What the Russian papers say


MOSCOW, February 19 (RIA Novosti) Moscow impotent to do anything about Kosovo's independence/ Little profit for Russian companies from Nord Stream construction/Algeria returns Russian fighter jets. Is France to blame?/Evraz Group enters Chinese market/U.S. uses WTO accession talks to pressure Russia - expert/ Russia wants LME-Style Metals Exchange



Moscow impotent to do anything about Kosovo's independence

Kosovo's declaration of independence promises problems for Europe, and Moscow's firm stance cannot influence the situation, Russian experts say.

Alexei Malashenko, a member of the scientific council at the Carnegie Moscow Center, said: "Kosovo's independence is a problem for Moscow. There is a 99.99% probability that Russia will not recognize the independence of South Ossetia and Abkhazia, although the State Duma (lower house of Russia's parliament) will scream and shout as usual. Refusal to take practical steps will be viewed as weakness and therefore have a negative effect on Russia's prestige. The only thing Moscow can do now is bite its tongue and take it."

Timofei Bordachev, director of the Center for Comprehensive European and Global Studies at the Moscow-based Higher School of Economics, said: "Russia has few allies in the world, and therefore its 'Yes to Abkhazia and South Ossetia' will never be repeated in international organizations as official recognition of their independence."

Nikolai Kaveshnikov, an expert on European integration at the Institute of Europe of the Russian Academy of Sciences, said: "The dilution of the principle of the inviolability of borders in Europe should logically lead to a review of Moscow's policy in the South Caucasus and Transdnestr. Russia will have to change its stance on the mothballed conflicts in the CIS. It will take some intermediate steps towards recognizing pseudo-states in the CIS, probably opening diplomatic offices in Abkhazia and South Ossetia."

Alexei Arbatov, head of the International Security Center at the Moscow-based Institute of World Economy and International Relations, said: "The countries that started the military operation against Yugoslavia in 1999 now intend to recognize the independence of Kosovo. For them, refusing Kosovars the right to independence would amount to admitting to wrongdoing nine years ago and therefore giving a pretext to judge the bombing of Serbia as an irresponsible and criminal act.

"However, if Russia does the same regarding Abkhazia and South Ossetia, it will create the same problems for itself in the zone of its strategic interests and at the same time contribute to the destruction of the foundations of world order."

Yevgeny Satanovsky, president of the Institute of Middle East Studies, said: "The folly of European politicians may split many states infected with the virus of secessionism. Europeans apparently want to have one more Muslim state on their borders. Unfortunately, Russia's stance has not had the desired effect. Kosovo is a bomb that can blow up the European system."


Little profit for Russian companies from Nord Stream construction

The total cost of the Nord Stream gas pipeline project may reach 8 billion euros ($11.5 billion). However, the share of Russian contractors and suppliers is insignificant. Even pipe coating plants will be built in Germany and Finland.

On February 18, Nord Stream AG, the operator of the project to build a gas pipeline from Russia to Germany via the Baltic Sea, announced the results of the tender on a contract worth 650 million euros to organize logistics and pipe coating.

This is the last big contract for the first line of Nord Stream (to be commissioned in 2011). The contract was given to the French company Eupec Pipe Coatings.

Russia will not have any key units in the logistics system: two concrete plants will be in Germany (the island port of Mukran) and Finland (Kotka), and three pipe storage facilities in Finland and Sweden. Pipes from the plants will first go there and then will be taken from them by a pipe-laying vessel.

The plants and storage facilities will cost about 100 million euros to build, says Irina Vasilyeva, a Nord Stream representative. No Russian companies claimed this contract, she says.

Experts approve of the company's choice. The Finnish port is not far from Vyborg, the starting point of the pipeline in the Leningrad Region, and Nord Stream could thus save on the costs of all the permits which would have been needed in Russia, says Mikhail Korchemkin, director of East European Gas Analysis, a consulting company.

The biggest contract for Russian companies so far has been a contract (worth over 250 million euros) signed with the Vyksa metal plant (part of the United Metals Group) for supplies of 25% of pipes for the first line of the gas pipeline. The remaining 75% of the pipes will be supplied by Germany's Europipe. Italy's Saipem will deal with the most expensive operations in pipeline construction - pipe laying.


Algeria returns Russian fighter jets. Is France to blame?

In the first act of reclamation regarding Russian military equipment, Algeria plans to return to Russia the 15 MiG fighter jets it bought in 2006 and 2007. Experts say there are political reasons for the decision and hint at France's behind-the-scenes involvement.

The Algerian Air Force, the Russian MiG Corporation and state arms exporter Rosoboronexport signed the agreement on the return of the Russian-made weapons last week, shortly before the planned visit by Algerian President Abdelaziz Bouteflika.

Although there are clearly political reasons for the decision, market players wonder if the agreement will be terminated or revised. Sources in the sector fear the excessive media coverage of the problem might complicate negotiations.

The partners signed the contract for the delivery of 26 MiG-29SMT one seaters (an upgraded version of MiG-29A Fulcrum) and six two-seaters MiG-29UB Fulcrum-B in March 2006. The contract is worth nearly $1.3 billion.

The delivery was to be completed in February 2008, but in May 2007 Algeria stopped receiving the planes and suspended the transfer of payments under military and technical contracts with Russia, which at that time had received only $250 million in an advance payment. Algerian authorities said they would reopen other contracts only if Russia agreed to take back the 15 delivered MiGs.

Experts say any equipment can be proclaimed faulty, especially such complicated equipment as military fighter jets.

Oleg Panteleyev, chief analyst at the Aviaport agency, said: "Improper exploitation can lead to malfunctions. If the buyer really wants the equipment it has contracted to buy, it will find ways to remove malfunctions jointly with the designer. It is another matter if the buyer wants to terminate the contract and discredit the producer."

Experts unanimously say that Algeria's decision is political and see a connection to the operations of the French President, Nicolas Sarkozy. Political pressure put on Algeria has been complemented with the promotion of the French-made Rafale fighters.

"Political reasons clearly dominate and France's hand is evident in this case," said Panteleyev. The situation has gone too far now and cannot be settled without the involvement of the two countries' foreign ministries.

The planes Algeria wants to return will not rust in Russia, as many countries would eagerly snatch them up, including India, Yemen, Eritrea, Sudan, Egypt, Syria and Libya. So Russia will not sustain big financial losses, while Algeria's reputation will be tarnished, experts say.

If Algeria terminates the contract, Russia might remove it from the list of potential buyers of its military equipment.


Evraz Group enters Chinese market

The Evraz Group, one of Russia's largest vertically-integrated steel and mining businesses with assets in Russia and abroad, has announced its intention to obtain control over China's Delong Holdings Limited, a steel producer and trader.

The options issued provide for the buyout of a 51.05% stake in the Chinese company in three stages at a price 35.5% higher than the market price. On the whole, the deal will cost Evraz about $1.5 billion. This is the first purchase of a Chinese rival by a Russian steel maker. Such deals are rare in international practice: China is unwilling to let foreigners into its steel making business.

Delong Holdings Limited is a steel making company based in Beijing and listed on the Singapore Stock Exchange. Its plant, built in 1992, produces hot-rolled steel sheet (about 3 million metric tons a year). The company's revenues over the first nine months of 2007 amounted to $740 million and profits to $72 million.

Under the Singapore Mergers & Acquisitions (M&A) Code, after the option Evraz should make an offer to buy Delong's remaining shares at a fixed price.

According to Evraz's data, the maximum payment to be made will amount to about $1.494 million (with the complete acceptance of the mandatory offer and of all options).

According to Alexander Pukhayev, an analyst at Deutsche Bank, Evraz decided to sign this deal not only because of the price of the asset, but also because of a possible synergic effect, as happened in the company's previous transactions.

Alexei Morozov, director of UBS's analysis department, says that Evraz is the first Russian company to enter the Chinese market.

Nezavisimaya Gazeta

U.S. uses WTO accession talks to pressure Russia - expert

The Russian delegation will hold another round of protracted WTO accession talks on Tuesday and Wednesday. Saudi Arabia, Georgia and the United Arab Emirates will put forth their requirements to Russia bilaterally, and the European Union, multilaterally. Russia officials still hope that the haggling will be over by the end of this year.

Analysts are not nearly as optimistic, expecting no breakthrough and pointing to the adverse influence of the U.S. on the process.

Moscow's chief WTO negotiator in Geneva Maxim Medvedkov, who heads the trade talks department at the Economic Development and Trade Ministry, said in the wake of the previous round of talks that Saudi Arabia's demand of access to Russian products and services markets lacked congruence with the current bilateral trade realities and the terms Moscow had come to with the other participants in the talks.

Saudi Arabia's demand of a liberal access to Russian commodities is presumably being co-orchestrated by the United States, experts say.

Dmitry Suslov, deputy director of research programs at the Foreign and Defense Policy Council, said that the U.S. would benefit the most from this liberal access to Russia's mineral resources. As for presenting its demands through third countries, it is America's usual political practice, he added.

He said the U.S. and EU had long been using the WTO talks to pressure Russia, and were unlikely to abandon the effective tool any time soon.

"Whether or not the U.S. wants Russia to join the WTO is obvious from the notorious Jackson-Vanik amendment limiting investment and trade with the former Soviet countries. Ukraine in fact could only join that organization after the limitations were lifted with regard to Kiev.

"It is also unlikely that the next U.S. government will cancel the Jackson-Vanik amendment, which is certainly influencing the U.S. officials' sentiments about trade conditions for Russia," Suslov said.

Vremya Novostei|Kommersant

Russia wants LME-Style Metals Exchange

If United Company Russian Aluminium (UC Rusal), a Russian aluminium giant, merges with the largest nickel producer Norilsk Nickel, the Federal Antitrust Service (FAS) could rule that the two companies set up an exchange for non-ferrous base metals, similar to the London Metal Exchange (LME).

As of now, Rusal is preparing to close the deal to acquire a blocking stake in Norilsk Nickel from one of the beneficiaries, Onexim head Mikhail Prokhorov, but is not disclosing its further plans for the nickel giant. However, the FAS said the merger was possible and began drafting provisos. Vremya Novostei has information that the deal may close this week.

If Rusal and Norilsk Nickel eventually merge, the antitrust watchdog may require that they set up a non-ferrous metals exchange, said Alexei Ulyanov, FAS head of industry supervision, adding that it would take them between two and 12 months to set up the exchange.

The FAS had promoted the idea of a metal exchange even before the merger of Rusal, Sual and Glencore's alumina assets into UC Rusal in early 2007, but it was never materialized.

A Norilsk Nickel source said the issue needed serious consideration. "So far, domestic metal consumption is not large. We need to work out how to attract consumers to the exchange," the source said.

Analysts sound skeptical about the FAS new initiative. On the one hand, a Russian metal exchange will certainly make things easier for buyers, said Dmitry Kolomyitsyn, senior analyst at the Aton brokerage. On the other, today's demand for non- ferrous metals is not high in Russia, unlike in China, for example, so the exchange's functions will be unclear, he said.

Market players however doubt that the exchange transactions will feature real market prices. Maxim Khudalov, a senior analyst at the Metropol brokerage, said: "A Rusal-Norilsk Nickel merger would produce a monopoly. There will be no competition between sellers, and the new company will set the prices."

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