MOSCOW, March 1 (RIA Novosti) Russia lures China into military-political bloc/Russian economy dependent on oil - experts /Russian pipe producer rejects JV with India/Oil company forced to buy into bank run by Putin's friends/Outcome of Yukos auction predetermined
Russia lures China into military-political bloc
Russia, whose relations with the United States and NATO are deteriorating, has stepped up efforts to create its own center of power, primarily in Asia.
General Yury Baluyevsky, chief of the Russian General Staff, will go to Beijing March 3. A month later, Anatoly Serdyukov, the newly appointed Russian defense minister, will visit China, which is Russia's main military partner outside the Commonwealth of Independent States (CIS).
Baluyevsky and Serdyukov will mainly discuss the Peace Mission 2007 military exercise of the Armed Forces of the Shanghai Cooperation Organization (SCO), to be held in the Chelyabinsk Region (in the Urals) from July 18 to 25.
Russian President Vladimir Putin personally invited Chinese President Hu Jintao to the exercise during the Asian-Pacific Economic Cooperation (APEC) forum in Vietnam.
The Shanghai Cooperation Organization is a regional security and economic bloc that comprises Russia, China, Tajikistan, Uzbekistan, Kazakhstan and Kyrgyzstan, and has India as an observer member.
Some experts view the move as Moscow's long-standing desire to involve Beijing in a military union.
"That is quite probable, if we regard Balyuevsky's visit as intended to send the U.S. a signal and to taunt the overseas partner," said Vitaly Shlykov, a member of the Russian Council for Foreign and Defense Policy.
Russia also intended to combine the SCO exercise with the exercise planned by the Collective Security Treaty Organization (CSTO). In general, it has always wanted to involve China, which has a population of 1.5 billion, in the CSTO.
The Collective Security Treaty Organization is a regional post-Soviet security group in Central Asia incorporating Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan.
The SCO's defense arm was set up to combat terrorism, while the CSTO is an informal military union.
However, Beijing has refused the offer, saying that it is not ready for close military-technical cooperation with such geographically remote countries as Armenia and Belarus.
"China, which is a member of the SCO and is seeking to become [the regional] leader, may take steps towards Russia," said a source connected to the Russian Defense Ministry on condition of anonymity. "But the development of military-technical ties cannot be viewed as the establishment of a military-political union. China is acting cautiously, as usual."
Russian economy dependent on oil - experts
On Tuesday, the Chinese stock market fell by almost 9% and lost nearly $140 billion in capitalization, after the Dow Jones index plunged 416.22 points by the time the New York Stock Exchange closed the same day.
That is an all-time low since the September 11, 2001 terrorist attacks in New York and Washington.
Industrial world markets also came tumbling down, however, experts explained the oil-dependent Russian market's modest 2.5% plunge by the fact that it is not integrated into the global economy.
Experts said Russian market players should not panic because high oil prices and continued economic growth are keeping the country afloat.
"Ours will be a mostly oil-oriented market," said Mikhail Pak, an analyst with the Moscow-based investment group Capital.
Andrei Vernikov, an analyst with the Aton-Line brokerage, said the Chinese stock market's problems are not a threat to Russia, because that market is expected to start growing again after liquidity problems are resolved.
The U.S. stock market started growing at the Wednesday trading session, because the panic is over and because there is evidently no reason for a global market crash.
The latest limited crisis demonstrates that unlike China, Russia is not yet part of the global economy, and that the industrial world now relies heavily on the Chinese economy.
However, Russia, which is quite happy about its "independent" economic growth and continues to solve its domestic problems, depends on oil prices more than it does on global financial trends.
Russian pipe producer rejects JV with India
TMK, Russia's largest pipe producer, has called off talks with India's Welspun on a joint venture to produce large-diameter longitudinal single-joint welded pipes, and will set up production independently.
Its rivals said it will not be able to launch production by 2008, when demand for the pipes is expected to peak, due to the construction of the Nord Stream gas pipeline from Russia to Germany across the Baltic Sea and the East Siberia - Pacific oil pipeline.
The memorandum of intention signed by TMK and Welspun in September 2006 became a sensation in the Russian pipe industry.
The Russian company chose the cheapest and fastest mechanism to enter a new market. The Indian company was expected to pay for its 40% stake in the JV with a welding mill, to be assembled at TMK's Volzhsky pipe plant (production was to be launched in late 2007).
The project was estimated at $70-$100 million, or at least three times less expensive than the traditional scheme of ordering and assembling equipment, a source in TMK said.
For example, its direct rival, United Metallurgical Company, spent over $300 million to set up a large-diameter pipe production, and the steel giant Severstal $600 million.
However, it will take TMK at least two and a half years to launch the new production, its rivals said off the record. By that time, the largest oil and gas projects that need longitudinal pipes will already be finished.
Nord Stream will require 3.3 million metric tons of pipes, and the East Siberia - Pacific pipeline, 1.8 million. In monetary terms, that means $1.5 billion annually.
Yet the Pipe Industry Development Fund, a non-profit organization that encourages the sector's development, said that TMK's investment in the project would pay off.
Sooner or later, pipes will be needed to build a gas pipeline from Shtokman, a huge gas condensate field in the Barents Sea in the north, and for the Yamal gas pipeline, it said.
Oil company forced to buy into bank run by Putin's friends
The oil company Surgutneftegaz has become a new co-owner of the commercial bank Rossiya, which was and still is run by Putin associates. It is the third non-core acquisition by Surgut after buying stakes in television companies also co-owned by Rossiya.
The 305,000 preferred shares newly issued by Rossiya (ranked 45th among Russian banks in terms of assets, and 56th in terms of capital) will cost Surgut 1.1 billion rubles ($42.07 million).
The oil company has no interest in banking - Surgutneftegaz has long since sold its minority stake in Rosbank and is happy to control corporate Surgutneftegazbank.
"The move was strongly recommended to us," said one of the company's staff, without naming the source of the recommendations. "It is nothing but a civilized way of fleecing [Surgut], because the company has no other reason to buy into the bank, " said a source close to the Kremlin.
The only link connecting Rossiya with Surgut is television projects.
Together with the steel company Severstal, both are co-owners of two TV companies - Ren-TV and TRK Petersburg.
However, the investments by money-conscious Surgut into a non-core business raised eyebrows on the market.
In the fall of 2005, it purchased 35% of Ren-TV stock (the sum of the deal was not disclosed, with experts estimating it at $60-100 million).
It later acquired 20% of TRK Petersburg for 1.6 billion rubles ($61.19 million). Speaking on condition of anonymity, staff members conceded the deals were "forced."
The small St. Petersburg bank Rossiya gained its fame because many of its former managers and co-owners received top government jobs and posts in state-run companies after Vladimir Putin was elected president.
Among them are Minister of Education and Science Andrei Fursenko, Russian Railways (RZD) President Vladimir Yakunin, and some one-time Gazprom managers.
The bank's majority shareholder, Yury Kovalchuk, is considered to be Putin's friend since being his next-door neighbor in the summer house cooperative Ozero in the 1990s.
Investors are no longer surprised by Surgut's unusual deals, said Alfa-Bank analyst Dmitry Lukashov.
In any event, the bid for Rossiya's newly issued stock, although of fringe benefit, is good value for the money as far as being in good stead with bureaucrats is concerned, he said.
Outcome of Yukos auction predetermined
The auction of the assets of the beleaguered oil company Yukos will begin with a paradox.
The starting price of Yukos' stake in Rosneft, a dynamically developing state-owned oil major, is obviously undervalued. On the other hand, the stake in Gazprom Neft, another oil major, which is now trying to cope with a decline in output, is being offered without any significant discount.
Bids for 9.44% in Rosneft and promissory bills of Yuganskneftegaz, its production unit, will start flowing in this week.
The starting price of the lot to be sold March 23 has been set at 195.5 billion rubles ($7.5 billion). A 20% stake in Gazprom Neft is included in another lot.
A buyer of the Rosneft stake will be lucky. The price of its shares for the bankruptcy sale was set at around $7 per share, making it 182.34 billion rubles ($7 billion) for the stake.
That is 7.3% below the price investors paid during the company's initial public offering last summer, and 23% below its current market price.
The price of the other lot, 105.5 billion rubles ($4 billion), is closer to the market value. A 20% stake in Gazprom Neft costs 114.1 billion rubles (4.4 billion) on the RTS.
Why is there such injustice toward Rosneft? Apparently, it is all about potential buyers.
The frontrunner for the stake in Gazprom Neft is Gazprom, Russia's gas giant, which already owns 72.66% of the company.
Rosneft's subsidiary, Yuganskneftegaz, is the second-largest Yukos creditor after the government. It would be logical for a creditor to want to get as much money as he can, but not if Rosneft itself is going to bid in the auction.
The latest auctions of Russian oil assets showed that buyers are usually known beforehand. There is, unfortunately, no actual competition for an attractive asset that could push its price up at least to the market level.
In fact, the second lot is meant to disperse the feeling that the auction is a farce. It will have a market price, and creditors' interests will be complied with.
Rosneft will also have an opportunity to dab its long-time partner, which had tried to take it over in the past.
The starting price of $4 billion for 20% of Gazprom Neft is not a pleasant surprise for Gazprom, which allocated $3.75 billion in its budget for 2007 to buy out the stake in its subsidiary.
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