POLITICAL RISK IN FOREIGN DIRECT INVESTMENT IN THE RUSSIAN ELECTRIC POWER SECTOR

Russia approved ambitious reform plan for the electricity sector in 2001 including privatisation of the country’s huge thermal generation assets. So far the sector had suffered from power shortages, aging infrastructure, substantial electricity losses, and weak productivity and profitability numbers. There was obvious need for foreign investments and technologies. The reform was rather successful; the generation assets were privatised in auctions in 2007-2008 and three European energy companies, E.On, Enel and Fortum, invested in and obtained together over 10% of the Russian production assets. The novelty of these foreign investments serves unique object for the study. The political risk is involved in the FDI due to the industry’s social and economic importance. The research’s objective was to identify and analyse the political risk that foreign investors face in the Russian electricity sector. The research had qualitative study method and the empirical data was collected by interviewing. The research’s theoretical framework was based on the existing political risk theories and it focused to understand the Russian government in relation to the country’s stability and define both macro-level and micro-level sources of political risk for the foreign direct investments in the sector. The research concludes that the centralised and obscure political decision-making, economic constriction, high level of governmental control in economy and corruption form the country’s internal macro-level risk sources for the foreign investors in the sector. Additionally the retribution due to the companies’ home country actions, possible violent confrontations at the Russian borders and the currency instability are externally originated risk sources. In the electricity industry there is risk of tightened governmental control and increased regulation and taxation. Similarly the company-level risk sources link to the unreformed heating sector, bargaining with the authorities, diplomatic stress between host and home countries and to companies and government’s divergent perspective for the profit-making. The research stresses the foreign companies’ ability to cope with the characteristics of Russian political environment. In addition to frequent political and market risk assessment, the companies need to focus on currency protection against rouble’s rate fluctuation and actively build good company-citizenship in the country. Good relationship is needed with the Russian political authorities. The political risk identification and the research’s conclusive framework also enable political risk study assessments for other industries in Russia

Supply Risk Management in Pharmaceutical

Fast development in the operating environment and fierce competition have driven companies to pursue efficiency and success through lean and global supply chains. At the same time overall uncertainty has increased in the business environment and supply chains have become a priority in risk management since their vulnerability may endanger business continuity. Although risk management should start at procurement strategy development phase, proactive contingency planning is also essential because it enables correct reaction and fast changes in process execution in the case of risk realization. This thesis is a case study conducted in the pharmaceutical industry where purchasing and materials management organizations face a number of challenges and limitations that have to be considered in supply risk management. The goal of the study was to discuss the operating environment, and identify and analyze supply risks and potential risk management practices. The study was concluded with suggestions for purchasing strategy development that take risk management considerations into account. This copy is the public version of the thesis.

Characteristics of credit risk assessment methods of major Nordic banks in allocating capital when extending credits to large corporations

Credit risk assessment is an integral part of banking. Credit risk means that the return will not materialise in case the customer fails to fulfil its obligations. Thus a key component of banking is setting acceptance criteria for granting loans. Theoretical part of the study focuses on key components of credit assessment methods of Banks in the literature when extending credits to large corporations. Main component is Basel II Accord, which sets regulatory requirement for credit risk assessment methods of banks. Empirical part comprises, as primary source, analysis of major Nordic banks’ annual reports and risk management reports. As secondary source complimentary interviews were carried out with senior credit risk assessment personnel. The findings indicate that all major Nordic banks are using combination of quantitative and qualitative information in credit risk assessment model when extending credits to large corporations. The relative input of qualitative information depends on the selected approach to the credit rating, i.e. point-in-time or through-the-cycle.

Survey of transportation of liquid bulk chemicals in the Baltic Sea

This study is made as a part of the Chembaltic (Risks of Maritime Transportation of Chemicals in Baltic Sea) project which gathers information on the chemicals transported in the Baltic Sea. The purpose of this study is to provide an overview of handling volumes of liquid bulk chemicals (including liquefied gases) in the Baltic Sea ports and to find out what the most transported liquid bulk chemicals in the Baltic Sea are. Oil and oil products are also viewed in this study but only in a general level. Oils and oil products may also include chemical-related substances (e.g. certain bio-fuels which belong to MARPOL annex II category) in some cargo statistics. Chemicals in packaged form are excluded from the study. Most of the facts about the transport volumes of chemicals presented in this study are based on secondary written sources of Scandinavian, Russian, Baltic and international origin. Furthermore, statistical sources, academic journals, periodicals, newspapers and in later years also different homepages on the Internet have been used as sources of information. Chemical handling volumes in Finnish ports were examined in more detail by using a nationwide vessel traffic system called PortNet. Many previous studies have shown that the Baltic Sea ports are annually handling more than 11 million tonnes of liquid chemicals transported in bulk. Based on this study, it appears that the number may be even higher. The liquid bulk chemicals account for approximately 4 % of the total amount of liquid bulk cargoes handled in the Baltic Sea ports. Most of the liquid bulk chemicals are handled in Finnish and Swedish ports and their proportion of all liquid chemicals handled in the Baltic Sea is altogether over 50 %. The most handled chemicals in the Baltic Sea ports are methanol, sodium hydroxide solution, ammonia, sulphuric and phosphoric acid, pentanes, aromatic free solvents, xylenes, methyl tert-butyl ether (MTBE) and ethanol and ethanol solutions. All of these chemicals are handled at least hundred thousand tonnes or some of them even over 1 million tonnes per year, but since chemical-specific data from all the Baltic Sea countries is not available, the exact tonnages could not be calculated in this study. In addition to these above-mentioned chemicals, there are also other high volume chemicals handled in the Baltic Sea ports (e.g. ethylene, propane and butane) but exact tonnes are missing. Furthermore, high amounts of liquid fertilisers, such as solution of urea and ammonium nitrate in water, are transported in the Baltic Sea. The results of the study can be considered indicative. Updated information about transported chemicals in the Baltic Sea is the first step in the risk assessment of the chemicals. The chemical-specific transportation data help to target hazard or e.g. grounding/collision risk evaluations to chemicals that are handled most or have significant environmental hazard potential. Data gathered in this study will be used as background information in later stages of the Chembaltic project when the risks of the chemicals transported in the Baltic Sea are assessed to highlight the chemicals that require special attention from an environmental point of view in potential marine accident situations in the Baltic Sea area.

Risk Assessment of Modern Landfill Structures in Finland

The purpose of this thesis was to investigate environmental permits of landfills with respect to the appropriateness of risk assessments focusing on contaminant migration, structures capable to protect the environment, waste and leachate management and existing environmental impacts of landfills. According to the requirements, a risk assessment is always required to demonstrate compliance with environmental protection requirements if the environmental permit decision deviates from the set requirements. However, there is a reason to doubt that all relevant risk factors are identified in current risk assessment practices in order to protect people end environment. In this dissertation, risk factors were recognized in 12 randomly selected landfills. Based on this analysis, a structural risk assessment method was created. The method was verified with two case examples. Several development needs were found in the risk assessments of the environmental permit decisions. The risk analysis equations used in the decisions did not adequately take into account all the determining factors like waste prospects, total risk quantification or human delineated factors. Instead of focusing on crucial factors, the landfill environmental protection capability is simply expressed via technical factors like hydraulic conductivity. In this thesis, it could be shown, that using adequate risk assessment approaches the most essential environmental impacts can be taken into account by consideration of contaminant transport mechanisms, leachate effects, and artificial landfill structures. The developed structural risk analysing (SRA) method shows, that landfills structures could be designed in a more cost-efficient way taking advantage of recycled or by-products. Additionally, the research results demonstrate that the environmental protection requirements of landfills should be updated to correspond to the capability to protect the environment instead of the current simplified requirements related to advective transport only.

Liquidity Risk in the Finnish Stock Market

This study explores the pricing of liquidity risk and its effect on stock returns in the Finnish stock market. In addition to that, it investigates whether there is a trend in liquidity risk. Finally, it analyzes whether the two chosen liquidity measures provide different results. The data consists of all the common shares listed in the Finnish stock market during the period of 1/1997–7/2015. To examine whether liquidity risk affects stock returns in the Finnish stock market, this study utilizes a conditional version of liquidity-adjusted capital asset pricing model (LCAPM) by Acharya and Pedersen (2005). Two recently proposed illiquidity measures – PQS and AdjILLIQ – are used in the empirical estimation to see whether there are differences in the results between the measures. The time-varying conditional liquidity risks are estimated by using a multivariate DCC-GARCH model, while the pricing of the liquidity risk is conducted by applying fixed effect panel regression. The results imply that investors in the Finnish stock market are willing to pay a premium to hedge from wealth shocks and having liquid assets during the declined market liquidity. However, investors are not willing to pay a premium for stocks with higher returns during illiquid markets. The total annualized illiquidity premiums found in the Finnish stock market are 1.77% and 1.04%, based on the PQS and AdjILLIQ measures, respectively. The study also shows that liquidity risk does not exhibit decreasing trend, and investors should consider liquidity risk in their portfolio diversification in the Finnish stock market.

Understanding round-tripping phenomenon in Russian context – case Cyprus

Russian FDI has a few peculiarities. One of them is round-tripping. Round-tripping is defined as transfer of funds abroad, usually to offshore financial centers (OFCs), and then bringing all or some of the investment back as foreign investment. Russian context was chosen for this study because the share of round-tripping investments from country’s total FDI is extensive. However, it needs to be addressed that this is not just a Russian phenomenon. Round-tripping is used by many developed and developing countries, and most of the countries have their own designated destinations for this kind of capital, much like Cyprus is the main destination for Russian capital. It is important to study this phenomenon further, since it falsifies FDI statistics and can lead to poor decisions on state level. Theoretical part of the study tries to determine weather traditional FDI and internationalization theories fit to explain the Russian round-tripping phenomenon. Traditional FDI and internationalization theories are first introduced in general terms, and then further examined in Russian context. In traditional endogenic FDI theories, when the capital is formed in one country it goes abroad to find better profits. At a first glance, this seemed not to be the case in round-tripping. However, during the study it became rather clear that with few adjustments and changes in perspective, traditional theories could be used to explain round-tripping phenomenon. For example, OLI paradigm can be further developed into OLIH paradigm with ‘H’ representing the important home country institutions. Transaction based view and resource seeking theories were also seen well equipped to explain round-tripping with a change in perspective. The latter part of the study focused on holistic understanding of Russian –Cyprian investment relationship. Study aims to shed light into the determinants and consequences of this phenomenon for both countries involved. The two share historical, cultural and political ties, but most importantly common financial interests. Russian companies seek security and financial knowledge to maneuver their assets and Cyprian economy largely is dependent on their disproportionally large financial sector. Consequences for Cyprian economy were seen in current economic crisis, when the need for their financial services diminished. Russian government on the other hand is losing vast amounts of tax money due to this phenomenon. A rather extreme view was also introduced in this study. Round-tripping phenomenon and OFCs are an important reason why corruption exists, since if one does not have a way to make ill-gained money legitimate why try to ill-gain the money at the first place. The most important finding of the study is that round-tripping companies are in a better competitive position than genuine and purely domestic investor due to their institutional knowledge.

International comparison of Russian food processing industry -Finnish perspective

Työn päätavoitteena on kartoittaa Venäjän elintarviketeollisuutta ulkomaisen investoijan näkökulmasta. Tutkimus arvioi liiketoimintamahdollisuuksia ja kilpailutilannetta Venäjän elintarviketeollisuudessa ja auttaa ulkomaisia yrityksiä toteuttamaan liiketoimintastrategioitaan Venäjällä. Venäjän ja muiden siirtymätalousmaiden markkinatilannevertailujen lisäksi Venäjän alueita verrataan keskenään. Myös mahdollisen WTO jäsenyyden vaikutuksia arvioidaan. Kommunismin perintö vaikuttaa edelleen Venäjän elintarviketeollisuuteen ja maatalouteen. Maatalouden tuottavuus on kaukana länsimaisesta tasosta ja maatiloilta puuttuu rahoitusta. Etenkin maidon- ja lihanjalostajat kärsivät raaka-ainepulasta. Venäjän kriisi vuonna 1998 vahvisti paikallista teollisuustuotantoa mutta aiheutti ongelmia ulkomaisille investoijille ja yrityksille, jotka vievät tuotteitaan Venäjälle. Edut, joita mahdollinen maailmankauppajärjestö WTO:n jäsenyys tuo, ovat merkittävämpiä Venäjälle kuin sen kauppakumppaneille. Venäjän alueet eivät ole yhtäläisesti kehittyneitä ja kuluttajien ostovoima vaihtelee paljon. Itsestään selvin ja houkuttelevin vaihtoehto menestyvien elintarvikeyritysten laajentumiselle löytyy alueilta, joilla ostovoima on suurin. Tähän asti kansainväliset elintarvikeyritykset ovat olleet enemmän kiinnostuneita Itä- ja Keski-Euroopan maista. Käytettävissä olevat tulot ovat Itä- ja Keski-Euroopan maissa suurempia kuin Venäjällä, joten tuottajat pystyvät myymään myös kalliimpia tuotteita. Työvoimakustannukset Venäjällä tulevat olemaan suotuisia vielä muutaman vuosikymmenen ja markkinoiden koko on merkittävä. Siksi kansainvälisillä elintarvikeyrityksillä riittää kiinnostusta tulevaisuudessa investoida myös Venäjälle.

Electrical Machines' Market in Russia

Venäjän valtion osuus maailmantaloudesta on pieni verrattuna sen maantieteelliseen kokoon, väkilukuun ja luonnonvaroihin. Sitä pidetään kuitenkin yhtenä tulevaisuuden merkittävistä kasvumarkkinoista. Venäjällä on tyypillisesti teollisuutta, joka hyödyntää luonnonvaroja ja tuottaa raaka-aineita sekä kotimaan että ulkomaiden markkinoille. Tällaisia tyypillisiä teollisuudenaloja Venäjällä ovat kaivos- ja metsäteollisuus sekä kemikaalien- kaasun- ja öljyntuotanto. Myös näiden teollisuusalojen tarvitsemien tuotantolaitteiden ja koneiden valmistusta on Venäjällä. Näitä koneita viedään Venäjältä entisiin neuvostovaltioihin ja päinvastoin. Tässä diplomityössä tutkitaan sähkömoottorien markkinapotentiaalia ja kilpailutilannetta Venäjällä. Venäjän osalta perehdytään sen kansantalouden tilaan ja tutkitaan sähkökonemarkkinoiden kokoa segmenteittäin monien erilähteiden avulla. Venäjän arvioidaan olevan erittäin potentiaalinen ja kasvava markkina-alue. Diplomityössä selvitetään ostoprosessia Venäjällä ja sähkökonemarkkinoiden ominaisuuksia kyseisellä alueella.

Identification and Management of Operational Risks in IT Organization of Financial Service Provider

Työn tavoitteena on tunnistaa toiminnallisia riskitekijöitä rahoituspalveluita tarjoavan yrityksen IT-organisaatiossa sekä löytää arkipäiväisiä keinoja hallita näitä riskejä. Työssä riskejä on myös tarkasteltu mahdollisen ulkoistuksen yhteydessä. Fuusiot ovat yleisiä rahoitusalan yrityksissä. Yhteenliittymien tuloksena yritysten IT-arkkitehtuuri voi olla monimutkainen ja kulttuurierot yrityksessä suuria. Synergia- ja mittakaavaetuja saadakseen yritys keskittää toimintojaan ja IT-ratkaisujaan. Riskien tunnistaminen on riskienhallintaprosessin tärkein vaihe. Tässä tutkimuksessa riskit ja riskitekijät tunnistettiin itsearvioinnin avulla kysymyssarjoja hyväksikäyttäen. Monet riskitekijät liittyivät sisäisen valvonnan ja seurannan puutteisiin. Myöhemmin näille riskeille pohdittiin työryhmässä käytännönläheisiä hallintakeinoja. Yritys voi siirtää tai jakaa IT -riskejä ulkoistamalla. Ulkoistaminen voi kuitenkin tuoda mukaan myös uusia riskitekijöitä. Ennen ulkoistamispäätöstä yrityksen sisäisten prosessien ja organisaation on oltava järjestyksessä, jotta sopimuksen kannattavuutta voidaan verrata luotettavasti saman palvelun tuottamiseen sisäisesti.

Modelling of North-West Russian market behavior considering technical restrictions of transmission grid

Nowadays the Finnish-Russian electric energy interaction is carried out through the back-to-back DC Vyborg substation and several power plants working synchronously with Finnish power system. Constant amount of energy flows in one direction — from Russia to Finland. But the process of electricity market development in Russian energy system makes the new possibilities of electrical cooperation available. The goal of master's thesis is to analyze the current state and possible evolution trends of North-West Russian system in relation with future possible change in power flow between Russia and Finland. The research is done by modelling the market of North-West Russia and examination of technical grid restrictions. The operational market models of North-West region of Russia for the years 2008 and 2015 were created during the research process. The description of prepared market models together with modelling results and their analysis are shown in the work. The description of power flow study process and results are also presented.

Maritime transportation in the Gulf of Finland in 2007 and in 2015

The Gulf of Finland is said to be one of the densest operated sea areas in the world. It is a shallow and economically vulnerable sea area with dense passenger and cargo traffic of which petroleum transports have a share of over 50 %. The winter conditions add to the risks of maritime traffic in the Gulf of Finland. It is widely believed that the growth of maritime transportation will continue also in the future. The Gulf of Finland is surrounded by three very different national economies with, different maritime transportation structures. Finland is a country of high GDP/per capita with a diversified economic structure. The number of ports is large and the maritime transportation consists of many types of cargoes: raw materials, industrial products, consumer goods, coal and petroleum products, and the Russian transit traffic of e.g. new cars and consumer goods. Russia is a large country with huge growth potential; in recent years, the expansion of petroleum exports has lead to a strong economic growth, which is also apparent in the growth of maritime transports. Russia has been expanding its port activities in the Gulf of Finland and it is officially aiming to transport its own imports and exports through the Russian ports in the future; now they are being transported to great extend through the Finnish, Estonian and other Baltic ports. Russia has five ports in the Gulf of Finland. Estonia has also experienced fast economic growth, but the growth has been slowing down already during the past couples of years. The size of its economy is small compared to Russia, which means the transported tonnes cannot be very massive. However, relatively large amounts of the Russian petroleum exports have been transported through the Estonian ports. The future of the Russian transit traffic in Estonia looks nevertheless uncertain and it remains to be seen how it will develop and if Estonia is able to find replacing cargoes if the Russian transit traffic will come to an end in the Estonian ports. Estonia’s own import and export consists of forestry products, metals or other raw materials and consumer goods. Estonia has many ports on the shores of the Gulf of Finland, but the port of Tallinn dominates the cargo volumes. In 2007, 263 M tonnes of cargoes were transported in the maritime traffic in the Gulf of Finland, of which the share of petroleum products was 56 %. 23 % of the cargoes were loaded or unloaded in the Finnish ports, 60 % in the Russian ports and 17 % in the Estonian ports. The largest ports were Primorsk (74.2 M tonnes) St. Petersburg (59.5 M tonnes), Tallinn (35.9 M tonnes), Sköldvik (19.8 M tonnes), Vysotsk (16.5 M tonnes) and Helsinki (13.4 M) tonnes. Approximately 53 600 ship calls were made in the ports of the Gulf of Finland. The densest traffic was found in the ports of St. Petersburg (14 651 ship calls), Helsinki (11 727 ship calls) and Tallinn (10 614 ship calls) in 2007. The transportation scenarios are usually based on the assumption that the amount of transports follows the development of the economy, although also other factors influence the development of transportation, e.g. government policy, environmental aspects, and social and behavioural trends. The relationship between the development of transportation and the economy is usually analyzed in terms of the development of GDP and trade. When the GDP grows to a certain level, especially the international transports increase because countries of high GDP produce, consume and thus transport more. An effective transportation system is also a precondition for the economic development. In this study, the following factors were taken into consideration when formulating the future scenarios: maritime transportation in the Gulf of Finland 2007, economic development, development of key industries, development of infrastructure and environmental aspects in relation to maritime transportation. The basic starting points for the three alternative scenarios were: • the slow growth scenario: economic recession • the average growth scenario: economy will recover quickly from current instability • the strong growth scenario: the most optimistic views on development will realize According to the slow growth scenario, the total tonnes for the maritime transportation in the Gulf of Finland would be 322.4 M tonnes in 2015, which would mean a growth of 23 % compared to 2007. In the average growth scenario, the total tonnes were estimated to be 431.6 M tonnes – a growth of 64 %, and in the strong growth scenario 507.2 M tonnes – a growth of 93%. These tonnes were further divided into petroleum products and other cargoes by country, into export, import and domestic traffic by country, and between the ports. For petroleum products, the share of crude oil and oil products was estimated and the number of tanker calls in 2015 was calculated for each scenario. However, the future development of maritime transportation in the GoF is dependent on so many societal and economic variables that it is not realistic to predict one exact point estimate value for the cargo tonnes for a certain scenario. Plenty of uncertainty is related both to the degree in which the scenario will come true as well as to the cause-effect relations between the different variables. For these reasons, probability distributions for each scenario were formulated by an expert group. As a result, a range for the total tonnes of each scenario was formulated and they are as follows: the slow growth scenario: 280.8 – 363 M tonnes (expectation value 322.4 M tonnes)

Islet antigen-specific T cells and regulatory T cells in type 1 diabetes

T cells are the key players in the development of type 1 diabetes (T1D), mediating autoimmune reactions leading to the destruction of insulin producing beta cells in the islets. We aimed to analyze the role of different T-cell subtypes in the autoimmunity and pathogenesis of T1D. The frequency of islet antigen-specific (GAD65-, proinsulin-, and insulin-specific) CD4+ T cells was investigated in vitro in T1D patients, at-risk individuals (diabetes-associated autoantibody positive), and in controls, using MHC class II tetramers. An overall higher frequency of CD4+ T-cells recognizing the GAD65 555−567 peptide was detected in at-risk individuals. In addition, increased CD4+ T-cell responses to the same GAD65 epitope displaying a memory phenotype were observed in at-risk and diabetic children, which demonstrate a previous encounter with the antigen in vivo. Avidity and phenotypic differences were also observed among CD4+ T-cell clones induced by distinct doses of GAD65 autoantigen. T-cell clones generated at the lowest peptide dose displayed the highest avidity and expressed more frequently the TCR Vβ5.1 chain than low-avidity T cells. These findings raise attention to the antigen dose when investigating the diversity of antigen-specific T cells. Furthermore, an increased regulatory response during the preclinical phase of T1D was also found in genetically at-risk children. Higher frequencies of regulatory T (Treg) cells (CD4+CD25_high HLA-DR-/CD69-) and natural killer T (NKT) cells (CD161+Vbeta11+) were observed in children with multiple autoantibodies compared to autoantibody-negative controls. Taken together, these data showed increased frequency of islet-specific CD4+ T-cells, especially to the GAD65 555-567 epitope, and Treg and NKT cell upregulation in children at-risk for T1D, suggesting their importance in T1D pathogenesis

Accounting Beta Measuring Systematic Risk: Empirical Evidence from the Finnish Markets

The main purpose of this study is to examine whether accounting-based variables can be used to measure systematic risk of a company using Finnish data. When the fundamental sources of systematic risk are known, companies are able to manage these risks and increase company value. Accounting beta was formed based on OLS regression models. Theoretical background for the study was based on the findings of studies according to which business risk, financial risk, operating risk and growth risk can be theoretically regarded as determinants of the systematic risk. The results reveal that accounting variables describe systematic risk of a company. The accounting beta is found to be particularly sensitive to the changes in the risk components. The investigation is confidential until 15.10.2012.

Russian market entry decision for an e-business company, the case Ampparit Inc.

The aim of the study was to examine foreign operation methods and suggest the entry mode for the Russian E-business market. Ampparit Inc. was chosen as a case company, as it operates in the e-commerce B2B type of the business by providing Witpik - media monitoring service. The concept of foreign operation method was clarified with a specific focus on Russian market peculiarities and E-business. The main focuses of the present work were to figure out the most applicable entry mode for the Russian market in case of e-business company and factors affecting the decision about entry, including risks, barriers and other aspects.