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

Issue 23 - November 2010

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 has publicly announced the setting up of direct investment funds for infrastructure ($500 million) and development ($300 million) projects. By the way, it is the first time when the Russian Technologies, that 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.
An affiliated company of the Russian Technologies – JSC “Prominvest” – has signed documents on incorporation of managing companies for two direct investment funds with UAE major investors at the forum in Sochi. Gulftainer (a company-member of Crescent Petroleum controlled by a highly-influential family in the UAE – the Jafars) is a partner of the 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 the 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 a reconstruction project within the framework of the Olympic venues construction program of a hotel in Sochi – “Zelenaya Roshcha”, construction of a data processing center at one of the Russian Technologies plants and sports facilities with the 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 more than a topical issue considering the fact 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 – holdings; there are 19 of them in the area of defense industry and 7 in civil industry. More than 600 thousand 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 largest 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 nearest 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 would be used as production development investments made by its partner – Renault.
One of the most significant of the Russian Technologies assets – VSMPO-AVISMA (it meets 60% of EADS demand and 40% Boeing demand for titanium products for such a giant company as 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 on the basis of the most cutting-edge technology of 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 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 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 is constructing Federal High-Technology Medical Care Centers applying module construction technology in the entire territory 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 thousand 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 thousand 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 the 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 of biotechnological products, but to date Russia has rolled backwards, to the 70th place. This resulted in the current import of the majority of highly important biotechnological products.
The State Corporation’s project for development and manufacture of biological products provides for construction of 30 plants with the 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 the environmental viewpoint, since biological fuel is the cleanest type of fuel nowadays.
However, the investors from the Middle East are mostly interested in a possibility of investing in the Russian Federation port 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 concern 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 the government assets and public finances, its active support by 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 planes of three modifications, with an option plan for 35 more aircrafts. 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 aircrafts 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 aircrafts for Russian passengers. It is also a victory for the United States, as this cooperation helps us add 44 thousand new jobs. “Our partnership has been established for a long period,” added 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 the Russian Technologies and Boeing goes far beyond US aircraft supplies to Russia. If not to the full, but still considerable extent, Boeing aircrafts consist of Russian titanium and finished titanium products manufactured by “VSMPO-AVISMA” owned by the Corporation. VSMPO-AVISMA products are becoming more and more 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, Head of the Russian Technologies State Corporation, Sergey Chemezov, took his agreement partner, President of “Boeing-Civil Aircrafts”, 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 aircrafts. VSMPO-AVISMA is a long-term partner and titanium supplier of 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 for processing in Verkhnyaya Salda titanium forged products for the largest high-technology company worldwide – “Boeing-787”. An agreement was entered into by Boeing and VSMPO-AVISMA (with the expiry date in 2015). Under this agreement, the aircraft building company shall undertake to purchase titanium forged parts from the Russian company for the industrial use of civil aircrafts of models 787, 777 and 737.
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 the 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 the 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.