Russia & India Report

Business Report THE ECONOMIC TIMES IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

News from youRussia can take anywhere WEDNESDAY SEPTEMBER 12, 2012

NEWS IN BRIEF

APEC: Putin backs regional integration, sells Eurasian customs union as a transportation bridge to Europe

Moscow unveils great Asia surge

Russia becomes 156th member of WTO The protocol on Russia’s accession to the Marrakesh Agreement, the foundation document for the World Trade Organistion (WTO), entered into force on August 22. The document, which made Russia the global trade body’s 156th member, was signed in Geneva on December 16, 2011 after 18 years of negotiations. Russian President Vladimir Putin signed a federal law that authorised the protocol on July 21. The WTO membership is expected to lower prices for imported and domestic goods. It will give Russia an additional 3.3% of GDP annually for the first three years, says the World Bank. RIBR

Kremlin leverages APEC summit to showcase Vladivostok and promote development of Far East and Siberia ANATOLY MEDETSKY The Moscow Times

The summit of the Asia-Pacific Economic Cooperation (APRC) forum presented a chance for Russia to stake a claim to a greater role in Asia. The country has put in a lot of effort into showing that it cares for its vast, scarcely populated and underdeveloped East — and Putin said the attendees took note. The forum of 21 economies took place on a scenic island just off Vladivostok, at the campus of a just-completed state university, with green parks, seafront alleys and a view of a giant bridge that the government ordered be built in time for the meeting.

Some of the deals and ceremonies on the sidelines of the forum, which Russia hosted for the first time, may have reinforced the idea that the government is really into shaping a brighter future for the region. Gazprom chief Alexei Miller and Ichiro Takahara, director-general of Japan’s Agency for Natural Resources and Energy, on Sept 8 signed a tentative agreement to cooperate in financing the construction of a liquefied natural gas, plant near Vladivostok. The agreement, signed as Putin and Japan’s Prime Minister Yoshihiko Noda looked on, also calls for Japan’s assistance in marketing the gas.

With the construction costs estimated at $7 billion, the facility will likely have an initial capacity of 10 million metric tonnes. “This project could grow into a very large one by international standards,” said Putin. When it starts operating, perhaps in 2016, it could ship most of its fuel to Japan, which needs increasing supplies to its electricity stations after last year’s nuclear disaster triggered shutdowns of similar plants in the country.

Putin also attended the stone-laying ceremony for Rosneft’s petrochemical plant outside of Vladivostok. Earlier last week, he opened a $300 million joint venture between Russian carmaker Sollers and Japan’s Mazda to assemble Japanese cars in Vladivostok. Putin also pointed to some

Russia, India sign deal for munitions facility

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Russia and India have signed a framework document for the establishment of a joint production facility for modern munitions for the Indian Army, a high-ranking source in the Indian Armed Forces told RIA Novosti. The agreement was signed Sept 3 at a working group on defence production.

India plans to start the domestic production of cutting-edge Russian-designed weapons, including rocket and artillery rounds. The two sides also discussed other areas for possible cooperation including license-production of Russian aerospace technology, the source said. India has traditionally been a major client for Russia’s arms industry and its army operates Russian tanks, rocket launchers and small arms. Ria Novosti

Russian President Vladimir Putin is upbeat about WTO and regional integration.

other cash-intensive projects that the government aims to carry out in the region, such as the Vostochny launch pad.

Lauding the APEC, Putin said the future lied with regional, rather than global, integration and pointed to Russia’s latest effort to create a trade bloc: the customs union with Belarus and Kazakhstan. Putin also took a jab at the WTO, saying it was unheard of for the WTO to move as quickly on an issue as the Asia-Pacific forum did in agreeing on a list of 50-odd green technologies that the countries want to have more accessible by slash-

ing import duties on them by 2015.

On another WTO-related topic, Putin said Russia would push for changes in the organisation’s rules to allow member countries to protect their vulnerable industries at times of global instability. “As a full-fledged member of this organisation, we intend to get rigorously involved in the process of shaping fair rules of international trade,” he said in a keynote speech to APEC chief executives.

Putin also proposed that Asian economies consider the Russia-led customs union as a transportation bridge to Europe. “If you look

Mahindra & Mahindra to sell vehicles in Russia

at the territory of the three countries, it will be clear that we do have something to offer,” he said. US Secretary of State Hillary Clinton, who stood in for President Barack Obama at the forum, called for the removal of protectionism and other measures in order to promote free trade.

Alexandra Ho, a project manager at the Asia Pacific Foundation of Canada think tank, lauded Russia’s effort to use the APEC forum to win a greater role in Asian trade. “A lot of countries, especially non-Asian ones, want to increase their presence in Asia,” Ho said.

Mahindra & Mahindra will sell its branded vehicles in Russia in the next two years, a major destination for the company’s exports. In a conference call to analysts, Pawan Goenka, Mahindra & Mahindra’s president (automotive and farm equipment sectors), said: “We are working on the Russian market for our vehicles to export from here. This may not happen immediately. It will take one and half to two years from now.” Mahindra already has a presence in Russia, with its South Korean subsidiary Ssangyong, selling a solitary sports utility vehicle in Russia. Mahindra exports its range of vehicles to Australia, Brazil, Chile, Nepal, South Africa and Sri Lanka. RIBR

Defence: Smerch deal ups weapons trade to $7.7 bn

Now, Smerch rockets to be made in India

New Russian ICBM can carry bigger warhead Russia’s new heavy intercontinental ballistic missile will have a 5-tonne warhead, which is four times that of its predecessors, says a former military commander. “The new ICBM will have a payload four times bigger than that of the Yars missile,” said Col. Gen. Viktor Yesin (Ret.), advisor to the Russian Strategic Missile Forces (SMF) commander. “The 45-tonne Yars has a payload of 1.2 tonnes. The new missile will be able to orbit a payload of 5 tons.” It will have a greater capability for missile defense penetration, he said. SMF ief Col. Gen. Sergei Karakayev said this past Monday that Russia will build a new ICBM by 2018. RBC

Russia’s Rosoboronexport and Splav Spa to transfer technology to OFB to produce 80-km range rockets.

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Army after their induction about six years ago, according to the Economic Times.

Russia and India have been discussing the local production of Smerch missiles for a while. OFB, Ambajhari will be the manufacturing agency, the daily added.

OFB Ambajhari is also involved in manufacturing a major chunk of the rockets of the Pinaka Multi-barrel Rocket Launchers (MBRLs) and is working on local production of 155mm 39 calibre Bofors artillery howitzers. The two sides also discussed possible cooperation in license-production of Russian aerospace technology.

Russia has been India’s largest supplier of arms and ammunitions for decades.

Military and technical cooperation with

OVL targets Russia’s Arctic Shelf blocks

Scaling new frontiers with Smerch.

India is important because we are going to develop high-tech products. India will also benefit from this collaboration, because by acquiring Russian-developed technologies, India will gain the knowledge and experience that other countries take decades to obtain.”

The Centre for Analysis of World Arms Trade expects Russian arms deliveries to India in 2012 to reach about $7.7 billion, about 60% of Russian military exports and 80% of Indian imports. The transfer of INS Vikramaditya aircraft carrier to the Indian Navy, scheduled for December, is by far the most expensive project, worth $2.34 billion. The second-largest delivery will be the transfer of two frigates under Project 11350.6, worth around $1 billion.

The third-largest transfer to be completed this year is the lease of Project 971 Nerpa nuclear submarine to the Indian Navy in January 2012. It cost India around $920 million. Anatoly Isaikin, General Director of Rosoboronexport, told Vedomosti that Russia had concluded $5 billion contracts for arms supplies in 2012.

Sukhoi poised to revive Su-80 aircraft project

India’s state-owned oil firm in talks with Rosneft to get a share in one of three joint ventures ANNA SOLODOVNIKOVA Kommersant

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ndia’s ONGC Videsh Ltd, the overseas investment arm of state-owned Oil & Natural Gas Corporation, wants to partner with Rosneft in potential oil exploration projects in the Russia Arctic Shelf, an ONGC executive told Kommersant, a Russian daily. “We don’t see the reasons why Russia’s government should negatively respond to our proposal, which is submitted by a friendly and reliable country,” said Nirmal Kumar, representative of the Moscow office of ONGC Videsh Ltd (OVL). Kumar confirmed a report in the Times of India, which said the OVL was holding negotiations with Rosneft on getting a share in one of the three joint ventures in Russia’s part of the Arctic shelf that the Russian oil giant established with the foreign investors in May. Rosneft declined to comment.

Rosneft has already signed separate shelf exploration deals with ExxonMobil, Italy’s ENI and Norway’s Statoil. The foreign

partners get a 33% stake each in separate joint projects in the Arctic Shelf, while Rosneft retains the 67%.

The foreign investors bear all costs of initial exploration and provide Rosneft with the right to buy a stake in their overseas projects. However, 5 of the 12 shelf fields that the Russian company was planning to offer foreign investors are still free. The OVL may also prefer to join one of the 12 Arctic shelf projects. Admitting that it lacks experience in working on the Arctic Shelf, the OVL is, however, ready to settle for a 25% stake.

Officials of ENI, Statoil and ExxonMobil say that they know nothing about the ONGC’s intentions and plans. OVL has stakes in fields in Vietnam, Sakhalin and Sudan. In Russia, besides owning a 20% in the Sakhalin-1 project, OVL owns the Imperial Energy Group, which is mainly active in the Tomsk Region, where the company conducts geological exploration and oil extraction.

ITAR-TASS

Russian defence imports to India expected to hit $7.7 billion, according to Cente for Analysis of World Arms Trade

OVL is looking to expand its stake in Russia’s oil blocks.

© DMITRY KOROBEYNIKOV_RIA NOVOSTI

n a trademark defence agreement, India and Russia have agreed to jointly produce the 80 km-range Smerch rockets in factories in India, said the Indian defence ministry recently. “Ordinance Factory Board (OFB) signed an MoU for a joint venture with Russian Rosoboronexport and Splav ‘Spa’ to manufacture five versions of Smerch rockets based on the transfer of technology from Russia,” said an official.

“Smerch rockets are technologically superior with a range of 70-80 kms. After indigenising the technology of Smerch rockets, OFB will attain new heights in manufacturing of advanced rocket system,” he added.

More than two regiments of the Smerch rockets have been in service in the Indian

When Russian Prime Minister Dmitry Medvedev asked Sukhoi to manufacture a new regional jet, the aircraft-giant’s executives said it would be a better idea to revive the almost forgotten project of the Su-80, a 30-seat passenger and cargo jet. Vice President for Finance of Sukhoi Civil Aircraft Yevgeny Konkov said that the government wants the company to manufacture a passenger transport aircraft for flights of 1,500 to 2,000 kilometres. The Su-80 programme was closed a couple of years ago. Sukhoi “forgot” about the Su-80 when it started the Superjet project. Aleksey Sinitsky, Editor of the Air Transport Review, feels that the Su-80 might be revived but there will still be questions w.r.t its price and after-sales maintenance. RIBR

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Business Report WEDNESDAY SEPTEMBER 12, 2012

Innovation: GTEL can accelerate upto 100 km per hour and cover 75 km on a tankful of fuel; its emissions are 10 times lower

Russian LNG-powered trains on the way Indian Railways is set to float a tender for the supply of gas-turbine electric locomotives (GTEL); Russian consortium has virtually no competition VADIM PONOMAREV Expert magazine

Production of NK-32 engines to resume in Samara The Russian government has made a decision to strengthen the group of strategic bombers Tu-160 (White Swan), pacing the way for the resumption of the production of NK-32 engines in Samara. “It is most profitable from the economic point of view to produce engines based on a single gas generator. The one of NK-361 is much alike the one on NK-32. Correspondingly, this very production will be aimed at making engines for GTELs as well,” says Dmitry Fedorchenko, Chief Designer of OJSC Kuznetsov. In addition, the enterprise plans to produce gears for power generating and gas pumping units with the power of up to 32 MW and aircraft engines with 30 tonnes of thrust (it may be installed, for example, in the largest cargo aircrafts – Ruslans) based on the single gas generator. This will take more than one year. But RZD needs only 40 GTELs till 2020.

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Russian locomotives using liquefied natural gas–gas turbine-electric locomotives (GTEL) will be heading to India in the not-too-distant future.

Indian Railways is set to announce an international tender in November for the supply of these unique machines that offers a viable alternative of trains running on clean fuel. A consortium of Russian Railways Concern (RZD) and associated companies like the United Industrial Corporation OBORONPROM will be bidding for it and will have practically no competitors.

Russia has the first mover advantage in this nice high-tech area, but it has no experience of their mass production either. India and Russia may, therefore, become pioneers in the commercial development of LNG-powered locomotives.

The experiments to create a railway locomotive with a gas turbine instead of a diesel power engine hark back to the middle of the last century. But due to their noise, high fuel consumption and complexity, gas turbine-electric locomotives didn’t quite take off.

Meanwhile, Russia’s Samara Scientific and Technical Complex specialised in the construction of gasturbine engines for strategic bombers and gas-pumping units. In the 90s, they were asked to create a gas-turbine engine for an aircraft that would use LNG as fuel. Subsequently, the RZD got interested in the LNG gas-turbine unit based on aero-engine NK-256. RZD considered that a gas turbine-electric locomotive would be at least one-third more efficient than diesel locomotives, especially in the Extreme North where

LNG-run locomotives offer a viable alternative of trains on clean fuel. railways are not electrified but where there is a lot of natural gas.

At the end of 2006, Russian Railways placed an order with Kuznetsov Bureau to develop and build a prototype engine for a gas turbine-electric locomotive (a GTEL is driven not by

gas, but by the power produced by the generator connected to a gas turbine).

The newest Russian gas turbineelectric locomotive with NK-361 engine set off on its maiden trip in July 2008. For the time, it was acknowledged as the most powerful locomo-

tive in the world that uses LNG – that is 8.3 MW, a feat that found mention in the Guinness Book of Records. This locomotive can accelerate to a speed of upto 100 kilometers per hour and cover 750 km on a tankful of fuel. It operates very well in mountain regions.

In four years, it created several world records in the carrying capacity of the train it hauled. For example, last autumn it pulled a train weighing 16,000 tonnes (170 carriages), which stretched nearly upto 3 kilometers along a railroad. This machine is environmentally friendly.

In addition, the up-to-date Russian GTEL may be used not only as a locomotive, but as a mobile power station. After reaching a specified place, it can give electricity to a village or an enterprise.

At the end of June, RZD and Sinara Group concluded an agreement about the production and supply of 40 mainline GTELs consuming LNG by 2020. Their production will be organised at Lyudinovsky Locomotive Plant, which belongs to Sinara.

At the same time, RZD and OBORONPROM began to prepare for the Indian tender. In Samara, they are sure that the world leader in this sphere is Kuznetsov Bureau and RZD is the sole owner of a gas turbine-electric locomotive that can meet the requirements of Indian Railways fully. According to informed sources, the Indian party is ready to finance the development activities aimed at adapting the power unit of the Russian GTEL to the hot climate conditions. Only two questions still remain open: the creation of the requisite infrastructure to provide GTELs with fuel and the capacity of Samara engine plants to produce the necessary quantity of power units (RZD will need up to 200 machines, Indian Railways – upto 300).

The LNG-powered locomotives may take some time to come to India. The Indian Railways will be testing these machines for the next two-three years at least. Kuznetsov, United Engine Corporation and OBORONPROM have, threfore, some time to organise a full-fledged production of engines for the new unique Russian locomotives.

BUSINESS: Brands succeed in Russia only when a brand owner takes up full responsibility for managing the brand

Russian market opens up, smell the coffee!

this segment has been showing good growth over the last few years,” says Nair. “Russians are very open minded and still open to trying new brands and this makes the market very interesting compared to some other markets.”

Nair believes another advantage of the Russian market is that it has both channels of trade – organised and traditional retail outlets. This allows brand owners to penetrate the market

in stages. Given the diversity and size of the country, a company, he feels, can always launch its brands on a regional or national basis depending on budgets and distribution reach.

Analysing the present state of the Russian F& B market, Nair says it is large enough for new players to make an impact within a short time frame if the right entry strategy is worked out and a proper team is in place. “B2B (business to business) is relatively easier and cheaper for new businesses to enter than B2C (business to consumer) branded segments today in Russia. Opportunities exist in both segments and well-crafted strategy with investments will succeed.”

The Indo-Russian cooperation in F&B business is mainly limited to the business of raw material sales or as a service provider business. Nair however, noted that that most Indian companies in the past have not succeeded in the branded B2C segment in Russia because they have tried to just sell the goods to a local company without developing the brand.

“There must be clarity and differentiation on roles of the distributor and brand development. Brands succeed in Russia only when the brand owner takes up full responsibility for managing the brand. This is something that I would recommend,” advises Nair.

finalised, which would draw import duties not exceeding 15% by 2015. China announced a stimulus plan of $157 billion in infrastructure projects; Russia agreed to remove restrictions on export of its farm produce; and China successfully campaigned for a 10% improvement in the efficiency of industrial supply chains by 2015.

The Russian diplomacy ensured two things. First, the focus was kept on the issues of economic cooperation. Indeed, the Japanese prime minister didn’t hold the customary “bilaterals” with the Chinese and South Korean leaders and Russia and the US publicly disagreed on Syria. Yet, the final message from Vladivostok was that Asia-Pacific is the economic engine of a fragile world economy. Second, Russia made a conscious effort to harmonise its AsiaPacific strategy with China.

Russia doubtless estimated that the APEC has been a key factor in the US’ “pivot” to Asia. However, while Moscow has faithfully stuck to the APEC’s man-

date as a clearing house of economic issues, this may not be the case at next year’s summit. Meanwhile, Washington is also pushing for a Trans-Pacific Partnership (excluding both China and Russia), which may pose an existential challenge to the APEC. Beijing has already begun work to build a rival free-trade area of its own with Japan and South Korea to blunt the cutting edge of the Trans-Pacific Partnership. Also, yet another trading block idea, ASEAN+6 (including China, India, Japan, South Korea, Australia and New Zealand) is also surging, which would immediately become the world’s largest free-trade area if it comes to fruition. In short, there is a danger of the APEC dissolving into competing blocs as time passes and of never quite turning out to be the forum for the real trade talks. In many ways, the APEC summit that China will be hosting in 2014 becomes a defining moment.

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hey say a lot can happen over a cup of coffee. Sudeep Nair, executive director and head of the Moscow office of Food Empire Holdings Ltd, a Singaporeheadquartered food and beverages company, can’t agree more. His company has, after all, spun an empire of sorts by selling mixed coffee and has scripted a success story in Russia as well.

The Food Empire’s links with Russia hark back to the early 1990s. In those days, the company had some consumer goods electronics trading business with some Russian and Eastern European countries, recalls Nair. They realised that the Russian market was opening up for foreign trade and more

and more Russian clients were sourcing for all kinds of products. However, they also realised that pure trading had low margins and did not have much of a future. That ‘s when Nair and his colleagues ventured into the F &B business and started their own brand of coffee mix, MacCoffee, as an experiment in the F&B segment.

“It was a completely new product for Russian consumers then, but a very popular and successful segment in Southeast Asian markets,” says Nair.

“We figured that Russia would be a very good window to CIS markets with over 250 million consumers and Russia being the biggest, we set up a small office to start our business. The country had just opened up after decades of communism and consumers were hungry and willing to try new products

from other countries after decades of controlled supplies of all products.”

Nair recalls that the Food Empire faced many difficulties like all other foreign companies in those years.

This was largely because there was no private sector in Russia which explains the lack of experienced, multilingual staff, constantly changing government rules and regulations and even currency fluctuations. In his opinion, the biggest challenge facing any business is the volatile economic situation in Europe which has led to major currency devaluations. “Sudden devaluation of the ruble versus major currencies would be the most negative factor to affect any business in Russia and also its citizens because it directly relates to lower purchasing power but higher costs of imported things,” says Nair.

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‘From a nation of tea-drinkers to discerning instant coffee consumers, Russians are trying out new brands, and making way for new players’

Sudeep Nair, chief of the Moscow office of Food Empire Holdings Ltd. The Russian branded F&B market, specially the coffee market, is a relatively young one that started just in 1990s. According to Nair, Russian consumers were primarily tea drinkers and coffee drinkers didn’t have much choice before the 1990s. “After experiencing the taste and wide range of good instant soluble coffee products over the last 15 years, Russian consumers have started trying pure coffee and

THE BIG PICTURE

Why Russian eagle is turning to the East M.K. BHADRAKUMAR Foreign policy analyst Twenty billion dollars is a lot of money – the CNN estimated that this was what Russia spent on transforming Vladivostok for the APEC summit meeting. Indeed, a lot of that money indeed went into infrastructure development of the remote eastern Primorsky Krai region, including the brand-new $1 billion causeway connecting Vladivostok with the Russky Island where the summit was held.

But in the final analysis, it was less a splurge and more a political statement of intent. And it was a statement in

three parts. One, Moscow recognises the Asia-Pacific to be the “most important factor for the successful future” of Russia and the development of Siberia and the Far East, as President Vladimir Putin wrote in an article last week in the Wall Street Journal. Russia has invested a lot of diplomatic capital in becoming an intrinsic part of the dynamic Asia-Pacific region. This is a crucial decision because Russia is a European nation historically and culturally, its trade is mostly with Europe, its population centres are in the “European part”

and its policies prioritise integration with Europe.

Two, as Putin explained, Moscow hopes that the Eurasia Economic Union that is taking shape will “play an active part in the regional and international agenda… [with] a significant role in global development agenda and become a bridge between the European Union and the Asia-Pacific region.”

Russia believes that it is ideally placed to present an integration project with a unique “transport profile” that will diversify the trade routes.

The experts of the APEC Business Advisory Council estimate that the traffic flow between Europe and the Asia-Pacific region via Russia’s territory will increase five-fold or more by 2020. Apart from being cost-effective, the Russian trade route has immense geopolitical significance, since it offers

an alternative to the traditional transportation routes through the Straits of Malacca and the Suez Canal.

Finally, the summit meeting at Vladivostok coincides with Russia’s formal entry into the WTO, which will bring greater momentum to trade and investment between Russia and the world economies. With the accession to the WTO, Russia’s trade policies and regulations gain in transparency and the accent will be on trade liberalisation measures. Adjustments are needed immediately in the importexport tariffs for one-third of Russia’s traded goods.

At Vladivostok, Russia showcased its WTO membership. Putin called the summit a complete success. He said there has been a strong commitment to free trade and integration. True, a list of 54 green technology goods was

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Business Report WEDNESDAY SEPTEMBER 12, 2012

INNOVATION: Russian start-up gets $100,000 from Microsoft fund and support from Skolkovo to protect intellectual property

How to wage war against piracy, and get paid As copyright violations become an epidemic, Pirate Pay software stops files from being illegally downloaded from torrent networks ELENA SHIPILOVA

The Power of three

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Dmitry Shuvaev EDUCATION: Dmitry completed his studies at the Perm branch of Moscow’s Higher School of Economics in 2004, specialising in developing IT startups with a plan to sell them to major companies later.

EXPERIENCE: Worked with a commercial design studio and telecom company.

Alexei Klimenko EDUCATION: Alexei earned a degree in physics at Perm State University.

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n 2009, brothers Andrei and Alexei Klimenko and their friend Dmitry Shuvaev created a file-sharing traffic management solution for an Internet Service Provider (I.S.P.) network. Little did they know that this experiment will turn out to be a path-solution for intellectual property protection. “After creating the prototype, we realised we could prevent files from being downloaded, which meant that the programme had great promise in combating the spread of pirated content,” says Andrei Klimenko, now the CEO of the company the founders aptly named Pirate Pay. The technology prevents file-sharing in torrent networks. These peer-to-peer (p2p) file sharing solutions allow large amounts of data to be transferred between individuals.

After the first user uploads a file to an accessible network, the file does not live in any central location, but is accessible only from people who have already accessed it. In order to download a file, however, these secondary users must know the IP address of a computer that has the file. Sans this vital information, the connection terminates and the file cannot be downloaded.

Shuvaev and the Klimenko brothers found a way to prevent these secondary downloads from taking place even when the IP address is known. “It was not so hard to do from inside an ISP’s network. But to turn the technology into a global service, we had to convince all ISPs to acquire our solution.

This is, what someone could call ‘mission impossible’. So to create a global service, we had to find the way to do it from the cloud,” says Andrei Klimenko.

“So we needed money for develop-

Dmitry Shuvaev, Andrei Klimenko and Alexei Klimenko (L-R) have devised a pioneering software to combat rampant theft of intellectual property. They hope to make it big globally. ment.” The partners quickly found that getting the funds to refine the technology into a successful venture was not a simple task, but after taking part in many grant competitions, they caught the eye of the Miscrosoft talent scouts.

The Microsoft Seed Financing Fund was quick to pump in $100,000. The Bortnik Fund, which assists small innovative enterprises, put in around $34,000. And, perhaps most signifi-

cantly, the Skolkovo Innovation Center accepted the company as a resident, easing their way by tax benefits as well as an interaction with other innovators.

The newly-minted businessmen have been able to recruit four programmers, expanding staff to seven people. “The underlying technology of Pirate Pay has no analogues in the world,” says Alexander Turkot, executive director of the Skolkovo Information Technologies

Cluster. Potential residents at Skolkovo, Russia’s governmentsupported answer to Silicon Valley, are assessed according to several criteria, including scientific innovation and the prospect of commercialisation.

The problem of copyright infringement has assumed alarming proportions, and there is mounting international pressure on the government to crack down on rampant piracy.

TREND: Skolkovo has provided an initial grant to Mobly and will partner with traditional providers

Virtual mobile operators itching for a piece of pie

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here are more than 10 virtual operators in Russia, and 430 worldwide.

Some want to dominate a local market, others want to use their brand to resell traffic. Some operators offer cheap roaming while others make it difficult to roam. Denis Miganov, a lead developer of the Mobly virtual mobile operator, and his team want to make life easier. They plan to finance the Mobly project through venture capital.

“It is possible to attract venture money through, for instance, a center for commercialisation of projects like Skolkovo,” adds Miganov. The compa-

Mobly plans to start operating an independent virtual network in the world by 2014. The subscription will be available on a single rate basis. ny has already received an initial grant from Russia’s “Silicon Valley.”

“The project has great potential; it is well-developed from the technical point of view, but only time will show if it is able to become first among the global MVNO (Mobile Virtual Network Operator) providers,” opines Alexander Turkot, head of the IT Technology Cluster at Skolkovo.

Mobly plans to start operating an independent virtual network along with other networks in different countries by 2014. A Mobly subscription will be available anywhere in the world on a single rate basis. Miganov is confident that in 2013, the service will be offered

to subscribers of large communications providers as an additional cloud service.

The entry of virtual providers necessarily, however, does not mean the end of traditional providers.

“A large number of subscribers in Russia do not go to other countries, use additional services including mobile Internet or spend more than $10 a month,” says Vitaly Solonin of Jonson & Partners.

Valeria Kuzmenko, a spokeswoman for mobile operator MTS, does not believe the virtual service will work very well. “There will be no rejection of traditional operators, as the communications offered will become only an additional option. Traditional communications providers will reconsider their policy of entering global markets,” Kuzmenko says.

Kuzmenko and other mobile operators see IT companies like Skype as the real competition.

“Implementation of projects like Mobly is, to our mind, possible, in two variants,” Valeria Kuzmenko believes.

“The first variant implies that a company will acquire a MVNO license for working in the virtual mobile communication market and search for an operator that will become a technical partner and provide its networks,” Kuzmenko says.

“The second variant is OTT [Over The Top] service sector like Skype and other market players. This option requires traffic transit security, including that in roaming, and the stated low cost will unlikely enable the company to offer high quality of rendered services and compete with a great number of already existing similar services,” Kuzmenko adds.

Besides, for using OTT service, a

EDUCATION: Andrei studied physics at Perm State University and later taught physics.

EXPERIENCE: Launched Perm’s first network of Wi-Fi hotspots. He also founded another local successful start-up before launching Pirate Pay.

Internet giants dream global ANNA ANDRIANOVA RIBR

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Andrei Klimenko

Yandex launches search engine in Turkey; Odnoklassniki eyes Uzbekistan for expansion

Mobly network is set to make mobile communication global and provide Internet and voice calls for $20 a month.

OLGA SUKHAREVA

EXPERIENCE: Worked as an engineer before working in sales and management in the local telecom sector. Before Pirate Pay, he was involved with implementing over-the-top services for telecom clients.

Foreigners in Russia find they can obtain foreign films before their release dates in the US. According to various estimates, filmmakers lose about $500 million a year to piracy. Hundreds of thousands of gigabytes of illegal content are downloaded every day through file sharing services, including computer software, music and films.

Threatening Internet users with legal liability or appealing to their conscience has largely failed. And that is why the company has begun to attract attention outside Russia as well as at home. In December last year, the film “Vysotsky. Thanks to God I’m Alive” came out in movie theaters, and for a month after its opening, Pirate Pay protected the film on torrent networks.

“We used a number of servers to make a connection to each and every p2p client that distributed this film.

Then Pirate Pay sent specific traffic to confuse these clients about the real IP addresses of other clients and to make them disconnect from each other,” says Klimenko. “Nearly 50,000 users did not complete their downloads.”

This company’s successful defence of the film brought in its first big payday.

Company officials will not discuss exact earnings, but said that projects will cost clients anything between $12,000 and $50,000 depending on the resources needed to mount a defence.

“We try to strike deals with a profit margin,” says Andrei Klimenko.

“However, more is currently being spent on development than what we are earning, and thus, there is not yet an opportunity to recoup our expenses from revenue.” In the next two years, the company plans to entrench its place in the Russian market and gain a foothold globally.

Mobly operator has a big potential for the future, a lead developer Miganov reckons

Internet, voice calls for $20 a month!

The developers of Russia’s Mobly virtual mobile network want to make mobile communication global, reliable and be able to provide Internet and voice calls for about $20 a a month. A combination of GSM, 3G and 4G networks, cloud technologies and IMS architecture (IP Multimedia Subsystem) is used, which implies connection

user needs mobile or fixed Internet.

This makes the service inconvenient for calls, especially when a person is on a holiday or business abroad, thus depriving a user of mobility.

Both variants need working out return of investments and securing quality of communication service.

Otherwise, the users who have connected to the service and paid for it may still suffer from the situation not

to any network including mobile, fixed, DSL, Wi-Fi, cable, etc. Mobly also incorporates the technology of super thin film SIM cards, which allows a user to use a local profile in any country and save both on voice and data roaming. Mobly will partner with traditional mobile providers and pay them a fee for the use of their infrastructure.

being able to use this service.

“Such products and services evoke genuine interest from large IT companies. We all know about the purchase of Skype by Microsoft. Google launched Google Voice service in 2010.

Technologies and networks are developing rapidly,” says Stanislav Vidyaev, an analyst at the Russian office of Google Russia.

ussia’s leading Internet players are now competing with global giants and their success will spur investors’ interest in new start-ups out of Russia, says a report by global management consulting firm McKinsey & Company. What is more, the Russian language is the second-fastest growing language on the Internet, outperformed only

by Arabic. “Within the next two or three years, we’ll witness quite a bit of growth being driven essentially by the infrastructure being rolled out as well as huge investment going into the Internet sphere,” says Aigool Khalikova of McKinsey. “The number of large budget e-commerce startups started within the last year is huge and each of them is driving (online) penetration, traffic and revenues,” says Khalikova.

Russia’s Internet giants are now looking to expand abroad. Last year, Yandex, Russia’s leading search engine, launched a search engine for Turkish users, offering search, news aggregation, local maps, images and videos and managed to reach the benchmark of 100,000 visitors per day in Turkey. “Russian language was a competitive advantage 20 years ago. Now, we compete not on the language base. We do a lot of things that

59% is Yandex search engine’s share among Russian internet users, followed by Google with 25.9%.

nobody else is doing,” says Arkady Volozh, Yandex founder and CEO. One of Yandex’s innovations is social search, which aggregates feeds from Twitter, Facebook, and popular Russian social networks like VKontakte, Odnoklassniki and LiveJournal. “Social networks will penetrate more and more into other businesses like music, video and ecommerce,” predicts Ilya Shirokov of Mail.ru Group.

Social network Odnoklassniki, part of Mail.ru group, has launched a pilot project with Gala Records, Russia’s largest private music label, for users to listen to the music tracks for free and pay only when downloaded. “Internet and digital technologies make life easier and the Russian government has to provide infrastructure for innovation,” says Deputy Prime Minister Arkady Dvorkovich citing the Skolkovo Fund as a center for development and monetisation of new technologies.

Russia’s “internetisation” fastest in BRIC The number of Internet users in Russia may reach 80 million by 2014 leaving the other BRIC members – China, India and Brazil – far behind, in terms of the computerisation rate. According to Steffen Lyaystner from Booz&Co consulting company, in 2014, 71% of the country’s adult population will get a permanent Internet access. Among the reasons for the rapid “internetisation” of Russia are high education level inherited from the USSR

period – 39% of the 25-39 year old Russians have a university diploma, a relatively low unemployment rate (6%) and the improvement of the demographic situation. There are 3.2 specialists with a technical diploma per each thousand of employees while in the USA, this professional group makes up only 0.7%. The contribution of the computerisation to the Russian economy reached $29 billion or 1.27% of GDP in 2008-2010.

IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

F |E |A |T |U |R |E

Business Report WEDNESDAY SEPTEMBER 12, 2012

TOURISM: Circus, water ballet, ice skating, puppets....

Hello kids, welcome to Moscow thrills & frills A city of towering skyscrapers and gridlocked traffic, Moscow may not sound like a children’s dream holiday destination. But there is plenty in this throbbing metropolis to amuse kids as well. “Now, there are many more playrooms, child-friendly museums, hands-on galleries. It’s great! And the Moscow circus scene is worldrenowned,” gushes Harriet Kalinin, founder of the bilingual website, “Children in Moscow” (http://www. childreninmoscow.ru/en/). Arden Dressner Levy, a 13-year-old from New York, who lived and studied in Moscow for four years, lists the circus among her top Moscow attractions, along with “the ballet, ice skating in Gorky Park and cross country skiing, blinis (pancakes) and hot chocolate.”

Clowns and crocodiles Moscow’s oldest circus is on Tsvetnoi Boulevard, just twenty minutes’ walk north of the Kremlin. Albert Salomonsky, a bareback rider-turnedbusinessman, built it in 1880 and

framed his first ever ruble of profit on the wall of the box office for luck. His catchphrase was “clowns are good; ticket sales are good”. The circus operated throughout World War II. Clown Yuri Nikulin joined it immediately afterwards and worked there for fifty years. Since Yuri’s death in 1997, his son Maxim has run the show, now known as the “Nikulin circus” (http://www.circusnikulin.ru/lang/ eng/file/main/index.html). The latest show promises bears, monkeys, dancing poodles and aerial gymnasts, the “White Birds”. Last year’s spectacle included snakes and crocodiles, horseback dancers and acrobats, along with the clowns. The newer “Bolshoi (Great) Circus” (http://www. bolshoicircus.ru/), near the Moscow State University, also continues to be a big hit, with its blend of animal acts and human skill. The 1971 building, the largest permanent circus in the world, is high enough to accommodate flying trapezes and wide enough to host parading elephants. Dressner Levy says her favorite show is “when they fill the pool at the Bolshoi Moskovsky circus and do water ballet”. Below the

36-metre-high big top are subterranean levels plunging half as deep again, containing six interchangeable arenas, suitable for horse-riding, optical illusions, ice skating, electronic lighting spectacles and even aquatic shows with marine animals.

Puppets and museums

LORI/LEGION MEDIA

A statue of iconic clown Yuri Nikulin stands outside Moscow’s oldest circus.

INTERVEIW

Moscow has a host of animal theatres, including one where all the performers are cats (http://www.kuklachev.ru/eng), or the Durov Animal Theatre, with its “mouse railway”, founded in 1912 by clown and animal trainer Vladimir Durov (http://www. ugolokdurova.ru/). The city is bristling with entertainments designed to brighten the long Muscovite winters.

The puppet shows at the Obratsov theatre (http://www.puppet.ru/) are famous for their elaborate costumes and the Bolshoi ballet’s annual “Nutcracker” sells out every Christmas (http://www.bolshoi.ru/en/).

“The Adventures of Red Riding Hood”, the Mayakovsky Theatre’s lively composite fairy tale (http://www. mayakovsky.ru/), is all in Russian, but from the minute Red Riding Hood enters with her roller blades and mobile phone, you know it’s going to be fun.

Older kids might check out the rollicking version of “Jesus Christ Superstar” at the Mossoviet Theatre (http://www. mossoveta.ru/).

Children with particular passions like dinosaurs or space, will find worldclass, relevant museums in Moscow.

The Central Museum of the Armed Forces (http://www.cmaf.ru/eng/ index_eng.htm) allows kids to climb all over the tanks and rocket launchers in the garden. Some of the more impressive parts of the Moscow’s biggest attractions, like the Egyptian gallery in the Pushkin Arts’ Museum (http:// www.arts-museum.ru/) or the coaches in the Kremlin’s Armory (http://

Acrobats and bears rehearsing for the show “Star season in big theatre”.

Check out lava lamps, energy balls...

The All-Russia Exhibition Centre, known as VDNKh, is just the place for your kids. Built for a 1930s agricultural show, it is full of golden fountains and ornate pavilions. The surviving architectural wonderland has its own circus, fairgrounds and seasonal ice rink. It is also the home of the Cosmonautics and Ice Age museums, the monorail, a butterfly house, and kiosks full of lava lamps and energy balls. Check out http://www.vvcentre.ru/eng/ for more details on this fantasy land for children.

Gorky Park and Kva Kva Just over a year ago, oligarch Roman Abramovich bought up the dilapidated funfairs of Moscow’s Gorky Park (http://www.park-gorkogo.com/) and transformed them into a utopian expanse of bean bags and juice bars, deck chairs, outdoor art and yoga classes. The whole park now has free entry and wifi. This summer, it has become a really great place for riverside relaxation, as well as the new venue for the “Garage Centre for Contemporary Culture”, run by Abramovich’s girlfriend, Dasha Zhukhova.

Russia is ahead of other BRICS countries in terms of travelers holidaying abroad: France, Turkey, Egypt, Spain, Greece top destinations

After the show, the audience hugged all of us in green room with joy, Nair fondly recalls

Kutiyattam dancers were thrilled by the applause from the Russian audience in Yakutia. Sasi Nair, troupe manager of the Natyamandapa Group, talks to Russia & India Business Report about the Kerala troupe’s experience in Russia.

Tell us a little bit about the group that performed in the Russian Far East.

Our Kutiyattam troupe had eight members; one troupe manager, two performing actors, three drummers, one make-up man and one singer.

All the artists were professionals as well as teachers of two Kutiyattam schools, which are being run by Kendra Sangeeta Nataka Academy.

How did it feel to be there? It’s quite a long distance from Kerala.

After long and tiring flights from

ALYONA UZBEKOVA

How were the performances?

Our first performance was on July 10, to inaugurate the programme.

We were very glad to be the cultural representatives of a nation and starting a festival with Kutiyattam was something great. We all enjoyed that thrill very much. On the July 10, there were two performances.

The first one was Nangiarkoothu, a solo performance by women actors called Nangiars. The story was an episode from Srikrishna Charitham Kamsavadham – The slaying of King Kamsa. The second one was the Kutiyattam (combined acting) and the scene was from the third chapter

PRESS PHOTO

RIBR

Trivandrum to Dubai and then to Moscow, we reached Yakutsk in July and the first sight of the lady with the placard ‘India’ and the traditional welcome by the Yakutsk women made us understand that we were guests of the state.

Kerala actors performing Kutiyattam at the Yakutsk state theatre. of the play Abhisheka by Indian Sanskrit playwright Bhasa. We had several engagements and programmes other than our main performance on July 10 and the closing ceremony on July 15. Since Kutiyattam focuses more on facial expressions and body languages, our stage was reduced and the performing area was brought closer towards the audience. We are very much thankful to Natalia Ledova who is a Sanskrit scholar from Moscow and known to us for years. We had planned for showing the story in English as the performance progresses. Natalia gave us the idea of incorporating Russian as well and we could do it in the final hours. We were told by many that it helped a lot for the Rus-

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sians to understand and follow the story. They were captivated by the expressions.

You received a very warm reception from the people of Yakutia…

We were told that the Yakut people rarely express their emotions and they are so strong by nature.

But after the performance, many people from audience literally hugged all of us in the green room with joy. We had arranged a small photo exhibition of Kutiyattam and Nangiarkoothu. While visiting public places, we were warmly greeted by the people, saying ‘Indian..Indian’!

We got lots of little presents and we will keep those gifts as heartfelt treasures.

Russia is way ahead of other BRICS countries such as Brazil, India, and China in terms of the number of travelers spending vacations abroad, says the Association of Tour Operators of Russia. The flow of Russians holidaying internationally has grown by 50% over the past five years. Almost 24 million Russians travelled abroad in 2011, and the trend is set to continue this year. Russians travel 1.3 times more often than Chinese, 3.4 times more than Indians, and 4.6 times more than Brazilians.

Russia’s proximity to global tourist hubs helps. “Paris, the number one tourist attraction in the world, is certainly closer to Russia than it is to China, India, or Brazil,” says Maya Lomidze, executive director of the Russian tourist body. Russia’s surging living standards also have contributed to this global wanderlust, she says.

Russians’ favourite global vacation destinations include Turkey, Egypt, Spain, Greece, Italy, Bulgaria, Croatia, Thailand, Finland, and Cyprus. This

“top ten” has not changed over the recent years. But there are other distant places that are enticing Russians and may make it to the top ten list.

“The UAE, particularly Dubai, is almost there. Morocco, Tunis also have potential,” says she.

While Russian tourists spend a lot of money in Muslim countries, Russia is not prepared to welcome large numbers of Muslims vacationers.

Critics point out that Moscow doesn’t have street signs in English. “Public announcements in the metro are in Russian only; moving text displays in English can provide foreigners convenience. The needs of Europeans are not met; creating special conditions for Muslims is vital too,” says Lomidze.

This explains why despite the diversity offered by picturesque places in Russia, even European tourists seldom venture outside of Moscow, St. Petersburg or the Golden Ring.

“Foreign tourists have been long asking us to spare them the endless tours of Russian churches. There’s so much more that they want to see,” says Lomidze.

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Canadian Cirque du Soleil artists rehearsing for a show at the State Kremlin Palace.

Global travel bug bites Russians

‘It was thrilling to perform Kutiyattam in Yakutia’ RIBR

Moscow’s Nikulin circus during the show “Parade of attractions” on Children’s Day.

kreml.ru/en/museums/armoury/) can appeal to kids too.

SASI NAIR

AJAY KAMALAKARAN

© VITALY BEZRUKICH_RIA NOVOSTI

RIBR

© ALEXEY FILIPPOV_RIA NOVOSTI

PHOEBE TAPLIN

ITAR-TASS

A feast of delights awaits young visitors to Moscow. Quirky museums, dancing poodles, aerial gymnasts will ensure they have a fantastic time

question…

M.K. Bhadrakumar Rakesh Krishnan Simha

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