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BUSINESS REPORT IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

...Marching towards a common future

WEDNESDAY, APRIL 13, 2011

Space Sharma pitches for a collaborative approach as it is economical and will help dissolve national identities

EXPERT VIEW

'Earthlings, let's now tap Moon & Mars'

Bricks of new order

RIBR

Half a century ago, the 27-year-old Soviet cosmonaut Yuri Gagarin created history by becoming the first man to journey into space. As Russia and the world celebrate the 50th anniversary of the first manned spaceflight by Gagarin, it’s important to remember that it was not only a giant leap for mankind, but also marked an alltime high for the Soviet patriotic pride in the Cold War period. In essence, April 12 was not only the day when mankind achieved what was previously thought impossible, but also the culmination of decades of Soviet space research that had already launched the first satellite in October 1957, the first animal to orbit the Earth (Laika, the dog) in November 1957, and numerous other milestone flights and satellites. Gagarin’s flight was, importantly, one of the biggest‘victories’for the Soviet Union in the Cold War Soviet-U.S. Space Race – a fierce contest for supremacy in outer space exploration. In other words, this was a battle of giant egos and both countries burned millions of dollars in research to be the first to conquer some tiny part of the final frontier. So frenzied was this race that ethics were often ignored. For instance, to do something grand for the 40th anniversa-

ITAR-TASS

$7 bn for space research in 2011 Russia has earmarked about $7 billion for space programmes in 2011, Prime Minister Vladimir Putin said on April 8 during a conference on the future of Russian space exploration. Russia would develop a whole range of new capabilities over the next five years, he said. "We need new-generation space equipment, featuring greater reliability and service life," he said. This requires a ‘deep modernisation’ of space industry enterprises, as well as significant investment in research and development programmes, he said. Putin directed the space agency Roscosmos, in conjunction with the Russian Academy of Sciences, to draw up longterm space research plans by August this year. "We need to expand our presence on the global space market, which, has grown 150% since 2003 and is now worth around $200 billion. That's big business," Putin said. Roscosmos recently said Russia would build a base near the Moon's pole by 2030.

Gagarin's flight was one of the biggest victories for Soviet Union in the Cold War space race.

The Soyuz spaceship named after Gagrin (upper left inset) approaches the International Space Station for docking on April 7. India's first astronaut Rakesh Sharma (right Inset).

with his family to Moscow Region’s Star City for the duration of the mission, remembers his time in the Soviet Union fondly. He found Russians to be“simple, emotional and affectionate”like Indians but noted that the times were different as the iron curtain was still up, so it was mostly work and“sanctioned social contact”.Sharma felt the Russians would have liked more interaction, if it would have indeed been possible.

Sharma described his time up in orbit as “emotional” and “full of wonderment”, but underlined that he understood his responsibilities towards the success of the mission, and did not let his curiosity get in the way of his professionalism. Speaking of the future of space exploration, he advocated a collaborative approach, not only because it is “economical”, but also because it would help dissolve “narrow national interests

Plan Russia to participate in Indian Navy's tender for new-generation Project 17A frigates

Nuclear sub for India soon Cooperation between the Russian and Indian navies has been developing successfully for more than half a century now. SERGEI PTICHKIN

Russia India REPORT

ITAR-TASS

RIBR

The Indian Navy was originally established and developed according to the British model. During the 1960s, India started purchasing combat vessels and navy armaments from the Soviet Union, gaining access to what was then cutting-edge military technology. Many of the vessels India is building have been designed with Russian input and are fitted with Russian-made equipment and armaments. According to Ruslan Pukhov, the director of prominent Russian think tank AST, it was only thanks to Russia that India has been able to gain access to unique technologies and opportunities such as building nuclear submarines and supersonic anti-ship missiles. Pukhov believes that no other country would have granted India anything similar. The high point of its cooperation with Moscow was

Nuclear-powered submarine Karelia during a military exercise by Russia's Northern Fleet.

India is carrying out, with assistance from Russia, a programme to create a nuclear submarine fleet. India’s lease in January of 1988 of a Soviet nuclear submarine code-named Project 670 (to be more exact, of its“export”version, Project 06709). The submarine, renamed Chakra, was armed with the powerful

Ametist anti-ship missiles. Although the submarine had to be returned to the USSR for political reasons just three years later, its operation has given Indian Navy commanders a firsthand idea of the important combat role nuclear submarines get to play. It has been reported that India is carrying out, with assistance from Russian experts, a programme to create a nuclear submarine fleet of its own. A $1 billion contract was signed in 1997 for the build-

he BRIC summit commencing tomorrow, 14 April, in Sanya, China will for the first time be held in a five-party format and promises to be intriguing for many reasons. First, the turbulent developments in the Middle East and North Africa, specially the Libyan crisis, call for vigorous measures to strengthen international security, especially since the five states that will be taking part — Brazil, Russia, India, China and South Africa —– are members of the UN Security Council. The need for action in this area takes on an added relevance in the light of China’s committed efforts to bring an end to Libya’s civil war, which has been aggravated by foreign interference in its internal affairs. The commitment to resolve the Libyan crisis was reiterated at recent talks between the Chinese and German foreign ministers as part of the China—Germany“strategic dialogue”.Chinese diplomacy is actively using the potential of the African Union countries, which are staunch supporters of Libya’s unity and territorial integrity (Africa’s position is understandable: a break-up of Libya is sure to trigger a domino effect throughout the continent. Second, the summit is expected to pass decisions that can spur the transformation of the world monetary system that no longer meets modern requirements.BRIC countries,each for its own reasons, are strategically interested in democratisation, i.e. greater transparency in the system, and intend to come up with proposals for changing the layout of the morally and physically worn“building” at the G20 summit in Paris at the end of this year. Third, although BRIC is not a formal organisation and is still a partnership structure similar to the G8 and the G20, under the current

T

NASA

AANCHAL ANAND

SPECIALLY FOR RIR

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ry of the Communist Revolution, the Soviets hurriedly launched Laika into orbit on a spacecraft that was never designed to return, thus leaving her to die. Neil Armstrong’s 1969 moon landing was yet another spectacular moment and this time, the Americans had scored. The Race with the capital R,however,soon started to calm down and came to an end in 1975 with the joint Apollo-Soyuz Test Project that helped ease relations between the two then superpowers and ushered in the era of collaborative projects. India’s moment of space glory came in April 1984 on one such collaborative mission. SoyuzT-11 took the first (and only) Indian cosmonaut, Air Force pilot and 1971 India-Pakistan War veteran, Wing Commander Rakesh Sharma, on an eightday mission to the space station, Salyut-7. While all of us remember his famous citation of Muhammad Iqbal’s poem, “Saare jahan se accha Hindustan hamara”, this historic moment, too, crowned months of training that the Indian astronaut had to undergo. “We got there on 28th October 1982 and the training went on for 18 months – more importantly two Russian winters,” Sharma recalled. The training was in Russian so he had to learn the language as well.“My Russian teacher said that I should find it easy because Russian is very similar to Sanskrit but that didn’t necessarily help because I don’t speak any Sanskrit,”he chuckled. Sharma, who had moved

Rakesh Sharma, India's first cosmonaut, remembers his time in space and his training in Russia on the 50th anniversary of Yuri Gagarin's maiden space voyage.

Andrei Volodin

ing in Russia of three frigates custom-designed for India, code-named Project 11356. Remarkably, Russia was exporting more advanced vessels than it was building for its own navy. Three Talwar-type frigates were built by Baltiysky Zavod in St Petersburg and delivered to the Indian Navy in 2003–2004. According to Moscow Defense Brief Editor Mikhail Barabanov, the expert community has recognised those frigates as some of the world’s most ad-

vanced. In 20 06, India signed yet another contract for $1.56 billion to build three more modified 11356М frigates to be delivered in 2011¬2012. These vessels will be equipped, among other things, with the BrahMos missile complex. A future Indian order for three more 11356М vessels has not been ruled out. The history of cooperation with India on nuclear submarines, begun with the Chakra lease, lived on with a 2000 agreement for a longterm lease of the K-152 Nerpa third-generation multi-purpose nuclear submarine (order 518, developed by SPMBM Malakhit). At the time the agreement was being signed, the Nerpa was 86.5% technically ready. It was envisaged that a second submarine of the same type, built by the same company (order 519, around 60% ready), would be completed and leased to India subsequently.The final contract was signed in 2005. The total value of the agreement with India for the completion and lease of the two nuclear submarines is estimated at $1.8 billion, in-

and identities” to focus on the future of the planet as earthlings. Concerned about energy security and unsustainable development, Sharma said there is a need to develop the Moon, and later possibly Mars and other planets to ensure a steady supply of resources. He also praised the Indian Space Research Organisation’s approach of focusing on sharing the benefits of space exploration with the common man.

cluding $650m for the Nerpa contract. The Nerpa has been undergoing running tests since 2008, and is expected to be delivered to the Indian side in the spring of 2011. It will get the same name, Chakra, once commissioned by the Indian Navy. Russia is assisting India in its ATV programme to design and build its own nuclear submarine. The first Indian nuclear submarine, the Arihant, was launched in 2009, and India’s Prime Minister Manmohan Singh at the time directly thanked “the Russian friends” for their assistance.The submarine is now undergoing completion and testing. Experts firmly believe that there is a huge potential for the development and deepening of bilateral naval cooperation in many areas. For example, Russia is taking part in the Indian Navy’s tender for the building of seven new-generation Project 17A frigates (one vessel is supposed to be built at a foreign shipyard, with the remaining six to be built by Indian companies under license). Russia has offered six Project 677 (Amur-1650) diesel-powered submarines armed with the BrahMos missile complex for the new Indian tender (to be build under license in India). It looks like joint Russian-Indian navy-related projects will also gain momentum.

conditions, it is incumbent upon the“new influentials” to seek to accelerate the formation of a new global model of relations between societies and national economies. That end will be furthered by broader cooperation within BRIC, above all in economics, science and technology, which may have a multiplier effect beyond the boundaries of the Five. BRIC today has a combined population of 3 billion, which means a huge market and an inexhaustible source of manpower. Fourthly, it is fair to assume that BRIC may become a locomotive of post-crisis rehabilitation for the world. The effectiveness of our common policy in this area hinges on

It is fair to assume BRIC may become a locomotive of postcrisis rehabilitation for the world. the combined efforts in two main“theatres”of diplomatic activity. One is creating a world monetary system that meets the interests of the majority of humankind and the other is strengthening the legal regime of international security, which has recently come under severe strain, and not only on Earth, but also in the near Earth space (preventing the arms race in outer space).The BRIC countries are also likely to discuss two specific problems that have recently become particularly worrisome due to the turbulent events in the Arab East, especially the Libyan crisis: they are a possible expansion of radical Islam and counteracting the proliferation of nuclear weapons. In my opinion, Russia’s behaviour at the coming summit will be determined by the events in the Middle East and North Africa. It is no secret that some influential forces would still like a new world to be organised without Russia and against Russia. AndreiVolodin is Senior Researcher with the Institute of World Economy and International Relations (Moscow).

NEWS IN BRIEF Russia plans $10 bn investment fund to modernise economy Russia plans to create a $10 billion direct investment fund with foreign participation to invest in hi-tech and modernisation projects. Economic Development Minister Elvira Nabiullina said that the government would contribute $1 billion to the fund in 2011 and its capitalisation would increase to $10 billion in 2015-2016. The fund will be managed by state-ownedVnesheconombank. RIA Novosti

Officials told to quit double posts Government officials including Deputy Prime Minister Igor Sechin, a close ally of Prime MinisterVladimir Putin, will have to leave their posts as board chairmen of state companies, Presidential Economic Aide Arkady Dvorkovich said last week, echoing an earlier announcement by President Dmitry Medvedev. "The issue is that in many cases, board chairmen are first of all government chiefs, deputy prime ministers and ministers who are responsible for regulating such activities," Dvorkovich told at a news conference. RIA Novosti

$176 bn to be allocated for modernisation of Russian Navy Russia will allocate about RUR5tn ($176.5bn/€124.5bn) to modernise its Navy, Deputy Prime Minister Sergei Ivanov has said. He could not say, though, whether the sum includes the purchase of weapons and military equipment or not.The federal target programme for development of the Russian defence industry envisages the allocation of RUR3tn for this purpose, out of which RUR1.8tn, or 60%, will be provided from the budget. Funds provided by companies will amount to RUR1.2tn, or 40%. FC Novosti

7 April 2

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Energy

BUSINESS REPORT IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA WEDNESDAY, APRIL 13, 2011

Special Report Nuclear safety issues are once again in the global spotlight, as new plants continue to be built despite the Japanese nuclear tragedy

SERGEY KUKSIN_RG

Can a Fukushima-like tragedy hit Russia? No

Vladimir Povarov, director of the Novovoronezh AES, is confident about his nuclear plant safety.

PANORAMIO

RIBR

For the last month, the Novovoronezh AES has been operating under heightened control. The day we visited, they simulated the nightmare of all atomic scientists, the Fukushima scenario: the loss of all electricity to the plant, including systems meant to cool the reactor.“All Russian stations owned by Rosenergoatom are now undergoing trainings like these,” said Vladimir Povarov, director of the Novovoronezh AES. The day before, Povarov added, similar trainings took place at the Balakov and Kalinin atomic energy stations. The next level of training will simulate a scenario involving the“complete loss of cooling water”. The Novovoronezh AES, located around 600 km to the south of Moscow, is the same age as the Fukushima plant. Their first power-generating units were built in the 1960s and 70s. At the time, it was cutting-edge science and state-of-the-art technology. According to Sergei Novikov, press secretary for Rosatom, the state corporation that controls Russia’s nuclear complex, all types of waterto-water energy reactors (VVER) were perfected at the Novovoronezh AES. They were then mass-produced and are now in operation not only in Russia, but also other countries as well. Meanwhile, the new ones are being built, including in India. Of the five power-generating units originally built at Novovoronezh, only two are now operating. The first two units have served their time and are being taken out of operation. The fifth and most powerful unit was stopped last September for scheduled repairs and serious modernisation. One often hears atomic scientists from different countries say: Fukushima is just an old plant. Its reactors are more than 30 years old; the first one is over 40. Why is Novovoronezh any better? Could a

their reserve systems and back-up safety systems in all their glory.These are systems to which Fukushima did not have access at the critical moment and which, we were told, are ready to go at Novovoronezh. But would things run so smoothly in a real crisis situation? “We have simulated all sorts of accidents at AES right down to the breakage of an ordinary screw. Even if someone wanted to bungle something, they wouldn’t be able to: every one of our decisions, every button pushed is watched by people and video cameras. Here, we are constantly upgrading our qualifications and crisis management skills,” said Dmitry, who works with the AES. According to those who visited the AES, their acquaintance with the atomic energy station — the reactor, the machine room and the work of the emergency brigade in a crisis situation — made a positive impression.“I was pleasantly surprised by the certainty among employees at the station that nothing like Fukushima could ever happen here. The moral aspect, it seem to me, is also important,” said the 55-yearold Alexander Pylev. Sergei Novikov, the Rosatom representative, reminded us that there is a Russian-designed AES now being built near the city of Kudankulam, in southern India, that is made to sustain a strong tsunami. Readers of Rossiyskaya Gazeta were also shown the

new atomic energy station, Novovoronezh AES-2, which is being built according to the same design as the Kudankulam station. It is equipped with ultra-modern and even more powerful defence systems. One of them is a meltdown trap. If such a“trap”had existed at Fukushima, meltdown products would not have wound up in the atmosphere.The new station will also have passive safety systems that work even when

all power has been cut.There is a reserve of water for cooling over 72 hours and draining heat from the reactor zone. As the energy specialists themselves say, such safety requirements, which are there in Russia do not exist anywhere else in the world. VVER reactors will remain for a long time to come the basic ones for the production of electricity the world over, including in Japan, stresses Povarov.

THE QUOTES

Never again: Making world safe for nuclear energy

V. Povarov DIRECTOR OF NOVOVORONEZH AES

"

Fukushima for us is like science fiction. In our region, earthquakes measuring over 4 on the Richter scale can't happen, though the station can sustain one upto 5 magnitude. And we are in no danger from tsunamis.

SVETLANA KUSNETSOVA

ROSATOM REPRESENTATIVE

RIBR

"

That tragic night at Chernobyl plant 25 years ago The meltdown at the Chernobyl nuclear plant's reactor at four in the middle of the night on 26 April 1986 was the most tragic event in the history of atomic energy. The International Atomic Energy Agency (IAEA) would take five years before it would officially acknowledge that the accident was engedered by personnel errors and the reactor four's design flaws. The reactor's explosion and subse-

quent fire emitted enormous amounts of radioactive substances into the atmosphere, including long-enduring isotopes of uranium, plutonium, strontium-90, caesium-137 and other hazardous elements with a half-decay period from 2 to 24,000 years. Official statistics put the death toll at 31 people three months after the disaster, while 134 people suffered from radiation sickness; 115,000 local residents

were evacuated from a 30-kilometre zone surrounding the nuclear plant. Extinguishing the fire at reactor four and the ensuing clean-up process would last for months on end, as more than 600,000 specialists and military men from across the Soviet Union were brought into the contaminated zone. Ukraine, Belarus and Russia continue to deal with the consequences of Chernobyl to this very day.

Three accidents – at Three Mile Island Nuclear Plant, (USA, 1979), the Chernobyl Nuclear Plant (USSR, 1986) and, more recently, the Fukushima nuclear plant in Japan were the consequences of a combination of events that were not envisioned when the plants were designed, say top experts. Besides, the personnel did not have the necessary training and equipment to handle the aftermath. All these accidents could have been prevented by relatively cheap improvements. “We are aware that man’s innate penchant to be complacent may lead to the erosion of nuclear safety operations. We should strengthen our commitment to be critical of nuclear power plant safety not only in words, but also in deed, thus constantly enhancing it,”says a statement entitled 'Never Again: An Essential Goal for Nuclear Safety'. The statement has been prepared by world experts on nuclear safety, including Anil Kakodkar, former chairman of India’s

The control-room of the Novovoronezh nuclear power plant

Workers try to contain the damage at the Fukushima plant.

Atomic Energy Commission. Scientists suggested that the countries that build nuclear plants must create centres for training specialists for countries that are recipients of nuclear technologies. The regulatory agencies must make analysis and inspections more effective, guarantee an open and honest public disclosure of the results of such inspections. Scientists believe it is extremely important to make an in-depth analysis of how vulnerable every nuclear power plant is to serious accidents, and to develop mea-

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Can nuclear energy be spared tragedies such as Chernobyl? Leading world experts on nuclear safety provide their suggestions.

Sergei Novikov Several years ago, when a giant wave covered Thailand and rolled all the way to India, the Kudankulam station withstood it. Local residents, knowing that the AES at Kudankulam was equipped with means of defence against tsunamis, came running to the construction site, hid there and survived.

“Russia is the only country now equipping such a reactor (the VN 800 at the Beloyarsk AES), next to an operating VVER reactor. We, in Russia, are the purveyors of this unique technology. The idea is to realise a closed fuel cycle: to use in a reactor running on rapid neutrons the fuel already used in a thermal reactor (uranium 238),”said Povarov.

SERGEY KUKSIN_RG

KONSTANTIN GEGALOV

Fukushima-like scenario happen here? “The Japanese scenario could not happen here. Our reactor is of a fundamentally different construction: unlike Fukushima’s; our installations are double-contoured. Plus our large reserves of water allow us to remove the remaining heat released in an active zone. For around six hours we may, without interfering, without managing the accident, activate additional power-supply systems. In critical situations, this may be of decisive importance,” said Povarov. Currently, there are two main types of reactors: the BWR (boiling water reactor) and PWR (pressure water reactor). The Russian equivalent of the PWR is the water-towater energy reactor (VVER). In pressure reactors like the VVER-1000, the water temperature reaches 330 degrees, but the water never boils because it’s under great pressure. This is why it is a safer technology. The Fukushima reactors are called “boiling” reactors because the water in them boils, heating up under pressure to about 280 degrees. The trainings were successfully completed. The “accident”was handled in 1 hour and 10 minutes. We were shown how even when the station’s whole power supply is cut, the troubled unit is quickly reached by a powerful mobile diesel generator capable of pumping huge masses of water to cool the reactor. In other words, our atomic scientists displayed

GETTY IMAGES/FOTOBANK

Rossiyskaya Gazeta recently took its readers to a nuclear facility to interact with scientists about the safety of Russian atomic plants.

sures for managing such accidents at all the existing reactors. It is necessary to clarify the safety requirements for future nuclear plants in order to ensure that standby cooling systems are workable over a prolonged period after a total power outage, says the statement. Future nuclear power plants must have the capacity to quickly restore or compensate for lost power supply. For new nuclear plants, passive safety systems must be used along with modern technology for system design, including those based on new materials, suggest the experts.

The Fukushima experience has highlighted the fact that new nuclear plants must be located away from the places exposed to extreme natural and human-induced hazards. Enhancing the accountability and qualifications of government and corporate officials who make decisions on nuclear safety must be an important measure. It is necessary to ensure that the national nuclear regulatory bodies in all countries be fully independent in making decisions on nuclear safety, have the necessary competence, resources and authority. Nuclear energy safety goes beyond national borders, say experts. They stressed on additional measure for nuclear security, including the creation of an International Regulatory Agency authorised to introduce mandatory international safety standards and mandatory inspections. “One should expect that the international conference to be held by the IAEA in Vienna in June of this year will initiate discussions on these measures,”they say. Full version at www.indrus.in

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BUSINESS REPORT IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

Technology

WEDNESDAY, APRIL 13, 2011

IN BRIEF

INTERVIEW ARKADY DVORKOVICH

Capital returns to Russia

Don’t worry, just give us seven years

In March, Russia registered a net inflow of capital after a major outflow in late 2010 and the first two months of 2011, Deputy Finance Minister Andrei Klepach said. Net outflow was $11bn in January and approximately $6bn in February 2011. Replying to a question about what encouraged capital inflow in March, Klepach said the reasons could be the growth of oil prices and Russia’s prestige as a reliable hydrocarbon supplier against the background of public unrest across the Middle East and North Africa. The Finance and Economic Development Ministries forecast a zero or very small capital outflow in 2011. FCNovosti

WITH WTO MEMBERSHIP BECKONING, RUSSIA ECONOMIC COMPETITORS HEAD TO HEAD Arkady Dvorkovich is one of the faces of Russia’s liberal reform programme and, as special economic advisor to President Dmitry Medvedev, is in a position to make a difference. He met Ben Aris to discuss the economy, the crisis and how corruption has impacted Russia’s progress.

vestors.Yes, that is fair: we are a European country and so we should have the same standards. There is a lot of talk about reform, but why are they going so slowly? The reform drive has slowed, as there is a lack of focus.We have made progress in cutting red tape and there are less licences than before, but there is not enough focus. A huge responsibility rests on the governors and mayors of regions.We need to introduce best practices across Russia but we can't impose this top down. We could do more to make this work, but we are not like Georgia or Estonia.

A year ago, there were a string ofopinionpiecescallingforthe “R”toberemovedfromtheacronym BRIC. It looks like Russia is the least loved of the four emerging market powerhouses. Do you think that is fair? China and India are a lot bigger than Russia and that is important to investors. They have a total of 2.5 billion people compared to Russia’s 142 million. Russia is better compared to Brazil where the size of the population and the technological levels are similar. But the expectations for Russia are much higher [than Brazil] as we are treated like a European country and we need to reach the same level of comfort for the foreign in-

One of the biggest complaints foreign investors have is that the Russia state plays too big a role in the economy. What is being done to reduce the state’s share? We have already agreed to sell some of the state-owned stakes, but it is a question of timing. However, it is clear

BEN ARIS

IS STEADILY GEARING TO MEET INTERNATIONAL

that eventually we don’t need state participation in most sectors. [State-owned retail banking giant] Sberbank is a special case and we need to be careful, as it has a big social component [as so many Russians keep their money in Sberbank]. Gazprom too and the state-owned rail monopoly, the federal power grid company and the oil pipeline monopoly are also all special cases – but the rest like VTB Bank don’t need state participation. Still, the market will only bear so much and we can’t sell all these things at once. However, the president has already ordered an increase in the pace of privatisation. Just this week the National Banking Council board agreed to sell a 7.58% of Sberbank over the next three-year period and we are preparing this now, and will wait for the best time [to sell the stake]. It will happen in 2011 or 2012 depending on market condi-

and an MA in economics from Duke University in North Carolina. From 2001-2004, he was a deputy minister for economic development and trade, and after serving in Vladimir Putin's administration, was in 2008 appointed adviser and G8 sherpa to President Dmitry Medvedev.

creasing the quality of the investment climate. We are not quite ready to compete head to head with international producers, but the WTO includes a sevenyear transition period and that is enough to be ready. Big companies like [maker of the Lada] Avtovaz and GAZ are still not competitive, so we need these seven years. We also need good strategic investors.

The Russian government just signed off big investment deals with many of the world’s leading automotive producers who have agreed to significantly increase their production. Is Russia ready to compete in the global car market, assuming Russia joins the WTO and import tariffs are lowered? We hope to attract new investment to Russia and this is not just assembling cars. I am not sure that this can be achieved just by raising tariffs, because it is about in-

The government seems to be following a similar blueprint to cars with the pharmaceutical sector: raising import tariffs for companies that don’t increase their production capacity in Russia. The situation with pharmaceuticals is a bit different. There is a high domestic demand from the state; it is a different landscape and we can attract investment simply by the size of the market. If there is some degree of certainty [in the growth of demand], then the international companies will place

BIOGRAPHY AGE: 39 HOMETOWN: MOSCOW

Arkady Dvorkovich graduated from Moscow State University with a degree in economic cybernetics, received a Master of Economics degree from the Russian School of Economics

tions – but the decision has already been made to do it. Hasany progressbeenmadein the anti-corruption drive? The anti-corruption drive works and the trend [towards improvement] is there.There has been a positive change but it will not be finished in a year. Corruption exists at all levels and comes back to the state’s involvement in the economy. If we can reduce this, then the potential for corruption will also fall.

Auto industry New investment brings in global expertise, tech to drive modernisation

A string of investment deals struck in February is poised to make Russia the number one car market in Europe by 2015, say experts. RACHEL MORARJEE

The sale of new cars in Russia increased by 77% in the first quarter of 2011 and by 77% in March 2011. Among the top 10 bestselling models so far, nine are locally produced. A total of 2.24 million cars are expected to be sold in Russia in 2011.

FROM FREE SOURCES

10 bestselling car brands in Russia

ITAR-TASS (2)

It was a race against time, but global carmakers beat a deadline to sign off on new investment agreements at the end of February that will exempt them from new tightened limits on imports. The Kremlin will hike duties for any producer that has not promised to enhance production to 300,000 units and increase the proportion of domestic inputs to 60% by 2020. Of the eight global manufacturers already working in Russia, six have submitted proposals and the new investment agreements are expected to be signed by June, says Alexander Rakhmanov, the director of the automotive and agricultural machinery department at Russia’s Ministry of Industry and Trade. “We didn’t expect such a strong response from the producers,”says Rakhmanov.“So now, we are sure that Russia will be the number one car producer in Europe in the coming years.” Russia is underinvested with approximately $1400 per capital of foreign direct investment in 2010 compared to between four and eight times as much for the Central European states.Yet the government’s investment strategy for the automobile sector has turned out to be highly successful. The state negotiated attrac-

REUTERS/VOSTOCK-PHOTO

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The absolute leader in sales in the first quarter of 2011 is Lada (121,251).

Renault in second place with 31,031 cars.

Chevrolet and Kia are 3rd and 4th with 31,003 and 30,250 cars sold respectively.

tive tax and import duty breaks for foreign companies willing to build factories in the middle of the last decade and several automotive clusters have emerged. The biggest ones are in St Petersburg and Kaluga region while the production of foreign brands by Russian factories soared to the point where the inter-

national companies were out-producing the leading domestic manufacturers Avtovaz and Gaz in 2008. The new investment pacts are deigned to follow on from the current agreements that expire in 2020.The Kremlin is in a rush to finish reforming a sector that employs well over a million people as Russia is

widely expected to accede to theWTO this year that comes with a mandatory reduction on import duties for cars. Rakhmanov says the production of passenger cars is already sophisticated enough to compete with the international producers head-on. “With cars, we are ready to compete andWTO access will

With over $600 billion in hard currency reserves going into the crisis, it seemed that the government at first thought it could simply bail the entire economy out. However, Russia was badly mauled. As the crisis recedes, what will be the biggest effects? Look at the results of the crisis: there was no run on banks, no major bankruptcies. Some people bought dollars but in a few days, they sold them again and the demand for the rouble went up again. There is a trust in the bank sector and the rouble, that we didn’t have last time round. One of the main problems we face is that people don’t realise that we are already competing globally, but now – after the crisis – people are starting to understand this more and more. They realise that we can't rely on our own market. Prepared by Ben Aris (Business New Europe)

Innovation New cars will cost between $12,000 to $15,000

Upbeat Putin drives oligarch’s hybrid car Russian PM Vladimir Putin took a ride in a prototype of Russia's first hybrid car, which billionaire Mikhail Prokhorov plans to start mass-producing soon. ANATOLY MEDETSKY THE MOSCOW TIMES

With Putin in the driver's seat andYo-Avto chief executive Andrei Biryukov riding shotgun, the pair drove 10 kilometers on RublyovoUspenskoye Shosse from Putin's out-of-town residence to President Dmitry Medvedev's official home at Gorki for a Security Council meeting. Prokhorov drove a microvan, another Yo-Mobile. Shortly before the ride, Putin discussed with officials, businessmen and scientists measures to produce more high-tech products, saying Prokhorov's project was one of the attempts in this field. In December, Prokhorov presented three prototypes of the hybrid car, including a hatchback, van and crosscoupe vehicle models. New

production cars will cost 350,000-450,000 rubles ($12,000-$15,000). Biryukov said the complete version of the car would be fo u r- w h e e l d r iv e a n d equipped with cruise control, GPS/Glonass navigation and climate control. He said the car was attractively priced because it was based on cheaper new materials. According to Biryukov, the plant being built in St. Petersburg is scheduled to start producing the cars toward the end of the next year. Andrei Ginzburg, chief engineer of the car, said separately that they intend to buy some parts from Canadian maker Magna's production facilities in Russia. He spoke at a meeting at the Association of European Businesses in Moscow. In addition to the St. Petersburg plant, which will have the capacity to make 10,000 cars per year, Prokhorov's company is considering building more manufacturing capacity elsewhere in the country.

PHOTOSHOT/VOSTOCK-PHOTO

Driven by success: the car market moves into top gear

not have a big impact,”says Rakhmanov.“There is a seven-year transition period and that is more than enough time to finish the ongoing reforms. In buses and trucks, the situation is different, but we are looking at various measures to prepare those sectors for accession.” The investment policy for the automotive sector is starting to look like an unadulterated success that is fulfilling the Kremlin’s key goals of modernising and diversifying the Russian economy. Rakhmanov is confident it will become both an investment node for building the industry and also act as a blueprint for other sectors. “For every one job that we create in the automotive industry, we create another 16 jobs in ancillary sectors,”says Rakhmanov.“And the Russian market is still far from reaching saturation, but the market is already a developed one with some features of an emerging market.” The new investment comes with the badly needed international expertise and technology that will drive Russia’s modernisation.In return, the automakers get easier access to what could be Europe’s biggest in the next four years. "International car makers are pretty excited, because they forecast significant growth in car sales in the next decade. We expect that car sales will recover to the pre-crisis levels by 2013," says Mikhail Ganelin, analyst at Troika Dialog. Already the new investment deal has led to a raft of joint ventures and a big increase in investment commitments. The US' Ford and General Motors, Germany'sVolkswagen and Japan's Toyota have all announced investments of over $1 billion to boost local production and stake a claim to markets ranging from St.Petersburg to the Pacific Rim port ofVladivostock.

production here without the need to raise tariffs.

Yo-mobile is a new Russian car platform with a hybrid engine promoted by Russian businessman Mikhail Prokhorov.

Russia wants 5% share in global biotech Russia wants to have a 5% share in the global biotech market by 2020, a senior official said after a government meeting chaired by PM Vladimir Putin. Russian firms currently hold only 0.2% share of the global biotech market, and officials fear the oil-rich country will lag behind in developing the technologies expected to be used to produce up to 80% of all medicines in 2030. Experts forecasts that by 2030 about a half of all agricultural output will be produced with the use of biotechnologies. The market is currently estimated at $2 trillion. "The new wave of global technological development will be linked to biotechnologies and new materials unlike the previous wave linked to information and computer technology," Deputy Economic Development Minister Andrei Klepach said. Vedomosti

Volkswagen to launch low cost car by 2012 German auto giant Volkswagen plans to launch the production of a low-cost car based on the Volkswagen Polo at its assembly plant in Kaluga in central Russia in late 2012, Marcus Osegowitsch,Volkswagen Group Rus Chief Executive has said. The world premiere of the new model, will take place in summer 2012, Osegowitsch said, adding that theVolkswagen Polo Sedan will not be removed from production. He declined to say whether the new car would be assembled under theVolkswagen or the Skoda brand. RIANovosti

Auto giant set to seal deal with Sberbank The alliance between Russia's largest automaker OJSC AvtoVAZ and Renault-Nissan plans to wrap up a deal with Sberbank Capital concerning United Automobile Group LLC (UAG) - which operates the Izh-Auto plant - for a controlling share interest in UAG.The Izhevsk plant can build 220,000 automobiles per year. "We think that the market in Russia has enormous growth potential, upto 4 million cars a year in 2020," Renault's general director in Russia, Bruno Ancelin said. 'Automobilisation' in Russia is 50% lower than in Western Europe, he said. "In order to get for the alliance a 40% share of the automotive market in Russia, we have to turn out 1.6 million automobiles per year. Right now, we have the capacity for 1.1 million automobiles per year. We want to maximally standardise platforms, and and we are working on additional capacity in Izhevsk and the Far East," he said. Interfax


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THE NUMBERS

99%

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The number of Russia’s reserves of platinum metals located in Siberia, along with 80% of coal, 77% of zinc, 82% of molybdenum, 41% of gold and more than 50% of hydroenergy resources and timber.

In the very heart of Siberia is the Great Vasyugan Bog — the largest bog on Earth (left photo). A Siberian hunter walking in the deep snow in taiga (middle). Lake Baikal is the world's largest fresh water lake (right photo).

LORI/LEGION MEDIA

WEDNESDAY, APRIL 13 , 2011

Region Asia-Pacific region in focus: Rosatom recently invited its Indian partners to develop the Elkon uranium deposit in South Yakutia in Eastern Siberia

Siberia, the new promised land RIBR

Recent demographic statistics for Siberia revealed a disturbing trend. When asked to state their nationality for the census at the end of 2010, a striking number of residents of large Siberian cities — Tyumen, Omsk, Novosibirsk, Kemerov, Krasnoyarsk, Irkutsk and Yakutsk — said that they were not Russian, not Ukrainian or even Tatar, but“Siberian”. “I consider myself a Siberian,” the Krasnoyarsk blogger Alexander Konovalev, creator of the Internet-action group WE’RE SIBERIANS! told Russian Reporter magazine. “ I’ve traveled a lot around Russia and know that we’re different. I actually think that we don’t know who Russians are. Under the Soviet rule, we lost the Russian culture and became“the Soviet people”. “Today, a Russian is a kind of abstraction. A Siberian is more concrete. When I lived in India, people often asked me, ‘Why I didn’t look like the other Russians who were there?’And it was simpler for me to explain that I was a Siberian while they were Muscovites.Then the Indians understood.” Since the beginning of the crisis-ridden 1990s in Siberia, a second generation has grown up that has never been to Moscow, never heard anything good about the capital and indeed has only a vague idea of what goes on west of the Urals. Connectivity remains a major hurdle: to fly from the center of Siberia (Krasnoyarsk, Novosibirsk) to Moscow takes about five hours, and tickets range from $400 to $500. In the opinion of Dmitry Petrov, managing partner of the marketing agency B-52 (Novosibirsk), Russia’s“rawmaterial curse” is twice as bad for Siberia, the richest resource-rich territory on this planet.“Most of our regions are connected with the

For many people, the word “Siberia” conjures up an austere and remote place where those out of favour with the government were exiled. Perhaps many still think of Siberia as a desolate land of freezing cold and wild beasts. They can't be more wide off the mark. Contrary to stereotypes, the region is extremely large, representing two-thirds of Russia, though home to less than 20% of its population. From east to west, it stretches from the Ural Mountains to the Pacific Ocean and from the Arctic Ocean in the north to Kazakhstan, Mongolia and China in the south. In Siberia, you can find all types of different climates: the Arctic wilderness, tundra, forests, mountains and plains. Its rivers – the Ob, Yenisey and Lena – are among the ten largest rivers in the world. Lake

Baikal, the deepest lake in the world, holds one-fifth of the world’s fresh water. The climate is harsh and sharply continental, with winter lasting between 5 to 8 months and temperatures hovering around 40-50 below zero Celsius. The Earth’s “cold pole” sits near the village of Tomtor in the Oymyakon region in Yakutia, where the lowest temperature on record in the northern hemisphere is 71.2 degrees below zero Celsius and the average winter temperature is minus 60 degrees. Siberia accounts for 90% of Russia’s natural gas and 70% of its oil and coal. Siberia is home to 20% of manufacturing and 18% of agricultural output in the country. In Russian, a “Siberian” is someone in good health with extraordinary strength and endurance.

Eastern Siberia-Pacific Ocean oil pipeline will be the longest one in Russia is under construction

From pioneers to settlers Civilisation came to Siberia almost a hundred years later than to North America. In the 14th-16th centuries, the indigenous population, nomadic Mongoloid people (Evenki, Nentsy, Dolgans, Kets, Selkups, Buryats, Tuvinians and Yakuts), engaged in hunting, fishing and animal husbandry. Siberia’s modern history began after it became a part of Russia. In the late 16th century, Russian merchants and industrialists began to develop lands and build fortresses on the rivers Ob and Irtysh. They hired a Cossack

army led by Yermak to protect their land from the Siberian Khan Kuchum. Yermak’s expeditions culminated in the defeat of the Siberian Khanate; the Russians consolidated their newly conquered territories and built cities fashioned around the ancient Russian cities Tyumen and Tobolsk. But the Russians did not stop there, continuing north and east to reach the Sea of Okhotsk and the Pacific Ocean by 1639. The pioneers were followed by settlers from all over European Russia, mainly peasants and craftsmen.

mining industry. For Siberia, the future depends on modernisation and transition from a mining economy to an economy of innovation. Without this, any development will be impossible.” “Siberia’s natural resources are perhaps richer than any other regions in the world. We have 80% of Russia’s coal and gas, 70% of the oil, copper and nickel, and 99% of all platinic metals (palladium, gold, silver),” said academic Alexander Aseyev. Western Siberia, located between the Ural Mountains and theYenisei River, is home to more than half of all of Russia’s oil and gas spread over two million sq. km of land. The oil fields are concentrated along the Ob River, while the gas fields are in the extreme North — in Urengoi andYamburg. Despite the fact that inWestern Siberia more than 7 billion tones of oil and 8 trillion cubic meters of gas have already been mined, the region’s reserves are still huge. In early February, scientists reported the discovery in the Tyumen Region of the world’s largest deposit of uranium. Its reserves — 2.5-3 billion tonnes — are a thousand times the size of the world’s previously known reserves. However, this uranium is located far from the surface of the earth — from 1 to 3.5 km down. No one has ever attempted to extract uranium from such depths. Incidentally, Siberia’s deposits of uranium may become accessible to Indian business. Rosatom recently invited its Indian partners to take part in developing the Elkon uranium deposit in SouthYakutia (Eastern Siberia). Rivers that extend for thousands of kilometers, the boundless taiga, mountain masses and plateaus occupying three quarters of the entire territory, lowlands of tundra — and only 6% of Russia’s population: such is Eastern Siberia. Here you have the celebrated diamond region of Yakutia, home of the world’s largest diamond deposits. Russian Siberia possesses vast resources and significant investment potential, which

will allow it to develop cooperation with the Asia-Pacific region. But despite the fact that Siberia shares a border with China, Russia’s economic relations with the countries of Asia are poorly developed so far. According to Ermolai Solzhenitsyn, managing partner of McKinsey’s Moscow office, of the total exports from the Siberian Federal Okrug, 16.7% goes to China and 6% to Japan. Only recently, the Russian government adopted a programme for energy development in Siberia and the Far East. To a significant degree, this is a part of a strategy to reorient the export of Siberia’s raw materials to the Asia-Pacific region. Last year saw the launch of a major project: the Russian-Chinese Skovorodino-Daqing oil pipeline, a part of the Eastern Siberia-Pacific Ocean pipeline system. The Russian gas concern Gazprom has developed its own Eastern programme, which will allows it to use the energy potential of the Far East and Eastern Siberia. It involves the formation of new centres for extracting gas in the Krasnoyarsk Krai, the Irkutsk Region, inYakutia, on Sakhalin and Kamchatka. It will also create a single system for transporting gas, while developing gas refining and gas-and-chemical production, including the capacity to produce helium and natural gas. In the summer of 2010, the Russian government confirmed its wide-ranging strategy for the socio-economic development of Siberia upto 2020. It identified some 30 priority investment projects. These include increasing the population by some 800,000 people. The Russian government thinks that Siberia requires new industrialisation to harness its specific advantages. The main priorities for developing Siberia include building roads, houses, community centres, and tourist zones.“Our aim is to create beyond the Urals within the next ten years a higher standard of living and make Siberia a truly attractive place for people,”said Russia's PM Vladimir Putin.

INTERVIEW DOING BUSINESS, INDIAN WAY

Smell the coffee, and taste the success Sandeep Garg, director of the Krasnoyarsk branch of Force, a wholesale supplier of foodstuffs, now sees Siberia as his second home. VLADISLAV KUZMICHEV RIBR

How did you end up in Russia? After leaving school in 1987, I tried to get into the Math department, but fell two points short of the passing mark. I stumbled upon a newspaper advertisement, which invited anyone interested to study Russian.At the time, all my peers were studying Spanish, French and German, but I wanted something different. After two years of studying Russian, I received an offer to study in Moscow to become an engineer. I agreed. Why did you decide to stay in Russia? After I finished my education in 1996, I was about to go back to India, but a friend in Moscow invited me to work with him in Krasnoyarsk, Siberia. We ended up staying there. I tried several companies and occupations. I did medicine and sold Indian goods before going into the tea business. Is it difficult to find a niche in the Russian market? The market is not overcrowded yet. There are a lot of holes that can be patched up. I, for one, do not only supply products, but also do some consulting. I became a member of the European Coffee Association six months ago. Besides selling coffee, I teach people ways to serve tea or coffee. Many new restaurateurs buy good coffee, but do not know how to make and serve it properly. I go to them and explain things. Some heed my ad-

FROM PERSONAL ARCHIVES

VLADISLAV KUZMICHEV KONSTANTIN GEGALOV

Get your facts right

PHOTOSHOT/VOSTOCK-PHOTO

Siberia, potentially the richest region in this planet, is now seeking closer economic ties with the dynamic Asia-Pacific region.

Garg has set up a thriving food business in Siberia.

vice. There are people in the Russian market who trust professionals. Most people in Russia think that that good coffee comes from Latin America and Africa, while India is associated with tea. There is Indian coffee in Russia and it is good coffee; it is mainly sold in the“hotel-restaurant-cafe”segment. It is part of a mix. It is hard to say how much Indian coffee is sold in Russia, but the bulk of it is sold in Moscow. I hope we will be able to think of ways to deliver coffee to Krasnoyarsk directly from India. The company has bought five hectares of land and is building warehouses. We are planning to open a boutique that will sell Indian coffee, tea and spices. What would be your five suggestionstoayoungIndianwho wants to come to Russia and set up a business here? First, don’t cheat your partners. If he promises a certain quality level, let him deliver it. As an Indian myself, I can say that Indian partners may ship some quality goods in one instance, but then turn around and throw in some shoddy stuff in some other shipments. Second, forget

about the Indian food. All the Indians who come here complain that they cannot get Indian breads, beans, soup and rice. You have to adjust to the culture you live in.Third, forget the soap operas you were watching back home. You won’t get them here. Fourth, never be late. When you are late, your partner thinks ill of you. There are people in Russia who would think nothing of throwing you out of a meeting if you are one minute late. I respect such people. Fifth, if you have cut a deal, stick to it. That is the main thing. I always try to do it. He, who has not managed to make money in Russia, won’t make money anywhere. Not that it is easier here, but you have all the tools at your disposal in Russia. In the West, you report to work at 10 am and move out at six in the evening. They pay you your wages. Are you married? I am engaged. My fiancé is a Russian. We have already had an Indian wedding. We are going to have a Russian wedding in April or May. What are your future plans in Russia? Are you going to stay here? I’ve lived here since 1989 and it is not like, I think, I’ll work here for five more years and leave. I want to buy land and a flat. We recently went to look at a plot of land, but it is too far away, 45 km from Krasnoyarsk. Do you have the time to study Russian culture and visit theatres? I have no time for theatres at present. As for music, I like the Russian singer Valery Meladze. I am not just his fan, I live by his music.

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Apr 2011, Russia&India Business Report  
Apr 2011, Russia&India Business Report  

Russia&India Business Report is a monthly publication brought out by Rossiyskaya Gazeta, that is published in association with The Economic...

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