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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 it all. 
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 One Country.
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 largely are. 
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 Countries (OPEC).
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 is possible.' 
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 bayonets.' 
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 customers."
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 Russia.
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 contract negotiations. 
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 differences." 

Gazprom blues
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:-
The Economist
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 Moscow, agrees. 
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 of guests). 

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.

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AVIATION

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.

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ENERGY

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 Ismail.
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 efforts.
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 said.
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 fuel. 
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 ... Gazprom." 
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 growth." 
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 US$3.89 billion. 
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 reported.
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 reported.
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.

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FOREIGN RELATIONS

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. 

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MEDIA

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 reported.
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.

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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 same time.
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 Aluminium Plant.
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 reported.
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.

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TELECOMMUNICATIONS

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 Europe reported.
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.

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