What the Russian papers say


MOSCOW, March 17 (RIA Novosti) Dmitry Medvedev stands up for foreign investors/ Russian opposition to set up alternative parliament/ French and British companies get Shtokman design contracts/ Russian gas prices for Europe may surge to $400 in second half of 2008/ Russian company to control 30% of U.S. pipe market/ Lufthansa Cargo cleared again to fly over Russia

Vremya Novostei

Dmitry Medvedev stands up for foreign investors

Controversial amendments to a bill on foreign ownership of strategic companies will be set to rights soon. Ahead of a second reading (scheduled for March 19) deputies will remove from the law a provision describing Internet access as a service strategic for national security.
An informed source close to the Duma leadership claimed that the provision had to be removed after Dmitry Medvedev intervened.
Amendments to the bill on foreign investments in profit-making organizations of strategic importance for Russia caused an immediate outcry and became a political issue. Some sources said the amendments had come from the Presidential Executive Office. Remarkably, Information Technologies and Communications Minister Leonid Reiman, protesting against the new rules, also appealed to the Kremlin.
A source said that president-elect Dmitry Medvedev disapproved of the Internet regulation. And he made his view known to the Duma leadership.
Martin Shakkum, chairman of the relevant Duma committee, said at the weekend: "The Internet will be out for sure." But he noted that Medvedev did not speak to him personally or try to influence the committee, although he could have shared the suggestion.
Whether or not this "thaw" ends with the Internet will become clear in the next few days. It cannot be ruled out that the bill will be closely vetted by the Kremlin for its political competence. The new text of the bill agreed with the Federal Security Service is far more tough-worded than the document adopted in a first reading last fall.

Nezavisimaya Gazeta

Russian opposition to set up alternative parliament

The opposition coalition, The Other Russia, has called on opposition movements and parties to set up a national assembly as a kind of shadow parliament. But former Prime Minister Mikhail Kasyanov and Yabloko leader Grigory Yavlinsky, as well as other opposition leaders, are openly critical of the idea.
Yavlinsky had a very warm meeting with President Vladimir Putin, which demonstrates some differences between the party's upper echelon and grass-root members over relations with the authorities.
Nikita Belykh, leader of the Union of Right Forces (SPS) party, had previously said his party's political council would meet in March to consider attending the April conferences in St. Petersburg to discuss a new agenda for Russia's democratic movement. The council has not made any decisions, while Belykh said "the SPS has always rejected the idea of uniting democrats with nationalists and left-wing forces."
The Other Russia was set up in late 2006 with the same goal in view. But the initially broad coalition soon shrank to a duet of Garry Kasparov, leader of the United Civil Front, with writer Eduard Limonov.
The coalition exodus last year was led by human rights activist Lyudmila Alekseyeva and opposition leaders Georgy Satarov, Sergei Glazyev, Irina Khakamada, Mikhail Kasyanov and Viktor Anpilov, who were unhappy with the lack of constructive dialogue and the coalition's radicalism.


French and British companies get Shtokman design contracts

Contrary to general expectations, Russian gas giant Gazprom has chosen France's Technip and Doris Engineering, and JP Kenney, a British pipeline-engineering firm, as designers for the first stage of the Shtokman gas condensate project.
Experts say the three companies may also become contractors in the $15 billion project.
However, project operator Shtokman Development AG (with 51% of its shares held by Gazprom, 25% by France's Total and 24% by Norway's StatoilHydro) said Russian companies would be the favored bidders at contractor tenders in 2009.
Hydrospetsgaz, a St. Petersburg-based Gazprom subsidiary that has agreements with foreign partners, will be the FEED (front end engineering design) contractor.
France's Technip and Russia's Petro Technic will be responsible for building an LNG plant.
Doris Engineering and the Rubin design bureau will design the offshore production facility, and JP Kenny and Hydrospetsgaz, the 600-km (373-mile) pipeline from the field to the shore.
Special purpose vehicle Shtokman Development AG, registered in Switzerland, will be in charge of the project's first phase, with gas reserves of 3.7 trillion cubic meters and annual production of 23.7 billion cubic meters. Pipeline gas is due to come on stream in 2013 and LNG, in 2014.
After FEED is ready by mid-2009, tenders will be held to choose development contractors for the Shtokman project, said Yury Komarov of Shtokman Development AG.
Maxim Shein from BrokerCreditService said there was a major reason behind the surprise choice of designers. It was previously thought that the Norwegian companies would be responsible for the technical aspects of the project because they have the most experience of working in the Arctic.
However, "in line with the shareholders' agreement, Total has the right of veto on disputable technical and technological questions. Design companies loyal to the Norwegian partners have not been recruited for front end engineering," he said.
Shein said these companies would also have privileges at the tender to choose contractors who will build the Shtokman infrastructure.
But Konstantin Batunin from Alfa Bank said the cost of services would be the key factor behind decisions.
Komarov has overturned both conjectures by saying that Russian companies will receive the most favored treatment at the tenders. However, foreign contractors have Russian partners, so it is difficult to say who will be the actual winner.


Russian gas prices for Europe may surge to $400 in second half of 2008

Due to a record rise in European gas prices, earnings by Russian gas giant Gazprom could reach $110 billion by the end of this year.
According to Gazprom CEO Alexei Miller, gas supplies to EU countries will increase by 6 billion cubic meters from the 2007 figure, to 157 billion cubic meters. This is not that high considering that last year was unsuccessful for Gazprom: for the first time in its entire history the company's exports to Europe dropped, not only from the 2006 figure (161.5 billion cubic meters) but also from the 2005 figure (156 billion cubic meters). The company explained the drop by a lower demand for fuel because of unusually warm weather.
However, Gazprom's revenues have not fallen, for European gas prices are determined under a formula tied to fast growing oil prices.
Alexei Miller said that earlier Gazprom predicted a price of $310 per 1,000 cubic meters for non-CIS countries in 2008, but it has already exceeded $370 billion in Europe by now.
"We think that in 2008 the average [gas] price in 2008 may rise to $378, or even to $400 per 1,000 cubic meters," said Gazprom's CEO to President Vladimir Putin on March 14.
He agreed with the president's remark that the rise in gas prices was due to a fall in the dollar exchange rate, among other things. However, in Miller's opinion, the price dynamics outpaces the dollar decline and is not prevented by the growing demand [for gas] on the European market.
Analysts say that Miller's assessments are objective. In 2008, the average price of Russian gas in Europe will reach $369 per 1,000 cubic meters, and in the third quarter of this year it may surge to $400 due to high oil prices, and mostly of fuel oil prices, a report by the Troika Dialog investment company states.
Deutsche Bank's analysts also think that Gazprom's forecast is realistic, though the current gas price is somewhat lower - $340 per 1,000 cubic meters.
If the weather is more favorable to Gazprom and Miller's forecast comes true, the monopoly will show a record high financial performance according to the 2008 yearend results.
Denis Borisov, an analyst from the Solid investment and financial company, said that the company's net export earnings (minus duties) may reach $42-43 billion (they are projected at about $31 billion according to the 2007 yearend results, compared to $31.2 billion in 2006).
The expert projects the company's total earnings this year at $110 billion, with the domestic market taken into account (excluding duties, excises and VAT). This is yet another record: the figure expected according to the 2007 results is $88-90 billion, compared to $79.3 billion in 2006.

Business & Financial Markets

Russian company to control 30% of U.S. pipe market

On March 14, Russian steel giant Evraz said it would spend $4 billion to buy Canadian-U.S. steel and pipe manufacturer IPSCO owned by Sweden's SSAB. Russia's largest pipe manufacturer Pipe Metallurgical Company (TMK), that will control the company's pipe-making assets, will finance part of the deal.
Once the deal goes through, Evraz will rank among the world's five largest steel rolled-stock producers; and TMK will control 30% of the North American oil and gas pipe market.
SSAB recently announced plans to sell non-core IPSCO assets in order to repay its debts.
"The deal will expand the company's presence in the North American market's value-added product segment," Evraz CEO Alexander Frolov told the paper.
He said the new purchase would allow the company to exploit regional energy and infrastructural advantages.
Pavel Shelekhov, an analyst with Kapital brokerage, said this was the fourth North American steel rolled-stock company to be bought by Evraz, which had acquired Oregon Steel Mills in late 2006, Highveld Steel in mid-2007 and Claymont Steel late last year.
Shelekhov estimated IPSCO's pipe-making and steel-rolling assets at $4-4.5 billion and said Evraz now ranked among the world's five largest steel rolled-stock producers.
Under the deal, IPSCO pipe-making assets will be resold to TMK for $1.7 billion. The company will completely own IPSCO Tubulars Inc. and a 51% stake in NS Group Inc., a maker of steel pipes and tubes used in oil fields, and will also be able to take over the latter.
TMK officials said the purchases enabled the company to enter the world's largest oil and gas pipe market.
Vadim Smirnov, an analyst with Alemar Investment Financial Corporation, said TMK would control 30% of the North American market, but that it should not expect high profits.
"Regional steel is quite expensive due to ore shortages and high production costs," he told the paper.


Lufthansa Cargo cleared again to fly over Russia

Russia's Ministry of Transportation has agreed terms with German aviation authorities under which Lufthansa's cargo planes will fly over Russia.
Experts are glad that the conflict has been resolved without problems and noted that the Russian authorities should cherish their good intergovernmental agreements with Germany.
The ministry has been engaged in talks with German aviation authorities and Lufthansa Cargo in Munich since Thursday. "It is all right that the negotiations have lasted several days. No problems were raised during them," said Lufthansa Cargo's spokesman Nils Haupt.
The ministry announced the results at the weekend. It extended Lufthansa's clearance for flights to Southeast Asia via Astana till the end of summer 2008. In exchange, Lufthansa promised to reroute flights now landing to refuel in Astana to make a stop-over in Krasnoryarsk within five months of the airport receiving official ICAO second-category rating. The airport administration promised Lufthansa to certify the airport before the end of 2009. Another round of talks is expected to take place in Krasnoyarsk in September.
The conflict between Russia's aviation authorities and Lufthansa erupted last fall when the Russian Transportation Ministry refused to extend Lufthansa's temporary clearance for flying over Russia from October 27. The ministry said its refusal was motivated by Germany's refusal to meet its promise to make a stop-over at one of the Russian airports when using the trans-Siberian corridor. Later, Lufthansa agreed in principle to make an intermediate landing at Krasnoyarsk.
The agreements reached in Munich are practically the same as the earlier conditions set by Russia for Lufthansa to return there, said Boris Rybak, director general of the Infomost agency. He hopes the talks will continue in the same vein.
"The intergovernmental agreements between Russia and Germany should be prized as the most extended and most liberal: ten carriers from each side have been cleared for flights," Rybak said. The agreements between Russia and Germany should become ideally a prototype for an open-skies treaty between Russia and the EU, he said.
True, Yevgeny Shago, an analyst with Trust Bank, said that even the positive results of the talks were unlikely to shape further relations between Russia and the EU. "Until we resolve the royalty issue over trans-Siberian flights, the situation is unlikely to change," he said.

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