The IX International Investment Forum “Sochi - 2010” took place in the Russian Black Sea region in September, 201
1st Nov 2010
The IX International Investment Forum “Sochi - 2010” took place in the Russian Black Sea region in September, 2010. More than 3,000 politicians, economists and journalists from all regions of Russia and 32 foreign countries took part in the forum. About a thousand investment projects, most of which are aimed at high technologies development, were presented at the event.
This forum has literally become a breakthrough for the Russian Technologies State Corporation. In the presence of the Chairman of the Russian Federation Government, Vladimir Putin, a number of agreements with large-scale overseas partners, were signed by Director General of the Corporation Sergey Chemezov, at a total value of about four and half billion US dollars. Along with a major long term supply agreement with the Boeing company, there were a number of agreements the Arab investors have heralded a new, promising trend of international cooperation with the Russian Technologies.
A group of investors from the United Arab Emirates (UAE) expressed their readiness to invest a combined total of $800 million in the Corporation’s projects.
At the forum in Sochi, the Corporation publicly announced the setting up of direct investment funds for infrastructure ($500 million) and development ($300 million) projects. This is the first time that Russian Technologies, which has previously worked mostly with government assets, will receive foreign investments into their management. The fact of signing such significant agreements with traditionally conservative and cautious investors speaks for itself, proving the high credit rating of the Russian State Corporation.
Also at the forum, an affiliated company of Russian Technologies – JSC “Prominvest” – signed documents with major investors from the UAE for the incorporation of managing companies for two direct investment funds. Gulftainer (a member company- of Crescent Petroleum controlled by a highly-influential family in the UAE – the Jafars) is a partner of Russian Technologies in one of the funds with $500 million. The agreement with "Prominvest" was signed by the Chairman of the Board of Directors of Gulftainer, Badr Jafar (his father, Hamid Jafar, is Head of the Crescent Petroleum Board of Directors).
Damac Group – one of the largest developers in the Middle East – is ready to provide $300 million for Russian Technologies for its property management projects. A respective agreement was signed by Chief Executive Officer of Damac Hussein Sajwani. A few projects ready to be offered by the Corporation to the investor of this fund have already been selected. They are related to construction projects within the framework of the Olympic venues construction program and include a hotel in Sochi – “Zelenaya Roshcha”, construction of a data processing center at one of Russian Technologies plants and sports facilities covering an area of 290 thousand square meters in the western part of Moscow.
As for infrastructure fund investment projects, they are still being determined, although one may say that the Middle Eastern investors are potentially interested in such industries as telecommunications and metallurgy, including logistics. The Corporation is also interested in investments into optimization of internal logistics management systems that Gulftainer specializes in.
This is a very topical issue, considering that the State Corporation, founded in 2007 consists of 562 plants manufacturing about 30% of all domestic engineering products. Most of them are distributed among vertically-integrated structures; of which there are 19 in the defense industry and 7 in civil industry. More than 600,000 employees work with the State Corporation’s plants, and together with their family members they total about 2 million. The Russian Technologies State Corporation also owns large stocks of such automotive giant manufacturers as KAMAZ (produces 80% of domestic cargo trucks) and AVTOVAZ (25% of the Russian passenger car market). Within the next 10 years, the AVTOVAZ investment program will cost about 183 billion rubles, out of which the borrowed assets will amount to less than a half, whereas 13.5 billion rubles will be used for production development, in an investment made by its partner – Renault.
One of the most significant of Russian Technologies assets – VSMPO-AVISMA (it meets 60% of EADS demand and 40% Boeing demand for titanium products for projects such as the giant B787 Dreamliner – almost 100% of the demand), supplies titanium pipes for electric power plants to the Republic of Korea via the joint venture UNITI Titanium.
The Corporation also includes Russia’s major developer and mobile services supplier for cutting-edge technology wireless high-speed Internet access – 4G "Scartel" (operating under the Yota brand in the market). "Yota" was the first in Russia and one of the first companies worldwide to implement broadband mobile Internet access in accordance with the WiMax standard. Today, this system almost completely covers Moscow and Saint Petersburg and a number of communities in Tatarstan and Bashkiria. The Company is not only successfully developing state-of-the-art telecommunications technologies in Russia, but is also building its own networks abroad. Scartel is involved in a strategic partnership with Samsung Electronics (South Korea). A Yota network was commissioned in Nicaragua in December, 2009. Next on the list is Peru, Venezuela, India…
By the order of the Russian Government, The Corporation has received an order from the Russian Government to construct what will be, Federal High-Technology Medical Care Centers applying module construction technology throughout all of Russia. Module construction has little in common with regular construction – it looks more like mechanical-engineering assembly: separate parts with various functional loads are used for assembling an integral unit. The social-and-economic effect of this project is quite obvious: commissioning of 7 cardiovascular surgery centers and 2 neurological surgery centers will ensure up to 50,000 high-tech cardiovascular surgeries per year.
Commissioning of 5 traumatic and orthopedics surgeries will result in the reduction of early physical disability of the population by 25,000 people. In addition, these federal centers are intended to facilitate promotion of science and practice for such important aspects of the Russian public health service in cross-border regions.
Another important and promising trend of Russian Technologies’ activity includes biotechnologies. It was only 15-20 years ago when the USSR occupied one of the leading positions in the global volume production of biotechnological products, but to date Russia has rolled backwards, to 70th place. This has resulted in the current requirement to import the majority of important biotechnological products.
The State Corporation’s project for development and manufacture of biological products provides for construction of 30 plants with high-level processing of waste-containing cellulose, which, in its turn, will make it possible to propose alternative, environmentally safe fuel and protein feed from renewable raw sources.
The biological fuel produced at the corporation’s plants may be used in its pure form. This was proven experimentally – at the motor rally run on this type of fuel – in Lada cars, from Irkutsk to Moscow. This is also important from an environmental viewpoint, since biological fuel is the cleanest type of fuel nowadays.
However, the investors from the Middle East are mostly interested in the possibility of investing in the Russian Federation ports infrastructure. This market is really large-scale. As one of the speakers at the Sochi forum, Badr Jafar reminded the audience, that 3.6 million containers are now used in Russian ports. This topic was discussed shortly before the forum at the meeting of Hamid Jafar and Russia’s Prime Minister Vladimir Putin who “expressed his keen interest about attracting investments into this segment of the Russian market.” Meanwhile, Gulftainer representatives met with the Russian Federation Minister of Transport, Igor Levitin. According to the experts, some funds may be invested into the acquisition, including those within the framework of privatization procedures, of Russian port assets and their handover for management, for the purpose of consolidation and creation of a unified logistic holding company.
This prospect is by no means abstract but quite realistic, considering the fact that the Decree of the Russian Government included a large number of port assets in the forecast privatization plan for 2010 year.
According to the analysts’, the Corporation’s vast experience with government assets and public finances, its active support by the President and Chairman of the Government of the Russian Federation, provide good reasons to expect success of its first experience of attracting foreign (especially such conservative ones) investors’ funds.
In general, international cooperation is one of the top-priority objectives of the Russian Technologies State Corporation. Its specialists are well aware of the fact that transfer of technologies and use of international advanced expertise and know-how will help Russia considerably reduce the amount of time required for the integrated development of particular plants and branches of industry.
Getting back to the contract signed with Boeing in Sochi, it should be noted that this specific aircraft supply agreement with an overseas manufacturer is regarded as the most large-scale in contemporary Russia. This agreement provides for purchase of 50 new narrow-bodied Boeing 737 NG airplanes of three modification types, with an option plan for 35 more aircraft. The supplies will start in 2013 and end in 2017. According to the catalog price, the contract value may reach USD 3.73 billion. At the same time, according to the sources close to the Corporation, the latter has managed to get considerable discounts. The major amount of funds used for purchasing aircraft will be borrowed from commercial banks, including Russian banks, with the guarantee from American Eximbank for 80-85% of the amount, which also proves the confidence of large, including US, financial capital, in the Russian Technologies State Corporation. The loans were approved last year, during the visit of Hillary Clinton, US Secretary of State, to Moscow.
A decision on the deal, with a 5-year renewal of the supply agreement for Boeing titanium forged parts manufactured in Russia was taken in due time and on the highest level. In June 2010, US President Barak Obama, in the presence of his Russian colleague, Dmitry Medvedev, called all reached agreements “the victory for Russia that is creating a long-term market for its products and finally getting modern aircraft for Russian passengers. It is also a victory for the United States, as this cooperation helps us add 44,000 new jobs. “Our partnership has been established for a long period,” added the US President.
The Russian Technologies State Corporation is planning to lease the purchased planes. This will result in incorporation of an affiliated company. According to a nationally recognized aviation analyst, Oleg Panteleyev, leasing transactions are considered more profitable than air transport services, while aircraft modifications ordered by the state corporation are highly efficient for the majority of most popular routes, including international flights.
The cooperation between Russian Technologies and Boeing goes far beyond US aircraft supplies to Russia. If not to the full, but still considerable extent, Boeing aircraft consist of Russian titanium and finished titanium products manufactured by “VSMPO-AVISMA” and which is owned by the Corporation. VSMPO-AVISMA products are becoming more and more to an export-version. The volume of industrial investments in the plants made by the Russian Technologies in the past three years has exceeded USD 750 million– thus creating new workshops, new jobs and new technologies.
On the day following the date of signing of the aircraft supply agreement, the Head of the Russian Technologies State Corporation, Sergey Chemezov, took his agreement partner, President of “Boeing-Civil Aircraft”, James Albau, from Sochi to the Urals in order to show him the worldwide leading titanium manufacturer – a plant producing highly-important parts for Boeing aircraft. VSMPO-AVISMA is a long-term partner and titanium supplier to Boeing.
It was 1997 when the first agreement was signed between the corporations, when the American company placed its first order with the Russian titanium manufacturer. In July 2009, Boeing and VSMPO-AVISMA founded a joint venture in Verkhnyaya Salda, for processing titanium forged products for the largest high-technology company worldwide and the “Boeing-787”. An agreement was entered into by Boeing and VSMPO-AVISMA (with an expiry date in 2015). Under this agreement, the aircraft manufacturing company shall undertake to purchase titanium forged parts from the Russian company for use in the civil versions of the 787, 777 and 737 aircraft models.
After visiting the plant, James Albau noted, “The quality of work is amazing here. This is my first visit to VSMPO and I am impressed by what I’ve seen. I’m so glad I came here.”
The partnership of Russian Technologies and Boeing has very good prospects, since Boeing’s titanium consumption rate is much higher than anyone else’s in the world. Each new aircraft designed by Boeing requires 20 tons of titanium. These airplanes will be produced in a large amount. Therefore, the agreement signed in Sochi is another stage of strengthening the strategic partnership of Russian Technologies and Boeing.
It is quite symbolic that the leading Arab investment companies have followed the American example and, after thorough examination of all risks, decided to invest considerable funds in the state corporation’s projects.
The current events prove that the Russian investment market is already attracting representatives of other countries as well – France, in particular.