"'Russians need to maintain an open dialogue with investors' - Andrei Illarionov"
PRIME-TASS News Agency

November 3, 2005

The dialog between Russian businessmen and potential foreign investors must be open and forthright. This message was driven home by Andrei Illarionov, Economic Advisor to President Putin, at a meeting with journalists during the 9th annual US-Russian Investment Symposium.

“There is no need to lie” or disguise the real situation in Russia," said Mr. Illarionov. “You just need to communicate.” “The result is an initial level of trust that will grow over time and turn into investment and tangible projects”

Forums like Boston and Davos comprise a “unique genre” of their own, Illarionov added. They are not so much used to close deals. At least, that is not their primary objective. “They are platforms for interaction between those who run the businesses and those who make policy, economic policy in particular.” This format allows businessmen to forge “slightly more informal” relationships with government officials than are generally possible amid standard negotiations.

“It is an occasion for making introductions,” which set in motion the “process of finalizing decisions” on investment. For investors who already made their decisions, he said, there is still a need to “synchronize watches” and to get a bearing on where the overall economic currents are taking Russia.

The 9th US-Russian Investment Symposium in Boston was organized by the International Economic Alliance. Among the participants were more than 300 political and economic elites from both countries, along with area experts and the heads of international financial institutions.

"HBS Students Get Involved in U.S. - Russia and U.S. - Ukraine Investment Symposia"
HARBUS Online

November 16, 2005

U.S., Russian, and Ukrainian Governments, EBRD, IFC, World Bank, and private investors (representing over $2 Trillion in total assets) gathered for 3-day Summit on Russian and Ukrainian Investment Opportunities.

The 9th Annual US-Russian Investment Symposium took place on November 1st and 2nd at the Seaport-World Trade Center. The Inaugural US-Ukrainian Investment Symposium took place on October 31st at the Harvard Club. The symposia were attended by investors with over $2 Trillion in assets under management, including top financial and corporate leaders from State Street, Bear Stearns, Baring Vostok Capital, Citigroup, Deutsche Bank, ExxonMobil, Access Industries, Raiffeisen International Bank, Draper Fisher Jurvetson, Philip Morris, Daiwa Securities, Alcatel, Horizon Capital, Vneshtorgbank, Nordic Investment Bank, OPIC, EX-IM Bank, as well as EBRD, IFC and the World Bank.

Founded in 1997 at Harvard University, the US-Russian Investment Symposium brings together Harvard professors, key members of the financial community, and top Russian and American government officials and business leaders for a solution-oriented Symposium designed to illuminate Russia's investment climate. Drawing upon this legacy and conceived within Harvard, the International Economic Alliance (IEA) was created independently as a non-partisan 501(c)3 non-profit organization to host this annual Symposium and create others based on the successful Russian model.

Participating HBS and other Harvard professors as speakers and moderators this year were Malcom Salter, Rawi Abdelal, Graham Allison, and Robert Lawrence. Also participating were many HBS student volunteers that had special interests in and ties to the region. Throughout the years, many HBS student volunteers have had an opportunity to meet senior government and business leaders from Russia, significantly expanding their post-graduate career opportunities in the region.

The symposium took place amid the recent remarks by presidents George Bush and Vladimir Putin that stressed the need to accelerate the pace of Russia's economic growth as a timely call to action this year. President Bush sent a personal letter of support to Symposium participants, writing that investment would "strengthen the relationship between Russia and the United States."

Russia after the Yukos Affair
Andrei Illarionov, Special Economic Advisor to President Vladimir Putin, delivered a keynote message, stressing continuous reduction of government interference into the private sector as a key to Russia's economic success. Dan Yergin, renowned energy expert and Co-founder of Cambridge Energy Research Associates, agreed that while Russia may have enough oil to meet the global demand for the next 40-50 years, it remains largely up to the Russian government how this feat could be accomplished.

Deputy Economic Minister Andrei Sharonov stressed that besides energy, such sectors as aviation, biotechnology, IT, and nanotechnology represent Russia's distinct competitive advantage and command more foreign investment inflows in the near future. Many investors stated that Russia is the least known of the BRIC countries with a perceived high level of risk and many opportunities. "You cannot afford not to be in Russia," voiced Peter Koelle, Chairman of the International Moscow Bank. The remark was seconded by EBRD's Acting First Vice President Steven Kaempfer who said that European investors are expanding their investments in Russia and that the US investors are thus far missing the early opportunities.

The Russian regional panel discussion focused on dramatic annual returns on investment that have been consistently outperforming those in the developed markets. The discussion participants stressed that emerging market investors are now searching for such opportunities outside of Russia's larger cities and many noted that these opportunities lie outside of the natural resources sector, referring to the "Commanding Heights" of the Russian economy.

Ukraine after the Orange Revolution
The US-Ukraine Investment Symposium focused on the Ukrainian investment climate in the post-Orange Revolution political environment. Recent signs of stability could revitalize the general investor confidence in the region, as well as create opportunities for private equity investors. Investors agreed that forward progress had been made in business regulation since the revolution. While slower than some exuberant forecasters predicted, reform progress remains strong and largely uninterrupted by the dismissal of the President's Cabinet in September.

The Ukrainian Government, represented by the Deputy Economic Minister Volodymyr Ignaschenko, stressed that substantial reforms have taken root in regulating exports and certain other industries, while overall macroeconomic reforms remain a priority for EU and NATO membership meetings on target for early next year.

Former Foreign Minister and Ambassador to the U.S., Konstyantyn Gryschenko, grounded speculation about Ukraine's political volatility by urging a sober, longer-term view of progress over the transition period. Gryschenko, the founder of Ukraine's Republican Party, pledged further involvement in building Ukraine's future and is expected to be a major force for change towards enacting favorable business conditions in the region.

"In Boston, Russia’s high-tech industry is given the spotlight"
RIA Novosti
By Andrei Loschilin

November 2, 2005

Many of the biggest ”hotspots” in the Russian economy are in High Tech - at least that is what Thomas Pickering thinks, a Senior VP of Boeing International and former U.S. Ambassador to Russia, who spoke at this year’s annual U.S.-Russian Investment Symposium.

“Boeing has been cooperating with Russia productively since the early nineties,” said Mr. Pickering. “A decade later we have reached a whole new level of cooperation after extending contracts to more than 1,200 Russian engineers and architects. Boeing’s Russian employees are helping to build new models of aircraft, which include planes made from novel, cutting-edge materials. We are also working on a series of projects to outsource manufacturing operations to Russian companies.”

Russia’s competitiveness in high technology, Pickering says, “is based on traditions of recognizing the importance of science and industry.” “A strong technical education will guarantee Russia a leading role in the software development industry, engineering, and information technology,” underscored Mr. Pickering.

“We are very much interested in diversifying our economy,” said Russia’s Deputy Minister of Trade and Economic Development, Andrei Sharonov, at the Symposium. “I don’t mean to say that we are going to scale back the development of investment projects in our natural resources sector. Our energy sector is a ‘bird that lays golden eggs,’ and we cannot afford to let it fall ill. Meanwhile, as the energy sector continues to grow, we would like to see it take up a relatively smaller percentage of our gross domestic product, so that other sectors can grow faster.” Among Russia’s other industries that might be of interest to foreigners (including U.S. investors), Sharonov emphasized the aerospace industry, biotech, nanotech, and telecom. “As a whole, we are interested in leveraging U.S. finances and technological experience to help market and commercialize our scientific achievements.”

In turn, Russian Senator and Chairman of the Senate Foreign Relations Committee Mikhail Margelov said that, even Russia’s “golden-egg-laying” energy sector requires modernization, both in technology and management practices. “Russia wants new information, as well as the technologies to ensure this information will bear fruit,” the Senator told RIA Novosti. “Beyond that, it wouldn’t hurt to learn from the Americans’ superior skill at allocating budgetary resources. Veritably, for steady economic growth to continue in Russia through the year 2020, our energy sector will need approximately $700 billion in investment, $200 billion of which alone must go towards modernization."

“9th U.S.-Russian Investment Symposium takes place in Boston”
RIA Novosti

November 3, 2005

Repealing the controversial “Jackson-Vanik” agreement, accelerating Russia’s entry to the World Trade Organization, simplifying visa application procedures, creating a bilateral fund for investing in information technology, reshaping the negative stereotypes of Russia in American media – these are just some of the issued raised by participants of the 9th annual U.S.-Russian Investment Symposium, which concluded last Wednesday in Boston.

“Russia is not only maintaining impressive GDP growth, which by year-end calculations should hit approximately 6%. Russia is becoming a major player in the global economy, making investments in both hemispheres,” remarked first Vice President of the European Bank for Reconstruction and Development, Steven Kaempfer, at the forum. Next year Russia will preside over the G8 group of countries for the first time, a position that will likely strengthen Moscow’s decision-making authority over global economic issues.

“The investment of Russian capital abroad, given that transactions are conducted in a civilized manner, will help to diversify the Russian economy and give the country outlets to new markets,” said Andrei Sharonov, Russian Deputy Minister for Trade and Economic Development. “By acquiring shares in foreign-owned metal companies, for instance, Russia will gain access to a giant new market for raw material inputs in the European automobile manufacturing industry. This would greatly benefit Russia.” “We’re also interested in having Russian companies get involved in oil and gas distribution in the U.S.. Conversely, American companies would be granted rights to extract hydrocarbons in Russia, taking on some of the more inaccessible and technically challenging projects.”

The International Finance Corporation’s (IFC) director for Central and Eastern Europe Edward Nassim called attention to the unprecedented number of Russian IPO’s on the London stock exchange last year. He also noted the vigor with which Russian companies issued new Eurobonds. “This is tangible evidence that Russian companies are integrating with global capital markets. We are seeing altogether positive forward motion in Russia’s ability to generate consumer credit markets,” said Nassim.

Andrei Illarionov, Special Economic Advisor to the President and a participant in the conference, reflected on Russia’s status as a place for investment: “Posing the question of whether or not to invest in Russia is moot, because the investors here have already made their decision.” “The better question is where to invest and whom to collaborate with,” stressed Illarionov. “To simply say, ‘Let’s invest in Russia’ is both banal and unproductive, because Russia is a country that cannot be overlooked, both territorially and in terms of its industrial capacity. In Russia, we have examples of companies that increased their capitalization by 20 times in three years. We have entire industries that increased their capitalization by 18 times in five years. On the other hand, there are not-so-successful examples of investments which did not yield a single dollar of return. There is no need to fool anyone. To those who want to help Russia (and not just to earn money), we must speak candidly. From such honesty comes mutual trust that will, over time, lead to serious investment.”

"A Russian Boom"
Vedomosti
By Anatasia Onegina

October 12, 2004

In order to turn a profit in Russia, foreign investors have to observe certain guidelines. Participants of the U.S.-Russian Investment Symposium, a three-day conference in Washington ending last Friday, agreed that investors should strive to avoid disagreements with the Kremlin, operate through secure intermediaries (such as state-owned and multilateral banks), and steer clear of the Russian oligarchy.

A Russian “Boom.”

“Within the last two years, [the economic conditions in Russia] have improved more dramatically than any developing market in the world,” said Gerald West, Director of the Multilateral Investment Guarantee Agency (MIGA). “During the period between 1999 and 2003, the Russian economy grew 30%, while inflation dropped 300%,” said Russia’s Deputy Minister for Economic Development, Vitaly Saviliev. “The macroeconomic environment in Russia is good for long-term investment, and business activity is high right now,” said Senior Vice President of Nordic Investment Bank, Oddvard Ronsen. “All of the largest Western banks have representation in Russia, and the telecommunications market is one of the fastest developing in Europe,” said Professor Graham Allison of the Kennedy School of Government at Harvard. CEO of Alcatel Russia Johann Vanderplaatse even interjected the praise, “ Thank you, Russia!” during his address at the Symposium. (Alcatel’s investment in Russia has been upped from $60 million in 1999 to $600 million in 2004.)

"U.S.-Russian Investment Symposium in Brief "
New Energy Group
By Eugene Yashin

October 10, 2004

The US-Russian Investment Symposium took place in Washington DC this year and saw gather businessmen from both sides of the ocean, who either wanted to find out more about bilateral opportunities or share their successful or unfortunate experiences of doing business in Russia. Many traditional issues were raised with regards to why it is still difficult to operate “over there”, while several success stories proved that even with all the impediments you could be very successful. Overall the participants could not agree on the impact of latest political changes on the local business climate, but everybody stressed that Russia is too promising and rich with natural and human resources to be neglected.

Among the usual topics of discussion were energy, the banking sector and small and medium size enterprises. A new spin was added to the changing investment climate and political reforms, while technological industries were represented by telecommunications and IT. An interesting discussion on private equity and media wrapped up the three days. The crowd was pretty active and, what is more important, there were American companies’ representatives besides speakers, who expressed their interest in doing business in Russia in both technological and raw material sectors. We will not describe every panel or round table of the gathering, but will try to highlight the most exciting or controversial ones in the following paragraphs.

Investment Climate

The investment climate has not changed – companies have adapted to the climate. This phrase could more or less provide a summary of the discussion. EBRD President Jean Lemierre pointed out that the recent banking crisis was nothing but a cleansing of the Russian banking system, which should be considered a positive sign and an indication that banking reform will be undertaken soon. On the negative side, participants believed that an increasing involvement of the State in the economy and too much reliance on oil and gas could harm Russia in the long term. EX-IM Bank CEO Peter Watson stressed the importance of mortgages and the opportunity Russia has to make mortgages the next economic growth vehicle. However, one of the key observations was that Russia hadn’t learned how to compete on world markets outside raw materials. China was raised as an example of how to capitalize on country’s main advantages.

High Tech and Telecom Success

The lack of competitiveness on Russia’s part was partially explained by Alexander Braverman, President of Russian Marketing Association, who stated that Russian companies, especially small and medium size, do not have enough marketing skills and simply do not understand the market place. This was indirectly reaffirmed by the following discussion on high tech industries. All American participants, including Boeing and Intel were thrilled with the quality they get from their Russian R&D and production units. They attributed their success to their focus on what they do in Russia, their knowledge of what can be done there and what should be effectively outsourced elsewhere. After these two panels the logical conclusion would be – Russians are capable of producing competitive technologies – they just do not know that and how to market them. That explains the continuous reliance on commodities and the frustration the Russian government feels about the one-sided economy. Energy was one of the hottest topics of the Symposium, as Russian oil and gas are getting to US market, and while oil is already around, LNG is expected soon.

Oil and Natural Gas

There were essentially three parts of the energy discussion: a round table sponsored by JP Morgan sought to answer the question of whether it has become harder or easier to invest in Russian oil and natural gas (LukOil, Yukos and Pechoraneft officials were on the panel); the governmental perspective on the state of US-Russian energy dialogue was presented by Deputy Minister Ivan Materov, Ministry of Energy and Industry of the Russian Federation and Kyle McSlarrow, Deputy Secretary of Energy, Department of Energy, United States of America; while the private sector was represented by TNK-BP’s senior management, Bob Dudley President and CEO, TNK-BP and Viktor Vekselberg, COO, TNK-BP and Chairman of Renova and SUAL Group.

Easier or Harder?

A much anticipated presentation of the LukOil-ConocoPhillips deal was balanced with the latest on the Yukos affair. Pechoraneft served as an additional pro-Russian argument, and, in my opinion, was a very illustrative one. LukOil America CEO Vadim Gluzman spoke about the well publicized details of the deal: Conoco could acquire up to a 20% LukOil stake; the companies are going to set up several joint ventures to operate the Northern fields. The way in which this joint venture is to be set up was news to many of the round table participants. The companies are going to have a disproportionate voting schema in their JVs, meaning that LukOil is going to have a larger share stake, voting will be split 50/50 and cash flow is going to be divided to prevent a value leakage.

Overall, it was stated during the round table discussion that although it is getting harder to gain access to pipelines and get new licenses, the environment is still favorable to medium and small producers: Pechoraneft served as a good example. Arun Subbiah, a member of the Board of Directors, shared his experience of doing business in Russia and his vision for the development of the small producer in Timan Pechora. They bought a small drilling company Pechoraneft in 1998 and brought in new management practices. Now the company has reached 10,000 barrels a day production, 60 million USD sales a year, and is planning to expand in Krasnoyarsk region. The company plans to acquire more producing assets, participate in tenders and appraisal projects of new and proven fields and infrastructure. They chose a high-impact, low-exposure approach and plan to grow their reserves two-three fold and production four-five fold. Mr. Subbiah answered several questions, assuring everybody that the media has overstated the difficulty of operating in Russia and that government involvement in their business was minimal.

Yukos: Well, that discussion was not rosy at all. The company’s Chairman of the Board of Directors Viktor Gerashchenko and Sarah Carey, a member of the Board, heavily criticized the validity of the case and while Mr. Gerashchenko was humorous from time to time, Ms. Carey was almost furious with the way Russian officials were applying the law, violating a no-reciprocity principle. Answering one of the hottest questions if Yuganskneftegas would be sold, and who would buy it, Mr. Gerashchenko was as funny as one can be in his position, saying that Surgutneftegas could be a possible candidate being situated just on the other side of the river. In fact he observed: “It looks like LukOil is on the right side of the river and we are on the wrong side.”

Government Perspective on US–Russian Energy Dialogue  

Although many industry specialists believe that US-Russian energy dialogue has not taken off that much, Kyle McSlarrow, Deputy Secretary of Energy, dismissed this opinion. He observed that besides oil and gas transportation and joint ventures, the US has worked with Russians on hydrogen technologies, fusion production of electricity, and the extraction of gas from sand. Speaking about the investment climate for American companies, Mr. McSlarrow stated that they were getting mixed signals: on one hand they see the LukOil Conoco deal and the Gazprom Chevron Texaco MOU; on the other hand Sakhalin 3 was a disappointment. Deputy Minister Ivan Materov emphasized that both sides’ interests matched perfectly and said that a pipeline to the Barents Sea and Sakhalin projects would allow Russians to expand their supplies of oil and gas to the US shore. He added that Russians need foreign investments in the form of management and technology and reaffirmed that the Russian Government is disappointed with the state of export diversification. Mr. Materov also confirmed that since Soviet Union times a lot of information on deposits of natural reserves have remained state secrets, but was not clear if the situation was going to change.

TNK-BP is one year old

While Americans are still cautious and slow, the British can celebrate, as it looks like the merger is working and growing. Speaking about the challenges of the past year CEO Bob Dudley noticed that their major challenge was to bring together three corporate cultures: BP, TNK and Sidanko. They have set challenging performance goals and based the foundation of the new company on transparency, accountability and governance. TNK-BP COO Viktor Vekselberg revealed that both sides had a completely different idea about each other before the merger, and though an integration of two management teams was difficult, they succeeded in getting closer. What they had not achieved yet was the aligning of BP’s interests as a public company and TNK’s private nature.

 The company’s plan is to grow at an average 14% a year and BP’s technologies have proved to support this goal and are very applicable on old fields like Samotlor. Bob Dudley said that just by increasing the recovery rate by 1% they would add 750 million barrels. Viktor Vekselberg stated the fact that BP was there for the long term and had brought their international integration experience would be the key to the long-term success of the venture. Answering media questions, the company’s officials were reassuring in that there was no disagreement between BP, as a venture shareholder, with TNK-BP’s actions. Moreover, they conduct shareholders meetings every month so as to be on the same page.

Private Equity

David Rubenstein, Founding Partner and Managing Director of the Carlyle Group, shared his experience with investing in Russia. He said that it was easier to invest in Russia than in India or Brazil and that a private company traded at a discount to the public. Their investments of ten to hundred million USD are below the radar of the Russian Government and oligarchs, and Mr. Rubenstein gave no indication that they were going to change that. Their investment horizon is three to five years and the key to their mid-size investments is diversification. For the next five years Mr. Rubenstein named chemical production, infrastructure, telecommunications and leisure as the most promising private investment areas. He emphasized the importance of success stories for attracting more investments to the country.

Catherine R. Kinney, President of NYSE, said that besides Russian telecom companies they would expect more industries represented on NYSE as long as the Russian security market deepened and widened. Overall, the consensus was that investors should go to Russia with small and medium size companies and ignore any political noise.

Farewell

"Info Tech: Russia’s Economic Salvation?"
Washington Times
By Dar Haddix

October 8, 2004

Russian dignitaries -- including Russia's IT and Communications Minister -- descended on Washington this week to plug business opportunities in Russia. However, Russia apparently still has some hurdles to cross before its information technology and communications sectors can realize their full potential, including reassuring foreign investors worried about red tape and fiscal stability in the still-emerging economy.

The Russian government obviously has big dreams for its ITC sectors -- not surprising considering the intellectual capital within Russia. "The development of (information technology and communications) in Russia is one of the key factors in developing Russian society," said IT and Communications Minister Leonid Reiman, who along with other Russian officials was in Washington for a series of investment events, including the U.S.-Russian Investment Symposium, which wrapped up Friday afternoon.

Developing ITC would help combat poverty in the country and also help Russia play its rightful role in the world economy, Reiman said.

Not that ITC investment isn't already off to a good start. In 2003, investment in the telecommunication industry increased 150 percent, exceeding $3 billion, and is growing at the same rate this year.

Offshore outsourcing to Russia is currently estimated to be as high as $500 million -- compared to about $16 billion for India -- but the Ministry forecasts IT exports will grow to $1 billion by 2005 and $2 billion by 2006, and that Russia's software industry will bring financial gains equal to those by its oil industry within the next 10 years.

Not only does Russia plan to dramatically increase software exports, but through such incentives as "IT parks" that benefit from special tax breaks, such as India has established, Russia aims to become the next big outsourcing destination, which will allow it to both retain its intellectual capital and bring in foreign investment, Reiman said.

While more IT professionals are remaining in Russia now than a few years ago, Reiman told reporters at the National Press Club in Washington, "One of our challenges is to keep (our IT professionals) inside the country."

As proof of its intention to open up its communications industry to market forces, Russia is also planning the sale of its nearly 75 percent stake in the country's largest telecommunications provider, Svyazinvest, which holds more than 90 percent of the country's communications infrastructure. In fact, Reiman noted, there are 6,500 telecommunications providers operating in Russia; only 2 (though one owns 90 percent of the infrastructure) are state-owned. The government also plans to auction off a series of landline-and wireless-service-provider licenses starting at the end of this year.

The sheer increase in mobile users suggests ample opportunity for telecommunications investment. At the beginning of 2004, Reiman said, there were about 36 million mobile subscribers. By mid-year Russia had added about 24 million mobile subscribers. In September alone, Russia's mobile market added 3.4 million subscribers. The federal government is also investing heavily in programs that will bridge Russia's vast digital divide, adding to the customer base.

"Our goal is to have at least one (public or pay phone) in every community," Reiman said -- a lofty aim when 50,000 out of 150,000 communities in the Russian Republic don't have phone service of any kind. In cosmopolitan Moscow, 85 percent of the population has a mobile phone; in St. Petersburg, 76 percent; but even a few miles outside Moscow, there are communities without any phone service, Reiman said.

Internet access is even scantier, with only 10 percent of the country's population able to access the Web, but the government plans to set up Internet stations -- as well as the promised community phones -- in the post offices of rural and remote areas across Russia.

This week's investment campaign is logical, considering that many foreign investors are still wary of investing in Russia in light of recent events that echo the 1998 fiscal crisis, including the recent failure of the 22nd largest bank in Russia, Guta Bank, which was recently bought by Vneshtorgbank for the equivalent of about $34,000. Ratings agency Standard & Poor's last month deemed Russia's banking system one of the riskiest in the world, despite the country's strong economic growth, since its economy is overly concentrated in oil and gas.

Russia is also eager to join the World Trade Organization, a move that would certainly help pacify nervous foreign investors, encourage a competitive business attitude among Russian companies, and make it easier to form international trade alliances.

Indeed, investment firm PricewaterhouseCoopers in a report released Wednesday described Russia as a long-term investment opportunity, and a "potentially huge mass consumer market for the investor" with "one of the highest current world growth rates." However, it added, "The country is set for an extremely fragile economic, political and social framework."

But there are signs that should make investors feel cautiously optimistic about making the leap. Russia's Central Bank announced late last month that "capital flight" or outflow of capital, had slowed to $3 billion in second-quarter 2004 after reaching an alarming $4 billion in first-quarter 2004, and for September is expected to have fallen to between $500 million and $1 billion.

And despite the Yukos crisis and banking worries, Russia's GDP rose 7.5 percent during the first half of 2004.

Telecommunications was also named as one of the best sectors in which to invest -- keeping a long-term approach in mind -- by David Rubenstein, founding partner and managing director of investment firm the Carlyle Group, during the U.S.-Russian Investment Symposium.

Investors remain bullish about Russia's technology sector despite the perceived setback to democratic institutions with the government's recent arrest of an energy mogul on fraud and tax evasion charges. The positive assessment of the Russian economic landscape was evident at the U.S.-Russian Investment Symposium here last week.

"The arrest of Mikhail Khodorkovsky has of course clouded investment perspectives," said Eugene Lawson, president, U.S.-Russia Business Council. "But I believe it is a bump in the road when you take into account Russia's past and the coming elections."

While investment in oil and other natural resources continues to play a central role, panel sessions and the keynote address emphasized investment in other sectors such as telecommunications and information technology. Indeed, the conference theme, "Toward Diversification of the Russian Economy," sought to generate investment in Russia's technology infrastructure.

"Sixty percent of Russian IT companies are from the private sector," said keynoter Leonid Reiman, Minister for Communications and IT. "This sector is growing at from 15 to 40 percent each year. There are even three Russian telecom companies on the New York Stock Exchange."

Intel Capital invested in a Russian company for the first time this year. "We want to help make Russia more competitive globally. It's good for Russia, for us and the world," said Steve Chase, president of Intel Russia.

According to industry estimates, penetration of the Russian PC market is 12 percent, less than 15 percent for Internet penetration and less than 25 percent for telephones.

Intel, a sponsor of the symposium, wants to take advantage of Russia's highly educated professional workforce. It has some 400 software developers in Nijnyi Novgorod and Sarov who share their design work with Intel's labs in California, North Carolina and Israel. It has also placed computer equipment in the hands of some 20,000 Russian teachers. The machines are used to distribute school cirriculum to teachers around the country. "There are some 2 million teachers in Russia, so we need to scale this pretty quickly," said Chase.

The investments bode well for Dmitry Milovantsev, who is in the midst of implementing the "Electronic Russia" program. The goal is to "connect" Russia's vast regions and the outside world. "We have the enormous task of bridging modern IT with antiquated telecom — it's a real world challenge of the computer/communications convergence phenomenon," said Milovantsev.

Some relief is coming on Jan.1 when a new Russian communications law takes effect that deregulates the mostly government-owned telecom infrastructure. "While not ideal yet, the law will let Russia follow in the steps taken by the U.S. telecom industry when it deregulated AT&T," said Milovantsev.

Chase said Intel's technology could help foster competition in Russia by helping to forge a wireless infrastructure. "We can connect Russia to the world like Peter the Great only wished he could," said Chase, referring to the Russian czar who modernized Russia in the 17th century and built St.Petersburg.

"There are some 35,000, and by some counts some 50,000 villages, without telephones," said Chase, quoting statistics from UBS Russia on telephone penetration in Russia. The chart showed Moscow and St.Petersburg, the two largest and most modern cities in Russia, at 50 and 40 percent penetration, and other regions at only 20 percent.

Chase cited Gartner statistics that 70 percent of phones globally (about 1.5 billion units) will be data-capable by 2010. "We need to make sure Russia is part of that market," he said. "Today most of their phones are for voice only." By the end of 2003, both Moscow and St. Petersburg will have several hundred hotspots for wireless connections.

Three Russian telecom companies solicited investments at the conference. SJLabs is developing proprietary algorithms for voice-over-IP services. All intellectual property was developed internally and the U.S.-registered company (Solon, Ohio) will start to develop software for Russian equipment. So far the company has targeted Western companies and has already licensed technology to ViewSonic, and MCI, among others, according to Alexander Andreyev, President and chief technology officer.

ComSet Telecommunications is a wireless ISP provider in St. Petersburg. Intel recently certified the first hotspot supported by Comset, following the first commercial launch of WLAN service in Moscow and St. Petersburg. The pace of WLAN rollout in St. Petersburg was faster than in Moscow. One reason is that St. Petersburg attracts some 5 million domestic and foreign tourists annually, especially for this year's 300th Jubilee celebrations.

Unlike Western Europe where WLANs are being deployed, Russian fixed service providers are pushing newer technologies like WiMax. Intel is lobbying for global acceptance of the WiMax 802.16a standard as the "grown-up" brother to Wi-Fi, capable of high data rates at up to 70 km.

With a typical range of up to 30 miles and data rates up to 70Mb/s, WiMax is expected to help bring broadband access to rural areas and developing countries where it isn't economical to deploy traditional last-mile connections. Two broadband wireless equipment makers have announced plans to use Intel's chips in their 802.16a products. Aperto Networks and Airspan Networks said they will develop equipment based on Intel's 802.16a-compliant silicon and Intel expects to have WiMax-certified silicon in the second half of 2004.

The WiMax Forum is expected to test 802.16a products for interoperability. "WiMax is expected to open broadband penetration in Russia from the current less than 1 percent to 10, 20 and even 30 percent very fast if all the stars line up in Russia," according to Comset's spokesperson.

Meanwhile the third Russian vendor, InfiNet is developing wireless routers for the Russian fixed wireless market with more than 80 percent of all networks built there using InfiNet products as a backbone element, according to the company. The routers are designed for wireless fixed broadband metropolitan area networks operating in the 2.4 to 2.483 GHz and 5.25-5.35 GHz frequency ranges.

InfiNet worked with ArtCommunications Company, one of Russia's largest wireless carriers to design and deploy a fixed wireless access network in Moscow. The network consists of 22 base stations connected by optical backbone. It covers the city of Moscow and up to 60 km in its suburbs and rural areas.

With Russian banking and tax reforms on the horizon, these and other companies hope to attract investment for expansion despite the challenges in the Russian economy. "We now have $1.5 billion in Russia," said Philip Merrill, president and chairman of Washington-based Export-Import Bank of the United States. "There needs to be diversification outside the oil industry."

Investment is growing, with the U.S. currently "the largest foreign investor in Russia," according to U.S. Commerce Secretary Donald Evans. "Moody's recent upgrade for Russian securities is certainly a good sign for attracting capital."

German Gref, Russia's Minister for Economic Development, acknowledged that many economic hurdles must be overcome, but "there is no turning back. President Putin's inner barometer is to be liberal in economic matters," said Gref.

"Russo-U.S. Investment Symposium Opens in Boston "
RIA Novosti

November 12, 2003

The 7th annual Russian-U.S. investment forum opened in Boston in the United States on Wednesday. Further development of economic cooperation between Russia and the United States is, as before, "the two countries' priority goal," stresses Russian Minister of Economic Development and Trade German Gref in his welcoming message to the forum participants.

He notes "considerable improvement of the economic environment" in Russia in recent years and emphasizes "the growth of stability and attraction of the investment climate." The United States Secretary of Commerce Donald Evans has also sent a message to the forum. He stressed the present potential of Russo-U.S. commercial relations and said, with reference to U.S. companies investing in Russia, that their sales volume was increasing and they were planning to "intensify their business activities" overseas.

This year the Boston investment forum will consider diversification of the Russian economy and an outlook for new investments on the Russian market.

The forum is attended by representatives of over 500 large- and medium-sized private companies from the United States and Russia, as well as international financial and banking institutions.

“Investment climate in Russia will be discussed in Boston”
Pravda

November 15, 2002

The participants in the Sixth Russian Investment Symposium, which opened on Thursday in Boston (Massachusetts), will discuss on Friday the package of questions which are of principled importance for the growth of influx of American capital investments in the Russian economy.

On the second day of the forum, which will actually be its first working day, it is planned to discuss the changes that have taken place in the investment climate of Russia and their assessment by the Western business quarters, to consider the prospects of Russia's entry into the World Trade Organisation (WTO) and its consequences for investors and for the Russian metallurgical sector, the process of the reforms in the banking system, and the formation of a new class of entrepreneurs.

This year, the Boston symposium is attended by more than 300 Russians and about 200 representatives of the American business quarters. The representatives from Russia include the President's aide Sergei Yastrzhembsky, the President's adviser for economic problems Andrei Illarionov, the head of the YUKOS company, Mikhail Khodorkovsky, and the head of the RAO Unified Energy Systems of Russia, Anatoly Chubais.

The day before, the forum participants discussed the basic rules in force of conducting business in the United States, including taxation, the juridical procedures for the business presence of foreign companies in America, and the possibilities for companies from Russia which only start their activity in the United States.

Apart from that, the guests of the symposium took part in the round-table conference on the theme "Investments into the Energy Systems of Russia." However, according to its participants, the conference actually turned into the discussion of the ways of reforming the RAO Unified Energy Systems of Russia

"Harvard Offers a Dose of Reality"
Moscow Times
By Anna Raff

November 5, 2001

Alfred Kokh, of Gazprom-Media fame, has given Russia's relations with the United States new depth and a new twist, calling it a marriage of sorts.

"America demands more from Russia than it does her other international neighbors," a wry Kokh told Harvard's fifth annual Russian Investment Symposium here on Saturday. "It's like an Italian-Sicilian marriage with passionate dish-breaking and tears followed by a passionate reconciliation filled with kisses and embraces."

The events of Sept. 11 have brought Russia and America closer together politically, and investors and the government hope this will translate into increased economic cooperation.

Stanley Fischer, advisor to the managing director of the International Monetary Fund, said it's about time the United States took notice of the changes that have taken place in Russia since the August 1998 financial crisis. America, he said, has effectively been ignoring its spouse for the past 18 months.

Unlike in years past, delegates to the symposium -- who included leading investors, businessmen, government officials and academics -- were cautious about proclaiming Russia's recent economic upsurge another false dawn. While growth in the stock market and gross domestic product outpaced depressed economies -- most notably the United States' -- a corrupt judicial system and a weak banking sector are still keeping large portfolio investors on the sidelines.

The major financial industrial groups like Alpha Group, Interros and Millhouse, together with the Moscow elite, have fallen out of favor as foreign investors look for greener pastures in the regions and small business, participants at the symposium said.

"All of us tend to get mesmerized by big corporations," said Johannes Linn, the World Bank's vice president for Europe and Central Asia. "The thing to watch is small- and medium-sized businesses. If they don't start to quickly grow, growth will not continue."

On the first day of the three-day conference, Economic Development and Trade Minister German Gref proudly recited Russia's statistical achievements over the past year of President Vladimir Putin's reign. A third more in collected tax revenues this year and an 8 percent increase in overall investment didn't shock anyone who is already "on the ground" in Russia, but they did catch the attention of investors and entrepreneurs waiting in the wings.

"The government is not pro-Western, it's pro-Russian," Linn said. "They're asking themselves, 'What can we do to turn this economy around?' And they're doing it with their hearts, not because someone is paying them."

While established strategic investors have earned robust returns on investments made after the 1998 crisis, large and influential portfolio investors such as the California Public Employees Retirement System, or CalPERS, remain unconvinced that their money will be safe in Russia.

"If CalPERS comes into the market, then it would mean that Russia is an investment market, not a speculative market," said William Crist, CalPERS president and chairman. But such a watershed -- if it ever happens -- will not be in the immediate future, despite much-ballyhooed improvements in corporate governance.

Putin's push for a code on corporate governance, presented last month by Russia's Federal Securities Commission and the European Bank for Reconstruction and Development, inspired vociferous debate in private conversations during the symposium. Off the record, many argued that the code was purely cosmetic, to be used as a trap for naive foreign investors.

Ironically, the recent behavior of Sibneft, which often brags about its corporate governance, was cited as a prime example of bad corporate behavior. Last month the company spooked investors and analysts with a post-facto announcement of a murky transaction involving 27 percent of the company's shares. "The large dividends were the only thing that saved its reputation," one Western fund manager said.

Others argued that a written, concrete code was better than nothing.

"While the code may not deter behavior, it will let us say, 'Hey, you guys passed this thing' when we feel our rights as minority shareholders have been violated," said Ronald Freeman, CEO of Lipper & Company International.

No one doubts that Russia's economy has achieved a market orientation after 10 years of turbulent and often painful reform, said Anders Aslund, a senior associate at the Carnegie Endowment for International Peace and former advisor to President Boris Yeltsin.

But with a third of the country's assets still under government ownership, the economic structure is still a work in progress until these businesses are privatized in the much-hyped "third wave" of selling anticipated to occur between 2005 and 2010.

This privatization -- in contrast to the loans-for-shares schemes of the mid-1990s -- will strive to include foreign investors in the process, said First Deputy Property Minister Alexander Braverman. Last week, a proposed single procedure for all privatizations passed a Duma committee hearing, in which limits on foreign investors during privatization can only be defined by federal law.

In addition, Braverman said -- without going into much detail -- that the sale of government shares in natural gas monopoly Gazprom and in the Railways Ministry has already been planned. Next year should see the sale of stakes in 365 companies estimated to be worth a billion dollars. This includes the government's 6.1 percent in LUKoil, Russia's largest oil company, in the first quarter of 2002 and parts of the Magnitogorsk Metal Factory.

The Property Ministry has repeatedly put off the sale of this LUKoil stake, which is to be issued in American Depository Receipts, due to adverse political and economic conditions on international markets. The potential listing was shifted to London earlier this year after U.S. Senator Jesse Helms wrote a letter to U.S. securities officials that criticized the oil company's "roughish behavior" and business practices.

With political interference from the U.S. side now relegated to background noise -- and with Helms about to retire -- the ministry is reconsidering a placement on the New York Stock Exchange, Braverman said.

Russia 's politicians have in the past publicly doubted the desirability of foreign investment, but those present at the symposium said these feelings -- an outgrowth of anti-Western sentiment -- have passed.

Viktor Pleskachevsky, chairman of the Duma's property committee, was quick to point out that the new Land Code would decrease the risk of investing in businesses located on non-agricultural plots. Changes to the Criminal Code -- one of which would make the release of false information to the markets a crime -- have already passed a first reading.

This new frankness and openness is based on self-interest, and in a relatively new development, Russia's interests coincide with those of investors. The $50 billion in investment Russia saw in 2001 is well below the $100 billion needed to offset the depreciation -- and obsoleteness -- of its capital base.

Listening to the politicians speak, Alexander Kochergin, the managing director of MDM Bank's international business department, was amazed. He said the unity of business and government -- compared to years past when deputies were at the ministers' throats and when politicians like Boris Nemtsov, despite official statements to the contrary, announced that Russia would not pay its debt obligations -- was unprecedented.

"That's how it's always been," Kochergin said. "When we have a good story to tell, we don't have anyone to tell it."

"Big Names Headed West for Boston Symposium"
St. Petersburg Times
By Anna Raff

November 2, 2001

In past years, it has given the stage to billionaire financier George Soros - who described Anatoly Chubais as "tainted."

It also once hosted a satellite linkup with then-U.S. Treasury Undersecretary Lawrence Summers - who said that aid to Russia ended up in "Swiss bank accounts."

Never one to shy away from controversy, the Russian Investment Symposium opens Thursday in Boston, where hundreds of Russian and U.S. government and business leaders are to hobnob and discuss how far Russia's boom can go.

"We're giving everyone the opportunity to simply just talk to each other, as well as present projects to a high-powered audience," said Irina Zonova, a division head at the Institute of Direct Investments Fund, which is coordinating the Russian side of the fifth annual event.

U.S. Commerce Secretary Donald Evans and Economic Development and Trade Minister German Gref are to open the conference, which is sponsored by the Belfer Center for Science and International Affairs within the John F. Kennedy School of Government at Harvard University.

The three-day conference is slated to cover banking-sector reforms, opportunities for investment in the consumer market and the state of corporate governance in Russia.

The list of speakers resembles a Who's Who of Russian business - including the likes of Jean Lemierre, president of the European Bank for Reconstruction and Development; David Yakobashvili, board chairman of Wimm-Bill-Dann; Mikhail Khodorkovsky, CEO of Yukos; and Alexander Knaster, CEO of Alfa Bank.

With few countries currently posting growth as rapid as Russia's - gross domestic product is estimated to grow by 5.5 percent this year, against negative growth predicted in the United States this year - foreign and domestic investors are bringing their capital back onshore.

The stock market is up nearly 40 percent since January, while the Dow Jones Industrial Average has dropped more than 14 percent over the same period.

The three-day investment symposium opens on the heels of Moscow's World Economic Forum, which ended Tuesday.

President Vladimir Putin gave the investment symposium an optimistic start at the World Economic Forum when he said he wanted "both Russian and foreign investors to feel at home in Russia."

Zonova said she expected 400 to 500 participants to attend this year's symposium and no speakers had canceled in the wake of the Sept. 11 terrorist attacks in New York and Washington.

"The dialogue between both countries will continue," Zonova said.

"The people in power continuously change, so this symposium never gets old."