What the Russian papers say


MOSCOW, October 16 (RIA Novosti) Moscow, Tehran close to agreement on Caspian status - expert / MP proposes bringing European generation under Russian control / Yukos shareholders can forget about their money / Key Russian drugs retailers turn to Western investors to stay afloat / Volvo ready to assemble trucks on unprofitable Russian market


Moscow, Tehran close to agreement on Caspian status - expert

Although President Vladimir Putin is not flying to Iran on an official visit, but is attending the second Caspian summit hosted by Tehran today, the Russian government still drew fierce criticism from the West, which insists that Russia halt any nuclear cooperation with Iran, said Vladimir Yevseyev, a senior associate at the Russian Academy of Sciences Institute of World Economy and International Affairs.
The key issue to be brought to the summit is the new legal status of the Caspian Sea, which is of great importance for Russia, the expert said.
The problem surfaced right after the disintegration of the Soviet Union in 1991. Prior to that, the legal status of the Caspian Sea was covered by the Russian-Iranian agreements of 1921 and 1940 recognizing the Caspian Sea as a lake belonging to and divided between the two nations.
Later, three newly independent littoral states emerged - Azerbaijan, Kazakhstan and Turkmenistan, and significant offshore energy deposits were discovered. The new realities required seeking a new legal framework for use of the sea and its resources by the five countries that border the Caspian.
Yevseyev believes the following scenario to be the most probable, given the escalation of the conflict around Iran's nuclear program: Azerbaijan will preserve its strategic partnership with the United States, but will be careful not to let its territory be used for any anti-Iran actions. Moscow will actively back Baku on the issue. However, Azerbaijan's duality rules out a compromise on the Caspian from Iran's part, the expert believes. In this case, the Caspian status issue will be suspended for an indefinite term, while all the parties concerned will be able to continue oil and gas extraction from the seabed, except Iran. Azerbaijan, Turkmenistan and Iran might still engage in minor conflicts over disputed areas, but they will have no major consequences.
It is certainly true that Moscow would prefer to control all oil transportation routes, the expert said. However, it has not had a monopoly there ever since the Baku-Tbilisi-Ceyhan pipeline came on stream. Western influence is also growing in the region, as western countries plan to lay offshore oil and gas pipelines in the Caspian and have armed convoys to protect the oil being shipped.
In this environment, Moscow and Tehran's rapprochement on the issue is objectively possible. Yevseyev sees it as one of the few problems where the two nations can effectively coordinate efforts. Therefore, Moscow's participation in the October 16 summit meets Russia's economic interests and is not a demarche for the West to see how Russia's foreign policy is independent from western criticism.


MP proposes bringing European generation under Russian control

In the German city of Wiesbaden, where Russian President Vladimir Putin and German Chancellor Angela Merkel met on October 15 at the public forum, Petersburg Dialogue, Valery Yazev, chairman of the State Duma energy committee, proposed establishing a Russian-European supranational regulator in the power sector. Yazev, a member of the United Russia pro-presidential faction in the State Duma and an active lobbyist for Russian energy giant Gazprom's interests, suggested that the European Union should give Russia an observer status when drafting Brussels' new initiatives for the power sector.
According to the Gazeta daily, this is not an offhand statement but a "trial balloon" sent out prior to the visit of Russian Industry and Energy Minister Viktor Khristenko to Brussels. The visit is slated for October 16.
Moscow fears that threats by the EU Commission to close the European energy market to Gazprom will be realized. The Commission warned that, after the drafting and approval of respective instructions, Russia's entry into the European energy market would be possible only upon two conditions: the first one is an asset swap, and the second is the need for non-European state monopolies to liberalize, albeit partially, their energy markets.
Both conditions are unacceptable to Moscow. An asset swap is practically impossible as the State Duma limits foreign investment in strategic sectors. Access to such sectors is possible for foreign investors only on an individual basis, like for France's Total to the Shtokman oil and gas project. Gazprom's demonopolization is not to be expected.
However, Europe does not have a common position on Gazprom. European commissioners are ready to erect insurmountable barriers to the Russian gas monopoly, which is seeking to buy as many European grids as possible. However, German energy companies, like the E.ON concern, are ready to decide on their swap transactions with Moscow on their own. E.ON has already bought a controlling stake in Russian wholesale generating OGK-4 company for 4bn euros.
Thus, Germany is again being offered the role of a Trojan horse. However, the German-Russian compromise is obviously nonviable. Russia will never give European companies access to strategic deposits or pipelines. Nor will the EU ever part with a controlling stake in its supranational energy market.


Yukos shareholders can forget about their money

Tax claims for Yukos are down by 56 billion rubles, but the company will still fall short in paying off its debts. Experts believe the new tax demands are hitting the bankrupt firm so that its shareholders get nothing from the sale of the embattled company's assets.
The Moscow Arbitration Court on Monday included 217.2 billion rubles in the register of demands from Yukos creditors for taxes on property sales realized in the course of the company's bankruptcy proceedings. In this way the judges satisfied a claim by the Federal Taxation Service. The court ruling stated that arrears should be cleared once debts have been paid to the creditors, because the demand register is currently closed.
In order to repay all its debts, Yukos has for almost six months (from March 27 to August 15) been gradually selling off its assets, and now the company has to pay tax on the profits.
Despite the reduced demand from the Federal Taxation Service, Yukos may fall short of money to meet all its debts. The funds resulting from the bankruptcy - around 850 billion rubles - at first glance make it possible to repay the debt in full. But earlier Eduard Rebgun, the receiver, said that the money would still not be enough to pay off all creditors. Estimates show that Yukos will still be 200 billion rubles in debt.
Industry experts do not doubt that everything is currently being done to ensure that shareholders of the bankrupt company, and above all Menatep Group, receive nothing. Yukos holders could expect to get part of the funds cleared from the sale of assets only in case something were left of that money following debt repayments.
Judging from what is happening now, the shareholders can forget about their money. Ever increasing new demands on Yukos serve precisely that purpose.
According to Alexei Logvin, an analyst with RusCapital company, Yukos is a thing of the past. "Although the bankrupt's calculated estate surpassed the company's initially estimated debt, the company still cannot settle accounts with shareholders," the analyst said. "That was the ulterior motive of those who sent Yukos to the wall," he said.


Key Russian drugs retailers turn to Western investors to stay afloat

Two major pharmaceutical retailers in Russia may change hands before the end of this year. Following in CIA International's footsteps, Protek has found a buyer for a controlling stake in the German distributing company Celesio AG. Experts estimate the potential deal at $1 billion. They say that in case it loses contracts for the delivery of medicines under an additional medications supply program (the Russian government is planning on the transfer of such contracts to a state-owned distributor), Protek will hardly be able to stay afloat without a Western partner propping it up.
Speaking on condition of anonymity, a Protek employee said negotiations for the selloff of the Celesio stake had been launched in late summer, right after the arrest of CEO Vitaly Smerdov. "By attracting a foreign investor, the company could avoid being reorganized into a national logistic complex," the source said.
After the Prosecutor General's Office accused private retailers of overpricing their products, the Health and Social Development Ministry came up with an idea of distribution through a state-controlled company. Experts then suggested such a group could be established on the basis of a major existing retailer.
But even if cut off from additional medications supply contracts, private retailers are likely to lose much of their sales. Protek, for one, sold 19 billion rubles' ($762.44 million) worth of medications under such contracts in 2006. According to DSM Group, Protek's share in the additional medications supply contracts market has now dropped to 18-20%, from 30% last year.
CIA International has found itself in a similar situation, and is now negotiating to sell a stake to the U.S. investment fund TPG Capital. A source close to TPG said Monday that the deal would probably be announced in late November. According to a deputy CEO of the National Distributing Company, Svetlana Zaruba, "it looks like the idea of setting up a state-owned logistic company is dead now: the two companies that could serve as its foundation - CIA and Protek - are coming under the control of Western investors."

Business & Financial Markets

Volvo ready to assemble trucks on unprofitable Russian market

Swedish automotive giant AB Volvo has laid the cornerstone of its new 40-hectare plant worth 100 million euros in Kaluga, a city northwest of Moscow, and plans to assemble at least 15,000 trucks per year. Volvo vehicles will be sold in Russia and exported to the CIS.
Volvo export policies will depend on the situation in the CIS market. Volvo Trucks CEO Sttaffan Jufors said initial Russian demand could exceed 15,000 vehicles per year, and that the concern would have to expand production.
In April 2007, the company said it wanted to build the plant for commissioning in 2009 and to assemble 10,000 Volvo and 5,000 and Renault trucks there.
Volvo Vostok managing director Lars Corneliusson said his company also planned to manufacture construction equipment, primarily excavators, in a nearby workshop on a 15-hectare site. And production of specialized equipment could commence in 2010.
Volvo will relocate 20% of its production to Kaluga; and this share will eventually increase.
The company is negotiating reduced vehicle-component import duties with the government. Corneliusson said current national customs legislation made it unprofitable to assemble cars in Russia.
About 3,000 Volvo and Renault trucks were sold nationwide last year. Corneliusson said demand now exceeded supply, the company hoped to sell all new trucks here in the next few years, and that it had no plans to adjust the price of its Russian-made trucks.

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