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RUSSIA

Books on Russia

Update No: 319  (26/07/07)

Putin the abdicating kingmaker
Moscow is abuzz with rumours concerning the fate of Putin. He is in the prime of life, extremely fit, abstemious (unlike many of his male compatriots) and with a certain steely quality that is the hallmark of despots, especially Russian ones, down the ages. Yet he is apparently quite prepared to hand over to a successor in 2008. 

He is a capable and successful president of his country, with sky-high approval ratings (nearly 80%), that would be the envy of his Western counterparts. If he agreed to have the constitution changed to allow him to stand for a third consecutive term, there would be no serious opposition - indeed widespread relief. He would romp home.

Putin is reluctant to change the rules; an educated man, he speaks several languages, German fluently and passable English and French. He used them to good effect in Guatemala in securing the 2014 Winter Olympics for Sochi, Russia by a bare four votes in early July. His canvassing of the French delegates in their own tongue was decisive, there being no nationality that is more prickly about the use of its language. 

Putin is a keen skier himself. He would like to attend those games all right - but just as a has-been ex-president? Hardly. The evidence is mounting either that he plans a comeback in March 2012 elections or, if he is enjoying being out of the limelight, he leaves it to 2016, benefiting from a long break, during which his two daughters will come of age. He revels in his job, being a workaholic if there ever was one. But eight years in one of the most demanding posts in the world is enough for now. He would prefer to be a De Gaulle, called back as a saviour, than a Stalin, clinging on desperately into the grave.

But who is to hold the reins for him until then? Can he be trusted to step down on cue?

Actually it could be a she. The two first deputy premiers (the premier Mikhail Fradkov is a complete no-no), Sergei Ivanov, former defence minister, and Dmitry Medvedev, a pro-Western reformer, are able and ambitious themselves. Why should either obligingly step aside, once into the job? Ivanov is however a special friend, a KGB buddy from the old days. 

Putin has a knack for doing the unexpected. He could choose Valentina Matviyenko, the governor of his beloved home city, St Petersburg, and a devout Putin loyalist. In a country as male chauvinist as Russia, there is little risk of her becoming too popular, while she would do the ex-president's bidding to a tee, if past form is anything to go by. But then power has a way of changing people, as it has Putin. There is of course the possibility that Putin will pull a fast one and appoint the utter mediocrity, Fradkov, in his place. But that would be an insult to the Russian people. Giving the Russians a matron to look after them for the duration of his absence seems a better bet.

But again, Putin may make his best friend, Sergei Ivanov, his successor after all. He can promise him the next succession in 2020, when they will both still be sexagenarian striplings.

If a crisis supervenes between now and next year (the election is due in March), there could be an overwhelming call for him to stay put, the Duma dutifully amending the constitution. There are plenty in the corridors of power who would welcome that respite. In a country like Russia 'accidents' can happen in due time, as with the serial killings of 300 or more in September, 1999, that occasioned the second Chechen War and saw Putin rise to his present eminence in the first place. Anything is possible.

Sochi Games will help develop all of southern Russia
Southern Russia is a good place, worthy of development, Sochi on the Black Sea especially so. Seven years is a short timetable for such an ambitious project, but the belief of the International Olympic Committee (IOC) is that Russia can host the 2014 Winter Olympics, as well as build the gleaming ice arenas, giant sporting venues and everything else needed for the games. Vladimir Putin, too, is confident. After all, the Russian president's determined pitch for Sochi included a pledge: "No traffic jams, I promise."

For many Russians, the IOC vote awarding Sochi the games was proof of the country's resurgence. It also was a major victory for Putin, who threw his full weight behind the campaign, at a time of growing criticism of his government's democracy and human-rights record. Putin, who frequently skis in Sochi, said being awarded the Olympics was recognition of Russia's sports tradition and its growing economic and cultural clout in the world. "This is support from one of the most authoritative and independent international organizations -- the International Olympic Committee," he said in televised comments upon returning from Guatemala City, where the decision was announced.

Footage broadcast over and over showed exuberant Russian officials and athletes dancing and singing and celebrating in Guatemala and Sochi. Moscow hosted the 1980 Olympics, boycotted by the US in protest at the Soviet occupation of Afghanistan; but Russia has never held the Winter Games. Yet everyone is convinced that the Sochi games will be an unquestionable boon. 

The project still must address protests by environmental watchdogs and local residents who say it will destroy the region's fragile ecosystem. And building the Olympic facilities essentially from scratch under the tight deadline won't be easy.

Russia in massive programme to develop Black Sea ports 
On July 11th Russia's First Deputy Prime Minister Sergei Ivanov and Transport Minister Igor Levitin unveiled a comprehensive modernization programme for Russian Black Sea ports during an inspection visit there. The program is ambitious in both scale and pace, with most of its goals scheduled to be attained by 2010. It is a counterpart to the programme for accelerated expansion of Russia's Baltic ports, which the Russian government also launched this year, with President Vladimir Putin taking a personal interest in both programmes.

The government drew up its Black Sea programme before the decision of the International Olympic Committee to hold the 2014 Winter Olympic Games in Sochi, on Russia's Black Sea coast. That decision, announced on July 4, will necessitate massive investments to develop infrastructure in the Sochi area, above and beyond the scope of the overall program for Black Sea ports and mostly beyond this program's time frame. Ivanov and Levitin discussed both the overall maritime transport program and ideas about Sochi development during their visit.

According to these officials, Russian Black Sea ports currently handle more than one third of Russia's sea-borne exports in terms of tonnage. Total export cargos were reported at 160 million tons in 2006 and are "conservatively" expected to grow to 250 million tons annually by 2010. The port development programme ambitiously envisages doubling the existing export capacities, which are currently strained to the limit and distributed very unevenly along the Russian coast.

At present, Novorossiysk alone handles more than one half of that overall export tonnage. The over-congested port's various terminals loaded a reported 88 million tons of export cargos in 2006.

That figure includes an estimated 60 million tons of oil, one half of this originating in Kazakstan. Oil loading will increase if the Caspian Pipeline Consortium's line boosts the volume of oil pumped from Kazakstan to Novorossiysk. Expecting this to be the case, the Russian government is ordering three tanker ships to carry that additional volume of oil from Novorossiysk to Bulgaria's Black Sea port of Burgas, for feeding into the planned trans-Balkan pipeline to Alexandropolis on the Greek Aegean coast.

The Russian government's programme envisages relieving some of the congestion at Novorossiysk through specialization. It would transfer some shipping flows from there to other Russian Black Sea ports while dedicating Novorossiysk to oil, grain, and container cargos. In addition, a modern grain export terminal is due for completion this year.

Ivanov and Levitin explicitly called for competing with Romania's port of Constanta in terms of attracting international container shipping to Novorossiysk. The Russian government envisages building the appropriate terminals as a priority until 2010, in place of existing old terminals.

The commercial port of Novorossiysk can no longer expand physically in the narrow bay, a section of which is taken up by the naval port. Russia's Black Sea Fleet is expanding its installations there to a full-fledged base as an alternative to Ukraine's Sevastopol, where the Russian fleet's lease is due to expire in 2017.

Other port development plans include using Taman as the main coal export terminal (instead of Tuapse) while expanding the use of Tuapse as an export outlet for oil and, potentially, liquefied gas. The port of Kavkaz (also in Krasnodar Krai) is slated to specialize for handling commodity ferryboats. A catamaran line for passenger boats is scheduled to run between the ports of Anapa-Novorossiysk-Gelenjik-Tuapse-Sochi.

The programme also envisages developing overland and air links to the ports. A second railroad line to Novorossiysk and convergent highways to that port are to be built until 2010. Also by that date, the old airports of Anapa and Gelenjik are to become modern international airports, alongside the existing Adler airport. The three are to be merged into a single, state-controlled company. Ivanov and Levitin underscored Krasnodar Krai's potential as a destination for international and Russian tourism ("We don't have anything comparable in Russia").

In Sochi, the transport modernization programme runs through 2015, but will almost certainly have to be adjusted to meet the 2014 Olympic deadline. The port will be reserved exclusively for passenger traffic. All other cargo flows are to be transferred from Sochi to other ports. This measure takes immediate effect, so as to enable the port of Sochi to receive construction materials for the planned Olympic installations and start construction of large-scale passenger terminals. These are planned to accommodate passenger and cruise ships with capacities of up to 3,000 passengers each, for a total of 600,000 passengers per year by 2010 and 715,000 by 2015. Access highways to Sochi and a ring highway around the city are included in the programme, as well as expansion of the Adler airport, which is servicing Sochi.

The Russian government is creating an inter-departmental structure to supervise this Black Sea programme. While the government's existing Maritime Affairs Board only meets three or four times per year with a very broad agenda, the new structure will be a standing one to coordinate port development. Ivanov has nominated Igor Levitin to head the new inter-departmental structure in his capacity as transport minister. With President Putin evidencing a personal interest in the port development programme, Ivanov a front-running presidential contender, Levitin also mentioned as aspiring to a top post in 2008, and the scheduled Olympic games as an added stimulus, this Russian Black Sea programme will command political attention and funding in Moscow.

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Russia Pulls Out of Arms-Control Treaty
Domestic politics are all important, but international affairs matter too. Putin had a meeting with President Bush at the Bush family home in Kennebunkport, Maine, in early July, prior to his IOC victory in Guatemala. But it did not appear to make matters better all round. 

He spoke at a meeting with a group of top level U.S. and Russian diplomats, former government ministers and Cabinet secretaries in the Novo-Ogaryovo residence outside Moscow, Friday, July 13, 2007. Putin said that relations between the United States and Russia should be free of shifting political trends, as a group of influential top diplomats, ministers and Cabinet secretaries met for a conference on the two countries' uneasy relationship.

Russia on July 14th suspended its participation in a key European arms control treaty that governs deployment of troops on the continent, the Kremlin said. NATO called Moscow's decision "a step in the wrong direction."

President Vladimir Putin signed a decree suspending Russia's participation in the Conventional Forces in Europe Treaty due to "extraordinary circumstances ... which affect the security of the Russian Federation and require immediate measures," the Kremlin said in a statement.

Putin has in the past threatened to freeze his country's compliance with the treaty, accusing the United States and its NATO partners of undermining regional stability with U.S. plans for a missile defence system in former Soviet bloc countries in Eastern Europe.

The treaty, between Russian and NATO members, was signed in 1990 and amended in 1999 to reflect changes since the break-up of the Soviet Union, adding the requirement that Moscow withdraw troops from the former Soviet republics of Moldova and Georgia.

Russia has ratified the amended version, but the United States and other NATO members have refused to do so until Russia completely withdraws.

NATO expressed regret on July 14th over Russia's decision. "The allies consider this treaty to be an important cornerstone of Euro stability and they would like to see it ratified as soon as possible," NATO spokesman James Appathurai said.

Kremlin spokesman Dmitry Peskov said Russia could no longer tolerate a situation where it was complying with the treaty, but its partners were not, and he expressed hope that Russia's move would induce Western nations to commit to the updated treaty.

"Such a situation contradicts Russia's interests," Peskov told The Associated Press. "Russia continues to expect that other nations that have signed the CFE will fulfil their obligations."

The treaty is seen as a key element in maintaining stability in Europe. It establishes limitations on countries' deployment of tanks, armoured combat vehicles, artillery, attack helicopters and combat aircraft.

Withdrawal from the Conventional Forces in Europe Treaty would allow Moscow to build up forces near its borders. However, Russian military analysts have said the possibility of suspending participation in the treaty was a symbolic raising of the ante in the missile shield showdown, more than a sign of impending military escalation.

Pavel Felgenhauer, a Moscow-based defence analyst, said the moratorium probably won't result in any major build-up of heavy weaponry in European Russia. Russia has no actual interest in the highly costly build up of forces because it faces no real military threat and has no plans to launch an attack of its own, he said. But, he said, it could mean an end to onsite inspections and verifications by NATO countries, which many European nations rely on to keep track of Russian deployments.

For the United States, the moratorium will mostly be a symbolic gesture, he said, since the U.S. has an extensive intelligence network that keeps close track of Russian forces. But it will still be seen as another unfriendly move in Washington, Felgenhauer predicted.

"This will be a major irritant," he said. "It will seriously spoil relations. The kind of soothing effect from the last summit with Putin and (President) Bush will evaporate swiftly," he said referring to the summit between the leaders earlier at the Bush family home in Kennebunkport, Maine.

Felgenhauer also said that there is no provision under the treaty for a moratorium, suggesting Russia was acting illegally. "This is basically non-compliance, and this is an illegal move," he said.

The new arms race 
Vladimir Putin's Russia has just tested a weapon deadlier than anything developed by the Soviet Union. A missile launched from a submarine in the White Sea entered the stratosphere and returned precisely on target 3,800 miles away in the Russian Far East - the other side of the world. Such tests are meant to send messages. The target could just have easily been Tehran, Los Angeles or London. It signalled that Russia means business. After a hiatus of two decades, the arms race is back.

While Britain has been fixated with the Middle East and Iraq, it has paid insufficient attention to the increasingly aggressive noises emanating from the Kremlin. Mr Putin was never very enthusiastic about Russia becoming a part of the West - but now, flush with gas and oil revenues, he has left its orbit altogether. The Russian military is once again treating Nato as the glavny protivnik, the primary enemy, and drawing up plans for a nuclear war. And Putin's explicit aim is to challenge, and then counter, America's world dominance.

As recently as six years ago, such an ambition would have been laughable. Then, Russia was an economic basket case which had been admitted into the G7 group of industrialised nations only as an act of charity. The main security issue in Russia was how to stop its nuclear fuel being sold for scrap to rogue states. But, in those days, oil was US$17 a barrel. Now it is US$75 and rising. For a country which pumps out more oil than any on earth, save for Saudi Arabia, the consequences could scarcely have been more dramatic. Russia now has a huge surplus, has banked £25 billion in a 'stabilisation fund' and has the third-largest currency reserves in the world. 

Rather than invest this bounty in Russia's crumbling infrastructure or its imploding health service, Mr Putin has gone on an arms spending spree. In 2001, the defence budget was 140 billion roubles; today it stands at 870 billion (£16.7 billion) - a six-fold increase, and the fastest in Russia's peacetime history. (This of course remains only a small fraction of the US annual defence and weaponry budget). Last year, he added six new intercontinental missiles to his arsenal, 12 launch vehicles, 31 battle tanks and seven Mi-28N night attack helicopters. And this is but a small taste of what is to come.

The missile tested takes off so fast that it is claimed that no missile defence system could detect it in time. The new variant of the Topol-M missile will have multiple warheads, which splinter so they cannot be shot out of the sky. America's floundering missile defence system cannot hope to offer protection. Washington struggles to keep up: two months ago, another interceptor missile fired off Alaska fell into the Pacific having failed to recognise, far less hit, its target. America seems to be losing the ballistic missile game.

Meanwhile, Mr Putin has learnt to use energy as a weapon. Russia is sitting on the largest stretch of gas reserves in the world and Europe already depends on Russia for a quarter of its gas. The Kremlin knows that energy security is intimately intertwined with national security, and tested its strength the winter before last when it temporarily suspended gas supply to Ukraine in an argument about prices. Germany is expected to rely on Russia for 80 per cent of its gas within a decade. 

Precisely what Mr Putin intends to do with this muscle was made astonishingly clear in February when he delivered a speech at the Munich security conference. It was a 'J'accuse' to America, serving notice that Russia had moved from ally to adversary. 'The United States has overstepped its borders in all spheres - economic, political and humanitarian, and has imposed itself on other states,' he declared. 'This is the world of one master, one sovereign.' And his objective is to challenge such hegemony.

To Britain, all this sounds almost quaintly absurd. The recent debate about renewing Trident reckoned without a nuclear confrontation with Russia. Yet this is precisely what Mr Putin's troops are being trained to expect. The view in London is fundamentally different from the view in Warsaw, which is watching the Kremlin's assertiveness with alarm. In Moscow much of the Cold War mindset is returning (minus the communist ideology) - whereby Nato is the enemy, and perceived as a growing threat.

The irony, of course, is that by many of its own members, Nato is seen increasingly as an anachronism. It played no role after the attacks of 11 September 2001 - other than a routine invocation of Article 5 - and its peacekeeping efforts in Afghanistan have been a testimony only to the reluctance of its members to share an even burden or agree a clear set of priorities. The phrase 'coalition of the willing' became popular in Washington partly because expectations of Nato solidarity are so low.

In this context of slow decline the admission of former Warsaw Pact countries into the club is seen simply as an act of friendship. Yet within the paranoid confines of the Kremlin such gestures are seen as new and sinister manifestations of Western imperialism. When Mr Putin is called upon to explain his extraordinary arms build-up, he points to the expansion of Nato.

The architect of the new Russian military is Sergei Ivanov, for six years defence secretary, now promoted to Deputy Prime Minister and, as we have seen, favourite to succeed Mr Putin next March. 'In the mid-1990s, we counted on the fact that the collapse of the Soviet Union would lead to the end of the Cold War - that Nato would not move to the east,' he said in a recent interview. 'But now we see everyone deceived us.'

Washington now hopes to position missile defence interceptors in eastern Europe. Congressional funding for the scheme is far from secure, and, seven years ago, Mr Putin said quite explicitly he was happy for a shared anti-missile system to proceed. Yet his response last month was incendiary. If the interceptors were mobilised, the Russian President declared, 'then we disclaim responsibility for our retaliatory steps, because it is not we who are the initiators of the new arms race which is undoubtedly brewing in Europe'. 

In the Kremlin's eyes, there already is an arms race - the only question is how quickly it can respond. Inside Russia, there is regular talk of how its missiles might penetrate any American defence. The military is already on Cold War alert. Three months ago, for example, the Vladimir Missile Army held a five-day exercise simulating full-on nuclear war with America. It practised moving its Topol-M missile under camouflage, to fool Western satellites. The army commander then gave details in an interview to the Krasnaya Zvezda newspaper - in full knowledge that translated versions would instantly arrive on the desks of Western intelligence agencies. It was the nearest thing to writing the CIA a 'from Russia with love' memo. 

These are not the clandestine methods of the Cold War. All this missile testing, ostentatious war-gaming and tub-thumping is clearly designed to draw attention to Russia. It is consistent with a bid to lead a new power axis - perhaps based upon the gas cartel which Russia is discussing with Iran, Qatar and Venezuela. Mr Putin visited the Middle East soon after making his anti-American outburst as if preparing the ground for a new coalition of aggrieved states hostile to America.

Whatever his intentions, it is now clear that democracy and liberalism have long been dumped from Russia's priorities. Security, order and centralisation of power are Putin's key objectives, and the oil revenues have brought wealth which earlier attempts at economic diversification and general entry to Western free markets did not. The old KGB ways are returning - a recent study of the 1,016 most senior officials showed a quarter were ex-KGB. Among Mr Putin's inner circle, this figure rises to three quarters. These are Soviet-era men, with Soviet-era approach to the toleration of dissent.

The murder of Alexander Litvinenko, the ex-Russian spy poisoned in London last November, is just the most spectacular example of what goes on all the time in a Russia where broadcasters are now controlled by the Kremlin or Mr Putin's allies. A number of independent, critical journalist critics have been found dead in suspicious circumstances. Mikhail Khodorkovsky, former head of Yukos Oil, remains in jail after a show trial. The West protests strongly, but Mr Putin makes it equally clear he could not care less. He has a legacy to think of, too.

Slowly, the West is beginning to realise what is happening. Angela Merkel, the German Chancellor and current President of the European Union, has been strikingly robust in criticising Mr Putin - a stance which won her many fans among the new EU members. Yet Tony Blair was deeply reluctant to accept that things were so bad. He invested much personal time with Mr Putin and visited Moscow during the last presidential election to lend his support. Gordon Brown is taking a much more distant approach, approving the Foreign Office's expulsion of four Russian diplomats in July in retaliation for non-compliance with the request for the extradition of a key suspect, Andrei Lugovoi, from Moscow in connection with the Litvinenko affair. Moscow promptly expelled four British diplomats from Russia, while pulling out of anti-terrorism cooperation with the UK. Since it now reserves the right to kill people abroad in the interests of the state, this is quite logical. The entire Russian dissident community in London is being intimidated.

Then it came to light in mid-July that there had been in late June a likely attempt to murder Boris Berezovaky, the tycoon who has fallen out badly with the Putin Kremlin. Moscow's request for his extradition has been turned down too. British-Russian diplomatic relations are chilly. Brown is not going to jump on a plane to Moscow qua Blair. 

Putin is aware that Russia could lose out heavily if relations with the UK are left in the freezer. The City of London is becoming the world's financial centre once again, the source of much of the world's FDI, both portfolio and direct. Russia needs that FDI badly. The security thugs behind the latest moves are if anything averse to foreigners coming to Russia, especially as investors. But Putin knows their importance, having been in charge of the foreign investment bureau of St Petersburg under Mayor Anatoly Sobchak in the 1990s, where he got to know Silvio Berlusconi amongst others. He knows that Gordon Brown had his own apprenticeship in government as a solid Chancellor of the Exchequer, responsible in no small measure for the resurgence of London. A new rapprochement is required. 

Yet for all this, Russia knows it can never again become a true superpower for reasons that no ballistic missile will ever be able to reverse. Its rampant drug abuse, alcoholism, rate of HIV infection and other problems add up to a demographic picture worse than that of any non-African country. Russia's population is expected to keep falling by 730,000 a year until at least 2015. Its defence budget is less than 5 per cent of America's - for all the damage its missiles would cause, it would end up second-best in any nuclear war. A country dependent on oil money for a third of its budget is also hugely vulnerable to a drop in oil price.

Yet it is precisely this fragility that makes Russia so dangerous at the moment. It is North Korea's weakness that has led it to militarise so heavily, and instruct its army to prepare for war with America. Mr Putin may be stepping down, but he is clearly trying to set Russia on a clear, aggressively military and nationalist trajectory. As Britain sets its defence policy in 2007, it must ask what kind of Kremlin will emerge in ten years' time. And the trends are not encouraging. The more desperate Russia becomes, the less predictable it will be.

The military is not waiting around. In January, Russia's military chiefs met to discuss security and deliver keynote speeches. One after the other, they asked for the governing military doctrine of their nation to be redrafted, explicitly naming America and Nato as the primary enemy. In March, the Russian Security Council duly announced that it no longer considered terrorism to be the greatest threat, and instead unveiled a new strategy based upon 'geopolitical realities' - namely that rival military alliances were becoming stronger, 'especially Nato'.

Six years ago, when George W. Bush first hosted Mr Putin at Ljubljana, the capital of Slovenia, he famously claimed to have seen into his soul. At the time he phrased it slightly differently to an adviser, unaware that his microphone was still live and his remarks were being broadcast over the speaker system in the next room. 'I've got him eating out of my hand,' the President whispered. 'You give these Russkies some cake and they'll give you their souls.'

How things have changed. In Mr Putin's trip to Maine, it was Mr Bush who was doing the back-pedalling, agreeing to look again at the Pentagon's plans for the missile interceptors in Poland. They joked, shared a speedboat, ate lobster and played fetch with their dogs. But it is now time for realpolitik. The free market has perished in Russia, and a petro-economy has taken its place. Russia is no longer a junior partner for the West, but a growing adversary. Mr Putin will smile - but rearm Russia as he smiles. And the new arms race continues apace.

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ENERGY

Russia and Armenia to build NPP

A Russian-Armenian group working on new nuclear power infrastructure for Armenia recently met in Yerevan to discuss security guarantees for the country's existing nuclear power station and cooperation in constructing new units, Interfax News Agency reported.
The Armenian side elaborated on their plans to develop their energy grid, while Russian representatives presented project details for a new nuclear power plant.
During an April visit to Yerevan, the head of Russia's Federal Atomic Energy Agency, Sergey Kiriyenko, stated that Russia was ready to provide both technical and financial assistance in constructing a new nuclear power station for Armenia. According to Regnum, the new 1,000 MW (megawatt) station will cost US$ two billion to build. US$ 240 million will be needed to decommission Armenia's aging Metsamor nuclear power plant, which is slated for closure by 2016. The plant, built in 1975, was initially closed following the devastating 1988 earthquake. One of two units, with a 400 MW capacity, was reactivated in 1995. Metsamor produces 40 per cent of Armenia's electricity.

Rosneft plan to trim debt

Rosneft, the largest oil company in Russia, plans to reduce its debt by 40 per cent and expand refining capacity nine fold, the chief executive, Sergei Bogdanchikov, said, the International Herald Tribune reported on 2nd July.
The state-run company will sell bonds to reduce bank loans and sell "non-core" assets to trim US$10bn from its US$25bn in debt by 2010, Bogdanchikov said at the annual meeting of shareholders in Moscow recently. Rosneft may also build new refineries abroad to meet its refining capacity target by 2015, he said.
"We don't need some of our assets, and we'll sell them," Bogdanchikov said. The company will present a Eurobond issue to investors in the United States and Europe in the near future and hope to complete the sale by the middle of August, he said.
Rosneft became the top Russian producer and refiner of crude oil this year. It has the biggest proven oil and natural gas condensate reserves among the world's publicly traded oil companies, ahead of Exxon Mobil and BP.
Rosneft borrowed US$22bn to buy assets from the bankrupt Yukos at liquidation auctions this year. Yukos was dismantled by Moscow after it claimed US$30bn in back taxes. 
Bogdanchikov said during an interview in May that Rosneft planned to sell as much as US$5bn worth of bonds in the second half of the year and about US$4bn in "non-core" assets bought in the Yukos auctions.
Refining capacity at Rosneft increased fourfold after it bought five Yukos refineries. Rosneft will increase capacity to between 90 million and 95 million tons a year by 2015, Bogdanchikov said. The company, which is based in Moscow, refined about 11 million tons last year.
"We're considering the addition of new oil refining capacity in China and other east Asian countries," Bogdanchikov said. "This will help fully balance refining with production."
The company pumps more than 2 million barrels of crude oil a day, equal to about 100 million tons a year. Rosneft refined 13 per cent of its crude output last year, compared with 44 per cent for Lukoil, also of Russia.

Lukoil profit slides 23%

Lukoil, the largest non-state oil producer in Russia, said that profit had fallen 23 per cent in the first quarter as production costs and export taxes rose and fuel prices declined, the International Herald Tribune reported.
Net income slid to US$1.3bn from US$1.69bn a year earlier, Moscow-based Lukoil said in a statement. That was 5 per cent less than the US$1.37bn median estimate by nine analysts in a survey.
Export taxes, transportation costs, operating expenses and falling oil prices have eaten into Russian oil-company earnings and dragged down its stock markets. Profit at Lukoil fell to a two and a half year low of US$1.04bn in the fourth quarter.
"These negative factors were partly offset by increased hydrocarbon production," Lukoil said in separate statement. Revenue rose 4.7 per cent to US$15.7bn from US$15bn a year earlier. Lukoil increased output of oil and natural gas available for sale by 7.3 per cent from a year earlier.
Lukoil shares pared gains to 1,990.25 roubles, up 0.2 per cent, in Moscow, after rising as much as 2.2 per cent earlier in the trading day. Operating expenses advanced 56 per cent to US$1.44bn, as the cost of extracting resources rose. Excise and export taxes climbed 22 per cent to US$3.27bn.
"My first impression is that these numbers are neutral, they are close to consensus," said Igor Kurinny, an oil and gas analyst at ING Bank.
"Lukoil's ability to maintain strong operating cash flows in a weak macro environment speaks well for its flexibility on costs and efficiencies," analysts at UBS said in a research note.
Lukoil plans to spend US$100bn by 2016 to almost double output and refining and triple its market value to US$200bn. The company, 21 per cent owned by Houston-based ConocoPhillips, is expanding in countries with lower tax rates than Russia while state-run rival Rosneft focuses on lifting output at home.
The price of the Russian benchmark blend of crude, Urals, averaged about US$54.57 a barrel, more than 6 per cent lower than the US$58.29 average in the year-earlier period, Bloomberg data showed.
Lukoil said last year that it planned to spend US$27bn in the next decade to increase overseas oil and gas output sevenfold and ensure growth of about 6.7 per cent a year through 2016. The company plans to sustain growth by expanding gas production.
Natural gas makes up almost 12 per cent of Lukoil's production from 11 per cent last year. The government has pledged to raise gas prices for domestic industry as exports, which are controlled by state-run Gazprom, by 2011.
Lukoil tripled investments in new international projects in Saudi Arabia, Egypt, Columbia, Venezuela and Iran and is lobbying Iraq to recognise its claim on the West Qurna field.
The Caspian region is key to Lukoil's plans to add reserves and increase production. Lukoil expects to pump 50 million tons of oil equivalent in the north Caspian as early as 2016, RIA Novosti reported, citing Alexander Semyanov, the deputy director for geology at Lukoil.

LUKoil to take over jet filling stations in Europe 

Russian oil major LUKoil will receive full control over the Jet filling stations in Europe that it bought from ConocoPhillips on July 1st, Interfax News Agency reproted.
"We've paid for them in full and I'm hoping the rebranding will be over with in 2008," Interfax quoted LUKoil President Vagit Alekperov as telling a press conference. LUKoil bought 376 Jet filling stations from ConocoPhillips in Europe, including 156 in Belgium, 49 in Finland, 44 in the Czech Republic, 30 in Hungary, 83 in Poland and 14 in Slovakia for more than US$400 million.

Gazprom has the cash to buy Kovykta

Russian gas giant Gazprom will acquire a controlling stake in Rusia Petroleum, which holds the licence to develop the Kovykta field, without new borrowing, Deputy Chairman of the Gazprom Management Committee, Financial and Economic Department chief, Andrei Kruglov, said at a press briefing. He did not provide information on the current balances in the company's bank accounts, New Europe reported.
"How much money Gazprom has in its accounts at the moment is in no way connected with our ability to acquire Rusia Petroleum, because this is not an issue for today, and the deal should not be finalized today," he said. He said that "according to the conditions of the agreement, we have a certain amount of time - it should be structured and finalized over the year." "For the moment we are planning our activity in such a way that cash within the framework of the current borrowing program and cash that Gazprom generates is sufficient to acquire these assets. This is also due to the fact that gas prices are rising," Kruglov said. He said that in the third quarter, the company's account would receive less money. "Nevertheless, at the end of the third quarter we will take a look at how capable we are of carrying out this deal independently. For the moment I see that Gazprom is capable of implementing this deal," he said. TNK-BP recently agreed to sell a 62.9 per cent stake in Rusia Petroleum to Gazprom. The deal is worth US$600-900 million and includes a 50 per cent stake in East Siberian Gas Company, which is developing the Irkutsk regional gas distribution network using Kovykta gas. Gazprom's updated fiscal plan for this year increased planned borrowing from 90 billion roubles to 421.2 billion roubles. Kruglov said that at the end of the year the company's debt is forecast at US$35-36 billion.

LUKoil to invest in refining to reach Euro-4 level

Russian oil major LUKoil is investing about US$ seven billion in oil refining to change over to production of fuel to Euro-4 standards, Interfax News Agency quoted company First Vice President, Vladimir Nekrasov, as saying at a roundtable on oil refining and petrochemicals in the Federation Council on July 4th. 
He said that this money would be used to complete the construction of a catalytic cracking unit at the company's refinery in Nizhny Novgorod, and also to build similar units at refineries in Perm and Volgograd. He also said that LUKoil-Nizhegorodnefteorgsintez plans to change over to Euro-4 standards by 2010. Nekrasov also said that this year the company plans to complete the construction of an isomeration unit at the Perm and Volgograd refineries, after which all their products will reach Euro-3 standards. He said LUKoil-Nizhegorodnefteorgsintez had already been producing Euro-3 standard gasoline since last year and would start producing Euro-4 standard diesel within three years. He said that Euro-3 standard fuel sells well on the domestic market, and that LUKoil also supplies it to Kazakstan and the CIS. Nekrasov said the company plans to increase utilization of associated gas to 95 per cent and over from 92 per cent at the moment.

Rosneft receives YUKOS southern assets

Neft-Aktiv, an entity acting on behalf of Rosneft, has completed payments for the YUKOS assets based in southern Russia, Nikolai Lashkevich, spokesman for the receiver at YUKOS, said in a statement. "The buyer has remitted the full payment of 4.9 billion roubles, and the transfer deed was signed on July 3rd," the statement said.
The YUKOS committee of creditors decided on May 16th, 2007, to allow Neft-Aktiv to sign an agreement on the purchase of the assets included in Lot No. 9 because it offered the second highest price at an auction. Having received a proposal to purchase the property included in Lot Number Nine at a price offered by the winner of the auction, Neft-Aktiv submitted an irrevocable offer to acquire these assets to the YUKOS receiver on June 9th and received a positive answer on June 13th, New Europe reported.

Russia eyes energy cooperation with Guatemala

Russia has been looking into the possibility of working on Guatemala's energy and electricity market, Russian President, Vladimir Putin, said. "Yes, we discussed the issue of energy cooperation with Guatemalan president (Oscar Berger). I cannot say that our companies are well represented here (Guatemala)," Putin said at a joint press conference with Berger. "However, there is such an interest," Interfax News Agency quoted the Russian president as saying.
The advantageous geographic location of Guatemala, the proximity of the US and Mexican markets and large hydrocarbon reserves make Russian companies interested in cooperation with this country, the president said. In particular, "Russia's Unified Energy Systems is showing interest in developing electric energy stations in Guatemala," Putin said, adding that Guatemalan companies could in turn count on more exports of their traditional goods to Russia and CIS states.
Berger said that Russia and Guatemala agreed to establish a joint working group to advance the agreements reached by the two presidents. The group could begin work in the next few months.
Putin's visit to Guatemala is historic, Berger said. "Today is a particular day in the history of our country. We are glad to receive one of the brightest leaders in today's world - Vladimir Putin," Berger said.

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FOOD & DRINK

Danone gets on board with Russian partner

A Danone vice president, Jaques Vincent, has been elected to the board of Wimm-Bill-Dann, the biggest dairy company and juice maker in Russia, after the French yogurt maker purchased more shares, the International Herald Tribune reported.
Stockholders in the Russian company elected Vincent at their annual meeting, Wimm-Bill-Dann, based in Moscow, said in a statement. Igor Kostikov, the former chairman of the Russian Federal Securities Commission, also was elected.
Danone, the French bottler of Evian mineral water, raised its Wimm-Bill-Dann stake to 13.7 per cent from 8.3 per cent in October as its own sales in the country advanced. A "continued very strong performance in Russia" drove European revenue growth in 2006, the company said in February.
"Danone has a certain stake, and if their representative carries his responsibilities of a board member, it would be helpful," Wimm-Bill-Dann's co-founder and chairman, David Yakobashvili, said by telephone. "Kostikov was nominated by shareholders and will also participate in the board's strategy and making sure we follow corporate governance rules."
Shares in the Russian company added US$1.75, or 2.4 per cent, to US$73.50 on the Micex Stock Exchange in Moscow.
Stock in Danone rose 24 cents, or 0.4 per cent, to 58.75 Euro, or US$78.97, in Paris.

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FOREIGN COOPERATION

Putin signs ratified Russian-Korean accord on space techologies

Russian President, Vladimir Putin, has signed an instrument of ratification of the Russian-South Korean intergovernmental agreement on the protection of technologies in space exploration, the Kremlin press service said on June 28th, cited by Interfax News Agency.
The Federal Law on the Ratification of the Agreement between the Governments of the Russian Federation and the Republic of Korea on the Protection of Technologies in Space Exploration and the related protocol of October 17th, 2006, was adopted by the State Duma on May 23rd and approved by the Federation Council on June 6th.

Ashgabat, Moscow willing to enhance cooperation 

Russian President, Vladimir Putin, congratulated his Turkmen counterpart, Gurbanguly Berdimuhammedov, on the occasion of his 50th birthday on June 29, the Kremlin's press service reported.
"During their conversation, both sides confirmed their willingness for progressive development and the deepening of Russian-Turkmen cooperation at all levels," the statement said. The Russian president also sent Berdimuhammedov a telegram of congratulations. "The implementation of the agreements reached during recent meetings in Moscow, Ashgabat and St Petersburg, will help further step up cooperation between Russia and Turkmenistan and strengthen our contacts within the Commonwealth of Independent States," the telegram read.

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FOREIGN RELATIONS

Russian-Bavaria, business ties set to strengthen

Russian President, Vladimir Putin, has said he is convinced that relations between Russia and Bavaria will develop more vigorously as the Russian economy grows. Speaking to journalists after meeting with Bavarian Minister President, Edmund Stoiber, Putin said they discussed "practically all issues related to Russian-German relations and immediate ties with the Free State of Bavaria." Russia and Bavaria have "a special relationship," he said. "A large number of German investors are working in our country. Major Bavarian firms are represented there. I hope it is a two-way street," the president said. Russia has good relations with Germany as a whole, Putin said. "This primarily stems from objective circumstances," Interfax News Agency quoted him as saying. Most businesses in Bavaria are export-oriented, which makes Bavaria one of the leading exporters in Germany and the world in general, Putin said.

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