MOSCOW, June 20 (RIA Novosti)
Russia, Britain ready to normalize relations / Putin leads medicine revolution / Russian-Ukrainian oil and gas disputes start anew/ Russian airlines feel fuel costs/ RusAl and Interros lock horns over Norilsk Nickel/ Russian Tatler to be published in September
Russia, Britain ready to normalize relations
The Moscow Arbitration Court yesterday started hearing the suit of the British Council against Russia's Federal Tax Service over tax claims for 2004-2006. A similar hearing is being held in St. Petersburg.
In the past, Russia and Britain exchanged tough political statements in such cases, but now they are doing their best to avoid them, refusing even to disclose the size and essence of the claims.
Analysts interpret this change of tactic as proof of the sides' readiness to normalize relations, saying that the first step toward this will be made at the G8 summit in Japan in early July.
In December 2007, the Russian Foreign Ministry prohibited the operation of the St. Petersburg and Yekaterinburg branches of the British Council, allegedly because the organization did not have legal status.
The Russian authorities admitted to a political motivation for the decision. Foreign Minister Sergei Lavrov said the branches had been closed because of Britain's unfriendly decision to expel Russian diplomats after Russia had refused to extradite businessman Andrei Lugovoi, suspected of involvement in the murder of political emigre Alexander Litvinenko in London in November 2006.
The Moscow court has postponed the hearing until July 3 at the request of the tax service. After the hearing yesterday, the sides refused to say anything about the size or essence of the tax claims. The London headquarters of the Council said the conflict did not go beyond the boundaries of normal relations with tax agencies.
According to diplomatic sources, talks "are underway at a rather high level" and Britain might accept Russia's conditions for organizing the work of the British Council.
"We think the problem can be solved by the end of the year," a source said.
Andrei Fyodorov, director of political programs at the Russian Council of Foreign and Defense Policy, deputy foreign minister in 1990-1991, said: "The current developments around the British Council are connected with the upcoming meeting between President Dmitry Medvedev and Prime Minister Gordon Brown at the G8 summit in Japan. It is said there is an agreement regarding their meeting."
"Likewise, it is said in Britain that Brown will bring Medvedev an invitation to come to London to discuss a package of proposals on normalizing bilateral relations. If the agreements are approved, the problem of the British Council will be settled," Fyodorov said.
Putin leads medicine revolution
In the next few years, Russia will have a totally different scheme of distributing medication - additional medicine insurance, which will leave the government to shoulder expenses for a small amount of unemployed citizens. The government will pay for a limited basic package including cheap medicine prescribed by doctors, while those wishing to use more expensive and effective drugs will have to pay themselves.
This new system has been discussed for a while in Russia. Prime Minister Vladimir Putin brought up the issue at a meeting in Kursk Thursday. Market players expect repercussions similar to the 2005 revolutionary decision to replace benefits in kind by cash payments.
"It is good that the government supports the medicine insurance scheme applied in civilized nations," said Alexander Kuzin, director general of DSM pharmaceuticals market research group. "Also I am certain that the new scheme will send the market up 20% in the first year."
However, other analysts doubt that long-term demand can be estimated for all drugs as the prime minister required. First, medicine and pharmaceutics are developing, and second, Russia is not strong at long-term analysis and forecasting, and estimates are often tweaked by corruption.
An additional medicine insurance program was discussed earlier, and estimates were made which aroused much enthusiasm. But later the program discredited itself because of corruption, and most participants withdrew. Experts now say at least $2 billion was lost on it without any benefit for patients.
"Al the proposals in this sphere are revolutionary because each is bound to entail whole chains of health care reforms, said David Melik-Guseinov, head of marketing research at the Pharmexpert market center. "Any systematic change means a risk of failure. Also, a change will take time, at least one or two years, because everything cannot be calculated instantly. Which means we can only expect results by the end of the presidential term."
According to him, the federal medicine insurance program will be over by that time. The government will only retain direct patronage of only a few conditions treated with drugs which are inefficient to produce in a free market. Regional officials say the government should take care of several target programs, including the treatment of cancer, diabetes, maternity illnesses and diseases that affect children under three years old. However, as of now, there is no clear concept or, indeed, estimates for the new system.
Russian-Ukrainian oil and gas disputes start anew
Russia's Foreign Ministry demands that Ukraine should stop the development of oil and gas fields on the Black Sea shelf because of their uncertain legal status. The reply is that operations are being conducted within the Ukrainian zone. Experts think Moscow hopes to get an instrument with which to apply pressure if Ukraine decides to oppose the laying of a pipeline along the bed of the Black Sea for its South Stream gas pipeline project.
However, from the economic point of view, the value of the disputable areas is doubtful. "This is pure politics," says Alexander Sobyanin, head of the strategic planning service at the Association of Crossborder Cooperation. "By starting economic activity in areas with an uncertain legal status, Ukraine is trying to de facto draw a border line. This is a matter of principle, so it does not matter how much oil or gas could be found there," he added.
Svetlana Savchenko, in charge of the investment planning department at the 2K Audit-Business Consultations company, said that "Ukraine can annually produce about 1 million metric tons of oil there. Its annual oil consumption is about 15 million metric tons, of which imports account for over 70%. Ukraine annually consumes about 75 billion cu m of gas, importing 55 billion cu m of this amount. There can be no talk of reducing the country's energy dependence with the help of these fields."
Most experts agree that the problem is a political one and a matter of principle for both sides. "Russia's trump card in all disputes with Ukraine is the price of gas supplies, while Ukraine has its own arguments and methods by which to apply pressure," Savchenko said. "A possible campaign against the South Stream gas pipeline, which should run along the bed of the Black Sea, is just one of them. Ukraine can also put obstacles in the way of Russia's entry into the World Trade Organization." Therefore, it is quite possible that Moscow may bring the shelf problem to the forefront if Kiev raises any objections against the South Stream project. They may be ecological ones, like those related to the Nord Stream gas pipeline project along the Baltic seabed which is stubbornly resisted by the Baltic countries and Poland.
"Energy problems are turning into political ones today, therefore any means could be used to settle them," said Sergei Pravosudov, director of the National Energy Institute. "However, the issues can be solved, especially considering our vast experience accumulated over recent years. The situation around Caspian shelf deposits was developing in a similar way. Now the disputed areas are being developed jointly by Russia and Kazakhstan and everyone is quite satisfied with this."
Russian airlines feel fuel costs
Russian airlines are beginning to count the cost of rising fuel prices. Aeroflot, Russia's largest airline, said it expected smaller profits this year, despite an 8%-10% fare hike against the projected 5%-6%. Rival air carriers also plan to raise prices, and also predict reduced profits.
On Thursday, Aeroflot released its 2007 annual report, calculated to international standards. The company's receipts grew by 27.3% to $3.8 billion, and its net profit rose by 21.4% to $313.4 million. EBITDA rose by 49.4% to $723 million.
The rapid growth of fuel prices that began last fall did not have time to impact 2007 financial results, and last year was one of the airline's most successful ever.
But the outlook for 2008 is different. Aeroflot's first deputy general director for finances and planning, Mikhail Poluboyarinov, said the company was expecting 30% greater receipts and lower net profit due to higher fuel prices.
Aeroflot will try to compensate by raising fares. Poluboyarinov said the airline usually passed on 70%-90% of losses from rising prices to the consumer. But now, even by raising fares 8%-10% instead of the planned 5%-6%, Aeroflot will cover only half its losses at best.
If fuel prices continue to rise, the company can expect a $100 million reduction in net profit, Poluboyarinov told the paper.
The Aeroflot annual report said last year's corporate net profit would decline by $98.3 million even if fuel prices were raised by 10%. However, fuel prices at Sheremetyevo airport, the main Aeroflot hub, had soared by over 30% in January-June 2007.
Other airlines are in the same shape. "Everyone's profit is falling without exception, that is certain," said Sibir (S7) financial director Ilya Alexandrovsky. Sergei Mikhalchenko, CEO of the Rossia state transportation company, said fuel prices had hit Russian airlines especially hard because Russian-made planes were not fuel-efficient.
RusAl and Interros lock horns over Norilsk Nickel
UC RusAl and Interros seem to have embarked upon a real war over control of Norilsk Nickel. It is even reported that votes are being bought up ahead of a June 30 annual meeting to elect a board of directors.
Several investment companies are now purchasing Norilsk minority votes to sway the annual meeting, said staff at investment banks and sources close to the company and its principal shareholders.
One vote, according to the top manager of one of the investment banks, depends on the size of the stake and ranges from $1 to $2. The same price was named by the top manager of a Western bank and a source close to Norilsk Nickel. A staffer from another bank said the votes have already gone up to $2.8.
According to the source close to Norilsk Nickel, investment companies have already bought up 2% of the votes. Judging by yesterday's capitalization of the company and the price of $2 per share, something like $7.6 million could have been spent already.
Most sources decline to say who will get these votes and who ordered their purchase.
One of the sellers said he had been instructed to vote for Michael Jeffrey Levitt. Levitt's candidacy was put up by Interros. The man once managed one of the KM Invest funds (both companies are owned by Vladimir Potanin). The source close to Norilsk Nickel also claims Interros is behind the buying spree.
A RusAl spokesman said neither his company nor its shareholders were buying votes.
The situation in Norilsk is such that the one in control of the board is in control of the company, said VTB analyst Alexander Pukhayev. With Interros and UC RusAL running almost neck and neck, minority votes could sway the outcome and are desperately being sought, he said. Norilsk's free float has dropped from last year's 40%, but is unlikely to go below 25% or 30%, he added.
Most of these shareholders will be voting for independents, but this time there are five of them, the source close to Norilsk Nickel said, so the votes of the Western foundations could spread thin and Norilsk might get one independent director. That, too, plays into the hands of the chief shareholders.
The chances of Interros gaining a majority on the board are better, Pukhayev believes. Potanin has negotiated an alliance with Alisher Usmanov, who could have a stake in Norilsk, he said.
Russian legislation neither bans nor permits buying shareholder votes without stock, although in the United States the practice is forbidden, said Dmitry Stepanov, attorney at law with Yukov, Khrenov and Partners. But if votes are bought through depositary receipts [Norilsk Nickel has most of its free float in ADRs], this is legitimate even on Western markets.
Russian Tatler to be published in September
Tatler, "Britain's most stylish and independent society guide," will be published in Russia in September. The Russian Tatler will be the first foreign version of the magazine published in the U.K. since 1709. Conde Nast Publications, famous for its magazines covering fashion, technology, food, and travel, bought Tatler in 1982.
Russian publishers, surprised by the idea of a Russian-language version of Tatler adapted to the Russian market, forecast that its audience will not exceed 25,000.
The monthly 300-page magazine will be published in 120,000 copies, 56% of it to be sold in Moscow, 7% in St. Petersburg, and 1.5%-6% in other Russian cities with a population of over one million. Conde Nast expects the magazine to become profitable in three years.
The size of investment in the project is kept secret, but market players assess it at approximately $10 million.
Fashion photographs will make up as much as 50% of the Russian Tatler, said Elena Shneyderova, PR director at Conde Nast Russia, adding that the Russian version, like the British original, will write about society and aristocrats.
The Russian branch of Conde Nast publishes Glamour, Vogue, GQ Style, and Architectural Digest/AD magazines in a total monthly edition of 1.1 million copies. Experts said its turnover was $35-$40 million last year.
"There is no society in Russia as Tatler understands it," Yevgeny Zmiyevets, the owner of Parlan Publishers, said.
According to the Russian Nobility Assembly (RNA), there are about 10,000 noble families in Russia, only about a hundred of them titled nobility.
RNA head Alexander Korolyov-Pereleshev said: "These people are unlikely to be of interest to the audiences of glossy magazines. They have moderate means; none of them are on the Forbes' list of 100 richest Russians. The majority of them are cultural intellectuals."
Korolyov-Pereleshev said the most widely known Russian noble is Deputy Prime Minister Alexander Zhukov.
Tatler's success in Russia depends on winning a niche on the market, "possibly on the border between magazines about stars and fashion," said Viktor Shkulev, president of HSF Publishers.
In his opinion, these magazines' advertising revenues amounted to some $350 million last year.
Zmiyevets said the possible audience for a Russian Tatler would be about 5,000.
A top manager at a major survey company has assessed the audience of the Tatler's Russian version at 12,000-25,000.
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