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The Amazing World of Russian Companies

Most people in the U.S. have never heard of Russia’s top companies, let alone have a sense of who they are, what they do, and how powerful they are.  In that respect, there really is an amazing world of Russian companies, because so little is known about them, relative to their real importance and standing not only in Russia, but globally.    Russian companies are sleeping giants in the global economy.  In many instances, they are headed by dynamo management teams who are up on the latest theories and practices.  They are fast learners, and are driven to get ahead fast.  Old stereotypes about inefficient Russian companies are a remnant of the Soviet past.   You will be hearing a lot more about Russian companies as the years go on, so let’s learn a few things about some of them now.

Russia’s top ten companies by market capitalization, from highest to lowest, include Yukos, Surgutneftegas, Gazprom, Lukoil, Unified Energy Systems (UES), Sibneft, Mosenergo, Tatneft, Vimpel Communications and Rostelecom.  Five of these are crude oil and natural gas producers, two are electric power companies, one is an oil refiner and distributor and two are telecoms.

Yukos is the second largest oil exploration company in Russia.  It produces, explores and refines oil and gas resources and products. It has approximately 12,600 employees and almost $8 billion in sales revenue.  Crude oil accounts for over half Yukos’s revenues and refined products the rest.    If you invested in Yukos Stock (NKYukos OAO), you made money.  During each of the three previous years, the stock increased in value, and for the 52 weeks ending Jan. 11, 2002, the stock was up 253%.

Surgutnefetegas is another huge Russian oil company.  It also does prospecting, gas and oil field construction and development, oil and gas production and marketing, oil and petrochemical producing and marketing.  It prides itself on a flexible, long-term development strategy and the use of state-of-the-art technologies.  It gets its name from the territory stretching along the mid-section of the river Ob and surrounding Surgut, one of the first territories where oil and gas production began in the mid-1960s in Western Siberia.  In 1993, the production association Surgutneftegas became the basis for setting up the joint stock company, now with exactly the same name.   The company annual produces over 10bn cm of gas, which is one-third of all gas produced by Russian companies.  It is active in social and charitable causes, having funded the restoration of masterpieces in the State Tretyakov Gallery and supporting the Vakhtangov Moscow State Academic Theater and Academic Maly Theater in St. Petersburg.  It has also funded music programs for children in Surgut.

Gazprom is the world’s biggest gas company, and accounts for 94% of Russia’s gas production, and 23% of world output.  It produces 8% of Russia’s GDP and kick in about 25% of all tax revenues to Moscow.  It has about 300,000 employees.  It has more than 40 subsidiaries that cover the entire cycle of gas production and delivery.  It also develops new fields and continental gas pipelines.  Gazprom’s shareholders include more than 640,000 Russian and foreign citizens and companies.  Foreign shareholders hold 10.31% of Gazprom’s statutory capital.

Lukoil is the first Russian integrated oil company operating according to the idea “from oil well to filling station.”  Established in 1991, it combined three of Western Siberia’s largest oil and gas producers - Langepasneftegaz, Uraineftegaz and Kogalymneftegaz.  It also acquired other oil producing, oil-refining, sales, petrochemical, transport and other oil business enterprises.  Lukoil has gas stations all over America, such as the one in Denver on Leetsdale Drive.    Lukoil has operations in 40 regions of Russia and in 25 countries, and has over 120,000 employees working in Russia and abroad.  It has one of the largest proven reserves of oil in the world owned by a private company. Lukoil was recently sued by the Denver-based Archangel Diamond Company for fraud and breach of contract in relation to a diamond mining joint venture.

Unified Energy System (UES) of Russia was established in 1992 by the State Committee of State Property Management of Russia, and is headed by Anatoli Chubais, well known reformer and official from the Yeltsin period. Chubais has an interesting career path that led him to his present post as top man in UES.  In 1991 he became chair of the State Property Committee and a member of Yeltsin’s cabinet; in 1992 a vice premier.  In 1996, he became chief of the Presidential Administration and in 1997, Minister of Finance and first vice premier.  He was also a member of Yeltsin’s Security Council.  He first joined UES in 2000.

UES as a major power provider owns high voltage electric lines and substations that form the Unified Power System of Russia, shares of the Federal Electric Power plants, regional utilities, and more.  They control more than 70% of electric power capacities, and provide more than 70% of the electricity in the country.

Sibneft is another huge oil and gas company.    It was formed by uniting four operating companies, Noyabrskneftegas, who specialized in exploration and production; Omsk Refinery, who specialized in processing crude oil into refined products; Omsknefteproduct, who specialized in the distribution and marketing of refined products in the Omsk region; and Noyabrskneftehasgeophysica, who specialized in providing well logging and perforation services.  Mosenergo is a vertically integrated electric utility company which provides energy to consumers in Moscow and the Moscow region.  For example, it supplies 77% of the heat in Moscow, a huge responsibility.  In addition to its power stations and grids, it repairs and maintains facilities, plants, design branches and more.

Tatneft is a joint stock company that is a major vertically integrated crude oil company. It is headed by Shafagat Fakhrazovich Takhautdinov (hardly a name known in the West) and has major holdings in crude oil, gas processing and chemical enterprises mainly centered in the Republic of Tatarstan.  Tatneft owns a majority of shares in a refinery under construction in Nizhnekamsk, which will become the world’s fourth and Russia’s major heavy oil processing facility.   Tatneft has also developed its own oil product retail sales network and owns over 308 gas stations, with plans to increase that number.  Tatneft was among the first Russian oil companies to present shares on long-term capital markets.  Tatneft in 1998 became the only Russian fuel and energy company to obtain a listing on the New York Stock Exchange (at the time) and started second-level ADR share trading on a regular basis.

Vimpel-Communications (VimpelCom) is a large telecom which in 1996 became the first Russian company to trade on the New York Stock Exchange.  It is the number one mobile phone service provider in Russia.  Known for its Bee Line brand, it has almost two million subscribers, most of those in the Moscow area, using the company’s global system for mobile communications (GSM) network.  They own wireless licenses that cover 70% of the Russian population.  Their strategic partners include Alpha Group of Russia and Telenor of Norway.

Finally, last of the top ten, Rostelecom is the largest communication company of Russia, and operates long-distance and international telecommunications for Russia.  It operates a power transport telecommunication network in Russia, and provides Russia’s communication with 211 countries in the world. It has direct international lines of communication with 75 operators in 72 countries.  It is creating their own satellite network, and provides access to the Internet and other advanced telecom services. Rostelecom has ranked as a leader in terms of corporate management efficiency among Russian companies by Standard and Poor’s and others.

There are other Russian companies you should know about.  Take Aeroflot, Russia’s national airline carrier and global air carrier. While saddled with a poor image due to its domestic service, its international service, and that out of the U.S., is highly competitive. It flies to 108 destinations in 54 countries in the world.   Aeroflot owns a fleet of modern foreign and Russian made aircraft that meet the most stringent operational and safety requirements in the world. In 2000, Aeroflot ranked as one of the safest airlines in the world.  The company employs over 15,000 people, and next year, it is preparing to join the Sky Team global alliance, with Air France, Delta Airlines, Korean Air and Air Mexico. Aeroflot became a public company in 1995, and is 51% owned by the Russian government and the rest by Russian and Western institutional investors, along with individual shareholders.

Russian Aluminum is a huge aluminum company and produces over 70% of Russia’s and over 10% of the world’s aluminum output.  It was founded in March 2000, the result of the merger of several of Russia’s large aluminum companies.  Another natural resource company, Norilsk Nickel, is the largest producer of non-ferrous and precious metals in Russia and one of the largest in the world. Norilsk’s plants produce everything from nickel, copper, cobalt, precious metals, selenium, coal and more.  Its major mining centers are in the Russian High Arctic.  It leads the world in the production of nickel and palladium.

Mikron is a leader in Russian micro-electronics.  Founded thirty years ago mainly to produce military electronics, it has converted to produce non-military electronics.  The first integrated circuit in Russia was developed at Mikron. It designs and produces integrated circuits for devices from electronic games, TV sets, supercomputers and various control systems.    It was the first micro-electronics company in the former Soviet Union to sell successfully to international markets and they are a major supplier to Samsung. 

Uralmash is another Russian company to know something about.  It is Russia’s largest product of machine tools, excavators, oil drilling equipment and other heavy machinery.  It also produces artillery.    This is the company who makes Russia’s oil drilling equipment, excavaors, machine tools, the Malyutka washing machine, lamps, door and garage door locks, and more.  Set up during the Stalin years in 1933, Uralmash is presently state controlled and in the process of converting to a joint stock company. 

There are also Russian companies who supply strategic minerals to the U.S.  VSMPO is one of these, otherwise known as Verkhnaya Salda Metallurgical Production Association.  What it supplies is titanium and titanium milled products, such as billet, sheet and plate.  An adequate supply of titanium is critical for commercial aerospace, defense and other non-aerospace commercial uses.  It is used to alloy metals for low weight, to strengthen them, and to allow them to perform under high temperatures. There is no substitute for it.   Titanium is used in airplane engines and airframes.  Demand is strong, and Russia is a major and important supplier to the U.S.

There are even Russian companies which produce good beer! Baltika Brewery is one of them and a major Russian beer producer.  It produced its first batch of beer in 1990, and now has breweries in St. Petersburg, Rostov-on-Don and Tula.  The St. Petersburg plant is the largest brewing enterprise in Europe.  It is self capitalized, and boasts of technical equipment as being the most advanced in Europe. 

Baltica was the first Russia brewery to begin offering beer in 5-litre barrels and to offer draught beer in kegs.  The beer is known for its taste and high quality water used in the brewing process, as a result of a special water purification process. 

There are many more Russian companies that are worthy of commentary.  We will continue to bring you information on such companies.

Research support provided for this article by Chamber interns Roslyn Roth and Konstantin Mikheyev.

Last Updated: April 23, 2003.
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