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What the Russian papers say


MOSCOW, October 2 (RIA Novosti) Austria gives Gazprom access to its market / Belarusian president threatens to break relations with Russia / Alcoa eyes Far East hydropower / Kremlin calls on business to be socially responsible / Russian-Georgian showdown unavoidable

(RIA Novosti does not accept responsibility for the articles in the press)

Nezavisimaya Gazeta

Austria gives Gazprom access to its market

The Austrian government has granted Gazprom privileges allowing the Russian energy giant's subsidiaries GWH and Centrex Europe Energy & Gas AG to sell natural gas directly to the Austrian market. Analysts say Vienna's unexpected loyalty to Gazprom is primarily related to energy security.
As in many other European countries, Gazprom is marketing its products in Austria through national traders, who take maximum advantage from the resale of Russian gas to end customers.
"Europe has always depended on Russian gas, so it comes as no surprise that Europeans are concerning themselves in advance with long-term contracts," Alexander Razuvayev, a chief analyst at the Megatrustoil financial corporation, told the paper. "At the moment Gazprom's gas production levels are almost stationary, and the company may encounter certain problems in the mid-term. Even though shareholders said at a meeting that the company may increase annual gas supplies to Russia and Europe to 600 billion cubic meters, I am not sure that Gazprom systems will withstand such overloads on a regular basis."
Analyst Natalia Yanakayeva from the Centerinvest brokerage echoes her colleague's views: "The EU is forced to let Gazprom in to ensure stable gas supplies," she said. "This has now become a necessity, since, in addition to Europe, China and the United States have also become dependent on Russian gas."
Yanakayeva said other European countries will soon invite Gazprom to their markets, in particular Great Britain, France and Italy: "Today, Europe deems it most important to secure Gazprom gas supplies, since it is highly likely that in a few years the company's gas production will stagnate."


Belarusian president threatens to break relations with Russia

Belarusian President Alexander Lukashenko has warned he may instigate a split in relations with Russia if its energy giant Gazprom raises the natural gas price for his country. Sources in the Russian government said the president was reacting to the failure of the latest round of gas talks.
Commenting on Gazprom's proposals to increase natural gas prices in 2007 to $200 per 1,000 cubic meters, Lukashenko said: "Such an increase in gas prices unambiguously spells a split in all respects - and certainly in economic terms."
A Russian minister said Lukashenko's statements followed the failure of negotiations between Belarusian Prime Minister Sergei Sidorsky, his Russian counterpart Mikhail Fradkov and Gazprom CEO Alexei Miller.
Sidorsky suggested propping up gas prices at the current level of $46.68 in exchange for joint control of oil and gas transporter Beltransgaz.
The deputy chairman of Gazprom's management committee, Alexander Ryazanov, said: "Establishing Gazprom's joint venture with Beltransgaz to control trunk pipelines and gas export prices for Belarus are separate issues." However, Belarus may pay with a stake in Beltransgaz, he said.
The parties have already hired Holland's ABN Amro to conduct an independent assessment of Beltransgaz. A source close to Gazprom said the company could be valued at $1-1.5 billion. The price will be higher than for Ukraine ($130-140), because Ukraine buys Central Asian gas, the source said.
According to IMF estimates, if gas prices rise to $200 in 2007, Belarus's GDP will fall by 0.7%, while inflation and the budget deficit will grow.
Alexander Chubrik from the Minsk Institute for Privatization and Management believes an increase to $200 is unrealistic.
The price is set "according to the maximum price that can be included in the Belarusian budget, which is about $97," Belarusian political scientist Sergei Kozlovsky said.
Previously, Russia used to grant privileged loans to Belarus to help it pay for its gas, and then agreed to restructure them, the Russian minister said. He added that no loan has been negotiated yet, but such an issue could be readdressed.


Alcoa eyes Far East hydropower

American Alcoa, which is set to build a primary aluminum plant in the Far East, said it is prepared to buy electricity from the Zeya-Bureya scheme at $15-18 per MW/hour. This, however, is a low price, and there are four other bidders for Far East hydropower. One of the world's largest producers will, therefore, have to either review the quotation or look for other sites.
A delegation from Alco Inc., led by Jon Rateau, vice president for business development, ended its visit to the Amur Region Friday. The Americans came to look into the possibility of purchasing power from the Zeya-Bureya hydroelectric scheme.
Alcoa's aluminum plant, which will have an annual capacity of 320,000 tons, will need 4 billion kW/hours per year, on average. Power requirements may double, however, because the company wants to increase its potential capacity to 600,000 tons of primary aluminum a year. Alcoa vice president for energy, Marc Pereira, said the company is considering a purchasing price of $15-18 per MW/hour.
The Americans are likely to face two problems, however. The first is that the Nizhnebureiskaya and Nizhnezeiskaya HPPs can supply only 3 to 3.5 billion kW/hour, which is not enough for Alcoa. To make up for the shortfall, the metal maker will have to buy electricity from the Yuzhno-Yakut hydroelectric scheme, which is still only in the planning stage. Its capacity will be about 8,000 MW, but to obtain additional power resources will not be simple.
Five companies are already eyeing Far East power - Alcoa, SUAL, Hydro Aluminium, Rusal and Japan's Mitsui. There will not be enough energy to go around, so local sources say potential bidders will be invited to tender. The winner will be the highest bidder. "Already we have several proposals from potential customers, and we will choose the one with the optimal price," said Yevgeny Druzyaka, a spokesman for GidroOGK (Federal Hydro-Generating Company).
One of the aluminum companies told the paper that GidroOGK wants $30 per MW/hour as a minimum. Alcoa will, therefore, either have to raise its bid price, or else look for another region in which to build its plant.


Kremlin calls on business to be socially responsible

Big business has been called upon to be socially responsible and ensure the prosperity of the entire region. Russian President Vladimir Putin said at the Kuban 2006 International Economic Forum that businessmen should more actively invest in the North Caucasus and South Russia.
Experts say it is an offer that can't be refused, and that the political aspect of the desire to make the North Caucasus a prosperous region is much bigger than the economic aspect.
"Business will most probably invest in the North Caucasus economy, but will consider the investment a kind of a tax that should simplify the solution of business problems," said Olga Belenkaya, an analyst with the Finam brokerage. "But more money will be invested if business also sees the government's readiness to invest."
Vadim Zuyev, an analyst with the Russian Financial Traditions brokerage, said high security risks would hinder economic development in the Southern Federal District. "Investors should know that spending on security will not be commensurate with revenues for some time," he said.
Zuyev said there was good cause to invest in the North Caucasus and South Russia. "Dagestan has mineral resources and access to the Caspian Sea, Chechnya has substantial oil reserves that have not yet been prospected," he said.
Alexei Makarkin, chief analyst with the Center for Political Technologies, said the Kremlin considered investment in the North Caucasus as a social responsibility for businesses.
"To protect the money from being embezzled, the government will encourage investment under the guarantee of a particular official appointed by the federal center," Makarkin said.
Financial injections are needed to kill two birds with one stone: to root out separatist sentiment and to stimulate the economy. "People turn to radicalism when they are dissatisfied with their situation," he said. "But the separatist tendency will wither if many new jobs are created and living standards improve in the region."


Russian-Georgian showdown unavoidable

What should the Kremlin do about the challenge thrown down by Georgian President Mikheil Saakashvili? There is bound to be a showdown, which means Russia should abandon sentiment and use the harshest means available, provided they are appropriate, just as Defense Minister Sergei Ivanov said last week.
The Georgian budget lost $80 million after Russia banned the import of Georgian wines and mineral water in March 2006, and the fuel and energy sector is another vulnerable spot.
Georgia depends almost entirely on Russian gas; it annually imports 1.8 billion cubic meters. The current price is $110 per 1,000 square meters, and if Moscow decides to raise the price or stop deliveries, Georgia will have to move quickly to find alternative providers. (Russian energy giant Gazprom intends to raise the prices of gas exported to the Commonwealth of Independent States to global ones.) Georgia produces enough electricity only in spring, where there is enough water in the mountain rivers.
But Georgian immigrants working in Russia represent the main lever of Russian influence. According to the Russian Migration Service, more than 320,000 Georgians came to Russia last year, and only 1% of them did so legally. The money that Georgians who live and work in Russia send to their families and relatives amounts to 20% of Georgian GDP.
"A potential deterioration of Russian-Georgian relations will be a heavy blow to the Georgian economy," said Konstantin Kosachev, chairman of the international affairs committee of the lower house of Russia's parliament. "I hope this will not happen, that the people of Georgia will make their government see reason and stop it from acting rashly."

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