By John Helmer, Moscow

Going or coming, Russian users of private jet aircraft think they are screwed.

If they fly on foreign-made planes which are registered in Russia, they are obliged under the current tax regulations to pay 18% value-added tax (VAT) on the customs-declared value of the aircraft, plus 2.2% annual property tax. If they try to avoid the VAT, and fly foreign-owned, foreign-registered aircraft, and if they are individuals, then their right to fly in style is subject to special permits issued by Rosaviatsia, the Russian aviation authority. Its rules require that the use of the aircraft is private, not commercial, and this is defined in government decrees as meaning that the flier isn’t aiming to derive income from his use of the aircraft. In addition, Russian Customs, which must issue permits for these aircraft to fly into Russian airports and pick up or drop passengers, requires that individual aircraft don’t operate inside Russia for more than 30 consecutive days; don’t accumulate more than 180 days of operation in a calendar year; and don’t carry more than 19 passengers at a time.

So what’s a Russian oligarch, or individual wealthy enough to prefer private jetting to regularly scheduled commercial airlines, to do?
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by John Helmer - Tuesday, November 20th, 2012
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By John Helmer, Moscow

If you are a steelmill owner working at safe distance when the bombs, rockets and body-packs explode in your market, the more destruction the better for demand, sales, and profit margins, especially at this point in the current cycle of the steel trade. Magnitogorsk Metallurgical Combine (MMK), the Russian steelmaker owned by Victor Rashnikov (right), has a near front-seat on the battlefield now extending from Iraq to Iran and Syria, because it is the sole owner of MMK-Metalurji (aka Atakas), a 2.3-million tonne capacity steel complex, in Turkey. In addition to losing revenues from direct sales to Iran because of US and European sanctions, MMK has been losing money hand over fist at Metalurji. In response, MMK’s management has been issuing contradictory signals of what it aims to do next.

This week MMK suspended crude steel production at MMK-Metalurji, leaving the rolling lines to continue working with stockpiled semi-finished steel. But the company doesn’t want to admit it. There has been no public announcement on the MMK website. Polina Rudyaeva, a spokesman for MMK headquarters in Moscow, said the company isn’t commenting on the issue for the time being.
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by John Helmer - Friday, November 16th, 2012
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By John Helmer, Moscow

The November 15 announcement by Megafon, the telephone property of Alisher Usmanov and Andrei Skoch, reveals a discount on last month’s valuation targets of up to 20%, depending on how the assets for sale are counted. To attract buyers for shares at bargain-basement prices, the company is promising to pay out more than 50% of its net profit in dividends, a temptation which wasn’t enough in last month’s offer to convince investors to buy into Megafon at the bottom of the valuation range of $11 billion. So uncertain is the future that the minority Swedish shareholder, TeliaSonera, confirms that it has agreed to retain its Megafon shares for no longer than next May, and may then sell out entirely.

Megafon says it has commenced a roadshow of presentations to investors today, and plans to start selling shares and General Depositary Receipts (GDRs) on the London Stock Exchange on November 28. The company has issued an Intention to List (ITL) document, but it is refusing to release the prospectus, or provide details of what it claims in that document about the risks the company faces, and what it reveals of the business practices and litigation record of Usmanov and Skoch.
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by John Helmer - Thursday, November 15th, 2012
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By John Helmer, Moscow

The rising cost line in the latest loss-making financial report of United Company Rusal, the Russian state aluminium monopoly, is under investigation as Rusal’s Latvian bank operations are probed, as well as tax payments in Cyprus. The evidence is being gathered in Cyprus; and by lawyers in London and New York, where Rusal and its chief executive Oleg Deripaska have been accused in court papers of violations of the company’s shareholder charter and management violations.

Deripaska denies the claims, while the company reports that as of September 30, it is counting provisions for possible lawsuit awards of $203 million.

In its report for the September quarter, released on November 12, Rusal says its revenues dropped to $2.5 billion, a decline of 19% compared to the second quarter. Cost of sales came to $2.3 billion, almost unchanged on the quarter. Over the 9-month period, revenues are down 13% to $8.3 billion, while cost of sales has grown 7% to $7 billion. The bottom-line for the latest quarter is an operating loss of $27 million, and an after-tax loss of $118 million. Rusal has now moved from profit-making at the half-way mark of the year into the red. A statement by chief executive Deripaska, posted on the company website, explains the company was “seriously hit by the bottomed LME aluminium price as a result of investor sentiment. The period under review has seen RUSAL continue to focus on cost controls as well as increase production of value added products.”
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by John Helmer - Thursday, November 15th, 2012
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By John Helmer, Moscow

The value difference and profit opportunity between a genuine piece of art and a fake are so large, there’s no deterring entrepreneurial forgers. Until now, the cleverest schemes have, ethnically speaking, been the specialty of Englishmen, Americans, and well-known art auction houses, museum curators and experts in connoisseurship. That last term is upper-class slang for hucksterism.

But when American Tom Wolfe (centre, right), exponent of what was called the New Journalism fifty years ago, exposes a Russian oligarch for a plot to make hundreds of millions of dollars in fakes through donating some to a Miami art museum, and selling others on the side, he has created a 700-page scapegoat for many things, including the loss of Wolfe’s talent.
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by John Helmer - Tuesday, November 13th, 2012
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By John Helmer, Moscow

The Fitch ratings agency has issued a downgrade for Sovcomflot, the state-owned tanker group, claiming the failure of the company to privatize and sell shares, planned for this year, is weakening its ability to cover its current debts, as revenues remain under pressure from poor freight rates. But the debt picture is worsening as more than another billion dollars in bills for the new fleet commissioned by chief executive Sergei Frank (image second from right) come due next year, and in 2014.

Sovcomflot has reported that as of June 30 it must repay short-term loans of $253.3 million over the next twelve months, and is carrying longer-term debts of $2.3 billion; the latter figure is up 8% compared to the debt level on June 30, 2011. In its financial report for the first half of this year, Sovcomflot says its Time Charter Equivalent revenues came to $500.5 million, a year-on-year gain of 4%, but net profit fell 21% to $50.9 million.
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by John Helmer - Monday, November 12th, 2012
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By John Helmer, Moscow

Novolipetsk Metallurgical Combine (NLMK), owned by Vladimir Lisin, has done something that no Russian steelmaker is on record as doing in the current downturn for steel production, sales, and profits; nor in the downturns which have preceded – 1991-93, 1998-99 and 2008-09. It is negotiating with steelworkers and their unions before deciding on how to cut costs. There’s a catch — that’s happening in Belgium, not in Russia.

For months there have been public demonstrations in the traditional steelmaking Wallonia (Walloon) region of Belgium, between Liege and La Louviere, 112 kilometres to the southeast. Unions, regional government, political parties of the right and left, and consultancy studies have recommended a variety of options for reviving the steelmills and keeping steelworkers employed in the region; none would cost less than €300 million. There is also sharp local argument over whether the region would be better off in the long run doing without the steelmills.
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by John Helmer - Saturday, November 10th, 2012
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By John Helmer, Moscow

Roman Abramovich was recently able to bamboozle a British judge with no experience of Russia, when the credibility standard was set by Boris Berezovsky. But can his winsome personality persuade President Vladimir Putin and energy chief Igor Sechin that Russia badly needs to acquire an Australian company that has adapted Soviet technology for turning coal into gas; should lend Abramovich up to $2 billion to buy the asset; and maybe several hundred more million dollars to flip the asset to Evraz, the Russian steel and coalmining group which Abramovich’s holding, Millhouse, already controls?

Abramovich’s last attempt at spending a Russian dividend stream on foreign assets was aborted when Evraz withdrew its bid to buy Scaw Metals, a South African steelmaker owned by Anglo American. That deal, worth between $500 million and $700 million, didn’t happen at the same time as Victor Rashnikov was extricating Magnitogorsk Metallurgical Combine from its $560 million commitment to buy Flinders Mining, an Australian iron-ore project.
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by John Helmer - Thursday, November 8th, 2012
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By John Helmer, Moscow

The result of the US presidential election, giving Barack Obama victory in both the popular vote and an even bigger one in the Electoral College vote by state, shows that one traditional rule of thumb still applies — incumbents must be down by a 5% margin in the polls at the end of the party conventions for the challenger to be likely to win on Election Day. This is because far more voters have decided their vote well in advance than they admit to the pollsters, and because they can be shaken from their intention only by October surprises or obvious mishaps. Accordingly, Mitt Romney was bound to fail.
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by John Helmer - Wednesday, November 7th, 2012
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By John Helmer, Moscow

It’s more serious than a case of when the cat’s away, the mice will play.

Arguments over Igor Sechin’s appointment to run the country delayed the announcement of Dmitry Medvedev’s government for several weeks in May. Now that Sechin’s at Rosneft in charge of constructing the most powerful energy-producing and trading platform in the world, he hasn’t had the time to supervise the Russian mining and minerals sector, as he used to do during President Putin’s second term and his prime ministry. In allocating Sechin’s time cost-effectively, there’s no comparison between running Rosneft and sorting out the problems of Norilsk Nickel, Rusal, Urals Mining and Metals, and Metalloinvest.
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by John Helmer - Tuesday, November 6th, 2012
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