Profits Trump Worries at Forum

ReutersAven, who criticized the nation's socio-economic situation, speaking Monday.
LONDON -- High profits appeared to override worries about the slow pace of reforms and a growing dependence on oil as a record number of businesspeople gathered in London on Monday to network and enjoy spending the money they have made in Russia's soaring market.

Speakers at the ninth Russian Economic Forum offered a mostly positive take on the government's fiscal policy. Rosneft president Sergei Bogdanchikov described the state oil company in glowing terms ahead of its summer initial public offering, which is expected to be one of the largest in history.

Even William Browder, head of Hermitage Capital Management who has been barred from Russia since Nov. 13, conceded at a packed news conference that his problems had not led him to reconsider Russia, saying companies were grossly undervalued and there was a lot of money to be made.

True, the Russian Economic Forum has typically served as an opportunity to make new contacts and shop on New Bond Street. But the bar was raised a notch last year when former Prime Minister Mikhail Kasyanov, Alfa Bank president Pyotr Aven, BP-TNK chief Robert Dudley and others took to the podium to sharply criticize nontransparency and bureaucracy under President Vladimir Putin.

Businesspeople and journalists filled every seat in the hall and an adjoining back hall as the session began Monday. Dozens of people packed the side aisles, many shifting from foot to foot and whispering as they stood through about three hours of speeches, interrupted briefly for a coffee break.

All whispering noticeably stopped when the most-anticipated speaker of the day, Bogdanchikov, began his presentation. But he offered little new information as he flashed up yellow-orange charts to support his thesis that Rosneft was poised to become a global oil giant.

Rosneft is now the "absolute leader in reserve growth" worldwide and No. 3 in exploration, he said. By 2015, he added, the company would double output from its current 1.5 million barrels per day and become the global leader in capitalization and "operational results."

He did not mention that Yuganskneftegaz, the former Yukos asset that Rosneft now owns, was the main reason for the reserve growth, nor did he mention Yugansk elsewhere in his presentation, which included an overview of Rosneft's other assets.

Notably, no other oil executive addressed the plenary sessions, even though oil is driving the Russian economy.

The highest-ranking Kremlin official scheduled to speak, Arkady Dvorkovich, Putin's senior economic adviser, canceled at the last minute to help prepare the president's annual state-of-the-nation address.

After Bogdanchikov sat down, the session's chairman, KPMG Russia/CIS head Roger Munnings, thanked him and expressed hope that the Group of Eight leaders meeting in St. Petersburg in July would make progress on energy security -- touching on an issue that is on the minds of many but was not raised by any Russian speaker on Monday. The Kremlin has made energy security a priority for its G8 presidency this year.

John Sunderland, president of the Confederation of British Industry, also called for a clearer stance on energy, recalling Gazprom's decision to cut off gas to Ukraine amid a price dispute in January and the resulting dip in supplies to European countries. Noting that British companies had invested more than $10 billion in the Russian energy sector, he made a pitch for government transparency and rule of law. "Strong leadership is more important than all-embracing regulations," he said.

Kieran Doherty / Reuters

Chubais addressing delegates Monday. He said UES reforms had slowed.

In his speech, Anatoly Chubais, head of electricity monopoly Unified Energy Systems, conceded that reforms were going more slowly than he would have liked. He reminded participants that he had promised them last year that UES reforms would start in earnest by 2007 but said that they now have been delayed until 2008.

Aven -- in a speech titled "Sustainable Development or Lost Opportunities?" -- cautioned that the income gap was widening, the population had too little in private savings and the state was not doing enough to help pensioners and other needy segments of the population. He said many of Russia's socio-economic indicators were comparable to Uzbekistan's and far from those of Central Europe.

Charles Ryan, chief country officer and CEO of Deutsche Bank in Russia, heralded a recent survey placing Russia with the United States and China in terms of direct foreign investment. "It's nice to see Russia in the right group of countries," he said. Other surveys gauging corruption and other indicators of investor confidence have ranked Russia closer to Third World countries like Nigeria.

Browder, speaking on the sidelines of the forum, reiterated earlier statements that he considered his visa difficulties a litmus test for who would win in a struggle between reforms and corruption in Russia. He handed out a 16-page booklet titled "A Tale of Two Russias" in which he argued that he was caught between two government groups: officials who want to modernize Russia and officials who are stuck in the past. He said the officials stuck in the past did not want him in Russia. He refused to say who he thought they might be. He did say, however, that he had upset 10 to 12 people over the years and that he had contacted them to find out who was responsible for his plight. He said they had pointed the finger at one another.

Pressed by a reporter whether his predicament had changed his views on Russia or Rosneft's upcoming initial public offering, Browder gave an emphatic "no." He said that Russia traded at a 75 percent discount and that he would invest as long as there was money to be made. His fund is Russia's largest foreign portfolio investor, with $4.1 billion under management.

The lack of continuing macroeconomic improvements remains an important concern for investors, Natalya Orlova, an analyst at Alfa Bank, said recently. "However, they do realize that most important reforms have been put on hold because of the 2008 election."

Also, improvements at the macroeconomic level are affecting investors less than they used to because major credit rating agencies have given Russia the coveted sovereign rating, she said. "People are concentrating on corporate achievements because they have been so visible this year," Orlova said.

High corporate profits have been reaped by companies outside of the energy industry, and many first-time attendees at the forum came from those sectors, including consumer industries and real estate, said Simon Joseph, general director of the forum.

In all, about 2,300 people registered for the forum, compared with 2,000 last year, he said.

Transaero offered a special forum flight on a Boeing 747 jumbo jet on Saturday. It replaced the 737 it usually flies on its Moscow-London route with a larger 767 on Sunday.

At a Sunday evening reception in the luxury Claridge's hotel to open the forum, Russia's newly rich were happily raising their champagne glasses and sharing the news about their windfall profits. Many said they were feeling more drawn to London than ever before -- in large part because of Russian IPOs and commodity trading -- and that they had decided to combine vacations and shopping with the two days at the forum.

Maxim Shchibrik, vice president of Russian Copper Co., a first-timer at the forum, said networking in London was more important than schmoozing in Moscow. "I am here to find out more about the government's strategy on IPOs by Russian companies," Shibrik said. "Vyugin will say more in London than he ever does in Moscow."

But Oleg Vyugin, head of the Federal Service for Financial Markets, said little about IPOs during his speech Monday, concentrating more on the need to let market forces determine the value of the ruble.

"This year's forum will be much more positive because people are starting to see Russia's future," Gregory Feldman, a representative of the U.S.-based real estate firm Goihman Group, said at the reception Sunday night.

He said the forum was an ideal place to promote his real estate projects in Miami. "There is a surge of interest by Russians in acquiring real estate in Miami," he said. "Why would I go to Moscow to find buyers if everybody is here?"