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RUSSIA

Books on Russia

Update No: 318  (27/06/07)

There is a fear in the air of a new cold war, just when the countries of the world need to get together to combat a common peril - global warming. Russia and the West are falling out again over everything, Iraq, climate change and the right way to combat terrorism, for the former to squelch the Chechens in the Caucasus, for the latter to put anti-missile batteries in its newest allies in the Czech Republic and Poland. But in one area of international concern RUSSIA by making a decisive intervention in the stalled matter of the North Korean decommissioning of their Yongbyon nuclear reactor, has removed a log-jam (which is fully described in our NORTH KOREA report). This of course is not just a matter of aiding the west. Russia is a member of the 6 Party group that has laboriously been seeking for years to find solutions to the problems set by North Korea. Obviously Russia does not need an unpredictable nuclear-armed neighbour on its frontier.

Doubts over Russia missiles offer
After months of escalating tensions between Washington and Moscow over US plans for a missile defence shield in Europe, President Vladimir Putin surprised George W. Bush at the G8 summit in early June with an offer to co-operate with the US. One thing is abundantly clear. Putin has a far more nimble brain than Bush and is not likely to be caught napping by the Texan cowboy.

At the G8 summit on June 7th, Mr Putin proposed that the US and Russia jointly host part of the system at a former Soviet radar station in Azerbaijan. He added on June 8th that, instead of Poland, the US could host interceptors in Turkey, Iraq, or at sea. What could be more reasonable, if the real objective is to contain Iran.

While Bush initially welcomed the offer, which for good manners he was obliged to do, it was unclear if Russia was making a serious proposal that the US could accept. The Pentagon wants to install 10 missile interceptors in Poland and a powerful radar in the Czech Republic. The US does, indeed, say that the system is aimed at missile threats from Iran. Moscow says there is no imminent threat from Iran, suggesting that the system is aimed at Russia, which of course it is.

The Czech Republic was generally favourable toward Mr Putin's offer, relieved that Russia appeared to have accepted that there is a danger of a potential missile attack from rogue states. 'Appeared' is the key word here; Moscow is totally convinced that the shield is directed at Russia and hopes to demonstrate the fact by suggesting alternatives closer to the rogue states, which Washington will refuse, making clear to the world what its real intentions are. In Poland, the reaction was muted, although Anna Fotyga, the foreign minister, said Russian threats were prompting Poland to strengthen its military potential, thereby letting the cat out of the bag. Of course it is all about containing Russia, which has plenty of missiles all right and the means to deliver them.

Indeed, Moscow is upgrading its nuclear arsenal, developing the RS-24. It could rain missiles down on the EU, if it wanted to, but this would of course be an absurd thing to do - and isn't going to happen. 

US and Russian officials are expected to meet later to discuss the Russian idea. But questions already exist as to whether the Russian proposal would be a substitute for the US plans. The radar in Azerbaijan, for example, is not the kind of radar the US wants to place in the Czech Republic. "It is an early warning radar there, not an X-band of the type we are proposing for the Czech Republic, but that type of radar can be used to cue [point] an X-band at a hostile missile," said Richard Lehner, spokesman for the US Missile Defence Agency.

It is also not clear whether the US would be willing to give up the idea of putting missile interceptors in Poland, which the Pentagon says is the best location in Europe. Indeed, if the threat is from Russia after all, which the Poles believe; why should the Iranians have it in for them?

Mr Putin said that the radar in Azerbaijan "completely covers the whole region that worries the Americans." But Jaap de Hoop Scheffer, Nato secretary general, suggested that the proximity of Iran made Mr Putin's proposal less feasible, a bizarre claim if ever there was one.

While Mr Putin also suggested sea-based interceptors, the US is several years away from even testing long-range missile interceptors, although they are in development. 

While military experts debate the technical merits of using Azerbaijan as a forward radar base, Russia's offer is possibly more significant in geo-strategic terms if it leads to a closer partnership with the US in countering Iran's emergence as a regional power. 

For Azerbaijan, the development could fit nicely with Baku's strategy of courting ties with both Moscow and Washington, but runs the risk of antagonising Iran, which is said by opposition members in Azerbaijan to be already active in backing Islamists there.

Clearly a contentious business. Everybody bar the frank Polish foreign minister, is engaging in double-talk.

The multiple cover-up
There is a sub-story concerning missing extant weapons waiting to come out perhaps, that would be excruciatingly embarrassing for world powers in the West and for others, above all Russia, in the East. It would need there to have been a multiple cover-up going on about WMDs. What the ultimate story is - who knows, but it is fruitful material for conspiracy theorists.

This is exactly the sort of thing that is said as a preamble to every conspiracy theory of course. But conspiracies take place. Hitler hatched his war with just such a one, pretending to have been attacked by Poland. His officers tried and failed to get rid of him several times in another conspiracy. What is noticeable about this tale is how it began with just colossal incompetence; and a criminal conspiracy only came later.

At least this would be so if the story is true. The reluctance of those involved to investigate the matter further is suspicious. But then they all come badly out of it - or are frightened that they do. 

It is an historical fact that Saddam sent 129 planes to Iran in 1991, just before the war began. This was extraordinary, given the recent war he had waged against them. but they were of course the enemy of his own new enemy, the US. The planes would certainly have been destroyed otherwise by coalition air forces, in Gulf War I. Thinking at the time seemed to speculate that he believed that he might get them back after the war was over - he didn't. 

The present claim is that somehow Saddam's WMDs found their way into Iranian (and for good measure, Syrian) hands. It would infer an extreme instance of misprision by the US - that is of neglect of its official duty and incompetence in its execution, and concealment of the same thereafter. It also suggests a massive case of geopolitical trickery and treachery to civilised values by Russia.

The pith is - the Americans failed to remove WMDs from Iraq in mid-2003, which did, indeed, exist; while the Russians provided vital assistance to the Syrians to extract them from bunkers under the Euphrates and elsewhere and to dispatch them to Syria, a rogue and terrorist state by US definition, and to Iran, another. 

It is possible that this happened deliberately before the war broke out.

The prevailing wisdom is that Saddam meekly complied with the US/UN demand that he relinquish his WMDs. The theory is that it is more likely he gave them to his own closest allies, the Russians, who would have liked to score off the Americans and by the Syrians and Iranians also having their share? 

Did the Foreign Office advise Blair that he was wasting his time in going to Moscow in mid-2003 to try and persuade Putin to switch sides on the war? The late Saddam regime was a Russian client state. Putin refused to support the action and asked where then are the WMDs? 

Perhaps he knew better than Blair where they were and who now had them - if he and the 'axis of evil' states did! 

Saddam would then have had the last laugh from the grave. So goes the speculation, what some may say sounds more like a last ditch Cheneyite explanation - a few years late - to account for there being no WMDs there to find, when Iraq was finally occupied. 

It may have been a mistake to underestimate Saddam's capacity for mischief, his powers of duplicity or his cunning. It does seem hardly probable that he would divest himself of his entire arsenal of WMDs, in which he had invested billions, without extracting some advantage from it. That may be sufficient reason that such a theory could be even worth the reading. 

Moscow and London fall out
As Tony Blair prepares to depart from office, his relationship with Putin has reached a nadir. He was the first Western leader to embrace Putin in 2000 when he became president, accepting that the war in Chechnya was justified because the insurgents were terrorists. He naively expected Putin to reciprocate over his own and Bush's war in Iraq, which under Saddam was a virtual client state of the USSR's and then Russia's.

Blair's courting of Putin in no wise enhanced the UK's standing in the Kremlin; indeed it diminished it. When Blair made a trip to Moscow in 2003 to persuade Putin that there were indeed WMDs in Iraq, the Russian leader berated him in public like an errant schoolboy, demanding proof. 

Blair has a passion for giving hostages to fortune in this regard. He seems completely incapable of grasping that his perceived poodle status vis-a-vis the US made him the ideal butt to work off anti-American feeling by world leaders, who want to retain a semblance of good relations with Washington (although that is no longer the case with Putin who has become openly hostile to the Americans). 

Relations between London and Moscow fell to their lowest level in almost 20 years on May 22nd after Russia refused to hand over a "businessman" accused of poisoning the former KGB officer Alexander Litvinenko. The Crown Prosecution Service said police had gathered sufficient evidence to justify charging Andrei Lugovoi with murder and demanded that he be extradited to stand trial for an "extraordinarily grave" crime. A spokesman for Tony Blair said: "Murder is murder: this is a very serious case." 

But in a swift response, Russia said there was no chance of Mr Lugovoi being sent to stand trial in Britain, and warned of a political backlash. Marina Gridneva, a spokeswoman for the Russian prosecutor general's office, said: "Under Russian law, a citizen of the Russian Federation cannot be handed over to a foreign country." 

Mr Lugovoi spoke to Russian state-run television and Channel 4 news to insist he had nothing to do with Litvinenko's death. "I can say that I am absolutely calm as I am absolutely innocent," he told Channel 4. "I...am convinced that I did not kill Litvinenko. Moreover, I am fully and deeply convinced that British justice does not have any evidence. I also do not understand how they will claim I had a motive, and if there's no motive, it's difficult to imagine they have a case." He said the decision to charge him was "political". 

The Kremlin has also denied repeated assertions by friends of Litvinenko that it was behind his murder. 

But British security and intelligence officials believe that former, and possibly serving, agents of the Russian state were behind the murder. They say that only a state institution could produce polonium-210, the highly refined radioactive product used to poison Litvinenko. 

The decision to seek the extradition of Mr Lugovoi was predicted by the Guardian in January. Since then there are understood to have been a number of discussions about the move at Cobra, the government's emergencies committee. 

Peter Ricketts, permanent secretary at the Foreign Office, summoned the Russian ambassador, Yuri Fedotov, for a meeting. Margaret Beckett, the foreign secretary, later said: "This was a serious crime. We are seeking and expect full cooperation from the Russian authorities in bringing the perpetrator to face British justice. These points were made strongly to the Russian ambassador when he was called into the Foreign Office." 

The Foreign Office believes it can continue to cooperate with Russia on other issues. "We work closely with them on international challenges, on Iraq and climate change," said a spokeswoman. But on this "serious crime...we expect cooperation from Russia," she said. 

Russia signed the European convention on extradition in 2001. "Whether it's Russia or other countries there are certain legal obligations that countries have," said Tony Blair's official spokesman. "Let's see what the legal response is." 

The murder accusation comes at a time when relations between Britain and Russia are strained. In a speech last year, Vladimir Putin, Russia's president, laid out his foreign policy goals and called for relations to be strengthened with the "leading" EU countries of Italy, France, Germany and Spain. Britain was not mentioned. A few months earlier Russia's Federal Security Service, the FSB, accused four British diplomats of spying. 

The Kremlin is also angry that Britain has given refuge to Boris Berezovsky, an influential Kremlin insider under former president Boris Yeltsin who fell out with Mr Putin and fled to Britain in 2000. In April Mr Berezovsky told the Guardian that he was plotting a coup to topple Mr Putin in an interview which prompted the Kremlin to renew its attempts to have him extradited to Moscow. 

Gleb Pavlovsky, a consultant to Mr Putin, said: "'A situation in which Britain doesn't give us Berezovsky, but asks for people affiliated with Berezovsky to be handed over will definitely not arouse enthusiasm in Moscow. If this story develops it will seriously damage the attitude of the Russian elite towards Britain and the West. The West is trying to criminalize the image of Russia." 

Other analysts warned of a possible backlash in Russia against the UK. Boris Makargenko, director of Moscow's Centre for Political Technologies, said: "I hope there will be no anti-British hysteria. But I'm certain some people will say the Brits are plotting against Russia. It's inevitable, Russia will not extradite Lugovoi. " 

Litvinenko, 43, a former spook become political refugee, who had acquired British citizenship, was a critic of the Kremlin, which he accused of being behind the deadly wave of apartment block bombings eight years ago which stoked support for a renewed offensive against Chechen separatists. 

He was poisoned during a meeting in the bar of the Millennium Hotel in Mayfair on November 1 last year, dying 22 days later. Before he died, scientists working alongside Scotland Yard detectives realised he had swallowed a massive dose of polonium-210, a rare radioactive isotope. 

A colourless and odourless substance which cannot be picked up by radiation scanners at airports, polonium-210 appeared to have been chosen as the murder weapon because the chances of it being detected were so slim. But once it was discovered in Litvinenko's urine, Scotland Yard was able to map out a detailed picture of every step the killer took before and after the murder. 

This led the CPS to conclude that there was enough evidence to charge Mr Lugovoi - another 'former' or perhaps current spook, not resident in Britian, with murder. Sir Ken Macdonald, the director of public prosecutions, said: "I have today concluded that the evidence sent to us by the police is sufficient to charge Andrei Lugovoi with the murder of Mr Litvinenko by deliberate poisoning... I have instructed CPS lawyers to take immediate steps to seek the early extradition of Andrei Lugovoi from Russia to the United Kingdom, so that he may be charged with murder, and be brought swiftly before a court in London."

The British are well aware that there is zero chance of the Russians handing over Lugovoi, just as there is zero of them handing over Berezovsky. They have decided to make a subtle, if only symbolic, gesture. The judge who refused extradition of Berezovsky to Russia in 2003, Timothy Workman, has been given a Commandership of the British Empire (CBE). To make it even more pointed, the leading defector from the KGB to the UK in the Cold War, Oleg Gordievski, a long-time adviser to the Foreign Office on Russian affairs, has been made a Companion of St Michael and St George (CMG).

This is not likely to perturb Putin too much. Where is there a British empire left to command? And who wants the companionship of two long-dead saints? However, he knows these things matter in Britain. 

Documentary about poisoned spy Alexander Litvinenko to screen at Cannes 
A documentary about poisoned Russian spy Alexander Litvinenko had its world premiere at the Cannes Film Festival at the end of May.

"Rebellion: The Litvinenko Case," was screened at the festival on May 26th, a decision the movie's director, Andrei Nekrasov, said was made at least three weeks beforehand - well before British prosecutors named Andrei Lugovoi as a suspect in Litvinenko's murder and demanded his extradition from Russia.

Nekrasov said it was the festival organizers' idea to keep the film a secret until now. "I can't say the reason was political pressure," Nekrasov told The Associated Press. "They do this sort of surprise screening sometimes."

Nekrasov, a friend of Litvinenko, said the film would give audiences an insight into the minds of those who killed him. "It's for the police and prosecutors where the trail of polonium leads," he said. "What is important is to understand the motives and the context." The film draws on footage of Litvinenko shot over four years, as well as interviews with his widow, Marina, and others.

"I'm not treating him uncritically," Nekrasov said. "You know, I think people will be walking out with a very clear idea where my personal sympathies are, but I am trying to be objective - but also emotional. I wanted to make a documentary which goes beyond information, and which looks deeper into people's motives - without which we will never understand why he was killed."

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AUTOMOBILES

Nissan to construct St. Petersburg plant 

Nissan Motor Co. is planning to launch construction on an automotive plant outside of St. Petersburg on July 8th, Nissan Motor Rus, the company's Russian branch, said in a statement, cited by Interfax News Agency.
A groundbreaking ceremony was initially planned for June 8th, but the start of construction was then postponed due to changes in the schedule of events at the St. Petersburg International Economic Forum and the schedules of members of the government and the City of St. Petersburg.
Nissan will initially produce one model at its factory in St. Petersburg, although it could produce three or four in time, Fujio Hosaka, managing director of Nissan Manufacturing Rus, said earlier. Production should start in January 2009, Hosaka said. The plant is being built in the Kamenka industrial zone outside St. Petersburg.
Maxim Sokolov, chairman of the St. Petersburg committee for investment and strategic projects, said earlier that the planned volume of investment in the construction of the Nissan plant in the period to 2009 amounts to about 5.5 billion roubles. The plant will be able to produce about 50,000 automobiles per year.

Auto maker GAZ ups IFRS earnings 94% in 2006

The GAZ automobile group boosted net profit to International Financial Reporting Standards (IFRS) of 94 per cent in 2006 to 6 billion roubles, the company said in a press release, cited by Interfax News Agency.
Sales revenue grew 26 per cent to 118.793 billion roubles. Analysts forecast net profit of 4.117 billion roubles and revenue of 112.071 billion roubles. Car sales came to 80.37 billion roubles, and bus, diesel engine and fuel apparatus sales to 16.231 billion roubles. Truck sales soared 68 per cent to 11.474 billion roubles, and construction and road machinery sales grew 60 per cent to 6.604 billion roubles. Gross profit rose 33 per cent in 2006 to 23.24 billion roubles, and earnings before tax 72 per cent to 8.548 billion roubles.
GAZ said that sales revenue to IFRS grew 30 per cent year-on-year in the first quarter of 2007 to 30 billion roubles. All segments but cars, small and large buses saw growth. Sales of light commercial vehicles grew 21 per cent to 40,049, and medium truck sales rose 47 per cent to 6,647. Sales of these vehicles are expected to hit 200,000 this year as a whole. 

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AVIATION

Boeing receives order for 22 planes in Russia

Boeing, the US manufacturer of commercial aircraft, won an order valued at about US$3m from the airline Aeroflot for 22 Dreamliner passenger jets in a possible sign of better US-Russian relations, the International Herald Tribune reported on June 11th.
Boeing and Aeroflot, which is state-run, signed a contract recently at an international economic forum in St Petersburg. The first of the 787-8 Dreamliners is to be delivered to Aeroflot in 2014, Valery Okulov, chief executive of Aeroflot, said after the ceremony.
The Boeing deal had been delayed as relations between the United States and Russia worsened when US official accused President Vladimir Putin of impeding democracy. Airbus won a pledge in March from Aeroflot to buy 22 of its A350 passenger jets, valued at US$4.4bn, after competing with Boeing for more than a year.
The Boeing sale "is hardly a big order, but Airbus needed those numbers," said Richard Aboulafia, an analyst with Teal Group in Fairfax, Virginia. "So to deprive Airbus from being the customer is far more important to Airbus than Boeing."
Aeroflot expects to sign a contract for the Airbus jets during the Paris air show in June or in August in Moscow.
The US and European aircraft "complement each other well," Okulov said, adding that delivery of the A350s would being late in 2014 and stretch to 2017.
Aeroflot will seek guarantees from US Export-Import Bank for a syndicated loan to finance the Boeing deal. The Russian carrier declined to provide details. Olulov said that Aeroflot, which already was seeking US$1bn to buy a stake in the Italian airline Alitalia, could afford to borrow more because it had no debt at present.
Separately, Boeing signed an agreement with Unified Aircraft of Russia to study cooperation in research, design and development of commercial planes.
Boeing also agreed to increase cooperating with Sukhoi Aviation Holding's commercial airplane unit. Boeing has consulted Sukhoi Civil Aircraft on its Superjet-100 family of midrange passenger jets. Boeing will help Sukhoi in post-sale support.
Aeroflot is the second Russian customer for the Dreamliner S7 Airlines the second largest Russian carrier, agreed in May to buy 15 of the aircraft with options for another 10. S7 and Aeroflot are expanding their fleets, with Russian air travel expected to double by 2015. Russian airlines carried 38 million passengers last year, up 8.3 per cent from 2005.
Russia spans 11 time zones and travel to more than 60 per cent of its territory is feasible only by plane. Locally made aircraft are becoming outdated and are constraining growth of the economy.

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BANKING

HSBC to open retail branches in Russia

HSBC is looking at opening up new bank branches in Russia after receiving a retail banking licence that will bolster its presence in one of the last remaining regions where it lacks scale, the Financial Times reported on June 2nd.
The world's fourth-biggest bank will now be able to expand its operations into selling credit cards, mortgages and loans to Russian consumers.
Jonathan Hartley, who was recently appointed as HSBC's chief executive in Russia, said HSBC would look at opening a number of branches - probably less than 10 - in Russia this year.
Initially this would be in the Moscow area although the location would depend on finding suitable sites and gaining permission from relevant authorities.
"We see evidence of a fast take-up of consumer finance products from a very low base," Hartley said.
HSBC plans to expand through offering direct internet and telephone banking services as well as branches.
HSBC has had corporate and investment banking interests in Russia for some time but has no retail banking presence in the country, which has a population of 142m and a gross domestic product that increased by more than 6 per cent in 2006.
In the past Stephen Green, HSBC's chairman, has said that HSBC had missed the expansion of banking in eastern Europe in the 1990s but that the retail banking market in Russia was "crying out for good-quality service" from international lenders.
"A number of our competitors are already active there but it is still a very young market with lots of opportunity. Russia is a place where you can, and probably should, grow organically," he said earlier this year.
The move comes as HSBC seeks to focus its attention on fast-growing emerging markets.

Russia planning to simplify M&A procedure for banks

The Russian Finance Ministry has prepared and submitted to the government amendments to the Civil Code that envision a more simplified procedure for mergers and absorptions in the banking sphere, Vladimir Lukov, deputy director of the ministry's financial policy department, said, Interfax News Agency reported. 
The amendments have already been approved by the president's civil legislation codification council and is currently being polished up by government agencies, he said. Lukov was unable to say when the amendments would be submitted to the State Duma. "That depends on the government," he said. The amendments simplify the procedure for notifying clients, above all legal entities, about M&A, he said. "This will lead to a reduction in excess credit organisations (during mergers)," he said.

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ENERGY

Sintezneftegaz to explore Namibian shelf in 2008

Sintezneftegaz is planning to drill the first search and exploratory well on the Namibian shelf in the first quarter of 2008, a source in the Sintez Group said, Interfax News Agency reported.
Sintezneftegaz plans to finish talks in the second half of this year and reinterpret earlier seismic 2D data in order to plan the construction of the first well and determine the additional volume of exploratory work, the source said. Halliburton International Inc. won an auction to be the subcontractor for the well. Investment in geological exploration work on the shelf will be US$80 million over four years, the source said. Such investment was approved in an agreement to develop the No. 1711 licensed section signed by the company and Namibia's Natural Resources and Energy Ministry. Sintezneftegaz received a 70 per cent stake in the project for the geological exploration of the No. 1711 site in March of last year. 

Norway mulls idea of gas pipeline from Siberia

Norway is ready to discuss the idea of building a gas pipeline linking Siberia to the Norwegian Sea for the shipment of Russian natural gas to Europe, but so far there are no specific plans or proposals on the table, Interfax News Agency quoted Norwegian Prime Minister, Jens Stoltenberg, as telling a press conference in Moscow.
"There are no specific plans to build a gas pipeline from Siberia to the Norwegian Sea, even though the idea has been floated," he said responding to a question about the pipeline on June 8th.
He said he expected private companies to voice their opinion on the project and assess its prospects. "As long as there are no concrete proposals, the Norwegian authorities can do nothing. We should see a concrete proposal," Stoltenberg said.
He added that the project was a commercial matter and must be tackled by companies. "On the Russian side, this will probably be Gazprom, on the Norwegian - Statoil," he said. It is these companies that should decide whether it is profitable to transport gas along this route, he said.

Putin propels Bourgas-Alexandroupolis construction

Russian President, Vladimir Putin, has voiced hope for the soonest possible construction of the Bourgas-Alexandroupolis pipeline. "I think that this project, which is important not only for our countries, but also for the entire European energy market, will be implemented within a short time," he told a press conference on May 31st in Moscow following negotiations with his Greek counterpart, Karolos Papoulias, Interfax News Agency reported.
Greece is "a key energy partner for Russia. Russia meets 40 percent of Greek crude needs and 80 percent of Greek gas needs," Interfax quoted him as saying. "It is possible to enlarge energy cooperation with electric power," he added. The energy tandem of Russia and Greece is very promising. "Russia has an impressive energy potential, while Greece has a beneficial transport structure and geographic location. This tandem certainly has prospects, in particular, in the provision of European energy security," he said.
Russia, Greece and Bulgaria need to establish a company to manage the Bourgas-Alexandroupolis project, Papoulias told the press conference. "This project will not only be useful for the three states concerned, but will also make a weighty contribution to the diversification of energy transport routes and, consequently, the energy security of Europe," he said.
The Bulgarian parliament on May 30 ratified the Bourgas-Alexandroupolis pipeline deal. Ratification of the agreement by the Russian Duma is expected to take place over the coming days, while the Greek Parliament has already ratified the agreement. Representatives of the three countries will soon be meeting in order to set up the international company that will construct and operate the pipeline.

Transneft approves increasing ESPO spending by 3.4% in 2007

The board of directors of Transneft at a meeting on May 29th approved additional spending of 6.8 billion roubles in 2007 to finance the first phase of the Eastern Siberia-Pacific Ocean (ESPO) pipeline, the company said in a statement, cited by Interfax News Agency reported.
Transneft plans to use 198.7 billion roubles to finance the ESPO project in 2007, which is almost 130 percent more than the 88 billion roubles in 2006, the company said in a note to investors for a Eurobond issue in February 2007. Thus, the ESPO budget for 2007 will increase by 3.4 per cent to 205.5 billion roubles. Investment is planned at 63.6 billion roubles in 2008.
The board discussed implementing an investment program to build the first phase of the ESPO pipeline in 2007 and approved the corresponding amendments to the program, the release read. Transneft will use additional sources from its subsidiaries for ESPO construction, the release said. Transneft plans to build a 1,254-kilometre section of the pipeline in 2007 and also plans to finance the construction of seven oil-pumping stations. The company has not announced the initial budget for building the ESPO in 2007.

Bulgaria ratifies Bourgas-Alexandroupolis agreement

The Bulgarian parliament on May 30th ratified a 280-kilometre, US$1.211-billion pipeline deal with Russia and Greece to link terminals in the Black Sea and the Aegean. Ratification of the agreement by the Russian Duma is expected to take place over the coming days, while the Greek Parliament has already ratified the agreement. Representatives of the three countries will soon be meeting in order to set up the international company that will construct and operate the pipeline, New Europe reported.
The project between Bourgas in Bulgaria and Alexandroupolis in northeastern Greece would be completed in 2011 with an initial annual capacity of 35 million tonnes, with a potential for 50 million. It would bypass the congested tanker route through the Bosporus and bring mostly Caspian fields oil shipped from the Russian terminal at Novorossiisk to the terminal in the Mediterranean. According to the three-way agreement initialled in March, Russia would control 51 per cent of the pipeline operator, with Bulgaria and Greece equally splitting the rest. The construction, including the 166-kilometres stretch through southeastern Bulgaria, is scheduled to start this year. The transit fees would be negotiated at a later date.

Rosneft not ready to ink contract with Sinopec

Russian oil major Rosneft is not yet ready to sign a contract with Sinopec to ship oil to China through the Naushki border crossing on the Russian-Mongolian border, despite a drop in railway tariffs, Interfax News Agency quoted Rosneft President, Sergei Bogdanchikov, as telling reporters in Paris. "This isn't enough. The economic conditions aren't favourable enough yet to sign a contract," he said.
The Federal Tariffs Service has approved a 22 per cent discount on shipping oil by rail to China.
Rosneft and China's UNIPEC, which is the trading company of Sinopec, had planned to sign a contract to supply up to three million tonnes of oil through the Naushki border crossing on the Russian-Mongolian border. The contract was expected to be worth US$ one billion.
Russian Railways (RZD) transported about 10 million tonnes of oil to China in 2006, of which Rosneft accounted for 8.8 million tonnes. Most supplies went through the Zabaikalsk border crossing.
Beleaguered Russian oil company YUKOS previously used the route through Mongolia. There are practically no supplies through Naushki at the moment.

Russia inventories all oil wells

The Russian Natural Resource Ministry has carried out a presidential order and has inventoried all oil wells in the Russian Federation. "The work has been carried out: 248,000 production wells and 64,000 exploration wells. All the wells were checked according to their ownership and location," Interfax News Agency quoted Natural Resource Minister, Yury Trutnev, as saying at a meeting with Russian President, Vladimir, Putin on May 28th.
"I hope that there are no more that have not been accounted for," he said in response to a question from Putin. Interfax quoted Trutnev as saying no wells were omitted, with the exception of those in the Caucasus region, which were opened about 50 years ago. "These wells are not productive and are not of any real interest or a real threat. There is nothing left there," he said. He also said that during the inventory, wells were discovered that represent an environmental threat. "Funds have been earmarked and this year and next year Rosnedra will take care of this problem," Trutnev said.

E.ON buys into Russian electricity business

German utility E.ON entered the Russian electricity business on May 24, establishing a joint venture in the western Siberian area of Tyumen with Russian partner STS. The venture indicates E.ON chief executive Wulf Bernotat has shifted his gaze eastwards after a vain takeover struggle for Spanish utility Endesa, Deutsche-Presse-Agentur (dpa) reported. 
The venture, E.ON-STS Energia, is the Dusseldorf-based giant's first electricity operation on Russian soil, but it has extensive experience with Russia through its gas wholesaling subsidiary E.ON Ruhrgas. Ruhrgas is closely linked to Russian gas monopoly Gazprom. E.ON is Germany's biggest utility group. 
Bernotat clearly hopes that the liberalised Russian electricity market offers an investor good returns. 
E.ON's brief announcement said, "Russia's market is growing five to six percent annually, making it one of the biggest and strongest growing markets in Europe." 
Bernotat has often voiced interest in the past in entering the Russian electricity business and last week said Russia provided "attractive framework conditions" for an investor. 
Analysts have suggested more than US$20 billion must be invested in the next 15 years in new power-generating capacity, modernising existing stations and upgrading the Russian distribution grid. E.ON has not disclosed how much it is investing in the Tyumen venture. 
However experts on the sector said the outlay would probably come to about one billion Euro with STS providing assets for the joint venture. TGK-10, a generating company, will be purchased as part of the deal. 
That outlay represents a considerable saving compared to the 40 billion Euro E.ON contemplated spending on Endesa. 
Bernotat is set to brief the public this week on E.ON's strategy, expansion plans and investment budget, and Russia is now likely to play a big role in the blueprint. "Our objective is to make E.ON the most effective company in the European energy business," he said several weeks ago as he unveiled quarterly figures.

BPS-2 to redirect oil volumes from Druzhba pipeline

The Russian government on May 21 approved the construction of the Baltic Pipeline System-2 (BPS-2) bypassing Belarus and therefore reducing Russia's reliance on the transit state. The Russian leadership has pushed for the Unecha-Primorsk pipeline project since the oil dispute over oil tariffs between Moscow and Minsk at the beginning of January 2007 that led to a disruption of oil supplies to Europe from January 8 to 11. 
Russian Prime Minister Mikhail Fradkov has signed the corresponding resolution, the government press service said. The Russian Industry and Energy Ministry and Transneft have been directed to prepare the necessary documentation for the construction of the BPS-2. If the project is implemented, the annual throughput capacity of the Primorsk port may increase to 150 million from 75 million tonnes. The project has been estimated at US$ two billion.
Nadia Kazakova, an oil and gas analyst at MDM Bank in Moscow, told New Europe on May 24 that "there is too much dependence on Druzhba crude oil from the European refineries." The Russian government plans to redirect into the BPS-2, to Primorsk and then to the Baltic Sea a part of the oil flow from the Druzhba pipeline that runs from Russia via Belarus and Ukraine to European refineries. 
Moscow wants to reduce its reliance on overland export routes through third countries. "After the conflicts with Ukraine and Belarus that happened over the last couple of years, Russia wants to distance itself from these countries and obviously and very understandably try to invest in new pipelines," Anisa Redman, an oil and gas analyst with HSBC Bank in London, told New Europe on May 22.
"The question is the cost of the new pipelines because the pipelines that go through Russia and Ukraine are already in place, have been built and are ready to use, but the new pipelines that Russia is planning to build will require new assets so there is a trade off; you have to pay for having that extra new pipeline."
The Russian government plans to build BPS-2 has worried Belarus that counts on the transit fees that Druzhba oil supplies may be reduced to a mere trickle.
"Belarus' position is threatened because the country earns a lot of hard currency revenues from that oil and gas transit from Russia and Belarus is obviously very worried about it," Redman said. She noted, however, that Russia does not plan to replace Druzhba altogether. "You can't replace it altogether because it is not going to be large enough of a pipeline, but they can start to do it and divert some of that crude flow that goes through Belarus onto other pipelines."
Kazakova said there will be extra capacity for the new pipeline. "I view it as extra capacity rather than replacement capacity because you still have to use the current infrastructure (Druzhba) and I can't see why except for political reasons the current system won't be used," she said. 
Russia will not give up on the Druzhba pipeline, but redirect some oil crude deliveries as well as new oil supplies through BPS-2. State-run oil pipeline operator Transneft has said that the oil flow through Druzhba would be divided into two streams, one continuing westward and another heading northward to Primorsk.

Gazprom to invest another US$3.4bn in Sakhalin-II

Gazprom, which bought a controlling stock interest in the Sakhalin-II project in April, will invest an additional US$3.4 billion in the project before 2014, the company said in a memorandum for a new Eurobond issue. Gazprom completed a transaction on the purchase of a stake of 50 per cent plus one share in Sakhalin Energy, the operator of the Sakhalin-II project, at the end of April for US$7.45 billion.
Also in April, the company's supervisory council approved an estimate of US$19.4 billion for capital expenditures on the realization of the second stage of the Sakhalin-II project for the period until 2014. A total of US$13.4 billion in investment has already been spent and the project is 80 per cent completed, Gazprom said. The company also noted in the memorandum that no environmental fines or other penalties had been imposed on the project as of May 18, the date the memorandum was released.

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MINERALS & METALS

Norilsk Nickel to spin energy assets off

The board of directors of MMC Norilsk Nickel at its meeting on May 15, 2007 agreed to form a new company on the basis of Norilsk Nickel's non-core energy assets, the Russian metals giant said in a press release, cited by Interfax.
The restructuring will be carried out as a spin-off of these assets, and the shares of the new independent company will be distributed on a proportional basis among shareholders of MMC Norilsk Nickel, the release said.
Only non-strategic energy assets - those not engaged in power supply to the Company's production facilities in Norilsk - will be subject to the spin-off. The final list of assets to be spun off will be prepared later this year, by August - September.
"As a result of this spin-off, the largest private energy company in Russia will be created, so the restructuring will increase the shareholder's value of MMC Norilsk Nickel. And what is more, the spin-off of these non-core assets will allow management to focus on core business," Andrey Klishas, the board chairman, was quoted as saying.
Such reorganisation is not new to MMC Norilsk Nickel: in 2005 - 2006 the Company's gold assets were successfully spun-off into Polyus Gold. In accordance with the spin-off schedule approved by the board of directors, if shareholders of MMC Norilsk Nickel vote for the reorganization in December, the new company may be registered before the end of 2007, and its shares will be listed in the first quarter of 2008, the release said.
Earlier it was thought the listing might take place during the first half of 2008.
The new company is being set up in the framework of the asset split agreed upon by the company's co-owners Mikhail Prokhorov and Vladimir Potanin at the beginning of this year. It is expected that Prokhorov will consolidate a controlling interest in the new energy company and that Potanin will control MMC Norilsk Nickel as the result of the asset split.
MMC Norilsk Nickel values the energy sector assets that will be spun off at US$6.7 billion. The company has said it might hand a certain amount of cash to the independent company, and that a decision on this could be reached by August.
The valuation does not include the potential 62.9 percent interest that the company could own in the OGK-3 generating company. MMC Norilsk Nickel could increase its stake in the genco to 62.9 percent from 46.2 percent as the result of an offer to buy out minority shareholders. The power assets will be spun off according to the same basis as gold assets were spun off to Polyus Gold, which went on to become Russia's biggest gold producer, in 2005-2006.
In other words, Norilsk Nickel's shareholders will receive shares in the new power company in proportion to their stakes in Norilsk Nickel. The power company should issue level-one American Depositary Receipts (ADR) and be listed on the Russian Trading System (RTS) and MICEX Stock Exchange.
Norilsk Nickel put 10 billion roubles cash at Polyus Gold's disposal when the latter was spun off.

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