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MOSCOW, June 7 (RIA Novosti)

Izvestia

Central Bank ready for extraordinary measures to curb inflation

First deputy chairman of the Central Bank of Russia Alexei Ulyukayev said Monday that the country's main bank was ready for extraordinary measures to curb price growth and keep inflation within the yearly target range of 10%, the Izvestia daily reported Tuesday. For this purpose, the Central Bank will let the ruble appreciate beyond the expected level, which will reduce the competitiveness of Russian producers.

Ulyukayev said the real effective ruble rate rose by 6.7% in the first four months of this year. Moreover, it will reach 7% in the first five months of 2005 and 10% by the end of the year. Initially, the Central Bank promised not to let the ruble appreciate by more than 8%.

It is quite possible to keep inflation within the projected parameters, i.e. within 10%, given that fruit and vegetable prices drop in summer, Ulyukayev said.

Yevgeny Gavrilenkov, chief economist of Troika Dialog brokerage, said officials constantly say that inflation rises due to uncontrolled growth of money supply. However, this is not the case. At the end of last year, inflation started to accelerate despite the fact that the growth of money supply slowed. Statistical figures show that inflation rises during the months when economic growth slows down. The sole way to fight inflation is to make economic growth accelerate, Gavrilenkov said.

Professor Yevgeny Yasin, head of the Higher School of Economics, also shares this opinion. He said inflation grew due to slower business activity in the country in general.

Specialists at the Moscow International Institute of Econometrics, Information Technology, Finance, and Law analyzed the seasonal price growth dynamics of 2000-2005. According to their research, summer deflation was observed only twice, in August 2001 and 2003. The experts concluded that the forecast for deflation in Russia at the end of summer 2005 is unfounded. Actual inflation will go far beyond the projected indices. Mikhail Delyagin, head of the Institute of Globalization Problems holds the same opinion. "By the end of the year, inflation will have definitely risen above 12% and, therefore, will be higher than last year," he said. For the five months of this year inflation totaled 7%.

Vremya Novostei

Japan to buy more Russian natural gas from Sakhalin II

Sakhalin Energy, the company that operates the Sakhalin II project providing natural gas to Asia, has almost completed the signing of all long-term, natural gas contracts, which include an increase in sales of liquefied natural gas to Japan, the Vremya Novostei daily said Tuesday.

Sakhalin Energy (SE) said Monday that a contract had been signed with Toho Gas to increase annual liquefied natural gas deliveries by 0.2 million metric tons over the course of the next 20 years. This is the third commercial success for SE in the last seven days, the company's commercial director Ate Visser said. Japan will receive 0.8 million metric tons more liquefied natural gas per year (over $3 billion).

SE signed even more lucrative contracts with Tokyo Gas (1.1 million metric tons of liquefied natural gas over 24 years), Tokyo Electric (1.5 million tons over 22 years), Kyushu Electric (0.5 million tons over 22 years), Baja Mexico (1.6 million tons over 20 years), and Kogas (1.5 million tons per year with a possible additional 0.5 million tons).

The Japanese buying frenzy is motivated by projected mid-term Asia-Pacific liquefied gas price hikes. Experts think that liquefied natural gas will cost 75% more on Asian markets in five years. These estimates hinge on greater U.S. and European gas demand. North American liquefied gas futures now cost 50% more than those in Asia. Wholesale Asian buyers spend $234 per metric ton of liquefied natural gas (minus delivery costs). The same amount costs $345 per ton in the United States. Analysts think that a ton of liquefied natural gas will cost $400-430 per ton by 2010.

The Sakhalin II project calls for developing the Piltun-Astokhsky and Lunsky deposits on the northeastern shelf of the island. The latter mostly contains gas, gas condensate, and oil. Both deposits together contain over one billion barrels (150 million tons) of oil and more than 500 billion cubic meters of natural gas.

Nezavisimaya Gazeta

Governors will not face mass dismissals until 2007

The Kremlin has chosen to maintain stability in Russia's provinces by retaining a majority of governors, although it has dismissed a few governors to warn the others, Yevgeny Minchenko, the Director of the International Institute of Political Analysis, wrote in the Nezavisimaya Gazeta daily on Tuesday.

The new method of appointing governors has been tested in 22 of the 89 Russian regions since it was adopted a few months ago. Eighteen governors have retained their positions, whereas four have been dismissed. In comparison, last year when governors were elected by direct vote, only 13 of the 21 governors who risked running for reelection remained in office.

Why are the governors enjoying the president's unprecedented trust? According to Minchenko, while pursuing potentially unpopular reforms, the Kremlin needs to have the regions run by people who can keep the situation under control and even make up for the central government's mistakes, which was the case when the benefits in kind were replaced by monetary compensations. Regional authorities will face even more complicated objectives and problems when the reform of local self-governing bodies is launched in 2006. Drafting a consolidated budget of a region where the number of municipal entities will increase 20-fold will be an extremely difficult task for an experienced bureaucrat and a nearly impossible task for a newcomer.

In addition, for the federal government it is senseless to quarrel with regional elites prior to the extremely important 2007-2008 electoral cycle (parliamentary and presidential elections), when a "successor" (to incumbent president Putin) will have to be chosen, Minchenko said.

Besides, the Kremlin is in desperate need of highly qualified personnel.

Regional leaders will encounter a turbulent period in the run-up to the elections of the State Duma, the lower house of parliament, when the Kremlin will have to dismiss a couple of unpopular governors to warn the others and win popular support.

Moscow will have be careful not to destabilize the situation in the constituent national republics, the expert said. The odious incumbent leaders in those republics will apparently resign on their own accord, "on the occasion of being appointed to a new job."

Kommersant

Chechnya will not receive economic sovereignty

Chechen president Alu Alkhanov said the work to draft a treaty on the delineation of powers between the Chechen Republic and the Russian federal government is almost over, the Kommersant daily reported Tuesday. During the two-year process of drafting the treaty with the Kremlin, Chechnya had to withdraw one of its main requirements - the sole right to its natural resources.

Chechnya started working on the treaty in 2003, right after the presidential election of Akhmad Kadyrov (killed on May 9 last year in Grozny as a result of a terrorist act). Chechen authorities made it clear from the beginning that they did not intend to claim any political freedoms. However, as compensation, they demanded as much economic sovereignty as possible, notably the right to control the republic's natural resources.

It seemed that there were no obstacles to implementing these plans. Visiting Grozny in 2003, Alexander Voloshin, who was at that time President Putin's chief of staff, said that although he was not a supporter of such treaties, "such a document must be signed with Chechnya, given its special status." The treaty was supposed to be signed in December 2003, but this was not accomplished due to "organizational" reasons and not disputes over content, head of the Chechen State Council Taus Dzhabrailov said later. The signing was delayed because Voloshin, who headed the commission, resigned, and President Kadyrov was killed in a terrorist act on May 9, 2004.

However, Dzhabrailov admitted yesterday that the Kremlin probably disagreed with some of the provisions of "the Kadyrov variant" of the treaty. He said, most likely, there will be no concession of the republic's right of ownership of forests and mineral resources in the treaty because this would be at odds with the new federal law, which, presupposes placing issues related to the use of mineral resources under the exclusive jurisdiction of the federal government.

Another part of the treaty that will not be implemented is placing servicemen deployed in Chechnya under the control of local authorities.

Vremya Novostei

Russia proposes that Ukraine pay for natural gas at European prices

Gazprom CEO Alexei Miller named a basic market price for natural gas of $160 per 1,000 cubic meters in talks with Naftogaz Ukrainy CEO Alexei Ivchenko in Moscow, the Vremya Novostei daily said Tuesday. In addition, Ukrainians were told they would have to pay for the 7.8 billion cu m of natural gas that "vanished" from underground storage facilities in Ukraine (a possible loss to Gazprom of $700-800 million on the European market).

A source familiar with the talks said it was also suggested Ivchenko officially recognize that the gas transportation consortium (Russia, Ukraine, and Germany) had no future and liquidate it. The guests from Kiev evidently had not expected the Gazprom leadership to adopt such a tough stance and did not bring up their favorite question about obtaining a "share" in RosUkrEnergo, a company that transports Turkmenian gas to Ukraine. Nor did they mention the prospect of direct gas purchase from Turkmenistan after 2007.

Representatives at the talks refused to comment on the reasons behind such a turn in relations with Naftogaz Ukrainy, the main transporter of Russian gas to Europe. On the one hand, the Gazprom leadership should have received the Kremlin's sanctions for such a move. On the other hand, Gazprom understood the strength of its negotiating position.

At present Kiev gets 23 billion cu m of gas at the price of $50 in the framework of the barter scheme as payment for transit. Gazprom's basic price for the CIS countries is $80, and a discount is granted for transit privileges.

The source said that such a high starting price was named to "bring the Ukrainian colleagues back to Earth" and to strictly fix gas relations between Russia and Ukraine as soon as possible. Before his Moscow visit, Ivchenko said he expected to buy gas in Turkmenistan without Gazprom's mediation, and he intended to come to terms with Miller about changing the earlier agreement on transportation of Turkmenian gas. Evidently these words did not go unnoticed in Moscow and Gazprom toughened its position.

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