Business Report THE ECONOMIC TIMES IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

AERO INDIA 2013: Russian carrier-based aircraft, future design of 5Gen aircraft showcased

No drift, military ties on trackThe Bangalore air show proved that India-Russia defence ties remain sturdy amid shifts in Indian military market

President Vladimir Putin has signed a decree to establish a state-wide system to detect, prevent and counter cyber attacks, opening up vistas of cooperation with India

SERGEI PTICHKINRIBR

NEWS IN BRIEF

Russia has cemented its place as the world’s sec-

ond largest supplier of arms. In 2012, the country

shipped $15.13 bn worth of weapons, up $2 bn

from the year before. In 2008-2011, Russia sold

220 anti-ship missile systems. In 2012, Russia

sold two frigates to India and also leased out the

Nerpa nuclear submarine to the Indian navy. The

loss of Libya and the suspension of contracts with

Iran and Syria had no immediate impact on the

fl ow of arms. India and China are buying more

Russian weapons, while other major customers

of Russia’s military-industrial complex include

Algeria, Venezuela, Vietnam, and Indonesia. RIBR

Russia remains 2nd larg-est global arms exporter

Sevmash shipyard will start replacing equip-

ment aboard the Vikramaditya aircraft carrier in

April, said Alexander Fomin the head of Russia’s

Federal Service for Military-Technical Coopera-

tion, at Aero India-2013 show in Bangalore on Feb

6. “We plan to start the active phase of restoring

the equipment and then move on to sea trials this

summer,” said Fomin, adding that the ship is to

be transferred to India in late 2013. The date for

docking the aircraft carrier has been approved for

April 25, 2013. According to Leonov, the dry dock

inspections will take two months. The ship is set

to sail on July 3, 2013. RIBR

Vikramaditya upgrade, sea trials in summer

Moscow’s engineering giant Mosinzhstroi is bid-

ding for the right to build a $930 million elevated

metro line in India in an effort to tap into the

country’s booming infrastructure market, the

company said. Mosinzhstroi, which has been

involved in many large-scale projects in Moscow,

joined forces with the Mumbai-based Pratibha,

to participate in a tender announced by state-

owned Delhi Metro Rail Corp., Mosinzhstroi chief

executive Sergei Volkov told The Moscow Times.

The project involves construction of 8 kilometres

of rails and 12 stations in Kochi. The work is

expected to be completed by 2016. RIBR

After a year of talks, the Belarusian Potash Com-

pany (BPC) signed a contract with India’s Indian

Potash Ltd. The deal closed on February 6 was

signed together with a joint trader representing

Russia’s Uralkali and Belarus’s Belaruskali. The

company is to supply 1 mn tonnes of potassium

chloride to India at $427/tonne by January 2014.

The Belarusian Potash Company signed the previ-

ous contract with IPL (as well as with Zuari Indus-

tries, a major Indian mineral fertiliser producer)

in 2011 at $490/tonne, meaning that the current

price represents a 13% discount. Itar-Tass

The Ministry of Economic Development has

submitted a proposal to the government to lift the

import duty on wheat, rye, barley and maize for

the period up to August 1, 2013, the Russian White

House said after a conference held on February 1

by Vice-Premier Arkady Dvorkovich. The initiative

aims to stabilise grain prices on the domestic

market, which are now $100 per tonne higher

than world prices. However, given the relatively

low level of grain imports into the Russian Federa-

tion and the 5 percent rate of import duty on grain,

it should not be expected that lifting the duty will

have a marked effect. RIBR

Mosinzhstroi plans to bid for Kochi metro

India’s IPL gets 13% po-tassium discount

Propoal for duty-free im-ports of grains

SECURITY: New decree can also act as a stimulus for digital market

Serious about cyber security, Putin fi rms up national plan

With a sharp spike in cyber attacks, Russia’s strategic establishment has firmed up a multi-pronged plan for

cyber security, opening up prospects of coop-eration with other emerging economies like India which, too, have been a victim of hack-ing. Russian president Vladimir Puitn has au-thorised the Federal Security Service (FSB) to oversee the system with the aim of ensuring the security of the informational infrastruc-ture in Russia and in its diplomatic offices abroad, provide “situation forecasts,” render information resources virtually immune to at-tacks and identify the reasons behind attacks.

The decree “On the development of a statewide system for the detection, preven-tion and response to cyberattacks against information resources of the Russian Federation” was signed on Jan. 15.

The FSB is now required to develop meth-ods to detect attacks that target not only state agencies but also “other information systems,” as long as the latter’s owners permit. The same methods will be used by federal authorities to secure the exchange of information about “computer incidents.”

Many countries operate cybersecu-rity systems. Ruslan Gattarov, head of the Commission for Information Society at the Federation Council, says that in the US, cyber-attacks are usually at the top of the threat advisory scale. “A typical cybersecurity system in America comprises network and computer activity identifiers, decryption de-vices, output media for the operator to make a decision (such as a display) and interfaces to perform activities,” president of the Information Democracy Fund Ilya Massukh, told Kommersant.

No system can, however, provide full se-curity, experts say. “There is no one system capable of effectively preventing attacks

of the scale of the ‘Red October’ [a global cyber-espionage campaign against govern-ment bodies, energy systems and military enterprises],” says InfoWatch CEO Natalya Kasperskaya. “[These attacks] are all sophis-ticated and multi-layered, and when they are targeted against a specific victim, it is ex-tremely hard to identify them,” she added.

There is another side to the presidential decree, as the concern over cybersecurity creates a window of opportunity for busi-ness. Nemanja Nikitovic, managing director of Optima Infosecurity (Optima Group), calls the decree “a big step by Putin” that will provide a stimulus to the digital market and create a new commercial niche of “informa-tion security.” “We have had examples of this kind in Europe,” says Nikitovic. “The authori-ties came up with an initiative that drove the

VITALY PETLEVOIRIBR

The 9th AERO INDIA 2013 international aerospace show at the Yelahanka air base in Bangalore took place amid

speculation about the drift in the India-Russia military cooperation. The show, which presented a wide array of both mili-tary and civil products, however, proved that the military ties are only growing despite gloom and doom prophecies.

The combat aircraft dominated the show, and it’s easy to see why. Arms export-ers are fighting for a piece of the action in India, one of the world’s largest importers of military equipment and weapons today. It’s no coincidence then that the Director of the Federal Service for Military-Technical Cooperation, Aleksandr Fomin, led the of-ficial Russian delegation. Rosoboronexport Deputy General Director Viktor Komardin was appointed head of the united Russian Technologies delegation. In his interaction with journalists, Komardin combatively rebutted sceptics who are always conjuring up gloomy future for India-Russia military ties. Such allegations have been fuelled by the problems with the Vikramaditya aircraft carrier, as well as by Russia’s loss to France at the tender for a new lightweight fighter under the MRCA programme. And the Indian Air Force has supposedly lost interest in the Russian-made lightweight Ka-226 and the heavy Mi-26 helicopters.

Cooperation between India and Russia started 50 years ago with supplies of the MiG-21F-13 – one of the most advanced fighters at the time – to the IAF. The Soviet Union did more than just sell the planes to India, it also helped the country set up its own licensed production under at facto-ries of the state-owned HAL Corporation. The Soviet- and Russian-made combat aeroplanes have gradually come to form the backbone of the IAF over the past half century. The multirole Mi-8 helicopters bril-liantly proved their worth during the Indian-Pakistani armed conflict. That was a real discovery. Military and technical coopera-tion contracts worth around $3 billion were signed during President Vladimir Putin’s

December visit to New Delhi in December last year. Among other things, the IAF will get 171 helicopters of the Mi-17V-5 type. The military and technical cooperation contracts between the two countries are estimated to be over $20 billion. India’s Ministry of Home Affairs also intends to purchase several Mi-17s, possibly in its latest Mi-171A2 iteration, for border guard operations. The tender for a light helicopter is far from over, but the Ka-226 has the best chances.

Komardin said that Russia respected New Delhi’s decision to diversify its arsenal. India was perfectly within its rights to choose the Rafale over any other plane. As for the delays with the commissioning of the Vikramaditya aircraft carrier, Russia’s ambassador to India

Alexander Kadakin expressed confidence that this love child of both countries should be allowed to bloom and be totally healthy.

Interestingly, practically nearly all jour-nalists covering the Bangalore show had nothing but praise for Russian carrier-based aircraft. A number of media outlets reported on how RSK MiG General Director Sergei Korotkov performed a takeoff and land-ing of the MiG-KUB two-seater onto the Vikramaditya’s deck. According to Indian pilots who have already flown the MiG-29K/KUB, the machine deserves applause.

It was announced at the Bangalore show that the first six fighters have undergone such upgrades and testing in Russia, with the first three MiG-29UPGs having already

been delivered to the IAF. The next stage will involve joint upgrading of the fighters at a manufacturing base in India. According to Korotkov, the MiG-29UPG is the most advanced upgraded export version of the classic MiG-29, offering an optimal combina-tion of strong combat capabilities and an af-fordable price. An upgrade project for the Su-30MKI under the Super 30 and the BrahMos programmes is also being prepared. A Russian-Indian fifth-generation fighter codenamed FGFA, whose future design was presented at the Bangalore show, should ap-pear shortly. If completed, the project would represent a revolutionary breakthrough in the history of international military and tech-nical cooperation.

The temperature is plus 4 Celsius under the ice and minus 10 above it, but it’s somewhat hot inside the robust hull.

The crew of the INS Sindhurakshak has al-ready made the revived ship its home and is now taking it south to its home station and combat duty area from the icy embrace of the White Sea. Informed naval sources told RIBR that the submarine would arrive in India before the middle of March.

The INS Sindhurakshak is the fifth Indian submarine of the 877EKM project built and modernised in Russia. It was upgraded at the Severodvinsk-based Zvezdochka ship-yard.

Under the contract, the modernised submarine has been armed with Club S anti-ship missiles, over 10 Indian and imported systems have been mounted on the submarine, including the USHUS hydro-acoustic unit, the CCS-MK-2 com-munications system and the Porpoise radar installation. It’s cooling systems has been updated to improve its combat characteris-tics and safety.

The handing-over ceremony was held on January 26 during India’s Republic Day celebrations. INS Sindhurakshak captain Commander Rajesh Ramkumar signed the official handover agreement and thanked the Russian shipbuilders, equipment sup-pliers and designers for their teamwork.

Zvezdochka General Director Vladimir Nikitin noted the valuable experience in the integration of foreign and Russian naval systems during the project.

“The handover of the ship is another stage in the evolution of military and techni-cal cooperation,” says Severodvinsk Mayor Mikhail Gmyrin.

ALEKSANDER YEMELIANENKOVRIBR

IT security analyst Eugene Kaspersky, CEO of Kaspersky Labs , believes cyber security has become a key trans-national security threat.

Sukhoi Su-27 fighters of the Russian Knights aerobatic team perform on the fourth day of the Aero India 2013 at Yelahanka air base in Bangalore.

The submarine is armed with Club S missiles

Modernised Sindhurakshak heads to Vizag

cybersecurity market, where companies not only develop systems to prevent cyberat-tacks but also provide security advice.”

Kasperskaya hopes that officials will engage existing market players that are in-terested in such orders, instead of creating a completely new agency.

A source familiar with Kaspersky Lab told RIBR that the antivirus firm did not mind being involved in the project. “If the Federal Security Service approaches the Lab, it will gladly take part in the project,” the source says. “They have developed some market-leading solutions, especially when it comes to DDoS attacks.”

WEDNESDAY FEBRUARY 13, 2013

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WEDNESDAY FEBRUARY 13, 2013

Business Report IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

NEW FRONTIER: New Delhi can be a partner in modernisation

Russian firms are ramping up production in Siberia and the Far East.

Come June 1, smoking will be banned in public places in Russia.

Just around the time New Delhi was launching a ‘Look East’ policy, India became one of the first for-

eign countries to open a consulate in Vladivostok. Those were the days when people living in the Russian Far East didn’t have enough income to even think of a visit to distant India, but resi-dents of the city felt it put a once-closed region on the international map.

The Indian engagement in the Russian Far East continued with the ONGC’s large investment in the Sakhalin-1 project. Sakhalin Island, like Vladivostok, was closed to foreigners and isolated from the rest of the world for over four decades. The islanders were amused to see “real Indians” and

one particular turbaned Sikh gentle-man who spoke fluent Russian was the object of many a stare and a lot of affec-tion. Over the years, two Indian restau-rants opened up on the island. The kind of goodwill for India that continues to exist in the Russian Far East probably has no parallel. While some see a real or an imaginary “Chinese threat” of a demographic invasion, the positive feelings from the heyday of the Indo-Soviet bonhomie and sheer distance to the country gives India a clear leverage in the region.

There is, however, more to the area than just energy. For starters, Vladimir Putin’s representative in the region sug-gested in a recent interview that there were opportunities for Indian pharma-ceutical companies. For a region that is subject to extremely harsh winters,

Beyond oil & gas, Russian Far East has plenty to offer India

Waging anti-smoking war

The region east of Siberia is not only energy-rich, but also bristling with opportunities in areas ranging from energy to culture and tourism

As a new law bans smoking and raises cigarette prices steeply in Russia, India, an exporter of tobacco, could be a gainer by default

AJAY KAMALAKARANRIBR

processed food is a necessity and de-spite the transportation costs, Indian agricultural products have a market. The Russian Far East can, therefore, be a springboard for Indian tea manu-facturers to recapture a market where it nearly enjoyed a monopoly at one point of time.

There is also a lot of potential for cultural exchanges. As the response in remote Yakutia for performances of Kutiyattam showed, a lot of people in the distant outposts of Russia have an interest in Indian performing arts and music. Vladivostok-based Mumiy Troll, one of Russia’s most famous rock bands, will be performing live in Hong Kong and Singapore this year. True rock fans in Bangalore and Mumbai would definitely be happy to see a live concert of the band in their cities.

Tourism between the Russian Far East and India is an untapped industry. Now that travelling to Moscow and St Petersburg is no longer uncommon, the vast expanses of land, stunning nature and “exotic” cities of the region east of Siberia could be the next fron-tier for young India. Russia is keen to modernise and internationalise its Far East, as the successful APEC Summit 2012 showed. India should use this opportunity to add greater depth to the relationship.

METAL: Over 600 companies produce 250 tonnes of gold every year

With the country’s gold-producing areas increasing output, Russia can overtake US as the world’s third largest gold producer.

All that glitters is not gold, but Indians just love their gold. This discovery in Russia should delight

gold lovers in India, the world’s biggest buyer of the metal. Last summer, a heart-shaped gold nugget weighing 2.4 pounds was found in Russia’s Irkutsk Region. Were it not for the unique shape of the nugget, the find would hardly have made the headlines. The weight of the little heart is only a tiny fraction of the 250 tonnes of gold produced in Russia every year.

Irkutsk, located in central Siberia, is the fifth largest region in Russia and country’s second-largest gold-produc-ing area. It is home to one-fifth of the country’s gold production facilities.

Russia is the fourth largest gold pro-ducer in the world, after China, Australia and the US, but it ranks second in terms of proven reserves. Although the sec-tor is highly fractured — more than 600 companies work in gold production in Russia — the industry has its major players.

The country’s biggest producer is Polyus Gold, which is also one of the top 10 gold producers in the world. According to Russia’s state statistics agency Rosstat, in 2012, Russian com-panies increased year-on-year gold production by 8.3%. Polyus, for its part, increased production of refined gold by 12% and is anticipating even better numbers for 2013. The company has said it expects to produce 1.8 million ounces of gold in 2013, up from 1.68 million in 2012.

The diehard smokers may deride it as a lot of holy smoke, but Russia has launched a quiet war against

smokers. In late January 2013, the Russian parliament passed a stringent anti-tobacco bill. After the law comes into effect on June 1, 2013, albeit with some waivers, smoking will be banned in state agencies, universities, schools, hospitals, stadia, restaurants, trains, railway stations and in the Metro. Russia will also ban tobacco advertise-ments and any event that encourages interest in smoking. Even electronic cigarettes and chewing tobacco mix-tures are to be banned.

Russia will also push up excise tax rates on cigarettes. The Russian ciga-rette manufacturers almost simultane-ously decided to raise the price of their products by 6-7 roubles ($0.2-0.3) per pack earlier this year. The rising living standards in Russia have so far kept the share of spending on cigarettes at around 5% of total expenditures by households, Anatoly Vereshchagin of JTI told RIBR.

Global tobacco giants have bought up all the domestic manufacturers and churn out the world’s famous brands. Russia turns out about 400 billion cigarettes a year, says Vadim Zhelnin, General Director of Association of Manufacturers of Tobacco Products.

In this new scenario, India could be a gainer by default. “Indian tobacco is an essential component of many brands.

National gold production up by over 8%, India watching

VIKTOR KUZMINRIBR

VIKTOR KUZMIN RIBR

The lion’s share of Russia’s gold comes from the extraction of mineral resources, which was up 6.3% in 2012 to 200 tonnes. Gold also comes into cir-culation through the recycling of scrap and waste.

In the past year, nearly all of Russia’s gold-producing areas reported a sharp spike in production. Numbers were particularly strong in the Krasnoyarsk Territory and the Irkutsk, Magadan, and Chelyabinsk Regions. There was a drop in output at the Kupol Deposit in the Chukotka Autonomous Region in the Far East, but the Prime news agency reported that the drop was due to the planned reduction of gold content in processed ore. Gold production is likely to increase throughout 2013, which could result in Russia overtaking the US as the third largest gold producing country in the world by volume.

Investcafe analyst Andrei Schenck says that the increase in production was due to more output from existing facili-ties rather than new ones coming on-line. Russia’s potential for gold produc-tion is far from exhausted, he declares confidently. “Some projects have been implemented, while others are still in the development stage,” Schenck said.

In 2014, production is scheduled to begin at Russia’s largest gold deposit, Polyus Gold’s Natalka. Although Natalka was discovered during the World War II, it sat idle for many years due to its re-mote location in the Magadan Region, in the northern corner of Russia’s Far East. Once production begins at the facility, Natalka will process 11 million tonnes of ore and produce 16.5-22 tons of gold per year.

A gold mine is also under construc-tion at the neighboring Pavlik deposit. Another 7.3 tonnes of gold a year are expected to be produced at this site, which is under the management of the metals investment firm ARLAN.

FROM MINE TO MARKETHowever, general market instability

and the volatility of the gold market have thwarted a number of major deals in Russia. The merger of Polyus Gold and Polymetal Int, for example, failed to go ahead, and not a single mining or metals company has issued an IPO in 2012. The government also shelved an auction for Sukhoi Log, one of the coun-try’s largest gold deposits.

However, Valentina Bogomolova from Uralsib Capital senses a silver lin-ing and feels that the current financial climate bodes well for gold mining in Russia.

The global price of gold has been increasing steadily since 2000 and Goldman Sachs has predicted a rise in the price of one ounce of gold from the current prices of $1,690 to $1,825 by the second quarter of 2013. As a result,

it is likely that the percentage of gold held in international reserves is likely to increase as well. Russia, for its part, has been stockpiling gold as a hedge against international financial instabil-ity. In 2007, the Russian government held 443 tonnes of gold in its strategic reserves; by fall 2012, the number had increased to 1,028 tons.

In 2012, gold prices rose by 7% year-on-year, but some observers say that this level of growth is unlikely in 2013. One of the main factors has been the increased use of the metal to pay for en-ergy supplies between Iran and Turkey, as well as higher demand from India. Indian jewelry manufacturers are trying to increase their supplies of gold before the import tax is raised this year, accord-ing to analysts at U.B.S.

Bogomolova said that demand for gold from Russian jewellery manufac-turers is also likely to increase in 2013. According to Bogomolova, while ordi-nary Russians do not view pure gold as a way to accumulate capital, individuals consider jewellery to be a good invest-ment while the dollar and the euro remain volatile.

India accounts for about 5% of Russia’s tobacco imports,” said Zhelnin.

If prices are pushed up too much in Russia, it will be flooded with smuggled products from China, Ukraine, Belarus and Kazakhstan, and Russian manufac-turers will have to make their legal prod-ucts as cheap as possible. One way to cut costs is to increase the share of cheaper tobacco varieties, especially ones from India.

Anatoly Voronin, analyst at the International Financial Holding FIBO Group, said that the share of Indian tobacco will increase; however, he also believes that Indian blends will oust

IN THE ECONOMIC TIMES LIVING IN THE DARK ON THE KOLA PENINSULA

Step on the gas: Gazprom and LNG factor India may become one of Russia’s

major partners in LNG supplies. Gazprom signed a 20-year contract for the supply of LNG with GAIL in early October, with India due to receive 2.5 million tonnes of LNG annually. The deal could pave the way for a slew of similar natural

BIG PICTURE

India reaches out to Morsi’s Egypt

M. K. BHADRAKUMARForeign policy analyst

The proposed visit by Egyptian President Mohamed Morsi to India next month is a notable

foreign policy initiative by the gov-ernment, which has been tiptoeing around the Arab Spring for the past two years. The choice of Morsi as the interlocutor – rather than, say, Prime Minister Hamadi Jebali of Tunisia, where after all it all began – un-derscores that this is not a random engagement. But for scheduling problems, it seems Morsi would have been the guest of honor for the Republic Day.

The audacity of the engagement is evident from the timing since Egypt is caught in the throes of great turbulence and the consensus view is that the plot is still unfolding. But, as Foreign Secretary Ranjan Mathai noted last week, India empathizes with the “historical basis for the democratic upsurge” in Egypt, which parallels with India’s own “national resurgence.” He counseled patience and not to rush into unkind judg-ments, since Egypt is coming out of a long period of political stagnation when democratic expression was suppressed, “so there is a learning curve to be climbed.” In fact, Egypt is putting in place a new system and structure of governance and one election doesn’t make a democracy. What makes India hopeful is that ultimately responsive governance is possible only in a climate of stability and, therefore, the challenge fac-ing Morsi’s Egypt is “to find a way of navigating the short term.”

The core issue, therefore, is not the surge of ‘Islamists’ as an out-come of the democratic process, but whether the ‘Islamists’ would dominate the political space or share it in a democratic manner with other more secular political actors? “It is in our [India’s] interest that democracy stabilises and brings the religious and secular forces into an evolution-

ary framework… above all democ-racy means submitting government to popular will at the end of the term; and meanwhile governance in ac-cord with the freedoms that make participatory democracy meaning-ful,” observed Mathai.

India’s approach echoes in some ways the stance taken by the US (where, ironically, President Obama is criticised for ‘losing’ Egypt). India, too, takes a long-term view and fac-tor in that Egypt is the charioteer of the Arab world and the Muslim Brotherhood has offshoots in many countries in the region, which are straining to gain democratic legiti-macy. Indeed, Morsi’s Egypt is eager to reclaim its leadership role, which it abdicated under Mubarak. New Delhi has taken note that Egypt has raised its diplomatic profile in the short period that Morsi has been in power. His choice of China for his first visit abroad, ambivalences in the Muslim Brotherhood’s equa-tions with the GCC countries, the Brotherhood’s affinities with Hamas, the thaw in Egypt-Iran ties, the am-biguity that has crept into Egypt’s al-liance with the US and Israel – these engage India’s attention.

Although India’s trade relations with Egypt are not exactly dense, the implications of developments in that country for the region can’t be over-looked. The role of Morsi’s Egypt in the reform of the UN impacts India’s vital interests. Above all, New Delhi’s decision to roll out the red carpet for Morsi signifies India’s openness to the rise of the Muslim Brotherhood in Egypt as an expression of the democratic will of the people of that country and its conviction that the Arab Spring is quintessentially a movement for democracy.

gas contracts with other Indian companies. Gazprom signed MoUs with four Indian partners last year: GAIL, Gujarat State Petroleum Corp, Petronet and Indian Oil Company Ltd. The potential LNG supplies was estimated at 10 million tonnes (13 billion cubic metres of natural gas).

some Turkish and Argentinean to-bacco from the Russian market. The cigarette smoking pattern in Russia will, however, remain unchanged for a year or two, he said.

Maddi Venkateswara Rao (Babu), managing partner in ML Co, how-ever, differs. “Since a majority of the Russian cigarette market is controlled by international tobacco companies (MNCs), they buy tobacco from all over the world, not neces-sarily from India alone. I, therefore, do not foresee any boost in Indo-Russian tobacco trade due to the price factor,” he says.

Every second Wednesday since February 2013

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START UPS: Angel investors and VCs seize opportunity; raising the fi rst $100,000 to $1 million for new ventures relatively easy

ENERGY: Indian Oil paid $6 million, became the fi rst customer of Global RRT

E-commerce gives wings to start-up dreams

Oskar Hartmann was born in Kazakhstan, but raised in Germany, where he had his

first tryst with e-commerce – selling health foods to bodybuilders. It was when he came to Moscow in 2007 that he spotted a big market opportunity: selling designer-label-clothes online to fashion-conscious Russian women.

“I wanted to go into business and I was looking for something that could become big, that could be developed over the next 20 years,” he says. Raising just $133,000 from his friends and family members he launched KupiVIP, which quickly be-came Russia’s premier online fashion retailer. The company flourished even in the midst of the global slowdown. Hartmann says high-end retailers who saw sales plummet in the depths of the crisis were desperate for new distribu-tion channels. For all of 2009 KupiVIP was signing up a brand a day. And sales soared. The company clocked up the turnover of $50 million last year and hopes to sell hundreds of millions of dollars of goods within a few years, as Russia’s nascent e-commerce busi-ness blossoms to maturity.

Russia’s Internet is on fire, but raising money to launch a company remains

“If these figures are true, that’s pretty cool!” exclaimed Douglas Harris, former vice-president of

TNK-BP and now owner of a consulting company. He was casually scanning a presentation from startup Global RRT that had ended up on his laptop. In the document, this young duo of Russian scientists proposed a method of sav-ing around $0.06-0.09 per litre on the production of gasoline. Harris smelt an opportunity, turned around in mid-air and, instead of Los Angeles, flew straight to Moscow. After meeting the founders of Global RRT, Oleg Parputs and Oleg Giyazov, the ace manager

BEN ARIS RIBR

SERGEY TITOV RIBR

T |E |C |H |N |O |L |O |G |YWEDNESDAY FEBRUARY 13, 2013

Business Report IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

New technology for cheap gasolineRussia is emulating India’s Silicon Valley to create outsourcing hubs, techno-parks

Two young scientists find a method of saving around $0.06-0.09 per litre gasoline, get funding

Displair promises the first commercial ‘air screens’ in spring, says it caters to mass consumers

E-commerce is becoming the next big thing in Russia as investors fund smart business ideas

Doing ‘Bangalore’ in a Siberian town

Making a screen-less display out of air, water

ELENA REVINSKAYARIBR

KIRILL RUDENKORIBR

a hurdle. In December 2012, 67% of Russians aged 12-54 were online, or some 95 million people, according to research firm TNS Gallup, just short of the 70%-80% Hartmann estimates is the saturation point for all markets. This fast growth has piqued the cu-riosity of Russian angel investors, or wealthy individuals, and raising the first $100,000 to $1 million for start-ups is relatively easy, as Moscow has the highest concentration of billion-aires in the world. Today there are only a handful of private equity or venture capital funds operating in Russia.By far the biggest is Baring Vostok Capital Partners, which raised a new $1.5 bil-lion fund at the end of 2012 and backs Russia’s best-known Internet compa-nies, such as Yandex, Russia’s answer to Google. Russia Partners is another domestic fund that has been active in the e-commerce space. State-backed lenders are also becoming active. Leading investment bank VTB Capital expanded its private equity division in 2012 and also bought a stake in Fast Lane Ventures, an Internet incubator that has supported several successful start-ups in the past couple of years.

Finally, there are two government-backed funds, including the Russian Venture Company, which has $1.5 billion to co-invest with privately- run funds, and high-tech agency Rusnano.

agreed to head their company. In 2011, Parputs and Giyazov, graduates of the St. Petersburg State Institute of Technology, had proved their theory

The big break for high-tech start-ups came with the successful IPOs of Mail.ru, which raised $912 million in London in November 2010, and Yandex, which listed on Nasdaq in May 2011 with a valuation of $11.2 billion. Investments into Russian high-tech firms have more than doubled in value to $550 million in 2011, up from $220 million the year before, according to Fast Lane Ventures. Among the big ones were Rakuten, a Japanese venture capital firm, which took a $100 million stake in Ozon.ru; Northwest’s $70 million stake in Avito, an eBay-like website; and a $55 million investment by Bessmer and Russia Partners in KupiVIP.

Revenues from Russia’s Internet business are growing at 30% a year. Russians spent around $18 billion on goods bought from online stores, ac-cording to a survey.

Eight years ago, Russian President Vladimir Putin visited Bangalore and was so im-

pressed by its stunning transforma-tion into a technological hub that he made it a national priority to build techno parks in Russia. The techno parks were supposed to be funded by private businesses with govern-ment support and four locations were chosen: the Moscow region, St. Petersburg, Nizhniy-Novgorod and Novosibirsk.

According to SourcingLine re-search, India is ranked number one among outsourcing countries while Russia is placed at 24. Figures from NASSCOM indicate that IT exports and outsourcing earned India about $60 billion in 2010, while Russia made just $1.4 billion from this in-dustry. Clearly, there is a long road ahead for Russia, but it offers many advantages for outsourcing compa-nies. It is the best location for techni-cally challenging tasks, has a huge pool of high-tech and engineering talent and a very strong home-grown IT sector that is getting strong government support. Russia also has cultural and geographical proximity to the West and a distinct labour cost advantage over western countries.

Maxim Kamanin, CEO of Displair, got the idea of making a display with im-

ages projected into the air with the help of water particles in 2010, when he was finishinhg his University studies of programming. He made the first functional model in just a couple of weeks, with the help

Top 50 Russian start-ups The RIR/RBTH project has teamed up with Digital October company and PwC to compile a groundbreak-ing rating of the top Russian start-ups (to be updated twice annually) in three categories - IT (191 compa-nies), High-tech (22) and Lifescience (10). The rating uses criteria such as the amount of investment capital at-tracted, corporate legal protection, presence in the media and team to assign a grade from AAA (highest) to CC (lowest). All companies must be incorporated in Russia, employ no more than 100 people and be no older than four, five or six years (in IT, high-tech and life sciences, re-spectively). For a complete descrip-tion of methodology, visit indrus.in/startups/methodology.

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A recent visit to Novosibirsk showed visible progress in creat-ing a Bangalore-style techno park in Akademgorodok (a specially created academic town), which is full of insti-tutes, research facilities and scientific centres. There are about 10,000 scien-tists and 6,000 programmers working in 25 research institutes. The construc-tion of the new techno park started in 2006 with investments of about $150 million. The main clusters are IT, nano-technology and biotech. Fondly called the “Silicon Taiga,” the official name for Siberian techno park is Akadempark.

Foreign companies like Intel, Schlumberger, HP, Microsoft, Samsung and LG that do business from Akademgorodok have already set up shop in the Siberian Taiga. Many Russian start-ups have also pitched their tents. The Information Technology Centre of Akadempark has 55 tenants and employs 6,800 people. The companies operating from the centre had combined revenue of around $433 million in 2011.

Being from Bangalore and having worked in a business incubator in the US, I found the atmosphere in these facilities different and refreshing. The building is full of young energetic professionals and university gradu-ates, who are taking the opportunity to shape their ideas into viable busi-nesses.

mathematically. Six months later, the technological breakthrough found its way into the journal Chemical Engineering and Processing and other scientific publications printed several articles by Western researchers con-firming the viability of the idea. This en-dorsement opened up new horizons for funding. In the summer of 2011, on the back of investments worth $1.3 million, RRT became a resident of Skolkovo. The business then received $1 million cash injection from Mikhail Abyzov, Russia’s minister for open gov-ernment, who runs a venture capital fund. He was so impressed by the pro-ject that he invited the entrepreneurs to meet Russia’s then president Dmitry Medvedev. Secondly, Harris became“a

shareholder in Global RRT,more out of interest,” admits Giyazov.

In a stroke of luck, RRT managed to find its first customers in India. It started with hiring Indian engineer Adarsh Tripathi, who arranged a meeting for his new employers with Razhagopalom Sunil, vice president of Indian Oil, one of the largest com-panies in India. The negotiations were successful, and the Indian giant bought a license from RRT to use the technol-ogy and the accompanying documen-tation for $6 million. RRT’s technolo-gies sparked the interest of developing countries in the Pacific region, the Middle East, and Central Asia, namely Kazakhstan, says a proud Parputs. Now, the RRT has a global network.

Winners of the Start-Up of the Year Award at Digital October, Moscow’s leading high-tech events center.

of his father and brother. The first Displair was a blend of a projector and a screen-less display that let images to be projected from the computer.

Kamanin produced the first success-ful test sample of the display by 2011. It had multi-touch functionality for controlling images using gestures. The system is capable of registering up to 1,500 touches simultaneously, with a response rate of less than 0.2 seconds, making the number of users operating

the system at the same time virtually unlimited. Images are projected on to a four-mm-thick stream of air with wa-ter particles so small that they remain intact even when the image is pen-etrated by a hand or other object.

“Once TechCrunch and Mashable wrote about the Russian project, our inbox almost exploded,” says Andrei Melnikov, Displair’s operational direc-tor. The company has since received over $1 million in investment, which it

has used in hiring 50+ staff, product development and marketing. The de-vice generates a 30-inch display with picture quality sufficient to read texts.

Displair caters for mass consumers, whereas the others focus on business, especially showbiz and advertise-ments. Displair systems will be pro-duced in the special economic zone of Zelenograd, near Moscow, and the first commercial batch is expected to be completed this spring.

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Faced with the twin killers of alcohol and smoking, which account for nearly half of all

deaths in Russia, the government is getting serious about the Russians’ legendary love for strong liquor. This January, stiff new taxes saw the cost of vodka soar, while harsh restric-tions on retailers banned over-the-counter alcohol sales after 10 pm.

There has been, however, no pub-lic awareness campaign. Reducing drinking is seen as a risky political move, a trend that became pro-nounced ever since Soviet leader Mikhail Gorbachev’s draconian rules limited sales of alcohol between 2 pm and 7 pm in the 1980s. It briefly led to a fall in alcohol-related deaths, but later this rose dramatically after people turned to bootleg vodka and homemade alternatives. To this day, Gorbachev is perhaps hated by or-dinary Russians because of his dry laws.

The government’s most effective measure so far has been to shut down many moonshine factories, which accounted for around a third of vodka production, says Vadim

A trip to the city of Kazan, on the Volga River and located some 600 miles east of Moscow, is

almost like visiting another coun-try. The city, which will host the 2013 World Student Olympics, or Universiade, July 6-17, is the capital of the Republic of Tatarstan – whose population is almost evenly split between the Muslim Tatar and Orthodox Russian communities. Kazan’s appeal lies in this fusion of cultures, which is reflected in the city’s eclectic architecture and cul-tural offerings.

Dominating the city skyline is the Kremlin, Kazan’s ancient fortress. There is a large mosque as well as a Russian Orthodox cathedral – Tatarstan became part of Russia during the reign of Ivan IV (the Terrible). Next to the mosque, the Annunciation Cathedral is revered by Orthodox believers as the home of the icon of Our Lady of Kazan, one of the holiest in Russian Orthodoxy, and was built in 1554-62.Besides the religious sites, the kremlin also features the Söyembikä Tower, which leans on its side. Foreigners can avail of the English-language tours.

The Kazanka River joins the Volga at Kazan and provides a good view of the city’s modern face, including the Millennium Bridge, built in 2005 for the 1,000th anniversary of the city’s founding. Heading back into the city from the river, you see its Russian heritage. The Kazan Theater of Opera and Ballet dominates Liberty Square, and closer to the city center is Kazan University, near Bauman Street, a long pedestrian walk at the heart of the city. Here the souvenir shops alternate with res-taurants, many offering Turkish cui-sine – a testament to the enduring ethnic ties between Tatar and Turkic cultures. You’ll also find traditional Tatar dishes – the honey-coated fried dough known as chak-chak, served with tea, is a hot favourite.

Across the Bulak canal is Kazan’s central market, which is not on the tourist trail but shouldn’t be missed. The vendors are primarily Tatar or central Asian, and it’s a good starting point for exploring the Tatar district.

A round-trip ticket to Kazan runs to about $250. It is also possible to take an overnight train from Moscow’s Kazan Railway Station, for about $150 for a place in a four-person cabin, or $280 for a place in a two-person cabin.

The centrally-located Hotel Guiseppe is a popular mid-range choice. Rooms in the cozy, Italian-themed hotel go for between $100 and $250. A more upscale choice is the Hotel Mirage, with its feature minimalist furnishings and fluffy white duvets, where the cost per room ranges from $125 to $400.

In terms of food, locals recom-mend Pashmir, which features Central Asian/Turkish cuisine, which has highly influenced local food.

Alcohol is not cool! Russians are sobering up

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Drobiz, director of Russia’s Research Center for Alcohol Markets. “A lot of illegal plants have been closed by the regulator recently,” agrees Daria Khaltourina, co-chair of the Russian Coalition for Alcohol Control. “There is a ban on selling alcohol at night, so there are fewer opportunities to buy it whenever you want. “But while

Russia’s middle class is becoming increasingly health conscious and switching to lower-alcohol drinks, such as wine and beer, rising in-comes have led some Russians to drink more. The emerging middle class indeed drinks less, but the rich-est and the poorest drink more as their incomes rise,” says Drobiz. “The

HEALTH: Kremlin is targeting high alcohol consumption to avert a looming demographic disaster

A year before Russia hosts its first Winter Olympics in Sochi, it has already set a world record as the most expensive games in history

The preparations for the Winter Olympics in February 2014 are going into high gear. The sports

extravaganza in the Black Sea resort of Sochi will cost over 1.5 trillion rubles ($50 billion) in state and private invest-ment, and three-quarters of that sum has already been spent. Since prepara-tions began in 2008, the organisers have spent $0.04 trillion on sports and road infrastructure and other meas-ures, say documents released ahead of the first meeting of the commission chaired by Deputy Prime Minister Dmitry Kozak.

The $50 billion price tag is more than 25 times higher than that of the last winter games in Vancouver, Canada. The 2010 Olympics costs an estimated $1.8 billion, or $2.5 billion if calculated on the basis of real GDP, reveals a study by PricewaterhouseCoopers. The Sochi Olympics has also surpassed the Beijing Summer Games of 2008, which cost $40 billion and have been rated the most expensive Olympics so far.

In fact, the cost of the Sochi games is higher than that of all previous win-ter Olympics combined, opposition politician Boris Nemtsov claimed in a recent interview. The high cost has been largely due to an almost com-plete lack of adequate local facilities. Jean-Claude Killy, the chairman of the International Olympic Committee’s coordination commission for the Sochi games, has said that 85% of the infra-structure had to be built from scratch.

Kozak said at the commission’s meet-

An Olympic moment: Get ready for $50 bn Sochi spectacularNIKOLAUS VON TWICKELTHE MOSCOW TIMES

ing that of the money spent so far, some $6 billion went into sports infrastructure construction. Upgrading city infrastruc-ture costs an additional $17 billion, with transportation requiring the biggest share, he said. The costs are now more than four times higher than they were in 2007, when President Vladimir Putin won the games and pledged $12 bil-lion to develop Sochi into a world-class winter sports complex. Allegations of cost overruns and mismanagement have dogged the preparations for years. Olimpstroi, the state corporation in charge of the construction, has had four presidents in four years. Government officials have downplayed criticism over the ballooning costs by pointing out that two-thirds of the amount is cov-

ered by private investors. The commis-sion figures show that private-sector investment stands at $24 billion and is supposed to reach approximately $0.04 trillion. Critics say most of the sponsor-ing companies are state-controlled, meaning that much of their money also comes from state coffers.

The games’ general sponsor is Rosneft, and the official list of sponsors on Olimpstroi’s website includes more state giants like Russian Railways and Gazprom.

Kozak, the deputy prime minister in charge of the Olympics has stressed that government agencies, power companies and distributors need to work together “to guarantee a 100% functioning power supply.” Kozak also said finishing hotel construction was a priority. Among the interna-tional hotel chains hoping to capital-ise on the growing tourist influx to the Black Sea resort during and after the Olympics are Rezidor, Hyatt and Starwood.

Young professionals are switching from vodka to wine and beer.

The final countdown for the solemn Sochi 2014 Olympics opening ceremony has begun.

government has become increasingly concerned about the public’s health, as it has realised that the population decline is a serious threat to the long-term development of the economy.”

However, some underlying changes in society could help. The changing work ethic has already

had a big impact on drinking habits. “There is an emerging class of young professionals who are changing the work ethic,” says Khaltourina, a 34-year-old sociologist who is a strong advocate of healthy lifestyles and education as a way of accelerat-ing economic development. “In the past, it was a common thing to drink at the workplace, to discuss busi-ness over a drink. Now, it’s banned in most offices.” There is also a big dif-ference between the sophisticated urban populations of Moscow and St. Petersburg, which showed the way in lifestyle changes, and the rest of the country, where the Soviet-era habits have persisted.

“In Moscow, the level of alcohol intake, health problems and deaths caused by alcohol are very close to the European average. But provinces still have the horrible drinking habits typically found in northern coun-tries: bingeing on huge amounts of alcohol,” says Khaltourina. While an overt anti-alcohol campaign may be unpopular, the government has to stick to its guns if it wants to avert a looming demographic disaster. Since 1991, Russia’s population has shrunk by 5 million people to 143 million, and last year was the first time in two decades that the number of births ex-ceeded the number of deaths, if only by a small amount.

SPORTS: Sochi turns into world’s largest construction zone; it will cost 25 times more than last winter games in Vancouver

President Vladimir Putin sees the Sochi Games as a showpiece project for burnishing Russia’s international image.

123days the Olympic torch will travel around Russia before arriving at the host city, Sochi.

482 new private houses and 518 apart-ments have been built for residents who must be relocated.

1.2million tourists are expected to visit Sochi during the Games. 41,467 rooms will be available.

Kazan: a fusion of cultures & religions

Visas to be fast-tracked for foreign athletes

Hard facts: Hard liquor no longer hot...

President Vladimir Putin has signed a law that simplifies the pro-cess for issuing visas to foreign ath-letes travelling to Sochi to compete in the 2014 Winter and Paralympic Games. The Federal Migration

The consumption of hard liquor began to fall in 2005. Russians’ consumption of vodka has officially fallen by 7%, to 417 million gallons in 2012 from 449 million gallons in 2009. It still leaves the average at 3.2 gallons per person annually, making Russians among the hard-est drinkers in the world. Many Russians’ incomes have continued to rise since the 2008 economic cri-sis due to high energy revenues and increased government spending. While the overall vodka consump-tion has been falling, the change is not smooth: consumption rose again between 2010 and 2012 by 6%. Consumption is forecast to fall to some 365 million gallons (2.6 gallons per person) this year.

Service will be issuing visas and send them by email to the corresponding diplomatic missions and consular services in Russia at the request of the Sochi 2014 Olympic Organizing Committee.

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A changing work ethic and a focused Kremlin crackdown on illegal distilleries are changing the way Russians drink and think about their health