MOSCOW, June 2 (RIA Novosti)
Moscow prepares for Medvedev-Saakashvili meeting/ Russia to redeploy Black Sea Fleet from Sevastopol to Syria/ Foreign investment law enacted but not enforced/ Gazprom has another go at Italian market/ Russian corporation considers Chinese mobile market/ Used foreign car market a thorn in Putin's side
Kommersant
Moscow prepares for Medvedev-Saakashvili meeting
Russia has deployed a unit of railroad troops in Abkhazia, allegedly to repair rail infrastructure to allow supplies to the construction site of the 2014 Winter Olympic Games in Russia's Sochi on the Black Sea.
According to the business daily Kommersant, the move could be part of preparations for a meeting between Russian President Dmitry Medvedev and Georgian President Mikheil Saakashvili this week.
Russia has been trying for several years to restore the railroad destroyed during the Georgian-Abkhazian conflict, in order to have a direct link with Armenia, a key ally in the South Caucasus, via Abkhazia.
In March 2003, then Russian President Vladimir Putin and Georgia's ex-president Eduard Shevardnadze agreed a package deal, under which Georgia was to ensure free transit between Russia and Armenia, while Russia promised to negotiate the return of Georgian refugees to the breakaway republic of Abkhazia.
In May 2006, Russia, Georgia, Armenia and Abkhazia set up a consortium to rebuild the railroad. But a dramatic deterioration in relations between Russia and Georgia in the fall of 2006 brought the project to a halt. Moscow has recently been trying to revive it.
Irakly Ezugbai, head of the Georgian rail authority, said re-establishing the railroad in Abkhazia would cost at least $241 million.
Sergei Shamba, the foreign minister of the breakaway republic, said the Russian government was so far financing the project, but a consortium with Georgia and Armenia could be given a second lease on life.
Georgian political analyst Nika Imnaishvili said: "The Georgian leaders may agree to revive the project only in return for serious dividends, such as the return of Georgian refugees to the north of the Gali District, or the lifting of a Russian embargo on Georgian products."
This means that Russia, Georgia and Abkhazia will have to sign a package agreement.
According to Kommersant, the sides are already discussing numerous points of a future agreement, and a Medvedev-Saakashvili meeting on June 6, during the CIS summit in St. Petersburg, is seen as the key element.
The sides may reach agreement this time, as evidenced by Vladimir Putin's interview with Le Monde, in which he gave an unexpectedly positive assessment of the Georgian president's plan for the settlement of the conflict with Abkhazia.
RBK Daily
Russia to redeploy Black Sea Fleet from Sevastopol to Syria
Adm. Vladimir Vysotsky, commander of the Russian Navy, said Friday the country's Black Sea Fleet, based in Sevastopol, Ukraine, could be beefed up from the current 35 to 100 warships.
Without waiting for a political agreement on the Black Sea Fleet's future, Adm. Vysotsky is studying the possibility of redeploying the fleet to the Mediterranean Sea.
Military analysts said the redeployment proposals were reasonable, but that the plan to beef up the Black Sea Fleet was a populist gesture because Russia had insufficient reserve warships which could only be redeployed from other fleets.
Leonid Ivashov, president of the Academy for Geopolitical Affairs, said it would take Russia 20 years to deploy 100 military vesselsin the Black Sea, but that Moscow could lose the Sevastopol base in that time.
According to Ivashov, statements on beefing up the Black Sea Fleet are somewhat adventurist.
Alexander Khramchikhin, head of the information-analytical department at the Institute for Political and Military Analysis, said additional warships could be taken away from the Baltic and Northern Fleets, but the reasons for doing so remained unclear.
Adm. Vysotsky said Russia would expand its strategic interests in international waters, and that it could also set up a naval base in the Mediterranean Sea.
Analysts support the Black Sea Fleet's possible redeployment to the Mediterranean Sea.
"Syria's Tartus port is the only Russian foothold in the region. It would be difficult to convert the facility into a developed naval base because we used to have just one floating repairshop there," Ivashov told the paper.
However, some warships must continue to guard Russia's Black Sea coast. "Small combat vessel will remain in Novorossiisk, and the few capital ships will be transferred to Tartus," Khramchikhin said.
The Russian Navy has been operating a logistics-support facility in Tartus since the Soviet era. About 10 Russian warships and three floating piers are currently deployed there.
Russian specialists are expanding the port and building a pier in nearby El-Latakia.
The logistics-support facility could eventually be converted into a permanent naval base.
Vedomosti
Foreign investment law enacted but not enforced
Foreign investors have the right but cannot purchase Russian strategic enterprises. The relevant law has been enacted but there is no proper authority to supervise it or procedures to formalize deals.
A ministry official believes today's meeting of the inner cabinet will appoint the Federal Anti-Monopoly Service as an authority responsible for receiving and examining applications from foreigners.
The service, however, is unaware of such plans, said its spokesman Alexei Ulyanov. According to him, the authority will have to adopt between 15 and 20 regulations before it can get off the ground.
The law does not cover the concluded deals, but binds the investors to inform the authority within six months that they own 5% or more of a strategic enterprise. The countdown started on May 7 (the day the law came into force), said Alex Stolyarsky from the Association of European Business, but no one knows whom to turn to or inform. Officials are reassuring that it is not a fatal delay: the law does not impose a penalty for failing to report on time, said a source in a foreign industrial company.
The new rules are now forcing LUKoil, Archangel Diamond Corporation (ADC) and De Beers to adjust their investment plans. In April they agreed that ADC would purchase 49.99% of the Arkhangelsk mining geological company from LUKoil. With the deal requiring government approval, the deadline has been moved from June 1 to December 31, ADC said in a press release.
The law has also hit share depositary receipts for Russian companies, said Troika Dialog managing director Andrei Sharonov: there is already a case on record when a foreign depositary bank refused to accept an application to buy and convert strategic company shares (one of the news agencies said the case involved a raw materials company and Deutsche Bank).
Even when subordinate legislation is in hand, the law will not start functioning at once, a source in a foreign company said. It will require some experience to get into stride. Six months is the shortest timeline the law needs to get on its feet, says Martin Shakkum, chairman of the Duma construction committee. (He was responsible for the law's reading in parliament). But when applications begin coming in thick and fast, the government will be forced to act more lively.
Kommersant
Gazprom has another go at Italian market
Gazprom's German subsidiary, Gazprom Germania GmbH, and Austria's Centrex, affiliated with Gazprombank, have set up a joint venture, CEA Centrex Energy & Gas, to sell gas in Italy. This is the Russian gas monopoly's third attempt to try and get access to end consumers in Italy.
Last March, Gazprom Germania bought a 25% stake in Centrex Energy & Gas AG with an option to buy another 25.1% by 2010.
Gazprom said this was part of a plan to set up a joint venture to sell gas in central and northern Italy, above all in Milan, Bologna and Brescia. Gazprom Export did not say when deliveries would begin and if Centrex would get 75% of the profits, but said Centrex has good ties in Austria and Italy.
Domestic gas prices in Italy are among the highest in Europe, $550-$650 per 1,000 cubic meters.
In May 2005, former Russian President Vladimir Putin and then Italian Prime Minister Silvio Berlusconi signed an agreement to set up Central Italian Gas Holding AG (CIGH), a joint venture in which Gazexport (now Gazprom Export) held a controlling stake. But Paolo Scaroni, who became Eni's new CEO after Berlusconi lost the elections in the fall of 2005, terminated the agreement.
A year later, Gazprom Marketing & Trading, 100% owned by Gazprom, registered a division in Italy, but it never got on its feet.
Maxim Shein of BrokerCreditService said Gazprom's moves are logical. "An asset swap with Eni has lasted three years, and it is not yet clear when Gazprom will have property in Italy," Shein said.
Mikhail Korchemkin, director of East European Gas Analysis, said Russian gas cost $392 per 1,000 cubic meters on the Slovak-Austrian border on May 15.
"The average profit norm for gas supplies to end consumers is 6%-8%," Korchemkin said. "In the case of Centrex, everything will depend on whether the company buys gas at $200 from Gazprom Export or at $300 from Rosukrenergo. It may earn between $350 million and $700 million, depending on the contractual terms."
Vedomosti
Russian corporation considers Chinese mobile market
Vladimir Yevtushenkov, the main beneficiary of consumer services company AFK Sistema, said they are considering entering the Chinese mobile market. He said his company was not looking to buy a local operator, because there were few available and all of them expensive in China.
Sistema, which incorporates telecom, high-tech, insurance, real estate, retail trade, mass media, banking and venture companies, may bid for a license in China.
Access to the Chinese mobile market for Russian companies has been discussed more than once at bilateral meetings. In the fall of 2007, German Gref, then economic development and trade minister of Russia, asked Ma Kai, ex-minister of China's development and reform committee, to facilitate the Russian companies' access to the country's mobile market. Gref said he was acting at the request of Russia's three largest mobile operators.
Sergei Avdeyev, vice president for network development at VimpelCom, Moscow's No. 2 cellular operator using the GSM standard, said they were closely monitoring the Chinese market, but unfortunately nearly all mobile companies in China are state-owned. He said there was no way to access the Chinese market.
MegaFon is also interested in China, but it has no proposals or plans for gaining a foothold on that market, said Tatyana Zvereva, press secretary of Russia's third biggest mobile operator.
Foreigners can only set up joint ventures in China, with the local partner holding 51% or more.
A week ago, the Chinese government announced that six state-held operators would be merged into three companies to provide mobile and fixed communication services throughout the country. After that, the government will hold a tender for 3G licenses.
Sergei Sanakoyev, head of the Russian-Chinese center of trade and economic cooperation, said this had increased foreigners' chances. Sistema "has wisely developed comprehensive relations with local partners in different spheres, and has signed relevant contracts and agreements," he said.
Yevtushenkov was one of the few Russian businessmen to accompany President Dmitry Medvedev on his recent visit to China.
Sanakoyev said it would cost much more to enter the market in China than in India. Sistema paid $58.1 million and promised to invest $7 billion to gain control of India's Shyam Telelink.
Konstantin Chernyshev, chief analyst at the Uralsib corporation, said that if mobile coverage grew to 60% in China (780 million of the 1.3-billion population) and Sistema claimed 5%-7% of that market (39-55 million subscribers), it would have to invest as much as Mobile TeleSystems (MTS) had done in Russia.
MTS is the largest mobile phone operator in Russia as well as in Central and Eastern Europe in terms of franchises.
Russian operators usually plan investment at $100 per subscriber. Therefore, Sistema may have to pay $5.5 billion to connect 55 million subscribers in China, and also invest in licenses and frequencies, Chernyshev said.
$smartMoney
Used foreign car market a thorn in Putin's side
The Russian car industry can rejoice: last week the prime minister pledged to introduce new preferential tariffs. The government plans to cut import duties on steel used in the auto industry. The Cabinet is also going to extend the grace period for component industrial assembly agreements, which stopped being concluded last fall.
Everybody expects the industry to answer with a powerful boost: "In the ultimate analysis 80% or so of cars sold in Russia should be produced on its territory," said Prime Minister Vladimir Putin.
AvtoVAZ, as part of the Russian car industry, is clearly unable to shoulder such a task. The Russian auto market is growing by 20% to 30% per year and will continue to expand in the future. Meanwhile, only 664,000 Lada cars were sold in Russia last year, with experts predicting a scaling down to 655,000 by 2012. Volga cars are likely to be abandoned altogether by 2012. It looks like local manufacturers of foreign models will have to do the prime minister's bidding. But they will not do it fast.
According to Autostat agency, Russia will produce 1.8 million foreign cars in Russia by 2012, and the market will total 5.9 million. The cars made in Russia will account for only 42%. Plants will not be able to alter their production capacity that quickly - it takes time to make a decision, to set up a new plant and bring it up to targeted capacity. The "Putin plan" will help them in another way: most foreign model manufacturers use industrial assembly techniques, which require an increasing emphasis on local production. Steel import deductions can increase the arrival of global car component producers.
The bad news is that car buyers will have to fork out. In the near future the government is going to clamp down further on the import of used cars. The prohibitive duty will apply to cars older than five years (the current ceiling is seven years). The measure is unlikely to have a great affect on the industry: currently Russia imports 380,000 used cars, and by 2012 imports will fall to 250,000 units in any case without the prohibitive duties. The new tariffs will close the road only to part of these cars - vehicles five to seven years old.
Putin also wants to act on the market through OSAGO (compulsory civil-liability motor-vehicle insurance) tariffs: new car owners will be offered lower rates to encourage them to ditch junk cars. But this measure cannot be described as really effective: the chance of saving a few hundred rubles a year is unlikely to persuade owners to swap their cars.
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