Reuters/MT: EIB interested in buying out non-EU Shareholders of EBRD

Reuters and the Moscow Times reports that Matthias Kollatz-Ahnen, a vice president of the European Investment Bank (the only non-governmental shareholder in the EBRD), said the bank aimed to take a majority stake in EBRD through gradually buying out non-European Union shareholders.

Australia has said that it wishes to sell its stake, and the US has pushed the EBRD to pay a dividend (unprecedented for a development bank), which would have the effect of lowering its available capital.

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FT: Mirow backed to head EBRD

The Financial Times reports that Thomas Mirow, the deputy German finance minister, has the support of the European Union and will probably be named head of the EBRD at their annual meeting in Kiev (Kyiv) this May, replacing the respected Jean Lemierre

Mr Mirow told the Financial Times this week that the EBRD still had a "crucial" role to play, in spite of strong economic growth in eastern Europe.

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WSJ: Nizhny Novgorod Development-Third City of Russia?

The Wall Street Journal had a brief piece on a fanciful proposal for Nizhny Novgorod.

It is encouraging to see such projects in the 'provinces' of Russia. Moscow is of course Russia's leading city, and St. Petersburg is firmly the second city. However, there are around 10 cities which could legitimately be considered the 'third city of Russia', based on their populations (all approximately 1.0-1.4 million) and economic viability. Nizhny Novgorod is of course one of these.

Many older Americans will remember Nizhny Novgorod under its Soviet-era name, Gorky, and as the place of internal exile for Andrei Sakharov. Less known is that was also the headquarters of the automotive industry during the Soviet era (GAZ originally built on license from Ford the Model A), and is still an important industrial center.

Although economically impractical for many years, this project is indicative of the power of the Russian economy, and the more prosperous regions, that such thinking is going on today.

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NY Times Book Recommendations on Recent Russian Political and Economic Issues

Stephen Kotkin of The New York Times had a good piece in today's paper summarizing books on current Russian economic and political thought. The article is notable in that it summarizes the positions of many of the leading experts on Russia today, including Dmitri V. Trenin and Anders Aslund. By being aware of the experts' bias, one can read much into their commentary.

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FT: EBRD looks at role in Turkey

Stefan Wagstyl of the Financial Times reports that, as part of the EBRD's push southeast and east, Turkey is the next logical step to expand the EBRD's countries of operation.

The EU, whose members together control about 60 per cent of the EBRD, is due to consider these issues at a finance ministers' meeting next week, which Mr Lemierre is scheduled to attend. Turkey is an EBRD member but has long wanted to join the bank's countries of operation and secure access to finance. But it has run into opposition from some EU members, which preferred the EBRD to focus on the former communist states, especially future members of the bloc.

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Russia's Gazprom gets Kyrgyz gas field licenses

Olga Dzyubenko of Reuters reports that the meeting between Gazprom Chief Executive Alexei Miller and Kyrgyz Prime Miniester Igor Chudinov could result in Gazprom invest about $300 million into Kyrgyzstan.

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Russia Becomes an Issue in US Presidential Campaign

Ellen Wulfhorst of Reuters writes that Hillary Clinton, campaigning, ponders Putin's soul.

One of my biggest concerns for US-Russian relations this year is that Russia can easily become a campaign issue, with candidates criticizing their rivals for not being "strong" enough "against" Russia. At the same time, a similar scenario can easily happen in the Russian campaign. Neither side would benefit from such rhetoric.

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New Kyrgyz Prime Minister, Igor Chudinov

Bruce Pannier of Radio Free Europe/Radio Liberty wrote a good briefing on Igor Chudinov, the new Prime Minister of Kyrgystan (and the fourth prime minister in a year). Mr. Chudinov, 46, was previously head of Kyrgyzgaz, and trade and industry minister. His appointment sends positive signals to the investment community.

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Update: Iran Believes Turkmen Gas Cut-Off Due to Pricing Dispute

Zahra Hosseinian of Reuters posted an update that quotes Reza Kasaizadeh of Iran's state gas company saying "They believe that, as they increased the price of gas they export to Russia, they should raise the price of gas they export to Iran."

No word from the Turkmen side, except to say that the cut-off is due to technical reasons.

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EDF and PricewaterhouseCoopers have won the tender for study of the Kambarata hydropower plants in Kyrgyzstan

PennWell's Power Engineering Online reports that Electricite de France and PricewaterhouseCoopers have won the tender for an investment study of the Kambarata-1 and Kambarata-2 hydropower plants in Kyrgyzstan.

The project is sponsored by Russia's RAO UES. No word on the ultimate destination for the power generated by the project, but it would make a big increase in Kygyzstan's hydroelectric production.

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Turkmenistan lifts 10-year ban on buying and selling foreign currency - International Herald Tribune

The Associated Press reports that Turkmenistan lifts 10-year ban on buying and selling foreign currency. This is another sign that, slowly, Turkmenistan is starting to open up their society.

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Analysis of Central Asia/Caspian Energy Market in 2007

John C.K. Daly of UPI wrote International Security - Energy - Analysis - UPI.com, which summarized the state of Central Asia/Caspian's energy markets.

He contrasted the success of Russia in convincing Turkmenistan to develop additional pipeline capacity through Russia (a move which occured "despite the visit of 16 high-level U.S. negotiators in the wake of Niyazov's death") with Russia's failure to make inroads in the BTC region ("It is notable that no Russian firms are involved in the project and that Western concerns receive 75 percent of BTC's revenues.")

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In a Car, a Lesson in Russian-European Trade

Judy Dempsey wrote a good article, In a Car, a Lesson in Russian-European Trade - New York Times. She uses the example of Skoda, a mid-priced car company (based in Czech Republic, now owned by Volkswagon), to illustrate the growth of bi-lateral trade between Russia and its former Eastern European satellites.

I remember many years ago, asking a college professor (around 1980 and the time of imposition of marshal law in Poland) about the integration of Eastern Europe's economies with that of the Soviet Union. He said that, even if the Soviet Union granted full freedom to the countries of Eastern Europe, they still would be dependent on the USSR for their markets and materials. It seems that, during the 1990's, countries such as Poland, Czech Republic, Slovakia, Hungary, and the Baltics (Latvia, Lithuania, Estonia) did everything they could to distance themselves, economically, from Russia. Now that the economies of Eastern Europe have developed and matured, since they joined NATO and the European Union, they seem to be more attracted to what amounts to their natural markets and trading partners.

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Russian Investment in US Steel Industry

I just hung up the phone discussing the possibility of Russian investment in the US steel industry (and said that there would probably not be another acquisition until after the US Presidential election in November 2008), and read Peter Marsh's (Financial Times) article describing Severstal and Evraz's further investments in Rouge Industries and Oregon Steel.

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Turkmenistan cuts gas supply to Iran by half

Zahra Hosseinian of Reuters writes that Turkmenistan has reduced their gas output by half to Iran; although Iran claims this is due to technical reasons, they think that it might also be a warning signal regarding pricing issues.

Interestingly, the announcement came soon after the announcement of resumption of direct flights between Turkmenistan and Iran, a further sign of the gradual opening of Turkmenistan.

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Peugeot to build car plant in Russia

John O'Doherty of the Financial Times reports that PSA Peugeot Citroën is to build its first factory in Russia as it aims to double its sales in the country within three years.

Additionally, Marcel Michelson of Reuters reported that other manufacturers, including possibly Mitsubishi, may use some of the production capacity in the future. Further news: Mitsubishi Motors signed an agreement for the granting of incentives with Russian Ministry of Trade, although no specific manufacturing facility is mentioned

PSA chose Kaluga, site of the Kaluga Special Economic Zone, over Nizhny Novgorod (the historic center of the Soviet auto industry) and St Petersburg (which President Putin recently declared as "evolving into Russia's and world's largest automobile production center").

According to PSA's website:

PSA Peugeot Citroën has notified the Russian authorities of its decision to build a plant in the city of Kaluga, 180 kilometers southwest of Moscow. Scheduled to come on stream in 2010, the new factory will produce vehicles in the midsize segment, which represents nearly 60% of all sales in the fast expanding Russian market. The new facility is central to PSA Peugeot Citroën's development strategy in Russia, considered to be a priority growth market. The Group plans to sell 100,000 Peugeot and Citroën vehicles in Russia in 2010, with a commitment to eventually raising this number to 300,000 a year. The signing ceremony for the project is scheduled to take place in Russia in early 2008.

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Citi Receives Permission to Open Rep Office in Baku Azerbaijan

Azerbaijan Business Center

Citi has been active in Azerbaijan since 1991 (often through their Turkish subsidiary), although they haven't yet opened a represetantive office (it is expected to open in early 2008). Loans completed by Citi include

• USD 75 MM AIOC, Early Oil Project - B Loan, Azerbaijan
• USD 4.5 MM AzTelecom Import Financing, Azerbaijan

Perhaps this is the first step to Citi opening a retail network in this fast-growing Caspian nation.

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High Design for Low-Income Housing - WSJ.com

High Design for Low-Income Housing - WSJ.com

Ben Casselman of The Wall Street Journal discusses how architects are answering pressure for social responsibility by planning low-cost housing which is also of sensible, even inspiring, design.

Of course, for at least the last two centuries architects have been aware of their responsibility with regards to social housing. Frank Lloyd Wright designed Usonia in Westchester County, New York as a model community with thoughtful design which he wanted to duplicate around the country. Also, the avant-garde architects of post-Revolutionary Russia considered housing their most important assignment, and even today their designs appear fresh and innovative.

See the books of William Brumfeld, professor at Tulane, for more on the architecture of Russia.

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China: New Dam Builder for the World - WSJ.com

China: New Dam Builder for the World - WSJ.com

The article does not mention the potential for hydroelectric power development in Kyrgyzstan, nor does it mention the substantial interest which the Chinese apparently have shown in the country.

An article published in China and Eurasia Forum Quarterly, Volume 5, No. 2 (2007) p. 131-148

Kyrgyzstan is considered the third largest hydroelectric power in the CIS after Russia and Tajikistan. Its potential production is estimated at between 140 and 160 billion kwh per year but only 10 percent of its resources are currently being exploited.

Hydroelectric power is probably the most important exploitable resource in the Kyrgyz republic, and can be shipped to western China, Kazakhstan, Russia, Tajikistan, Afghanistan and Pakistan.

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Kazakhstan, Oil Firms May Be Near Deal on Kashagan Field - WSJ.com

Kazakhstan, Oil Firms May Be Near Deal on Kashagan Field - WSJ.com:

Gabriel Kahn of The Wall Street Journal said it clearly:

In a Dec. 26 letter viewed by The Wall Street Journal, Kazakh President Narsultan Nazarbayev, has called the heads of the six foreign oil firms toAstana, the Kazakh capital, for a meeting on Jan 11 with himself and the country's prime minister.

The presence of Mr. Nazarbayev, who holds a tight grip on power in the il-rich country and has rarely been involved in talks over the oil field, is a signal that the two sides could be close to a deal.

"For me it is difficult to imagine that President Nazarbayev and Prime Minister [Karim] Massimov meet the most important oil companies without a resolution," said Paolo Scaroni, chief executive of Eni SpA, which is the chief operator of the Kashagan field and has been leading the negotiations.

President Nazarbayev will probably use this as an opportunity to emphasis the role which Kazakhstan will play in world energy security.

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Simon LeVine's The Oil and the Glory: The Pursuit of Empire and Fortune on the Caspian Sea

The Oil and the Glory: The Pursuit of Empire and Fortune on the Caspian Sea by Simon LeVine (a financial journalist) gives much of the back story to Syriana, the 2005 movie about power politics in the Middle East and the US energy industry. It deserves a place in the bookshelf next to Daniel Yergin's classic The Prize : The Epic Quest for Oil, Money & Power .

Visit LeVine's website at http://www.oilandglory.com/

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Ford Motor Strike Ends/Average Wage

One interesting point to come out of the strike which temporarily halted construction at Ford Motor's plant outside of St. Petersburg: Despite all the progress in Russia's economy, and despite all the hoopla about "New Russians," the average monthly wage at the plant is currently approximately $800, and this is earned by professionals who consider this to be a good, steady job. This reminds us that Russia is still an emerging market.

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Heidi Brown On Russia - Forbes.com

As usual, Heidi Brown of Forbes made some good predictions on Russia's economy and politics for 2008. She is one of the few journalists who recognize that Putin's posturing is largely to serve a domestic audience.

Lower oil prices and presidential elections in the U.S. and Russia will edge the countries toward détente. As oil prices drop, Russia will be more motivated to cooperate with foreign firms. Once Russia's elections have passed and Putin's role as prime minister is cemented, his need to posture for the electorate at home will ease.

Frankly, though, I am not sure that the US elections mean closer ties; if anything, I am nervous that Russia will become a campaign issue and that the American candidates will be posturing to their domestic audiences. The Council on Foreign Relations has a good summary page on where each of the US Presidential candidates stand on US-Russian relations.

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Discovering Eurasia attends EBRD's Annual Meeting in Kazan May 2007

Marc David Miller, Managing Director of Discovering Eurasia, attended the European Bank for Reconstruction and Development's Annual Meeting during May, 2007.

Highlights of the EBRD's meeting included presentations by trade authorities from most of the EBRD's region of operation (including Russia, Ukraine, Kazakhstan, Turkmenistan, Kyrgysz Republic, Azerbaijan, and Moldova), a separate conference on investment in Tatarstan, and networking with 3,000 of the world's leading bankers and financial experts.

Government and multilateral leaders attending included EBRD President Jean Lemierre, The Tatar President, Mintimer Shaimiev, Russia's Minister of Economic Development and Trade, German Gref, Philip de Leon, US Department of Commerce, and Paavo Vaeyrynen, Finland's Minister of Finance.

Business leaders attending included Vagit Alekperov of Lukoil, Alexei Mordashev of Severstal Group, Oleg Deripaska of Basic Element. and Anatoli Chubais of UES.

Journalists from The Wall Street Journal, Merger Market, the Financial Times, and other institutions covered the event.

The Annual Meeting also allowed Tatarstan to show off its business-focused nature. Considering the size of the meeting, all of the logistics and other details went exceptionally well.

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About Discovering Eurasia

Discovering Eurasia provides strategic advice and implementation regarding market and investment development issues to associations, governments and companies in the US, Europe and Russia/former Soviet Union. We provide a clear, concise and consistent message to support the financial, reputational and political goals of our clients. Discovering Eurasia primarily focuses on four distinct markets: the Russian Federation, Central Asia, the Caucuses, and Ukraine, Belarus and Moldova.

Our services-including business travel, trade promotion, identity building, nation- and region-branding, corporate citizenship and cultural programs, market development, road shows, conferences/investment forums, trade delegations, advertising-support this strategy. We focus on the need for coalition-building; especially in the Eurasian market, people need to build trust before making a decision to invest, and that trust is deeper and stronger when developed over a period of time and a series of events.

Recent projects undertaken by Discovering Eurasia and its sister company, i-Latina (focusing on the Spanish, Latin and American markets), include:

--Promotion of Russian securitization and structured finance conference in New York, attended by nearly 100 investment bankers, lawyers, and private equity/hedge fund investors

--Coordination of trade mission by several major Spanish infrastructure companies to New York to survey future large-scale municipal projects

--Introduction of trade mission (Russian leasing association) to an American financial institution

--Advice regarding logistics and marketing issues to an American company importing vodka from Kyrgyzstan

--Advice regarding US market entry to a major Spanish infrastructure company, including toll-road projects and parking systems

--Advice to American legal consulting company regarding Russian/former Soviet market entry and development

--Organization of delegation of American collectors to various art fairs and openings in Moscow and St. Petersburg

--Advice to proposed joint venture of American and Russian law firms regarding consulting project

--Advice regarding promotion in the US and other issues for a major Spanish soccer club

--Market entry strategy and implementation for a major European event planning company expanding their US operations.

For more information, please contact Marc David Miller, Managing Director, at 1-212-758-7699 or MDM@DiscoveringEurasia.com

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