What the Russian papers say


MOSCOW, June 22 (RIA Novosti) How will Moscow play the Transdnestr card?/ Government pushing Aeroflot to buy Alitalia/ Russia trying to set up CIS arbitration court/ Italian helicopter company set to cooperate with Russia/ VSMPO-Avisma to set up two titanium subsidiaries in India

Moskovsky Komsomolets

How will Moscow play the Transdnestr card?

Moldovan President Vladimir Voronin will arrive in Moscow today for a meeting with Russian President Vladimir Putin. They are expected to discuss a possible settlement for the Transdnestr conflict.
It was rumored in Chisinau last spring that Putin and Voronin would soon sign a secret pact on Transdnestr without informing the United States and the European Union. Competent sources in Tiraspol, the capital city of the breakaway republic of Transdnestr, reported that Igor Smirnov would cede the post of the republic's president to somebody loyal to the Moldovan authorities.
Recently Baku, the capital of Azerbaijan, hosted a GUAM summit, an organization of Georgia, Ukraine, Azerbaijan, and Moldova set up with the assistance of the U.S. to counter the Commonwealth of Independent States (CIS). It is interesting that the Moldovan president failed to attend the summit.
Analysts also noted that some time before the GUAM summit, Russia's Deputy Secretary of the Security Council, Yury Zubakov, had made several visits to Chisinau.
Moldova's withdrawal from GUAM would be a major boom for Moscow. But how much will it cost? It would seem unreasonable to give up Transdnestr to improve relations with the Moldovan president, as Transdnestr is an ace that can only be used once, and Voronin is known for his habit of switching sides.
Voronin, who is a member of the Moldovan Communist Party, had promised to turn Moldova into an anti-NATO outpost, but later held secret talks with the bloc without informing parliament and neglecting the republican Constitution, according to which Moldova is a neutral state.
Voronin may promise Putin that Moldova will never join NATO, or that it will pull out of GUAM. He may promise the moon and the stars to regain control over Transdnestr. But Moldova may still become a NATO member in 10 years. It would incorporate Transdnestr, and Russia would have no levers to influence Chisinau.
Reinforcing Russia's military presence in the republic is the only reliable guarantee of respect for its interests. But Western "friends" who control Voronin will prevent him from doing this.

Nezavisimaya Gazeta

Government pushing Aeroflot to buy Alitalia

Despite doubts about the profitability of a future deal, Aeroflot is going to have a hard time bidding competitively for Alitalia. Two first deputy prime ministers of Russia - Dmitry Medvedev and Sergei Ivanov - have given the go ahead for the bid. Political advantages from Russian investments in Italy may outweigh the economic disadvantages.
The state-owned stake in Italy's largest air carrier Alitalia may be as high as 3 billion euros, a sensible sum for the Russian company. Its rival bidders are Italian airline Air One and American equity firm MatlinPatterson Global Advisers LLC, which said on Thursday it was in the running again. That is not to Aeroflot's advantage, since its participation is unlikely to drive the bargain down.
"You get the feeling that Aeroflot is being forced into bidding for the Italian carrier, which, on the other hand, suggests Russia has certain plans related to Italy," Konstantin Serebryany, project director at 2K Audit company, said.
"Anyway, Italy is one of the few EU countries with which Russia maintains really good-neighborly economic relations: Eni and Enel energy companies have recently acquired Yukos assets and a 25% blocking stake in OGK-5. But Gazprom is eyeing a stake in the Italian companies. Besides, under the European gas directive, Eni, which controls 61% of the Italian gas market, plans to reduce its stake down to 50% by 2009. This 11% market share is also being sought by Gazprom," the expert said.
In addition, Italy does not feel antagonistic towards Russian companies. "Berlin, for example, has refused to cooperate with Russia in the joint distribution of gas in Europe, London may stop a Gazprom deal to buy Centrica, Paris is sharply opposed to an increased Vneshtorgbank stake in EADS," the analyst said. "Rome, however, has no fears concerning Aeroflot's likely acquisition of Alitalia."
Perhaps this is the consideration prompting the Russian government to egg Aeroflot on to acquire the Italian carrier. The economic benefits of the purchase seem to be taking a back seat.


Russia trying to set up CIS arbitration court

Russia is expediting a process to establishing a CIS economic court of arbitration, and is hinting that it will finance its creation. However, other CIS countries believe the new court will not be objective and will prefer to file claims against Russia with the European Arbitration Court.
Anton Ivanov, chairman of the Russian Supreme Arbitration Court, said the new court will never be established if Moscow waits for all CIS countries to approve its proposal.
Moscow's desire to establish a CIS arbitration court implies that most economic conflicts in the CIS are politically motivated and often involve Russia. The "plaintiffs" inevitably bring politics into business disputes. This is why Russian authorities want to set up a body that would only discuss the economic aspects of such conflicts.
Experts said it would be very difficult to establish the CIS arbitration court because it would settle disputes in the interests of Russia. This can be explained by the fact that all forms and records are kept in Russian and by Moscow's domination of post-Soviet republics.
A market expert said judges tended to sympathize with their compatriots, that courts often tend to be corrupt, and that Russian businessmen could offer larger bribes to judges.
Political scientists said the court would never be established because Russia is the only country to benefit from its creation.
Sergei Mikheyev, deputy general director of the Center for Political Technologies, said those with a grudge against Russia preferred to complain to the West, and that they would not be able to do this if the new court was created.
He said many countries, such as Georgia, Moldova, Ukraine, and Belarus, found it profitable to strike a balance between Russia and the European Union, and that the CIS arbitration court project was therefore unrealistic. CIS countries would not agree to set up the new court.


Italian helicopter company set to cooperate with Russia

Italian helicopter giant AgustaWestland could become a strategic partner of the Russian aircraft industry. However, experts said it would be easier to close a deal with Eurocopter, a smaller player on the global market, and that AgustaWestland will not have substantial sales in Russia.
Oboronprom, a subsidiary of Rosoboronexport, Russia's state-owned arms exporter and the managing company of the holding Russian Helicopters, and AgustaWestland are negotiating a contract for the assembly of A-119 and AW-139 helicopters in Russia under an Italian license and a joint program to develop a new 4.5-ton helicopter.
AgustaWestland CEO Giuseppe Orsi, said the sides had made great progress in producing helicopters in Russia under an Italian license. Oboronprom general director Denis Manturov said his company and AgustaWestland signed a memorandum of understanding this May.
Eurocopter, which controls 50% of the global helicopter market, has been eyeing Russian markets for a long time, but is in no hurry to invest.
Manturov said Oboronprom and AgustaWestland had agreed on specific economic projects, whereas Eurocopter did not have any similar proposals.
Andreas Lowenstein, Eurocopter senior vice president for strategy and development, said the company had to make sure that all helicopters would be sold before investing into production line and its infrastructure. The company would be eager to produce helicopters in Russia after the national market expands.
Maxim Pyadushkin, editor-in-chief of Russia & CIS Observer magazine, said Russia was operating less AgustaWestland helicopters than their Eurocopter equivalents, and that was why Oboronprom found it easier to strike a bargain with AgustaWestland.
Boris Rybak, general director of Infomost consultancy, said foreign companies wanted to buy long-term stakes on the Russian market, whereas Moscow needed state-of-the-art technology. Russia had so far failed to implement a single helicopter project with a foreign company, as cooperation implies serious technical and market risks.
He said Russian design bureaus were in a bad state and that the country lacked a large foreign-aircraft market. The domestic market mostly offers cheaper Russian helicopters and a network of maintenance centers.

Business & Financial Markets

VSMPO-Avisma to set up two titanium subsidiaries in India

Russia's VSMPO-Avisma, the world's largest titanium producer, will set up two titanium subsidiaries in India, said its director general, Vladislav Tetyukhin. It has signed an agreement of intent on one of them. The two subsidiaries may start working in 2009.
A source close to the talks said a plant producing titanium dioxide had been set up by Kerala Minerals and Metals Ltd. (KMML) in Kerala, South India. KMML and VSMPO-Avisma have signed a protocol of intent to set up a joint venture and build a plant to produce titanium sponge. Its capacity will be 10,000 metric tons of sponge.
"VSMPO-Avisma is ready to buy the joint venture's products and deliver them to Russia, selling part of them to India's aerospace sector," the source said.
The other joint venture will be established in Andhra Pradesh, where Indian company Midhani is currently producing small amounts of titanium. Although a very small plant, it has the technologies VSMPO-Avisma needs.
Rosoboronexport, Russia's state arms trader, which bought a 41% stake in VSMPO-Avisma from a consortium of investors in September 2006, has a tentative agreement with India's Defense Ministry on the establishment of a plant for resmelting titanium sponge at the Midhani enterprise. The plant's capacity has been estimated at 40,000 metric tons a year. Prefab products and ingots will be delivered from there to the Indian and Southeast Asian markets.
According to analysts, global demand for titanium is set to grow in the next few years. Vladimir Zhukov, an expert with Alfa Bank, explained it by the increased use of titanium in the expanding aircraft manufacturing.
Igor Nuzhdin, an analyst with Zenit bank, said the supplies of titanium sponge from India would allow VSMPO-Avisma to increase the output of finished titanium products in Russia, which is limited now.
Titanium demand is not growing in Russia so far, Zhukov said, but it could start growing rapidly soon, because the Russian government has a revival plan for the national aviation industry. VSMPO-Avisma is probably setting up the Indian joint ventures because it expects the titanium demand from Russian aircraft manufacturers to grow.
VSMPO-Avisma, which accounts for a third of the global titanium market, was established in July 2005. The company's customers include aviation companies Boeing, Airbus, SNECMA, GE Aircraft Engines, Rolls Royce Aerospace, and Pratt&Whitney.

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