Trade and

Industry

Minister Vik-

tor D. Khris-

tenko

(right) at

the meeting

with the

leaders of

India’s phar-

maceutical

business

LILIYA TRUSHINARIBR

Much like its defence ties,

both countries are poised to

graduate from buyer-seller

to co-developers and

producers in the

pharmaceutical sector.

Buoyed by a recent upswing in bilateral trade, CEOs of top Indian and Russian pharma-ceutical companies sat for an intense round table discus-sion Sept-end in a luxury hotel in Delhi that lasted for hours. Led by visiting Russian Trade and Industry Minister Viktor D. Khristenko, the meeting proved to be a big success, with both sides fl esh-ing out concrete proposals for joint projects in the area of de-veloping and manufacturing medicinal products. The Rus-sian delegation included top leaders of Russian pharma in-dustry, including Alexei E. Repik, chairman of the board, R-Pharm JSC, Igor Kyrlov, general director, Pharmastan-dard JSC, and Vikram Singh Punia of JSC Pharmasyntez. Dr Reddy’s Laboratories, which notched up $130 millon sales in Russia in 2009, and Ranbaxy were among those Indian pharma companies who participated in the brain-storming session. The meeting was aimed at attracting a healthy dose of

The prescribed pill for success

Sector Russia is increasingly looking to Indian companies for modernising its pharmaceutical industry

The assem-

bling of the

fifth-gener-

ation fighter

aircraft at

the Sukhoi

design bu-

reau.

Partnership Despite many problems, Moscow remains New Delhi's trusted partner and source of high-end technologies

Decks cleared for 5th-Gen jet fighter

Crowning decades of suc-cessful defence cooperation, India and Russia have fi rmed up plans to jointly design, de-velop and manufacture the fifth-generation fighter air-craft (FGFA) and multi-role transport aircraft (MTA), two of the most challenging joint projects taken by the two strategic partners. The pre-liminary design contract for FGFA, India’s biggest-ever defence project, is expected to be signed during President Dmitry Medvedev’s visit to India in December. The decisions were taken at the 10th annual meeting of the Indo-Russian Inter-Gov-ernmental Commission on Military-Technical Coopera-tion (IRIGC-MTC) held in New Delhi early October. Over the past decade, India and Russia have transformed their multi-billion-dollar de-fence interaction from a buy-er-seller relationship to joint development of high-end technologies and advanced weapon platforms. The FGFA is poised to propel India into the exclusive club of global powers – the U.S.,

VLAD SOKOLRIBR

Russia and India are set to

crown decades of defence

cooperation with joint

production of two projects:

a fifth generation fighter

aircraft and a multi-role

transport aircraft.

Russia and China, who have or will have the capability to build it in the foreseeable fu-ture. The Indian Air Force (IAF) plans to acquire 250 to 300 of these stealth fi ghters. They will give the IAF un-questionable air supremacy in Asia. The FGFA is tipped to be superior to the compara-ble F-22 Raptor while costing just over half the price of the American 5th-generation jet fi gter.India will contribute about 30% of the plane’s total de-sign by providing composite material components, some avionics, electronic warfare systems and cockpit displays. Indian designers will also be responsible for re-modeling Russia’s single-seat fighter into a two-seater version for the IAF. The MTA project, too, got the final go-ahead at the 10th IRIGC-MTS session with the signing of a shareholding agreement providing for a 50% contribution by each side to the plane’s cost and development. It is the first Indo-Russian project where India will be involved right at the drawing-board stage. The 20-tonne MTA will not only give the Indian and Rus-sian air forces a new work-horse, but will be modified later into a 100-seater pas-senger aircraft. “In the com-ing 10 years, the FGFA and MTA projects will be the fl agship programmes in In-

do-Russian defence cooper-ation,” India’s Defence Min-ister A. K. Antony said after co-chairing the 10th IRIGC-MTC with his Russian coun-terpart Anatoly Serdyukov. He lauded the two projects as “shining examples of de-fence cooperation between the two countries”. Russia, which heavily domi-nated the Indian defence market for the past 50 years, today faces strong competi-tion from leading arms ex-porters – the US, Israel, France and other European countries. Russia has also faced fl ak for delayed deliv-eries, cost escalations and in-adequate product support. Antony flagged off India’s concerns at his talks with Serdyukov, who promised to address these issues soon.However, Russia has a key advantage over its Western ri-vals: it is willing to share with India any defence technolo-gies. “There are things that we can get only from Russia. No one else would give them to us,” Indian military diplo-mats in Moscow admit. Next March, India will get the Nerpa nuclear-powered sub-marine from Russia on a 10-year lease. It will help the In-dian Navy train the crew for its fi rst indigenously built nu-clear submarine, INS Ari-hant, whose design is also based on Russian Akula-class submarines.India is the only country with

cause its annual export of pharmaceuticals to Russia is about $500 million and has modern manufacturing tech-nologies at its disposal, says Mikhail Rapota, Russia’s Trade Representative in India. Joint ventures, says India’s Commerce and Industry Min-ister Anand Sharma, hold the key in the field of pharma-ceuticals. Calling for scaling up the current level of Indo-Russian bilateral trade of $4.54 billion to $20 billion by 2015, Sharma has stressed on the desirability of coopera-tion in the test and analytical facilities in Russia to certify standards to enable access of Indian pharmaceutical prod-ucts to Russia. He also pitched for fast track registration of India’s pharma products within three months. Encouraged by incentives, Indian pharma companies are avidly eyeing Russia, a big market for anti-depressants, cough and cold products and lifestyle disorder drugs. "In 2008-09, India exported drugs worth Rs 1,244 crore (around $275 million) to Rus-sia and that market is grow-ing at about 18.5%, one of the fastest growth rates among all drug exporting destina-tions," says K Appaji, execu-tive director of Pharmaceuti-cal Exports Promotion Council (Pharmexcil). Our company is also open to mar-keting alliances with other companies in the Russian market, including those from India, says Satish Reddy, managing director of Dr Red-dy’s Lab, the largest Indian pharma company in Russia.

NEWS IN BRIEF

India and Russia are reviving the joint mili-tary exercise that focuses on counter-terror-ism training. The 'Indra-2010' will be held in Chaubattia in Uttarakhand between Octo-ber 15 and 24. The Russian contingent will have 257 personnel and the Indian side will be represented by an infantry battalion.The fi rst of the Indra exercise series was con-ducted in India in October 2005 and the sec-ond was held in Russia in 2007. Since then, the two armies have not held an exercise under the series for the last three years. RIBR

“A Hundred Years of Lev Tolstoy & The In-dian Connection” by Achala Moulik, I.A.S.(Retd.), Former Education Secretary, Government of India, was released by Rus-sian ambassador to India Alexander M. Kadakin at the India International Centre on September 28. The solemn ceremony was organised to commemorate the 100th death anniversary of Lev Tolstoy. In the welcome speech, Kadakin reminded that in India, Leo Tolstoy personifi es a philosopher and a tireless seeker of satya. “Tolstoy’s greatness as a thinker, social activist and enlightener lies in the ideas expounded in his literary and epistolary oeuvre. They prove to be as relevant and valid today as one hundred years ago”, he stressed. RIBR

Russia and India hold

anti-terror drills

Russian railway carriages and locomotives could soon appear in India. Russia’s Trans-mashholding and India’s HE&I are in talks to launch joint production. The proposed coop-eration includes both direct deliveries of rail equipment to India and the construction of a joint venture in India. “If Transmashholding offers good prices, it may well fi nd demand on the Indian market. India needs cheap railway carriages and locomotives,” says Alexei Bez-borodov, general director of InfraNews says. Another Russian producer, Power Machines Company, is also discussing a joint venture with Indian partners. In cooperation with In-dia’s Cethar Vessels, Power Machines Com-pany plans to produce turbines and genera-tors in India. A memorandum of intent has already been signed. The partners expect to sell their Indian-made equipment both in Russia and abroad. Svetlana Sorokina

Russian railway carriages

and turbines for India

A book on Lev Tolstoy

and India released

which Russia has a long-term programme of defence coop-eration, which was extended for another 10 years till 2020 last year. The plan envisions about 200 joint projects in

aviation, shipbuilding, ar-mour and missile technolo-gies. Cooperation in strategic technologies is the next frontier. “Russia does not have, nor will ever have in the future, any restrictions on the supply of most cut-ting-edge military technolo-gies to India, because it is in Russia’s national interests to see India as a strong region-al and global military

Russian Vice Prime Minister and Finance Minister Alexei Kudrin has been presented with the Finance Minister of the Year 2010 award by Euromoney magazine. Padraic Fallon, the Chairman of Euromoney Institu-tional Investor, handed the award to Kudrin at the autumn session of the International Monetary Fund and the World Bank in Wash-ington. Euromoney highly assessed Kudrin’s efforts in the formation of reserves from oil revenues coming to the Russian budget in the period of oil price growth. Fallon noted that the RF fi nance minister having over-come a considerable political pressure se-cured the creation of the Reserve Fund that allowed Russia to come out of the global fi -nancial crisis in a much better shape than the experts had expected. ITAR-TASS

Kudrin gets 'Finance

Minister of 2010' award

TWICE A MONTH IN TWO DAILIESOctober 13/November 10 October 27/ November24

The Economic Times The Times of IndiaRussia&India Report inRussia&India Business Report in

www.indrus.in

WEDNESDAY, OCTOBER 13, 2010

...Marching towards a common future

BUSINESS REPORT IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

India in the second half of December, sources said.The Russian minister un-furled a new collaborative strategy that fitted in with Pharma 2020, a trademark Russian government strategy aimed at developing an inno-vative pharmaceuticals in-dustry using foreign experi-ence in re search and production. “Today, we are ac-tively proposing to our Indian partners that we get together. This is the start of an intensive dialogue in search of deci-sions, the first high-level meeting on issues concerning long-term cooperation in the field of pharmaceutics and biotechnologies,” said the minister. He offered a slew of incentives for Indian compa-nies wishing to set up facto-ries and start business in Rus-sia. “Good conditions have been created for full-scale partnership in the pharma-ceutical industry.”The response from the Indian side was enthusiastic. “We are ready for progress. I am sure that we shall soon achieve concrete results,” said Mukul Joshi, top Indian official in charge of the pharmaceutical industry. Representatives of leading Indian companies concurred. “We want to be in-volved in implementing the Russian programme, which promises to benefit both

countries, and we shall be happy to do so,” observed Ramesh Adige of Ranbaxy. “We are happy to work with our Russian partners and are willing to expand coopera-tion, especially in the area of innovation,” said A. Sawhney, Managing Director of Ran-baxy, whose tryst with the Russian market goes back nearly two decades to 1993. Sawhney, however, called for greater transparency in oper-ations.

The Russian delegation also visited National Institute of Pharmaceutical Education and Research, Chandigarh and Dr. Reddy’s Lab facilities at Bachupally near Hydera-bad to garner first-hand knowledge of Indian pharma-ceutical enterprises. In what could be a perfect marriage of technology, re-sources and market, Russia is increasingly looking to Indian pharmaceutical companies to cut down its dependence on foreign drugs (which account for 80% of its needs). India is a natural partner be-

RCSC

power,” said Ruslan Pukhov, head of the Moscow-based Centre for Analysis of Strat-egies and Technologies (CAST). “India will remain the num-ber 1 destination for Russian defence sales. In 2010-2013, India will account for 54.4% of Russian weapons exports estimated at over $15 billion,” says Russia’s Centre for Anal-ysis of International Weapons Trade (CAIWT).

India will remain the number one destination for Russian defence sales in days to come.

Indian companies are eyeing Russia, a big market for anti-depressants, cough and cold products.

Indian expertise and tech-nology into the Russian pharmaceutical industry, which is expected to grow to $60 billion by 2020. Much like the decades-old sturdy defence relationship, the In-dia-Russia collaboration in the crucial area of pharma-ceuticals has graduated from the seller-buyer model to that of co-production and research. “There are plans to sign a memorandum of un-derstanding between the Russian Federation’s Minis-

try of Industry and Trade and India’s Ministry of the Chemical and Pharmaceuti-cal Industries at the end of this year,” a beaming Khris-tenko said after the meeting. “Moreover, we expect that a whole package of agree-ments concerning specific projects involving both par-ties will be on the negotiat-ing table together with the memorandum.” These pacts are expected to be inked dur-ing the visit of Russian Pres-ident Dmitry Medvedev to

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Glitter Time Armed with a new strategy, Russian government plans to sell 20-25% stake in Alrosa through an IPO in 2011-12; targets $1 billion exports to India

Russia’s diamond monopoly

is set for a transformation

into a De Beers-like market-

savvy global giant with an

ambitious plan for an IPO.

Alrosa, the world’s largest diamond miner, is on the cusp of a defi ning makeover as a successful market play-er with global ambitions. Russia’s diamond monopoly has won preliminary ap-proval to change its legal status and sell shares to fi -nance its ambitious invest-ment programme. Legisla-tors in Siberia’s Yakutia region, which owns 40% of the diamond monopoly, re-cently gave the green signal to restructure the fi nancially troubled company into an open joint-stock company. They have passed the fi rst of three required readings of the legislation that would allow Alrosa, owner of about a third of global diamond re-serves, to go public and issue an IPO to raise money.

How it all beganA six-hour fl ight from Mos-cow, Russia’s diamond zone, situated amid dense conifer-ous forest, permanent frost and temperatures below -50C (down to -70C in some areas), could not have been more remote and mysteri-ous. On June 13, 1955, Soviet geologists searching for dia-monds in Yakutia sent a radio message: “Smoking the peace pipe, excellent to-bacco”. This was their code for informing about the dis-covery of the USSR’s biggest diamond deposit, the Mir kimberlite pipe (“mir” meaning “peace” in Russian). The discovery was the turn-ing point in the region’s des-tiny and formed the bedrock of its economy after Alrosa set its base in the industrial centre of Mirny. All revenue from diamond sales re-mained in Yakutia, generat-ing 80% of the regional bud-get. A few years ago, when it became clear that Yakutia’s government alone was un-able to protect Alrosa against international com-panies, the Russian govern-ment took control of the company, with the Federal Agency for State Property Management controlling 51%, the government of Ya-

stock company into an open joint-stock company re-mains a hot-button issue, experts feel that it will boost the company’s investment appeal, reduce its debt and enhance management effi-ciency. Even if Yakutia’s share will be reduced to 25% plus one share, it does not mean that they will lose control of the company. The company has to “go un-derground” and build new mines. Its investment pro-gramme for 2011–2012 is worth less than $1 billion, says Polyakov. Agreements have already been reached with three investment banks that will join in the IPO, ac-cording to a source in the fi -nance ministry. JPMorgan recently valued Alrosa at $7.3 billion to $9 billion (excluding obliga-tions) and placed the com-pany's broader valuation range at $5 billion to $10 bil-lion. A company source said that the IPO could take place as soon as 2011-2012. Alrosa is counting on selling 20% to 25% of its shares for $1.5 billion to $2.3 billion. At least two groups of buy-ers are expected to fi ght for Alrosa’s shares: the Indians and Chinese. Indian dia-mond cutting fi rms have re-cently signed a memoran-dum to buy $490 million worth of diamonds annual-ly, and might be willing to buy more. The Chinese, who are actively purchasing Af-rican deposits, are also bound to be attracted by the offer.

New Marketing Strategy Over the next fi ve years, Al-rosa plans to increase output

SVETLANA SOROKINARIBR

Diamond miner braces for a sparkling makeover

One seller for hundreds of buyers

Long-term contracts for rough diamonds

Russia’s diamond market is an intricate structure in which one supplier serves hun-dreds of buyers. Russia pro-duces rough diamonds worth around $3 billion annually. Older deposits, developing since the late 1950s, account for approximately 60% of to-tal reserves. Alrosa produces 99% of Russia’s rough dia-monds, while the diamond-cutting sector consists of 100-150 small firms. Slightly less than half of the diamonds produced, or 44.2%, are sold domestically while 55.8% are

mond markets. Though India’s cutting methods are consid-ered the cheapest, the coun-try remains the world’s No. 1 diamond producer, account-ing for 59% of global produc-tion, a far cry from Russia’s 4.8%. In Russia, Indian dia-monds are in demand. Ac-cording to RusJewellerExpert, Indian companies are leading in the most in-demand seg-ment of so-called mass mar-ket products (upto 5,000-

exported. While most of Rus-sia’s rough diamonds are ex-ported, the country's diamond jewellery market is dominated by imports. Until 2009, Alrosa did not sell rough diamonds directly in international mar-kets, but sold everything to South African De Beers. On the domestic front, Alro-sa’s main clients are: EPL Dia-mond Group and DDK in Ya-kutia, Ruis Diamonds Ltd. in Moscow, and Kristall in Smo-lensk. The State Repository (Gokhran) acts as a storage facility.

10,000 roubles per piece), which accounts for 60% of the jewellery market in terms of quantity. Typically, these are lightweight jewellery piec-es weighing 2-3 grams. The average price segment (be-tween 10,000 and 25,000 roubles) constitutes 30% of the market, while the re-maining 10% are high quality (25,000 to 100,000 roubles) and premium products (above 100,000 roubles).

How was Choron Diamond

affected by the global crisis?

What is your turnover today

and what is your forecast for

the sales this year?

Since October 2008 – a year before the full effects of the fi nancial crisis were felt – we have worked with tremen-dous caution and kept a close eye on the market through our strong 350 retailers who sell our products. We have re-organised our product and strategy. We brought the pro-duction to a minimum in 2009. We foresee an increase of 25 per cent of our sales than in the year 2009. This p o l i c y h a s p r o v e n successful,especially when the going gets tough.

In 2007, you planned to invest

$65 million in creating a net-

work of retail shops. Has the

crisis changed your plan?

After an in-depth analysis of the property market in Mos-cow and St. Petersburg, we came to the conclusion that the property market at that time was overheated. How-ever, we have not given up and are looking for the right time to plunge back.

What is the structure of Rus-

sian subsidiary of Choron Di-

amond?

Rajesh Gandhi, CEO of

Choron Diamond, Russia-

based jewellery company, is

upbeat about the prospects

of doing business in Russia.

At Choron Diamond Russia, we are processing the full life cycle of a diamond. Right from procurement of rough diamonds from the miners to selling of diamond studded jewellery to the consumers, we are polishing rough dia-monds at our hi-tech manu-facturing unit in Yakutsk (Yakutia region). The pol-ished diamonds are then sorted by qualifi ed gemmol-ogists. Based on the assort-ments and the demand for the internal markets, the pol-ished diamonds are either exported or offered to jewel-lery factories and wholesal-ers across the Russian Fed-eration. Similarly, the diamond-studded jewellery is sold through our retailers. The next logical step is to enter retailing and start our own retail network.

‘The risk taken was worth it,’ says Choron CEO

Rajesh Gandhi, General Director of Choron Diamond.

SVETLANA SOROKINARIBR

You have factories in both,

India and Russia. How do you

leverage this advantage?

It helps to get the most from the experience that special-ists from both countries have. In fact, the company does not only own factories in Yakutsk and Mumbai, we also work intensively with our partners in China, Thai-land, Italy and other coun-tries. We want to keep up with all the changes in the moods of customers so that we can offer them world-class products. Our products are the result of work done by specialists from all over the world. That is one of the keys to our success.

Your family has been involved

in cutting and polishing di-

amonds for over 65 years.

When you started your busi-

ness in Russia, how did your

relatives react?

Initially, my relatives did not like the idea of working in Russia and opposed it. But after a few years of success-ful working, they started joining the business. My elder son, my wife and three of my cousin brothers are al-ready an integral part of the group. Soon, my younger son will enter the business and I can’t wait to see that day. Coming to Russia was a risk but now we can proudly say that it was worth it. The company has been in the market for 11 years. In 2008 and 2009, Choron Diamond was named the Best Export-er in the industry and in 2010, the Best Taxpayer. It was adjudged by the Indian Business Alliance as the Best Indian company in Russia.

What were your first impres-

sions of Russia?

I remember when I came to Yakutsk, it was - 40 degrees outside and in the centre of the city, opposite to the cine-ma there was a billboard with an advertising of the Shri 420 film, starring Raj Kapoor. I couldn’t believe my eyes at fi rst. Probably, this billboard was a sign from above, a sign that I will succeed. Initially, there were some difficulties. However, the moment I learnt the Russian language, things became much easier for me. People in Russia welcomed me wholeheartedly and con-tinue to make me feel at home here.

WEDNESDAY, OCTOBER 13, 2010

BUSINESS REPORT IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

in@rbth.ru www.indrus.in/letters

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THE QUOTES

Yakutia is Russia’s largest and coldest region, the world’s biggest adminis-trative unit within a sin-gle country. It's 3.1 million sq km in size (roughly same as that of India), but has a population of only 950,000 people.Photo: Mir mine in winter

FACT FILE

" The recent global finan-cial crisis has demon-strated that in such cir-

cumstances we can live for a time and then we’ll run into a deadlock. Alrosa is becoming a more and more expensive company. The transition to un-derground mining is a clear proof of this. The company needs to develop. It is necessary to diversify pro-duction and develop other types of business. As for mak-ing the company public, this will bring about new jobs, greater tax payments and im-proved efficiency of its perfor-mance."

Yegor BorisovPRESIDENT OF YAKUTIA

" The company needs to develop; it objectively needs money for a

programme of underground mines, because existing fields are close to exhaustion. This decision will increase trans-parency, which is important to attract investors. Even if the Yakutia’s share will be re-duced to 25% plus one share, it does not mean that they will lose control of the company. In terms of legislation, they have saved the block-package and the opportunity to influ-ence the fate of Alrosa. The company needs money. And this argument is prevailing."

Sergey

Goryainov ANALYST AT ROUGH & POLISHED.

Diamond crystals from the Yakutian deposits

to 165-167 million carats a year (in 2009, production was down to 115 million car-ats). The company’s experts hope that market prices for rough diamonds will go up by 55% by 2018. Along with its IPO, Alrosa will also change its sales strategy to look more like De Beers by controlling its sup-ply of rough diamonds and selling them to a small num-

ber of trusted customers. In accordance with its sales strategy through 2012, Al-rosa will sell at least 70% of its rough diamonds through long-term contracts. In 2010, Alrosa hopes to bring its share of such contract sales to 56% of revenue, up from 21% in 2009. The com-pany is currently working to build a pool of loyal custom-ers. In the spring of 2010, it

signed a three-year agree-ment with India’s Rosy Blue, Diamond India Limited, and Ratilal Becharlal and Sons to supply rough dia-monds. The company signed long-term contracts with fifteen Belgian companies this summer worth about $500 million. Talks are going on with companies in China, Armenia, Belarus, and Isra-el. Russia exported 12.452

million carats of diamonds in the fi rst quarter of 2010 for $765.779 million, against 6.649 million carats worth $414.836 million in the fi rst quarter of 2008. Belgium and India were the largest buyers in January-March 2010, accounting for 66% and 17%, respectively. Alrosa is planning to bring its exports of diamonds to India to $1 billion.

Russia and India are negotiat-ing supply contracts to boost imports of rough diamonds to India. The discussions also touched upon Alrosa opening an office in India. Commerce Minister Anand Sharma met his Russian counterpart Vic-tor B. Khristenko in New Delhi in late September and under-lined that cooperation in the diamond sector would ex-pand bilateral trade and fos-ter stability in the world dia-

kutia 32%, eight municipal administrations 8%, and an-other 9% held by individual and corporate shareholders. The ownership structure is set to change again with the federal government decid-ing to make Alrosa a public company by selling a large stake to strategic investors.

The economic crisisThe global financial crisis proved to be a baptism by fi re for the Russian diamond monopoly, leading to a sharp fall in demand and prices dropping 50-60% in 2008–2009. Before 2001, De Beers had been buying almost all of Russia’s rough diamonds, including small ones. By 2009, however, De Beers’ share in Alrosa’s exports dropped to zero. The cash crunch puts Alrosa, Yaku-tia’s biggest employer, in a bind. Despite mounting fi -nancial pressure, not a sin-gle employee was dismissed, nor was a single hospital closed, swelling the compa-ny’s debts. “In the six months from December 2008 to June 2009, Alrosa’s debt grew by over $1.5 billion,” says the company’s public relations director Andrei Polyakov. Finally, Alrosa’s manage-ment had to accept $1 bil-lion in government support. Subsequently, Alrosa, which continued its mining opera-tions, became the world’s largest producer with an in-crease in its global share from 22% to 29%, while De Beers, which suspended production, saw its share fall from 30% to 23%.

ProspectsAlthough Alrosa’s restruc-turing from a closed joint-

REUTERS/VOSTOCK-PHOTOREUTERS/VOSTOCK-PHOTO

BUSINESS IN BRIEF

Buoyed by burgeoning trade between India and Russia, Sberbank, Russia’s oldest and largest commer-cial bank that boasts of $8 billion revenues and 20,000 branches, is now planning to open a branch in New Delhi before the end of this year. Over the next two years, the Indian office will be researching the Indian market, looking for a new niche, says Sberbank’s CEO and Board Chairman Her-man O. Gref. The bank has already got the green signal from the Reserve Bank of India and is completing the formalities for obtaining banking licence from the RBI and hiring staff.Gref says that Sberbank will be developing its Indian business “along with in-creasing its client base and implementing potential op-portunities for massive entry into the market”. By 2012, Sberbank hopes to gain a controlling stake in Troika Dialog, one of Russia’s lead-ing investment companies. According to The Banker magazine, Sberbank ranks 43rd in terms of Tier 1 capi-tal among the world’s top banks. The Central Bank of Russia has a 60.3% stake, while foreign investors hold slightly more than 32%. Sberbank is the second Rus-sian bank to target the grow-ing Indian market. Russia’s second largest bank, VTB,

Sberbank set to follow in VTB's

steps to open an Indian branch

The crisis has knocked Mos-cow off the top of the most expensive cities to live in list and sent it tumbling from the top three down to num-ber 56, according to Swiss bank UBS. In 2009, Moscow was ranked as one of the most expensive cities to live in the world, according to American magazine Forbes, which ranked Mosocw at number 4 and it was top of the list as the most expen-sive place to live on the plan-et in 2008. The list is topped by Oslo, followed by Zurich and Co-penhagen. Moscow also placed 42 on wages, according to UBS. In

Moscow, it takes 21 minutes to earn enough to buy a Big Mac at McDonald's and 36 hours for an iPod Nano, the survey said. The highest wages on offer in the world are in Copenhagen but Zu-rich is best place to work as it takes the least time to earn enough to buy a Big Mac or an iPod: 15 minutes and 9 hours respectively. Another British bank, HSBC, found foreigners liv-ing in Russia, Saudi Arabia, Bahrain, the UAE and Sin-gapore have the highest pay than in any other country: Russian expats earn more than $250,000 a year. BNE

Moscow tumbles down to 56 in

world’s expensive cities list

Russia to build fi rst biofuel plant,

green energy high on priority

Russian Technologies – a state holding for various companies involved in in-novation – announced in mid-September that it plans to begin construction of the country's fi rst biofuel plant in the spring. Based in the Irkutsk region in the east of Russia, the plant will use wood chips and other timber byprod-ucts to produce biobutanol, said CEO Sergei Chemezov. Whilst in Brazil and Eu-rope, biofuels are made from sugar cane, corn, rape-seed, in India from jatro-pha, the huge timber indus-try will form the basis of the industry in Russia. In 2007,

experts estimated the total wood biomass available for production of energy at 800 million tonnes. Unsurprisingly, given its huge reserves of fossil fuels, green alternatives have struggled to gain the Russian government’s attention over the years. However, a state program to get a biofuels sec-tor up and running was an-nounced in 2008, at which time timber industry players were told that the govern-ment was ready to back upto 30 production plants. Russia has expressed a keen interest in enhancing coop-eration with Indian biotech fi rms. BNE

Moskva City (the Moscow Business Center) is one of the

city's largest and most ambitious construction projects

Sberbank CEO and its Board Chairman Herman O. Gref

M&A Multinationals target local iconic brands as Russian companies go global by buying assets in new markets

Riding on the back of rock-bottom prices, mergers and acquisitions (M&A) are booming in Eastern Europe as a new class of emerging-market multinationals come into their own. Deals are going in both directions: multinationals are taking advantage of a pause in Rus-sia’s boom to grab cheap as-sets as a part of their long-term strategic plans to expand in what was already (briefly in 2008) Europe’s largest consumer market. At the same time, Russian com-panies are cashing in on the economic malaise in the de-veloped world to diversify away from the domestic market and begin the pro-cess of building up true Rus-sian multinationals.The Coca-Cola Company grabbed the headlines at the start of September by com-pleting the purchase of one of Russia’s biggest juice pro-ducers, Nidan Soki. Coke bought a 75 per cent stake in Nidan from London-based investment fi rm Lion Capi-tal, as well as the remaining

A new class of emerging-

market multinationals is

rapidly establishing

footprints in the world's

fastest-growing markets.

25 per cent held by Nidan's founders. The juice maker has facilities in Novosibirsk and the Moscow region town of Kotelniki. The acquisition will bolster the US fi rm in its fi ght against archrival Pep-siCo, which bought the Rus-sian mineral water producer Lebedansky in March 2008. With over 50 years in the local market, Pepsi is seen as a Russian drink by Russians. Pepsi opened its fi rst factory after an agreement between Richard Nixon and Nikita Khrushchev during the US president's visit to Moscow in 1959. "Acquiring Russian brands is a way to compete," says Ilya Plakhinas, head of the marketing division at Soldis Communications. The Nidan deal refl ects Co-ca-Cola's confi dence in Rus-sia's potential and its com-mitment to invest more in the future, Ahmet Bozer, president of Coca-Cola's Eurasia and Africa Group, told The Moscow Times.In August, mining giant Rio Tinto was reportedly sniff-ing around Russia’s leading potash company Uralkali, just as global mining giant BHP Billiton launched a hostile bid for Canada’s Pot-ashCo, the biggest producer of fertiliser in the world. However, by the end of the month, Uralkali had decid-

ed to bolster its global posi-tion through a merger with Russian peer Silvinit in a deal that is expected to be fi -nalised soon.Investment is going in the other direction. Russia’s big-gest mobile phone operator VimpelCom is in talks with Egyptian billionaire Naguib Sawiris for acquiring a 51.6% stake in Orascom Telecom Holding (OTH), a leading Middle Eastern op-erator, and 100% of Italy's Wind Telecomunicazioni. According to reports in the Italian newspaper Il Sole 24

Ore, VimpelCom and Sawir-is are close to signing off on the $6.4bn deal. And state-owned oil major Rosneft caused a stir after it an-nounced that it was in "ad-vanced negotiations" to buy controlling stakes in four German oil refi neries at the end of August that belong to Germany's Ruhr Oel. Activ-ity by emerging market com-panies aimed at developed economies jumped 25% in January through June from the previous six-month pe-riod, KPMG said in its latest Emerging Markets Interna-tional Acquisition Tracker.India leads the way in terms of the number of deals and the US was the biggest tar-get, with 54 agreements struck in the period out of a total of 243 deals in devel-oped economies by emerg-ing market companies. The KPMG study tracks com-pleted deals in which an ac-quirer took at least a 5% shareholding interest. "It ap-pears that a new breed of emerging-market multina-tionals are establishing foot-holds in the world's fastest growing markets," Mark Barnes, principal in charge of KPMG's US high-growth markets practice, was quot-ed as saying.And volumes are expected to increase. According to consultancy MP Corporate Finance Group, the amount of combined domestic and international agreements in Russia spiked in July when a record 314 deals were struck worth an estimated $2bn – double the amount from a year earlier – with telecom deals leading the way.

A new breed of emerging market MNCs has arrived

Gold producer Polyus Gold plans to end acquisition talks with KazakhGold by November.

BEN ARISBUSINESS NEW EUROPE

Optimism is not exactly the middle name of Russian Prime Minister Vladimir Putin, but it would increas-ingly seem so. “I think the Russian economy can avoid a repeat of the negative sce-nario that is under way in many European markets — we can see it now — when a long stagnation period fol-lows a winding-down of state programmes,” he pre-dicted at VTB Capital's in-vestment forum in Moscow. The level of Russia's public debt is much lower com-pared with most developed countries, where the figure

Big Picture Putin allays worries w.r.t the winding down of the anti-crisis program as public debt dips, FDI reaches $25 bn

Unlike many developed

countries, Russia won't face

stagnation after winding up

anti-crisis programme,

assures Prime Minister Putin.

has already exceeded “the safety threshold” of 60 per-cent of GDP, Putin said. Rus-sia's public debt currently stands at only 11 per cent of GDP and is not likely to ex-ceed 20 per cent, he said. The unfl appable leader, who turned 58 on Oct 7, under-lined the government's com-mitment to enhance the at-tractiveness of the Russian market for foreign investors by creating a system of tax preferences. Many bills aimed at stimulating foreign invest-ments to modernise the econ-omy have already been sent to the State Duma, and another one will be sent in the coming days, he assured. The new bill cancels the profi t tax for in-vestors selling securities that are not publicly traded and have been held for at least fi ve years. “We appreciate the fact that even more investors

choose Russia's economy and its stocks to invest capital,” Putin said, adding that for-eign direct investment has reached $25 billion this year. Alluding to the three-year budget plan sent to the Duma last month, he said the country won't need “a re-serve cushion” to cope with problems. The response was enthusias-tic. “Excellent,” said Domin-ique Cerutti, deputy head of NYSE Euronext. He said that he was “positively im-pressed by the personal com-mitment of the prime minis-ter” to turn Moscow into an international fi nancial hub. “I think the understanding of the need of diversifi cation of the economy is one of the main parameters that stand out here," said Telenor chief executive Jon Fredrik Bak-saas.

Putin stressed that the plan for privatisation, which is expected to raise $50bn, would represent a "structur-al shift in the Russian econ-omy", and reassured inves-tors that minority interests in state-controlled compa-nies would be protected. When asked about jailed oil oligarch Mikhail Khordok-ovsky that stirred fresh wor-ries about corruption, Putin said, “Yukos is a special case; it is a criminal case." Striking an upbeat note, presidential aide Arkady Dvorkovich said projects with Skolkovo, the Russian Silicon Valley will be one of the three pillars of the fu-ture growth of country's economy. Privatisation of state-owned companies, the second driver of the growth, will boost investments, he said.

'Forget stagnation, better times ahead'

Optimism is the middle name of Prime Minister Vladimir

Putin

IRINA FILATOVATHE MOSCOW TIMES

Eastern Europe Transactions

Goldmine Russia's reserves up 159.7 tonnes, India's 199

A golden strategy for shoring up international reserves

Buying gold has been a gold-en strategy for Russia and India, who were among the largest buyers of yellow metal in 2009-2010 to shore up their international re-serves. The statistics pub-lished by Central Bank of Russia show that the Central

Russia and India buy gold

in large quantities to raise

the profile of their national

currency and to build

reserves across the globe.

Bank of Russia was behind the Central Bank of India, which saw the largest in-crease in gold reserves from 1st July 2009 to 1st July 2010. India’s gold reserves in-creased by 199 tonnes, while Russia’s gold reserves were up 159.7 tonnes. The Indian bank pursued a more aggressive policy on the market, increasing its in-ternational reserves by 55.7 per cent over the period com-pared to 29% in Russia. The percentage of gold in the Central Bank of India’s re-

serves grew from 4.1 to 7.8%, compared to an increase by Russia from 4 to 6.1%.Among the world’s leading reserve holders, only the Central Bank of the Philip-pines chose a similar strate-gy. But its operations were modest: the Philippines’ in-ternational reserves climbed 14.3 tonnes, while the per-centage of gold in the $48.7 billion worth reserves edged up from 11.9 to 14.7%. The physical increase in the gold reserves was just 9.1%. Russia’s Central Bank

climbed from 9th to 8th po-sition in the ranking of the world’s largest gold reserve holders.The policies of the Russian and Indian central banks differ from those of the world’s leading gold reserve holders. Sweden’s Riksbank was the only one to sell gold actively, reducing the per-centage of gold in its reserves by 4%, while physical gold sales stood at just 5.2 tonnes. The gold sales of the Europe-an Central Bank and the Eu-rozone countries were just 0.1% of overall reserves. In other respects, the holders of large gold reserves, includ-ing China, have been pursu-ing a very conservative poli-cy, keeping their reserves almost unchanged from 1st July 2009 to 1st July 2010. In this situation, India and Russia seem the only coun-tries to pursue their ambi-tions as potential global cap-ital markets.

DMITRY BUTRINKOMMERSANT

The small, windowless ki-osks dispensing foreign ex-change could be seen all over Russia not too long ago. All that is history now, thanks to a strong ruble. "You no longer need to con-vert your wages into foreign currency twice a month to be able to buy a fridge," says Central Bank board member Mikhail Sukhov. The in-creased popularity of credit and debit cards has also re-duced the need for cash cur-rency conversions, he said. In the late 1990s, following

Currency Strong ruble behind ban

Marking the end of an era,

Russia on Oct 1 banned stand-

alone foreign exchan ge

booths that sprang up after

the fall of the Soviet Union.

the collapse of the ruble in 1998, there were more than 11,000 exchange booths but, as confidence in the ruble and the banking system surged during nearly a de-cade of oil-fueled growth, the exchanges began to close at the rate of 1,200 to 1,500 a year. Besides, the global cri-sis could not dent confi dence in the national currency.The Central Bank says the ban will make it easier to spot illegal operations and will reduce swindling, com-mon in such places. Russians who want to change money can now do so legally in more than 24,000 places, includ-ing bank branches.

Curtains down on small forex booths

The Moscow Times

FinanceBUSINESS REPORT IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

WEDNESDAY, OCTOBER 13, 2010

opened a branch in New Delhi in 2008. Sergei Bulay-

enko, who heads the New Delhi branch, speaks to RIBR:

How is VTB New Delhi doing?

From the start, VTB has been placing funds in India at high rates, which allowed us to minimise losses at the market entry stage. The Indian branch earns well on conver-sion operations, lending and even guarantees transac-tions. In 2009, VTB New Del-hi’s profi t rose over $133,000 (by Russian accounting stan-dards).

Are you happy with the turn-

over and client base?

Not quite. There has been nei-ther quick growth nor broad expansion, but gradually, we are gaining a foothold in India, and shaping our niche. Our main target audience here is India-registered com-panies with Russian capital, as well as Indian companies working with Russia and other CIS countries. Our In-dian branch continues efforts to attract new clients, espe-cially among Russian compa-nies newly registered in India. Our competitive advantages are the high quality of cus-tomer service and quick deci-sion making. Vladislav Kuzmichev

Full version atindrus.in

SOURCE: BUSINESSNEWEUROPE.EU

RIA NOVOSTI

GETTY IMAGES/FOTOBANK

GETTY IMAGES/FOTOBANK

REUTERS/VOSTOCK-PHOTO

Technologies

To advertisein this report contact

Julia Golikovagolikova@rg.ru

ph. +7 (495) 755 3114

www.rusembassy.in

Torino 2006

Moscow 1980

''We have made an un-precedented decision - to involve everyone

in the design of the Olym-pic Mascot, so to ensure that every voice is heard"DMITRY CHERNYSHENKO

PRESIDENT AND CEO OF THE SOCHI

2014 ORGANIZING COMMITTEE

Los Angeles 1984Salt Lake City 2002

Sport Sochi to hold the most innovative Olympics ever, organisers claim

Preparations for the 2014 Olympic Games in Sochi are in full swing, with many Olympic venues set to open in a year or two. It is already clear that the Sochi Games’ defining feature will be state-of-the-art innovative and green solutions. In fact,

Russia can draw upon the

experience of other

countries in hosting major

sport events, including Delhi

Commonwealth Games, for

construction and stadium

management.

Sochi can become an exper-imental platform for inno-vations through Olympic Games. The 2014 Olympics will be the most innovative in the entire history of the Olym-pic Games, says Svetlana Konina, operations director of Mace International Ltd. This company has consulted Russian officials ever since Russia started preparing bid for the Winter Olympics. “Construction technology, equipment, technical solu-tions and experience in building Olympic facilities in Sochi will all influence

the development of the con-struction industry in the fu-ture,” says she. Some experts calculated that the Sochi Olympics, es-timated to cost around $2 billion, would be around 3.5 times more expensive than previous Winter Olympic Games. The companies in-volved with the project, however, say the large bud-get is due both to complex building conditions and a more ambitious target com-pared to the previous games. “The Sochi Olympics Games are a truly global event, with the Sochi region set to be-

come a world-class interna-tional resort. In this sense, all costs are justified, and they will pay off over time,” says Konina. For example, the newest in-frastructure solution, "the Sochi 2014 transport model," will be deployed to serve as a tool to forecast the burden on the transport sys-tem during the Games. This model has already helped find solutions to optimise the transportation system. In addition, the huge Olym-pic Park (about 800 hect-ares) will be managed from a single centre using an ad-vanced intellectual system that will help effectively use electricity, heat and water, thus leveraging costs. “Sochi 2014 is leading the roll-out of new, ultra-modern con-struction standards across Russia, resulting in a more sustainable future for our country. The steps that we are taking to ensure envi-ronmental sustainability in-clude ensuring that several of our sport venues are BREEAM compliant. We are committed to following in-ternational best practice in energy efficiency, smart en-gineering, environmental management, sustainable procurement, reporting and communications – leaving a sustainable legacy for the whole of Russia,” said Dmit-ry Chernyshenko, President and CEO of the Sochi 2014

New technologies, green solutions to sparkle 2014 Games

VLADISLAV KUZMICHEV RIBR

Organising Committee.Moreover, a single identifi ca-tion system will be deployed, allowing any guest to con-nect his or her mobile phone or pocket PC. The same de-vice will combine tools for access isolation, electronic tickets, navigation, payment system and a broadband channel to provide informa-tion on the Games. The environmental agenda

is set to loom large in the preparation and holding of these “waste-free” Games. Developer companies will be certifi ed on their compli-ance with environmental standards, and a number of O l y m p i c v e n u e s a r e equipped with technology for water re-usage, rainwa-ter collection and use of soil temperatures for heating ventilation and air condi-

tioning systems. Environ-mental innovations and ad-vanced technologies will be practically applied by grad-uates of Russian Interna-tional Olympic University established in Sochi this summer.Preparations for the Para-lympic Games also involve special arrangements for the physically disabled. Standards for the barrier-

free environment have al-ready been agreed upon at the state level, and now they will be tested at the Olympic facilities. In Sochi, local au-thorities took an unprece-dented step recently: the chief architect and mem-bers of the city administra-tion drove through the city in wheelchairs to see all the difficulties faced by the physically disabled.

Mascot search goes global, ideas fl ood in

Thousands of Russians have already sent their Olym-pic Mascot proposals, rang-ing from fairytale characters to real animals. And yet, the Sochi 2014 Organising Com-mittee decided to expand the number of competition par-ticipants through a decision made on October 4. Every-one can send their own pic-tures and proposals, regard-less of citizenship and country of residence. Members of the Organizing Committee say that their decision was made due to a large number of proposals from Russians liv-ing abroad, as well as from

the foreign supporters of the Olympic and Paralympic Games. During three weeks of the competition, applica-tions have been coming from the United States, Austria, Be-larus, Estonia, Ukraine, and Kazakhstan. All applications from foreign nationals will be processed according to the competition rules and, if com-plied with the criteria, will be posted on the competition’s official website, talisman.

sochi2014.ru. Winners will be selected through a nation-wide vote on 7 February 2011, three years before the Games commence.

Techtalk Investors, major banks make a beeline, Sberbank forks out $70-80 mn loan to Skartel

You expanded your network

in just one year…

Yes, we have only existed for one year, but our network al-ready covers fi ve Russian cit-ies with 1,000 base stations in Moscow alone. No other 4G service provider has built their network as fast as we have. In Moscow, we are in-stalling over 100 new base stations per month. Our main objective is to develop the network rapidly.

What drew you towards the in-

ternational market?

In order to dominate 4G – this completely new sector – we immediately assembled a solid team with a lot of exper-tise. It is important to note

The 32-year-old Denis

Sverdlov, head of Skartel,

Russian company which

operates Yota brand, is

upbeat about 4G networks.

that it is a totally different model of service consump-tion. The network’s architec-ture is very specifi c. We have mastered 4G and have be-come one of the biggest net-works in the world. We un-derstood that this knowledge and this expertise were ex-portable. Russia regularly ex-ports its raw materials, but that is why our position is unique.

You have chosen to expand

into countries like Peru, Nica-

ragua and Belarus.

We were interested in Cen-tral America because the population density there is very high with 50 million people. Even in poor coun-tries, there is a good percent-age of the population – 10, 15 or 20% – that can purchase wireless Internet, a percent-age that is growing rapidly. Governments in these coun-tries are hurrying to attract foreign investment and de-

velop their economies. The telecommunications sector is a key sector for their devel-opment. They are interested in the latest technologies. That is why we get massive support in those countries.

Do you intend to enter bigger

or more developed markets?

Everything depends on the position of closed regulators that favour local players. Ob-taining a licence is extreme-ly expensive in India, for ex-ample. The important indicator for us is the per capita cost of the licence. From that point of view, nei-ther India nor China is very attractive. In Europe, exist-ing providers are very strong and regulators more or less close the market to new pro-viders. The cost of a 4G li-cense is huge, and even dom-inant local providers are not always able to buy them. This slows down the development of this technology in larger

Yota dreams big, 4 G networks get cracking

Denis Sverdlov, the young CEO of Skartel, is brimming with

ambitious plans to expand the reach of 4G networks.

PAUL DUVERNETRIBR

countries. It is simply too ex-pensive to be profi table.

Who are your shareholders

and what is the source of the

funds that have allowed you

to expand so rapidly?

The Telconet investment fund controlled by Russian busi-nessman Sergei Adonyev holds 74.9%. Russian Tech-

nologies holds 25.1%. In the beginning, it was our own shareholders who came up with the financing because they believed in the project. Since October 2009, when our sales overtook expenses and we were becoming well known, we have received of-fers from major banks as well as from companies who sell us equipment. The biggest bank that puts its trust in us is state-controlled Sberbank, that has already loaned us between $70 and 80 million.

Mobile The market for 'babushkaphones' is growing

The 1990s were a lost decade for mobile technology in Russia. But with breathtak-ing changes sweeping the in-ternational mobile phone market, Russian manufac-turers, too, are coming out with new innovations. At a time when iPhone is a rage in some parts of the world, Rus-sians have come out with simple no-frills phones, called “babushkaphones”. Babushka, in Russian, means granny and these cheap phones without any special gadgets or additional func-tions are just ideal for the el-derly who fi nd new fancy in-struments befuddling. “Older men and women often fi nd it difficult to get used to mod-ern multi-functional mobile phones with many excessive (in their view) functions,” says Mikhail Nikolayev, president of Orbita Telecom, which manufactures Just5 phone in Russia. "Nor are

they happy with the tenden-cy towards smaller size as their eyes are not as good as those of young customers,” he adds. Simple to operate, the Just5 phone comes equipped with big keys, a large screen, a powerful speaker, sensitive micro-phone and an emergency key. It is ideal not just for pen-sioners, but also for the un-educated, children, the dis-abled, and emergency services personnel.Clearly, babushkaphones and iPhones have different target audiences, says Mak-sim Nogotkov, president of Svyaznoy Group, one of Rus-

sia’s leading mobile phone retailers. Those buying iP-hones are image-conscious; they want to check their email and go online. And those buying cheap phones just want to call and send text messages. While babushkaphones cur-rently form just 1 per cent of the market, according to Smartmarketing, sales have jumped tenfold over the year. “Since the end of last year, we have already sold several dozen thousand such phones (closer to 100,000)," says Nikolayev.MegaFon, one of Russia’s top three mobile operators, joined the game in August 2010, by launching a phone with large keys. Thanks to this button, anti-iPhones are also purchased for children. With these phones, parents can be sure that the child won’t download endless pic-tures and music. Orbita Tele-com is already selling phones in more than 30 countries in Western Europe, the US, Canada, and almost all of Latin America. Mobile mar-ket experts see babushka-phones as a sign of market maturity.

Now, no-frills phones for your grandma

With big keys, they are ideal

for the elderly

iPhone may be the in-thing,

but Russian operators are

courting the elderly with

cheap, no-frills, easy-to-

operate mobile phones.

NATALYA FEDOTOVARIBR

Olympic mascots of previous years and contenders for Sochi 2014. The Zapashnye brothers, celebrated animal trainers,

proposed tiger cubs as the mascot (2nd from the left, lower row)

In just one year, the network covers 5 Russian cities with 1,000 base stations in Moscow alone.

BUSINESS REPORT IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

WEDNESDAY, OCTOBER 13, 2010

Athens 2004

Sochi 2014

Web-site

of the Embassy

of the Russian Federation

in India

IMAGO/LEGION MEDIA (4) ITAR-TASS

PHOTOXPRESS

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Full version atindrus.in

www.indrus.in/expert