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MOSCOW, December 6 (RIA Novosti) Russia is flexing its military muscle again / Hungary hastens work on pipeline to bypass Russia / Central Asia sets sights on European prices / China disrupts Gazprom's eastern program / Russian anti-monopoly service to probe foreign automakers / Ford is losing $2 million daily in Russia due to strike

Izvestia

Russia is flexing its military muscle again

Following in the footsteps of strategic aviation, the Russian navy will resume its presence in the world's oceans. Experts say this will affirm Russia's status as a superpower, but will remain a symbolic gesture without a radical renewal of the fleet.
A group of Russian warships will cruise in the northeastern Atlantic and the Mediterranean from December 2007 to February 2008.
Defense Minister Anatoly Serdyukov said the goal is to ensure Russia's naval presence and the safe navigation of Russian vessels.
Four warships, seven vessels of the Northern, Black Sea and Baltic fleets, 47 aircraft and 10 helicopters are to take part in the cruises.
In the 1990s, the Russian navy was plagued by problems, with warships badly in need of repair, and no new ones being built, and no cruises planned. The situation is changing now, although slowly. Only one frigate is being built, and there are no plans for building destroyers, not to mention aircraft carriers. The bulk of funds have been invested in the Project 955 Borei new-generation of nuclear submarines.
The resumption of patrols in outlying regions of the world's oceans is mainly a political decision.
Ruslan Pukhov, director of the Moscow-based Center for Analysis of Strategies and Technologies, said: "Any state willing to protect its interests in the world should have the means, primarily the navy, to project its might."
He believes that political claims to a presence in the world's oceans could boost the modernization of Russia's navy.
"Nearly all allocations are currently channeled into sea-based nuclear deterrence forces," Pukhov said. "To fulfill the new task, the government will need to increase allocations or revise their distribution in favor of the general-purpose naval forces. Russia must start building new-generation destroyers and frigates, and ponder the construction of an aircraft-carrier."

Gazeta, Kommersant

Hungary hastens work on pipeline to bypass Russia

Hungarian energy company MOL has proposed integrating at least eight gas transportation companies of central and southern Europe into a New Europe Transmission System (NETS) in order to obtain a loan on favorable terms for building the Nabucco gas pipeline bypassing Russia.
If this system is created, Russian natural gas monopoly Gazprom will have to discuss the construction of the South Stream pipeline with a major Balkan consortium controlling 27,000 km in pipelines, not with individual small countries.
Svetlana Savchenko, director of the investment projects department at the 2K Audit-Business Consultations company, said MOL's business has been closer to oil production than to the gas sector so far. So MOL's attempt to consolidate the East European gas distribution system on its basis cannot be supported by the companies of the region. She believes that the idea of uniting these systems is highly attractive.
"If the project proves a success, MOL and its partners will create a sort of buffer between the EU and Gazprom. The European Union may also support the unification project. So countries that support the project can expect preferential treatment from influential EU members.
However, unification will be practical only if it is completed within a short period of time. Gazprom is now implementing the North-European (Nord Stream) gas pipeline project bypassing Eastern Europe. Work is underway on the South Stream project, making it possible to do without transit services of most East European countries.
Gazprom has previously tried to cooperate with MOL: in 2006, it placed an order with it to draw up a feasibility study for the South Stream gas pipeline from Russia via Turkey to the Balkans and then to Austria and Italy.
However, MOL failed to submit the feasibility study on time. In November, Gazprom changed the initial terms and conditions of the project: the gas pipeline will bypass Turkey, and the South Stream company, established jointly with Italy's Eni, will elaborate the feasibility study. Earlier Gazprom refused to buy a German stake in MOL's assets. So Hungary has found itself outside Russian gas transportation policy.

Gazeta.ru

Central Asia sets sights on European prices

Central Asian suppliers have decided to ratchet up gas prices, a move which will give a totally new look to the entire European energy market. The situation offers Russia not only a new leverage, but also new risks.
According to a source in the oil and gas industry, Kazakhstan has made up its mind to follow Turkmenistan and Uzbekistan in raising gas prices. Astana, taking guidance from world gas price trends, is now considering new price hikes, too. Unconfirmed reports say they could shoot up to $190 per thousand cubic meters (against the present $145).
The practically simultaneous move by the Central Asian gas producers could in the near future alter drastically the energy market of Europe and most of Asia.
Experts said the united front put up by Central Asia was motivated by the striving of these countries to compensate themselves for their non-participation in a number of projects.
"Kazakhstan, Uzbekistan and especially Turkmenistan have been forcibly kept out of many projects other than the Caspian gas pipeline," said Sergei Mikheyev, deputy general director of the Center for Political Technologies. "Those were Nabucco, gas supplies to China, and some smaller ones. Russia only could compensate the omission of the Central Asian countries by raising purchasing prices, an opportunity they have taken advantage of."
Mikheyev does not rule out further Kazakh initiatives, and price rises might see a second round if Russia agrees to a $190 price for Kazakhstan, and Turkmenistan subsequently decides it has been undersold and demands a new hike.
"In any case, there is the European gas price ceiling and Central Asia will be trying to work towards it," said the analyst.
The policy of the Central Asian republics will also change the situation on the European market. Gazprom is sure to use its Asian partners' actions at negotiations with European consumers - the holding's representatives will actively deny that it was manipulating prices in Europe.
In these circumstances Europe could start a search for alternative sources of energy and the widespread adoption of power-saving techniques. Many experts recall that during the oil crisis of the 1970s developed countries had to learn how to economize on gasoline.
If Europe cuts gas consumption, Russia will lose its leverage over the energy market.

Kommersant

China disrupts Gazprom's eastern program

Gas exports under the Eastern Gas Program could be postponed for an indefinite time due to China's tough stance at the talks on the price of Russian gas, the Russian Industry and Energy Ministry reported.
Experts say that Russia will try to press on, but admit that China can so far do without Russian gas.
Under the Eastern Gas Program, China will not receive Russian gas before 2010, even if it badly needs it. The construction of export pipelines, which are to begin after Russian gas monopoly Gazprom and China's CNPC state oil and gas corporation agree on the price, will take at least four years. Accordingly, China will only be able to receive Russian pipeline gas in 2011.
The program was proposed specifically in order to export gas to China and will be economically unviable without a price agreement.
According to the Russian ministry, talks with China have slowed down, but have not been called off or postponed.
Gazprom's price formula is based on the equal profitability of its gas exports to the West and to the East. Europe paid an average of $267 per 1,000 cubic meters of Russian gas in 2007.
China has proposed a formula of equal investment in coal and gas used as fuel. It also has a contract for the delivery of Turkmen gas at $90.
Sergei Sanakoyev, head of the Russian-Chinese center for trade and economic cooperation, said: "Such statements are made when talks reach the final stage and the sides are bargaining for better conditions." He added that China can do without Russian gas.
Unless the delivery problem is solved, Russia will have to postpone the development of gas fields in East Siberia, said Konstantin Batunin of Alfa Bank. The Chinese generating sector relies on coal, and may need gas only in the future, if at all, he said.
The Eastern Gas Program may become the bargaining chip for Gazprom's talks with the European Union, which hopes that the Russian-Chinese negotiations will fail.

Business & Financial Markets

Russian anti-monopoly service to probe foreign automakers

The Federal Anti-Monopoly Service (FAS) will scrutinize Russian offices of international auto manufacturers to check the compliance of their dealer contracts with anti-monopoly legislation. Experts believe the companies have reason to worry, and some of them may have to re-write their contracts.
Alexei Ulyanov, FAS head of industry supervision, said the service has already screened Russian producers and failed to find irregularities, but that no checks have yet been made on overseas carmakers.
These are not the first such checks by the FAS. In August 2006, it filed a case against Nissan Motor Rus. The company was suspected of fixing car repair rates for all official dealerships.
In October 2006, a similar case was opened against Nissan Motor Rus and General Motors CIS, which were accused of price collusion and fixing the same rates for car painting.
Nissan and GM had to send their dealers new letters explaining the prices were recommended, not obligatory. With the irregularities removed, the FAS dismissed both cases.
Toyota Motor has reported that it directly asked the FAS to look into contracts with its dealers to see if they met anti-monopoly legislation to avoid any future complaints from the authorities.
Analysts doubt that the probing campaign has economic motivation. When concluding dealer contracts, companies consult legal experts and try to pencil in every fine detail of Russian legislation, said Roman Gulyaev, head of the Autobusinessinfo project.
Russia has a problem of automakers dictating terms to dealers, and in this area the FAS could find some improprieties. If this happens, the companies will have to adjust their relationship with dealers, Gulyaev said.

Vedomosti - St. Petersburg

Ford is losing $2 million daily in Russia due to strike

The trade union of Ford's assembly plant in Vzevolozhsk in the Leningrad Region (northwest Russia) has rejected the management's offer for a rise and stopped talks for an indefinite period.
Experts assess Ford's daily losses at $2 million.
The strike began on November 20, but the plant resumed a one-shift operation manned by non-striking workers eight days later. It is now turning out 90 instead of the required 270 cars a day.
Yevgeny Bogdanov, an analyst with A.T. Kearney, an international management consulting firm, said the plant loses $2 million daily because of the strike, and its accumulated losses have reached $30 million.
The trade union is demanding a 30% rise, whereas the administration said it could raise wages from 15,713 to 17,441 rubles ($714) and from 38,306 to 42,520 rubles ($1,741) a month beginning on March 1, 2008. It also confirmed its readiness to continue talks if the plant resumes full-scale operation.
Yekaterina Kulinenko, the spokesperson for Ford Russia, said it was not clear if the talks would be resumed and if so, when.
The management's terms do not satisfy the trade union, said Vladimir Lesik, deputy chairman of the plant's trade union. He said the strike would continue until the workers' demands were satisfied. Lesik said that about 700 out of the 1,900 workers were still on strike.
Anna Silina, head of the St. Petersburg branch of the Ankor recruiting agency, said Ford personnel receive average wages that are normal for the market, and the management has offered the workers an adequate rise, which is higher than the inflation rate. Foreign companies do not usually offer a rise that is higher than 10% a year, she said.


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