MOSCOW, February 26 (RIA Novosti) European gas pipe projects move from the political to economic/ Putin apologizes to CIS leaders for outbreak of xenophobia in Russia/ Russia fails to fulfill its export obligations/ Government cracks down on software piracy but losses still high/ RussNeft ex-head sets up oil company in Azerbaijan/ Americans force Russians to buy out 50% stake in ILS
RBC Daily, Gazeta
European gas pipe projects move from the political to economic
Shortly after the West recognized Kosovo's independence, the pro-EU president of Serbia, Boris Tadic, delivered a blow to his European allies by allowing Russia's South Stream pipeline to run across the country.
The relevant agreement was signed during a visit to Belgrade by First Deputy Prime Minister Dmitry Medvedev, the presidential frontrunner and Gazprom board chairman. The deal was struck just a week before the March 2 presidential elections and underlined Moscow's tough stance regarding Kosovo's self-proclaimed independence, at least for the next four years.
The South Stream project aims to transport 10 billion cubic meters of Russian gas annually across the Black Sea, with the first deliveries scheduled to start in 2013.
Russia as the gas supplier and Serbia as a transit hub plan to jointly control one of the main gas routes to southern Europe.
Gazprom spokesman Sergei Kupriyanov said the construction should start by 2012 and the pipeline is to come on stream by 2013. "We have enough time," he said, apparently referring to the race against the Nabucco pipeline, which is to start operating in 2012-2013.
The Nabucco pipeline, backed by the EU and U.S., will pump Central Asian gas to Europe via Turkey bypassing Russia and will involve Turkey, Bulgaria, Romania, Hungary and Austria.
Rivalry between the two projects was also a feature that distinguished Medvedev's visits to Belgrade and Budapest.
Hungarian Prime Minister Ferenc Gyurcsan barely escaped being overthrown after public unrest fuelled by gas talks with Moscow, and has turned from an opponent into a supporter of Nabucco in the past year. He recently warned of the dangers of Hungary becoming dependent on Gazprom.
However, the advantages of the Russian proposal have put his concerns to bed. Yesterday Russia and Hungary arrived at conclusion that the two rival projects are not mutually exclusive and agreed to set up a joint venture to build the Hungarian leg of South Stream.
Valery Nesterov at the Troika Dialog investment company said gas transportation projects are gradually moving from political debates to assessments of economic efficiency and risks.
European Commissioner for Energy Andris Piebalgs, who has vigorously supported gas pipeline projects that bypass Russia, said the other day that the EU's wariness of Gazprom and the allegations that it plans to use energy for political goals are unjustified.
At the same time, Gazprom's stance regarding Nabucco has softened. Kupriyanov said that the Russian energy giant was prepared to consider any proposals for Russia's involvement in Nabucco, although it does not believe the project will be economically efficient because there are insufficient reserves.
Vremya Novostei
Putin apologizes to CIS leaders for outbreak of xenophobia in Russia
Summarizing the development of the Commonwealth of Independent states (CIS) over his eight years in office, Russian President Vladimir Putin had reason to refrain from highlighting his successes. And was forced to admit xenophobia, intolerance and even attacks had become all too frequent in recent years.
"I had bilateral meetings with some of my colleagues yesterday and practically all of them raised the problem of the fact that CIS citizens, including in Russia, sometimes encounter xenophobia, intolerance and even criminal attacks on their lives," he said. "We regret these cases and will do everything possible to find and punish the criminals. We will be constant and unswerving in our efforts to combat this."
In the past few years, it was heads of the military or security agencies at best who made such public commitments in Russia. It is rare for the country's leader to apologize to foreign heads-of-state publicly, but this time, he said just this.
However, Putin linked the outbreaks of national chauvinism and xenophobia to the way the government deals with migration issues. Meanwhile, other CIS countries believe there are other reasons behind the xenophobia. In particular, they claim that certain chauvinistic sentiments are deliberately being spread in Russia.
Even some Russian officials appear to be involved in it. For example, ethnic Kyrgyz nationals have been the most frequent victims of Russian skinheads lately; and Kyrgyz officials linked the crimes with a recent statement made by Moscow's new NATO envoy Dmitry Rogozin. "Democracy means power of the majority," he said. "Since ethnic Russians constitute the majority of Russia's residents, democracy will come when Russians are given power."
"These are not just crimes, these are racial murders. These acts are aimed at kindling an interethnic feud. Anti-Russian sentiment is emerging in Kyrgyzstan today," warned Alisher Mamasaliyev, a Kyrgyz parliament member.
Officials in Azerbaijan, in Central Asian countries and the Caucasus generally try to avoid bringing the issue into the spotlight. Although migrants from these regions are often victims to ethnic violence, an Azerbaijani official said upon condition of anonymity that Azerbaijan did not want to trigger outbreaks of anti-Russian sentiments in their countries, and they did not want to strain relations with Moscow.
Nezavisimaya Gazeta
Russia fails to fulfill its export obligations
Russia's failure to fulfill its export obligations has again damaged its reputation as a country capable of competing with foreign suppliers in the production and export of high-tech machinery and equipment.
Following India, Algeria and China, Norway's Odfjell ASA accused its Russian partner of failing to supply 12 chemical tankers on time and has cancelled its $544 million contract with the Sevmash shipbuilding company.
The first tanker, which was due to be built in September 2007, may be completed in May 2009, while Sevmash continues to insist on a price increase.
Experts think that the Russian producers' problems are deeply rooted in the situation surrounding the early 1990s when their main goal was to receive a contract at any cost.
According to Agvan Mikaelyan, director general of the FinExpertiza audit and consulting group, "our companies worked according to the following scheme: first sign a contract and then think about how to fulfill it. Our present problems result from our failure to make correct economic forecasts."
Mikaelyan said that Russian producers had offered prices which were several times lower than those of their western rivals. However, western companies included all possible risks into their contracts - inflation and the rising prices of electricity, transport services, metals, etc.
"Today, the price advantage is nullified because all these risks extend to all the producers, including Russian. Moreover, our prices could turn out to be even higher than western producers' because of our low labor productivity and high metal and energy consumption," Mikaelyan said.
The analyst notes that companies reach a compromise in most cases. Considering the high demand for tankers and a lack of free production capacities in all countries, it will be difficult for the Norwegian company, which cancelled its contract for 12 Russian tankers, to place a new order. This means that both the Russian and Norwegian sides will have to make concessions, he said.
Vedomosti
Government cracks down on software piracy but losses still high
Pirated software cost Russian companies $2.6 million in 2007. But at more than $1 billion the losses are still significant, according to statistics published by Business Software Alliance (BSA), a group protecting the interests of copyright holders.
The courts awarded a total of $2.6 million to alliance members last year. According to the BSA, the police last year caught 599 offending companies and opened 264 criminal cases (two and a half times as many as in 2006). The number of convictions rose to 85 in 2007, a 17-fold rise.
Although anti-piracy laws have been in force since the 1990s, the numbers of raids and cases only increased recently, said Irina Tulubyeva, manager and partner of the Tulubyeva, Osipov and Partners law group.
Clamping down on computer piracy is a demand of Russia's negotiating partners for its WTO entry, said a source in the Interior Ministry. It is not difficult to spot sellers and users of pirated software, he added. And since the losses from the distribution of a single pirated program are often more than $50,000, the police can claim they have solved a major crime.
The BSA is not revealing how it catches the pirates. But on its Russian website the alliance has a whistleblower section. According to the BSA, software piracy levels in Russia in 2007 dropped from 80% to 75%. And losses fell by $133 million, down to $1.075 billion.
Now that small and medium-sized businesses are increasingly going straight, piratic sales have declined, said Svetlana Novikova, a spokeswoman for Kaspersky's Laboratory.
However, even larger companies have been caught using pirated software. In January, BSA won a claim in the Rostov Region arbitration court against Aeroflot's subsidiary - Aeroflot Don. Using pirated programs will cost the company 250,000 rubles (over $10,000) in fines. Aeroflot spokeswoman Irina Dannenberg was unavailable for comment yesterday.
Vremya Novostei
RussNeft ex-head sets up oil company in Azerbaijan
Structures close to RussNeft ex-head Mikhail Gutseriyev, wanted by Russia since August 2007, completed a deal to buy two oil operators in Azerbaijan from Canada's Nations Energy.
Gutseriyev's allies began negotiating the deal with Azerbaijan's State Oil Company last spring. As a result, Britain's Global Energy controlled by Gutseriyev paid $340 million for an 85% stake in the Karasu Operating Company and 80% in the Kura Valley Operating Company with about 20 million metric tons of oil.
Last week, Global Energy established control over the Mishovdag and Kyalameddin fields that produced 300,000 metric tons in 2007 and the nearby Padar block comprising the Padar, Kharami and Injabel fields. However, production was only launched at Injabel last year, totaling 2,000 metric tons.
Global Energy and Gutseriyev's other partners control oil deposits with recoverable reserves of over 130 million metric tons. RussNeft is one of Russia's top ten crude producers with recoverable deposits of about 600 million metric tons. Moreover, Azerbaijani oil contains much less sulfur than crude oil produced at most other deposits owned by Gutseriyev's former company.
Gutseriyev began to have problems with Russian authorities last year after reportedly buying several deposits from bankrupt oil giant Yukos while it was being managed by a court-appointed receiver. Although approved by the Kremlin, the deals were not coordinated with those officials in charge of Yukos bankruptcy proceedings.
Experts said Gutseriyev subsequently faced the same charges as former Yukos CEO Mikhail Khodorkovsky, now serving eight years in prison, and was forced to flee abroad.
The media have repeatedly claimed that Gutseriyev is in hiding just outside Baku, the capital of Azerbaijan, and that his son had been buried there after being killed in a car accident in Moscow last August.
Officials in Moscow and Baku state that Gutseriyev is not in Azerbaijan.
Kommersant
Americans force Russians to buy out 50% stake in ILS
The Moscow-based Khrunichev research and production space center has resumed talks with Space Transport Inc. on the buyout of a 50% stake in International Launch Services.
Independent experts doubt the advisability of the deal but think it is almost inevitable.
International Launch Services (ILS) is a joint venture between Lockheed Martin and Russia's Khrunichev Center and Energia set up in 1995 to manage the Atlas and Proton space launch services. Lockheed Martin holds a 50% stake, while Khrunichev and Energia 32% and 17% respectively.
In September 2006, the American company announced its withdrawal from ILS and the sale of its stake to Space Transport, incorporated in the British Virgin Islands by Mario Lemme, a German national and a former member of the ILS board of directors. Details of the deal were not made public. Lockheed Martin also retained the right to launch the U.S. Atlas boosters.
According to informed sources, the Khrunichev Center intends to buy out the 50% stake for $255 million, paying $5 million from its own funds and taking out a $250 million loan from Russia's largest state-controlled savings bank Sberbank.
Ernst & Young has calculated that ILS costs $410 million, but a source in the Russian government said it costs less.
"Ernst & Young did not take into account the real number of commercial launches that can be made from the Baikonur space center," he said. "The cost of ILS is only $63.7 million if we use the discounted cash flow method and take into account contracted launches for a period until 2013."
The discounted cash flow (or DCF) approach is a method to value a project, company, or financial asset using time value of money concepts. Under it, all future cash flows are estimated and discounted to give them a present value.
Experts also point to the potential political risks of the deal.
Andrei Ionin, an expert at a leading Russian consultancy, ROEL Consulting, said: "Today nearly all commercial telecommunications satellites launched by Proton are either made in the United States or with American components. Therefore, one needs a permit from the U.S. State Department to export and launch them. ILS, which actually means Lockheed Martin, was responsible for getting the permits, but the task will move over to the Khrunichev Center after the deal. In view of the complicated political relations between Russia and the U.S., it could take quite a while to get the permits, and time is money on the market."
The expert said Lockheed Martin did not directly sell its stake in ILS in 2006, but instead opted for a multi-move plan. "It appears that Space Transport is only a nominal holder [of the stake]," he concluded. By signing the deal, Lockheed Martin will keep its face without appearing to be a blackmailer.
The expert said the seller could block the business by slowing down the process of issuing satellite launch permits, thereby forcing the Khrunichev Center to buy out its stake in ILS.
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