Russia, Kazakhstan may cancel oil export duties within CIS free trade zone

Ukrainian Prime Minister Mykola Azarov has said Russia and Kazakhstan have agreed to cancel oil export duties for participants in a free trade zone being created within the Commonwealth of Independent States (CIS).

“For the first time, we fixed in the agreement the readiness of Russia, as well as Kazakhstan, another oil producing country, to cancel [oil] export duties within a limited period,” Azarov said in an interview with Ukraine’s Inter TV channel on Saturday.

Russian Deputy Finance Minister Sergei Shatalov said on Thursday Russia could cancel its oil export duties no earlier than 2020.

On Tuesday, the majority of the CIS countries signed an agreement to set up a free trade regime after two decades of debate. The CIS consists of Azerbaijan, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan and Uzbekistan. Ukraine has not ratified the CIS Charter but participates in its activities. Turkmenisan, Azerbaijan and Uzbekistan are yet to decide whether to join the agreement.

Azarov said on Thursday the agreement may come into force in January 2012. It is yet to be ratified by member states.

In the interview with Inter, the Ukrainian premier said Russia’s high oil export duties were detrimental to Ukraine’s oil refineries.

“Oil export duties of $450 per ton ($64 per barrel) make our oil refineries unprofitable,” he said.

He also said he expected a new agreement on Russian gas supplies to Ukraine being negotiated by the sides to correspond to Ukraine’s “long-term interests.”

“We are certainly ready to compromise – and we will – because we don’t have other options,” he said.

In August, following a gas pricing row between Moscow and Kiev, Ukrainian state energy monopoly Naftogaz threatened to cut its gas imports from Russia if Moscow does not agree to lower the price.

Earlier this month, Former Ukrainian Prime Minister Yulia Tymoshenko was sentenced to seven years in jail on charges of abusing her power in the signing of a 2009 gas deal with Russia that Ukraine seeks to review. She has already appealed the verdict.

“The first thing that Russia needs is guarantees of uninterrupted gas supplies to Europe,” Azarov said. “We are trying to persuade our partners that we are ready to guarantee the reliability and stability of gas supplies by concluding the agreement.”

Russia annually pumps about 100 billion cubic meters of gas to European countries via Ukraine, which makes up 80 percent of its total gas supplies to Europe.

Russian gas exports to Europe via Ukraine have been disrupted several times in recent years over pricing rows with Kiev. In early 2009, Europe has been left without Russian gas for nearly two weeks after Russian energy giant Gazprom and Ukrainian state energy monopoly Naftogaz failed to agree on gas prices.

Fuel shortage cuts wings of Russian airlines

Russian traders are alarmed at the sudden disappearance of aviation fuel from the market.

They say a hike in prices is imminent, with a fuel deficit likely before the end of October.

The main factor behind the deficit is thought to be the growing number of passengers using airlines in Russia, whereas the oil refineries around Moscow and Moscow regions ceased operating at full capacity. Additionally, in September, the Defense Ministry made a large order for aviation fuel.

This comes just as Russia’s last remaining budget airline Avianova is quitting the market. Early on Monday morning the company announced a shortage of funds had forced it to cease operations – much to the dismay of its passengers.

Avianova is not the first low-cost operator to have its wings clipped. Domestic competitor Sky Express has also struggled, a problem many attribute to conditions on the ground.

“Russia’s aviation infrastructure is not yet prepared for low-cost business models as the industry cannot provide alternative airports or fuel suppliers,” former Sky Express marketing director Max Poberezhnik, from Aviacassa.Ru, told RT. “Most of the services provided to low-cost airlines are monopolized, and as a result it’s impossible to make a ticket price significantly lower.”

Such factors have led to a bumpy ride for Avianova’s joint-owners and two major stakeholders: A1 representing the Russian consortium Alfa Group and the American-based Indigo Group.

The two recently fell out, with A1 accusing the US partners of failing to supply their half of the $24 million cash injection needed to keep the company airborne.

Industry analysts see the real problem as the amount of capital needed for low-cost Russian operators to take off.

“What’s missing is governmental support,” Poberezhnik told RT. “The imports duties for foreign-made aircraft amount to 40 per cent, which is a pretty huge burden for any airline, not to mention the low-cost ones.”

It is consumers in Russia who are feeling the effects, with air fares often failing to compete with other forms of transport.

Nonetheless those working at the country’s major airports think Avianova at least made a good attempt at rectifying the situation.

“Avianova’s achievement was that it got those passengers who previously preferred to use domestic railroad or bus routes into the air,” Sheremetyevo Airport spokesman Roman Genis told RT. “After being brought crashing down, low-cost air travel in Russia may now take some time to regain altitude, a flight path that many think will need a guiding hand to aid competitiveness.”

HMS pumps up 1H 2011 net income to 2.08 billion roubles

Russian pump maker, HMS Group, has posted a 1H 2011 net income of 2.08 billion roubles under IFRS.

The net result up more than 5 fold from the 1H 2010 result of 387.8 million roubles, with 1H EBITDA rising 175% year-on-year to 3.13 billion roubles, as 1H revenues jumped 51% to 13.86 billion roubles.

The Company attributed its higher financials mostly to the growth in industrial pump and design sub-segment growth.Artem Molchanov, CEO of HMS Group, was upbeat commenting on the results, noting its substantial order book.

“I’m pleased to say that over the first half of 2011 the company consecutively hit the goals that we set for the year and continued to strengthen our positions in the most profitable market segments.

We continued working on several large projects in oil upstream and transportation and by now have already managed to build up sound orders backlog for a mid-term perspective, having signed several significant contracts. Over the rest of the year we plan to keep it growing primarily owing to participation in large scale greenfield and brownfield projects in oil upstream, oil transportation and water utilities.”

Molchanov also noted its MA activity in the reporting period, with acquisition of Sibneftemash, an oilfield equipment manufacturer in Tyumen Region, completed in June 2011 and August purchase of a 57% stake in Bobruisk Machine Building Plant, saying it would help diversification.

“Implementing our growth strategy, this summer we completed two MA deals. For attractive multiples we have acquired companies with complementary business profile that would allow us to enhance existing product portfolio in oil equipment, pumps for oil refineries and metals and mining.”

Molchanov concluded by noting the strong 1H financial posting reflected those provided to investors as part of its IPO preparations.

“All in all it’s worth mentioning that the company demonstrated another half-year of stable growth, consecutively executing development plans that were presented to the investors during IPO process. I hope that the good results that we achieved will help to bolster investor’s confidence in the company notwithstanding volatility in the global economy.”