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MOSCOW, October 07 (RIA Novosti)

Moskovskie Novosti

EU SHOULD SEPARATE ENERGY INTERESTS FROM POLITICAL DISPUTES WITH RUSSIA

Cooperation with the European Union will become a real engine for Russia's progress if its energy sector is supplied with a solid political superstructure, believes Fyodor Lukyanov, editor-in-chief of the Russia In Global Politics magazine.

Even if it does not yet embrace "European values," but at least reliable mechanisms of coordinating common goals and interests in different spheres are in place, it will be good, he says. Yet if relations are based on the nothing-but-the-business principle, the appearance of new irritants will be just a matter of time.

Proving his case, the political expert points out that Europe has failed to achieve the ambitious goals it set in 2000: to turn the EU into the world's most dynamically developing community. Political unity has never been farther a field. The general international situation is deteriorating: instability is aggravating, and above all in the regions that are important energy suppliers. In these circumstances, Russia's role is increasing regardless of whether it develops in line with the European model or not.

The intensity and depth of links between Russia and the EU have grown compared to a couple of years ago, to say nothing of the early 1990s, Mr. Lukyanov says.

Besides, the notion of European values, that EU representatives used to see as an essential condition for contacts with Moscow, has gradually faded into the background. The attempts to Europeanize Russia have been abandoned. In fact, the Kremlin has got what it wanted: the Russian "sovereign democracy" has been left in peace, as nothing can be changed anyway.

This logical outcome is that now the fundamental issue of Russia-EU relations has become the North European gas pipeline. But in autumn 2000, when the plan to increase Russian energy supplies to Europe was announced, the EU was not ready to separate its energy interests from political and ideological disputes with Russia. Now the situation has drastically changed, the expert concludes.

Vedomosti

ALROSA, DE BEERS TO PROSPECT FOR DIAMONDS IN KARELIA

The world's largest diamond companies, namely, ALROSA of Russia and South Africa's De Beers, have agreed to jointly prospect for diamonds in Karelia, north-western Russia) next year. Both companies also want to bid at the December 2005 auction for the sale of prospecting licenses at three north-western diamond claims (total area, 3,098 square kilometers).

Russian prospectors have failed to locate diamonds in Karelia since the early 1980s. But the regional Natural Resources Ministry estimates the value of local deposits at between $650 million and $1 billion.

"The initial price of prospecting licenses has not yet been fixed," local officials say. North-western diamond claims are located five kilometers from the Russian-Finnish border. Several companies, including the Rio Tinto British-Australian diamond-producing giant, have already found 30 kimberlite tubes on Finnish territory, a Rio Tinto spokesperson noted.

Rio Tinto has no intention of competing against De Beers and ALROSA at the forthcoming auctions. But the corporate spokesperson advises both partners to be patient because it may take up to ten years to launch diamond production. And total investment may exceed $500 million.

Experts are sure that ALROSA and De Beers will profit from this agreement. EU anti-trust agencies demand that De Beers must sell less diamonds and expand diamond production. De Beers would find it easier to reach into Central Africa together with ALROSA at a time when Central African authorities dislike this diamond monopolist. And De Beers may also decide to share its technologies with the Russian company.

"Congolese prospecting operations may become yet another joint project," a source close to ALROSA added.

De Beers supplies 60% of the world's uncut diamonds. ALROSA, the world's second largest diamond producer, accounts for another 25%. ALROSA has exported 50% of its diamonds through De Beers for the last 50 years.

Biznes

GAZPROM TO INSTALL RUSSIAN EQUIPMENT

Russia's gas monopoly Gazprom plans to cut back on foreign equipment purchases in the next three years and buy Russian equipment instead.

In fact, Gazprom has been importing less equipment for the last few years. Foreign equipment totaled 14.2% of 2002 equipment purchases, making up just 3.5% last year. Gazprom gets another 7% from post-Soviet republics, Ukraine, for the most part.

"Gazprom's plans to acquire Russian equipment for energy security reasons would expand the domestic market a great deal," Oleg Papkov, head of the company's Division of Industrial Products Marketing, said. However, it is impossible to estimate additional market volumes.

Gazprom's official web site lists Russian equivalents of imported equipment that the company wants to acquire. Unfortunately, Russian companies cannot completely meet Gazprom's demand today.

This strategic project would cost Russian enterprises dearly. Moreover, Gazprom may fail to reimburse them because they must first produce experimental batches at their own expense and wait for the results of a general tender. The successful enterprise would mass-produce equipment on Gazprom's orders and recoup its expenses.

Felix Lobashevsky, co-chairman of the Union of Oil and Gas Equipment Producers, estimates that Gazprom subsidiaries now purchase 50% of such equipment today. Western companies are entitled to another 15%, namely, sophisticated projects with high added value. And Russian enterprises implement cheap contracts, or 35%. Quite possibly, this trend is going to change.

Vremya Novostei

FINLAND SEEKS CLOSER TIES WITH RUSSIA

Abandoning plans for investments in Russia would place Finland's economy at a serious risk, believe drafters of the country's trade and economic strategy.

Esko Aho, the SITRA Fund president and former Finnish Prime Minister, said: "Russia today is becoming our biggest trade partner. Three years ago that would have seemed a utopia." A year earlier Russia was third on Finland's list of principal trading partners. Finland itself was among the top ten Russian partners, and now plans to move up into the first five.

According to the fund statistics, there are about 800 Finnish companies working in Russia. In Finland, 2,500 firms are partly owned or managed by Russians. The main lines of cooperation Finland seeks to develop are telecommunications and high technologies, as well as timber industry and cargo transportation.

Additionally, Helsinki wants to play a bigger role in the European Union as the leading expert on Russia, and in order to achieve this, Finns are prepared to devote more attention to their neighbor, starting at school level. Traditionally there have been strong ties between the two countries, and less than a century ago Finland was part of the Russian Empire.

The total accumulated Finnish investments at the beginning of 2005 were over $1 billion, with $596 million in direct investments. In 2004, Finland invested $302 million in the Russian economy, or 0.75% of all foreign investments in Russia that year, including $120 million in direct investments.

Russian companies are also showing interest in the Finnish market. In April 2005, LUKoil invested 120 million euros when it bought one of Finland's largest oil products retail chains, Teboil and Suomen Petroli.

The import-export structure, however, is not favorable for Russia at present, with oil and gas making up two-thirds of its exports, and one-third of imports consisting of mobile phones.

Kommersant

RUSSIAN STOCK MARKET INDICES COLLAPSE UNDER POWER PRESSURE

Nearly 10% of the Russian share market has fallen following six months' continuous growth, and analysts believe that it has entered the "recession phase." The leading indices dropped 5-6% yesterday, which is the greatest decline since December 2004. The drop in the past two days shows a record low since 1997 in absolute terms. The corrections were caused by the news of a decline in oil prices and the awkward actions of the security-related agencies.

The previous big drop on Russia's stock market occurred after tax claims were made against Vympelkom. This time there were a number of causes behind the decline: the drop in oil prices, a new round in the Yukos case, and contradictory statements made by Russian officials and the heads of the security-related agencies.

"It all started with oil, of course, following the publication of reasonable figures on U.S. reserves. Then searches began," said Alexei Dolgikh, a sales manager with the Troika Dialog brokerage. "Next, it was rumored that Conoco was near purchasing the required block of shares in LUKoil."

An important impetus for dumping shares was provided by the searches conducted by the General Prosecutor's Office in a number of banks and the subsequent statements that a new investigation of Yukos was underway.

Economic Development and Trade Minister German Gref added to confusion when he expressed dissatisfaction with the price Gazprom paid to purchase Sibneft. "Following Gref's statement, Gazprom's American depositary receipts (ADRs) in London went down 8% and in the U.S. the drop was 11%," said Andrei Rozhkov, an analyst with the Kapital investment group.

It is not clear who initiated the decline in the market. In the past few days, Russian market operators have been increasingly speculating for a fall, and yesterday Western investors followed suit. There has been a sharp increase in the trading volume, exceeding $90 million in the classical market section of the Russian Trading System (RTS). The volume of trading in ADRs went up as well, to over $600 million in London yesterday, while the average is $180-200 million.

Considering the recent increase in the investments in Russian securities made by foreigners, their exodus is the worst thing that could happen to the market.

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