What the Russian papers say


MOSCOW, March 4 (RIA Novosti) Russian government and public not ready for reforms/ Russia supports new sanctions on Iran/ Russia may prefer oil supplies to China via ESPO/ Barclays set to enter Russian market/ Goldman Sachs to invest $2 billion in Russian real estate/ Russians earn too much, produce too little - experts

Nezavisimaya Gazeta

Russian government and public not ready for reforms

The Russian government easily ensured the planned outcome of the March 2 presidential elections, but this simplicity is deceptive. It was easy to spur Dmitry Medvedev's popularity rating from 25% to 70% in a matter of three months, but it will be much more difficult to restructure the system, a political analyst told the popular daily Nezavisimaya Gazeta.
Nikolai Petrov, program chair of Russian Domestic Politics and Political Institutions at the Carnegie Moscow Center, said the Russian authorities were not aware of the dangers of Dmitry Medvedev's landslide victory for Vladimir Putin, who had said he would govern the country jointly with the next president.
The result of the elections is not an asset or a measure of people's confidence, allowing the government to take serious steps and implement unpopular social and economic reforms, which the country badly needs, Petrov writes. On the contrary, it will tie the successor's hands.
According to the analyst, Russians have voted not for reforms but for keeping the current situation unchanged. But the holidays during Putin's second term, when the authorities did not start implementing overdue social and economic reforms, are over.
One way or another, they will have to start the reforms now. This means that the government and the people, who have voted for the continuation of Putin's policy, will have to make sacrifices, which they are not ready to do.
The Russian authorities do not consider themselves bound by expert assessments and proposals, Petrov writes. On the contrary, they believe that a political decision can alter alarming assessments made by experts and that they can make absolutely unrealistic and inadequate promises to the people.
Medvedev's promises and positive reports made before the elections have nothing in common with reality.
This is breeding doubt about the government's adequacy, because it cannot see the control limits, the problems and trends, and its ability to influence them.
Petrov writes that the Russian authorities are making their decisions in a state of euphoria from imaginary successes. This is an extremely dangerous situation, he concludes.

Vremya Novostei

Russia supports new sanctions on Iran

Experts say it was Moscow's annoyance with Tehran's obstinacy and concern over the UN's growing ineffectiveness that prodded Russia into voting at the UN Security Council for tougher sanctions against Iran over its refusal to suspend its nuclear program.
On the other hand, according to some political analysts, it is also Moscow's way of preventing the use of force in the region which is extremely important for Russia.
Nikolai Zlobin, director of the Russia and Eurasia Project at the Washington-based World Security Institute, said he was not surprised at Moscow's change of heart about Iran. "Moscow is annoyed at Tehran's rigid stance on a series of important issues, including international control of its nuclear programs," he told Vremya Novostei.
"Russia also views the harsher resolution on Iraq as a means of bolstering the UN's influence undermined by Kosovo's declaration of independence which was not backed by the Security Council," he went on to say. "Moscow has therefore shown that it supports the UN's integrity and is willing to compromise, in a reasonable way, on many pressing international issues."
Moreover, "by supporting economic sanctions against Iran, Russia is trying to prevent military sanctions against it," Zlobin said. "It would not necessarily be a downright military operation against Tehran, but even additional aircraft carriers deployed to the region would not be in line with Russia's interests, so it is trying to prevent such developments by economic methods."
Zlobin also said that "by supporting the United States on Iran the Russian government is trying to create a favorable environment for the new Russian president and his team through expanding dialogue with the U.S."
Irina Fedorova from the Russian Academy of Sciences' Institute of Oriental Studies, said it was advisable for President George Bush and his government in the current political context to toughen sanctions against Iran. On the other hand, "the sanctions imposed in the new resolution aren't too harsh," she added.


Russia may prefer oil supplies to China via ESPO

Oil transportation tariffs via the Eastern Siberia-Pacific Ocean (ESPO) oil pipeline offered to the government by the Federal Tariff Service (FTS) of Russia, i.e., $38.8 per metric ton, make oil supplies to China more profitable than to other Asia-Pacific countries, though initially they were planned to be equal rates.
The tariffs for the end destination of the ESPO pipeline (Kozmino Bay in the Primorye Territory) will be the same after the pipeline is completed. Until the second stage of the ESPO project is finished (the government has not yet decided on the timeframe for implementing the project and the first stage of the ESPO pipeline will not be commissioned until late 2009), oil to Kozmino is to be transported by rail.
Denis Volkov, head of the FTS department for regulating the oil and gas sectors, explained that the proposed tariff did not include the cost of railroad oil transportation from Skovorodino (the ESPO-1 oil pipeline terminal in the Amur Region) to Kozmino.
Russia's state-controlled oil major Rosneft should become the main oil supplier for ESPO. The company has said more than once that it was unhappy with the prices proposed by China (Rosneft annually supplies 9 million metric tons of oil to China).
On March 3, Rosneft refused to discuss the tariff proposed by the FTS. However, a source in the company thinks that the offered tariff takes the oil companies' opinion into account. The company did not say whether it considered China or other Asia-Pacific countries a priority. However, Rosneft is not likely to confine itself to oil supplies to China via ESPO; it has mentioned plans to build an oil refinery in Kozmino with a capacity of 200 million metric tons.
"Oil companies have had two directions for oil supplies via ESPO, but China looks more preferable now," said Konstantin Cherepanov, an analyst with the KIT Finance investment company.
At the same time, he believes the government will adjust tariffs in the future, as "they do not fit into Russia's current energy policy for flexible supplies."
Valery Nesterov of the Troika Dialog investment company is also sure that the tariffs will be changed. The analyst thinks that the ESPO construction costs may rise and a network tariff will be applied, which will increase oil transportation costs to the west while tariffs for the east will fall.


Barclays set to enter Russian market

Barclays banking group, a major global financial services provider operating through its subsidiary Barclays PLC, plans to take over Russia's Expobank this summer once the deal is approved by regulatory agencies. It also plans to expand operations outside the Moscow Region. Analysts said both sides profited from such takeovers.
Expobank will receive additional investment, technology and world-class products, Yury Amvrosiyev, head of the international relations and inter-bank business department at the Russian development Bank, told the paper.
The takeover will also enable Barclays to enter the rapidly growing Russian market.
Frits Seegers, chief executive of Barclays Global Retail and Commercial Banking, said Expobank's connections and infrastructure would enable his company to become a leading retail commercial bank in Russia, one of the most rapidly developing economies and markets in the world, and that the bank had wanted to enter the local market for some time.
The takeover reflects current trends. "On the whole, this purchase implies that some foreign financial institutions, such as ICICI and UniCredit, continue to enter the Russian market," Amvrosiyev told the paper. He said other banks, including Raiffeisen and Societe General, were consolidating their positions on the domestic market through local-bank purchases.
"I do not think this is the last local takeover for Barclays and other foreign banks and funds," Amvrisiyev said.


Goldman Sachs to invest $2 billion in Russian real estate

Goldman Sachs, whose global investments exceed $23 billion, is establishing a $4 billion real estate fund for investment in the BRIC countries (Brazil, Russia, India and China). Half of it will be channeled into Russia despite a decline in the activity of other funds here.
We have attracted $2.5 billion of the required $4 billion and are selecting investment projects, an investment banker told the business daily Kommersant.
A Moscow developer said Goldman Sachs had unofficially informed market players that nearly half of the fund would be invested in Russia. Of that amount, two thirds will go to Moscow and the rest to St. Petersburg and other Russian cities with a population of more than one million.
According to Dealogic, which develops and markets technologically advanced software, communications and analytical products for the investment banking industry, in 2007 Goldman Sachs ranked 10th in terms of merger and acquisition deals in Russia. It made eight transactions worth a total of $7.8 billion.
Oleg Lukhton, director for investment banking at the Uralsib investment corporation, said the bank's BRIC fund would be its first large project in the Russian real estate market. Its direct rivals - Morgan Stanley, Raiffeisenbank, Strabag and Deutsche Bank - have been investing in Russia's property development business for some time.
Foreign investors, including major investment banks and private investment funds managers, arrived en masse to the Russian real estate market in 2005.
Vladimir Avdeyev, a partner at the S.A. Ricci/King Sturge real estate consultancy, said: "About 90% of such funds working in Russia have slowed their aggressive expansion because of the global subprime market crisis. But for GS, whose business has not been affected by it, the time is right to enter Russia, where real estate prices have been growing faster than in Europe or the United States."


Russians earn too much, produce too little - experts

Experts say that Russians earn too much while producing very little. Risks for the Russian economy are growing in case oil and gas prices drop.
This year, wages and salaries could reach 35.5% of Russia's gross domestic product (GDP), according to research by the FBK company, a Russian private auditing firm, conducted using the data from Russia's Federal Statistics Service and the Economic Development and Trade Ministry.
Last year, the total nominal salaries accounted for 34.8% of GDP, up 11.2% over the past eight years.
Natalia Akindinova, executive director of the Development Center, a Moscow economic research foundation, cited her own data: total official salaries accounted for 24% of GDP, while unofficial, for 45%.
However, analysts are unanimous that Russians earn way too much while producing too little as against GDP, especially for a transitional economy.
An FBK partner, Igor Nikolayev, said wages are surging along with the expanding socio-economic stratification in Russia. Even in developed economies, salaries have tended to account for lesser shares of GDP lately, he added.
Rapid growth in salaries could reduce gross profits in an economy, thus limiting development, Nikolayev warned.
Russia's current GDP growth is largely due to the rise in global oil prices, echoed HSBC analyst Alexander Morozov. Therefore, if the latter goes down, the share of salaries in GDP will certainly become too high, which is dangerous: wages should not grow faster than labor productivity.
Last year, labor productivity grew by 7.9%, said Akindinova, while wages grew twice as rapidly, by 16.2% in 2007 and 13.3% in 2006. However, she hopes that wage growth will move closer to that of productivity in later years.
Otherwise, the economy will "eat itself," said Nikolayev, adding that the ideal wage level for Russia was 33% of GDP, like in Norway, which has a similar economy.

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