MOSCOW, May 23 (RIA Novosti) Medvedev's visit to China will be difficult/ Russia steps up tensions with Ukraine/ Moscow needs to talk with Saakashvili - whether it likes it or not/ Russian gas monopolies could turn back on Europe/ AvtoVAZ set to buy IzhAvto from SOK Group/ Putin's party returns to food vouchers
Medvedev's visit to China will be difficult
President Dmitry Medvedev's visit to Beijing today is aimed at confirming Russia's view of China as a serious geopolitical ally in challenging the West. However, his agenda consists of very difficult issues, above all energy ties.
In 2006, Russian and Chinese companies agreed multibillion contracts on Russian energy supplies to China. Soon afterwards, Russia started building the East Siberia-Pacific Ocean oil pipeline, which was to have a branch pumping oil to China.
But the implementation of many of the agreements has stalled since then, above all because of price differences between Russia's largest state-controlled oil company Rosneft and China National Petroleum Corporation (CNPC).
Mikhail Krutikhin, an analyst at the RusEnergy consultancy, said: "Rosneft has calculated that it will lose $40 per metric ton on its deliveries to China." It has informed the government that it will terminate the contract unless a new price is agreed upon.
This may also prevent the signing of a new agreement between the two companies on the delivery of 50 million metric tons of oil in 2010-2015. CNPC claims that Rosneft owes it for the help it gave in the acquisition of assets of the bankrupt Yukos company.
As a result, the branch to China, which Transneft has designed, is under question. Mikhail Barkov, vice president of the oil pipeline monopoly, said Russian leader Dmitry Medvedev and Chinese President Hu Jintao might address the issue during their meeting. However, there are no representatives of the company on Medvedev's team.
Krutikhin said the Russian government must act quickly. "If the pipeline is built only to the Pacific Coast [without an offshoot to China], the pipeline design must be amended immediately to boost its capacity and change the blueprints for the oil terminal and ports," he said.
There is little hope of coordinating gas contracts. Gazprom spokesman Sergei Kupriyanov said none of the gas monopoly's managers had gone to China with Medvedev.
The new Russian president's prestige in China will depend on his ability to solve accumulated problems. Moscow has taken out insurance by planning a visit to China by Prime Minister Vladimir Putin this fall.
Russia steps up tensions with Ukraine
Russia's Foreign Ministry announced Ukraine's Deputy Justice Minister Yevhen Korneichuk was not welcome in Russia on Thursday. Prior to that, Ukraine banned entry for some Russian officials, which has so far provoked no response from Moscow.
Russia's decision to aggravate relations with Ukraine, at the same time as similar moves were occurring with Georgia, was by no means a coincidence, as both post-Soviet countries are heading for NATO membership, and Russia is seeking to prevent it.
Commenting on the statement allegedly made by Vladimir Putin on the sidelines of the Bucharest NATO summit that Ukraine "wasn't even a state, with part of its territory gifted from Russia," Korneichuk said such statements could be a reason to deny entry and that Russian officials should watch their language.
"Considering what Yevhen Korneichuk publicly said, we assume he has no plans to visit Russia [anymore]," Andrei Nesterenko, an official spokesman of the Russian Foreign Ministry, said in response.
Russia has had a list of "undesirable" persons since Soviet times, but Moscow generally tries to avoid applying this measure to the CIS, a government source said, adding: "In 2007, we agreed with Kiev not to do it, but Ukraine violated that agreement by repeatedly denying entry to parliamentary member Konstantin Zatulin, then Moscow Mayor Yury Luzhkov... We have been forced to respond."
Korneichuk is not one of Ukaine's important politicians. Moreover, the country's president, Viktor Yushchenko, and current Foreign Minister Volodymyr Ohryzko have spoken much more harshly about Russia. However, it was Korneichuk's comments that caused the traditionally cautious Russian Foreign Ministry to react.
However, it is not really about Korneichuk or even about the good old "tit-for-tat" diplomatic practice, questioning Ukraine being a fully fledged state at foreign-ministry level, Moscow is clearly trying to create tensions in and around Ukraine in order to delay its entry into a membership action plan with NATO.
As Ukraine and Georgia had expected to be granted membership together in December, the same reason could be behind the May 20 statement by North Ossetia's President, Teimuraz Mamsurov, who urged a reunion with South Ossetia speaking at the Russian Foreign Ministry.
Moscow needs to talk with Saakashvili - whether it likes it or not
Georgian President Mikheil Saakashvili's ruling party has won the May 21 parliamentary elections. According to preliminary results, the party received over 60% of the vote, although the results were most likely "corrected" in favor of the president in accordance with local traditions.
This does not change the overall picture, though. The Georgian president will have no dangerous political rivals for the next few years.
Only Western observers believe in the results announced by the Central Election Commission, because the mass use of administrative resources and vote rigging is probably more widespread in Georgia than in Russia.
Several months ago, Saakashvili was viewed as a wounded and therefore extremely dangerous animal, but he has proved his unrivalled talent for political maneuvering and the ability to emerge the winner out of hopeless situations.
Just as he had done many times before, he provoked an argument in relations with Russia, shifting Georgians' attention to the "external enemy" and using the moment to cut the ground from under the feet of his opponents.
As usual after a period of internal political strife, the intrigue will now move back to Russian-Georgian relations. The Kremlin's new policy in the Caucasus is crystal clear - Georgia must forget about joining NATO or wave goodbye to Abkhazia. Moscow may stop short of officially recognizing the breakaway republic, but it will definitely do its best to draw the region into its economic space.
The Georgian authorities and opposition have a different political logic. They think NATO membership is their only chance to force Moscow to change its policy, arguing that Washington has more than once "convinced" Moscow to change its loud No to a quiet Yes.
Georgia and Russia are rapidly moving toward a point of no return. Officially, NATO may not admit a country that has unsettled territorial disputes. But the recent example of Kosovo shows that international law is not always respected.
Unless something is done now, the United States will be the geopolitical winner in the dispute between Russia and Georgia. Russia will gain Abkhazia and lose Georgia, which will become its sworn enemy whose territory Americans will use as they want.
Russian gas monopolies could turn back on Europe
The EU Industrial Committee has tentatively approved a so-called third package on gas market liberalization restricting third countries' access to EU markets. In response, Russian gas monopoly Gazprom has warned that in that case gas suppliers will have the right to review their plans for capital investments in the European gas pipeline system, including the financing of the Nord Stream and South Stream gas pipeline projects.
Such initiatives discriminate against Gazprom with respect to the existing Yamal-Europe gas pipeline. It is not yet clear how they will affect the Nord Stream and South Stream projects pumping gas from Russia to Germany and Italy.
"The effect of such changes on the market is unpredictable," said Stanislav Tsygankov, head of Gazprom's department of foreign economic relations. "If the new rules hinder the implementation of investment projects, major suppliers may revise their plans for capital investments in infrastructure projects."
"Russia will refuse to sign the new energy package on the terms offered by Europe," Valery Yazev, deputy chairman of the State Duma and president of the Russian Gas Society, said in Berlin. "Europeans are deluding themselves if they think we will accept this. Russian gas monopolies will turn towards Asia, India and Japan whose requirements for energy resources are growing. Our country will always find a market for them," Yazev said.
Yekaterina Kravchenko of BrokerCreditService thinks that Gazprom could delay the adoption of the bill with the help of its German and Italian partners. "If worst comes to worst, Gazprom will put the question bluntly, even threaten to freeze the Nord Stream and South Stream projects. Private gas pipeline operators are dangerous for the market because the present gas transportation system, which has evolved over the past 40 years, may be broken. It is quite possible that in this case Gazprom will switch over to LNG supplies," Kravchenko said.
Valery Nesterov of Troika Dialog noted that positions of Gazprom and major European gas concerns are similar - they all oppose the segmentation of the sector. "What the EU is trying to do now shows that it does not understand the internal driving force of the gas sector, which is less competitive than other markets and needs massive investment," he said. The analyst said that the Nord Stream and South Stream projects could be amended although he thinks this is unlikely.
AvtoVAZ set to buy IzhAvto from SOK Group
Russia's largest carmaker, AvtoVAZ, is in talks on buying the Izhevsk Automobile Plant (IzhAvto) in Izhevsk in the Udmurtia Republic in the western Urals from the second-largest Russian automotive maker, SOK Group.
This year, SOK offered to sell IzhAvto, which produces 220,000 KIA models, VAZ cars and Izh vans annually, to AvtoVAZ for $500 million citing a valuation by KPMG. But the buyer has requested its own valuer - Troika Dialog, a majority shareholder member and top manager at AvtoVAZ's Togliatti plant said. According to preliminary information, the price will be less than $500 million requested by SOK.
A financial and legal audit check of IzhAvto will be completed pending a deal in late May or early June, SOK spokesman Dmitry Rumyantsev told the paper. An AvtoVAZ manager said the deal could be closed this August, while the AvtoVAZ top manager said the company would probably pay about $350 million for IzhAvto, because the company does not make its own cars and engines.
SOK has reasons to insist on the $500 million price because, according to IzhAvto CEO Mikhail Dobyndo, the plant could expand annual production to 350,000 cars.
Given the plant's current production potential, it is worth $300-500 million depending on equipment wear, Alexander Agibalov, managing director at AG Capital Management, told the paper. He said AvtoVAZ needed another plant in Togliatti in the Volga area where AvtoVAZ production facilities are sited, in order to produce new models developed jointly with Renault.
The top AvtoVAZ manager said production of Lada 4 x 4 SUVs or Kalina sedans could be relocated to IzhAvto, and that the Kalina assembly line in Togliatti could manufacture vehicles developed in conjunction with Renault-Nissan.
After the sale goes through, IzhAvto is unlikely to manufacture KIA cars because they would be in direct competition with Renault vehicles, Agibalov told the paper.
Putin's party returns to food vouchers
The pro-Kremlin United Russia party led by former president Vladimir Putin is proposing a Soviet-style food distribution system involving vouchers. Its members believe that vouchers could help kill two birds with one stone, support low-income families and the country's agriculture, said Andrei Isayev who heads the parliamentary committee on labor and social policy.
The government is not discussing this proposal, as other measures are being used to support low-income families, a Health Ministry official said.
The idea is disputable, Isayev told Vedomosti, because it is not supported by the liberal wing of the party. The temporary price freeze has not produced the desired effect. Prices are on the rise again, with low-income families in no position to keep pace with them, Isayev said. In the fall, we will either have to restrict exports, augment social subsidies or introduce coupons, the latter being the less expensive evil of the three. A coupon system is quite effective in the United States, the United Russia party said.
A food coupon system in Russia is unlikely to work as effectively as in the U.S., said Sergei Guriyev, rector of the Russian School of Economics, citing the dysfunctional system of providing free healthcare to the poor. Any distribution system is corrupt by definition, he said.
A distribution system will limit low-income consumer freedom, as they will have to buy only a limited range of products, presumably of low quality, too, suggested Tatyana Maleva, director of the Independent Institute for Social Policy think tank. "What was the point of replacing benefits in kind with cash payments, only to shift back so soon?" she wondered.
Coupons for specific goods create a "surrogate market," as happened with vodka vouchers which people tried to exchange for something of more value, remarked Yevgeny Gavrilenkov from the Troika Dialog brokerage. The government will finance social programs anyway, so why not just give the money to the poor directly without burdening the system with middlemen and prevent the misuse of the funds, he said.
The easiest way could be to raise social benefits by an amount equal to the proposed financial compensation, and deposit the money with specially issued plastic food cards, suggested Viktor Olkhovoi, first deputy head of the Moscow City Hall food resources committee. Card holders will be able to pay for any product they choose, he added.
Moscow's low-income residents also carry social cards, which enable them to purchase food, medicines and even gasoline at a discount. "It is a tried-and-trusted practice already in place, why invent another one?" Gavrilenkov said.
RIA Novosti is not responsible for the content of outside sources.