Post-IMF, Russia still relies on commodity markets
07:50 a.m. Jul 14, 1998 Eastern
By Sebastian Alison
MOSCOW, July 14 (Reuters) - Russia still depends heavily on sales of
oil, gas and metals for its revenues, and recent hefty falls in their
prices are a sharp reminder that its problems will not end with Monday's
huge international loan.
Prime Minister Sergei Kiriyenko warned that the $22.6 billion loan from
the International Monetary Fund and others is not a panacea. ''What is
important is for a nation to live within its means,'' he told reporters
at the end of a visit to Tokyo.
Unfortunately for Russia, this means living at the mercy of prices on
international markets which it cannot control. And this is not a good
time to depend on the markets.
Russia is the world's third largest oil producer, extracting 6.1 million
barrels per day (bpd) last year. Oil prices hit 10-year lows recently as
high output met sagging demand caused by financial crisis in Asia, and
global stocks are full.
The Organisation of the Petroleum Exporting Countries and a number of
non-OPEC countries, including Russia, have tried to boost prices by
agreeing combined output cuts of 2.6 million bpd this year.
But on Monday crude prices slipped on reports that key OPEC member Iran
had actually raised production in June, leading to doubts over whether
it would meet its reduced target from July.
In early trade on Tuesday, benchmark front month Brent crude futures
were below $13 a barrel, lower than when June's OPEC meeting agreed to
cut production. Last year the average price was $19.30 per barrel.
Russia has not helped its own case. Though it agreed to cut exports by
100,000 bpd from July, the International Energy Agency said June's net
exports from the Former Soviet Union, at 3.1 million bpd, were the
highest in post-Soviet times.
Russia is counting on selling a controlling stake in Rosneft (PFGS.RTS),
the last major oil company still in state hands, to raise a much-needed
$1.6 billion for the budget.
It has now put off the sale twice as low oil prices and economic
uncertainty scared away investors.
Last week the sale was deferred to late October, with deputy
privatisation minister Alexander Braverman saying analysts expected the
oil price to rise to $17 or $18 per barrel by then, making Rosneft a
more attractive buy at an unchanged price.
But some analysts doubt the price will be as high by then.
Russia is the world's largest natural gas producer, with output of 544
billion cubic metres (bcm) last year, over 200 bcm of which were
exported.
But gas prices in many of Russia's key export markets are tied to oil
prices, and falling.
Yuri Komarov, general director of gas exporter Gazexport (GAZPq.L), said
recently revenue from non-CIS gas sales would fall to $8 billion this
year from $8.5 billion in 1997, despite higher export volumes.
Gazexport's parent, gas monopoly Gazprom, is already reeling from a
recent dispute with the government over unpaid tax, and has started
cutting off domestic customers for non-payment -- leading to further
reductions in budget revenues.
Low metal prices are also crippling the budget. Russia's main base
metals for export are aluminium, nickel and copper.
Metals analyst Maxim Basov of MFK Renaissance in Moscow said that at the
close of trade on Monday, international aluminium prices were down 18
percent from the same date a year ago, nickel was down 40 percent, and
copper off 37 percent.
Zinc and platinum prices were also off, he said, and while key precious
metal palladium was up, ''Russia did not benefit from this because the
reason why it rose is that Russia did not export any material.''
The example of Norilsk Nickel (NKEL.RTS), the world's largest nickel
producer and a major producer of other metals, shows how low prices can
affect the whole economy, Basov said.
''Because the company will not be profitable it will have problems
raising finance to modernise the plant, so there will be problems for
the regional authorities because the company currently employs around
100,000 people,'' he said.
''Obviously it means a lot of problems for the local budget of
Krasnoyarsk region, and the federal budget of Russia,'' he added.
But there could be an upside. ''Maybe such a dramatic decline in prices
will force consolidation, and weak enterprises could go out of business,
which would actually be healthy for the industry as a whole,'' he said.
The agricultural sector has also been hit, this time by drought. 1998
grain output will fall to 64-67 million tonnes from last year's 88.5
million, farm minister Viktor Semyonov estimated recently, ruling out
the possibility of exports.
((Moscow Newsroom, +7095 941-8520 moscow.newsroom+reuters.com))
Copyright 1998 Reuters Limited. |
