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MOSCOW, April 4 (RIA Novosti) Ukraine on the brink of breakup - expert/ Russian oil companies unperturbed by political crisis in Ukraine/ U.S. Congress warns Russia against membership in "gas OPEC"/ Russian automotive giant refuses PricewaterhouseCoopers services/ Russian generation assets become less attractive for foreigners

Gazeta

Ukraine on the brink of breakup - expert

Watching the new political crisis in Ukraine unravel, Russian politicians and political experts are reminded of October 1993 and the Russia's use of force to dissolve the Supreme Council. Some experts believe that the neighboring country is on the brink of splitting up.
Alexander Dugin, leader of the International Eurasian Movement, "Civil war is underway in Ukraine, and it may lead to its splitting into at least two states. A compromise between Prime Minister Viktor Yanukovych and President Viktor Yushchenko (and, consequently, between the East and West of the country) is exhausted. It is not certain whether eastern Ukraine will be ours, although, of course, it is more oriented towards Russia. Unfortunately, in recent years we have missed many changes in Ukraine and in other post-Soviet countries too."
Sergei Karaganov, chairman of the presidium of the Council for Foreign and Security Policy, "This was so predictable. This crisis has deep roots that have their origin in the heart of Ukraine's political system. Moreover, this crisis will be repeated over and over. The reason is that the Orange Revolution, on the one hand, brought about legitimate results (both political and moral), but on the other, it created a political system that was always susceptible to such crises. Any politician working in such a system will inevitably be pushed towards a crisis. I hope that Ukrainians, given their national character, will not end up shooting at each other, although we, their neighbors, did shoot in 1993."
Valery Fyodorov, CEO of the VTsIOM pollster, "The deepening in the crisis could have been foreseen. As for the outlook, the next parliamentary election, if it does take place, will not significantly change the balance of power. If there are any further changes, they will probably be toward further polarization of political power. However, the internal balance in each of the conflicting camps could alter. Viktor Yushchenko's bloc could finally cede its position in the Orange camp, while Yanukovych's position may weaken slightly among the white-and-blue, because being the prime minister, he had to make several unpopular decisions over the past year."

Vremya Novostei

Russian oil companies unperturbed by political crisis in Ukraine

The political crisis that has erupted in Ukraine is not frightening Russian oil companies, but is encouraging them to strengthen their foothold in the Ukrainian market.
German Khan, executive director of Russian-British oil venture TNK-BP, announced April 3 his company's intention to invest some $400 million in a production and sales network in Ukraine in 2007-2011. LUKoil also spoke about the promising and attractive Ukrainian oil market.
Russian oil companies control two-thirds of the Ukrainian petrochemical market and account for about 90% of oil imported into Ukraine. Four of the six Ukrainian oil refineries belong to Russian companies. LUKoil owns a refinery in Odessa, TNK-BP in Lisichansk, Tatneft in Kremenchug, and Alliance Group in Kherson. Their spokesmen said yesterday that they were prepared to continue working in Ukraine.
Russians have learned the knack of working under any Ukrainian government. In April 2005, the cabinet of Yulia Tymoshenko, concerned about growing gasoline prices, attempted to control the wholesale and retail petrochemicals sector by fixing prices 10%-15% below the market.
The leaders of Russian companies TNK-BP and LUKoil, the largest suppliers of oil and petrochemicals to Ukraine, had to promise to keep gasoline prices stable. Tymoshenko's team considered this a victory, but the Russian oil companies promptly closed their plants for modernization and stopped supplying oil and petrochemicals to Ukraine.
Less than a month later, President Viktor Yushchenko publicly criticized his cabinet and assured the oil companies that Ukraine "will use only market tools."
Everyone currently views the Ukrainian oil market optimistically.
Konstantin Batunin, an analyst with Alfa Bank, said: "The gasoline policy of Tymoshenko showed that the export gas pipeline makes the two countries mutually dependent on the gas market, but Ukraine is fully dependent on Russia for oil deliveries. No matter how the current conflict in Ukraine ends and who comes to power as a result, they will still have to buy Russian oil."

Kommersant, Gazeta

U.S. Congress warns Russia against membership in "gas OPEC"

The annual Gas Exporting Countries Forum in Doha, Qatar, on April 9 could seriously damage Russian-U.S. relations. The U.S. House of Representatives asked State Secretary Condoleezza Rice to inform the Russian government that Congress views its involvement in a gas analog of OPEC as unfriendly towards the United States and the future cartel itself as a global organization for extortion and racketeering.
Experts say that no important documents will be signed at the Doha meeting. But its participants are not hiding their plans to discuss the possibility of a gas OPEC. There is already a list of countries willing to consider membership in the cartel. Apart from Iran and Russia, it includes Algeria, Venezuela, Qatar, Trinidad and Tobago, Nigeria, Oman, the UAE, Brunei, Malaysia and Indonesia.
Congresswoman Ileana Ros-Lehtinen proposed taking tough measures to stop gas exporting countries uniting. A way to influence Russia could be Washington's refusal to support Moscow's program to enter the global market of nuclear technology, she said.
In order to solve the problem of diversifying energy sources and ending Europe's dependence on gas supplies from Russia and its CIS allies, Ros-Lehtinen proposed paying greater attention and providing support to plans by some Central Asian states to build new gas pipelines and infrastructure (the letter mentions Turkmenistan and the pipeline across the Caspian Sea).
Kommersant's source in the U.S. authorities yesterday confirmed that the State Department was worried about the possible emergence of a gas OPEC, despite doubts that it might happen in the near future.
Even Russian experts say that this is not possible. "The gas cartel will not be able to exist in the form of OPEC," said Maxim Shein, head of analysis with Broker Credit Service. "Although oil and gas are both hydrocarbons, both businesses are different."
Valery Nesterov of the Troika Dialog brokerage said that a global gas market had to emerge for the cartel to be setup. This, however, is unlikely until the share of liquefied gas and spot transactions has increased.

Vedomosti

Russian automotive giant refuses PricewaterhouseCoopers services

Global auditing giant PricewaterhouseCoopers, one of the Big Four auditors (including Ernst & Young, Deloitte Touche Tohmatsu and KPMG), which has been operating on the Russian market since 1989, recently lost a courtroom battle against the Federal Tax Service that accused it of negligence.
On Tuesday, the board of Russian automotive giant AvtoVAZ advised the annual shareholders' meeting to appoint auditing company Ernst & Young for the 2007 fiscal year instead of PricewaterhouseCoopers.
AvtoVAZ preferred Ernst & Young to Deloitte Touche Tohmatsu, one of the largest professional services firms in the world.
A spokesman for AvtoVAZ declined to comment on the company's decision to stop cooperating with PricewaterhouseCoopers. A source close to AvtoVAZ said the decision was not influenced by the latest courtroom battles.
He said AvtoVAZ had assessed the reputation of potential auditors, and PricewaterhouseCoopers was not up to the mark.
But it would be incorrect to say this was the main reason, he told the paper.
Other PricewaterhouseCoopers clients remained calm, stressing auditing firms are chosen by tender and are appointed by annual shareholders' meetings.
"We have no intention of rushing to hire another auditor company," said Sergei Grigoryev, vice president of pipeline monopoly Transneft.
A spokesman for engineering giant United Heavy Machinery said the company does not plan to refuse PricewaterhouseCoopers services, and the auditor for 2008 would be appointed at a tender.
Vladimir Skvortsov, general director of Alpha Insurance, said corporate shareholders have not yet appointed an auditor for the 2007 fiscal year.
"We would have to look for another auditor, if PricewaterhouseCoopers loses its license," Skvortsov told the paper.
A Big Four official said the state is unlikely to revoke PricewaterhouseCoopers license, but wants to damage the reputation of the former auditor of embattled oil giant YUKOS before the West.
He said clients can force any major auditing firm to leave the market, as was the case with Arthur Andersen and Enron.
"This is YUKOS, and not PricewaterhouseCoopers, case; but our clients will not follow suit because business tycoons already understand the rules of the game," Agvan Mikaelyan, deputy general director of the Finekspertiza auditing and consulting group, told the paper.

Gazeta.ru

Russian generation assets become less attractive for foreigners

Many European companies have shown an interest in Russia's power generation, but most of them have not gone beyond statements. Foreign investors may be scared away by the sharp increase in prices for generation companies.
Following rival Endesa, Spanish Iberdrola expressed an interest in Russia's power generation market. Iberdrola is Spain's second largest energy company after Endesa and is the leading company in Catalonia. Last year it survived a takeover attempt from Gas Natural. However, Iberdrola is not alien to the consolidation processes that have swept the European generation sector: recently it acquired Britain's Scottish Power for 11.6 billion pounds.
Endesa's CEO Rafael Miranda discussed the privatization of Russian generation assets with Anatoly Chubais, CEO of RAO UES, Russia's electricity monopoly, last September. Other European companies, such as Germany's E.ON and Britain's International Power, have also been noticed eyeing Russian assets. Still many foreign companies have not gone beyond statements of interest. Only Finland's Fortum has really made a move on the Russian generation sector, becoming the largest minority shareholder in the Northwest territorial generating company TGK 1, but so far it has failed to get a controlling stake in the company.
Market players believe that foreigners as majority investors could be useful, because Europeans have extensive experience of competing in this sector. Yet many experts say that Russia cannot hope for a boom among foreign investors. The main competitive advantage of Russian assets - their cheapness - is becoming a thing of the past.
"Foreigners are unlikely to rush to invest in the Russian generation sector, because the prices keep increasing every day," said Alexander Kornilov, expert with Alfa Bank. "The price of 1 KW during the initial public offering of wholesale generating company OGK 5 last November was $320, but the price of OGK 3, which floated in March, was $600 per 1 KW."
Stanislav Kleshchev of VTB 24 said that it was better for Europeans willing to expand their presence on the Russian market to invest in smaller assets, such as TGK 5, TGK 6 and OGK 6.


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