What the Russian papers say


MOSCOW, November 22 (RIA Novosti) Putin pounces on state enemies/ Eni, Gazprom sign new agreement on South Stream project/ Sumitomo set to develop coal deposit in Yakutia/ Russian economy sliding into a pit - experts/ Russia to become global economic leader through air sales


Putin pounces on state enemies

President Vladimir Putin's address at a pro-Putin forum at Luzhniki provided the second leg-up for his plans to contest the Duma elections as the front-runner on the United Russia ticket.
On November 13, in Krasnoyarsk, the head of state gave reasons why he is running in the elections saying that only a United Russia victory would enable him to supervise the carrying out of the commitments he made as president.
Yesterday Putin resorted to a negative demonstration.
Speaking before a 5,000-strong young audience, he not only urged them to vote for United Russia to prevent the State Duma turning into a "gathering of populists and one paralyzed by corruption and demagoguery."
Putin pounced on party rivals: they, he said, "want revenge and restoration of an oligarchic regime based on corruption and lies ... They need a weak and sickly state, a disorientated and divided society to do shady deals behind its back."
His speech was repeatedly punctuated with applause, whistles of approval and shouts "We won't let them."
Populism is characterized by a direct appeal from the leader to the people, bypassing political institutions. Popular approval is not necessarily achieved by the vote: the approval of yesterday's Putin arguments by a 5,000 bash will be relayed on TV across the country, which will most likely only increase the confidence rating in the president among the population, as registered by social experts.
The current speech by Putin, typically, has the aim of giving legitimacy to the pursuit of the "enemy." The fact that the "enemy" is weak as it is and has practically no chance of winning the elections is not taken into account perhaps because the "enemy image" never coincides with reality, it has a function of its own - to mobilize the following.
Nevertheless, having "popular permission" to pursue the enemy could prompt a desire to exercise it.


Eni, Gazprom sign new agreement on South Stream project

On November 22, 2007, Alexei Miller, CEO of Russian natural gas monopoly Gazprom, and Paolo Scaroni, CEO of Eni, Italy's oil and gas major, will sign an agreement on the South Stream project. The document provides for establishing a company operator that will manage the Russian-Italian gas pipeline with a capacity of 30 billion cu m a year.
Experts have no doubts that the Russian monopoly will have a controlling stake in it, while Eni will be able to share its 49% stake in the new company with other foreign partners.
Both Gazprom and Eni refuse to comment on the agreement. According to a source familiar with the sides' talks, this is the binding agreement that has been thrashed over "in greater detail than the earlier memorandum."
One of the sources added that Gazprom and Eni would become founders of the project operator, but he did not reveal the distribution of shares between them. The project will be financed on a parity basis, with total funding to exceed $14 billion.
The South Stream pipeline, 900 km long, will run across the bed of the Black Sea, from Russia to Bulgaria. The land route of the pipeline has not been chosen yet: it will run either to the north or to the south of Italy. The gas pipeline should be built within three years after the receipt of all necessary permits. Gas which will flow through it should supply the entire European market, not only transit countries.
Experts say that, most probably, in implementing the South Stream project, the partners will apply the same principles as those used in the Nord Stream project.
Valery Nesterov of Troika Dialog said that "by analogy with Nord Stream, Gazprom will take 51% of the project operator provided that third parties have access to the project at Eni's expense.
Maxim Shein of BrokerCreditService also thinks that Gazprom will try to preserve control over gas flows via the South Stream pipeline and to offer small shares in the project to transit countries.
In compensation for a decrease in its project share, Eni may be offered the chance to become a partner in the Baltic LNG project to build a plant for the production of liquefied natural gas.
However, Eni has some problems in Russia. In early November, the company reported that its two Russian assets, Arcticgaz and Urengoil, would not begin gas production according to plan (on January 1, 2008) because of the absence of a niche in the Gazprom Unified Gas Supply System.
Shein noted that under these conditions Eni would be even more loyal to the Russian gas monopoly.

Business & Financial Markets

Sumitomo set to develop coal deposit in Yakutia

On Wednesday, the major Japanese trading house Sumitomo Corporation said it wanted to develop Eurasia's largest Elginskoye coal deposit in the Republic of Sakha (Yakutia), in northeast Russia, and estimated the possible outlay at $2.5 billion.
On October 5, Russia's Mechel coal and steel group won an auction for a 68.7% stake in coal producer Elgaugol and 75% minus one share in Yakutugol, both in Yakutia.
Experts said the company could develop local deposits together with Sumitomo.
The company paid $2.3 billion for the entire lot that also included an incomplete 320-km stretch of the Ulak-Elga railroad. The Elginskoye deposit contains between 2.2 and 10 billion metric tons of coking and thermal coal.
Mechel has already borrowed a syndicated $2 billion loan and is applying for five-year and three-year $1.7 billion and $300 million syndicated-loan tranches.
Experts said the company, which had not named any partners to date, would set up a consortium for developing the deposit.
Sumitomo will profit from the deal because thermal coal prices have hit an all time high on Asian markets. Indonesia and Australia are having trouble meeting Chinese and Indian coal demand. And the Japanese company will ensure regular supplies in conditions of rising coal prices. Transportation costs will be reduced because Yakutia is not far from Japan, making it possible to charge lower prices.
Consequently, Sumitomo is ready to spend the aforementioned $2.5 billion on the project's infrastructure.
Moscow would also stand to gain because there is not a market for all Yakutia's coal in Russia making it possible to export tens of thousands of tons elsewhere.
Experts said Sumitomo could help Mechel to find the required investment and technology.
Kirill Chuiko, an expert with Uralsib Financial Company, said Mechel had initially wanted to act alone in order to choose the most attractive partner later on, but that it was unclear whether foreign companies would be allowed to join the project.
Chuiko said this was a vital strategic asset, that the government would not allow foreign investors to invest in strategic sectors, and that Sumitomo could only expect to acquire a blocking stake.


Russian economy sliding into a pit - experts

Rising oil prices will not let Russia suffer an imbalance in trade until 2011, rather than 2009, said the Economic Development and Trade Ministry, updating its forecasts. This, however, does not alter the gist of the matter. "We are gradually sliding into a pit," say experts. The unfavorable trade balance could lead to a cash squeeze in the economy and its downturn.
The ministry forecasts a 2007 surplus of $129-130 billion, Andrei Klepach, director of the ministry's consolidated department of macro-economic forecasting, said on Wednesday.
This is more than was expected by the ministry, because the "balance of trade is now increasingly, and more than ever before, depends on oil prices," especially since they skyrocketed this year.
And predictions by the Economic Development and Trade Ministry and the Finance Ministry that the 2009 balance of trade could be unfavorable are not necessarily destined to come true. This will happen later.
As estimated by Klepach, in 2010 the surplus could drop to $13 billion, while the country will "enter negative territory" in 2011.
"These are very correct forecasts," said Vladimir Rozhankovsky, an analyst with Ak Bars Finance brokerage.
"The ruble is hardening against the dollar and some other currencies. Bearing in mind that our economy is export-oriented and nominated in dollars, we keep sliding into a pit all the time," he said.
Currently, the balance of trade is falling in real terms, said Anton Struchenevsky, an economist with Troika Dialog brokerage, and the process cannot be reversed.
In this situation the Russian economy risks finding itself without cash. In view of the slow fall in the trade surplus, an inflow of overseas capital will play a decisive role in the future, Klepach said.
In the opinion of Natalia Orlova, the Alfa Bank chief economist, this situation will require the devaluation of the national currency. In 2011, the strengthening of the ruble could give place to the strengthening of the dollar or euro.
An alternative to a Russian economy "totally open to foreign capital" could, according to the expert, be repatriation of Russian capital. This could be done, for example, by announcing a kind of tax amnesty, she said.
"The only rescue is to stop depending on exports and develop the domestic market," is Rozhankovsky's other piece of advice. It is necessary to diversify the economy and reduce its dependence on energy exports.
"But today we only hear lip service being paid to economic diversification, and see no real steps being taken," the expert said.


Russia to become global economic leader through air sales

Russia does not necessarily have to produce more hydrocarbons and set up high-tech plants because it could become a global economic leader by selling its air.
On Wednesday, Vladimir Grachev, chairman of the State Duma's environmental committee, submitted a bill stipulating private property on the atmosphere, land, soil, natural waters, plant and animal kingdoms.
He said a square kilometer of environmentally friendly territory would cost 1 billion rubles ($41.1 million) and that the value of the environment should be recalculated each year and included in national GDP.
Environmentalists said about 50% of Russian territory, or 8.5 million square kilometers, was not polluted and could cost as much as 8,500 trillion rubles ($349.36 trillion). This exceeds the 2006 national GDP by 300 times and the $13 billion U.S. GDP 26 times over.
However, it would not be easy to demarcate the atmosphere, to calculate air-property tax rates and to punish those responsible for atmospheric disasters. Moreover, Russian courts would have to examine numerous lawsuits as regards property on rain.
As a rule, natural resources are part of a country's national wealth and should not therefore be included in its GDP. The value of natural resources is usually estimated in terms of their possible profitability.
Although Grachev's bill aims to assess environmental-damage levels, the relevant methods have already been streamlined.

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