Technology Transfer, the only person without a white lab coat in what looked like a black and white futuristic film from the '60s.

"But we made improvements and brought state-of-the-art technology from Germany. This is the only place in Russia that has these machines," Billau added.

Hip joints made from this material, for example, have a life span of 20 years, which is twice as long as conventional titanium replacement hips. It makes a world of difference for elderly people, Chubais said.

The factory will also produce ceramic spinal disks. The Novosibirsk Institute of Traumatology, Orthopedics and Neurosurgery has already performed three successful operations using prototypes.

Catherine Mamontova, head of the Medical TechnoPark in Novosibirsk, said that it's time for a mindset change. People travel overseas for complicated surgeries, while cutting-edge technology is already available in our country, she said.

The strength of this project is that "it is built on a foundation of research conducted by local scientists from Novosibirsk — a region which has and will be a leader in new technologies," said Rusnano managing director Dmitry Lisenkov.

"The task of producing modern complex composite ceramics for the military, electronics and life science is very ambitious," Chubais said. "These technologies are not just world-class, they are a step ahead of world-class."

In 2012, the global market for ceramics reached $57 billion, growing nine percent per year on average, while the domestic market reached $483 million and grew at a rate of 18 percent per year.

It is expected that by 2016 NEVZ-Ceramics' turnover will reach 2.5 billion rubles but to achieve that management needs to put as much effort in sales and winning new customers as they put into setting up the production line in the first place, Chubais said.

Currently Russia imports over 70 percent of its high tech ceramics needs. Steep prices and inflexibility of suppliers have hindered the use of ceramics in industries such as oil chemistry, electronics and medicine, according to a statement from NEVZ-Ceramics.

By 2016, the company expects to replace up to 10 percent of the current import volume with its own products.

Novosibirsk Mayor Vladimir Gorodetsky said that this project is "not a demonstration of future hopes for new technologies, but of a practical adoption of these technologies on Siberian territory."

NEVZ's evolution is in line with Prime Minister Dmitry Medvedev's recently comments about the evolution of the country's industrial base.

In a trip to the Yaroslavl region earlier this week, Medvedev said that employment problems and performance of certain factories have to be considered within "the scale of the whole country," Vesti Reported.

Modernization of existing production lines is critical to win contracts and keep jobs. Russia lags behind developed countries like Germany, where innovative technological processes are deployed at 62 percent of businesses, said Labor and Social Protection Minister Maxim Topilin. In Russia, only 9 percent of enterprises use modern technology, he added.

Contact the author at g.moukine@imedia.ru

Local Car Parts Manufacturers, Clustered With Foreign Firms, Face Annihilation

Russian auto parts manufacturers face complete disintegration if the government does not support them inside specialized automobile clusters, industry insiders said at a summit Thursday.

A lack of competitiveness in the industry threatens the future of producers but is even more dire for those working on new innovations in the field.

"Russia is now at a breaking point," said Yury Mikheyev, deputy head of the Center of Innovative Development and Cluster Initiatives in Samara region. "Either we take an innovative path of development … or we turn into a raw resource country and an assembly line for auto giants."

At the Cluster Summit in Moscow, Mikheyev outlined two scenarios along which Samara region's automobile sector could develop. In the pessimistic scenario, the value of auto parts production falls from 49 billion rubles ($1.4 billion) in 2012 to 26 billion rubles in 2020. In the optimistic version — where government supports Russian manufacturers in auto cluster initiatives — the value of production rises to 52 billion rubles.   

There are several automobile clusters located across Russia, with the main ones found in the Central, Volga and Northwest districts.

Clusters bring together different companies, parts manufacturers and researchers to complement each other and increase their competitive advantage and innovations. Most of the clusters are part of special economic zones where investors can take advantage of tax benefits and ready-made infrastructure.

"We can see in the cluster strategy a complex, diverse system that is ahead of its time," said Valery Draganov, president of the Avtodor holding.

But starting up a cluster is hard work, and once they are established, domestic producers often struggle to achieve and maintain high standards.

Anatoly Sotnikov, chief of the Innovation Development Agency in Kaluga region, southwest of Moscow, recalled how his organization conducted a survey in 2010 among foreign car companies to find out why they don't place orders with Russian auto part manufacturers. Respondents said they were unhappy with the quality and price of the products, but most of all, they are not sure that Russian manufacturers can supply them the quantities they need.

No foreign investors wanted to join the Kaluga region cluster at first, but after Volkswagen made the move, others started pouring in, Sotnikov said.

Now the cluster includes seven car brands, including Volvo, Renault, Mitsubishi and Citroen. This increased interest also brought on challenges. The cluster needed a total of 14,000 workers, which the Kaluga region never had to start with.

As a solution, the regional government built a training center for automotive sector workers. 9,500 students have already graduated from its programs.  

A paucity of professional workers is an issue that clusters routinely deal with, the inevitable result of having several large manufacturers clumped tightly together.

The workforce is a general problem, but Russian companies, finding themselves at close quarters with global automobile powerhouses, have a hard time overcoming ineffective and uncompetitive engineering practices, and low production figures, as a result of which they can't invest in their future development, Mikheyev said.

But even if these issues are overcome, Mikheyev said Russian producers were now mostly playing second fiddle.

"The time has passed when we dominated the market and we could sell on our conditions," Mikheyev said, adding that in Samara region it is the foreign Renault concern that now dictates how the sector functions.

Contact the author at e.smirnova@imedia.ru 

Gazprom Says Ukraine Endangering Winter Gas to Europe

Gazprom is complaining that Ukraine is endangering the supply of Russian gas to Western Europe this winter.

The comments Thursday by Vitaly Markelov, deputy chairman of Gazprom's management committee, raise echoes of 2009, when Russia cut gas shipments to Europe for three weeks in a dispute with Ukraine. Most of Russia's gas to Europe goes through pipelines crossing Ukraine.

Ukraine, which Gazprom says owes $1.3 billion for gas imports, has announced that it does not intend to buy any more Russian gas this year and instead will use gas already stored underground. Markelov says that will deplete the amount of so-called "technical gas" needed to drive the gas through the pipelines to Europe.

Markelov was quoted by the RIA Novosti news agency as saying "this is a catastrophe."

The Moscow Times

Tobacco Advertising Ban Begins Friday

A ban on tobacco advertising goes into effect Friday, prohibiting cigarette commercials on television, the Internet and in newspapers and barring tobacco companies from sponsoring public events.

Violations carry a fine ranging from 3,000 to 600,000 rubles ($92 to $18,300), Vedomosti reported.

The ban was to become effective in June, along with an anti-smoking law that limits the number of places where Russians can light up, but the State Duma failed to write amendments into the country's law on advertising before the deadline.

In the run-up to the ban, tobacco companies nearly doubled their advertising budgets, before slashing them in June.

Major media outlets’ revenues from tobacco commercials reached 478 million rubles in January to May, 2013, compared to 269.5 million rubles during the same period last year, according to Video International.

Though the Federal Anti-Monopoly Service announced in May the ban would be postponed, some tobacco companies, such as BAT Russia, said they pulled their commercials from the media. Others, such as Philip Morris, said they continued placing commercials, but refused to disclose whether the volume of advertising was reduced.

Press revenues from tobacco ads dropped to 11 million rubles in June, compared to 55.9 million rubles in a year earlier, according to TNS Media Intelligence.

The Moscow Times

Central Bank Balks at Mechel Bonds

The Central Bank said Thursday that bonds issued by mining group Mechel would be zero-rated as collateral, effectively ruling out their use in refinancing operations.

The one-line statement followed a 40-percent slump in the price of Mechel's and a sell-off in its bonds — some of which have triple-digit yields — indicating that the market believes the company cannot sustain its $9.6 billion debt load.

The financial regulator said that a coefficient applying to Mechel's bonds as collateral would be reset to zero with immediate effect. Mechel had no immediate comment.

"It effectively means that the bonds are excluded as a means of obtaining refinancing," said Denis Poryvai, a fixed-income analyst at Raiffeisen.

The bid yield on Mechel ruble bonds maturing in February 2021 rose to 200 percent on Friday, suggesting that the market is pricing in a high probability of the default. The bid price was 76 percent of par.

Mechel's shares bounced by 11 percent Thursday after hitting all-time lows on Wednesday. Market sources cited forced selling, which some attributed to margin calls on shares pledged as collateral by Mechel's main owner, Igor Zyuzin.

Zyuzin directly and indirectly owned 67.4 percent of Mechel's common shares as of July 22.

Mechel said in a statement Thursday that talks with creditor banks on a covenant holiday and a debt restructuring were "going well."

Russia's financial markets regulator, which is now housed at the Central Bank, said it was looking into whether market manipulation was behind the slump in Mechel shares on Wednesday.

State-controlled banks are heavily exposed as creditors to Mechel, which continued to pile on debts through the global financial crisis to pay for acquisitions.

Last year, the company set a target of raising $4 billion through disposals but has been thwarted by a turn in the commodities cycle and has had to receive new state funding to press ahead with its flagship Elga coal project.

Reuters

Rosatom Seeking Partners for Turkish Nuclear Project

Reactor builder and supplier Rosatom is talking with a number of local and international firms interested in investing in Turkey's first nuclear project, worth $20 billion, an official in its Turkish subsidiary said.

"Five Turkish companies have applied to become an equity partner. Also there are foreign companies who have applied as well," Rauf Kasimov, deputy general manager of Akkuyu NPP, said in an interview.

He declined to name the interested companies.

Turkey is pushing ahead with an ambitious nuclear program to provide 10 percent of its electricity needs by 2023 and reduce its dependence on imports of oil and gas for nearly all its energy.

Reuters

Moscow Strives to Make Itself a Global Financial Center

Moscow is going full-out to transform itself into an international financial center, building business centers and overhauling its regulations to present an open face to investors, but the city's hopes are undermined by the lack of a skilled workforce to do the job, foreign financial advisors said Tuesday.    

In recent years the Russian government has stepped up its efforts to stimulate growth in the financial sector, and harbors visions of Moscow as one of the world's leading international financial centers, on a par with London or New York.

But as of September, Moscow rated 69th in the Global Financial Centers Index, slipping down four places since March this year.

The index was prepared by the Qatar Financial Centre, set up by the Qatar government in 2005 to promote financial services development. It provides profiles and rankings for world's 80 top financial centers based on third party measures and indices and  questionnaires filled in by international businessmen.

According to the index, London and New York are currently the leading global centers of finance, with Hong Kong and Singapore poised to eclipse them in the coming years.

The Russian government has set a goal for Moscow to reach 40th position in 2014. The Qatar Financial Centre, however, made no forecast that the city would increase its significance over the next few years.

An example of the government's sense of purpose is the construction of a physical international financial center in Rublyovo-Arkhangelskoye on Moscow's western edge, for which a shortlist of eight designers was selected last week.

First conceived by then-president Dmitry Medvedev in 2008, the centre will have 5.4 million square meters of office space, hotels and other commercial and social infrastructure.

But it takes more than just buildings to create a competitive and comprehensive capital market, financial analysts said.

However, in many respects, Russia has established the conditions necessary for financial activity, they added.

"A liberalization of the market started in 2006 when international banks were allowed to open ruble accounts here, followed by a permit for foreigners to buy Gazprom shares," said Danny Corrigan, chair of TheCityUK Russia, an organization that represents British financial interests.

Two years ago, a newly set up task force for the Moscow International Financial Centre chose TheCityUK as its partner to push forward development, and a delegation was in Moscow on Tuesday to discuss the initiative's progress.

Besides Russia and the Commonwealth of Independent States, TheCityUK does overseas promotion for Brazil, India, China and Turkey.

Russia has gradually become a liberal financial market through the whole scope of financial products, Corrigan said.

According to his estimates, in the next few years financial trading procedures in Russia are likely to be the same as they are in London or New York.

But a key hindrance to Russia's development as a financial center is human resources, other financial consultants said.

"One of the key drivers for building a good financial center is the availability of skilled personnel. People need to know what they are doing in order to run anything," said George Littlejohn, a senior adviser for Chartered Institute For Securities & Investment, a London-based international investment consultancy.

While Russia does have quite a few skilled professionals, their qualifications need to be better tuned to their future workplace, and this has to be done at the university level, he said.

Moscow today has a large number of people employed in the financial sector but far too many of them are engaged in short-term trading or in other areas focused on short-term returns, said Chris Weafer, a senior partner with Macro Advisory, a Russia-based investment consultancy.

"For an international financial center to be successful, there needs to be a greater number of people engaged in building for the longer-term," he added.

In order to tackle this problem, a memorandum of understanding was signed between Britain and the Russian Financial University on training and qualifications in financial services on Tuesday.

This will enable Russian students to exchange experience with their British counterparts and vice-versa, hopefully generating the necessary skills in the process.

While a top-ranking financial center certainly needs a large number of skilled bankers, a whole range of complementary skill sets and experiences have to be also brought together.

"One of the reasons why London, for example, remains the top spot global financial center is because it has tremendous depth in support services, that is, in legal, insurance, financial IT, foreign exchange, etcetera," Weafer said.

London also has more than 100 years of experience in conducting financial business which it can draw on, he added.

Moscow, by comparison, has a history in modern financial practice of about 20 years.

Contact the author at a.panin@imedia.ru 

Lawmaker Seeks to Ban U.S. Dollar

Warning that the U.S. dollar is on the brink of collapse, a State Duma lawmaker has submitted legislation to ban dollar deposits and transactions at Russian banks.

Mikhail Degtyaryov of the Liberal Democratic Party said the dollar will collapse in 2017 if U.S. national debt continues to grow at the current rate, and he cautioned that countries with a high dependence on the currency would suffer an economic disaster.

"In light of this, the fact that confidence in the dollar is growing among Russian citizens is extremely dangerous," he said in an explanatory note attached to the bill, according to Interfax.

The bill, which would impose the ban within a year of its passage, says the holder of a dollar account would need to spend the money, convert it into another currency, or see the bank convert the account into rubles at the average rate for the previous year.

Russians could still buy and sell dollars while abroad, hold dollar deposits in foreign banks, and engage in e-commerce.

The legislation would not apply to the Central Bank, the government, the Foreign Ministry, the Defense Ministry, the Foreign Intelligence Service, the Federal Security Service and the Federal Treasury.

It was unclear when the bill might come up for a first hearing and whether it would find enough support in the pro-Kremlin legislature to be passed into law.

The Moscow Times

Permission Granted for Baumgertner Meeting

MINSK — Russian diplomats in Belarus said Wednesday that they have been allowed to meet with the detained head of Russian potash giant Uralkali, who is facing charges of fraud that Belarus estimates has cost it around $100 million.

The Russian Embassy said it received permission to meet with Vladislav Baumgertner in a fax dated November 11, one day ahead of Moscow's second request for its diplomats to see the businessman.

Baumgertner was detained in August in the capital of Belarus, Minsk, after Uralkali unexpectedly withdrew from a cooperation agreement with its Belarussian counterpart, causing a steep drop in prices and sparking a political dispute.

He has been charged with abusing his position at his company, an offense punishable by up to 10 years in prison, and is currently being held under house arrest.

Baumgertner also currently faces criminal charges in Russia that were filed after his arrest in Belarus.

Political commentators have suggested the Russian investigation could be an attempt by Moscow to get Baumgertner back home before dropping the charges against him.

Belarussian President Alexander Lukashenko has said Baumgertner could be extradited to Russia provided that he face criminal charges and that financial damages be covered.

Uralkali has claimed that Belarussian allegations against Baumgertner are politically motivated.

RIA Novosti

Shuvalov Considers Delaying Rosneft Sale Until 2016

The government is considering delaying the privatization of oil giant Rosneft until 2016 or later as it seeks to maximize the price it can secure.

Rosneft is scheduled to be privatized in 2015, and a postponement could put a dent in projected government spending.
"We will have to discuss the best way to privatize and the timing with our partners," First Deputy Prime Minister Igor Shuvalov said Tuesday, Prime reported. "Previously we thought that it might be 2015, but now experts are saying that it may be better to postpone it until 2016."

An aide to Shuvalov told Vedomosti that the final decision on the sale would depend on market conditions because the government did not want to sell to "just anyone" on the cheap.
Among the main potential bidders is Britain's BP, whose stake of 19.75 percent in Rosneft makes it the biggest shareholder after the government.
"We would be happy if they participate in future negotiations for the sale of the government's stake," Shuvalov said.
The value of Roneft is currently a relatively low $78.5 billion, while the company has yet to reap any synergies from its acquisition of TNK-BP in March, Vedomosti said. Furthermore, Rosenft is rapidly accumulating debt, including the $45.1 billion in cash that it paid for TNK-BP, the acquisition of Itera for $3.1 billion in July and plans to buy 19.6 percent of Severenergia for $1.8 billion by the end of the year. Rosneft's net debt has ballooned by 3.2 times in the first three quarters of 2013 to 1.9 trillion rubles ($57.75 billion).
If the privatization of Rosneft is delayed, the Finance Ministry may face a shortfall of 423.5 billion rubles ($13 billion) in the draft budget for 2014-16. The budget envisages raising this amount from the sale of 19.5 percent minus one share of Rosneft.

The Moscow Times