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What the Russian papers say


MOSCOW, February 20 (RIA Novosti) Kosovo to become important test ground for Europe/ Western observers refuse to monitor presidential elections in Russia/ Gazprom steps up cooperation with Iran/ Russian companies to swap Russian electric assets for European/ Ukraine proposes beginning gas talks with Russia from scratch/ Hungarian bank targets Sberbank's position on retail market

Kosovo to become important test ground for Europe

The Kosovo issue is crucially important for Europe and only symbolically for Russia and the United States. It is essential that Europe demonstrates that it is capable of stabilizing and developing a backward and controversial province with a predominantly Muslim population, and integrating it into its program. It is a kind of test for fundamental EU ideology.
For Washington, Kosovo's independence would help prove that its "democracy export" policy is successful after all, and give the U.S. at least some satisfaction after the fiascos in Iraq and Afghanistan.
For Moscow, it is yet another chance to show that Russia is now "up from its knees" and a force to be reckoned with. It is also quite fitting to rally pro-Serb public opinion, which is justified from a historical and moral point of view, in the run up to the presidential elections. However, it is difficult to believe that the Kremlin would really be interested in destabilizing a region soon to be crossed by the projected South Stream pipeline.
The Kosovo situation will certainly affect the EU more than it will ever do Russia or the U.S. Europe still remembers the shameful weakness it showed in the 1990s by allowing the U.S. to manage the conflicts in Bosnia, Croatia and Kosovo along with local leaders.
The EU is in no position yet to offer Serbia anything sweet enough to make the loss of Kosovo easier to swallow. The prospects of admitting it to the EU are still vague and rather far away, even though, judging by the recent presidential elections in Serbia, at least half of the nation believes, despite all odds, in their country's European future.
And, most importantly, there are quite a few European countries which have problems with regions populated by "non-title" minorities - Belgium, Spain, Romania, and Slovakia. In this context, Kosovo's independence would be an enticing model to follow for European secessionist forces.
Kosovo Albanians want to create a nation state of their own. The EU, on the other hand, is trying to show that any ethnic cravings could be met as part of the pan-European project, while such values as freedom, peace and unity are preferred to overinflated nationalism.
The Balkans are a good project for Europe to concentrate its efforts, but also a difficult one to tackle. The region's integration, Kosovo and Serbia included, could in some sense be a matter of life and death for Europe.


Western observers refuse to monitor presidential elections in Russia

The Russian Central Election Commission (CEC) yesterday said the majority of Western observers had rejected invitations to monitor the March 2 presidential elections.
Following in the footsteps of the OSCE Office for Democratic Institutions and Human Rights, the OSCE Parliamentary Assembly and the Nordic Council, the U.S. Federal Election Commission and Election Assistance Commission, the U.K. Electoral Commission, the Hungarian National Election Office, and the interior ministries of France, Spain and Germany, which monitor elections in their countries, have decided to boycott the Moscow elections.
They said their observers are busy monitoring elections and referendums at home.
Gennady Raikov, a member of the CEC, said: "We have sent invitations to 32 foreign organizations and expect them to send at least 300 observers. However, we have so far received accreditation requests only for 95 observers."
Alexander Kynev, director for regional programs at the Foundation for Information Policy Development, a partner of USAID in Russia, said it was an expression of solidarity with their colleagues who had refused to come to Russia.
"By saying that they need observers to monitor their national elections, they have refused to stage political protests and at the same time expressed solidarity with their more respected colleagues," Kynev said.
The results of a survey conducted by the VTsIOM pollster, published yesterday, show that although Russians do not like foreigners to criticize developments in Russia, half of them would be glad if they monitored the elections.
Only 8% of the respondents said the OSCE and UN criticism was unjustified, and only 2% said they respected the opinion of observers from CIS countries. As many as 50% of the respondents said the presence of international observers was a guarantee "of an honest count of votes" and "a civilized election campaign."
The rest said the observers' presence would either distract election organizers (26%) or would benefit only Russia's Western opponents (10%), while 22% of the respondents said the presence of international observes would not influence the election results in any way.


Gazprom steps up cooperation with Iran

Russian gas giant Gazprom has reached an agreement with Iran to participate in developing the country's largest oil and gas fields - the South Pars and Kish fields. Gazprom will establish a joint venture with Iranian oil and gas companies to produce, process, transport and sell crude oil and gas. Gazprom has stepped up its collaboration with Iran fearing that China could get access to the country's resources and that Iran will supply gas to the Nabucco pipeline, which is planned to transport natural gas from Turkey to Austria, via Bulgaria, Romania, and Hungary.
According to the Iranian media, an agreement between Gazprom and the Iranian oil ministry is to be signed in April-May 2008. The agreement will provide for the establishment of one or several joint ventures to develop the South and North Pars fields and the gas field on Kish Island.
In 2006-2007, national Iranian and Chinese companies conducted detailed gas production negotiations for Kish Island. Its discovered reserves are comparable with those of the Kovykta gas condensate deposit (in the Irkutsk Region of Siberia) and amount to 1.37 trillion cubic meters of gas. However, Maxim Shein of the BrokerCreditService investment company says that production costs in the Persian Gulf are much lower than those in West Siberia or the Arctic shelf.
The sides also discussed a joint project to build an oil refinery along the Armenian-Iranian border with an annual capacity of up to 7 million metric tons. Gazprom confirmed its interest in Iranian gas transportation, storage, processing and marketing but declined to discuss the issue in detail.
The visit by Gazprom's CEO Alexei Miller to Iran was organized two weeks after a statement was made by the Iranian Foreign Minister, Manouchehr Motaki, that Iran could become a resource base for the future European Nabucco pipeline bypassing Russia. The minister also said that Iran would soon sign a gas supply agreement with Switzerland.
However, experts doubt that Gazprom is really becoming more active in Iran. Valery Nesterov of the Troika Dialog investment company thinks that work on Russian-Iranian projects will not be started soon because "[Russia] will need to give serious attention to U.S. and international sanctions imposed on companies operating in Iran. The analyst believes EU countries will not be willing to buy Iranian gas because of the "tense political situation."
At the same time, Nesterov thinks that Gazprom should continue talks with Iran which possesses huge energy resources (estimated at 28 trillion cubic meters of gas).


Russian companies to swap Russian electric assets for European

On Tuesday, the Industry and Energy Ministry proposed that Electricite de France, the main national electricity generation and distribution company, and the Eurasian Development Bank buy into Inter RAO UES, Russia's major electricity import and export operator now managing assets with a rated power of 7,000 mWt in 14 countries.
Utility giant Unified Energy Systems (UES) and the state-owned nuclear power monopoly Rosenergoatom now own 60% and 40% of Inter RAO UES, respectively.
After the break up of RAO UES in summer 2008, Inter RAO will become an independent holding company with major power-generating assets; and it also plans to hold an IPO from July till December. Its CEO, Andrei Rappoport, said the company planned to control 30,000 mWt assets worth at least $14 billion.
Although experts estimate Inter RAO value at $4-5 billion, its market value will only be known after the IPO.
Senior Industry and Energy Ministry officials and Rappoport want to increase the company mostly through foreign asset purchases. Rappoport said EDF could not acquire a blocking stake in Inter RAO before 2009.
Sources at the respected business daily Vedomosti said the Russian company wanted assets, not funds.
Deputy Industry and Energy Minister Andrei Dementyev said the list of EDF assets, due to be used in the deal, had not been drawn up yet. Inter RAO needs new assets in Europe, including Eastern Europe, Rappoport told the paper.
He said this implied available assets and those which could be purchased jointly.
Alpha Capital portfolio manager Semyon Birg said the Industry and Energy Ministry should hold a tender because EDF and all other foreign energy giants, including E.On and Enel, could buy into Inter RAO UES.

Ukraine proposes beginning gas talks with Russia from scratch

Ukraine is proposing new terms for repaying its debt to Gazprom. They do not benefit the energy giant, but Russia will have to accept them so as not to complicate relations ahead of the March 2 presidential elections.
However, Ukraine's status as a transit country will not be enjoyed for long.
Ukraine has refused to repay Gazprom the $1.5 billion debt by April 1 and to pay in advance for Russian gas. Instead, Naftogaz of Ukraine has proposed giving Gazprom access to its underground gas storage facilities.
Alexander Shatilov, an expert at the Center for Current Politics in Russia, said: "Repaying the gas debt in kind suits Ukraine more than repaying it in cash. This would save it money and prevent Gazprom from gaining access to its gas distribution system, which the Russian energy giant wants."
"It is reported that Gazprom has no plans to sign the agreement, but the current turn of events suits it, because access to Ukraine's gas storage facilities will be Gazprom's first step in its expansion in Ukraine," Shatilov said.
The expert said Russia has long been employing the mutual expansion method. "It is mainly doing this in Europe, but Ukraine is more important to us than EU countries because it is a transit territory," he said. "Gazprom's refusal to sign the agreement is an element of bargaining, a business position aimed at getting the most from the opponent."
"Ukraine is using its status as a transit route to Europe," Shatilov said, adding that Russia cannot permit tensions to grow ahead of the presidential elections. "Ukraine is negotiating very toughly and has violated previous agreements, yet Russia is likely to make concessions."
Branch analysts say Ukraine will not use its stance and demand privileged conditions for long. Its value as a transit route will plummet after the commissioning of the Nord Stream pipeline from Russia to Germany along the Baltic Sea bed and the South Stream project, aimed to create new transnational gas transportation capacities and an underground gas storage in Hungary.
Experts have warned that Ukraine will soon have to pay for gas at global prices, and say Gazprom will eventually regain the positions it is ceding now.


Hungarian bank targets Sberbank's position on retail market

Hungary's OTP Bank plans to issue a $1 billion loan this year, which is an unparalleled amount, to its Russian subsidiary, Investsberbank, to enable the latter to take up 30% of the retail banking market in Russia in four years.
Experts admit that Investsberbank could increase its share of the market, given that other banks have limited opportunities to borrow this much, but say it is still unlikely to outmatch government-controlled banks.
The bank will embark on the mission to conquer the market after rebranding. "We expect the Central Bank to register the new name, OTP Bank," said Alexei Korovin, Investsberbank president and CEO.
In 2007, the Russian banking system posted 44.1% growth in assets, while Hungarian growth was 12%-15%. "To the Hungarians, banking service interest in Russia is extremely high - 30% for consumer credit and about 13% interest on mortgages," said Trust Bank's chief economist Yevgeny Nadorshin.
"In addition, the growing competition on Russia's retail banking market means key players are forced to expand their networks of branch offices," echoes AntantaPioglobal senior analyst Maxim Osadchy.
Experts believe it was Investsberbank's good performance that encouraged the Hungarian bank to invest: last year, its Russian subsidiary increased net profit by 121%, to 1.1 billion rubles (approximately $45 million).
"It was clear from last year's performance that most Russian banks' retail loan portfolios slowed down because of the unfavorable situation on the foreign loan markets," Nadorshin explained. "However, banks with shares in foreign capital, posted growth because they had additional sources of financing. It is the right moment for the latter to boost their portfolios."
On the other hand, experts still doubt that the rebranded OTP Bank will be able to gain 30% of the retail market - a share currently accounted for by Russia's state-owned savings bank Sberbank. To achieve that, even with other banks showing no growth at all, OTP will have to issue 900 billion rubles worth of loans (about $37 billion). The ever more fierce competition might also become an invincible obstacle rather than a development stimulus.
"In a period of relative instability in the financial sector, customers would rather set store by well-known lenders, rather than recently rebranded banks," said Valery Piven, chief market analyst with the Otkrytie financial corporation.

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