Updated September 22, 2008

The financial crisis didn't frighten the investors, since within two days of the VII International Investment Forum Sochi-2008, Russia's regions managed to attract €14,4 billion. However, there are no any grounds to think that all problems are settled.

On September, 18, the participants and guests of the VII International Investment Forum Sochi-2008 from 40 counties of the world came to Adler airport.

Sochi welcomed the guests of the Forum with rain and thunder.

The major events of the Forum were planned for September, 19.

The key event was the speech of the Russian Federation's Prime Minister Vladimir Putin during the Plenary Meeting, and later the participants discussed it.

The meeting was private, therefore it was possible to watch it on the huge TV screens set in the press centre and in the core business event locations.

Two topics were prevailing in the talks of the participants and guests of the Forum – the oncoming Olympics 2014 and the problems of Russia's financial sector. The deputy governor of the Krasnodar Territory Ivan Peronko said that he got the impression that everyone wanted to invest money in the construction of the Olympic objects.

The roundtable discussion was devoted to the problems at the financial market, and Valery Fadeev, the chief executive of Expert media holding, chaired it.

According to his own assessments,

the speeches of the participants were frank, since nobody denied the fact that the severe financial crisis had affected Russia already. The managing director of Troika Dialog Company Andrey Sharonov marked that Russia's authorities underestimated how the crisis was serious. However, Mr. Putin had emphasized one issue within this speech – the own strong financial system should be constructed, Mr.

Fadeev underlined. The chief executive of the media holding explained that it had been considered earlier that Russia didn't require its own financial system, since the foreign financial institutions would provide services due to the import of financial ones. In the light of this, the president of the Association of Regional Banks of Russia Anatoly Aksakov has enumerated the major problems that should be settled to execute the tasks the Prime Minister set.

One of them is the issue of the financial resources, since the loans are long-term and the banks' liabilities are short; the legislative aspect, the establishment of Russia's mass investor and the problem of attracting the population's facilities. As for the last issue,

the agreement about the amount increase of the insurance compensation on deposits to RUR 700 000 has been reached already to settle it, Mr.

Aksakov declared.

All participants of the round table came to the understanding that if Russia's authorities undertook some measures earlier, the crisis would be averted.

It is obvious that the financial sector was the first to suffer. However, it will affect the overall economy very soon, since the liquidity shortage in the real sector will lead to the suspension of projects, and that will result in the reduction of salaries and the increase of unemployment, Mr.

Sharonov marked.

According to the results of the Forum, Russia's regions inked 114 agreements and memorandums with the Russian and foreign investors for the total sum of €14,4 billion. It is better to remind that within the XII St.

Petersburg International Economic Forum held in June the total sum of the reached agreements attained $14,6 billion. As the press service of the Krasnodar Territory's administration reported, the governor Alexander Tkachev settled 35 agreements for the total sum of RUR 165 billion (€4,6 billion), moreover, the third part of the agreements was reached with the foreign companies. The Forum received high assessments. “There is no precedent for this case, when within two days, the regions signed so many investment contracts”, the head of Russia' Regional Development Ministry Dmitry Kozak marked at the press conference. The head of Russia's Ministry of Economic Development and Trade Elvira Nabiullina underlined that the foreign business assessed positively the prospects of the cooperation with Russia.

Updated April, 15 2008

   South Korea commercial companies are ready to invest funds into Kamchatka tourism development as reported the press-service representative of Kamchatka region governor and government.

   "The matters of the foreign capital investing into the tourist infrastructure of the Kamchatka region have been discussed within the meeting

of the first vice chairman of the Kamchatka region government Igor Cherednichenko with the delegation of the large South Korea construction and financial companies' representatives, paying a business visit on the peninsula", said the source.

   According to him, the businessmen from the Republic of Korea have taken the great interest in the funds investing into the tourism development on Kamchatka.

In particular, the South Korean businessmen are ready to take part in

the ski center construction on Avachinsky Volcano within Petropavlovsk-Kamchatsky, organization of hotels and business-centers chain.

   "We see that Kamchatka is the most wonderful and

the most comfortable place for development of ski resorts and tourist business on the whole on this territory. And we also consider investments in this industry development will bring a good return both for our party and for your region", declared Dekhva Company director general Seo Van Seok within the meeting.

   According to her, it goes not only about the construction of luxury hotels but also about the services development available for a middle class and family vacation.

Cherednichenko assured the Korean business companies' representatives that the Kamchatka region government has been ready to the constructive and fruitful co-operation.

   "The tour ist industry is one of the priority directions of

the Kamchatka region economy development.

Therefore, we take a great interest in the projects oriented to tourists attraction and in high services' rendering", Cherednichenko said.
He marked that those companies that did themselves justice within

the competition would necessarily receive help and support from the region government.

   The Russian companies often prefer to work with the Russian investment banks when conclude the mergers and acquisitions (M&A) transactions. Experts suppose that it occurs due to the growth of transactions amount of small companies which prefer the less expensive services of the Russian consultants in terms of financial crisis.

   M&A Intelligence analytical group summed up the activity of financial consultants in 2007. The research considered the concluded transactions only, priced at no less than $5 million. Thus, the analysis did not comprise the transactions related to the business restructuring and establishment of joint ventures.

   Four Russian investment banks entered the top 10: Troika Dialog Investment Company, Alfa Bank, Renaissance Capital and NOMOS Bank.

The Russian subsidiary of the global Morgan Stanley bank became the leader among the consultants at the M&A market. Previous year

the bank occupied

the third place.

Morgan Stanley has doubled its indices foremost due to transactions consulting of Yukos assets' sale (the aggregate cost of three transactions totaled $20,8 billion). According to Morgan Stanley managing director Pavel Fedorov, the Russian team enlargement contributed to the improvement of the bank positions. Deutsche Bank – previous year's market leader – has moved to the sixth position after the head of the investment-bank direction Ilya Shcherbovich has left the bank in the middle

of the previous year.

   When choosing the investment bank

the Russian companies start to prefer the

Russian consultants. "Russian financial consultants "tighten" positions of the global investment banks", mark the M&A Intelligence analysts. In the opinion of investment bankers, the Russian companies require the consultants to be maximum available when concluding the transaction at the M&A market. "Clients often require meeting the consultant quickly and discussing

the transaction course.

In this case it is more convenient to cooperate with the Russian consultants, because the foreign banks' subsidiaries have often to agree on any activity with the London or New York office", explains the director general of Renaissance Capital in Russia Ruben Aganbegyan.

   In the opinion of director of NOMOS Bank mergers, acquisitions and strategic consulting department Vladlena Khrabrova, previous year the amount of transactions with the participation of companies representing the middle business has increased in the Russian M&A segment and that contributed to the activity growth of the Russian consultants.

The research marks that the Russian consultants render the services mainly to the M&A transactions that cost to $1 billion (except for Troika Dialog Investment Company). "Such clients prefer to require services of the Russian consultants, just because the services cost of the foreign investment banks is higher", considers Vladlena Khrabrova.

   In the opinion of M&A Intelligence analysts, according to 2008 results one should expect the further positions strengthening of the Russian banks taking into account the protracted world financial crisis.

"Apart from consulting services rendering the Russian investment banks are ready to provide the financing of M&A transactions if required", Mrs . Khrabrova marks. Meantime the positions strengthening of the Russian investment banks would take place on the background of the considerable volume growth of M&A market. "The market of the public offerings is agog, and therefore clients prefer to withdraw the IPO in favor of M&A", sums up Mr.

Aganbegyan.

Investment banks rating at the M&A market by the volume of concluded transactions in 2007

Source: M&A Analytic Group of Mergers & Acquisitions magazine

   2007 became the worst in the XXI century for the world financiers on the whole.

But it turned out neutral for Russia in particular. The final profitability of almost all types of investments has exceeded the inflation despite the rather difficult external macroeconomic situation, the unstable raw material markets and increased inflation.

However, the risk was rather high, even extremely high. But, let's follow the order.

Inflation

   According to 2007 results the Russian inflation totaled 11,9% (the official Rosstat (Federal Statistics Service) data). The final inflation has significantly exceeded the planned 8% even at the most "correct" calculation. It was absolutely unreal to restrain inflation within the 8% limits in terms of political task importance in the pre-election year.

   In the first 2007 half-year (at the relatively low oil price) the inflation has been managed to restrain within the 5,7% limits, that is 0,5% lower as compared to the same period of 2006, having applied the method of inflation control by strengthening the ruble well-reputed in 2006. We will remind that in 2006 first for 15 years Russia fulfilled the plan on inflation – the inflation did not exceed the planned 9%. It has been succeeded to obtain this mainly due to the ruble strengthening – 3% ruble's strengthening other things being equal has resulted in around 1% inflation decrease.

   Last year Oleg Deripaska has named the Central Bank (CB) policy of ruble strengthening the unsuccessful experiment, which impedes the development of the industry (oriented to the export). And Vladimir Putin expressed the dissatisfaction with the excessive ruble strengthening after the businessman. In August CB had promised not to strengthen the ruble anymore, and that called into question the inflation plan fulfillment as such. The situation has been complicated more after the cost growth of oil, metals and food products (cereals, milk, meat). The only maximum the government managed to obtain in such difficult circumstances was to freeze prices for specific food products by February, 2008 without having taken the other active measures, despite the constant grumbles at conspiracy :)

   The final 50% exceed of inflation forecast knocked out the last argument of supporters of "money quantity sterilization" in the Stabilization Fund; in fact, one still can not restrain the inflation, therefore it is already time to start doing something, but not going down the stream.

   Concerning 2008, according to year results CB of Russia forecasts the price growth at 9-10%. We will remind that it has been said in the first three-year budget for 2008-2010 that the inflation should total around 7% in 2008. This forecast has been corrected for a long time. However, at the end of 2007 the Ministry of Economic Development and Trade has consented to raise the level up to 8%.

Currency

   According to the year results the dollar has fallen 6,8% down. One should not expect the tendency to change in 2008, as in addition to the problems of the USA economy, the tendency of the currency reserves' rebalancing renders the additional pressure on

the dollar.

So, it is obvious that in 2008 the dollar would go downward easier, than upwards, though the dollar slump was not expected in 2008.

In particular, the minister of finance Alexey Kudrin reported that in 2008

the exchange-value ruble against the dollar would insignificantly strengthen. The majority of experts mark that 2008 would be the last year, when the authorities would resort to the artificial ruble strengthening. Concerning the forecasts of specialists, the predictions can be divided into three groups. The pessimists predict the dollar fall by RUR 23,5. The weighed forecasts are at the current level at RUR 24 per dollar.

There are also those who believe in the future dollar and do not eliminate the growth up to RUR 25-27.

In 2008 the European currency has strengthened by +3,6% against the ruble, the Swiss franc – by +0,9%, the English sterling has a -5,3% fall, the Japanese yen – a -1,4% fall.

Deposits

   Unlike 2007 the majority of the ruble bank deposits did not protect the investments from inflation. Deposit rates has been falling within the first 2007 half after the decrease of refinancing rate of Bank of Russia.

Currently, the 100% state-owned Russian Agricultural Bank offers one of the most attractive ruble holdings – up to 11,5% per annum (at the beginning of 2007 it was possible to open a holding under 12% per annum). In the second half of the year, some banks started to increase the interest rates in terms of the world liquidity crisis. This tendency will obviously continue in the first 2008 half.

Moreover, the increase of refinancing rate of Bank of Russia is not eliminated also, as by the declaration the rate of refinancing should differ from the inflation at approximately 1-2% up. We will remind also that part of the percent on the bank holdings exceeding the refinancing rate was imposed by the 35% tax for the tax residents of the Russian Federation (a bank calculates and withholds the tax at interest payment to the depositor).

The annual euro holdings at the rate of 8% per annum in ruble equivalent brought the 11,8% profit. And the dollar deposits were not the best investment idea in 2007 – at the rate of 9% per annum they brought only the 1,6% profit.

Precious metals

In 2007 the precious metals brought

the rather high return. The dollar prices of gold grew by 31% for a year (22% in rubles, having exceeded the profitability of the Russian stock exchanges indices RTS and MICEX first since 2001), platinum – by 34% (25% in rubles), silver – by 14,8% (7% in rubles), palladium – by 10,8% (3% in rubles).

   One of the most convenient ways of investing into the precious metals is the unallocated bullion accounts (UBA). Several large banks, such as the Savings Bank, Bank of Moscow, Bank ZENIT, Rosbank, Gazprombank, Uralsib, SOYUZ Bank, Project Financing Bank, NOMOS-Bank, Lanta-Bank render this service. Gold purchase on quotations of the Moscow Savings Bank with enter to the unallocated bullion account at the beginning of 2007 attended by the sale at the beginning of 2008 brought (without the tax) a 28,7% profit per annum, silver – 11,6%, platinum – 21,4%, and in case of palladium – 5% drop.

   There are two types of unallocated bullion accounts – on-demand (permanent) and deposit. The interests are not allowed on an on-demand deposit, but it can be closed at any favorable moment and one can leave the market with a return. The majority of UBA falls to the deposits. The account owner pays the income tax (13%) both by the income from the cost growth of the purch ased met

al and by the percent on a deposit. It is curious that UBA interests are allowed in the grams of the precious metal with the open account.

Another convenient way to invest into precious metals is the specialized bank-managed mutual fund.

   Concerning the small bars purchase attended by the sale at the year's end, these investments turned into losses without the type of metal dependence.

One should remember that gold bars, gold units and gold coins are considered a commodity in Russia, i.e. they are imposed by the value added tax (VAT) within the purchase, which is 18% now. This tax is not returned at the repurchase; therefore the 18% is simply a loss for an investor. Another type of investing – purchase of investment coins – does not have such disadvantage.

According to the year results, the ruble profit from investments into gold investment coins ("George the Victorious", "Sower") totaled 7,2%. One should pay the 13% income tax at the sale of investment coin, if you have owned it less than three years.

   Despite the attraction of investments into precious metals one should remember that the percent of the speculative demand component grows each year, although gold is a "quiet harbor" during high inflation and instability.

According to the 3Q 2007 data of the major organization World Gold Council, the world demand for the gold in tones grew 19% up for a year, in dollar equivalent – by 30%, having attained its historical maximum at $20,7 billion. Thus, if in the first 2007 half the consumers of jewelry and retail investors demonstrated the main demand for the yellow metal, since the third quarter the gold funds ETF (Exchange Traded Funds) set the pace at the market. The amount of gold attracted by them and their analogues atta ined the historical maximum at 138 tons in the third quarter.

In the aggregate demand for gold its stake as an investments object increased from 10% up to 19% for the last five years.

Real estate

   According to the 2007 results, first in this century the change of the average ruble denominated cost of a square meter of the residential real estate in Moscow was negative and totaled -2,6%. But the rent price of the office areas in Moscow grew almost 42% up for 2007. Some price growth for residential real estate in the near Moscow area was also observed.

Concerning the market of the residential real estate in the regional centers, the highest price growth among the multi-million cities demonstrated Krasnoyarsk (67%), Volgograd (37%), Perm (35%) and some other.

Stock market

Growth of stock market RTS (Russian Trading System) and MICEX (Moscow Interbank Currency Exchange) indices by 2007 results:

• RTS: 2290.51/1921.92=19.18% in US dollars (11.1% in RUR) 26,3311/24,5462
• RTS-2: 2629.56/1838.14=43.06% in US dollars (33.36% in RUR)
• MMVB: 1888.86/1693.47=11.54% in RUR (19.65% in US dollars)

   The final profitability of the Russian indices looks rather good among the indices of other national stock market indices.

   Growth of industry stock market indices* by 2007 results:

• RTS-Metals and Extraction: 360.19/218.3=65.0% (53.81% in RUR)
• RTS-Oil and Gas: 286.94/260.23=10.26% (2.79% in RUR)
• RTS-Consumer commodities and retail business: 369.5/278.16=32.84% (23.83% in RUR)

• RTS-Industry: 407.05/239.54=69.93% (58..41% in RUR)
• RTS-Telecommunications: 324.35/238.98=35.72% (26.52% in RUR)

*Statistics on the indices that have been started within/in the middle of 2007 (RTS-Power industry, RTS-Finances, the branch and capitalization MICEX indices) is not given.

   As you can see by the profitability statistics of the branch indices, the main disappointment of 2007 was the companies' securities of the oil and gas area, although they had been the traditional growth locomotive of the Russian stocks market within several preceding years.

   Concerning the stocks of the leaders, among the stocks of the second echelon one should select the stocks of KAMAZ (+149,6%), AvtoVAZ (+133,5%), Severstal-Avto (+74,2%), MTS (+66,3%), Aeroflot (+61,6%); and among the "blue chips" – Norilsk Nickel (+57,6%), Rostelecom (+47%). The "main looser of 2007" among the "blue chips" is the stocks of Surgutneftegaz (preferred stocks lost -45,8%, common stocks – -25,3%).

Pooled investments

In 2007 the mutual funds demonstrated rather weak results. Within the year the profitability of the overwhelming majority of the mutual funds has been falling behind the profitability of investments into a stock market index.

According to 2007 results the average profitability of open mutual funds was 8,65%, blend (hybrid) funds – 6,73%. According to the year results, the open bond funds added 6,86% on the average. The interval funds showed better results.

The profitability of the equity funds was 14,9% on the average, and the blend investments – 8,23%. Thus, only 37 from 352 interval and open funds, present in the Investfunds ranking, demonstrated the losses. InvestCapital-Neftegazenergo mutual fund (Investment Capital managing company) showed the worst result – the unit cost went 13,75% down. One of the largest open funds Lukoil Fund First managed by Uralsib managing company (-0,83%) finished the year with losses also. The overwhelming majority of funds investing in oil and financial sectors are among the outsiders list.

Despite the pooled funds, some bank-managed mutual funds, both open and interval, have finally managed to attain higher profitability in 2007.

Detailed information about the leaders of the pooled funds read in the Appendix (see below).

Appendix (pooled investments)

Table 1

Most profitable open equity funds

Table 2

Most profitable open bond funds

Table 3

Most profitable open blend funds

Table 4

Most profitable interval funds

Table 5

Most profitable industry funds

Table 6

Most profitable ruble bank-managed mutual funds

Table 7

Most profitable monetary bank-managed mutual funds

Updated March 31, 2008

Russian mergers and acquisitions (M&A) market

grew two times in value terms for 2007.

Its volume totaled around $130 billion according to KPMG data.

   "The world investment activity reduction in the second half of 2007 did not influence the Russian M&A market. However, this can affect the possibility of transactions financing in the future.

In terms of the transactions amount increase at only 5% (from 817 transactions in 2006

up to 855 in 2007), the volume of the Russian M& A market has doubled. The conducting of scale Yukos assets' sale auctions and RAO UES of Russia reorganization as well as important high-quality changes, such as price rise of the Russian assets and market transparency increase contributed to this", considers the managing partner for KPMG strategic development in Russia and CIS Mikhail Tsarev.

   M&A transactions' volume in the banking sector has gone down up to $2,6 billion in 2007 from $3 billion in 2006.

KPMG expects some reduction of the transactions' cost volume at their number growth in subsequent years.

Thus, the key role will play not the consequences of liquidity crisis, but absence of large banks available to the purchase.

The activity in the financial sector has somewhat gone down in 2007 as compared to 2006, but remained at high enough level. Because the total volume of transactions totaled around $4 billion. As it is said in the review, it is, first of all, related to the stake reduction in the banking sec

tor, which was partly compensated by the considerable investment of the insurance market.

The volume of M&A transactions in the insurance in 2007 exceeded $1 billion first. More than 90% of this sum falls to the foreign investors' stake, who got interested in the Russian market.

According to KPMG forecasts, the market volume will actually double every four years in terms of keeping the current dynamics.

   The total disclosed value of M&A transactions in the oil and gas sector totaled around $12 billion in 2007 (without the transactions with Yukos assets). Unlike the cost statistics the amount of M&A transactions in the sector has gone down from 90 transactions in 2006 up to 64

in 2007 (without Yukos).

   Metallurgists continue keeping the leading positions by M&A activity. The total cost of concluded

transactions in the industry totaled $19,7 billion, where $14,3 billion falls to the transactions over $1 billion. Moreover, more than the half of transactions in the sector falls to the purchase of assets by the Russian companies abroad, KPMG marks.

   In the consumer sector the total disclosed value of transactions in 2007 totaled $7,7 billion and remained on the same level as compared to 2006. The amount of transactions also remained almost unchanged and totaled around 140 in 2007 against 130 in 2006, and the average transaction value is $55 million against $57 million a ye

ar before.

   In the telecommunication sector 69 transactions to the total sum $5,7 billion were concluded. The volume of M&A transactions in the industry grew by 35,7% as compared to 2006. According to KPMG forecasts, the new horizons for the further industry growth open the development of wide range access and expansion to the foreign countries, among which Asia and Africa are the most perspective.

   In 2007 in the power energy industry were concluded the record number of transactions for more than $25 billion, while in 2006 the volume of transactions totaled $1,3 billion. More than 70 transactions were concluded in the industry altoge

ther. In the engineering the total sum of transactions was $6 billion. The number of transactions also grew: from 43 in 2006 up to 64 in 2007.
In the building, real estate and hotel business areas the volume of the disclosed transactions has closely reached the $5 billion level as compared to $2 billion in 2006.

Actuality March 14, 2008

   Cetelem Bank, listed in the French financial group BNP Paribas, did the "Internet trade in Europe" research. It showed that Russia is the country with the biggest potential for online trade growth.

   Together with Slovakia and Czech Republic, Russia entered the top three of the countries with the biggest potential for Internet trade growth.

In these countries are set the highest level of consumer demand and intentions to save by means of network purchases (higher then the average European one by 28%, 31% and 32% respectively). Thus, if in 2006 by the Internet in Russia were sold goods to the total sum €5,3 bln, so, already by 2010 this market should increase by 317%, experts consider. Currently, 70% from the aggregated sales volume by the Internet takes place in Great Britain, Germany, France and Belgium.

   Within the research framework were polled 10 000 people in 13 countries of Europe.

Cell phones, books, as well as airline tickets and leisure products are bought by the Internet more frequent. It is expected that since 2009 furniture, repair and food products and cars will be bought the same way also.

The experts name household appliances, cars and repair parts, gifts, jewelry, sporting goods, instruments, some clothes, hotel rooms booking and tickets sale as the most perspective items for sale by the network.

   As specialists say, the most Russian Internet users do online purchases to save time.

On the second place is the advantage of Internet shops as home-delivery service. On the third place is the goods' uniqueness and the opportunity to buy specialties.

More than one third of respondents (37%) try to save money buying goods by the network, as prices in Internet shops are lower.

Respondents, who buy nothing in Internet shops but simply visit their websites, appreciate virtual

shops for information about the products. About this said 47% of polled.

   Research also showed that the time-saving and home-delivery factors are

the most meaningful and attractive for Muscovites, than for respondents in the regions. Online buyers with high income level also frequently pointed out the same advantages of Internet shops.

   But virtual trade has some disadvantages also. The one third of respondents (36%) has marked that, in spite of the given detailed information about the product, one can not see or touch it in the Internet shop.

Another one third of respondents (31%) complained about the difficulty at products' home-delivery. Thus, about this mentioned the Internet buyers from the regions more frequent.

17% of respondents underlined that it is not always possible to find what one needs. And one has to go to the ordinary shops.

And another 13% marked that the Internet purchase process takes too much time. And about this Internet shops' disadvantage marked the buyers from the regions more frequent.

   The research also showed that virtual shopping frightens women by exactly the impossibility to see and touch the product.

Men, who reduce the ordinary shopping time to the minimum, marked such disadvantage as selection procedure and order duration speaking about the Internet shops.

   The Russians buy computers and office appliances (every fifth purchase takes place by the Internet in this segment), household appliances by the Internet more frequent. And they buy books, audio records, tourist trips and tickets rather rare.

Online purchases of clo thes and food products are not so popular in Russia as in

the countries with the developed Internet trade market.

Actuality March 24, 2008

   Net capital outflow

from the Russian Federation (RF) totaled $20 bln, although at the world financial market took place the situation worsening.

However, it did not affect much the stability of

the Russian economy and its banking system as considers the Vice Prime Minister and the Minister for finance of RF Alexander Kudrin.

   When the Russian financial system collapsed in 1998 the outflow was lower, he said. "My job at the Minister for finance post within the last eight years was to take into account the one-sided dependence on oil, gas and high oil prices", he reported. According to him, it had been necessary to accumulate such stability that the Russian banking system would not collapse in terms of $20 bln or even $80 bln capital outflow.

Mr. Kudrin explained that the speculative capital inflow to Russia was partly related to the errors, which had done the market attractive for speculators.

   "For example, within the last eight years the Russian currency has consolidated at 80% by the basket of currencies.

It is the very strong consolidation for any capital movements and for the Russian business", he explained. Moreover, credit rates at the Russian internal market are 10-12%, and that is substantially higher, than in the West. "All comers who wish to gain the profit easily within one or two years gather to this ruble consolidation and to these rates at the internal market", Mr. Kudrin explained.

   According to Alexander Kudrin, for the last two months the inflow of population deposits to the Russian banks has decreased exactly in terms of inflation.

And the population began to trust the ruble less.

"For the last two months the majority has converted money into euro and has left a dollar, and not always trust the ruble", he added. According to him, on the world crisis background the Russian Federation reserves did not lose their cost, but grew. "We invested these facilities into securities nominated in euro, dollars and pounds, so that these securities even grow on the world crisis background", said the Minister for finance.

Actuality March 11, 2008

Large western investors get interested in the Russian credit bureaus

again. According to the information, one of three leading players of the American credit histories market – Equifax

- buys the stake in Global Payments Credit Services (GPCS). Experts consider that the American company attempt to enter the perspective market was caused by the global liquidity crisis.

Several sources in credit histories bureaus (CHB) said at once that one of the three largest CHB – Equifax – acquires the minority stockholding of one of the Russian market leaders – credit bureau GPCS. According to CHB top-manager who knows about the transaction pipeline, it is conducted with an option for the stockholding increase in future.

As a source form another bureau told, Equifax stake in GPCS business after option realization will be not less than of the blocking one. GPCS Director General Oleg Lagutkin renounced to comment the situation.

Global Payments Credit Services (GPCS) was established in March, 2004 and was initially named CHB Skoring.ru. In December, 2005 it was renamed in connection with the new stockholder appearance. Now 50% of the company belong to Home Credit & Finance Bank and to the European subsidiary of the international processing company Global Payments Inc.

By the volume of accumulated histories it occupies the second place (12,1 mln) after the National credit histories bureau (NCHB) (15 mln). Home Credit & Finance Bank, OTP Bank (Investsberbank), Credit Europe Bank, VTB 24, Finance Bank, Ural Bank for Reconstruction and Development, VimplelCom are among the clients.

Equifax Inc. was found in 1899 and is the eldest among

the USA three largest credit bureaus. The company headquarters is located in Atlanta; the stocks are quoted on the New York Stock Exchange. Equifax holds information about 400 millions of borrowers.

In 2006 the company profit totaled $1,55 bln, the capitalization was $4,4 bln on March, 10.

It is not known yet, who exactly of two existent GPCS owners will share the stake with the new participant. Experts consider the most credible that Global Payments Inc.

will give the part of its stake, for which CHB is not dominant. "Global Payments Inc. is a serious hi-tech company, but it specializes in processing", says Vladimir Gerasimov, the member of Experian-Interfax bureau directors' board. In the opinion of Vladimir Maleev, the director general of the National credit bureau, Equifax coming will allow GPCS to improve technologies and start the score service that is rather rare among the Russian CHB (estimation of the borrowers' credit quality), that became rather popular by banks lately.

Experts consider that the starting liquidity crisis promotes the interest growth to the services of credit bureaus as evaluated by borrowers' credit quality. In the opinion of Federal Financial Markets Service head Vladimir Milovidov, because of instability on the markets banks began to evaluate the potential clients harder, and that increased their activity in intercourse with CHB.

"Our foreign stockholders say that did not expect such market growth", says the director general NCHB Alexander Vikulin." It is specially seen by the results of 2007. If on January, 2007 we published 150 000 credit reports, on December it was already 1 277 000". Thus, according to Mr. Vikulin, if earlier mainly large banks worked with the bureaus actively, now "small and middle stay in a queue". In 2008 NCHB already prepares to publish 20 million reports.

Banks' interest growth to CHB services on the wave of liquidity crisis brought the market of credit histories to the new development level and caused the interest growth to CHB from the foreign investors' part. The only foreigners, present on the Russian market of credit histories, – Experian and Trans Union – work on it from its foundation moment. At the same time experts do not expect o

ther foreign players.

According to the data of credit histories central catalogue, 94% information is concentrated at five market leaders: NCHB, GPCS, Experian-Interfax, Russian Standard credit bureau and Infocredit that belongs to the Savings Bank.

"Three of them already have foreign stockholders, two other are captive and are not intended for information work, but for hiding it from strangers' eyes", summed up the representative of one bureau.

Actuality February 29, 2008

   The Russian government approved the general scheme of location of electric power objects by 2020. The final version turned out more loyal in relation to investors: it foresees the opportunity of option of fuel type which power plant will operate on. Analysts consider that as a result the position earlier lobbied by Gazrom will appear, in practice, more profitable for all market participants.

   As the director of electric energy department of the Ministry of Industry and Energy Vyacheslav Kravchenko told, the general scheme of location of electric power objects by 2020 is approved by the order of the government 215-R as of February, 22. According to the official, the primary aim of the document, which was prepared for about two years, is to show all energy objects of the federal level, their characteristics and terms of putting into operation.

Taking into account that the consumption forecasts, as well as terms of putting objects into operation, can change, the general scheme will be corrected once every three years.

   According to Mr. Kravchenko, the general scheme foresees growth of demand for installed capacity from the current 215-220 GW up to 246 GW in 2010, 298 GW – in 2015, 347 GW – in 2020. Thus, the aggregate installed capacity of nuclear and coal power plants will increase twice.

"If until now there was the sag towards the gas plants, now their stake in fuel balance will decrease", says Vyacheslav Kravchenko. As explained in the Ministry of Industry and Energy, by 2020 the gas stake in fuel balance should decrease from 68 to 56% at growth of coal stake from 25 to 40%. At the same time, the absolute volume of gas consumed by power energies should increase by 20%, coal volume – by 2,2 times.

However, the market participants doubt these numbers. "It seems that in connection with tightening of environmental standards the stake of gas generation will be inevitably more", says the head of IES Holding Mikhail Slobodin. "Not always, especially in the European part of Russia, the realization of coal projects is effective".

   Mr. Kravchenko considers that the scheme approved by the government does not contain any fundamental changes in the field of construction of generation objects as compared to the version of spring the last year.

Nevertheless, the scheme turned out more flexible in relation to investors, than it was assumed. "It is determined on what types of fuels will operate the specific power plants, but the invariability is foreseen everywhere. Judging by the economy, investor can use different types of fuels at his choice", says the official.

   In 2007 Gazprom that participated in preparation of the general scheme as supplier of fuel for power plants, already tried to make similar adjustments. Then the monopoly insisted on conversion of some power plants from gas into coal, and the Ministry of Industry and Energy consented.

However, in RAO UES of Russia confirmed that there are still disagreements with Gazprom on the general scheme. "On the North-West there indeed were disagreements with Gazprom over a few objects, but the general scheme is approved and on account of it those who are engaged in this process will ground the investment program.

"Gaprom will not avoid this also", Mr. Kravchenko assures. So, gas is chosen as the basic type of fuel for "controversial objects", to stop the peak load – fuel oil, specify in the Ministry of Industry and Energy.

   Analysts mark that Gazprom will scarcely oppose to "flexibility" of the general scheme. "If earlier the monopoly was interested in the greater release of gas volumes for its realization in Europe at high prices, so now the situation has changed", considers Dmitry Skvortsov, the analyst of Bank of Moscow.

He explains it by liberalization of internal gas market that will result in the increase of monopoly profits in Russia, and also that Gazprom became the owner of approximately 30 Russian energy powers.

"Moreover, to take decision about the choice fuel type by the investor the situation with coal could compel the authors of the general scheme: only for a few last months its price grew more than by 50%, and construction of coal TPP costs 50% more than gas ones", adds Mr. Skvortsov.

   But the director of Energy Expansion Fund Sergey Pikin considers that in the future the stake of coal generation will still grow. "The task of Gazprom – is to optimize the consumption of gas on its power plants: more than half of generation powers of its joint ventures and Siberian Coal Energy Company (SUEK) operate on coal, and their increase is advantageous for both parties", Mr. Pikin says. According to h is opinion, the choice of fuel type

is the right decision, because the power plants have their owners and are not the objects of the state regulation.

Dmitry Skvortsov marks that new position of the general scheme is positive for investors, but is scarcely able to promote strongly the attractiveness of unsold energy assets of RAO UES.

Actuality February 27, 2008

   The new order of foreign investors' admission to the strategic deposits can be put into effect already in 2008 by amendments in the Natural Resources act, declared the representatives of the Ministry of Industry and Energy. The act about foreign investments' restriction into strategic industries of economy, as assumed, will come

into effect only from January 1, 2009. The last versions of bill drafts, which will be con sider

ed by the State Duma on March, 19, nevertheless, suppose harsh restriction on the foreign participation in the capital of companies engaged in strategic deposits' development.

   The future of bill drafts restricting foreign investments in strategic industries will be decided in the near time.

As Vladimir Taraskin declared, one of the document authors, director of legal department of the Ministry of Industry and Energy, it is more credible that the last working version of the bill draft that is now in the committee of the State Duma for construction and land relations will be approved on the meeting of the State Duma on March. According to him, some substantial amendments will be required in case if the appropriate political decision

will be taken after the presidential elections.

   The last version of bill draft prepared to the second reading extends the list of strategic companies due to fishing, electronic mass media and also consumers of natural resources, workings on

strategic deposits, including the shelf. Approval of the governmental commission will be required at the purchase by a foreign investor more than 50% stocks of the strategic company or more than 25%, if a buyer is a company with the state participation. The restrictions are harsher for the extractive companies: one should coordinate the purchase of more than 10% stocks and more than 5%, if a buyer is a company with the state participation. According to Mr. Taraskin, the head of the Ministry of Industry and Energy Yurij Trutnev insisted that amendments in the Natural Resources and Shelf acts were put into effect after the official publication.

The act about foreign investments' restricti on into strategic industries will come

into effect on January 1, 2009.

   We will remind that works of "The order of effectuation of foreign investments into commercial organizations having the strategic value for the national security of Russia" act were conducted in the Ministry of Industry and Energy since 2005.

In 2007 the bill draft was introduced to the State Duma and passed the first reading. It was assumed that it would come into effect at the end of 2007. However, departments did not manage to coordinate the order of investors' admission to strategic industries with introduction of amendments in the Natural Resources act that gave determination of strategic deposits.

Consideration of the bill draft was postponed till 2008, the committee of the State Duma for construction and land relations at the head of Martin Shakkum was appointed responsible for revision.

The bill draft included the list of 39 strategic types of activities in such industries, as production of armaments and special equipment, space, aviation, nuclear industries etc. It was assumed, that only more than 50% stocks of the strategic company acquired by the foreign investor will be coordinated in the governmental commission.

   However, as Yurij Lyubimov explained, the counselor of the head of the Ministry of Economic Development and Trade (MERT), the representatives of MERT and administration of the president insisted on introduction of "floating control" criterion. In their opinion, all transactions should be coordinated, as a result of which a foreign investor gains control over a strategic company regardless of size of the acquired stockholding.

In the end the bill draft includes both approaches. To protect portfolio investors, buying the minimum stockholdings on a stock exchange and not pretending to control, the authors of the bill draft specified, that acquisition less than 10% stocks is not considered the control establishment and is not subject to coordination (this exception does not reach the raw material companies). If an investor pretends to an intermediate package, according to Mr.

Lyubimov, so, he has to request the authorized body, whether such transaction will be considered the control establishment.

   The representatives of investors are not satisfied with the bill draft. As Alex Stolarsky declared, the deputy head of legislative comm ittee of the European Business Association and the lawyer of Be

iten Burkhardt company, there is no clear determination of control over a company in the bill draft, it is not said what an investor should do, if he acquires the stocks of a company, which subsidiary or lower-tier subsidiary is a strategic company. He marked also, that at the preparation of the bill draft to the second reading disappeared terms restrictions: earlier the transaction was considered coordinated, if the authorized body did not give an answer within six months; now there is no such norm. In the committee of the State Duma for construction and land relations reported that there is no final version of the bill draft yet. There are only some amendments in the bill draft, introduced by Martin Shakkum and other deputies.

Amendments are studied by the working group and coordinated with the concerned departments; however, the decision to recommend them to approval will be taken on the meet ing of the committee in the middle of March – already after presidential elections.

   The president will probably become Dmitry Medvedev who is the most liberal politician.

It is not eliminated that bill drafts restricting the foreign investments in strategic industries will be corrected to the liberal side.