Russia's biggest beer, Baltika, poised to overtake Heineken as Europe's top seller, is to be brewed on Tees-side by Scottish & Newcastle under the beer's first European licence.

Anton Artemiev, president of Baltika, signed the agreement in a ceremony at Edinburgh Castle yesterday with two directors of S&N, which has a 50% stake in Baltika's Finnish owner BBH Holdings.

Artemiev said: "The start of licensed production in western Europe of Baltika, now one of Russia's most popular consumer brands, is a natural step in the process of integrat- ing Russia into the world economy."

Asked later by Russian journalists whether the country's image might be associated here with negative stories such as Gazprom, S&N's UK chairman, John Dunsmore, said: "We spend a lot of money researching consumer imagery, and people are much more interested in Roman Abram- ovich and the new image of Russia than what is happening with Gazprom. I think the image of Russia is very exciting and very fertile."

S&N, which closed its Edinburgh brewery in 2005, said it was currently using the brewing capacity of some of its competitors, in contract brewing, to maintain its market share. "It sounds rather odd if you think about it from a Russian perspective," Dunsmore said. "What is important in the UK is that you utilise capacity that is already available and in quite a few cases that is amongst other brewers."

He said Baltika, with a strength of 5.1%, would continue to be built as a premium brand, selling in "high-end" venues in the big cities, and especially in London and the south-east where there are now one million Russian émigrés.

Artemiev, addressing a press conference at S&N's headquarters in Russian with simultaneous translation via headsets, said Baltika had in the early 1990s been merely the smallest of four St Petersburg breweries.

"Over 16 years it grew into a leader of the brewing industry in western Europe and one of the major brewing companies in the world - there are no similarities or analogies in modern history."

Baltika as a brand had been born at the end of the 1990s, was now exported to 40 countries with growth of 27% last year (11% at home), and was the third most valuable consumer brand in Russia.

It was now second only to Heineken as Europe's biggest-selling beer, but at present rates would probably overtake it soon.

Dunsmore said S&N had formed a new division, Green Shoots, to develop its speciality brands, including Sagres (Portugal), Lapin Kulta (Finland), Alken Maes and Grimbergen (Belgium) and Baltika. He said: "The marketing skills required to sell speciality brands and high-end brands are quite different from the mainstream focus."

Baltika 3, the version with a "dry, fresh taste" which would appeal in the UK, Dunsmore said, would be produced under licence at S&N's Hartlepool brewery from later this year, and had been repackaged for the UK market into 330ml bottles, in addition to the brand's standard 500ml bottles.

Asked by the Russian journalists how long it would take to build Baltika into a big-selling beer, Dunsmore said: "We are not trying to grow Baltika to become very big very quickly, that is fundamentally different from its position in Russia."

Growing Newcastle Brown Ale into the eighth-biggest imported beer in the US had taken 15 years, he said. "It takes a long time."