Books on Russia
Update No: 319 (26/07/07)
Putin the abdicating kingmaker
Moscow is abuzz with rumours concerning the fate of Putin. He is in the prime of
life, extremely fit, abstemious (unlike many of his male compatriots) and with a
certain steely quality that is the hallmark of despots, especially Russian ones,
down the ages. Yet he is apparently quite prepared to hand over to a successor
He is a capable and successful president of his country, with sky-high approval
ratings (nearly 80%), that would be the envy of his Western counterparts. If he
agreed to have the constitution changed to allow him to stand for a third
consecutive term, there would be no serious opposition - indeed widespread
relief. He would romp home.
Putin is reluctant to change the rules; an educated man, he speaks several
languages, German fluently and passable English and French. He used them to good
effect in Guatemala in securing the 2014 Winter Olympics for Sochi, Russia by a
bare four votes in early July. His canvassing of the French delegates in their
own tongue was decisive, there being no nationality that is more prickly about
the use of its language.
Putin is a keen skier himself. He would like to attend those games all right -
but just as a has-been ex-president? Hardly. The evidence is mounting either
that he plans a comeback in March 2012 elections or, if he is enjoying being out
of the limelight, he leaves it to 2016, benefiting from a long break, during
which his two daughters will come of age. He revels in his job, being a
workaholic if there ever was one. But eight years in one of the most demanding
posts in the world is enough for now. He would prefer to be a De Gaulle, called
back as a saviour, than a Stalin, clinging on desperately into the grave.
But who is to hold the reins for him until then? Can he be trusted to step down
Actually it could be a she. The two first deputy premiers (the premier Mikhail
Fradkov is a complete no-no), Sergei Ivanov, former defence minister, and Dmitry
Medvedev, a pro-Western reformer, are able and ambitious themselves. Why should
either obligingly step aside, once into the job? Ivanov is however a special
friend, a KGB buddy from the old days.
Putin has a knack for doing the unexpected. He could choose Valentina Matviyenko,
the governor of his beloved home city, St Petersburg, and a devout Putin
loyalist. In a country as male chauvinist as Russia, there is little risk of her
becoming too popular, while she would do the ex-president's bidding to a tee, if
past form is anything to go by. But then power has a way of changing people, as
it has Putin. There is of course the possibility that Putin will pull a fast one
and appoint the utter mediocrity, Fradkov, in his place. But that would be an
insult to the Russian people. Giving the Russians a matron to look after them
for the duration of his absence seems a better bet.
But again, Putin may make his best friend, Sergei Ivanov, his successor after
all. He can promise him the next succession in 2020, when they will both still
be sexagenarian striplings.
If a crisis supervenes between now and next year (the election is due in March),
there could be an overwhelming call for him to stay put, the Duma dutifully
amending the constitution. There are plenty in the corridors of power who would
welcome that respite. In a country like Russia 'accidents' can happen in due
time, as with the serial killings of 300 or more in September, 1999, that
occasioned the second Chechen War and saw Putin rise to his present eminence in
the first place. Anything is possible.
Sochi Games will help develop all of southern Russia
Southern Russia is a good place, worthy of development, Sochi on the Black
Sea especially so. Seven years is a short timetable for such an ambitious
project, but the belief of the International Olympic Committee (IOC) is that
Russia can host the 2014 Winter Olympics, as well as build the gleaming ice
arenas, giant sporting venues and everything else needed for the games. Vladimir
Putin, too, is confident. After all, the Russian president's determined pitch
for Sochi included a pledge: "No traffic jams, I promise."
For many Russians, the IOC vote awarding Sochi the games was proof of the
country's resurgence. It also was a major victory for Putin, who threw his full
weight behind the campaign, at a time of growing criticism of his government's
democracy and human-rights record. Putin, who frequently skis in Sochi, said
being awarded the Olympics was recognition of Russia's sports tradition and its
growing economic and cultural clout in the world. "This is support from one
of the most authoritative and independent international organizations -- the
International Olympic Committee," he said in televised comments upon
returning from Guatemala City, where the decision was announced.
Footage broadcast over and over showed exuberant Russian officials and athletes
dancing and singing and celebrating in Guatemala and Sochi. Moscow hosted the
1980 Olympics, boycotted by the US in protest at the Soviet occupation of
Afghanistan; but Russia has never held the Winter Games. Yet everyone is
convinced that the Sochi games will be an unquestionable boon.
The project still must address protests by environmental watchdogs and local
residents who say it will destroy the region's fragile ecosystem. And building
the Olympic facilities essentially from scratch under the tight deadline won't
Russia in massive programme to develop Black Sea ports
On July 11th Russia's First Deputy Prime Minister Sergei Ivanov and Transport
Minister Igor Levitin unveiled a comprehensive modernization programme for
Russian Black Sea ports during an inspection visit there. The program is
ambitious in both scale and pace, with most of its goals scheduled to be
attained by 2010. It is a counterpart to the programme for accelerated expansion
of Russia's Baltic ports, which the Russian government also launched this year,
with President Vladimir Putin taking a personal interest in both programmes.
The government drew up its Black Sea programme before the decision of the
International Olympic Committee to hold the 2014 Winter Olympic Games in Sochi,
on Russia's Black Sea coast. That decision, announced on July 4, will
necessitate massive investments to develop infrastructure in the Sochi area,
above and beyond the scope of the overall program for Black Sea ports and mostly
beyond this program's time frame. Ivanov and Levitin discussed both the overall
maritime transport program and ideas about Sochi development during their visit.
According to these officials, Russian Black Sea ports currently handle more than
one third of Russia's sea-borne exports in terms of tonnage. Total export cargos
were reported at 160 million tons in 2006 and are "conservatively"
expected to grow to 250 million tons annually by 2010. The port development
programme ambitiously envisages doubling the existing export capacities, which
are currently strained to the limit and distributed very unevenly along the
At present, Novorossiysk alone handles more than one half of that overall export
tonnage. The over-congested port's various terminals loaded a reported 88
million tons of export cargos in 2006.
That figure includes an estimated 60 million tons of oil, one half of this
originating in Kazakstan. Oil loading will increase if the Caspian Pipeline
Consortium's line boosts the volume of oil pumped from Kazakstan to Novorossiysk.
Expecting this to be the case, the Russian government is ordering three tanker
ships to carry that additional volume of oil from Novorossiysk to Bulgaria's
Black Sea port of Burgas, for feeding into the planned trans-Balkan pipeline to
Alexandropolis on the Greek Aegean coast.
The Russian government's programme envisages relieving some of the congestion at
Novorossiysk through specialization. It would transfer some shipping flows from
there to other Russian Black Sea ports while dedicating Novorossiysk to oil,
grain, and container cargos. In addition, a modern grain export terminal is due
for completion this year.
Ivanov and Levitin explicitly called for competing with Romania's port of
Constanta in terms of attracting international container shipping to
Novorossiysk. The Russian government envisages building the appropriate
terminals as a priority until 2010, in place of existing old terminals.
The commercial port of Novorossiysk can no longer expand physically in the
narrow bay, a section of which is taken up by the naval port. Russia's Black Sea
Fleet is expanding its installations there to a full-fledged base as an
alternative to Ukraine's Sevastopol, where the Russian fleet's lease is due to
expire in 2017.
Other port development plans include using Taman as the main coal export
terminal (instead of Tuapse) while expanding the use of Tuapse as an export
outlet for oil and, potentially, liquefied gas. The port of Kavkaz (also in
Krasnodar Krai) is slated to specialize for handling commodity ferryboats. A
catamaran line for passenger boats is scheduled to run between the ports of
The programme also envisages developing overland and air links to the ports. A
second railroad line to Novorossiysk and convergent highways to that port are to
be built until 2010. Also by that date, the old airports of Anapa and Gelenjik
are to become modern international airports, alongside the existing Adler
airport. The three are to be merged into a single, state-controlled company.
Ivanov and Levitin underscored Krasnodar Krai's potential as a destination for
international and Russian tourism ("We don't have anything comparable in
In Sochi, the transport modernization programme runs through 2015, but will
almost certainly have to be adjusted to meet the 2014 Olympic deadline. The port
will be reserved exclusively for passenger traffic. All other cargo flows are to
be transferred from Sochi to other ports. This measure takes immediate effect,
so as to enable the port of Sochi to receive construction materials for the
planned Olympic installations and start construction of large-scale passenger
terminals. These are planned to accommodate passenger and cruise ships with
capacities of up to 3,000 passengers each, for a total of 600,000 passengers per
year by 2010 and 715,000 by 2015. Access highways to Sochi and a ring highway
around the city are included in the programme, as well as expansion of the Adler
airport, which is servicing Sochi.
The Russian government is creating an inter-departmental structure to supervise
this Black Sea programme. While the government's existing Maritime Affairs Board
only meets three or four times per year with a very broad agenda, the new
structure will be a standing one to coordinate port development. Ivanov has
nominated Igor Levitin to head the new inter-departmental structure in his
capacity as transport minister. With President Putin evidencing a personal
interest in the port development programme, Ivanov a front-running presidential
contender, Levitin also mentioned as aspiring to a top post in 2008, and the
scheduled Olympic games as an added stimulus, this Russian Black Sea programme
will command political attention and funding in Moscow.
Russia Pulls Out of Arms-Control Treaty
Domestic politics are all important, but international affairs matter too.
Putin had a meeting with President Bush at the Bush family home in
Kennebunkport, Maine, in early July, prior to his IOC victory in Guatemala. But
it did not appear to make matters better all round.
He spoke at a meeting with a group of top level U.S. and Russian diplomats,
former government ministers and Cabinet secretaries in the Novo-Ogaryovo
residence outside Moscow, Friday, July 13, 2007. Putin said that relations
between the United States and Russia should be free of shifting political
trends, as a group of influential top diplomats, ministers and Cabinet
secretaries met for a conference on the two countries' uneasy relationship.
Russia on July 14th suspended its participation in a key European arms control
treaty that governs deployment of troops on the continent, the Kremlin said.
NATO called Moscow's decision "a step in the wrong direction."
President Vladimir Putin signed a decree suspending Russia's participation in
the Conventional Forces in Europe Treaty due to "extraordinary
circumstances ... which affect the security of the Russian Federation and
require immediate measures," the Kremlin said in a statement.
Putin has in the past threatened to freeze his country's compliance with the
treaty, accusing the United States and its NATO partners of undermining regional
stability with U.S. plans for a missile defence system in former Soviet bloc
countries in Eastern Europe.
The treaty, between Russian and NATO members, was signed in 1990 and amended in
1999 to reflect changes since the break-up of the Soviet Union, adding the
requirement that Moscow withdraw troops from the former Soviet republics of
Moldova and Georgia.
Russia has ratified the amended version, but the United States and other NATO
members have refused to do so until Russia completely withdraws.
NATO expressed regret on July 14th over Russia's decision. "The allies
consider this treaty to be an important cornerstone of Euro stability and they
would like to see it ratified as soon as possible," NATO spokesman James
Kremlin spokesman Dmitry Peskov said Russia could no longer tolerate a situation
where it was complying with the treaty, but its partners were not, and he
expressed hope that Russia's move would induce Western nations to commit to the
"Such a situation contradicts Russia's interests," Peskov told The
Associated Press. "Russia continues to expect that other nations that have
signed the CFE will fulfil their obligations."
The treaty is seen as a key element in maintaining stability in Europe. It
establishes limitations on countries' deployment of tanks, armoured combat
vehicles, artillery, attack helicopters and combat aircraft.
Withdrawal from the Conventional Forces in Europe Treaty would allow Moscow to
build up forces near its borders. However, Russian military analysts have said
the possibility of suspending participation in the treaty was a symbolic raising
of the ante in the missile shield showdown, more than a sign of impending
Pavel Felgenhauer, a Moscow-based defence analyst, said the moratorium probably
won't result in any major build-up of heavy weaponry in European Russia. Russia
has no actual interest in the highly costly build up of forces because it faces
no real military threat and has no plans to launch an attack of its own, he
said. But, he said, it could mean an end to onsite inspections and verifications
by NATO countries, which many European nations rely on to keep track of Russian
For the United States, the moratorium will mostly be a symbolic gesture, he
said, since the U.S. has an extensive intelligence network that keeps close
track of Russian forces. But it will still be seen as another unfriendly move in
Washington, Felgenhauer predicted.
"This will be a major irritant," he said. "It will seriously
spoil relations. The kind of soothing effect from the last summit with Putin and
(President) Bush will evaporate swiftly," he said referring to the summit
between the leaders earlier at the Bush family home in Kennebunkport, Maine.
Felgenhauer also said that there is no provision under the treaty for a
moratorium, suggesting Russia was acting illegally. "This is basically
non-compliance, and this is an illegal move," he said.
The new arms race
Vladimir Putin's Russia has just tested a weapon deadlier than anything
developed by the Soviet Union. A missile launched from a submarine in the White
Sea entered the stratosphere and returned precisely on target 3,800 miles away
in the Russian Far East - the other side of the world. Such tests are meant to
send messages. The target could just have easily been Tehran, Los Angeles or
London. It signalled that Russia means business. After a hiatus of two decades,
the arms race is back.
While Britain has been fixated with the Middle East and Iraq, it has paid
insufficient attention to the increasingly aggressive noises emanating from the
Kremlin. Mr Putin was never very enthusiastic about Russia becoming a part of
the West - but now, flush with gas and oil revenues, he has left its orbit
altogether. The Russian military is once again treating Nato as the glavny
protivnik, the primary enemy, and drawing up plans for a nuclear war. And
Putin's explicit aim is to challenge, and then counter, America's world
As recently as six years ago, such an ambition would have been laughable. Then,
Russia was an economic basket case which had been admitted into the G7 group of
industrialised nations only as an act of charity. The main security issue in
Russia was how to stop its nuclear fuel being sold for scrap to rogue states.
But, in those days, oil was US$17 a barrel. Now it is US$75 and rising. For a
country which pumps out more oil than any on earth, save for Saudi Arabia, the
consequences could scarcely have been more dramatic. Russia now has a huge
surplus, has banked £25 billion in a 'stabilisation fund' and has the
third-largest currency reserves in the world.
Rather than invest this bounty in Russia's crumbling infrastructure or its
imploding health service, Mr Putin has gone on an arms spending spree. In 2001,
the defence budget was 140 billion roubles; today it stands at 870 billion (£16.7
billion) - a six-fold increase, and the fastest in Russia's peacetime history.
(This of course remains only a small fraction of the US annual defence and
weaponry budget). Last year, he added six new intercontinental missiles to his
arsenal, 12 launch vehicles, 31 battle tanks and seven Mi-28N night attack
helicopters. And this is but a small taste of what is to come.
The missile tested takes off so fast that it is claimed that no missile defence
system could detect it in time. The new variant of the Topol-M missile will have
multiple warheads, which splinter so they cannot be shot out of the sky.
America's floundering missile defence system cannot hope to offer protection.
Washington struggles to keep up: two months ago, another interceptor missile
fired off Alaska fell into the Pacific having failed to recognise, far less hit,
its target. America seems to be losing the ballistic missile game.
Meanwhile, Mr Putin has learnt to use energy as a weapon. Russia is sitting on
the largest stretch of gas reserves in the world and Europe already depends on
Russia for a quarter of its gas. The Kremlin knows that energy security is
intimately intertwined with national security, and tested its strength the
winter before last when it temporarily suspended gas supply to Ukraine in an
argument about prices. Germany is expected to rely on Russia for 80 per cent of
its gas within a decade.
Precisely what Mr Putin intends to do with this muscle was made astonishingly
clear in February when he delivered a speech at the Munich security conference.
It was a 'J'accuse' to America, serving notice that Russia had moved from ally
to adversary. 'The United States has overstepped its borders in all spheres -
economic, political and humanitarian, and has imposed itself on other states,'
he declared. 'This is the world of one master, one sovereign.' And his objective
is to challenge such hegemony.
To Britain, all this sounds almost quaintly absurd. The recent debate about
renewing Trident reckoned without a nuclear confrontation with Russia. Yet this
is precisely what Mr Putin's troops are being trained to expect. The view in
London is fundamentally different from the view in Warsaw, which is watching the
Kremlin's assertiveness with alarm. In Moscow much of the Cold War mindset is
returning (minus the communist ideology) - whereby Nato is the enemy, and
perceived as a growing threat.
The irony, of course, is that by many of its own members, Nato is seen
increasingly as an anachronism. It played no role after the attacks of 11
September 2001 - other than a routine invocation of Article 5 - and its
peacekeeping efforts in Afghanistan have been a testimony only to the reluctance
of its members to share an even burden or agree a clear set of priorities. The
phrase 'coalition of the willing' became popular in Washington partly because
expectations of Nato solidarity are so low.
In this context of slow decline the admission of former Warsaw Pact countries
into the club is seen simply as an act of friendship. Yet within the paranoid
confines of the Kremlin such gestures are seen as new and sinister
manifestations of Western imperialism. When Mr Putin is called upon to explain
his extraordinary arms build-up, he points to the expansion of Nato.
The architect of the new Russian military is Sergei Ivanov, for six years
defence secretary, now promoted to Deputy Prime Minister and, as we have seen,
favourite to succeed Mr Putin next March. 'In the mid-1990s, we counted on the
fact that the collapse of the Soviet Union would lead to the end of the Cold War
- that Nato would not move to the east,' he said in a recent interview. 'But now
we see everyone deceived us.'
Washington now hopes to position missile defence interceptors in eastern Europe.
Congressional funding for the scheme is far from secure, and, seven years ago,
Mr Putin said quite explicitly he was happy for a shared anti-missile system to
proceed. Yet his response last month was incendiary. If the interceptors were
mobilised, the Russian President declared, 'then we disclaim responsibility for
our retaliatory steps, because it is not we who are the initiators of the new
arms race which is undoubtedly brewing in Europe'.
In the Kremlin's eyes, there already is an arms race - the only question is how
quickly it can respond. Inside Russia, there is regular talk of how its missiles
might penetrate any American defence. The military is already on Cold War alert.
Three months ago, for example, the Vladimir Missile Army held a five-day
exercise simulating full-on nuclear war with America. It practised moving its
Topol-M missile under camouflage, to fool Western satellites. The army commander
then gave details in an interview to the Krasnaya Zvezda newspaper - in full
knowledge that translated versions would instantly arrive on the desks of
Western intelligence agencies. It was the nearest thing to writing the CIA a
'from Russia with love' memo.
These are not the clandestine methods of the Cold War. All this missile testing,
ostentatious war-gaming and tub-thumping is clearly designed to draw attention
to Russia. It is consistent with a bid to lead a new power axis - perhaps based
upon the gas cartel which Russia is discussing with Iran, Qatar and Venezuela.
Mr Putin visited the Middle East soon after making his anti-American outburst as
if preparing the ground for a new coalition of aggrieved states hostile to
Whatever his intentions, it is now clear that democracy and liberalism have long
been dumped from Russia's priorities. Security, order and centralisation of
power are Putin's key objectives, and the oil revenues have brought wealth which
earlier attempts at economic diversification and general entry to Western free
markets did not. The old KGB ways are returning - a recent study of the 1,016
most senior officials showed a quarter were ex-KGB. Among Mr Putin's inner
circle, this figure rises to three quarters. These are Soviet-era men, with
Soviet-era approach to the toleration of dissent.
The murder of Alexander Litvinenko, the ex-Russian spy poisoned in London last
November, is just the most spectacular example of what goes on all the time in a
Russia where broadcasters are now controlled by the Kremlin or Mr Putin's
allies. A number of independent, critical journalist critics have been found
dead in suspicious circumstances. Mikhail Khodorkovsky, former head of Yukos
Oil, remains in jail after a show trial. The West protests strongly, but Mr
Putin makes it equally clear he could not care less. He has a legacy to think
Slowly, the West is beginning to realise what is happening. Angela Merkel, the
German Chancellor and current President of the European Union, has been
strikingly robust in criticising Mr Putin - a stance which won her many fans
among the new EU members. Yet Tony Blair was deeply reluctant to accept that
things were so bad. He invested much personal time with Mr Putin and visited
Moscow during the last presidential election to lend his support. Gordon Brown
is taking a much more distant approach, approving the Foreign Office's expulsion
of four Russian diplomats in July in retaliation for non-compliance with the
request for the extradition of a key suspect, Andrei Lugovoi, from Moscow in
connection with the Litvinenko affair. Moscow promptly expelled four British
diplomats from Russia, while pulling out of anti-terrorism cooperation with the
UK. Since it now reserves the right to kill people abroad in the interests of
the state, this is quite logical. The entire Russian dissident community in
London is being intimidated.
Then it came to light in mid-July that there had been in late June a likely
attempt to murder Boris Berezovaky, the tycoon who has fallen out badly with the
Putin Kremlin. Moscow's request for his extradition has been turned down too.
British-Russian diplomatic relations are chilly. Brown is not going to jump on a
plane to Moscow qua Blair.
Putin is aware that Russia could lose out heavily if relations with the UK are
left in the freezer. The City of London is becoming the world's financial centre
once again, the source of much of the world's FDI, both portfolio and direct.
Russia needs that FDI badly. The security thugs behind the latest moves are if
anything averse to foreigners coming to Russia, especially as investors. But
Putin knows their importance, having been in charge of the foreign investment
bureau of St Petersburg under Mayor Anatoly Sobchak in the 1990s, where he got
to know Silvio Berlusconi amongst others. He knows that Gordon Brown had his own
apprenticeship in government as a solid Chancellor of the Exchequer, responsible
in no small measure for the resurgence of London. A new rapprochement is
Yet for all this, Russia knows it can never again become a true superpower for
reasons that no ballistic missile will ever be able to reverse. Its rampant drug
abuse, alcoholism, rate of HIV infection and other problems add up to a
demographic picture worse than that of any non-African country. Russia's
population is expected to keep falling by 730,000 a year until at least 2015.
Its defence budget is less than 5 per cent of America's - for all the damage its
missiles would cause, it would end up second-best in any nuclear war. A country
dependent on oil money for a third of its budget is also hugely vulnerable to a
drop in oil price.
Yet it is precisely this fragility that makes Russia so dangerous at the moment.
It is North Korea's weakness that has led it to militarise so heavily, and
instruct its army to prepare for war with America. Mr Putin may be stepping
down, but he is clearly trying to set Russia on a clear, aggressively military
and nationalist trajectory. As Britain sets its defence policy in 2007, it must
ask what kind of Kremlin will emerge in ten years' time. And the trends are not
encouraging. The more desperate Russia becomes, the less predictable it will be.
The military is not waiting around. In January, Russia's military chiefs met to
discuss security and deliver keynote speeches. One after the other, they asked
for the governing military doctrine of their nation to be redrafted, explicitly
naming America and Nato as the primary enemy. In March, the Russian Security
Council duly announced that it no longer considered terrorism to be the greatest
threat, and instead unveiled a new strategy based upon 'geopolitical realities'
- namely that rival military alliances were becoming stronger, 'especially Nato'.
Six years ago, when George W. Bush first hosted Mr Putin at Ljubljana, the
capital of Slovenia, he famously claimed to have seen into his soul. At the time
he phrased it slightly differently to an adviser, unaware that his microphone
was still live and his remarks were being broadcast over the speaker system in
the next room. 'I've got him eating out of my hand,' the President whispered.
'You give these Russkies some cake and they'll give you their souls.'
How things have changed. In Mr Putin's trip to Maine, it was Mr Bush who was
doing the back-pedalling, agreeing to look again at the Pentagon's plans for the
missile interceptors in Poland. They joked, shared a speedboat, ate lobster and
played fetch with their dogs. But it is now time for realpolitik. The free
market has perished in Russia, and a petro-economy has taken its place. Russia
is no longer a junior partner for the West, but a growing adversary. Mr Putin
will smile - but rearm Russia as he smiles. And the new arms race continues
Russia and Armenia to build NPP
A Russian-Armenian group working on new nuclear power infrastructure for Armenia
recently met in Yerevan to discuss security guarantees for the country's
existing nuclear power station and cooperation in constructing new units,
Interfax News Agency reported.
The Armenian side elaborated on their plans to develop their energy grid, while
Russian representatives presented project details for a new nuclear power plant.
During an April visit to Yerevan, the head of Russia's Federal Atomic Energy
Agency, Sergey Kiriyenko, stated that Russia was ready to provide both technical
and financial assistance in constructing a new nuclear power station for
Armenia. According to Regnum, the new 1,000 MW (megawatt) station will cost US$
two billion to build. US$ 240 million will be needed to decommission Armenia's
aging Metsamor nuclear power plant, which is slated for closure by 2016. The
plant, built in 1975, was initially closed following the devastating 1988
earthquake. One of two units, with a 400 MW capacity, was reactivated in 1995.
Metsamor produces 40 per cent of Armenia's electricity.
Rosneft plan to trim debt
Rosneft, the largest oil company in Russia, plans to reduce its debt by 40 per
cent and expand refining capacity nine fold, the chief executive, Sergei
Bogdanchikov, said, the International Herald Tribune reported on 2nd July.
The state-run company will sell bonds to reduce bank loans and sell
"non-core" assets to trim US$10bn from its US$25bn in debt by 2010,
Bogdanchikov said at the annual meeting of shareholders in Moscow recently.
Rosneft may also build new refineries abroad to meet its refining capacity
target by 2015, he said.
"We don't need some of our assets, and we'll sell them," Bogdanchikov
said. The company will present a Eurobond issue to investors in the United
States and Europe in the near future and hope to complete the sale by the middle
of August, he said.
Rosneft became the top Russian producer and refiner of crude oil this year. It
has the biggest proven oil and natural gas condensate reserves among the world's
publicly traded oil companies, ahead of Exxon Mobil and BP.
Rosneft borrowed US$22bn to buy assets from the bankrupt Yukos at liquidation
auctions this year. Yukos was dismantled by Moscow after it claimed US$30bn in
Bogdanchikov said during an interview in May that Rosneft planned to sell as
much as US$5bn worth of bonds in the second half of the year and about US$4bn in
"non-core" assets bought in the Yukos auctions.
Refining capacity at Rosneft increased fourfold after it bought five Yukos
refineries. Rosneft will increase capacity to between 90 million and 95 million
tons a year by 2015, Bogdanchikov said. The company, which is based in Moscow,
refined about 11 million tons last year.
"We're considering the addition of new oil refining capacity in China and
other east Asian countries," Bogdanchikov said. "This will help fully
balance refining with production."
The company pumps more than 2 million barrels of crude oil a day, equal to about
100 million tons a year. Rosneft refined 13 per cent of its crude output last
year, compared with 44 per cent for Lukoil, also of Russia.
Lukoil profit slides 23%
Lukoil, the largest non-state oil producer in Russia, said that profit had
fallen 23 per cent in the first quarter as production costs and export taxes
rose and fuel prices declined, the International Herald Tribune reported.
Net income slid to US$1.3bn from US$1.69bn a year earlier, Moscow-based Lukoil
said in a statement. That was 5 per cent less than the US$1.37bn median estimate
by nine analysts in a survey.
Export taxes, transportation costs, operating expenses and falling oil prices
have eaten into Russian oil-company earnings and dragged down its stock markets.
Profit at Lukoil fell to a two and a half year low of US$1.04bn in the fourth
"These negative factors were partly offset by increased hydrocarbon
production," Lukoil said in separate statement. Revenue rose 4.7 per cent
to US$15.7bn from US$15bn a year earlier. Lukoil increased output of oil and
natural gas available for sale by 7.3 per cent from a year earlier.
Lukoil shares pared gains to 1,990.25 roubles, up 0.2 per cent, in Moscow, after
rising as much as 2.2 per cent earlier in the trading day. Operating expenses
advanced 56 per cent to US$1.44bn, as the cost of extracting resources rose.
Excise and export taxes climbed 22 per cent to US$3.27bn.
"My first impression is that these numbers are neutral, they are close to
consensus," said Igor Kurinny, an oil and gas analyst at ING Bank.
"Lukoil's ability to maintain strong operating cash flows in a weak macro
environment speaks well for its flexibility on costs and efficiencies,"
analysts at UBS said in a research note.
Lukoil plans to spend US$100bn by 2016 to almost double output and refining and
triple its market value to US$200bn. The company, 21 per cent owned by
Houston-based ConocoPhillips, is expanding in countries with lower tax rates
than Russia while state-run rival Rosneft focuses on lifting output at home.
The price of the Russian benchmark blend of crude, Urals, averaged about
US$54.57 a barrel, more than 6 per cent lower than the US$58.29 average in the
year-earlier period, Bloomberg data showed.
Lukoil said last year that it planned to spend US$27bn in the next decade to
increase overseas oil and gas output sevenfold and ensure growth of about 6.7
per cent a year through 2016. The company plans to sustain growth by expanding
Natural gas makes up almost 12 per cent of Lukoil's production from 11 per cent
last year. The government has pledged to raise gas prices for domestic industry
as exports, which are controlled by state-run Gazprom, by 2011.
Lukoil tripled investments in new international projects in Saudi Arabia, Egypt,
Columbia, Venezuela and Iran and is lobbying Iraq to recognise its claim on the
West Qurna field.
The Caspian region is key to Lukoil's plans to add reserves and increase
production. Lukoil expects to pump 50 million tons of oil equivalent in the
north Caspian as early as 2016, RIA Novosti reported, citing Alexander Semyanov,
the deputy director for geology at Lukoil.
LUKoil to take over jet filling stations in Europe
Russian oil major LUKoil will receive full control over the Jet filling stations
in Europe that it bought from ConocoPhillips on July 1st, Interfax News Agency
"We've paid for them in full and I'm hoping the rebranding will be over
with in 2008," Interfax quoted LUKoil President Vagit Alekperov as telling
a press conference. LUKoil bought 376 Jet filling stations from ConocoPhillips
in Europe, including 156 in Belgium, 49 in Finland, 44 in the Czech Republic, 30
in Hungary, 83 in Poland and 14 in Slovakia for more than US$400 million.
Gazprom has the cash to buy Kovykta
Russian gas giant Gazprom will acquire a controlling stake in Rusia Petroleum,
which holds the licence to develop the Kovykta field, without new borrowing,
Deputy Chairman of the Gazprom Management Committee, Financial and Economic
Department chief, Andrei Kruglov, said at a press briefing. He did not provide
information on the current balances in the company's bank accounts, New Europe
"How much money Gazprom has in its accounts at the moment is in no way
connected with our ability to acquire Rusia Petroleum, because this is not an
issue for today, and the deal should not be finalized today," he said. He
said that "according to the conditions of the agreement, we have a certain
amount of time - it should be structured and finalized over the year."
"For the moment we are planning our activity in such a way that cash within
the framework of the current borrowing program and cash that Gazprom generates
is sufficient to acquire these assets. This is also due to the fact that gas
prices are rising," Kruglov said. He said that in the third quarter, the
company's account would receive less money. "Nevertheless, at the end of
the third quarter we will take a look at how capable we are of carrying out this
deal independently. For the moment I see that Gazprom is capable of implementing
this deal," he said. TNK-BP recently agreed to sell a 62.9 per cent stake
in Rusia Petroleum to Gazprom. The deal is worth US$600-900 million and includes
a 50 per cent stake in East Siberian Gas Company, which is developing the
Irkutsk regional gas distribution network using Kovykta gas. Gazprom's updated
fiscal plan for this year increased planned borrowing from 90 billion roubles to
421.2 billion roubles. Kruglov said that at the end of the year the company's
debt is forecast at US$35-36 billion.
LUKoil to invest in refining to reach Euro-4 level
Russian oil major LUKoil is investing about US$ seven billion in oil refining to
change over to production of fuel to Euro-4 standards, Interfax News Agency
quoted company First Vice President, Vladimir Nekrasov, as saying at a
roundtable on oil refining and petrochemicals in the Federation Council on July
He said that this money would be used to complete the construction of a
catalytic cracking unit at the company's refinery in Nizhny Novgorod, and also
to build similar units at refineries in Perm and Volgograd. He also said that
LUKoil-Nizhegorodnefteorgsintez plans to change over to Euro-4 standards by
2010. Nekrasov also said that this year the company plans to complete the
construction of an isomeration unit at the Perm and Volgograd refineries, after
which all their products will reach Euro-3 standards. He said
LUKoil-Nizhegorodnefteorgsintez had already been producing Euro-3 standard
gasoline since last year and would start producing Euro-4 standard diesel within
three years. He said that Euro-3 standard fuel sells well on the domestic
market, and that LUKoil also supplies it to Kazakstan and the CIS. Nekrasov said
the company plans to increase utilization of associated gas to 95 per cent and
over from 92 per cent at the moment.
Rosneft receives YUKOS southern assets
Neft-Aktiv, an entity acting on behalf of Rosneft, has completed payments for
the YUKOS assets based in southern Russia, Nikolai Lashkevich, spokesman for the
receiver at YUKOS, said in a statement. "The buyer has remitted the full
payment of 4.9 billion roubles, and the transfer deed was signed on July
3rd," the statement said.
The YUKOS committee of creditors decided on May 16th, 2007, to allow Neft-Aktiv
to sign an agreement on the purchase of the assets included in Lot No. 9 because
it offered the second highest price at an auction. Having received a proposal to
purchase the property included in Lot Number Nine at a price offered by the
winner of the auction, Neft-Aktiv submitted an irrevocable offer to acquire
these assets to the YUKOS receiver on June 9th and received a positive answer on
June 13th, New Europe reported.
Russia eyes energy cooperation with Guatemala
Russia has been looking into the possibility of working on Guatemala's energy
and electricity market, Russian President, Vladimir Putin, said. "Yes, we
discussed the issue of energy cooperation with Guatemalan president (Oscar
Berger). I cannot say that our companies are well represented here
(Guatemala)," Putin said at a joint press conference with Berger.
"However, there is such an interest," Interfax News Agency quoted the
Russian president as saying.
The advantageous geographic location of Guatemala, the proximity of the US and
Mexican markets and large hydrocarbon reserves make Russian companies interested
in cooperation with this country, the president said. In particular,
"Russia's Unified Energy Systems is showing interest in developing electric
energy stations in Guatemala," Putin said, adding that Guatemalan companies
could in turn count on more exports of their traditional goods to Russia and CIS
Berger said that Russia and Guatemala agreed to establish a joint working group
to advance the agreements reached by the two presidents. The group could begin
work in the next few months.
Putin's visit to Guatemala is historic, Berger said. "Today is a particular
day in the history of our country. We are glad to receive one of the brightest
leaders in today's world - Vladimir Putin," Berger said.
FOOD & DRINK
Danone gets on board with Russian partner
A Danone vice president, Jaques Vincent, has been elected to the board of
Wimm-Bill-Dann, the biggest dairy company and juice maker in Russia, after the
French yogurt maker purchased more shares, the International Herald Tribune
Stockholders in the Russian company elected Vincent at their annual meeting,
Wimm-Bill-Dann, based in Moscow, said in a statement. Igor Kostikov, the former
chairman of the Russian Federal Securities Commission, also was elected.
Danone, the French bottler of Evian mineral water, raised its Wimm-Bill-Dann
stake to 13.7 per cent from 8.3 per cent in October as its own sales in the
country advanced. A "continued very strong performance in Russia"
drove European revenue growth in 2006, the company said in February.
"Danone has a certain stake, and if their representative carries his
responsibilities of a board member, it would be helpful," Wimm-Bill-Dann's
co-founder and chairman, David Yakobashvili, said by telephone. "Kostikov
was nominated by shareholders and will also participate in the board's strategy
and making sure we follow corporate governance rules."
Shares in the Russian company added US$1.75, or 2.4 per cent, to US$73.50 on the
Micex Stock Exchange in Moscow.
Stock in Danone rose 24 cents, or 0.4 per cent, to 58.75 Euro, or US$78.97, in
Putin signs ratified Russian-Korean accord on space techologies
Russian President, Vladimir Putin, has signed an instrument of ratification of
the Russian-South Korean intergovernmental agreement on the protection of
technologies in space exploration, the Kremlin press service said on June 28th,
cited by Interfax News Agency.
The Federal Law on the Ratification of the Agreement between the Governments of
the Russian Federation and the Republic of Korea on the Protection of
Technologies in Space Exploration and the related protocol of October 17th,
2006, was adopted by the State Duma on May 23rd and approved by the Federation
Council on June 6th.
Ashgabat, Moscow willing to enhance cooperation
Russian President, Vladimir Putin, congratulated his Turkmen counterpart,
Gurbanguly Berdimuhammedov, on the occasion of his 50th birthday on June 29, the
Kremlin's press service reported.
"During their conversation, both sides confirmed their willingness for
progressive development and the deepening of Russian-Turkmen cooperation at all
levels," the statement said. The Russian president also sent
Berdimuhammedov a telegram of congratulations. "The implementation of the
agreements reached during recent meetings in Moscow, Ashgabat and St Petersburg,
will help further step up cooperation between Russia and Turkmenistan and
strengthen our contacts within the Commonwealth of Independent States," the
Russian-Bavaria, business ties set to strengthen
Russian President, Vladimir Putin, has said he is convinced that relations
between Russia and Bavaria will develop more vigorously as the Russian economy
grows. Speaking to journalists after meeting with Bavarian Minister President,
Edmund Stoiber, Putin said they discussed "practically all issues related
to Russian-German relations and immediate ties with the Free State of
Bavaria." Russia and Bavaria have "a special relationship," he
said. "A large number of German investors are working in our country. Major
Bavarian firms are represented there. I hope it is a two-way street," the
president said. Russia has good relations with Germany as a whole, Putin said.
"This primarily stems from objective circumstances," Interfax News
Agency quoted him as saying. Most businesses in Bavaria are export-oriented,
which makes Bavaria one of the leading exporters in Germany and the world in
general, Putin said.