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Business & Politics
RUSSIAN BUSINESS INSIGHT SECTION SPONSORED BY ROSSIYSKAYA GAZETA, RUSSIA WWW.RBTH.RU
Infrastructure A new priority area is emerging for capital upgrades in the air transport industry
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NEWS IN BRIEF
Regional Airports Become Attractive for Investment
• BP’s board approved the sale of its 50% stake in joint venture TNK-BP to Russia’s largest oil company, Rosneft. The deal clears the way for the formation of one of the world’s largest oil companies. • New Jersey Nets owner Mikhail Prokhorov has taken control of one of Moscow’s biggest privately owned investment banks, Renaissance Capital, after buying just over 50% of the shares that belonged to the bank’s founder and longserving CEO, New Zealander Stephen Jennings.
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• Britain’s former treasury minister, Paul Myners, has been recruited to join the board of Megafon, which announced a price range for its IPO of $20- $25. The price range values the telecoms operator between $11 billion and $14 billion.
© VLERY TITIEVSKY_RIA NOVOSTI
• State corporation Russian Technologies is selling its 45% stake in the world’s largest titanium producer, VSMPO-Avisma, to a joint venture of VSMPO managers and Gazprombank, for $970 million. The deal will give them a majority shareholding of 50% plus one share, while nearly 25% of the company will be freely traded and not in the hands of major shareholders. • Russia’s state-owned Sberbank has signed a $1 billion loan deal with Belarusian potash producer Belaruskali. Some $800 million will be used to refinance the company’s long-term hardcurrency debts. Sberbank says it may invest in the company.
The domestic terminal of Novosibirsk Airport (the busiest in Siberia) recently underwent a major renovation.
The Russian government is attempting to make regional airports a lucrative destination for international investors. SERGEY STARIKOV SPECIAL TO RUSSIAN BUSINESS INSIGHT
Less than a decade ago, the only way that residents ofYekaterinburg could fly to the Czech Republic or the Greek islands was routing via Moscow. But today the new, modern, international terminal Koltsovo has direct flights to a wide range of world destinations. The whole situation began changing in the mid-2000s, when Russian private capital investors began taking an interest in the country’s transport infrastructure. That activity is now gaining impetus. The Russian government alone has pledged to invest approximately $5.7 billion over the next three years in airport development. Private investors have promised to invest an equivalent sum. The huge majority of transport movements in Russia are now made using foreign-manufactured aircraft, and passenger traffic accounts for 89% of this business. What will it cost? According to figures from the Ministry of Transport, the Russian government is preparing to spend approximately $5.7 billion dollars on airport infrastructure between 2013 and 2015. By comparison, expenditure on comparable projects for the entire preceding decade was just $4.6 billion dollars, with the bulk of the cash going towards fixing up Moscow’s airports. In Mos-
IN FIGURES
$5.7 billion
315
$200 million
has been committed by the Russian government as investment into developing regional airports over the next three years.
airports currently function across Russia’s territory, down from 1,300 in Soviet times. The plan calls for modernizing 64 of those still open.
has already been invested by Changi Airports International into developing airport infrastructure in Russia’s southern regions.
cow, six runways were entirely rebuilt. Nowadays policy at the Ministry of Transport has altered. From 2013 onwards, regional airports will be the priority area for capital investment. “We used to have around 1,300 airports in Russia, whereas today only around a quarter of these are operational. It’s our job to turn this around,”says Maxim Sokolov, minister of transport for the Russian Federation. Of Russia’s 315 airports, 64 require urgent rebuilding. Nearly half of these are located in areas where no other feasible transport alternatives to air travel exist. Private investors aren’t looking for that kind of project. Evgeny Chudnovsky of investment company Renova notes that private companies aren’t interested in looking at airports serving fewer than one million passengers a year. However, the government hopes that its cash injection into regional airports will help to promote private investment. There are currently four major holding companies forming in the airport sphere: Renova, owned by Viktor Vekselberg, and known as
Airports In The Regions; Bazel Aero, a part of Oleg Deripaska’s Bazel corporation; Novaport, which has come out of Roman Trotsenko’s AEON Corporation; and Sidinka Holdings, which is controlled by Arsen Kanokov, the President of the Kabardino-Balkaria Russian Republic. Together, these holding companies control 17 of Russia’s most important regional airports. Main tasks Just like the government, the airport holding corporations are interested in one primary aim – the decentralisation of passenger air traffic.Where regional airports previously served flights from Moscow, as well as charter flights to Turkey and Egypt, inter-regional and international flights are emerging. In the near future, many of these independent airports will become fully fledged nodal hubs. Yekaterinburg’s Koltsovo airport, part of the Airports In The Regions group, is already there, serving more than three million passengers a year. Also in this category are Novosibirsk’s Tolmachevo airport, part of the Novaport group, and Kras-
nodar airport (owned by the Bazel Group); each has passenger throughputs above two million a year. The nascent activity of this private business sphere has begun to attract foreign investors. Last year, the business oligarch Oleg Derispaska was able to secure the interest of one of the leading international players, Changi Airports International – as a result of which one third of the Bazelairport business, specifically Krasnodar airport, is controlled by a global company. It has invested $200 million in the Russian airport holding. And this is not the only example: the Korean Incheon International Airport Corporation purchased 10% of Khabarovsk airport, and is now preparing to increase its holding. What holds back the growth of the Russian air business is a low number of air passengers. The coefficient of air mobility of Russia’s citizens is just 0.5 – in other words, out of every 100 people, only 45 have taken flights. In the U.S., the same coefficient is 2.3. High prices bear some of the responsibility. A ticket from Moscow to Yekaterinburg (about 1,000 miles) costs $306. But a ticket from Moscow to Berlin (about the same distance) is just $100 dollars if bought in Europe. “The decentralisation of transport will enable greater and greater savings to be made on costs,” says Alexei Sinitsky, chief editor of Air Travel Review. “But the main thing which will cut ticket prices is ensuring optimal passenger loads on planes.”
• The Russian government plans to sell its entire stake in the country’s two biggest statecontrolled banks, VTB and Sberbank, within five to 10 years, “as soon as the situation is right,” said First Deputy Prime Minister Igor Shuvalov. • Prime Minister Dmitry Medvedev lambasted his government for failing to fulfil 58 decisions issued by the country’s Constitutional Court and adopt over 200 government ordinances, saying the failure was “unacceptable” and “outrageous.” • British billionaire Richard Branson has set up a $200 million green energy fund, VGF Emerging Market Growth, in Russia. He signed the deal with Rusnano chief Anatoly Chubais in Moscow. • Sberbank CEO and former Economics Minister German Gref called on the government to switch to a pro-growth policy, echoing calls in Europe for the same. Russia’s new federal budget has cut spending in real terms for the first time in a decade. • U.S. fast-food chain Burger King says it will open stores in Siberia by the end of the year. Supplier deals are already in place. • Yandex.Money has begun a trial of its mobile card-reader this week, which will enable retailers to accept mobile credit-card payments via smartphones, tablets and PCs. The system is being trialed with a taxi company in Moscow and can accept Visa and Mastercard. • Russia will earmark $3.2 billion to develop the pharmaceutical sector through to 2020, said Prime Minister Dmitry Medvedev. Domestically produced medicines should account for 50% of the market and domestic medical devices for 40%. • Ukraine plans to slash its gas imports from Russia to 18 billion cubic meters in 2013, from 27.5 billion cubic meters this year, Ukraine’s energy minister, Yury Boyko, has announced. The proposed cut comes as many of Gazprom’s regular customers in Europe are seeking alternative supplies of liquefied natural gas and shale gas.
Budget Aviation Will cheap flying finally take-off in Russia?
AP
Getting Low-Cost Airlines Off the Ground KOMMERSANT DENGI
“Pure low-cost carriers modeled after Ryanair are not viable in Russia because of infrastructural and legal restraints,”Konstantin Teterin, former CEO of Avianova airlines, said exactly a year ago. At the time, following the collapse of Sky Express and Avianova, it seemed as though there would be no other discount airlines in Russia in the foreseeable future. Moreover, after Yaroslavl’s Lokomotiv hockey team perished in a plane crash, the government labeled all non-major airlines as flyby-night outfits and vowed to fight them. However, in mid-October, First Deputy Prime Minister Igor Shuvalov’s government commission on competition and small-to-medium enterprise development suddenly instructed the Ministry of Transport, the Ministry of Economic De-
• A pension fund owned by Russian Railways could buy Absolut Bank, a commercial lender, from Belgian financial group KBC, at a discount on its 2007 price, Vedomosti reported. The fund, Blagosostoyanie, received an approach from KBC, which is seeking state aid in Belgium. • Gazprom has secured a 30-year deal to supply gas to private companies in Turkey. The supplies, through Russia’s Western pipeline, could rise to 14 billion cubic meters a year.
Budget carrier Sky Express famously went bust last year.
al carrier Aeroflot announced plans to set up its own subsidiary discount airline within a year. The company tied the decision to the passage of certain legislation by the government. A special airport is now planned to accommodate the low-cost carrier. Aeroflot CEO Vitaly Savelyev also promised Vladimir Putin that his company would “start with itself” in air travel de-monopolization, by waiving its monopoly on 34 international flights. The Ministry of Transport was quick to express its hope that the bill on nonre f u n d a b l e a i r t i cke t s – a cornerstone of the low-cost airline business – would be brought before the State Duma before the end of the year.
Aeroflot and other “big birds” were never directly accused of helping strike down Russia’s pioneer discount airlines, but Konstantin Teterin, who participated in launching all of Russia’s lowcost projects, complains of“an economic environment where any large airline has leverage.” Vnesheconombank Deputy Chairman SergeiVasilyev says that Russia needs“more connectedness.” He adds: “In the Soviet times, the country’s unity was ensured by low airfares. No Western investment is going to come to any provincial towns if it’s impossible to get there by plane.” Translated from an original article in Kommersant Dengi.
• Rosneft has won contracts worth a total of $2 billion with Finland’s Fortum and Germany’s E.On to supply natural gas to their power stations in Russia, Rosneft’s Eurobonds prospectus reveals.
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OLEG KHOKHLOV
velopment, the Federal Anti-Monopoly Service and the Federal Tariffs Service to propose a model for stimulating competition in the air-travel market, by creating conditions for developing low-cost travel. A week later, the low-cost British airline EasyJet announced that it would launch two daily flights from London to Moscow in the spring of 2013. The minimum fare will be 6,500 rubles ($205), including duties and taxes. By comparison, Aeroflot, British Airways and other carriers are offering tickets in that same period for more than 11,000 rubles. Even Air Baltic and Lufthansa, which offer connection flights, charge more – around 9,000 rubles. EasyJet is also planning domestic Russian flights, though“not in the immediate future.” Immediately following EasyJet’s announcement, Europe’s largest discount airline, Ryanair, applied for permission to operate flights to Russia from Ireland. Airline experts had barely just explained why discount carriers would fail in Russia when nation-
KOMMERSANT
The government plans to open the skies for cheap carriers, but experts question whether it will actually lower ticket prices.