Friday Gazprom board members to donate bonuses to charity

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					                                                                     June 26, 2009

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1. Gazprom board members to donate bonuses to charity
2. Gazprom CFO press conference: Key takeaways
3. Sechin signals support for TGK4 minority rights
4. Telenor could agree on merger of VimpelCom and Kyivstar
5. Russia takes key step forward in OECD membership negotiations
6. President Medvedev extends Russia's reach in Africa
7. Gazprom and Nigeria establish joint venture
8. Ignatiev secures a third term
9. Gazprom export revenue to plummet 38% in 2009
10. Zurabov looking likely as Russia's Ukraine ambassador
11. EU envoy says IMF may offer US$ 4bn gas import loan
12. Russia - the recession deepens
13. Norilsk Nickel: Rusal's 25% interest may change hands
14. Igor Zyuzin pledges 38% stake in Mechel
15. Market Overview: World Bank's reality check
16. Putin and Sechin warn on Ukrainian gas payments again
17. LUKoil acquires stake in Dutch refinery from Total
18. Rosneft and Surgutneftegaz: No merger - confirmed by BoD
19. Barroso says summer could see new gas crisis
20. Ingushetia's President Yevkurov injured in IED attack

1. Gazprom board members to donate bonuses to charity
June 26, 2009

Gazprom chairman of the board said at the company's AGM that company directors
will donate their 2008 bonuses to charity. He said this in response to being asked
why 2008 dividends were being reduced sharply while remuneration for directors
remains at 2007 levels.

2. Gazprom CFO press conference: Key takeaways
June 26, 2009

Yesterday (25 June), Gazprom CFO Andrei Kruglov made two important statements.
Credit-wise, we think these are neutral-to-positive, as they signal Gazprom
management's willingness to adjust to the difficult environment, although there are
still a lot of questions about how significant the degree of adjustment should be and
if it will eventually materialise.

First, Kruglov said Gazprom's 2009 capex programme may be cut 30%, vs the
original plan of RUB920bn which was approved in Dec 2008. The decision is not final;
the company's board is going to discuss a revised 2009 budget in September, taking
into account 1H09 financial and operating results. The reduction is bigger than the
15% reduction implied by the Bovanenkovo field delayed launch, announced last
week. However, Kruglov reiterated that Gazprom's key projects, especially in the
transportation sphere, won't be affected. The 30% reduction number only refers to
the organic capex component of the investment programme, and does not include
financial investments such as the $4.1bn acquisition of 20% of Gazprom neft shares.

Second, Kruglov provided an update on the company's refinancing needs. Total 2009
debt service payments were voiced yesterday to be at the equivalent of RUB380bn,
of which RUB60bn has already been refinanced YtD. As per the approved 2009
budget, Gazprom's net borrowing programme was RUB90bn under all three scenarios
(oil at $25/bbl, $30/bbl and $41/bbl). Kruglov said that in all likelihood the
company's FY09 leverage is not going to exceed 2x as measured by total
debt/EBITDA ratio (as a reminder, the company's officially stated policy is to have
debt to equity ratio not greater than 40%). Interestingly, it was not Kruglov himself
but rather one of his deputies who mentioned that Gazprom will be striving to
preserve its self-financing status, i.e. have a non-negative organic free cash flow, as
it was during the recent years. We take this to mean that Gazprom management has
relatively limited visibility not only of its own cash generation this year, but also of
the magnitude of capex reduction that the givernment will support later on in the
Petr Grishin

3. Sechin signals support for TGK4 minority rights
June 26, 2009

Event: In a speech at InterRAO's AGM yesterday (25 June), board chairman and
Russian First Deputy Prime Minister Igor Sechin said that he was awaiting the court
decision with respect to Onexim's revocation of a tender offer made to TGK4 minority
shareholders in the wake of privatisation. In Sechin's view, "Onexim has nothing to
do with the defence of the country and its security", and this argument could not
therefore be used to avoid obligations to minority shareholders. Sechin commented
that the Ministry of Energy was following the hearings, and expected the ruling to be

Action: Short-term positive for TGK4, in our view.

Rationale: In our view, the government's public support for minority shareholders in
the TGK4 case is likely to be welcomed by the market, even more so when the
support comes from the first deputy prime minister. However, we advise investors to
bear in mind that earlier this week, the state-controlled Russian Railways launched a
buyout offer at TGK14 at 65% below the acquisiton price, which we judge would
have applied to a TGK14 tender offer, had it been launched in the immediate
aftermath of TGK4's privatisation in Sep 2008.
Vladimir Sklyar

4. Telenor could agree on merger of VimpelCom and Kyivstar
June 26, 2009

Event: According to Vedomosti today (26 June), Telenor has preliminarily agreed on
the merger of VimpelCom and Kyivstar, although a number of points have not been
agreed. At the end of March, Alfa suggested the merger of VimpelCom and Kyivstar.
Alfa suggested that it will control the merged company on a par with Telenor, except
for VimpelCom's 25% free float. Alfa and Telenor would each receive 40% of the
votes on the board, with the remaining 20% allocated to independent directors who
would have the right to nominate management. Telenor wants to create a JV in US in
order to secure itself against legal pressure in Russia and Ukraine. The merger was
previously discussed in 2006.

Action: We reiterate our BUY rating on VimpelCom stock.

Rationale: We think if such a deal happens it could potentially solve some issues
around the shareholder conflict between the two. That said, the parties will continue
to be involved with each other, which we think means a new escalation of the conflict
is possible. We believe a merger rather than a swap of assets would be more
favourable at the moment, as it would not entitle an exchange of cash, and hence
would be easier for parties to agree on at the currently low levels of valuations. The
merger would also consolidate the Ukrainian market and improve its fundamentals,
helping all players and propelling VimpelCom from laggard to leader in the Ukrainian
market. Telenor agrees to the deal under the pressure exerted by the Farimex case,
which is likely to be resolved in the event of a merger.
Ivan Kim

5. Russia takes key step forward in OECD membership
OECD Press Release
June 25, 2009

Russia formally launched negotiations for its future accession to the OECD by
submitting a detailed "Initial Memorandum" setting out where it stands in relation to
the policy standards and practices that are basic criteria for membership of the

Delivery of the memorandum by Russia's Minister of Economic Development, Elvira
Nabiullina, to OECD Secretary-General Angel Gurría marked a starting point for more
detailed discussions involving specialised OECD committees.

Welcoming the memorandum, Mr. Gurría noted that by engaging in membership
talks, Russia in effect commits to continue reforming its economy in line with
international rules-based practices.

Ms. Nabiullina, in Paris to attend the annual meeting of the OECD's governing Council
at ministerial level, said: "This is an important event which confirms the strategic
course of Russia towards integration into the world economic system and its key
The OECD invited Russia to open membership talks in 2007 as part of a strategy to
broaden its membership. The formal launch of discussions, as governments around
the world grapple with the most severe economic crisis for decades, coincides with
new OECD economic projections that predict a 6.8% fall in Russia's GDP this year
followed by a return to 3.8% growth in 2010. A new OECD survey of the Russian
economy will be presented by Deputy Secretary-General Pier-Carlo Padoan in
Moscow on 15 July 2009.

In the context of the membership talks, Russia will now undergo detailed reviews by
specialised OECD committees covering almost all areas of government, from
corporate governance and fighting corruption to investment, competition, labour
policy and the environment. In the course of this process it will be called upon to
show how it complies with more than 200 OECD legal instruments and standards.

 Mr. Gurría expressed his conviction that these reviews will provide valuable support
for ongoing reforms in Russia. "The role of the OECD is to help its member countries
and others develop appropriate and effective policies in order to improve the
workings of market economies," he said. "Russia has much to bring to the party in
terms of its potential contribution to world trade."

Russia is taking part in this year's OECD ministerial meeting, focused on "The Crisis
and beyond: building a stronger, cleaner, fairer world economy", along with the four
other countries negotiating accession to the OECD -- Chile, Estonia, Israel and
Slovenia -- and the five that participate in a process of "enhanced engagement" with
the OECD -- Brazil, China, India, Indonesia, South Africa.

Note to Editors:

The OECD's engagement with Russia goes back to the early 1990s, with an OECD-
Russia Programme covering a wide range of areas relevant to Russia's market reform
process, including regulatory reform, taxation, competition and investment.

In 1997, the OECD and the Russian government agreed that eventual membership of
OECD by Russia was a shared "ultimate goal", and in May 2007 the OECD's Council
issued a formal invitation to Russia, along with the four other candidate countries, to
open membership negotiations.

Roadmap for Russian accession:
Information about OECD accession process:
Information about OECD work relating to Russia:

6. President Medvedev extends Russia's reach in Africa
June 25, 2009

Yesterday (23 June), Russia's President Dmitry Medvedev embarked on a four-nation
tour of Africa, heading to Egypt, Nigeria, Angola and Namibia. In the Sub-Sahara
African (SSA) countries, Medvedev is likely to lobby for trade and investment deals,
particularly in areas where Russia has comparative advantages (such as the energy
sector), and strengthen political ties with the aforementioned nations.

Bilateral trade between Africa and Russia remains marginal (FDI is even less
significant, with a few minor exceptions). On United Nations data, yearly bilateral
trade has exceeded $1bn in the case of only one of the four countries Medvedev will
visit (Egypt: $1.7bn in 2008, vs $2.1bn in 2007), in addition to $2bn generated by
the 1.8mn Russian tourists that visited Egypt in 2008. From a historical perspective,
Egypt was aligned with the USSR under Gamal Abdel Nasser's presidency (1956-
1970), at a time when the Soviet Union was participating in the construction of the
Aswan dam (the largest such project in Africa), but the country's policy stance later
shifted towards the West (particularly the US). However, Medvedev and Egypt's
President Hosni Mubarak have agreed on a strategic partnership focused on energy
and infrastructure programmes. Russia's Deputy Economy Minister Andrei Slepnev
has also said long-term wheat contracts have been ratified, with the potential to
further boost Russian exports to Egypt.

In the case of Nigeria, a series of deals, including a joint-venture agreement on gas
exploration between Gazprom and the Nigerian National Petroleum Corporation, a
nuclear energy pact and investment promotion protocols, are due to be signed
during the Russian president's visit. Gazprom announced, in late 2007, that it was
ready to spend several billions of dollars to participate in the Trans-Saharan gas
pipeline project between Nigeria and Europe, and boost domestic production, but
there has been no tangible development in this regard. In more general terms, we
note that Russian companies are eyeing Nigeria's largely untapped gas sector, and
the country's oil industry. (In a related matter, some Russian firms already operate
in Nigeria, such as Rusal, which bought a majority stake in Alscon [Aluminum
Smelter Co.] in early 2007.)

Russia has also shown interest in Namibia's uranium sector. An exploration licence in
this area was awarded in 2007 to a joint venture led by Russian company
Tekhsabexport, although little progress has been made on the ground.

In our view, the sizeable infrastructural gap in Nigeria and Angola could create
substantial, attractive opportunities for Russian companies. Moreover, we estimate
Nigeria's GDP at $193.5bn for 2009, making it the second-largest economy in SSA,
with Angola the third largest (we project 2009 GDP at about $100bn). In this
context, Medvedev's visit appears to target the key regional players (with the
exception of Namibia), given that South Africa was already on the agenda in 2006.

A combination of business and geopolitical factors may explain the decision to visit
Angola. From a diplomatic standpoint, in the 1970s and 1980s, Angola was a close
ally of the USSR, and more than 1,000 Russian military and technical advisors lived
and worked in the country. While the relationship between pro-Soviet governments
in SSA, such as Angola, and the USSR was primarily based on military and political

cooperation rather than economic partnership, we note that Angola's President
Eduardo Dos Santos studied in the USSR (Baku, Azerbaijan) and took a pro-Moscow
line in the 1980s - a background that may positively facilitate further diversification
of commercial links between the two nations.

Furthermore, the tour could strengthen Russia's international image as a leading
emerging power. In this regard, Medvedev said, in a speech to the Arab League in
Egypt, that he will organise a Moscow conference on the Middle East, indicating that
all parties had agreed in principle to attend the event.

Overall, we think Medvedev's visit is a positive development, suggesting Russia is
incrementally starting to look at business opportunities, and expanding its sphere of
influence, in Africa. Still, with regard to bilateral economic relations, Prime Minister
and former President Vladimir Putin's trips to Africa - for example to Libya in 2008,
and South Africa and Morocco in 2006 - did not translate into any drastic shifts in
trade or investment dynamics. In our view, a turnaround in commercial relations
between Africa and Russia will be constrained to a certain extent by the facts that
Russia does not need SSA natural resources to drive its economy, and that the level
of competition for market share in infrastructure-oriented projects in Africa has
increased significantly in recent years - notably as China's influence expanded across
the region (albeit not necessarily in Nigeria, Egypt or Namibia).

7. Gazprom and Nigeria establish joint venture
June 25, 2009

According to Vedomosti, Gazprom and Nigerian national oil company have agreed to
establish a JV on a parity basis (50%-50%) to cover exploration, production and
transportation projects. Gazprom intends to invest up to $2.5 bln in transportation
and processing facilities in Nigeria. According to an unidentified member of the
Russian government delegation, Gazprom's main objective is to get access to the
pipeline project, which should connect Nigeria with Algeria, with the gas eventually
running to European markets. We treat this news as NEUTRAL for Gazprom, as the
timing of this project is not clear; however, in the longer term this could be
strategically positive.

8. Ignatiev secures a third term
Royal Bank of Scotland
June 25, 2009

As expected the State Duma approved the re-appointment of Sergei Ignatiev as
governor of the Central Bank of Russia (CBR) for a third term.

Addressing parliament, Ignatiev re-affirmed the CBR's intention to move to inflation
targeting, allowing the rouble to freely float. He noted that the CBR was half way
along in terms of its strategy of moving to free float the currency; a couple of weeks
back though he had indicated that a free float was still a couple of years off. He
governor noted that CBR interventions in the FX market are already tailing off, a
precursor to a free float.

Typically central banks don't want to start inflation-targeting regimes from starting
points of high inflation/inflationary inertia; which is definitely the case in Russia
given that inflation has remained in the 10-15% annual range now for the period
from 2001. Herein Ignatiev indicated his expectation that inflation would come in
significantly below the 13% official target; from 12.3% YOY in May. Evidently he
assumes limited pass thru from the earlier year exchange rate weakening, largely a
reflection of the strongly recessed state of the domestic economy.

On this latter note, the World Bank released its latest Russian Economic Report
(No.19) which saw the bank revise down its real GDP growth assumption for Russia
for 2009 to minus 7.9%. Given the Minister of Economy's suggestion this weak that
real GDP growth declined by 11% YOY in May and by 10.2% YOY over the first 5
months of the year, the World Bank's forecasts appear realistic. We were particularly
struck by the comment from the World Bank over exchange rate policy, with the line

 "CBR concerns about possible overvaluation of the exchange rate [sic, driven by the
recent bounce in oil prices] in the short term are warranted. Such over-valuation
may hurt the recovery in the real sector, especially in export oriented industries and

The World Bank notes the 16.2% appreciation of the rouble since mid-February and
expresses concern over its impact on recovery; the World Bank had been one of the
first to call for a more competitive exchange rate in the fall of 2008.

Net-net, and without evidence of a recovery in the real economy, we would expect
recent rouble strength to reverse to year-end.
Tim Ash

9. Gazprom export revenue to plummet 38% in 2009
June 24, 2009

Alexander Medvedev, Gazprom's deputy CEO and head of its export division,
Gazprom Export, told a press conference today June 24 that Gazprom exports will
fall 11% on the year in 2009, and export revenue to plummet 38%, according to

Gas exports are expected to be 59.5 bcm in the first half of 2009 - 74% of the
forecast volume, according to Interfax. According to Medvedev, exports to non-CIS
countries will fall to 142.1 billion cubic meters of gas in 2009, down 11% from 158.8
bcm in 2008. Gazprom expects export revenue to drop by a staggering 38% this
year to $40bn, down from $65 billion in 2008.

Medvedev said the gas war with Ukraine had contributed to the shortfall, with Europe
undersupplied by around 4.5 bcm of gas as a result of the crisis.

Medvedev also said however that the estimated average export prices would be on a
par with 2008 this year, writes Interfax.

10. Zurabov looking likely as Russia's Ukraine ambassador
June 24, 2009

Mikhail Zurabov, Russia's former health and social development minister who ended
the non-transparent system of benefits-in-kind in Russia, is looking likely to be
Russia's next ambassador to Ukraine, as Russia moves to end gas subsidization of its

"Our committee will consider this issue in the near future, and I am sure that its
members will give their consent to appointing Mr. Zurabov ambassador to Ukraine,"
Alexei Ostrovsky, the head of the Duma committee for CIS affairs and ties with
compatriots, said on receiving documents for considering Mikhail Zurabov's
nomination as Russia's ambassador to Ukraine, according to Interfax.

Zurabov achieved notoriety in Russia in 2005 for implementing a policy of conversion
of social benefits in kind to cash benefits.

The policy was aimed at achieving transparency in social and public services, and
ending forms of cross-subsidisation. City pensioners lost out, as they benefited most
from the numerous benefits in kind that were converted to a flat cash compensation
(e.g. free public transport,) and in many cities there were demonstrations. Rural
pensioners however gained an up to fifty euro monthly cash boost to their pensions.

Zurabov's appointment as ambassador to Ukraine is hardly coincidental. Russia is
trying to end gas subsidies to Ukraine, and the appointment points to Moscow's
determination to be tough about cutting what it perceives as unjustified and non-
transparent cross-subsidisation of its neighbour.

Zurabov "has shown himself as a practical man and a tough manager in the positions
he held earlier, and these qualities are needed in Russian-Ukrainian relations today,"
Ostrovsky said.

11. EU envoy says IMF may offer US$ 4bn gas import loan
Galt & Taggart
June 24, 2009

Ukraine's Ambassador to the EU Andri Veselovsky said the IMF may provide Ukraine
with US$ 4bn in additional funding to help pay for natural gas imports from Russia,
according to Bloomberg. The envoy said the funds could be approved within days.

12. Russia - the recession deepens
Royal Bank of Scotland
June 24, 2009

Andrei Klepach, Russia's deputy minister of economic development, just announced
that real GDP contracted by a disappointing 11% YOY in May, and by 10.2% YOY
over the first 5 months of 2009.

The data suggest that the real economy crisis is continuing to worsen, despite the
pick up in oil prices since March, the huge fiscal pump-priming undertaken by the

government over the past 6 months (equivalent to ~ 8-10% of GDP), and efforts by
the CBR to ease domestic liquidity conditions in particular by cutting its benchmark
interest rate.

Real GDP contracted by around 9.8% YOY in Q1, and the government has indicated
that real GDP could contract by as much as 8% in Q2. The outturn for May suggests
that even this bearish assumption might be outdone.

For the full year in 2009 the Ministry of Economy has suggested that real GDP could
contract by 6-8% YOY, while the IMF has suggested the fall may be around 6%, and
the WB/EBRD have indicated that the contraction could be as much as 7.4-7.5%.
Suffice to say the contraction is likely to be much worse than earlier official
projections (minus 2.2% in earlier budget projections).

GDP performance in May is in line with a range of other indicators which have
suggested that, if anything, the recession is deepening in Russia.

* Industrial output fell by 17.1% YOY in May, ahead of the 16.9% YOY fall in April,
and the 15% fall over the first 4 months of the year.

* Output of the construction sector fell by 21.9% YOY in May, versus the 16.2% YOY
fall in April;

* Investment in productive capacity was down by 23.1% YOY in May, after falling
16.2% YOY in April, and down just short of 8% over the first 4 months of the year.

* Retail sales were lower by 5.6% YOY in May, after falling 4.5% YOY in April, and
after falling around 1.4% YOY over the first 4 months of the year.

* The one piece of good news was that the unemployment rate eased back to 9.9%
in May, from 10.1% the month earlier.

The accelerated pace of economic decline in May, came as the MOF showed signs of
trying to ease the growth in the budget deficit, trimming the rise in budget spending
to just 4.6% YOY in May, from 33% one month earlier budget revenues were still
38% lower YOY in May.

Klepach also mentioned that the surplus on merchandise trade eased back to
US$9.8bn in May, around half the year earlier level. For the first 5 months of 2009
this put the merchandise trade surplus at US$36.3bn, down from US$83.3bn one
year earlier. Exports were lower by 47% YOY over the first 5 months of the year,
with imports down by 40% YOY.

The combination of the weak real economy outlook, plus the much reduced surplus
on merchandise trade suggests a less supportive backdrop for the rouble, and indeed
suggests recent rouble strength has been overdone.

Timothy Ash

13. Norilsk Nickel: Rusal's 25% interest may change hands
June 23, 2009

Potanin looking to acquire 25% stake in Norilsk from Rusal. This morning Vedomosti
reported that Vladimir Potanin is interested in acquiring a further 25% stake in
Norilsk Nickel (GMKN - Sell) from Rusal. According to the article, Potanin, who
currently holds an estimated 30% in Norilsk through Interross, has not yet discussed
the sale with Rusal, but held unofficial discussions about it with the Russian
government at the end of May, and has now publicly confirmed his interest in the

The deal is unlikely to happen this year. Rusal's blocking take in Norilsk Nickel was
pledged as collateral for a $4.5 bln loan that VEB (Vnesheconombank) provided to
Rusal in November of last year. VEB recently confirmed its willingness to extend the
loan for 1 year at LIBOR+5%. In our view, despite Rusal's difficult financial position
(gross debt of $15 bln), the sale of its blocking stake in Norilsk Nickel is highly
unlikely this year since it is pledged as collateral for the VEB loan. Another reason
why the deal may not to happen soon is the current $4 bln valuation of the 25%
stake in Norilsk Nickel, since we do not believe Rusal would be wiling to sell at this
price and may require a substantial premium to the market.

Pure commodity play, still overvalued. Should such a deal happen, it would not
necessarily be positive for Norilsk minorities. In theory, there should be an offer to
Norilsk minorities, however in Russia, these offers seem to be side stepped by legal
technicalities. Interros's corporate governance record also leaves much to be
desired, as it has systematically stripped Norilsk Nickel of its cash. Apart from
corporate governance issues, we believe that Norilsk Nickel's shares have already
benefitted from market expectations of higher commodity prices associated with US
dollar weakness and a global economic recovery. With no clear growth strategy,
Norilsk Nickel remains a pure play on the prices of its key commodities, nickel,
copper, palladium and platinum, as well as movements in the ruble exchange rate to
the dollar. We believe that at current levels, Norilsk Nickel shares are pricing in an
overly optimistic price scenario for nickel and copper in 2009 and 2010. Given the
weak fundamentals and uncertain shareholder structure, we would not chase the
valuation of Norilsk Nickel higher. Michael Kavanag

14. Igor Zyuzin pledges 38% stake in Mechel
June 23, 2009

Event: In a regulatory filing to the SEC on 19 June, Mechel confirmed that Bellasis
Holdings Ltd, Dalewave Ltd and Armolink Ltd (Cyprus-registered companies
controlled by Igor Zyuzin), have pledged a total of 157.9mn Mechel shares. Zyuzin
owns a 66% stake in Mechel via the above-mentioned entities. According to
Bloomberg, Igor Zyuzin pledged almost a 38% stake in Mechel as collateral against
"certain financings."

Action:The news is neutral-to-negative for Mechel. We reiterate our BUY rating of
Mechel shares.

Rationale: Taking into account the size of the pledged Mechel stake, we assume
Zyuzin could enter the deal only with a Russian counterparty. In addition, the
pledging of significant stakes to state-run banks has became a common practice
among companies' principals (eg Rusal, TMK). We continue to stick to our view that
state-run banks in Russia are not interested in gaining control of major assets in the
sector. The signing away of assets by principals only reflects the short-term reality of
the 2009 funding environment, in our view. In any case, Zyuzin will maintain
operational control over Mechel. At the same time, the company continues posting
unbeatable results in terms of utilisation rates of its major subsidiaries. Mechel's
ADRs dropped more than 17% on today's news, along with investors' general
negative sentiment towards the commodities sector. In our view, the current sell-off
may represent a very good buying opportunity.
Boris Krasnojenov

15. Market Overview: World Bank's reality check
June 23, 2009

Equity markets look set for another tough trading session today. The price of Brent
crude is currently at $66/bbl in Asia and the MSCI Asia Pacific Index is down 2.5%.
Natural resource stocks are again leading the way lower. This follows a 3.1% fall in
the S&P 500 Index in the US and a near 4% drop in Brazilian equities yesterday. The
World Bank's lower growth forecast for global growth this year acted as a reality
check for investors already nervous about over-stretched valuations following the
recent strong rally. Reports in the US yesterday that company executives have been
persistent net sellers of their own company shares throughout this rally added to
market nervousness. The VIX (volatility) Index climbed 11% and similar indices
across Europe rose indicating that investors expect further market weakness from
here on in. Russian ADRS, trading in New York, were hit hard yesterday as investors
shunned higher risk assets. Mechel fell 17.3%, VimpelCom lost 12.9% and some
other names were almost 10% lower by the close. Investment funds have been
waiting for a market correction such as this one in order to start investing, but
nonetheless many are still likely to hold off. The main economic report in the US
today will be existing homes sales. Economists expect it to confirm the slowly
improving trend with a figure of 4.85 mln, up from 4.68 mln last month. The Fed's
monthly Federal Open Market Committee meeting starts today with the statement
due tomorrow. The meeting is expected to confirm that the Fed will keep rates
steady through to the end of the year.

Markets fell steadily all day. The revised forecast from the World Bank had an
immediate impact on most Western markets and on commodities yesterday. Russia,
the high beta investment on the way up, again took that role on the flip side
yesterday. MICEX fell in a steady line all day and ended the session down 7.8%. The
RTS Index closed 5.0% lower. Losses were recorded across almost all sectors of the
market with only consumer stocks exhibiting some resilience. Sberbank, the proxy
for Russia's economic prospects fell the most among the major blue chips with a loss
of 12.9% on MICEX and 10.4% on the RTS. VTB ended its session down 9.7%.
Rosneft led the oils retreat on the local bourse, closing 8.5% lower, while Norilsk
Nickel ended its MICEX session off 7.0%. Fixed-line telecom shares were also hit
hard with Rostelecom ending down 12.5% on MICEX and Uralsvyazinform closing
down 10.5%. In London GDR trading, some stocks were also hit hard. Integra fell

14.6% although Eurasia Drilling held up well with a loss of only 0.9%. Comstar also
traded relatively well, losing 3.6%, while its parent company, Sistema, fell 9.1%.
VTB Bank followed the global bank trend lower with a loss of 9.4% while investors
were again reluctant to sell X5 Retail Group which ended the day down only 0.9%.
The steel and mining stocks bore the brunt of the price loss. Polyus lost 9.6%,
Uralkali ended 7.2% lower and Novolipetsk was the worst of the steel names with a
price drop of 10.0%. Fears about demand and price destruction scared investors
away from all commodity related themes. Chris Weafer

16. Putin and Sechin warn on Ukrainian gas payments again
June 23, 2009

Russia is ratcheting up the rhetoric again as the end of month mini Ukrainian gas
payments crisis comes around again. President Vladimir Putin and deputy prime
minister Igor Sechin yesterday June 22 warned that Ukraine must observe contracts
or face the consequences.

 "Contractual discipline must be fulfilled. Russia reserves the right to take action if
the payments aren't made," Putin said at a government meeting, as quoted by
Interfax. Payments deadline, according to Putin, is July 7.

According to Putin, Russia has made advance payments for transit of Russian gas via
Ukraine to European consumers up till the start of 2010.

"Russia paid for transit until the start of 2010, lending Ukraine $2.2 billion at a zero
interest rate. This is an unprecedented loan, but why should Russia be the only one
to carry this burden?" Putin said, as quoted by Interfax. Putin has been calling for
the European Union and international financial institutions to provide Ukraine with
financial assistance.

Yesterday, according to newswirews, he said that "not a single financial institution
was ready to credit [Ukraine's gas import monopoly] Naftogaz."

Deputy Prime Minister Igor Sechin also lent his thunder to the warnings. He claimed,
in contrast to Putin, that Gazprom has made advance payments on gas transit up to
February-March 2010, according to Interfax.

Sechin said Naftogaz had to pay Gazprom $643.8 million for supplies provided in

17. LUKoil acquires stake in Dutch refinery from Total
June 22, 2009

On Friday, LUKoil announced the acquisition of a 45% interest in Total Refinery
Netherlands (TRN) for $725 mln ($600 mln net of working capital). TRN owns and
operates the Vlissingen refinery in the Netherlands and owns a stake in the
Massvlatke Olie Terminal (MOT) in the port of Rotterdam. TRN has been operating as
a joint venture operation between Total (55%) and Dow Chemical (45%). After

acquiring Ronm and Haas, Dow Chemical agreed to sell its stake to Valero. However,
Total decided to exercise its right of first refusal, and the stake ended up in the
hands of LUKoil. According to Valero, the cost of building a similar asset is $765 mln,
so the acquisition price looks attractive.

The refinery has 190,000 bpd of throughput capacity. It was built in 1973, and
received two major upgrades in the mid 80s and 90s. Today, it has a large distillate
hydrocracking unit with a capacity of 68,000 bpd and a Nelson complexity index of
9.8. The refinery uses discounted feedstocks, such as Urals, and is oriented toward
producing high volumes of diesel, which is enjoying growing market share in Europe.

LUKoil has been acquiring refining and retail assets in Europe and has been
indicating its interest in additional purchases. This deal fits into the overall corporate
strategy of becoming a meaningful player in this market. Total is one of the largest
refining and marketing companies in Europe, and this new relationship might be
beneficial to LUKoil in the long term.

It is difficult to see immediate accretive financial benefits for LUKoil, as the European
market continues to be soft at this moment and the scope and longevity of the
recession is difficult to predict. Longer-term, though, we see benefits to LUKoil from
this deal by creating economies of scale for its European refining and marketing
operations. Furthermore, an entry into one of the busiest oil trading hubs in the
world should be considered strategic in nature and will lead to additional
Ronald P. Smith

18. Rosneft and Surgutneftegaz: No merger - confirmed by BoD
June 22, 2009

Rosneft and Surgutneftegaz will not merge. At Rosneft's (ROSN - Sell) AGM on
Friday, both First Deputy Prime Minister Igor Sechin (who is also Chairman of
Rosneft's BoD) and Rosneft CEO Sergey Bogdanchikov confirmed that Rosneft and
Surgutneftegaz (SNGS - Hold) will not merge. This was the first public comment on
Rosneft's stance on the long rumored merger between the two companies. This
rumor began after Surgutneftegaz CEO Vladimir Bogdanov was nominated to
Rosneft's BoD (to which he was elected on Friday). Our view was that the two cases
were unrelated, and that Rosneft and Surgutneftegaz would not merge.

It could be visa versa - Surgutneftegaz might bid for Rosneft. In our view, the case
could be just the opposite -Surgutneftegaz may bid for Rosneft, namely for a stake
of about 20%. Surgutneftegaz could act as a mere depository for Rosneft's stake,
while the cash paid for the stake could be used by Rosneft for capex and potential
M&As abroad. Rosneft has confirmed that it has to substantially upgrade all of its
existing refineries and construct a new 20 mtpa capacity refinery at the end of the
Eastern Siberia - Pacific Ocean pipeline, as well as to develop new upstream projects
in eastern Siberia; all of this could require substantial capex. We believe, however,
that such a transaction may not be imminent, and may only take place in a year or

Neutral for both. We consider the news as neutral for both companies. Although the
market expected the possibility of certain corporate actions between the two

companies, we considered this to be quite unrealistic. Thus far, we even consider a
potential purchase of a stake in Rosneft by Surgutneftegaz as neutral for both, as
this is also a hypothetical long-term idea. We reiterate our Sell recommendation on
Rosneft and target price of $4.3/share and our Hold recommendation on
Surgutneftegaz with target price of $0.72/share. Victor Mishnyakov

19. Barroso says summer could see new gas crisis
June 22, 2009

President of the European Commission Jose Manuel Barroso said June 19 that a new
gas crisis between Russia, Ukraine and Europe was possible within the next few

"There is a real risk that a new gas crisis might happen within weeks, not months.
EU citizens must be protected. The Commission's short-term plans include a meeting
with representatives of international financial institutions and European gas
companies next week," Barroso said after an EU summit in Brussels, reports

Barroso said there had been talks between the leaders of international financial
institutions, including the International Monetary Fund (IMF), and the biggest
European gas companies, in an attempt to find a solution.

However, Barroso said that ultimately that gas payments between Ukraine and
Russia were not the EU's responsibility and that the EU had not budgeted for this.

Alfa writes:

We see the current Ukraine-EU-Russia talks as the latest stage in the competition for
influence over the Ukrainian gas transit system. Moreover, it looks like everyone may
be a winner in this competition. The base-case scenario of creating a consortium for
gas storage may result in inflow of $4 bln of capital into the Ukrainian economy by
the end of summer. Moreover, gas purchased at a record-low price from these funds
may well be realized later at a premium, which would not only help Naftogaz
refinance its obligations, but also improve its profitability.

It should be stressed here that Ukraine's ownership of the gas transportation
facilities is not on the table. The solution is win-win, as Gazprom will solve the
problem of storing excessive volumes of natural gas while the EU will create a safety
cushion in the event gas supplies to Ukraine in winter are disrupted again. All in all,
the gradual improvement in the quality of Ukraine-EU-Russia gas transportation
agreements is likely to improve investor confidence rather than damage it. In any
case, the inability of the European Commission to approve financing for additional
gas storage from the EU budget did not upset the Ukrainian market on Friday, and
we saw active trading in banks, oil and metals companies in line with the
reemergence of optimism across international bourses.
Denis Shauruk

20. Ingushetia's President Yevkurov injured in IED attack
June 22, 2009

A roadside IED has injured Ingushetia's President Yunus-Bek Yevkurov, his brother
and the chief of the Ingush head's security guards, according to newswires.

 "It is already known that the president himself, his brother and the head of the
security service sustained injuries as a result of this explosion. They have been
hospitalized and are now being treated by doctors. The information available to us
confirms that the president's life is not in danger," the president's press service said.

Yevkurov is being airlifted for treatment to Moscow.

A police official says a suicide bomber drove a car into the convoy that Ingushetia's
president was traveling in, according to Associated Press.

Yevkurov was the third top official to be wounded or killed in Ingushetia in the past
three weeks.