Air Transport 2002-2004
Indicators for the Russian transportation system have steadily improved in the last four years. For example, freight turnover increased 7.9% compared to 2000. Last year, 285.7 million tons of freight were shipped through Russian ports (compared to only 92.7 million tons through Baltic and Ukrainian ports). The increase in freight volumes was mainly due to bulk cargo transport (oil and petroleum products), which showed a 17.6% increase based on the results of 2003 (compared to 1.5% for dry cargo).
Indicators for air and rail transport also increased steadily, averaging 10% per year. Domestic and international airlines carried 31 million people in 2003, which according to data of the RF State Statistics Committee (Goskomstat) is 10.7% more than in 2002. In 2003, Russian railways transported 1.161 billion tons of freight (7.1% more than in 2002) and 1.3 billion passengers (an increase of 2.6%).
At the same time, even according to official information, the condition of transportation facilities and infrastructure leaves much to be desired. For example, there are 18 291 vessels used in Russian inland water transport but only 354 of them are less than 10 years old. And only half of the 3830 airplanes and 1967 helicopters are actually used. Depreciation of railway rolling stock is nearly 60%.
History: 2000–2004
During the first four years of Vladimir Putin's presidency, many transportation companies changed owners. Not without scandals, of course; but these shifts essentially had no effect on the state of the industry.
History of Aviation on the Ground
At present, there are 423 airports in Russia, almost all of them state-owned. Despite the fact that the government promised last year to get out of the airport business in the near future (this is stipulated in Russia's transportation strategy) and transfer airports to private hands, Vladimir Putin's first presidential term showed that this process will be neither quick nor easy.
In June 2000, Aeroflot (51% state-owned) announced plans to construct a third terminal at Sheremetevo International Airport (100% state-owned). Aeroflot is Sheremetevo's main carrier and knows better than anyone that the airport's traffic capacity and infrastructure have not met real needs for a long time. However, things have not progressed beyond leasing 50 ha of land in Khimkinsky District and a pompous laying of the cornerstone. Aeroflot's management and the bureaucrats disagree on who should build the new terminal and manage the existing one.
Last year, Alfa Group, which had previously never owned any transportation assets, lobbied in Mikhail Kasyanov's government for a tender to select Sheremetevo's management company for three years and won it, beating out a consortium of Aeroflot and the National Reserve Bank. At the time, Valery Okulov, Aeroflot's general manager, even threatened to change the company's base airport, but the winner (OAO Alfa Sheremetevo, 100% owned by Alfa Group affiliate Alfa-Eko M) produced a group of foreign partners with whom it planned to tackle Sheremetevo Airport. According to Igor Baranovsky, the head of Alfa Sheremetevo, the amount of investment required to reconstruct and modernize the airport and construct a third terminal is estimated at $1.5-2 billion.
However, the tender results were not approved. Under pressure from Aeroflot, Mikhail Fradkov's government effectively disavowed them. In early June, the prime minister instructed Aeroflot and Alfa Group to reach an agreement on joint management of the airport. So far, they have only determined the legal aspect of Aeroflot's entry into the management company. On July 6, Aeroflot's board of directors approved the following plan in principle: Alfa-Eko M and Aeroflot would set up OOO Airport Management, to which they would transfer 100% of the management company's shares. The ratio of the partners' stakes in the new company remains an open question. The negotiations will probably be protracted, and it is not inconceivable that the partners will use their lobbying resources more than once to turn the situation to their own advantage.
Vnukovo, Moscow's third-largest airport after Sheremetevo and Domodedovo in terms of passenger flows, was the first to actually be privatized and was handed over by the federal authorities almost without a fight. Until November 2003, 60.88% of the shares of AO Vnukovo Airport (owns the Vnukovo 1 terminal) belonged to the RF Ministry of State Property, but the Aviation Oil Company (ANK) had actually been controlling all of Vnukovo's airport business for a long time. ANK refuses to disclose the ownership structure, but according to some reports, the largest co-owners are the father and son Anatoly and Vitaly Vantsev. The Vantsevs maintain that they only own the manager's block, the exact size of which is unknown.
ANK owns ZAO Vnukovo Invest [the owner of a second large block (38.2%) of AO Vnukovo Airport], 75% of AO Vnukovo International Airport (the remaining shares belong to the Moscow government), 60% of ZAO Fuel Supply Complex (Toplivozapravochny kompleks;TZK), 50% of ZAO Fuel Supply Company (Toplivozapravochnaya kompaniya), and more than 50% of AO TZK Prima Fuel.
In April 2002, Moscow mayor Yury Luzhkov sent Vladimir Putin a proposal to transfer shares of Vnukovo Airport against repayment of arrears on subsidies to Moscow for carrying out its metropolitan functions. A year later, the parties agreed in principle to transfer the shares, worth an estimated $1.74 billion; and Vladimir Putin signed the corresponding decree in November. According to Vitaly Vantsev, OAO Vnukovo International Airport's general manager, there was no redistribution of the shares or their transfer to the management of a single structure, as Vnukovo's owners had originally planned; however, OAO Vnukovo Airport was chosen as coordinator of the modernization plan for the entire Vnukovo Airport complex with the rank of management company. A total of $300 million is supposed to be invested in Vnukovo by 2007 and another $200 million by 2008.
ANK also wants to buy the state-owned terminal at Sochi Airport, where the company already has a fuel supply business. According to Vlast's information, the deal could be worth $70-80 million, with provision of a further $30-40 million of investments. “This will probably be by tender, and we're planning to participate,” says Vitaly Vantsev.
The Russian government's transportation strategy assumes that redistribution of airports will continue. Up to now, the airports have not been separated from the 71 airlines (24 of these are joint stock companies, and 47 are state unitary enterprises). Given that sometimes the state owns only the runways and airport buildings but business runs the private structures, the restructuring will not be easy.
History of Aviation in the Air
There have been some overall changes in air traffic in the past four years. As before, more than 200 companies are involved in this business, but only five airlines account for half of all passenger traffic: Aeroflot – Russian Airlines, Sibir, Pulkovo, Krasnoyarsk Airlines, and UTair (formerly Tyumenaviatrans). Interestingly enough, the state has stakes ranging from 25.5% to 100% in each of the five leaders except UTair. In the experts' estimation, this coupled with the effect of more progressive private management has allowed the carriers to become leaders.
Sibir, controlled by a couple from Novosibirsk, Vladislav (general manager) and Natalya (his deputy) Filev, has been expanding its business more aggressively than the others in the past four years. Sibir's expansion on the air transport market began with Vnukovo Airlines (VAL), which was in second place in traffic volumes in the mid-1990s, but by 2000 was virtually bankrupt. In 2001, Sibir's management announced the start of a merger of the companies. But when it was discovered that VAL had debts of nearly 1 billion rubles and creditors blocked the merger several times by legal means, Sibir simply bought 37 of the Moscow carrier's airplanes, which had previously been moved to subsidiaries set up by VAL's management. Vnukovo Airlines was declared bankrupt in 2003.
In summer 2002, Sibir became a co-owner of Armavia Airlines founded by a group of Armenian businessmen using leased Tu-134's, Tu-154's, and a leased Airbus-A320. Sibir has still not officially confirmed this information, calling cooperation with Armavia a “strategic alliance”.
Finally, in May of this year, Sergei Yashin, a co-owner of Chelyabinsk Airlines (ChAP), sold 54% of his company's shares to structures owned by Vladislav Filev. As a result, Sibir acquired Chelyabinsk Airport, a fuel-supply facility, a fleet of 16 Tu-154, Tu-134, and Yak-42 airplanes, and the means to increase passenger flows by at least 500 000 people. Experts estimate that the deal was worth $10 million. Yashin's former partner and minority Chelyabinsk Airlines shareholder, Evgeny Razumov, opposed the sale and the arrival of new owners. The confrontation between the parties is proceeding in the finest traditions of shareholders' wars: reciprocal lawsuits and seizures of Chelyabinsk Airport and the Moscow office of ChAP subsidiary Enkor. Nevertheless, in early July, Sibir's management officially announced the start of operations at ChAP, and the company has begun flights between Moscow and Chelyabinsk.
UTair, one of the world's largest helicopter operators (184 machines), changed owners at the end of June when the Administration of Khanty-Mansi Autonomous Area (KhMAO) and the mayor of the city of Surgut, who owned nearly 45% of UTair's shares, sold their holdings. The new owner has not been disclosed, but sources closely connected with the deal say it is the oil company Surgutneftegaz. In fact, oil companies make up a large proportion of UTair's clients, and the company has a well-developed infrastructure in a number of Russian oil towns. Aleksandr Filipenko, the governor of KhMAO, strongly recommended to oil companies that they buy the airline. Neither UTair nor Surgutneftegaz has officially confirmed the deal, but according to Andrei Martirosov, the airline's general manager, the owner is a company “well known in the autonomous area and outside”.
History of the Ports
The last four years have been notable for the mass arrival of new owners at Russian ports – metallurgical, oil, chemical, coal, and even agricultural companies have bought their shares. ZAO Severstaltrans (SST) started the trend – Aleksei Mordashov, head of the Severstal Group, and Konstantin Nikolaev, the head of Severstaltrans, set up the company on a parity basis in 1996. The peak of the new transportation company's activity happened to coincide with the past four years.
In 2001, SST began buying up shares of OAO Eastern Port (Vostochny port), the largest port in the Far East, which had been controlled for eight years by American businessman Kenneth Dart and his partner Andrew Fox (they owned 36% of the shares). By the end of the summer, SST had acquired nearly 60% of the shares; today it controls 68.64%.
Eastern Port is fourth in Russia's hierarchy of ports. It is located in deep-water, ice-free Wrangel Bay in the Sea of Japan and is capable of handling large-capacity vessels (up to 150 000 tons). The oil company Rosneft came here in April of last year. Rosneft's board of directors approved the acquisition of 100% of the shares of ZAO Eastern Oil-Loading Terminal (Vostochny neftenalivnoi terminal; VNT) from OAO Eastern Port. The deal is worth an estimated $18 million, and Rosneft will have to invest about another $30 million to finish building the terminal. After commissioning the first phase of VNT, the company plans to export up to 4.5 million tons of petroleum products per year through it.
In January 2002, Severstaltrans was the winner at a Russian Federal Property Fund (RFFI) auction for the sale of 34% of the shares of Taganrog Commercial Seaport (TMTP). The company paid 75.14 billion rubles for one-third of TMTP, one of the so-called small ports on the Sea of Azov with potential freight turnover of 1.5 million tons per year. As a result, Severstaltrans became the largest port owner after the state by consolidating 39% of the shares (51% of the voting shares). A new 400 000-ton capacity grain berth went into operation in the same year, and construction began on three more. But at the end of the year, Severstaltrans sold its share block to grain trader Karavai Plus Agroindustrial Corporation (APK Karavai Plus).
This year, SST got rid of another port asset acquired two years ago. At the end of June, the company sold 69.4% of the shares of Tuapse Commercial Seaport [Tuapsinsky MTP, on the Black Sea] to Novolipetsk Iron and Steel Corporation (NLMK). The amount of the deal has not been disclosed, but analysts believe the shares cost NLMK twice as much as Severstal, which spent about $45 million on consolidating the shares in 2002. Severstaltrans (port assets make up a fifth of all of the holding's assets) explained that it had sold the shares in order to shift money to the railway sector, specifically towards the purchase of rolling stock and locomotives.
NLMK in turn had been the only remaining Russian metallurgical company without its own transportation assets. However, it quickly got down to business and bought a controlling interest in OAO Port of St. Petersburg (Morskoi port Sankt-Peterburg) from Nasdor Anstalt (controlled by State Duma deputy Vitaly Yuzhilin and his partner Andrei Kobzar). The amount of the deal has not been disclosed, but market participants estimate it was worth at least $100 million.
Other companies also became port owners between 2002 and 2004, including Magnitogorsk Metallurgical Plant (MMK, or Magnitka), which bought about 23% of the shares of OAO Vladivostok Commercial Seaport (Vladivostoksky MTP), Evrazholding [owns 91.5% of the shares of Nakhodka Commercial Seaport (Nakhodsky MTP)], Mechel [80.2% of Poset Commercial Port (Torgovy port Poset)], and AO Alliance Oil Company [NK Alyans; owns a 65.84% share in the capital of Nakhodka Commercial Petroleum Port (Nakhodsky neftenalivnoi MTP)]. Norilsk Nickel (Nornikel) increased its stake in Archangelsk Commercial Seaport (Arkhangelsky MTP) to 53%.
History of Shipping
Of Russia's four largest shipping companies – Novoship, Sovkomflot, and the Primorye and Far Eastern shipping companies – only the last two have undergone changes. In June 2002, offshore companies closely associated with ex-Minister of Fuel and Energy and ex-State Duma deputy Sergei Generalov consolidated a 60% block of shares of Far Eastern Shipping Company (DVMP), which specializes in worldwide container traffic. The shares were acquired from a number of small private investors.
The shipping company changed its general manager in September, when Aleksandr Ambrosov from Sovkomflot replaced government representative Aleksandr Lugovets, who until 2000 had been the deputy of former Minister of Transport Sergei Frank. This can be considered a defeat for the bureaucrats, since Frank had always zealously defended the presence of government officials in large shipping companies. At the last shareholders' meeting, disputes broke out between the representatives of majority shareholder S.V.G. Holding S.A. and the government (20%) over the amount of dividends on the results of 2003. The government insisted on increasing them, but the principal shareholder thought it was better to direct profits to the reserve fund and to upgrading DVMP's fixed assets.
Primorye Shipping Company (PMP) did not change owners. Its management headed by Aleksandr Kirilichev, which controlled nearly 70% of the company's shares, tried to protect it from a hostile takeover in January 2003. In 2003, the entire block was transferred to a nominee holding of depositaries of ZAO ING (Eurasia) and ZAO Depositary and Clearing Company.
A year later, Kirilichev, who had been at the helm of PMP for more than 10 years, also faded into the background. His first deputy, Aleskandr Popravko, became general manager in May of this year, and Kirilichev decided to concentrate on solving strategic problems of expanding shipping as chairman of the board of directors. According to Natalya Mironova, the head of PMP's press service, the general manager himself initiated the lateral move, because he believed that “there are already good managers in shipping”. PMP stubbornly denies the theory that the staff changes were made just before a major change of owners.
Changes may also affect Sovkomflot and Novoship during Vladimir Putin's second presidential term. Several months ago, rumors appeared that Sergei Frank, now an aide to the prime minister, is hatching plans to merge the companies and is ready to head the new structure. Of course, there is still no confirmation of this information. The mechanism of the merger is also unclear. Unlike wholly state-owned Sovkomflot, Novoship is only 50% state-owned.
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People Who Have Left the Scene
Nikolai Aksenenko
Nikolai Aksenenko's career advancement, uncommon for a railwayman, began during the decline of Boris Yeltsin's regime. As minister of railways, he endured five changes of government – from Chernomyrdin to Kirienko to Primakov to Stepashin to Putin and finally to Kasyanov. He became first deputy prime minister at the same time as Stepashin was appointed prime minister and retained this position in Vladimir Putin's government. However, after Putin became president, he quickly got rid of one of the last of the “family's” proteges. Nikolai Aksenenko lost his job as deputy prime minister in May 2000 and the post of minister of railways in early January 2002.
Aleksandr Krasnenker
After leaving LogoVAZ to take up the position of commercial director of Aeroflot in 1995, Aleksandr Krasnenker might well have had a brilliant career in the airline business. However, he and deputy general manager Nikolai Glushkov, as well as several other senior Aeroflot executives, became hostages of a power struggle with Boris Berezovsky and the personal ambitions of the head of the company, Valery Okulov, Boris Yeltsin's son-in-law. The managers got caught up in the split within the “family”. This led to the so-called “Aeroflot affair” in 1999, and the disgraced managers quit the company under a cloud of scandal. Krasnenker subsequently became head of Vnukovo Airlines, but lost this job in September 2000. The trial in the criminal case of Aeroflot's managers was going on during Vladimir Putin's first presidential terms, and Nikolai Glushkov spent these years in Lefortovo Prison. The court reached a verdict in March of this year, but it was reversed in June on the application of the Prosecutor General's Office. The case has been referred for retrial.
Tatevos Surinov
For many years, head of Rosaviakonsortium Tatevos Surinov was one of the most charismatic figures in the Russia airline business. He controlled Vnukovo Airlines, which inherited virtually the entire domestic air transport network from the unified Soviet Aeroflot. Vnukovo Airlines was the country's second-largest airline, but under the leadership of Surinov and his partner Aleksandr Klimov, it rapidly headed for bankruptcy. Sibir acquired the airline in 2000. At the beginning of 2001, Sibir took over control of nearly all of the Moscow carrier's commercial operations, and several months later announced the merger of the companies. Surinov has tried to set up small new airlines, but he will probably not be able to regain his previous standing in the airline industry.
Vitaly Yuzhilin
State Duma deputy Vitaly Yuzhilin has not entirely left the transportation business, but he has drastically curtailed his presence in it. After Nasdor Anstalt (an offshore company controlled by Yuzhilin) sold half of OAO Port of St. Petersburg in June of this year, Yuzhilin announced several other deals. These involved the sale of 50% of Nasdor Anstalt's holdings in the stevedoring companies Neva Metal and Baltic Bulk Terminal (BBT) to Severstaltrans and Uralkalii (today the two companies own only half of both stevedoring companies). Thus, all that is left to Nasdor Anstalt at the St. Petersburg port is 50% of the shares of the company First Container Terminal (Pervy konteinerny terminal).
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People Who Have Arrived on the Scene
Sergei Generalov
The business interests of Sergei Generalov, who has already been a vice-president of YUKOS, Minister of Fuel and Energy, and a State Duma deputy, have always been noted for their breadth: coal, engineering, and distilling. In spring 2002, he also became the co-owner of a shipping company. Several offshore companies managed by the Industrial Investors (Promyshlennye investory) group succeeded in consolidating nearly 60% of the shares of Far Eastern Shipping Company. Now Generalov has decided to expand his sphere of influence in transportation by setting up a joint venture with OAO Russian railways (RZhD), which will begin container service on the Transsiberian Railway in the fourth quarter of 2004. They have already invented a name for the company – Russian Troika (Russkaya troika). The partners plan to invest about $80 million each to build up its capacities after buying nearly 10 000 flatcars and 40 000 containers.
Aleksandr Lebedev
No one could call Aleksandr Lebedev a newcomer to the airline business: the former diplomat, secret service man, and co-owner of the National Reserve Bank (NRB) was one of the founders of the airplane leasing company Ilyushin Finance Co. (IFK) in 1999. Today, National Reserve Corporation (NRK, manages National Reserve Bank's nonbanking assets) owns 45% of IFK, which manages a controlling block of shares in the Voronezh Aircraft Manufacturing Association (VASO; long-distance Il-96-300 airplanes). However, Lebedev's most important move in the airline industry was the NRB group's purchase of 26% of Aeroflot's shares from Millhouse Capital owned by Roman Abramovich. Today NRK holds nearly 30% of the airline's shares. Moreover, despite announcements of a strategic partnership between management and the state (which owns a controlling interest in Aeroflot), NRK representatives on the board of directors frequently oppose them.
Vladimir Lisin
Until recently, Novolipetsk Iron and Steel Corporation headed by Vladimir Lisin was the only metallurgical company without its own transportation assets. Lisin more than made up for this deficiency with two purchases in the first half of 2004. First, Severstaltrans sold NLMK 69.4% of the shares of Tuapse Commercial Seaport. With a freight turnover of 17.9 million tons, the terminal is one of Russia's five largest ports. NLMK explained the purchase by the need to cut expenses – NLMK annually exports more than 3 million tons of products to China, European countries, and Asia and plans to expand the stevedoring business. Second, at the end of June, the Liechtenstein offshore company Nasdor Anstalt controlled by Duma deputy Vitaly Yuzhilin and his partner Andrei Kobzar sold a controlling block of shares in OAO Port of St. Petersburg to the Danish company Jysk Staalindustri, a friend of NLMK, for an estimated $100 million. The Port of St. Petersburg is second in importance after Novorossiisk.
Konstantin Nikolaev
Konstantin Nikolaev, a graduate of the philosophy department of Moscow State University (MGU), made no mistake when he proposed the formation of a transportation company on a parity basis to Severstal's management. Based on the results of 2003, revenues of Severstaltrans, which he heads, were nearly $1 billion. At the present time, the company transports by rail 18% of all ferrous metals, 16.8% of all iron ore, and 11.4% of all oil and petroleum products; it also accounts for more than 19% of freight turnover at Russian ports, including 62% of container freight. The holding's assets are divided into three main parts: rail transport (Severstaltrans, OOO Sevtekhnotrans, and OOO Balttransservis), port services (OAO Eastern Port, ZAO First Container Terminal, ZAO Neva Metal, and OOO NUTEP), and transport engineering [OAO Kolomensky Plant (Kolomensky zavod)].
Gennady Fadeev
You can't quite bring yourself to call career railwayman and president of OAO Russian Railways a minion of President Vladimir Putin. In actual fact, he was born and educated in the Far East and began his working life there; before the start of his administrative career, he was an engineer and never had anything to do with state security. And during the several years that, as fate would have it, Fadeev headed the Oktyabrskaya Railway (Oktyabrskaya zheleznaya doroga), Vladimir Putin was serving in East Germany. Gennady Fadeev became Minister of Railways for the first time in 1992 under President Boris Yeltsin, who later replaced him with “family” loyalist Nikolai Aksenenko. Nevertheless, Fadeev again became head of the Ministry of Railways (MPS) in 2002 on the eve of the industry's historical restructuring. In 2003, he became president of OAO Russian Railways, and although rumors of his dismissal are constantly circulating, he has so far managed to keep his job.
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by
Sergey Ryzhkin
All the Article in Russian as of July 26, 2004
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