WHAT THE RUSSIAN PAPERS SAY

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MOSCOW, October 20 (RIA Novosti)

Vedomosti

INVESTMENT BANK LOOKING FOR SUCCESSOR TO PUTIN

Can rival factions in the Kremlin agree on a successor to President Vladimir Putin? This question worries the analysts of the Renaissance Capital investment bank. The best variant for investors would be a successor who would carry on with reforms. The worst possibility is that, in the absence of an heir, Putin will have to agree to a third term, the bankers say. But this would slow down the reforms anyway, because the officials will have time only for a struggle to keep their seats.

From the Kremlin's viewpoint, the primary task for the next president should be to assume power without disrupting political stability, Ronald Nash, chief strategist of Renaissance Capital, writes in his report on politics and the presidency made public this week. To attain this goal, the current administration should maintain control of the basic power structures in the next four years. This is why reforms will slow down irrespective of who becomes Russia's next president.

There are no political institutes independent of the Kremlin, Nash writes. So, the only threat to stability comes from an internal struggle in the presidential administration. The best variant for investors would be if power were taken over by a progressive official whose candidacy would suit two of the Kremlin's groups, security-related officials and reformists.

No matter who takes over, he will find it difficult to go beyond the boundaries of political limits, thus the difference between Renaissance's two variants is smaller than it seems, said Alexander Morozov, the head HSBC economist for Russia. He recalled that former prime minister Yevgeny Primakov failed to implement his ideas.

Rory MacFarquhar, an economist with Goldman and Sachs, said the outcome of the battle was predictable, "Liberal economists are close to Putin's mind and security-related officials to his heart. The heart will win."

However, he hopes the successor will see that Russia's security depends primarily on the health of business.

An official at the Russian Ministry of Economic Development and Trade calls on the investors to wait, "Stability has a price, which is a slow down of reforms."

Biznes

LUKOIL TAKES OFFENCE

LUKoil, Russia's oil major, has taken offence to the decision of Lithuanian authorities to conduct Mazeikiu Nafta sale talks only with TNK-BP. Russia has a very weighty argument - its oil pipeline. No one is going to demonstrably turn off the tap, of course. But Moscow may hint that the negotiators might have difficulties if the talks go wrong.

"Ill-considered" was the word used by Ivan Paleichik, chairman of LUKoil Baltia company, in describing the Lithuanian decision to negotiate the sale of the Mazeikiu with TNK-BP. Moscow, however, can get Lithuania to reconsider its decision: the oil Mazeikiu receives comes mainly through the Druzhba (Friendship) pipeline controlled by state-owned Transneft.

"If they deal only with one customer and not explain what is amiss with the others, it may look like a case of corruption," Paleichik said. He expressed the hope that all candidates would be allowed to get in on the act. Apart from TNK-BP and LUKoil, international oil trader Vitol SA, Kazakhstan's Kazmunaigaz and Polish PKN Orlen SA are showing an interest.

Officials in Vilnius, however, believe TNK-BP meets the requirements of the future owner best of all. This, for example, is the opinion of Prime Minister Algirdas Brazauskas.

Analysts think the factor that weighted in favor of TNK-BP was the fact that it has a majority foreign shareholder. This gives the company certain guarantees of independence from Russian authorities. On the other hand, Lithuania's perceptions of LUKoil are of a company overly loyal to the Kremlin.

Both Mazeikiu and TNK-BP are aware of the "pipeline argument." The Lithuanian holding's oil refinery has been brought to a near halt on several occasions because of failures in Russian oil supplies. TNK-BP had to say goodbye to a promising project of developing the Kovykta gas deposit in Eastern Siberia, because the state was unwilling to relinquish pipeline control. Gas was to have been shipped to Korea and China via a private pipeline. However, later it was announced it would be transported by Gazprom, which said Kovykta export deliveries were uneconomical.

Kommersant

VIETNAM TO BUY RUSSIAN WARSHIPS

Rosoboronexport is preparing to sell two Type 11661 Gepard (Cheetah) small escort ships to Vietnam and undertakes to build another two similar warships at a buyer's shipyard. This contract, due to be signed by late 2005, will cost an estimated $300 million, experts and industrialists say. Captain First Class Pham Ngoc Minh, chief of staff of the Vietnamese Navy, visited Kazan in early October. And it seems that the contract's main provisions were coordinated during his visit.

Konstantin Makiyenko, deputy director of the Center for Analysis of Strategies and Technologies, believes that the entire Gepard contract package will cost about $300 million. In addition to these escort ships, Vietnam will receive naval weapons, ship borne helicopters and accessories for assembling the two Gepards.

St. Petersburg's Severnaya Verf (Northern Shipyard) offered the export-oriented Type 20382 Tiger corvette to Vietnam. The more heavily armed Tiger is almost as large as the Gepard. Nonetheless, Vietnam chose the cheaper Gepard, while the Russian Navy had to spend $110 million on a Tiger-class corvette.

The Type 16661 Gepard-3, 9 small escort ship was developed in the early 1980s for ASW (Anti-Submarine Warfare) missions. She can also hit other ships and aerial targets. Each Gepard warship has two Uran-E cruise missile complexes with four launchers each, three Palma anti-aircraft missile/gun systems, one AK-176-M artillery system and one Kamov Ka-31 Helix helicopter.

The keel of a prototype Gepard was laid for the Soviet Navy in Zelenodolsk in 1988. However, they cut that hull apart in 1989 because of reduced military spending. In 1992, the Russian government ordered four simplified Type 11661 escort ships, hoping to export them. But there were no orders. The Russian Navy also criticized these small-tonnage and lightly armed warships.

Nezavisimaya Gazeta

STABILIZATION FUND: CHANGE FOR DOLLARS AND INVEST ABROAD - EXPERT

Alexander Nekipelov, Vice-President of the Russian Academy of Sciences, member of the Russian Government's Competition and Business Council.

The Stabilization Fund can never be spent in rubles because money does not work effectively in Russia. Or it does not work at all. We should convert the Stabilization Fund money into dollars, take them out of the country and put into foreign securities.

Norway's Petroleum Fund, which was created to save surplus oil wealth for future generations, invests its assets into stocks and bonds. Russian authorities exchange the Stabilization Fund, as well as gold and forex reserves, for low-profit and extremely liquid securities. In other words, the Stabilization Fund that mostly sterilizes excessive money supply, does not fulfil its direct functions.

Russia may face a number of problems, such as plunging oil prices, inadequate budgetary proceeds, subsiding economic growth and even a recession. In this case it would be very dangerous to invest considerable sums into the economy, as it would lead to runaway inflation.

The Stabilization Fund can also be used to import food or consumer goods. However, Russia's executive branch is unable to effectively organize such centralized imports because of inadequate control, all-out corruption and lack of transparency.

Non-use of Stabilization Fund money is fraught with serious losses. The Central Bank needs $50 billion in order to balance the forex market. Surplus reserves total about $100 billion, with lost annual profits being at least $3-5 billion. It would therefore be wrong to invest this money into low-yield assets.

It is better to repay external debts ahead of schedule than to hoard money. However, simple arithmetic shows that when debt-servicing payments is 6%, there is no sense being in a hurry, as if we can invest in good securities and receive 10% interest on our money.

Izvestia

MUST RUSSIA ABOLISH DEATH PENALTY?

Most Russians are against the abolition of the death penalty. But for the country putting an ultimate end to capital punishment is its international obligation. Should the state, which has but a moratorium on the death penalty, take the next step?

Dmitry Rogozin, co-chairman of Rodina faction in the State Duma, says, "The decision to abolish the death penalty was not kosher: no referendum was held and no resolution passed by parliament. The decision was taken single-handedly by then president, Boris Yeltsin, who sought Russian membership in the Council of Europe, the so-called club of civilized states.

"Actually the capital punishment issue does not concern democracy, but the fight against crime pursued by the administration whether ruthlessly or not at all. The death penalty is more humane than life imprisonment for the despicable creatures that deserve it.

"As regards to the Council of Europe, which is insisting on the abolition of capital punishment, we should just walk out. Russia does not need this organization, where it is a major contributor."

Mikhail Margelov, chairman of the Federation Council's committee on international affairs, says, "Russia joined the Council of Europe of its own free will by assuming a series of commitments, including the risky one of abolishing capital punishment. Formally, it is still not abolished. This may well develop into another offensive by European ill-wishers against Russia, not only in anti-Russian rhetoric, but also in specific moves, complicating business relations with an unfriendly expanded European Union and retarding the implementation of agreements reached at the last Russia-EU summit. What is more, this issue is certain to be used to subvert Russia's chairmanship of the Group of Eight.

"Abolition of the death penalty meets Russia's European choice, as repeatedly stressed by President Vladimir Putin. Incidentally, the choice called for considerable political will at the time."

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