Books on Russia
Update No: 312 (20/12/06)
The ongoing drama
The whole world is agog about the extraordinary death of Alexander Litvinenko,
turned into a mini-nuclear bomb by someone or other. This has its surreal side.
Is it a mere melodrama? Or does it have profound implications for all that?
There are reasons to suppose it does. Litvinenko was a dagger pointed right to
the heart of the Russian state. He was the author of a dangerous book, FSB
Bombing of Russia. It is due to be re-issued this very month, with more evidence
and back-up than in the original version. It alleges that the series of
apartment bombings of September, 1999, that were blamed on the Chechens and gave
rise to the Second Chechen War, catapulting Putin to supreme power, were a
machination of the Russian security services themselves.
The key is a massively important revelation which Holman W. Jenkins in the Wall
Street Journal, December 13th, p12, put as follows: "The real threat has
always been Ryazan. That's the Russian city where on September 22nd 1999 a
resident noticed men unloading packages of 'sugar' into the basement of a large
apartment block. The sugar was the explosive RDX; the men were Russian security
agents. Moscow claimed the incident was a training exercise, but the apartment
bombings, which had killed 300 of Mr Putin's subjects, suddenly stopped."
What was the exercise for? The series of bombings was highly convenient for
Putin, who had only attracted 2% in August of that year, but whose popularity
soared to 70% by March, 2,000, when he was elected president. The Chechens never
claimed the responsibility, which they did for several atrocious deeds, such as
the Moscow theatre assault and the Beslan tragedy later on. To conduct a series
of bombings in relentless fashion is somehow not in their style. It has all the
signs of a KGB operation.
Litvinenko made the mistake of supposing that Putin himself ordered it. That is
unlikely. He did not need to. There were plenty of powerful people who needed
him to win and would have been prepared to do the dirty work for him. His crime
was not to investigate the matter properly, but simply to put the interpretation
on it that most suited his interests. He was and is in profound bad faith about
Livinenko also made the mistake of supposing that Putin ordered his
assassination. His wife put the matter better when she said that, while he
didn't order it directly, he created the culture in which it could happen, that
of the siloviki-run Russian state.
Cover-ups can, nevertheless, go awry, as Nixon and many others can testify. In
this case, as Jenkins opines, "the Litvinenko murder may have been the
thread that begins the unknitting." Time will tell.
Capitalism in One Country
In the early 1920s, after the disaster of War Communism, Lenin instituted
his New Economic Policy, tolerating the return of small and medium-sized
capitalism. But on his death in 1924 Stalin reverted to the idea of Socialism in
Capitalism was stigmatised as being crooked and cheating by and large. But it
still went on in the shadow economy. Yeltsin opened up the Russian economy to
capitalism once again, including all and sundry from abroad.
Putin is resorting to a different expedient, Capitalism in One Country. Shell is
being muscled out of a $20bn deal in the Far East for spurious ecological
reasons. US minority shareholders got wiped out, along with Khodorkovsky, in the
dissolution of Yukos, the most successful and open company imaginable in Russia.
That was the problem; it showed up all the others for the crooks that they
Foreigners are still to be allotted a role, but only as sub-contractors. The
commanding heights of the Russian economy, notably in the energy sector, are to
be firmly in Russian hands.
The new policy is highly popular. The Russians have a hankering for state
monopoly. Laissez-faire capitalism never existed in Tsarist Russia and its brief
spell in the 1990s under the aegis of Gaidar's 'shock therapy' discredited it
for good and all.
They are now even toying with the idea of an international monopoly - in the
vital field of gas.
OGEC, the 'gas OPEC'
Ten years ago Russia Express Geopolitical, April/May 1997 Issue, carried a
story that the Russians were thinking of founding a 'gas OPEC' comprised of
Gazprom and the main gas producers of the former Soviet republics, plus Algeria,
Qatar, Libya, Iraq and possibly Iran. We dubbed it OGEC, the Organization of
Gas-Exporting countries in contrast to the Organization of Oil-Producing
In those distant days the premier of Russia was no less a figure than Viktor
Chernomyrdin, himself former head of Gazprom and by proxy its largest
shareholder, therefore one of Russia's richest men. He has since apparently been
put out to grass as ambassador to Ukraine, away from the prying eyes of the
Russian media. He remains a key player behind the scenes, with the ear of Alexei
Miller, the new head of Gazprom, and of Putin, who would certainly be involved
if anything of the sort was to happen.
Nothing came of the idea at the time, despite being aired by leading figures in
the Russian energy world seven or eight years ago. Everyone's attention was
distracted by the collapse of the rouble in 1998. When the economy began to
recover spontaneously in 1999-2000 it was under the impact of a hugely
Favourable swing-round in the terms of trade as oil and gas prices soared. There
was no need for an institutional boost to energy prices.
Certain people are now dusting the idea down and giving it a new consideration.
The realistic course would be to do it in stages if at all. Amid NATO warnings
of a Russian-led 'gas OPEC,' Russia's largest natural gas interest group says it
is trying to unite the former Soviet Union's gas producers, a first step.
An alliance of the gas associations of Kazakstan, Turkmenistan, Azerbaijan and
other ex-Soviet states would be 'an absolutely sensible business idea,' Valery
Yazev, head of the Russian Gas Society, said on November 17th in remarks carried
by Interfax. 'I don't know if there was or wasn't a NATO report about how
undesirable such an organization would be; I understand I am doing the right
thing,' said Yazev, also the chairman of the energy committee of Russia's lower
house of parliament, the Duma.
Many in Western Europe have voiced concern about energy security after Russia's
natural gas monopoly, Gazprom, cut off supplies to Ukraine amid a pricing row at
the frigid start of the year. Many in Europe fear the gas giant, which meets
one-quarter of the continent's needs, is a tool for Russian foreign policy.
Gazprom had increasingly been setting high prices for countries, such as
Georgia, that are in Moscow's bad books.
Ukraine, which has seen something of a rapprochement in relations with Moscow
after January's supply cut collapsed a pro-Western government, will pay half of
what Georgia does in 2007. But on November 17th, company officials said they had
insisted on 'market prices' with Belarus, an often-difficult Russian ally.
Earlier this autumn, Gazprom said a fair price would be US$200 per 1,000 cubic
metres of the fuel - close to what Georgia will pay.
Media reports circulated earlier in the month that NATO had expressed fears
Russia would create a gas cartel analogous to OPEC, which largely determines on
its own whim world oil output and prices. Kremlin sources denied the reports at
the time. Arkady Dvorkovich, an economic adviser to Russian President Vladimir
Putin, said Moscow had no such plans, but added a rider. He averred: 'If all
major gas producers are interested in reaching such an agreement, its creation
Yazev, the Russian Gas Society head and Duma chairman, said that he had
advocated the so-called gas OPEC 'seven or eight years ago.' From Russia's point
of view, he said, there is every reason to unite the interests of gas-producing
countries. Such an organization would function on a nongovernmental level -
'social diplomacy' - Yazev added.
'Eurogas, which unites the (gas) associations of European states and companies,
exists and nobody bats an eyelash,' Yazev said. 'But as soon as we talk about
such an association in the former Soviet Union, everyone runs for their
Yazev did not mention major gas-producing countries like Algeria, which the NATO
report speculated could be included in the cartel.
Nato fears Russian plans for 'gas Opec'
NATO advisers, indeed, have formally warned the military alliance that it
needs to guard against any attempt by Russia to set up an "OPEC for
gas" that would strengthen Moscow's leverage over Europe. A confidential
study by NATO economics experts, sent to the ambassadors of its 26 member states
in early November, warned that Russia may be seeking to build a gas cartel
including Algeria, Qatar, Libya, the countries of Central Asia and perhaps Iran.
The study, by NATO's economics committee, said Russia was seeking to use energy
policy to pursue political ends, particularly in dealings with neighbours such
as Georgia and Ukraine.
Dmitry Peskov, deputy Kremlin spokesman, insisted there was "no substance
at all" to the suggestion that Russia was seeking a gas cartel. "I
think the authors of such an idea simply fail to understand our thesis about
energy security," he said. "Our main thesis is interdependence of
producers and consumers. Only a madman could think that Russia would start to
blackmail Europe using gas, because we depend to the same extent on European
Although there is disagreement over whether Russia could create any such cartel,
the report highlights the deepening tensions between Western Europe and Moscow
over energy security. Energy company executives say the biggest threat to gas
prices comes from Russia's own investment shortfalls and possible moves by
Moscow to convince other producers, such as Algeria, to limit investment.
Russia supplies 24 per cent of Europe's natural gas, with Norway selling 13 per
cent and Algeria, a major exporter to Spain and Italy, supplying 10 per cent.
In early November the International Energy Agency added its weighty voice to the
Cassandra camp. It warned of "the possibility of major gas-exporting
countries co-ordinating their investment and production plans in order to avoid
surplus capacity and to keep gas prices up."
But on November 12th EU foreign ministers failed to agree a line on Russian
energy, with Poland continuing to seek a tougher stance in future talks with
Moscow. In October, before an EU summit with Russia, Javier Solana, EU foreign
policy chief, highlighted a Russian deal with Algeria, which, he said, stopped
Algeria selling majority stakes in gas projects to foreign investors. "We
are witnessing some form of mutual agreement as Russia and Algeria restrain
investment," said one industry analyst. "Moscow has tightened the grip
using Gazprom and Algiers has just changed its hydrocarbons law giving
[Algeria's] Sonatrach 51 per cent of every project instead of 30 per cent."
Big gas exporters such as Norway, Qatar and Nigeria appear reluctant to join any
cartel. Gas is also traded very differently to oil, with long-term contracts -
often linked to oil prices - still the norm. Analysts say Gazprom relies heavily
on Europe, since domestic Russian prices are capped and there is no other market
to enter at present. But things could change down the line, with India and China
becoming huge markets.
The hurdles for Moscow on path to 'gas cartel'
Concerns that Russia is trying to form a natural gas cartel along the lines
of the OPEC may be misplaced, according to analysts and energy executives,
reported the Financial Times on November 13th. The difficulties in the way of
such a vast project are enormous.
Despite the warning by Nato economists, it is far from certain that Moscow could
persuade countries to join any such alliance. In many gas-producing countries,
the sector is far less-developed than their oil industries and needs greater
input of foreign cash and expertise. Norway, Qatar, Nigeria, Trinidad and
Tobago, Libya and even the much mooted Algeria would find it difficult to
attract the huge sums of private-sector investment and know-how needed if the
threat of future cutbacks under a cartel arrangement loomed.
If Russia managed to find participants, it would face considerable difficulty in
creating a cartel along the lines of OPEC because gas is traded very differently
to oil. Gas is mainly priced on long-term contracts, often linked to the oil
price. This makes manipulating prices by altering supply - in the way OPEC does
- far tougher.
Even for Moscow, playing such an adversarial game would be dangerous. Because
domestic Russian prices are capped and Gazprom's customers are at present only
in Europe, the Russian monopoly is at least as reliant on Europe as Europe is on
Nevertheless, there is a way Russia and major gas producers could - and are -
substantially influencing future prices.
The energy industry is more worried about Russia's under-investment in the gas
sector driving up prices than the possibility of a cartel doing so. If Moscow
persuaded other countries to do the same, the problem would be compounded.
One industry analyst said: "In fact, we are witnessing some form of mutual
agreement as Russia and Algeria restrain investment. Moscow has tightened the
grip using Gazprom, and Algiers has just changed its hydrocarbons law, giving
Sonatrach [the large Algerian state-owned energy group] 51 per cent of every
project instead of 30 per cent." Coupled with the shortage of labour and
steel that is crippling gas projects across the world, these moves could
seriously boost long-term prices.
In other words the idea already has a shadowy existence. If an idea is sound
then it will come about, decreed the philosopher of dialectics, Hegel. The
'rational' is the 'real.' We shall see if this is the case.
Rosneft and Gazprom Sign Cooperation Agreement
OAO Gazprom and OAO Rosneft are the two giants of Russian energy, now that
the latter has swallowed up Yukos. They have signed a strategic cooperation
agreement, according to Greg Walters of Dow Jones Newswires.
The agreement, made on November 28th, covers collaboration in exploration,
production, transportation and refining, and the acquisition and sale of natural
gas. It also involves developing electricity and heating projects, and oil, gas
and electrical hardware construction.
Gazprom and Rosneft will create joint ventures to bid on oil and gas licenses.
Finally, Gazprom will purchase natural gas from Rosneft at levels equal to 2006
production at Rosneft's West Siberian fields; Gazprom already has pipelines
connecting to these fields. Additional natural gas purchases will require future
Some analysts cite the agreement as a victory for Rosneft, which needs help
developing its substantial natural gas reserves. However, Gazprom will also
benefit as it probably does not have enough fuel to cover domestic demand and
export commitments. The partnership is likely to establish more stability and
peace between the two state-owned companies, though some experts question
"the degree to which the energy giants would be able to put aside past
There is an old joke about socialism that goes as follows. If socialists
took over Saudi Arabia, within a decade or two they would run out of sand.
It is a doctrine that supposes that altruism can prevail in individual breasts
over self-interest. One just has to keep the ideological heat up by
indoctrination from birth. Capitalism recognizes the obvious truth that
self-interest is generally supreme; but that, in a free market with competition,
everybody pursuing their own interests can serve, via Adam Smith's hidden hand,
the interests of all. Of course no society can survive without a good deal of
altruism; but no economy can function without a good deal of pursuit of
self-interest. A huge and growing shadow market economy was what kept communism
going for as long as it did, foreshadowing capitalism, albeit a brutalised and
primitive version of it.
People do have a natural aptitude for altruism all the same, in some individuals
to a remarkable and admirable extent, as well in others at least a desire to be
respected by others for apparently having so. Bourgeois society recognizes this
by rewarding the good and the respectable by marks of status, while penalizing
those who take self-interest to the extreme of contravening the public
well-being, through crime and corruption or whatever, by legal means of
imprisonment and the like, whenever probity permits and so long as the
government has not fallen into evil hands.
Under the full-fledged socialism of communism, after the initial enthusiasm wore
off, self-interest reared its ugly head again. The Soviet Union was a
breeding-ground of the worst forms of gangsterism, crime and corruption
imaginable, of pollution and disregard of the public good. A dispirited
population, an absence of civic pride and a ravaged environment were its doleful
legacies to posterity. A secretive, unreconstructed Soviet Behemoth, Gazprom,
indicates this to a supreme degree.
The following article is self-explanatory:-
WHAT IF RUSSIAN GAS RUNS LOW?
Europe has accustomed itself to a version of Russia and of Russian policy
which goes like this: post-Soviet Russia is not only awash with oil and gas, it
is using that energy wealth to promote its great-power ambitions through
bullying and bribery. But what happens to the calculation if Russia is not an
energy bully, but an energy beggar?
Russia reckons it will be short of 4.2 billion cubic metres (bcm) of gas next
year-enough to fuel a couple of small countries. Alan Riley, a competition
lawyer, argues in a report for the Centre for European Policy Studies that
Russia's gas shortfall will increase to 126 bcm a year by 2010, only slightly
less than Russia's annual exports to the European Union. Vladimir Milov, a gutsy
former energy minister who runs one of the few independent think-tanks in
At first sight this sounds preposterous. Russia's gas reserves amount to 47
trillion cubic metres, a colossal amount. But like so many things in Russia, the
gas industry, which means mainly a state-run monopoly, Gazprom, is as wasteful
as it is wealthy. And Gazprom is so secretive that outsiders find it hard to say
whether the wealth or the waste is winning.
Russia has not developed a big new gas field since the Soviet Union collapsed,
and those it inherited are depleting fast. The pipes are clapped out (just over
half are more than 20 years old). The compressors are so inefficient that they
waste 42 bcm a year. Yet, for political reasons, the government is pressing
ahead with "gasification"- the extension of gas supplies to private
households. That means more domestic demand, just as supply is falling.
Gazprom's finances are notoriously murky, but there is evidence enough that
revenues have long been siphoned away by intermediary companies with anonymous
beneficial owners. Costs are colossal by world standards. Much money goes on
activities such as yachts, property and sporting events, which investment
bankers primly describe as "non-core." Gazprom owns, for example, a
large chain of hotels (remarkable, when your correspondent stayed in one, for
the richness of the fittings, the indolence of the large staff, and the absence
Gas supplies are under pressure
In theory Gazprom can develop new fields. In practice it needs foreign help,
but it hates to see the foreigners sharing ownership, which bogs down
negotiations. The rich Shtokman field beneath the Barents sea was discovered in
1988, but exploitation has been slowed by technical challenges formidable enough
even before Russia's capricious and xenophobic investment regime takes its toll.
Foreign companies might risk a billion dollars here or there in Russia, but in
the present climate of uncertain property rights they are not going to commit
the tens of billions needed to develop a whole new gas field.
Gazprom's main stopgap is to buy gas from Central Asia. Leaving aside the irony
that a country as gas-rich as Russia should need to import gas at all, there are
particular snags here. The implied quantities are huge. Purchases from
Turkmenistan are supposed to rise more than tenfold, to 80 bcm a year, by
2009-and the Turkmen gas industry is even worse-run than Russia's own.
Independent producers inside Russia might offer some relief, save that Gazprom
is twitchy about allowing independents to use its pipelines. Instead, it likes
to buy them up, preserving its monopoly. When that happens they tend to fall to
Gazprom's own woeful standards of inefficiency.
Already Russia is cutting back gas supplies to soft targets such as Belarus, and
trying to raise prices wherever it can. Things will get worse before they get
better. A badly-needed new power plant in St Petersburg is not yet running
because there is no gas arriving to fuel it. If Mr Riley is right, this will be
a fascinating winter, and a most uncomfortable one for some households. Will
Vladimir Putin decide to freeze his own voters, or those of neighbouring
countries? One choice risks provoking a political explosion, the other a
diplomatic one. If you live anywhere between Aachen and Amur, do check your
stocks of candles and coal.
Sukhoi could supply 100 Superjet-100 planes to Indonesia
Russia could supply up to a hundred Superjet-100 (RRJ) regional jets to
Indonesia, Vadim Razumovsky, deputy general director of the Sukhoi Aviation
Holding Company, said on November 23rd, Interfax News Agency reported.
Indonesia is one of the most promising markets for the Superjet-100, Razumovsky
said on the sidelines of the Indo Defence-2006 Expo and Forum in Jakarta.
"We estimate the Indonesian market for regional jets at around 100
units," he said. The state-owned Sukhoi Civil Aircraft company is in talks
with all Indonesian carriers, including Merpati, Garuda and Line Air, which have
had Russian Yak-42 aircraft in their fleets over the years, Razumovsky said.
Indonesia has recently emerged from crisis, and is now actively developing its
aviation market and will need to update its fleets, Razumovsky said.
"Indonesia has more than 1,000 large islands and it needs planes to connect
them by air. We're ready to provide those planes," he said. Razomovsly said
he estimated there was a market for 200-250 Superjet-100 planes in other
Southeast Asian countries. Vietnam, Malaysia, Thailand, the Philippines and some
other countries are showing a high interest in the planes, which will be capable
of carrying between 75 and 95 passengers, he said.
Gazprom confirms interest in Arab gas pipeline
Gazprom has confirmed its plans to cooperate with Egypt as part of the Arab Gas
Pipeline project, which envisions exporting Egyptian natural gas to the Middle
East, the Russian gas giant said in a press release following its CEO, Alexei
Miller's, visit to Egypt. "Organising the export of Egyptian gas to markets
in Middle East countries has been recognised as one of the promising areas of
cooperation," the press release read, New Europe reported.
During his visit, Miller met with Egyptian Petroleum Industry Minister, Sameh
Samir, Trade and Industry Minister, Rashid Mohamed Rashid, and EGAS CEO, Sherif
The officials discuss the prospects for Russian-Egyptian cooperation in the oil
and gas sector under a memorandum on mutual understanding signed by Gazprom and
EGAS in March, 2005.
Among other issues, the meetings addressed Gazprom's possible role in exploring
and extracting oil and gas at Egyptian deposits, as well as plans to produce and
deliver liquefied natural gas, to build advanced processing capacities for
liquid and gaseous hydrocarbons, and natural gas storage facilities. The two
countries' officials also agreed to cooperate in research and development
Egypt has 1.89 trillion cubic metres of gas in proven gas reserves. Of the 41
billion cubic metres of natural gas extracted in Egypt in 2005, 33 billion cubic
metres of natural gas were consumed inside the country, while another eight were
exported via gas pipelines and as liquefied gas.
Over the past ten years, Egypt's proven oil reserves have declined by three per
cent, and production by 27 per cent to 34 million tonnes. However, the country's
consumption of oil and oil products has grown by 27 per cent to 29 million
tonnes. Last year, the Egyptian authorities imposed restrictions on gas exports,
according to which only 25 per cent of the country's reserves can be exported.
Experts of the Russian trade promotion office in Egypt suggest that this
decision could seriously limit the country's export potential, especially as the
domestic gas market continues to expand. The country's needs in oil and oil
products have grown, but its production and reserves have declined, they said.
Gazprom, Gaz de France discuss long-term contract extensions
Gazprom CEO, Alexei Miller, and Gaz de France Director General, Jean-Francois
Cirelli, met to discuss bilateral cooperation. The companies talked about
extending long-term contracts for Russian gas supplies to France, Gazprom
reported. Gazprom and Gaz de France began working together on gas supplies in
September 1975. Gazprom has supplied over 262 billion cubic metres of gas to
France, including 13.1 billion cubic metres in 2005 and 8billion cubic metres in
January-October 2006. Gazprom and Gaz de France signed a memorandum on
developing cooperation on June 28th 2003. Together with gas supplies,
cooperation covers saving energy, transport facility reconstruction, reducing
loss of gas, underground gas storage facility construction and operation, LNG
projects and staff training, New Europe reported.
The companies signed a protocol on further cooperation development on September
19th 2005. Gazprom and Gaz de France concluded their first LNG swap deal on
November 23rd 2005. A tanker with LNG was sold to Shell Western LNG at the Cove
Point regasification terminal (Maryland, United States) in early December 2005.
Gaz de France is one of Europe's major gas companies.
Kalmykia, Falcon capital to build wind power plants
The Russian republic of Kalmykia and the Czech company Falcon Capital plan to
build three wind farms in the republic at a total cost of over 150 million Euro,
Kalmykia Economics Minister, Vladimir Sengleev, told journalists in Elista,
Interfax News Agency reported.
He said Kalmykia President, Kirsan Ilyumzhinov, and Falcon Capital CEO, Jozef
Cimbora, signed an agreement of intent in Prague recently to implement an
investment project to produce electricity in Kalmykia at wind plants with a
total capacity of 150 megawatts.
The project involves the construction of three wind farms, each of which will
have a total area of about 4.5 square kilometres, with over 40 wind turbines,
each with a capacity of 1.2 megawatts, the minister said. "The cost of each
wind unit is about 1.3 million Euro," Sengleev said.
According to the document, cited by Interfax, on completion of payback in eight
to 13 years, Falcon Capital will transfer to Kalmykia 50 per cent of shares in
the company set up by the Czech company, for one Russian rouble. "The final
payback period for the project is currently being discussed," the minister
The sides also signed an agreement to carry out work to set up a grid and an
electricity sales company in the republic, to buy grid infrastructure in Elista.
Sengleev said that for this Falcon Capital would set up a subsidiary as an open
joint stock company with 100 per cent participation by the Czech company.
"Falcon Capital will contribute 160 million roubles to the charter capital
of the subsidiary," the minister said.
He said that after the acquisition of the Elista grid infrastructure the Czech
company would transfer 49 percent of the grid company to the republic for one
ruble, and would be trustee manager of these shares.
"The Czech company is taking on all the commercial risk for the
construction and payback of the wind units," Sengleev said.
Gazprom eyes European electricity grids
Russia's state-owned natural gas exporter Gazprom on November 28th said it was
turning its sights toward acquisition of European electricity companies and grid
networks. Deutsche-Presse-Agentur (dpa) quoted Nikolai Ilyakhin, director
general of subsidiary Gazpromenergo, as saying in remarks run by the Russian
monopoly's official in-house magazine that his company was already in talks with
utilities in Greece, Moldova and Bulgaria.
Ilyakhin did not say how close the company was to signing deals with the
utilities, or how much it expected to pay for the stakes it is eyeing.
The acquisition of both electricity generation and grid network assets in
Europe, he said, would guarantee the foreign utilities' supplies of Gazprom
Much of Europe now burns natural gas to create electricity, and reserves of the
fuel are essential for predictable power generation.
The monopoly's announcement comes amid moves by the Russian state to consolidate
and renationalise a variety of industries, including the oil and gas sectors,
which have alarmed many in the West.
The Organisation for Cooperation and Development (OECD) noted in a report
released on November 27th that the trend has been marked by acquisitions
"by the state itself or state-controlled companies, particularly ...
The OECD's economic survey of Russia railed against the gas giant's
"seemingly insatiable appetite" for noncore assets. The government,
the international economic group wrote, has a "poor track record" in
managing companies and a tendency toward "inefficiency and slow
Gazprom CEO, Alexei Miller, this spring said the company planned to make
electricity generation a core business and the monopoly is planning to take a
controlling stake in Russia's second-largest electricity generator, Mosenergo,
with a US$2.1 billion purchase in March.
Gazprom has been tapped to supply capital as Russia tries to pump US$80 billion
over the next five years into its ageing Soviet-era electricity infrastructure.
Miller visited Spain this autumn to discuss joint ventures in electricity with
Madrid-based utility Endesa
Gazprom says it wants to buy YUKOS asset
Russian gas monopoly Gazprom has set aside US$3.75 billion in its 2007 budget to
buy a 20 per cent stake in oil subsidiary Gazprom Neft from fallen oil major
YUKOS, Interfax News Agency reported on November 24th.
That amount marks a 3.6 per cent discount from Gazprom Neft's market value of
Gazprom had previously been in talks with YUKOS for the share it does not own in
Gazprom Neft, formerly Sibneft, but the talks were broken after bankrupt YUKOS
said it planned a public sale of its assets. The monopoly, which supplies
one-quarter of Europe's gas, is to approve its budget at a November 29th
meeting. Interfax did not name its source, and Gazprom officials have not
publicly commented on the report.
Gazprom signs strategic cooperation deal with Rosneft
Gazprom CEO, Alexei Miller, and Rosneft President, Sergei Bogdanchikov, signed a
strategic cooperation agreement in Moscow on November 28th, the natural gas
monopoly and the oil producer said in a joint press release. The document states
that the sides plan to jointly participate in tenders and auctions for subsoil
rights, and also in joint projects. Rosneft and Gazprom will coordinate their
actions and exchange geological information on joint projects when carrying out
prospecting and exploration work, and also when setting up a database of
geological and geophysical information, the press release said. "When
considering participation in joint exploration and development projects the
sides will use the following distribution of shares: Gazprom - 50 per cent,
Rosneft - 50 per cent," the statement said.
Gazprom is to buy gas produced by Rosneft at fields in Western Siberia that are
connected up to the Gazprom transport system.
Russian daily Gazeta on November 29th speculated that the deal between Russia's
biggest state-owned energy companies - and most bitter rivals - could lead to
the merger of Rosneft and Gazprom. The paper posited that the document could be
the first step toward a merger between Rosneft, the country's largest oil
exporter, and Gazprom. Russian President Vladimir Putin announced such a merger
in 2004, but Rosneft successfully fought to maintain its independence then.
Kiev, Moscow agree to increase oil transit
Ukraine's Ukrtransnafta and Russia's Transneft have agreed to increase oil
transit through Ukraine in 2007, the Ukrainian Fuel and Energy Ministry's press
service said. "Following two months of negotiations with Transneft it has
been decided to significantly increase the volume of oil transit, particularly
through the Brody-Odessa route and the Druzhba pipeline," the statement
quoted Ukrtransnafta CEO, Ihor Kiryushin, as saying after a meeting with
Transneft President, Semyon Vainshtok, in Moscow on November 23rd, New Europe
Ukrainian Fuel and Energy Minister, Yury Boiko, who also took part in the
meeting, said that the agreements reached will play a part in long-term
partnership and will benefit the economies of both countries. The sides agreed
to increase oil transit along the Brody-Odessa route by five million tonnes per
year. "We currently transport 3.7 million tonnes through the Odessa-Brody
pipeline," the Ukrtransnafta chief said.
LUKoil to invest US$27bn in foreign projects by 2017
Investment by Russian oil major LUKoil in foreign production projects over the
next 10 years will amount to US$27 billion, LUKoil Vice President and LUKoil
Overseas President, Andrei Kuzyaev, said at an oil forum in Moscow on November
16th, New Europe reported.
"We hope that this investment will bring over US$ four billion in free cash
flow by 2017," he said. Kuzaev said that by that time LUKoil plans to
produce at least 40 million tonnes of hydrocarbons abroad. He said the LUKoil
development strategy is to increase the share of production abroad to 20 per
cent of overall production within 10 years.
Russia approves plan to double domestic natural gas prices
The Russian government approved a plan recently to more than double local
natural gas prices by early next decade to make the economy more efficient, but
it avoided a steep increase before parliamentary elections next year, New Europe
Prime Minister, Mikhail Fradkov, said that the plan would now go to President,
Vladimir Putin, for approval. Cabinet agreement came after repeated delays and
failures by different ministries to reach a compromise.
Officials have said that the cabinet will guarantee that there will be no steep
price rises for ordinary Russians, while industry must be prepared to pay almost
as much as Europe after adjusting for export duties and transportation costs.
Russian domestic natural gas prices are now at around US$45 per 1,000 cubic
metres, or just one-fifth of the level paid by export customers in Europe.
Energy Minister, Viktor Khristenko, said that prices for industry would rise to
around US$125 by 2011, while individual consumers would be given 10 years to
prepare for increases.
The natural gas monopoly Gazprom has pushed for higher prices to curb local
demand and free up more supply for lucrative exports. Independent producers like
Novatek, which are not allowed to export, also want a better deal at home.
The power monopoly RAO UES had initially opposed the move, but even after the
price increases natural gas would be cheaper than alternatives like fuel oil.
Analysts had said that the government would not support an immediate increase,
which could undermine the fight against inflation before parliamentary elections
in December 2007 and the election of a successor to Putin in March 2008.
The cabinet agreed to raise prices by 15 per cent in 2007, in line with previous
increases, while in 2008 the increase could go as high as 25 per cent.
Russia's economy is extremely inefficient in its use of natural gas, and some
analysts estimate that up to 100 billion cubic metres a year, or one-sixth of
total European consumption, could be saved through efficiency measures.
Khristenko said that higher natural gas prices would encourage independent firms
to produce more and supply 45 per cent to 50 per cent of domestic industrial
clients' needs by 2010, up from 29 per cent to 35 per cent now. This would allow
Gazprom to meet its export obligations and increase exports to Europe, he added.
Moscow, Beijing call for deeper relations
A meeting of Russian and Chinese deputy foreign ministers in Moscow on November
30th confirmed their countries' intentions to continue to seek deeper relations,
the Russian Foreign Ministry said in a statement posted on its website.
"During the talks, which took place in an atmosphere of mutual trust and
understanding, Alexander Alexeyev and Li Huei discussed key bilateral themes,
including a schedule of top-level contacts in 2007, the Year of China in Russia
festival, and a number of other bilateral and international problems," it
said. The sides praised the high level of Russian-Chinese cooperation and
reaffirmed their desire to deepen bilateral relations in the spirit of strategic
partnership and neighbourliness, the statement says.
Ministers discuss Russian-Lithuanian bilateral relations
"Moscow is counting on the activation of Russian-Lithuanian trade and
economic, customs and border cooperation," Russian Foreign Minister, Sergei
Lavrov, said recently, New Europe reported.
"I hope that your sojourn in Moscow will make it possible to nail down the
success and make a step forward in solving certain issues in the trade and
economic, humanitarian, infrastructure and customs and border areas,"
Lavrov said at a meeting with his Lithuanian counterpart, Petras Vaitiekunas,
who came to Moscow to take part in a meeting of the Russian-Lithuanian
intergovernmental commission on November 14th. The meeting was expected to focus
on a number of issues in Russian-European relations and the work in the
Russia-NATO Council. On his part, the Lithuanian minister Vaitiekunas said he
came to Moscow to discuss general and specific issues of bilateral interaction.
"Every pragmatic issue is a step forward in our relations," the
Lithuanian minister said.
Gazprom Media buys Komsomolskaya Pravda newspaper
The state-controlled Russian gas company Gazprom is to buy the Kremlin-loyal
Komsomolskaya Pravda newspaper, a statement said on November 21st, New Europe
The tabloid, currently owned by Vladimir Potanin's Prof-Media Holding, will be
sold in early 2007, the director general of Gazprom Media, Nikolai Senkevitch,
announced in Moscow. No details of the sale price of the tabloid, which has a
high circulation, were disclosed.
Potanin had earlier sold the Izvestiya newspaper to Gazprom which then was
transformed from a liberal newspaper to a strict adherent to the Kremlin-line.
Media analysts say that the Kremlin is trying to tighten its grip on the press
before presidential elections in 2008 when a successor to Putin is due to be
elected. "The sale of Komsomolskaya Pravda means the complete concentration
of media in the Kremlin's hands," said Igor Yakovenko, general secretary to
the Union of Journalists.
Gazprom Media already owns the broadcasters NTW, NTW plus and TNT, as well as
Izvestiya, the news magazine Itogi, several other magazines and half of the Echo
Moskvy radio station.
MINERALS & METALS
RusAl applies to EC, Ukraine for merger with Sual
Russian Aluminuum (RusAl) has applied to the European Commission and the
Ukrainian Antimonopoly Committee for approval of a deal to merge with SUAL and
Glencore, a source familiar with the process of approving the deal by European
regulators said, Interfax News Agency reported.
The source said RusAl submitted documents to the European Commission, the
Ukrainian Antimonopoly Committee and Russian Federal Antimonopoly Service at the
The Federal Antimonopoly Service said earlier it would reach a decision on the
RusAl-SUAL merger by the end of the year. In Europe RusAl owns 56.2 per cent of
Italian alumina plant EurAllumina, while Glencore owns the remaining 43.8 per
cent. In Ukraine RUSAL owns Nikolaev Alumina Plant, and SUAL owns Zaporizhzhia
The merger process is progressing rapidly and the new company is likely to be
formed, he said. If it is, it will be the largest deal in the world among
aluminium producers, he added.
Alcoa's production capacity would be about 200,000 tonnes lower than that of the
new company, O'Rourke said. The situation should change with time, he added. The
Alcoa president said he did not think tonnage was an indicator of corporate
success, but rather dividend volume and complete customer satisfaction. The new
company will encourage improvement at Alcoa, O'Rourke said.
If RusAl, SUAL and Glencore merger their assets, a very powerful competitor will
be formed, he said. This is a good thing as it will make Alcoa develop, he
added. O'Rourke talked about the company's plans to expand in Russia.
Alcoa may consider new acquisitions, but not of very large companies, he said.
Alcoa is also looking at implementing new projects in Russia. The merger is a
very complex process in terms of gaining permits from antimonopoly bodies due to
the size of the companies, he said.
The building of an aluminium plant in Russia's Far East is just one of the
options under consideration for development in Russia, O'Rourke said. A final
decision has not yet been reached and Alcoa continues to work with the Russian
government on this issue and to discuss the project with construction companies,
he said. The main problem is the issue of energy resource prices and to
implement this project the company needs to receive the guarantee of a long-term
electricity supply contract, the Alcoa Russia president said.
Alcoa plans to double production in Russia, O'Rourke said, adding that the
company may look at additional options for primary aluminium supplies to its
companies. Russian Aluminium is currently the largest primary aluminium supplier
and Alcoa has long-term contracts with it. O'Rourke said he hoped Alcoa would
continue to build new capacity in Russia, as it needs to increase primary
aluminium supplies for the production of aluminium goods. Alcoa purchased Samara
Metallurgical Plant (SMZ) and Belaya Kalitva Metallurgical Production
Association from Russian Aluminum in 2005 for US$257 million.
Duferco, Russia's NLMK, to set up joint venture
Russia's Novolipetsk Steel (NLMK) and the Duferco Group have signed a definitive
agreement to set up a joint venture with equal participation to acquire certain
steel production and distribution facilities currently owned by Duferco in
Europe and the United States, NLMK said in a statement, Interfax News Agency
The joint venture will be called Steel Invest & Finance S.A. (Luxembourg),
and the Russian company will pay US$805 million for a 50 per cent stake in the
venture. NLMK will finance the transaction out of existing cash funds. The joint
venture will hold 100 per cent or, in cases where there is an existing minority
party, majority interests in 22 companies currently owned by Duferco. This
includes one steel making plant and five steel rolling facilities with total
finished steel output of 4.5 million tonnes in 2006 as well as a network of
steel service centres. The joint venture companies will be managed by Duferco.
Duferco management will remain responsible for operational, financial and
technical issues as well as relations with employees, trade unions and local
communities. The parties have agreed to embark on an ambitious technical upgrade
and expansion programme for the joint venture companies providing for total
investments of approximately 375 million Euro. The programme, which will be
overseen by Duferco management will draw on the financial support and expertise
of NLMK and is intended to boost production while increasing supply of
semi-finished steel products from NLMK. The transaction agreements provide for
option arrangements for each party in the event of future major corporate
events, including future disagreements. The parties received clearance for the
transaction from the European Commission on November 20th, 2006. Duferco was the
core shareholder in VIZ-Stal, Russia's second biggest producer of grain-oriented
electrical steel, until the summer of 2006. NLMK bought the plant for US$550
million in August.
MTS signs contract with Motorola on upgrades to Moscow network
Mobile TeleSystems (MTS) has signed a contract with Motorola on upgrades to the
telecommunications network in the Moscow region, the two companies said in a
joint statement, New Europe reported.
The cost of the contract has not been disclosed. Motorola is carrying out work
to improve the quality of communications as well as the capacity and working
performance of the network in the region. In addition, EDGE technology will be
introduced throughout the entire network. MTS expects the upgrades will improve
the quality of voice communications and information transfers and reduced
operating and capital expenditures on maintaining the network. MTS is the
largest mobile operator in Russia and the CIS, and provides cellular services in
Ukraine, Belarus, Uzbekistan, Turkmenistan and Kyrgyzstan. MTS and its
subsidiaries have over 68.5 million customers. The company's main shareholder is
AFK Sistema with 52.8 per cent and 46.7 per cent of shares are traded on the New
York Stock Exchange, European over-the-counter markets and the MICEX. Other
shareholders account for 0.5 per cent.
Sitronics, Cisco to work together on emerging markets
Sitronics and Cisco Systems will work together to advance solutions to modernise
telecommunication infrastructures on emerging markets, the companies said in
press release. The two companies have set up an alliance to work in Russia and
the CIS and on the rapidly developing markets of Central and Eastern Europe, the
Middle East and Africa. A Sitronics representative said that the company will
set up joint working groups to implement various projects that will include both
technical specialists and managers. Sitronics and Cisco have designed solutions
to modernize infrastructures of current telephone networks by changing over to a
network platform based on IP. This solution is based on a Sitronics design for
Softswitch systems and OSS for IP-NGN, as well as Cisco-made router and
switchboard control networks. This decision will enable telephone networks that
were built on old analogue equipment to be modernized quickly without being
completely replaced with network infrastructures, the representative said, New
Experts said the volume of demand for such designs is around US$250 million on
the markets of the CIS, Eastern Europe, the Middle East and North Africa. Moscow
City Telephone Network (MGTS) is already using this solution, which, along with
Sitronics, is part of the Sistema holding. The equipment is currently being
tested. "The solution to modernise our network based on transfer NGN
technology offered by Cisco and Sitronics is the optimal approach for our
company," Alexei Goltsov, MGTS director general, is quoted in the release
as saying. "Thanks to this cooperation MGTS can quickly start offering its
subscribers various kinds of modern telecommunication services," he said.
Along with modernising the telephone network, Cisco and Sitronics are studying
the possibility of working together in other area, such as IPTV and wireless
Internet. "Our company's development strategy is aimed at setting up a
multinational player on the telecommunications market. The alliance that has
already been established is proof of our focus on rapidly developing
markets," Sitronics President Yevgeny Utkin said. The market work model
developed by Cisco and Sitronics will not only help communication operators
improve their profitability and establish market positions, but will also enable
a more active installation of broadband technology, the release cites Paul
Mountford, Cisco president for the emerging markets theatre, as saying.
Sitronics is one of Russia's largest diversified groups of hi-tech companies. It
was established in May 1997. The group includes companies such as Strom Telecom,
Kvazar-Micro, Videofon MV, NIIME and Mikron and Kvant Production Association.
Sistema and affiliated companies own 76.88 per cent of Sitronics. Sitronics
Management, a wholly owned subsidiary of Sitronics set up to implement an
options program for management, owns 9.36 per cent, Sistema President Alexander
Goncharuk owns 4.82 per cent, Gennady Krasnikov, head of the concern's
Microelectronic Solutions segment, owns 2.37 per cent, Germany's Ned Electronic
owns 2.36 per cent and other shareholders own 0.54 per cent.