MBS Blog

The economic policies described below should do wonders for the Russian economy.  Sarcasm aside, Putin’s well intentioned (whatever one thinks of Putin, he believes he is a Russian patriot) restrictions-like all protectionist policies designed to help domestic industry-will backfire as the productivity that technology provides will not be available. That will be the effect of tariffs.

It is no surprise that xenophobic Russia employs protectionism. This fits into a historical pattern of encouraging development periodically, and then squashing it just as it bears fruit. A vast nation like Russia with an incredible array of resources should be the richest nation in the World, but protectionist and other anti-growth policies keep it underdeveloped. The excuse of protecting domestic companies and jobs is always used, though an examination of nations that allow competition shows that it increases wealth, tax revenues, and creates a greater numbers of jobs.

Our hope is that Ukraine does not adopt these restrictions. Given the cultural similarities between Russia and Ukraine, as well as the shared oligarchic influences in both governments, we would not be at all surprised if Ukraine went down the same road. It would be even more damaging to Ukraine since it does not have the same resources of Russia and must rely more on the industrial, service and consumer sectors of the economy.

 Restrictions and tariffs on farm equipment and machinery in a nation sitting on an under-utilized agricultural sector with the best farm land in the World, would damage a nation that has already suffered through ill conceived socialist collectivization decades ago.

Putin’s Tariffs Stall Russian Growth for Caterpillar

By Melita Marie Garza and Paul Abelsky

April 20 (Bloomberg) — Prime Minister Vladimir Putin’s trade measures are starting to keep Deere & Co. combines and Caterpillar Inc. trucks out of Russian wheat fields and coal mines, dimming the companies’ prospects for expansion abroad.

Deere and Caterpillar, reeling from the longest U.S. recession in a quarter century, were the companies most affected by loan restrictions and tariffs of as much as 25 percent that Putin imposed this year, according to a U.S. Chamber of Commerce survey of the top 50 American businesses operating in Russia.

Putin is trying to boost Russian industries with tariffs on everything from drugs to farm equipment as declining oil revenue saps the nation’s economy. The policies are hurting sales by Caterpillar, Deere and Agco Corp. in a market where revenue was forecast to rise as much as sixfold in the next decade.

“The new tariffs kicked these guys in the knees when they were down,” Larry De Maria, a New York-based analyst with Sterne, Agee & Leach Inc., said in a telephone interview. “Russia was supposed to be a $3 billion market in 2008 with potential to grow to $20 billion, possibly in as little as a decade.”

Emerging-market sales likely fell so far this year for Deere and Caterpillar, which reports first-quarter earnings tomorrow, De Maria said. Caterpillar is expected to report profit excluding certain items of 5 cents a share, the average estimate of 20 analysts surveyed by Bloomberg. The company earned $1.45 a share a year earlier.

“We are really going to struggle this year in Russia,” Ken Harding, Caterpillar’s regional execution manager for the Commonwealth of Independent States, said in a telephone interview.

‘Low’ Expectations

Caterpillar’s “expectation is low” that it will sell any of its 60-ton trucks, used for quarry and construction work, in Russia this year after selling eight last year, Harding said.

Starting in January, Peoria, Illinois-based Caterpillar and other foreign makers of off-highway trucks faced duties of 25 percent, an increase from 5 percent last year. BelAZ, a Belarusian equipment producer that dominates the region’s truck industry, isn’t subject to the tariff and will benefit, Harding said.

Caterpillar declined 59 percent on the New York Stock Exchange in the 12 months through April 17. Deere fell 56 percent, and Agco dropped 64 percent.

Deere, the world’s largest maker of agricultural equipment, and Duluth, Georgia-based Agco are being hurt by a program that gives Russian farmers a 20 percent discount on loans from Russia’s Central Bank if they buy domestic machines.

Loan Program

The deal is for loans made through OAO Sberbank, Russia’s largest lender, and Rosselkhozbank, the Russian Agricultural Bank, which both have local offices that farmers rely on for financing, Michael Considine, director of EurAsia issues for the Washington-based Chamber of Commerce, said in an interview.

“If a Russian farmer had the cash to buy a Deere combine, it would cost substantially more because of the tariff increase,” Considine said. “And if you didn’t have the money, you could just forget about it because you’d only be able to get the money to buy something made in Russia.”

Putin undertook the measures after a December visit to Rostov, Russia-based Rostselmash, the country’s leading combine maker.

Putin’s press secretary Dmitry Peskov wasn’t available for comment. Valeriy Khromthenkov, a Russian official in Washington with oversight of agricultural issues, declined to comment. A spokesman for Finance Minister Alexei Kudrin, who also is deputy prime minister, wasn’t available to comment.

‘Dramatically Reduced’

Agco’s sales are “dramatically reduced” in the region, because borrowing for a foreign tractor is now almost impossible, Greg Peterson, Agco’s head of investor relations, said in a telephone interview.

In its first-quarter earnings announcement in February, Moline, Illinois-based Deere said sales will decline in Central Europe and the Commonwealth of Independent States for the year. Ken Golden, a spokesman for Deere, declined to comment.

“Our main problems have been the lack of state subsidies on loans combined with insufficient operating cash and the general economic downturn, not the import tariffs,” Alexander Altynov, the general director of AgroSnab, an official John Deere dealer in Russia, said in a telephone interview.

Market Decline

Altynov predicted the foreign machinery market in Russia will decline as much as 75 percent this year.

Deere was expected to post second-quarter profit excluding certain items of $1.08 a share, the average estimate of 17 analysts in a Bloomberg survey.

The U.S. Trade Representative has worked with the U.S. combine harvester industry and at a meeting in Moscow in March expressed concern about the tariff, Nefeterius McPherson, a spokeswoman for the trade representative, said in an e-mail.

The tariff runs counter to Russia’s G20 pledge to avoid protectionist measures and is contrary to a November 2006 bilateral agreement that Russia will maintain a 5 percent tariff on combines until it joins the World Trade Organization, McPherson said.

The ruble’s 31 percent decline against the dollar since July also has made foreign products more expensive. Russia’s Economy Ministry estimates that imports have tumbled more than 30 percent in the first quarter of this year.

Last month, Russia allocated 25 billion rubles ($746.7 million) to OAO Rosagroleasing, the nation’s largest farm- equipment leasing company, and 45 billion rubles to state-run Rosselkhozbank as part of a 3 trillion-ruble stimulus package.

Rosagroleasing spent the money on Russian-made equipment, including 5 billion rubles on OAO KamAZ trucks, Agriculture Minister Yelena Skrynnik told Putin during a meeting on April 17, according to a transcript on the government’s Web site.

Farm Equipment

Russia’s Union of Farm-Equipment Producers, known as Soyuzagromash, asked the government last week to extend the 15 percent import duty on combines to all farm equipment. The tariffs may boost domestic market share for farm machines to 60 percent, the union said.

“The government wants both to help the domestic producers and keep the state funds allocated to the agricultural sector inside Russia,” said Mikhail Pak, an analyst with IFC Metropol in Moscow.

Putin’s efforts may hurt U.S. companies’ operations in the rest of the world, said De Maria, of Sterne Agee.

“There is a worry that these measures could spread to China and other emerging-market countries,” De Maria said. That “would be a blow to the Deere brand and others, stifling their growth strategy as local companies build share.”

(from www.bloomberg.com)

OK…it is one thing for Ukraine to send letters begging for money to the USA, the EU, even China…but Russia? What are they thinking in Kyiv? Sure…Russia will loan you the money. They may be running a bit short due to propping up rubles and oligarchs, but they will find some spare cash as they know they will gain considerably from any arrangement.

After all, they promised the Kyrgyz Republic some money too. However, the conditions-regardless of what is officially denied-is that a U.S. base be closed. Imagine what they will demand of Ukraine?

From www.ft.com:

Ukraine pushes for loans to meet shortfall

By Roman Olearchyk in Kiev

Ukraine has appealed for emergency loans from the world’s richest countries to help support its economy, which has been battered by the global financial crisis.

Yulia Tymoshenko, prime minister of Ukraine, said her government had sent letters to the US, Russia, China, Japan and the European Union asking for loans to fill a shortfall in budget revenues for this year.

 “We have already received a positive response from some countries, including Russia,” Ms Tymoshenko said at the Munich Security Conference at the weekend. “Russia is ready to sign such loan agreements.” She did not clarify how much Kiev was seeking to borrow but reports in Ukraine suggested Russia could lend $5bn (€3.9bn, £3.4bn).

Ms Tymoshenko said Ukraine was keen to harmonise relations with Moscow, soured after last month’s gas prices dispute. She insisted Kiev would stick to a western integration agenda that included efforts to join the European Union and Nato.

News that Ukraine was seeking emergency loans amid frozen credit markets comes days after a senior International Monetary Fund delegation warned of “serious problems” brewing in Ukraine’s economy.

The fund delegation ended its one-week visit to Kiev last week but provided no clear signal on whether it would grant further disbursements from a $16.5bn standby facility agreed last year.

Ukraine received a first tranche of $4.5bn last November. Future disbursements depend on the implementation of tough conditions and are needed to keep Ukraine’s currency, the hryvnia, stable. It lost nearly 40 per cent of its value in 2008.

The IMF’s concerns centre on Kiev’s 2009 budget, which has a 3 per cent deficit in spite of a fund stipulation it be deficit-free. It also seeks a freeze on social spending at a time when more than 1m out of a population of 46m have lost their jobs.

Ukraine’s gross domestic product is expected to contract by around 5 per cent this , thus curbing budget revenues, complicating the state’s ability to rescueshaky banks and to provide unemployment benefits.

Ukraine is struggling to tame annual inflation of more than 20 per cent and toadjust to a fourth stiff price rise on natural gas imports from Russia in as manyyears.

The US and other western nations are keen to stabilise Ukraine for geopolitical as well as economic purposes, given its important position in Eastern Europe as a neighbour of Russia.

Technorati Tags: Ukraine, Russia, United States, European Union, China, Kyiv, MBS Ltd., Anton Olff, Kyrgyz Republic, military bases, loans, Roman Olearchyk, global financial crisis, Japan, Munich Security Conference, Yuliya Tymoshenko, Moscow, NATO, International Monetary Fund, hryvnia, gross domestic product, natural gas, geopolitics

Although this article from the Russian News & Information Agency at www.en.rian.ru states that money will make its way to Switzerland and Cyprus. OOPS!! They don’t actually say that…but wherever it winds up, it will not be in Russia.

We believe that capital outflows will be higher than $90 billion if the crisis continues. On the other hand, much of this capital will eventually return to the Russia when the crisis passes as investors see beyond the current mess to burgeoning opportunities in this emerging market.

MOSCOW, December 18 (RIA Novosti) - Capital outflow from Russia is expected to continue, and hit $90-91 billion next year, a deputy economics minister said on Thursday.

Andrei Klepach said Russia’s international reserves are expected to decline $110-140 billion amid the ongoing global financial crisis, but remain above $300 billion.

Russia’s Central Bank announced on Thursday that its international reserves, which hold foreign exchange and gold, stood at $435.4 billion as of December 12, down $1.6 billion against $437 billion on December 5.

International reserves declined $28.9 billion in November, $71.5 billion in October, $25.6 billion in September and $14.3 billion in August. The reserves had been increasing in the months prior to August.

Inflation in Russia in 2009 could drop to 10-12% from the economics ministry’s revised 2008 forecast of 13.4%, Klepach said.

Russia is expected to keep its foreign trade balance favorable at $18 billion, with $303 billion in exports and $283 billion in imports, Klepach said.

In its macroeconomic forecast for next year, the ministry also said that crude exports from Russia were expected to decline 3.8%, year-on-year, in 2009 to 235 million metric tons (1.7 billion barrels).

Natural gas exports from Russia are expected to grow from 203 billion cubic meters in 2008 to 208 billion cubic meters in 2009, the ministry said.

Russia’s oil production is expected to decline 1.6%, year-on-year, in 2009 to 480 million metric tons (3.5 billion barrels) while natural gas output is likely to increase 0.7% to 670 billion cubic meters, the economics ministry said.

Technorati Tags: Russia, Andrei Klepach, natural gas, oil production, natural gas, inflation, foreign trade balance, international reserves, global financial crisis, Russian Central Bank, foreign exchange, gold, Moscow, RIA Novosti, Russian News & Information Agency, www.en.rian.ru, Anton Olff, Switzerland, Cyprus, capital outflows, emerging markket,

As with many emerging markets, Russia should continue to grow despite the Global Economic situation. The direct link between oil price levels and economic growth is key.

This from  www.themoscowtimes.ru:

GDP Posts Weakest Growth in 3 Years

10 December 2008By Maria Levina / Special to The Moscow Times

Economic growth fell to its slowest rate in three years in the third quarter, at 6.2 percent, the State Statistics Service reported Tuesday, and economists say even lower growth is in store for 2009.

Actual GDP growth in the quarter missed the Economic Development Ministry’s forecast of 7.1 percent, driven by significantly slower growth in the construction, retail, transport and communications sectors.

The decline continued a slide from 8.5 percent GDP growth in the first quarter and 7.5 percent in the second, and if the trend continues the final number for the year could be in the 6 percent range.

“Next year’s GDP growth could range from negative 5 percent to plus 5 percent, depending on what happens to oil prices and the steps taken by the Russian government,” said Yevgeny Gavrilenkov, chief economist at Troika Dialog. “If it continues to throw away currency reserves to defend the ruble, Russia may face a fiscal deficit and zero economic growth.”

He said allowing the ruble to depreciate is one step that could be taken to prop up growth numbers. 

“In the past, the Russian economy grew even with oil prices of $30, $40 and $50 per barrel but at a different exchange rate,” he said. “In the current environment, Russia’s goal should be to achieve positive economic growth and avoid a fiscal deficit.”

In year-on-year terms, growth in the fourth quarter could end up at zero, partly as a result of slower production growth and partly because the number was strong in the final quarter of last year, said Yekaterina Malofeyeva, chief economist at Renaissance Capital.

She said she expects growth this year to finish above the 6 percent mark — at 6.2 percent — and that next year’s figure could range from zero to 3 percent.

“If oil prices average $70 a barrel next year and the ruble is allowed to depreciate, GDP growth could reach 3 percent,” Malofeyeva said. “Otherwise, it could be flat.”

Although the Economic Development Ministry has yet to release an official forecast, in recent informal comments it has put the number at 3 percent to 3.5 percent if oil prices average $50 per barrel for the year.

But economists say conditions have been shifting so rapidly that providing anything resembling an accurate forecast for 2009 would be difficult until all the numbers for the final quarter of this year have been released.

The Economic Development Ministry said Monday that it was revising its forecast for manufacturing growth for the year downward, from 5.2 percent to 2.9 percent. The figure for the first 10 months of this year was 4.9 percent, so the ministry’s forecast suggests that it is expecting disastrous results in November and December, with production dropping by over 10 percent. 

Gavrilenkov said he believed that a 2.9 percent production forecast was overly pessimistic but, if accurate, would mean that the country is entering a severe depression.

He added that losses on the manufacturing side could be balanced somewhat by growth in the service sector, as consumer spending has remained relatively strong. As such, he said he expected GDP growth of 6.8 percent to 6.9 percent this year.

Natalya Orlova, chief economist at Alfa Bank, said she was surprised by how low the production numbers were.

“Given that the October numbers showed there was essentially no growth (0.6 percent), we originally assumed a drop in production of 2 to 3 percent in November and December, which would still imply a growth rate of around 5 percent for the year,” Orlova said. “But if we are to believe the numbers from [Economic Development Minister] Nabiullina, with a drop of more than 10 percent in November and December, then the situation seems more serious.”

Technorati Tags: emerging markets, Russia, Natalya Orlova, Alfa Bank, Moscow, Yekaterina Malofeyeva, Renaissance Capital, exchange rate, Russian Government, oil prices, ruble, devaluation, Yevgeny Gavrilenkov, Troika Dialog, State Statistics Service, Economic Development Ministry, construction, retail, transport, communications, Anton Olff, GDP, Maria Levina, www.themoscowtimes.ru, economic growth,

Russia’s economy is captive to oil & gas prices. If the price of crude continues to decline-and there is sufficient reason that it will continue to do so-then the prospects for Russia’s economy must also be adjusted.

Most Russians have painful memories of the 1998 financial crisis. It is one of prime motivations behind the Russian Government’s aggressive stance regarding the ruble. The political backlash of a currency rout could be devastating.

 As this article from the Financial Times (www.ft.com) states, Russia is now in a much better financial position compared with the 1990s. However, at the rate that the Russian reserves are being utilized, the Russian Government may not have sufficient ammunition to counter any new economic shocks.

At some point, the Russian Government might consider even closer ties with cash rich China.  These might include the sale or long term leasing of strategic assets located in Siberia.

Rouble exodus hits Russia credit rating

By Catherine Belton in Moscow

Published: December 8 2008

Russia on Monday became the first G8 country since the start of the financial crisis to have its credit rating downgraded after Standard and Poor’s took fright at the recent exodus from the rouble and sharp drop in oil prices.

S&P said it had lowered Russia’s foreign currency credit rating by one notch from BBB+ to BBB because of the “rapid depletion” of the country’s foreign exchange reserves and the “difficulty of meeting the country’s external financing needs”. It said the outlook for the rating was negative.

Russia’s reserves have fallen by $128bn since August to $455bn, as the country battles the capital flight that began following the war with Georgia and escalated as the oil price fell and the global crisis worsened.

S&P said Russia could be forced to spend all $200bn now parked in its two sovereign wealth funds on recapitalising the banking system and covering fiscal deficits in 2009 and 2010.

The agency expects Russia to run a current account deficit next year of 2.6 per cent of gross domestic product due to the oil price fall, putting further pressure on the balance of payments.

“There are a lot of layers of concern,” said Frank Gill, primary credit analyst at Standard and Poor’s. “There are macroeconomic and political risks . . . and Russia has not operated a current account deficit since 1997 and that was less than 1 per cent of GDP.”

Vladimir Putin, Russia’s prime minister, has staked his political credibility on avoiding a sharp rouble depreciation.

The thought of devaluation raises the spectre of the 1998 rouble crash that wiped out Russians’ savings, although economists say any devaluation this time.

Technorati Tags: Russian, ruble, Georgia, Vladimir Putin, current account deficit, Frank Gill, political risks, capital flight, credit rating, G8, Catherine Belton, Moscow, Standard and Poors, Financial Times, GDP, www.ft.com, Anton Olff, Russian Government, Russian economy, oil prices, 1998 financial crisis, currency devaluation

The global economic slowdown has not slowed the consumption of fast food. On the contrary, the one thing to count on is the continuation in the growth of inexpensive fast food in emerging markets like Russia and Ukraine.

Fast food-whether it is purchased at a kiosk or market- is generally priced competitively… and is viewed as an affordable luxury, especially during lean times. It is also viewed as the type of consumable that brings a degree of  “comfort,” similar to tobacco, coffee and alcohol.

As the video below  from the Russian News & Information Agency (NOVISTI) at www.en.rian.ru/ the perceived unhealthiness of this type of food is not high on the list of Muscovites……

Technorati Tags: comfort, emerging markets, fast food, global economic slowdown, lean times, luxury, recession, Russia, Ukraine, tobacco, coffee, alcohol, Russian News & Information Agency, NOVISTI, www.en.rian.ru, Anton Olff, unhealthy, Moscow, Muscovite

Someone in Russia understands a thing or two about the benefits of competition. As this article from the Wall Street Journal (www.wsj.com) indicates, the privatization of one of Moscow’s airports, has been positive.

As a frequent traveler to Moscow , the privatized Domodedovo Airport is the preferred choice.  Modern, clean and efficient…with decent food for the international traveler, it is a stark contrast to the international terminal at Sheremetyevo Airport. The dark brown paint at Sheremetyevo may have been whitewashed, but the depressing feeling lingers for travelers and airport workers there.

 While government investment in Sheremetyevo Airport will certainly improve the overall quality, the privatized Domodedovo Airport will have the edge with travelers, vendors and airlines. It is simply more responsive to the needs of the market.

 Privatization of airports is growing. According to Robert W. Poole, Jr. of the Reason Foundation (www. reason.org), “15 major airports were privatized in 2006, the second-highest annual total ever (there were 21 airport privatization deals in 1998).

Despite recent political setbacks, privatizations could continue. Unlike China,  Russia and Ukraine lack sufficient resources to fully modernize their infrastructure.  Privatization or partial privatization remain the most viable options. The investment, technology and management that foreign companies would bring, could go very far in raising the living standard in these emerging economies.  

 Moscow Points the Way With Airport Competition

While Most Nations Sport Monopolies, Rivalry Between Two Russian Gateways Ushers in Improvements for Carriers, Travelers

By DANIEL MICHAELS

MOSCOW — A heated battle for passengers between the Russian capital’s main airports offers an unlikely model of competition for the aviation industry.

In most cities, airports are monopolies. Even in cities that have more than one, including New York, Paris and Tokyo, airports are usually owned by the same operator. That means airlines can rarely make the kind of choices passengers take for granted, such as choosing an airport for its efficiency, shopping or lounges.

Not so in Moscow, where two international airports, Domodedovo and Sheremetyevo, owned by rival organizations, battle for business. The result is lower fees, better service and fast-improving facilities all around.

Domodedovo Airport, for example, recently convinced several top airlines to make it their Russian base, thanks to a major modernization that added more than 20 new restaurants, jewelry boutiques and a shop where passengers can rent DVDs to watch in booths.

Sheremetyevo Airport responded by building a fast rail link to Moscow, complete with a Starbucks at the airport station.

Moscow’s airport rivalry highlights a paradox of the global aviation industry: Airlines compete fiercely with each other for customers, but they face many monopolist suppliers, such as air-traffic control systems, fuel distributors and airports. Resulting costs and poor services get passed on to travelers.

Regulators world-wide are starting to tackle the issue — and some see Moscow as a paradigm.

Britain’s competition authority, for example, last year considered breaking up BAA, the company that runs London’s three big airports. In testimony before the regulator, officials from the International Air Transport Association, a trade group, cited Moscow as evidence of the benefits that competition could bring London’s airport system. IATA testified that fees at Moscow’s fast-growing, privately owned Domodedovo Airport are as much as 20% lower than at Sheremetyevo, the state-owned hub of flag carrier Aeroflot.

The U.K. listened. Bowing to government pressure, BAA’s Spanish ownerFerrovial SA now plans to sell London’s second-biggest airport, Gatwick. British Airways PLC and other big customers are too entrenched at Heathrow to switch to Gatwick, but airlines say competition could prompt airport managers to trim fees and start to resolve problems such as chronic fuel-supply shortages.

“I’d love to have competing airports everywhere in the world,” says Bruno Matheu, executive vice president for marketing at Franco-Dutch carrier Air France-KLM SA, an Aeroflot partner in the SkyTeam airline alliance. Air France-KLM uses Sheremetyevo in Moscow.

Moscow’s airport market didn’t develop overnight.

Until recently, few big airports world-wide were worse than Sheremetyevo, the Soviet Union’s international gateway, built for the 1980 Olympics. Checking in for a flight could take hours. So could driving jammed roads to the airport, which lacked rail connection.

During Russia’s privatization drive of the 1990s, local investors bought Domodedovo, which was previously Moscow’s airport serving Soviet Central Asia. The investors, grouped into an upstart charter-airline operator, East Line Group, renovated a terminal at Domodedovo and oversaw construction of a train line to Moscow.

East Line charged airlines landing and operating fees that undercut Sheremetyevo by around 30%. For passengers, Domodedovo’s rail link guaranteed a 40-minute trip to downtown Moscow. Private Russian carriers, largely frozen out of Aeroflot’s base at Sheremetyevo, expanded quickly at the spacious Domodedovo.

East Line’s big break came in 2003, when British Airways announced it would switch from Sheremetyevo to Domodedovo.

“The authorities were shocked that a major airline would leave the government airport,” recalls Daniel Burkard, BA’s former country manager for Russia. He says a big factor was that East Line offered a big business-class lounge.

Mr. Burkard, a 41-year-old German, says he was so impressed by Domodedovo’s management that when his BA contract in Moscow ended in 2005, he joined East Line as its business development manager and started wooing other airlines to Domodedovo.

He promoted the airport’s many domestic airlines, which allow foreign carriers to reach small cities across the former Soviet Union, and in 2005 catapulted Domodedovo over Sheremetyevo as Moscow’s biggest airport in terms of passenger traffic. Other attractions include a children’s area staffed with nurses, fast immigration lines for Westerners, and competing vending machines, operated by rival suppliers.

In 2006 Mr. Burkard convinced up-market Austrian Airlines AG to switch from Sheremetyevo. The move prompted other carriers in the Star Alliance to rethink their choice in Moscow. Last year Deutsche Lufthansa AG, one of the biggest foreign carriers in Russia, also made the jump.

When AMR Corp.’s American Airlines decided last year to enter the Moscow market, managers visited both international airports. They were impressed by Domodedovo.

The airport’s executives “were a bit more aware of how we do business,” says Craig Kreeger, American’s senior vice president for international operations. Since flights began this June, Mr. Kreeger says, Domodedovo has fulfilled its commitments better than many airports in more developed markets.

Over the past three years, 28 carriers have either shifted to Domodedovo or started new Moscow service there.

Domodedovo’s success brought it unwanted attention, however. During Vladimir Putin’s recent presidency, many of Russia’s 1990s privatizations were reversed.

At East Line, government security officials repeatedly searched facilities and confiscated property. Government lawsuits against East Line yielded court rulings that threatened the company’s control of the airport. The Kremlin’s objective wasn’t clear, but appeared to be related to battles between powerful clans for control over the lucrative airport business, according to people close to the conflict. Recent appeals-court decisions supporting East Line seem to have ended the problem, although political shifts might prompt new challenges.

Two years ago, Sheremetyevo started to fight back, as a new management team began redeveloping the airport. In June, Sheremetyevo got a 30-minute rail link to Moscow. One new terminal recently opened and two more are slated for completion by 2010. In the old terminal, workers are now repainting brown walls white, modernizing check-in desks and installing more shops.

Anton Olff

Technorati Tags: Aeroflot, Air France-KLM, American Airlines, Austrian Airlines, BAA, British Airways, Domodedovo Airport, East Line Group, Ferrovial SA, Gatwick, IATA, Lufthansa, Moscow, Privatization, Reason Foundation, Robert W. Poole Jr., Russia, Sheremetyevo Airport, SkyTeam, Soviet Union, Ukraine, Vladimir Putin, Wall Street Journal

Spoke with a good friend a few days ago whom is a customs broker here in Odessa.  She stated that business overall has declined precipitously over the last several months. She emphasized that container traffic at the busiest port of Ukraine has slowed to a trickle. This is borne out by anecdotes of others we have contacted whom are connected with trade and logistics services. 

Technorati Tags: Odessa, Ukraine, container, www.komersant.com, Russia, trade, logisitics, imports, wine, Customs Warehouses, financial turmoil, alcohol, Moscow, Federal Customs Service, Solntsevo, CIS,