There should be no interruption of Russian gas supplies to Europe this winter as Ukraine has fully paid its debt to Russia for gas used. Additionally, there were high level meetings between Putin and Timoshenko in order to iron out differences and reach a mutual understanding. The bad news for Ukraine is the possibility their gas prices could double this year due to drastic price increases by the Central Asian states where they get their gas.

With the approaching break-up of UES, we continue to like the Russian basic materials industry most of all, be it nuclear or companies that will benefit from road construction (the need for Moscow alone will exceed several dozen billion dollars just to keep it maintained) in the next several years. Additionally, there is talk of opening up the power industry to additional foreign investment. We like these industries regardless of the price of energy going forward because they will fill a badly needed area of improvement for Russia and will be among the last to see funding cut back upon because of their importance. Fast growth, slow growth, or no growth, basic industries are a growth story waiting to be told.

Foreign financial companies could be on the shopping list as a Russian billionaire is rumored to be acquiring up to 9% of Deutche Bank. Expect to see more of this as this is a hugely profitable industry for Russia to invest in and especially with companies that are active in Russia and Russian’s are already familiar with. This is consistent with the government’s urging to invest overseas and makes sense given the stabilization fund will now be invested in equities and bonds of private companies from around the globe.

Today’s Moscow Minute is about another of Russia’s commodities, this, a renewable one, grain production. Over the past 10 years they have skyrocketed from nowhere to among the top three exporters in the world. Among the major reasons for this has been the injection of money from the federal government and the emergence of giant foreign corporations bringing capital and technology most local farmers do not have access to. It should be noted these foreign companies are on the cusp of profitability as land costs in Russian agriculture are a fraction of anywhere else in the world and there are still many millions of acres of arable land yet to be developed. It should be noted once problems of lack of capitalization, technology, development of additional land, and even the expansion of ports to transport the grain have been worked on, Russia could one day soon be the largest exporter of grain to the world and be the breadbasket to the planet.

Opportunities in the electricity industry abound as the national monopoly UES will be broken up in a matter of weeks. The country’s demand for additional generating capacity will be spurring new production to come on line in the approaching years and the privatization of the industry should give plenty of room for large and small operators to benefit. Prices will likely rise, reflecting true market prices as well. Opportunities can and will be found in both equities and fixed income.

JBIC (Japanese Bank for International Cooperation) has agreed to fund a major oil and natural gas field in Eastern Siberia. The profits for this could be immense, and on a positive note for Russia the gas would be going to eager customers without going through third countries that might cause a disruption. Specifically, I am talking about the transportation of LNG to Japan, South Korea, and the West Coast of the U.S. Its customers should be pleased about added supplies and Russia wins in this situation as well as they seek to diversify their base away from Western Europe.

Conflicting viewpoints about Russian current growth and future growth rates. Goldman Sachs predicts Russia is in danger of slowing to a 3 percent growth rate, obviously much lower than government forecasts. On the other side, Finance Minister Kudrin stated the Russian economy was growing too fast as evidenced by infrastructure that can’t keep up, labor shortages in certain areas, and accelerating inflation rates. We’re inclined to believe in the Kudrin viewpoint for the foreseeable future, as energy and other commodity prices continue to be the rock the economy is built upon and other industries show promise.

Russian Central Bank has just raised rates by a quarter point, and we are predicting more increases in the near future. Inflation is averaging from 50-100% over what the government desires, and this was before oil skyrocketed to the 135 to 140 dollar a barrel range. What does this mean to you, the foreign investor? You guessed right, higher interest rates with an appreciating dollar and scores of new issues entering the market will present great investment opportunities.

Russia going Green? Medvedev announced plans for Russia to adhere to the Kyoto protocols and reduce emissions. Could this mean even more nuclear power plants domestically, allowing more coal for export, a commodity in great demand and growing. Like everyone else, what this policy shift could mean in terms of profit making opportunities, we’ll be waiting and watching what emerges.

In a vote of confidence on the future of the Russian economy, as well as to meet demand and make money, American Airlines announced a Chicago-Moscow flight that will eventually expand to seven days a week. This will make it even easier for more of American business to access Russia, as most American-Russian flights fly from Atlanta, Washington, and the New York area.

As part of efforts to establish domination over Central Asia’s natural gas assets, including the gas itself as well as the pipeline, Gazprom has offered to purchase Azeri gas at market prices, no word yet on a response from the government of Azerbaijan. We also have a geo-economic-political prediction to make concerning Russia’s relationship with its Baltic neighbors, which sometimes has been contentious. As Russia builds its pipeline, beneath the Baltic, bypassing its neighbors and thus eliminating the need to sell them gas on their own terms, look for a more conciliatory tone to emerge. This has more to do with pragmatism than the goodwill of nations, energy opportunities are limited and costly, especially in 2008 and the foreseeable future.

Ural Metal and Mining Corporation will be acquiring a 51% stake in a Czech plane manufacturer in accordance with government encouragement for Russian businesses to be active in diversifying to other countries and becoming truly international players. At first glance, a metals company might not be a natural fit for an aerospace company, but the most important parts of an airplane by value, weight, and quantity are metals and alloys. Metal composites will only be of greater importance in the future and a company that can fully integrate areas such as mining, refining, forming parts, all the way to the construction of the aircraft, could very well have a competitive adavantage.