Russian Business News Week 17.11.2008 - 21.11.2008

22.11.2008

Russian Business News Week 17.11.2008 - 21.11.2008

Main Russian news this week is the announcement by Russian government of new anti-crisis measures starting to come into effect from the 28^th November 2008.

On Thursday Russian Prime Minister Vladmir Putin has acknowledged that the financial crisis in Russia has transformed into an economical one, and announced measures to support the economy. One of the main measures includes reductions in income tax for all businesses from 24% to 20% and from 10% to 5% for smaller enterprises. The Government believes that the tax reduction is a more effective measure to stimulate demand and production in the economy than public subsidising of companies.

To finance this reduction in the budget, the government will use the Reserve Fund accumulated during the 2006-2007 period of peak oil prices. Currently there are $475bn of reserves, of which $90bn is designated to cover Russian corporate debts, $200bn to cover the budget deficits in 2009-2010 due to fall in oil revenues, and $120bn to sustain the rouble – leaving only $65bn for other needs, part of which will be used to increase unemployment benefits, as 30% of Russian companies are planning to cut jobs in the coming year.

Turning to Russian stock indexes, they had a similarly difficult week as the rest of their international counterparts. Although RTSI has recovered itself to some extent after a dramatic fall of -7.3% yesterday in reaction to Dow Jones reaching its minimum since 2003, the overall weekly change is -9.9%. Among large companies influencing RTSI index, over the course of the week Gazprom fell by -9.6%, Rosneft by -8.39%, while Lukoil finished the week with +1.2%  gain and Surgutneftegaz +10%. MICEX index over the week has fallen by - 12.7%.

Falling oil prices are partly responsible for this decline, as they continue to have a negative impact on Russian economy. With the price of crude oil sinking below $50 a barrel during this week, it has become unprofitable to export oil from Russia for the first time since 1998. Considering the fact that for each barrel of oil exported Russian oil companies are paying $49 in customs duties and other taxes, $5 in transportation, $4 in extraction and $8 in the initial investment made – currently they are making net losses of $15 per barrel. To address the issue, Russian government plans to cut its oil export duties by a third next month, offering much-needed relief. Russian president Dmitry Medvedev is also taking measures to stabilise the price and supply of oil through dialogue with OPEC countries and participation in Asia-Pacific Economic Cooperation Forum which is starting tomorrow in Peru. 

Author:  Anastasia Shadrina