Emerging Markets : One Door Closes As Another Opens



In response to a dramatic increase in terrorismmost notably the attack in the town of Beslan in southern Russia, which resulted in the death in hundreds of schoolchildren, parents and teachers Russian President Vladimir Putin announced a range of political re-forms that will significantly strengthen the power of the Kremlin. The stated objective of the changes, which include ending popular elections for governors and the elimination of single-mandate seats in the lower house of parliament, is to provide greater stability. But the Russian press characterized the efforts as a coup from within and questioned how further centralization of power will help fight terrorism. The Kremlin meanwhile continued to refuse to enter into a dialogue with Chechen rebels, who have been responsible for most, if not all, terrorism on Russian soil in recent years. In an apparent effort to divert attention from his political reform agenda, Putin unexpectedly supported plans to lift regulations that ban foreigners from buying local shares in Gazprom, the worlds largest gas company and the crown jewel of Russias natural re-source asset base. State oil company Rosneft will be merged into Gazprom, giving the state majority control over the gas company, opening the window to complete liberalization of the shareholding structure in early 2005. Markets vociferously cheered the long-awaited and much-anticipated move, boosting Gazprom shares by 15% upon the announcement. Gazprom will likely before long be-come one of the largest companies, based on market capitalization, in the emerging markets universe. Meanwhile, the Yukos saga dragged on. In mid-October the Natural Resources Ministry said it would allow the company three months to rectify tax payments at its core production unit, Yuganskneftegaz, before its produc-tion licenses would be pulled. But temporary positive sentiment dissipated with rumors that the Russian gov-ernment intended to sell Yuganskneftegaz at a 60% discount to the lowest valuation level suggested by Dresdner Kleinwort Wasserstein, which had been hired to value the asset.

Kim Iskyan