21 May 2002, Volume 2, Number 20
OIL & GAS
AFGHAN, PAKISTANI, TURKMEN LEADERS TO DISCUSS PIPELINE (12 May)Afghan interim ruler Hamid Karzai will hold talks with his Pakistani and Turkmen counterparts later this month about plans for a pipeline through his country to export Turkmenistan's rich oil and gas reserves to the Indian subcontinent, Reuters reported. The summit follows a meeting earlier this month between Karzai and Turkmen President Saparmurat Niyazov about the giant project, which would cost an estimated $2 billion and cover a length of 850 kilometers. Afghan Mine and Industries Minister Alim Razim said Unocal was the "lead company" among those that would build the pipeline, which is aimed at injecting 30 billion cubic meters of Turkmen gas annually into Pakistan and beyond it through southern Afghanistan. Unocal pulled out of the project in the late 1990s. Afghanistan would demand transit fees for the export of gas and oil on the basis of international norms. The Afghan government is likely to press to take over ownership of the pipeline after 30 years. Razim said the pipeline project would provide job opportunities for thousands of Afghans. The Asian Development Bank (ADB) has been surveying routes for transferring local gas from northern Afghan areas to Kabul and also to iron-ore mines at the Haji Gak pass to the west of Kabul. "ADB will announce its conclusion soon. One pipe is planned to bring gas to Kabul and the second one will pass through the mountains to Haji Gak for iron-exploitation purposes," Razim said. The pipeline will be built using funds from donor countries for the reconstruction of Afghanistan, as well as from ADB loans, Razim added. (JMR)
LUKOIL SEEKS TO INCREASE SHAREHOLDER CONFIDENCE (14 May)Russia's largest oil company, LUKoil, unveiled an ambitious restructuring plan designed to assure shareholders before the planned sale of a 5.9 percent stake owned by the government. LUKoil Vice President Leonid Fedun announced that by increasing exports, cutting costs, and streamlining its corporate structure, LUKoil expects to increase its net profit by $500 million per year in three years. Its market capitalization fell below its smaller opponent, Yukos, partly because Yukos has been quicker in adopting Western methods of investor relations, RosBusiness Consulting reported. Steve Allen, an oil analyst at Russian Investment Bank Troika Dialog, said that the restructuring plan is more than a "matter of image." He called a company meeting with the analysts, which was attended by LUKoil President Vagit Alekperov, a "breakthrough," after the company admitted that it had fallen behind its peers. "They have never admitted before that they had a cost problem," Allen said. He said the most realistic points in the restructuring plan are measures to cut costs and improve efficiency, including spinning off the company's drilling business, abandoning less-profitable wells, and reducing staff from 140,000 to 115,000 by 2005 and further to 85,000 by 2010. Allen said he doubts that LUKoil will meet its "ambitious production target" of 140 million to 160 million tons a year by 2010, which is roughly double the 78.3 million tons it produced last year. The increase will come from better exploitation of the fields and drilling in the company's Timan Pechora fields in northern Russia. The government, which holds 14 percent of LUKoil, announced that it will offer a 5.9 percent stake in June or July in the form of depositary receipts. LUKoil's shares fell to $16.90 from a peak of $17.50 after this announcement. (IAM)
RUSSIA SUPPORTS INCREASED GAS COOPERATION WITH BELARUS (15 May)The Russian Department of Information announced that it has drafted an agreement increasing gas cooperation with Belarus based on government wishes, RosBusiness Consulting reported. A number of Russian ministries, including the Energy and Justice ministries and some other government structures, initiated this draft, which was already discussed with Belarus officials, the consultants said. The agreement is aimed at the joint production of natural gas. Belarus is seeking uninterrupted transit of natural gas to other countries via its territory. The agreement is necessary for coordination of policies in Russia and Belarus concerning the development of a major gas-pipeline system and for the reconstruction and extension of existing pipelines, underground depositaries, and other gas utilities. The agreement stipulates the joint development of new technologies, scientific research, and projects on gas and energy savings, among other things. (IAM)
KYRGYZSTAN, UZBEKISTAN SIGN ACCORD ON GAS SUPPLIES IN 2002-03 (16 May)Uzbekistan will continue to supply natural gas to Kyrgyzstan at the previous price of $42 per 1,000 cubic meters, according to agreements cited by "Caspian Business Report" on natural-gas supplies for the Kyrgyz public in 2002 and the first quarter of 2003 and on the use of fuel-energy and water resources for the same period. Kyrgyzstan is to supply 1.1 billion kilowatt hours of electricity in exchange for 540 million cubic meters of natural gas for a thermoelectric power plant for the city of Bishkek, Kyrgyz First Deputy Prime Minister Nikolai Tanaev said. According to "Caspian Business Report," the price for Kyrgyz electricity is 0.034 cents per kilowatt hour. Uzbekistan guarantees the supply of 25 million cubic meters of gas for the Kyrgyz population. As before, half the payments for gas will be in the form of goods and the rest in foreign currency. For the past 10 years, Kyrgyzstan has strictly adhered to the terms of the bilateral agreement on the use of fuel-energy and water resources, Tanaev noted. He said the Uzbek side should supply more than $4 million worth of gas to Kyrgyzstan in compensation for last year. (JMR)
UZBEK RAILWAYS TO BUY 12 LOCOMOTIVES FROM CHINESE FIRM (2 May)Uzbek Railways has signed a $39 million contract with China's Zhuzhou locomotive works for the purchase of 12 electrically powered locomotives, the Uzbek newspaper "Pravda vostoka" reported on 2 May. The Chinese company was awarded the contract through a tender. The newspaper added that the Uzbek state-owned railways has taken out a 15-year loan from the European Bank for Reconstruction and Development to make the purchase. (JMR)
LITHUANIA TO DIVEST LIETUVOS TELEKOMAS STAKE (10 May)The Lithuanian government has hinted it will divest a 5 percent stake in telecom monopoly Lietuvos Telekomas and shares of other companies under a property-restitution program. The Lithuanian government has paid out some 250 million Lithuanian litas ($66.14 million) since 1992 under a law that mandates the return of land and real estate to pre-World War II owners or compensation when that is not possible. Lithuanian Finance Minister Dalia Grybauskaite told Reuters, "At first we were skeptical about [the idea of compensating in the form of shares rather than cash], but now we have agreed to try it on a small, experimental scale, allocating about 5 percent of shares of two of our companies." According to the State Property Fund, assuming a relevant government decree is issued, divestment would proceed in three stages, starting in the second half of 2002. Telekomas, which is 60 percent owned by a consortium of Finland's Sonera and Sweden's Telia, has seen its share price tumble since a June 2000 initial public offering, when the state sold a 25 percent stake at 3.15 litas per share. (JMR)
CAPITAL OF RUSSIAN BANKS REACHES $8.89 BILLION (13 May)The total registered capital of lending organizations operating in Russia has reached 277.88 billion rubles ($8.89 billion), according to Russian Central Bank figures. That figure has increased by 16.89 billion rubles ($540 million) since the beginning of this year. There were some 1,981 credit organizations registered in Russia by 1 May. Only 1,327 of these organizations are entitled to conduct banking operations. About 1,215 banks hold licenses to serve retail clients, 819 of which are permitted to process transactions in foreign currencies while 274 have general licenses. Only seven lending organizations are licensed to conduct operations with precious metals on the basis of permits, and 164 hold licenses. Approximately 129 lending organizations with foreign shareholders were registered in Russia by 1 May, RosBusiness Consulting reported. Nonresidents own 26 banks in the country and control majority stakes in 10 banks. (IAM)
ANDERSEN TAKES MAJOR STAKE IN COMCORTV (13 May)New York-based investment company Andersen Group, Inc., signed an agreement to acquire 50 percent of Russia's ComCorTV (CCTV) for $28 million in Andersen Group stock, the company announced in a statement on 13 May. CCTV is equally owned by ComCor, a Russian provider of fiber-optic backbone services and an affiliate of the Moscow city government, and local Andersen Group affiliate Moscow Broadband Communications. The company is currently in the process of wiring Moscow to provide broadband services, including cable television, high-speed Internet access, and Internet protocol-based telephone systems for residential and business customers, "The Moscow Times" reported. The deal, which requires the approval of Andersen Group shareholders and various Russian and American regulatory bodies, is expected to be completed by year-end. (IAM)
BANK OF CHINA TO COOPERATE FURTHER WITH VNESHTORGBANK (15 May)Bank of China (BOC), the country's biggest foreign-exchange bank, has signed an agreement to boost cooperation with Vneshtorgbank, Russia's second-biggest bank, Reuters reported. BOC, one of China's "Big Four" state commercial banks, will move beyond cooperation in trade settlement. BOC President Liu Mingkang said, "The Bank of China attaches great importance to the Russian market, as well as cooperation with Vneshtorgbank." Bank of China is aiming to list its Hong Kong operations overseas this year in an initial public offering aimed at raising at least $2 billion. (JMR)
RUSSIAN COMPANIES DEEMED 'MOST LIKELY TO BRIBE' (14 May)According to corruption watchdog Transparency International (TI), Russian companies are the most likely to offer or pay bribes for contracts in emerging-market countries, followed by firms from China and Taiwan, Reuters reported. Russia did not figure in TI's first Bribe Payers Index in 1999, which found Chinese firms the most corrupt, followed by South Korean and Taiwanese companies. Also listed in the Bribe Payers Index 2002 survey were companies from South Korea, Italy, Hong Kong, Malaysia, Japan, and the U.S. The index, based on a survey carried out in the 15 emerging-market countries that trade most with multinational corporations, showed that companies from Australia, Sweden, Switzerland, Austria, and Canada were considered the least likely to offer or pay bribes. (JMR)
UKRAINE'S RIVNE NUCLEAR PLANT CUTS PRODUCTION (14 May)Operators at a nuclear reactor at Ukraine's Rivne power plant reduced the reactor's output by half after a malfunction in its lubricating system, "The Kiev Times" reported. The malfunction occurred on 13 May in the bearings of the plant's No. 2 nuclear reactor, prompting an increase in its fuel temperature and a shutdown of one of the reactor's turbogenerators, a representative of the State Nuclear Company Energoatom said. The defect was repaired early on 14 May. No radiation leaks were reported. On 14 May, reactor No. 1 of the Zaporizhzhia nuclear power plant was shut down for planned repairs until 19 July, Energoatom announced. Reactors at Ukraine's four nuclear power stations are frequently shut down for both scheduled and unscheduled repairs. (IAM)
RUSTAVI METALLURGIC PLANT TO BE PUT INTO OPERATION (15 May)Georgian President Eduard Shevardnadze received a delegation from Industrial-Financial Group Lukini, headed by Group Director General Michael Biet, Sakinform agency reported. Lukini is one of the leading metallurgy groups in Europe. It makes about 7 million tons of metal and high-quality steel every year, with company plants in Italy, France, Poland, and other European countries. Biet said company representatives spent two months examining Georgia's Rustavi Metallurgical Enterprise and now plan to invest in it. He claimed the Rustavi plant will be operational soon. No final agreement has been reached, but Biet said he believes the outstanding issues can be resolved. (IAM)
MINISTRY SAYS RUSSIAN METALLURGY IMPORTANT TO ECONOMY (15 May)The Russian Industry and Science Ministry asserted on 15 May that the condition of the Russian metals industry has a tangible impact on the economic development of the entire country. The Russian government is currently discussing ways to develop the metals industry through 2010. According to the Industry Ministry, Russia has the fourth-largest volume of metals production in the world with a 7 percent share of overall production. Up to 59 million tons of steel has been produced in Russia since January, RosBusiness Consulting reported, and about 55 percent of that was exported. Russian steel comprises about 10 percent of the global market for the metal. Approximately 16.5 percent of the industrial goods produced in Russia are metal products. Up to 1.4 million people are employed in the industry, representing 11.8 percent of Russia's industrial employment. The metals industry produces 14.4 percent of Russia's hard-currency revenues and 7.8 percent of all taxes paid to the country's budget each year. (IAM)
UKRAINE TRIES TO WORK ITS WAY OFF MONEY-LAUNDERING BLACKLIST (17 May)Ukrainian authorities have taken measures to combat money laundering aimed at getting the country off an international blacklist, "Den" newspaper reported. The paper cites an anonymous source asserting that Ukraine has emerged from difficult elections in which money from the shadow economy influenced the campaign. "Ukraine is planning to get off the list of countries which, according to the Financial Action Task Force on Money Laundering (FATF), are not stopping the laundering of dirty money," the source said. A June session of the FATF will review Ukraine's inclusion on the blacklist, which also includes Russia and 16 other countries. Steps have been taken in this direction in the past month. On 4 April, commercial banks forwarded to the Ukrainian National Bank (NBU) a list of client accounts in which documentation looked suspicious. Authorities will focus on legal flaws in the accounts, since entities are in some cases using lost documents and the passports of dead citizens. Meanwhile, the NBU closed a popular loophole through which Ukrainians could transfer their money out of the country on Visa Travel Money cards. Now the limit for transferring funds on a card is the equivalent of $5,000. The NBU requested a list of customers who periodically transfer large sums, which includes banking operations valued at 50,000 euros (about $46,000) or more and cash transactions of 10,000 euros ($9,200) or more.
The Tax Administration is also fighting shadow capital. Tax authorities reportedly suspended the licenses of 1,300 commercial entities in the first quarter of 2002. Some 299 money-laundering crimes were detected in the lending and financial system in the same period. Some 276 criminal cases involving suspected money laundering were opened. The Slovyanskyy, Andriyivskyy, and Koral-Bank banks are still under investigation. The State Tax Administration Investigation Department's chairman, Svyatoslav Piskun, said he is confident that Ukraine will submit a list of measures against money laundering to the FATF by the end of May. According to Piskun, Ukraine had a chance of being removed from the blacklist at the FATF's last forum in London.
Such financial information, which is collected from banks, has the potential to become a serious political weapon. According to the Tax Revenue Ministry, one-quarter of all money laundering takes place in the fuel-and-energy sector, which has powerful support in the new parliament. Strong measures to combat money laundering in Ukraine thus face a difficult time gaining legislative support. (IAM)
ECONOMIC NEWS & BUSINESS STATISTICS
CIS ECONOMIC GROWTH REACHES 4.5 PERCENT (16 May)According to the International Monetary Fund (IMF), economic growth within the Commonwealth of Independent States (CIS) this year will reach 4.5 percent and is expected to increase even further in 2003. Excluding Russia, CIS gross-domestic-product (GDP) growth will reach 4.7 percent this year, whereas a decline is predicted for 2003. The IMF's 2002 growth forecasts throughout the region are as follows: Georgia, 3.5-4.0 percent; Armenia, 6.0 percent; Azerbaijan, 8.5 percent; Kazakhstan, 7.0 percent; Kyrgyzstan, 4.5 percent; Moldova, 4.8-5.0 percent; Ukraine, 5.0 percent; Belarus, 1.5 percent; Tajikistan, 6.0 percent; and Uzbekistan, 2.2 percent. Consumer prices in the CIS should increase by 13.4 percent in 2002 and 10.5 percent in 2003, "Caspian Business Report" reported, citing the IMF predictions. (JMR)
AVERAGE MONTHLY INCOME IN MOSCOW (13 May)The average Moscow citizen's monthly income reached 11,464 rubles ($367) in the first quarter of 2002, the Moscow City Statistics Committee reported. That translates into a 20.4 percent decline in real incomes (when inflation is taken into account) during the three-month period. Muscovites' real incomes have grown by an average of 8.7 percent since the first quarter of 2001 and by 14.6 percent versus the first quarter of 2000. The average monthly salary at Moscow's large and medium-sized enterprises reached 7,916 rubles ($254) in January and February. The highest salary was registered in the banking-and-finance sector: 23,504 rubles ($753). The average monthly salary in the telecommunications sector was 11,773 rubles ($377) and in trade, 9,724 rubles ($312). The lowest salaries were in education at 4,486 rubles ($144). The average monthly salary in the health-care, sport, and social-security sectors reached 4,540 rubles ($145) and in science, 5.142 rubles ($165). The average monthly salary in the agricultural sphere totaled 7,451 rubles ($239) and was 8,407 rubles ($269) in the housing-construction sector. The monthly subsistence level was 2,385 ($76) in the fourth quarter of last year, 2,662 rubles ($85) for citizens of working age, 2,330 rubles ($75) for children, and 1,741 ($56) for pensioners. (IAM)
FITCH RAISES MOSCOW'S RATING (15 May)Credit-rating agency Fitch Ratings raised its long-term rating for the city of Moscow to BB- from B+, citing the municipality's low indebtedness and sound local economy, Reuters reported. "Moscow has benefited from Russia's good macroeconomic performance as the city accounts for close to 16 percent of the [Russian] Federation's gross domestic product," said Fitch. Russia has been restructuring and recovering from a severe financial crisis in 1998. Some funds investing in Russian debt have reported nearly tenfold profits in the three years following the crisis, as the country has recovered. Russia was shut out of international capital markets, but the country is expected to offer new international bonds this year. Deputy Finance Minister Sergei Kolotukhin said on 13 May that some $2 billion in new borrowing might be done by the end of 2002. Fitch raised Russia's long-term foreign-currency rating to BB- from B+ at the beginning of May. Moscow is rated Ba3 by Moody's Investors Services and B+ by Standard and Poor's. (JMR)
ARMENIA'S GDP RISES 7.4 PERCENT IN FIRST QUARTER (14 May)Armenia's gross domestic product (GDP) in January-March showed 7.4 percent year-on-year growth, the Armenian National Statistical Service reported. The country's GDP in market and nominal prices amounted to 163.3 billion drams (approximately $288.5 million) and 141.1 billion drams (approximately $248.9 million). Foreign-trade turnover in the first three months of the year was $324.5 million, which is 27.1 percent growth compared to the same period in 2001. In March, the registered turnover was 5.1 percent more than in February, Central News Agency (CNA) reported. The GDP retail turnover was $104.2 million, which is 8.8 percent more than in February. Average monthly wages in January-March 2002 stood at $23.8, which is 8.4 percent higher than in the same period of the last year and represents 2.1 percent growth from February. (IAM)
U.S. CONGRESSIONAL DELEGATION TO VISIT CHEMICAL-WEAPONS DISPOSAL PLANTS (9 May)Director of the Russian Ammunition Agency Zinovy Pak said a 20-member U.S. congressional delegation is expected to visit Russia on 29 May to inspect a number of facilities where Russian arsenals of war chemicals will be scrapped. The facilities were built with U.S. assistance. The U.S. will provide a total of $888 million in financial support and $280 million of that sum is already being tapped, Pak said. He noted the U.S. is expected to announce the assignment of the remaining $600 million, and an additional agreement and a detailed plan of joint operations are to be signed. The director said he hoped the U.S. agrees to increase the list of donor countries offering assistance in the disposal of Russian chemical arsenals, Xinhua reported. There are currently 12 such countries on the list. (JMR)
MEDIA-SOTIUM NOT GRANTED BROADCAST PERMIT (13 May)Media-Sotium has not yet received temporary permission for broadcasting on Russia's sixth television channel, RosBusiness Consulting reported. Tatyana Blinova, the press secretary for Shestoi Kanal (Sixth Channel), which is a part of Media-Sotium, announced that it still plans to launch broadcasting on 26 May. She said the broadcast schedule has been formed and the television company's management "will be adopted it in the near future." Blinova also said the problem of renting equipment has already been solved. (IAM)
WHO IS IN? WHO IS OUT?
INTERIOR MINISTRY INITIATES CRIMINAL INVESTIGATION AGAINST SLAVNEFT MANAGERS... (8 and 13 May)The Moscow Territorial Main Directorate of the Interior Ministry (GUVD) has opened criminal investigations against two vice presidents of the Russian-Belarusian oil producer Slavneft, Russian news agencies reported on 8 May. Yurii Sukhanov and Dmitrii Perevalov are being investigated on allegations of abuse of office, fraud, and embezzlement in a probe that was initiated following the discovery of serious financial violations during an audit by the State Duma's Audit Chamber. "Kommersant-Daily," however, noted on 8 May that the opening of the investigation coincided with an extraordinary general shareholders meeting that on 13 May elected a new company president. The Russian Property Relations Ministry owns a controlling stake of the company, while the Belarusian Economy Ministry controls nearly 11 percent. (VY)
...AS EGM PROMOTES ONE OF THE EMBATTLED EXECUTIVES (13 May)Meanwhile, the extraordinary meeting of Slavneft shareholders in Moscow on 13 May elected Yurii Sukhanov to be the company's next president, Russian and Western news agencies reported. He takes over from Mikhail Gutseriev, who resigned after serving as company president from 14 January 2000. Sukhanov's candidacy was supported by the State Property Fund, which controls more than 55 percent of the company, strana.ru reported on 8 May. Most Moscow observers view the election of Sukhanov, who was nominated by the so-called "oligarchs," as a victory over "St. Petersburg" chekist elements. The board had approved the candidacies of Aleksandr Baranovskii and Sukhanov on 19 April to replace Gutseriev, before the report of Sukhanov's possible prosecution. Slavneft's registered capital is 4,754,238 rubles (about $152,330). It consists of 4,754,238,000 shares with a par value of 0.001 rubles. The Tyumen oil company (TNK) holds major stakes in most Slavneft subsidiaries and holds more than 10 percent in Slavneft itself. Slavneft produced 14.9 million tons of oil in 2001. (VY, IAM)
UKRAINE MEDIA TYCOON TO MANAGE STS (14 May)A co-owner of 1+1, Ukraine's largest private television company, Oleksandr Rodnyanskyy took over as general director of STS television, Russia's fourth-largest broadcaster, on 14 May. Broadcasters ORT, NTV, and TV-6 had courted Rodnyanskyy. He will be granted carte blanche at STS on 16 May. "I will take responsibility for the company, and I am ready to answer for its success," Rodnyanskyy said. The shareholders reportedly have pledged $100 million to Rodnyanskyy over the next three to four years for the future development of the company. STS will purchase an expensive Western game show, a package of Russian soap operas and movies, and nonpolitical information programs for the season starting in September, Rodnyanskyy said. According to "Vedomosti," he will not quit his job at 1+1, which he has headed since 1995. Alfa Group has 25 percent plus one share in STS, and American Story First Communications controls the rest. Former STS General Director Roman Petrenko, who brought the company into profit and led it to its current ratings, has a disagreement with Alfa Group. (IAM)
WHAT'S UP? WHAT'S DOWN?
RUSSIA'S TRADE SURPLUS NEARLY HITS $10 BILLION (13 May)Russia's trade surplus in the first quarter of 2002 reached $9.827 billion, according to figures from the Russian Central Bank. The foreign-trade component was approximately $9.093 billion in trade with countries outside the Commonwealth of Independent States (CIS). Meanwhile, Russia's surplus in its trade with CIS members amounted to $743 million in the first quarter of 2002. (IAM)
IGOR MAKAROV: FROM WORLD-CLASS ATHLETE TO INTERNATIONAL BUSINESS ELITE (Part 1)Any mention of the Russian gas company Itera and reactions are immediate and predictable. But one question persists after the various opinions on Itera have been exhausted: Who is Igor Makarov, really? Makarov's amazing and unlikely ascent from Soviet athlete to president of Russia's second-largest natural-gas company provides Russia-watchers with a case study in what Western business journalists call that country's "opaque" corporate culture. Itera, with its worldwide network of affiliates and huge gas reserves, has almost overnight become one of the most influential companies in the former Soviet bloc. Makarov's obscure trading firm developed rapidly from gas sales to gas production through its special relationship with Gazprom. Itera, as both partner and competitor to that natural-gas behemoth, has used its growth and success to wield political clout in the Kremlin and across the entire former Soviet Union. Itera's headquarters in Moscow stand in the shadow of Gazprom's, which are only three blocks away. The buildings nearly mirror one another in appearance. Many wonder how deep the similarities and interconnections are between these companies, with relatives and friends seemingly linked incestuously. Today, Itera has more reserves than Texaco and sells more gas than Algeria, "The Wall Street Journal" reported on 24 October 2001.
However, Makarov has built Itera into much more than a world-class gas-trading company. In the 10 years since its creation in 1992, Itera has diversified from a natural-gas "blue fuel" distributor to a conglomerate of more than 130 companies organized around the globe. In 1994, Itera entered the former Soviet gas market by selling gas from Turkmenistan. In 1998, Itera entered the gas-production business with activities in Yamalo-Nenets Autonomous Okrug, according to a company backgrounder. While diversifying into metal, construction, chemical, minerals, packaging, real estate, and insurance, 80 percent of Itera's business remains in gas sales, production, and transportation. The reach of these various enterprises throughout the former Soviet Union and beyond is a virtual roadmap of post-Soviet power and influence. Itera has become an icon for the intersection of business and political influence.
Makarov has led Itera from a minor trading and barter company to a gas-production powerhouse. The group has rapidly grown in value and influence since its humble origins. In 2000, Itera's turnover totaled $3 billion with 8,000 employees and business interests in 24 countries around the world. Itera has continued to grow and prosper, and its ability to affect political life in the "near abroad" is pronounced and a concern for many. Itera is the only gas supplier to Georgia, for instance, and many believe that such a position translates into undue political influence.
There is media speculation that the mysterious company and its founder are under growing Russian and international scrutiny. Makarov has been accused of colluding with Gazprom's former management team to enrich himself and the Gazprom leadership at the expense of both the Russian state, which holds a 38 percent stake in Gazprom, and the natural-gas giant's minority shareholders. For his part, Makarov has steadfastly denied such claims and appears to be well positioned to survive the departure of his former Gazprom partners, many of whom have been replaced since last year. Makarov's career highlights the questionable nature of Russian business practices and underscores how little is known about some of the country's key economic and political figures.
Makarov, by all accounts gregarious and outgoing, nevertheless remains something of a mystery, suggesting that he has a talent for staying out of the limelight. Biographical information on the Itera chief is scanty -- and sometimes contradictory. Most accounts, for instance, state that Makarov was born in Ashgabat, the capital of Turkmenistan, in April 1962. The official Makarov biography (on Itera's corporate website, www.iteragroup.com) gives Ashgabat as his birthplace, and Makarov himself told "Trud" (4 August 1999) that he was born and raised in Turkmenistan. In May of last year, however, while Makarov was busy lobbying Belarusian authorities over gas sales to state-owned enterprises, "Kommersant" on 30 May claimed it was "well-known" that the former Soviet cycling star was a "compatriot" of Belarusian President Alyaksandr Lukashenka. The paper even quoted Makarov as saying he intended to "invest" in his "native Belarus." According to promotional materials from Itera, the company had already been involved in Belarus since 1998. Itera Pet is a facility located in Minsk that produces up to 350 million plastic bottles per year.
A bare-bones Makarov biography raises more questions than it answers about the man some journalists claim now rivals his mentor, former Gazprom chief Rem Vyakhirev -- whose photograph hangs on the wall of Makarov's Moscow office.
Makarov most likely grew up in Soviet Turkmenistan, where he graduated from Turkmen State University in 1983, followed by two years of compulsory army service. Makarov was by all accounts a star athlete: As a member of the Soviet cycling team, he won numerous Soviet and international competitions. In 1985, following his marriage to a woman from Kazan, Makarov worked as a teacher at Kazan State University from 1986-89. Little is known about his family life, and it is not clear what courses Makarov taught.
Sometime during this period, Makarov became a businessman. Makarov told "Trud" on 4 August 1999 that he set up a "clothing- and souvenir-production facility" in Kazan in 1987 before going into "food processing and petroleum products." "Sovershenno sekretno" (No. 6, 2000) called Makarov an "activist in the cooperative movement" of the perestroika period, which would conform to his stated business activities in Kazan.
According to Itera's website, the company was established in 1992. However, the company has yet to reveal a complete list of its shareholders either for the company or its subsidiaries and affiliates. The "Itera Group" now reportedly numbers some 130 firms. The company's nontransparent nature persists despite claims by company officials that the firm intends to go public by listing itself on a major Western stock exchange. Any such decision would require Itera to reveal a great deal more information than has emerged so far (see "Kompaniya" 30 April 2001).
According to Makarov, Itera entered the gas business by accident: In 1994, Makarov's firm was delivering food to Turkmenistan in exchange for petroleum products, which Itera would in turn sell. At one point, his Turkmen trading partners offered him gas instead of petroleum to settle their accounts. And that, Makarov told "Trud," "is how we got into the gas market."
From there, Itera began selling gas to Russia, Armenia, Belarus, Georgia, Lithuania, Moldova, Ukraine, and Estonia, becoming the chief supplier of natural gas for many former Soviet states. Utilizing Makarov's relations with Gazprom, Itera moved into gas production. By 2000, Itera was second only to Gazprom (which reportedly holds the largest natural-gas reserves in the world) in Russian gas production and was the largest independent natural-gas company in the Commonwealth of Independent States. Itera controls the fourth-largest holding of gas reserves in the world, according to "Business Week" on 2 April 2001.
Some sources claim Makarov is an American citizen (see "Komsomolskaya pravda" 15 April 2000), and several Itera companies are registered in Jacksonville, Florida ("Jacksonville Times Union" 21 April 2001). Thus, some observers say Makarov has been cultivating ties with U.S. officials for some time ("Sovershenno sekretno" No. 4, 1999). Some speculate that he used such ties to help secure a controversial $868,000 grant from the United States Trade and Development Agency (USTDA) that is now on hold. That grant is intended for a feasibility study for developing gas fields in Russia. The USTDA's decision came long after minority shareholders in Gazprom had began raising questions about the propriety of Itera's business practices ("The New York Times," 27 March 2002). Nevertheless, Itera's flagship holding company, Itera Group NV, is registered in the Netherlands Antilles.
Itera may be many things. But at this point, it is hard to envisage Itera being listed on a U.S. stock market with all its accompanying disclosure requirements and expectations of transparency. (PMJ)
ECONOMIC GROWTH IN THE FORMER SOVIET UNION AND EASTERN EUROPE: THE EBRD'S VIEWThe European Bank for Reconstruction and Development (EBRD), founded in 1991 to aid postcommunist countries in the transition to market economies, held its annual meeting on 19-20 May. On 14 May, Reuters reported on the contents of the related "2001 Annual Transition Report." The report predicted that Russia's economy will slow in 2002 to 3.5 percent growth, a decrease of 5.5 percent from the record 9 percent growth in 2000. The report cited rising wages, energy costs, and the appreciation of the dollar against the ruble as reasons for Russia's economic downturn. Since 2001, Russia has passed numerous reforms that have yet to be implemented. According to the EBRD, fulfilling these obligations and further integrating into the global economy will remain key challenges for the country. The EBRD also expressed hope that Russia will move forward with sector reforms. According to the "Financial Times" on 19 March, Russian President Vladimir Putin signaled his intention to promote financial-sector reforms by replacing conservative Central Bank Governor Viktor Gerashchenko with Sergei Ignatev on 15 March. Although Russia continues to struggle with economic challenges, the ERBD praised the government for its efforts to improve debt management and decrease external debt.
According to the EBRD report, Central Asian states are facing multiple challenges to economic growth in 2002. Among them is a slowdown in the Russian economy that is expected to negatively affect Central Asia. Other economic challenges include difficulties associated with water distribution and lack of economic integration among neighboring states. In the case of Uzbekistan, problems associated with water distribution have led to a significant decline in both cotton and grain production. The EBRD reported that Uzbekistan's GDP has contracted by 2.5 percent from last year. Turkmenistan, Kyrgyzstan, and Tajikistan have also suffered economic losses due to water-related crises. Of the five Central Asian states, Kazakhstan maintains the most successful economy. According to Jean Lemierre, president of the EBRD, Kazakhstan's economic growth can be attributed to its oil and gas industries. On 11 April, Lemierre told RFE/RL that the EBRD has invested $705 million in Kazakhstan's economy to date and expects to provide another $264 million this year. The EBRD expects to see an overall 7.6 percent increase in Kazakhstan's GDP in 2002.
Economic growth in the countries of Eastern Europe and the former Soviet Union will slow to 3.3 percent in 2002, according to the EBRD, marking a fall from a combined 4.3 percent in 2001. The bank referred to the region's economic performance as "good but not exceptional." The region has benefited from a combination of domestic demand and foreign investment. Such investment has helped offset a decrease in demand from the European Union, which has become an important market for many countries in Eastern Europe and the Commonwealth of Independent States.
According to Willem Buiter, EBRD chief economist, Eastern European economies should continue to grow in 2002 as the global economy strengthens and exports to the EU increase. As reported on the bank's website (www.ebrd.org), rising incomes and improved investment climates across the region should also contribute to continued economic growth. (TGP/JMR)