What the Russian papers say


MOSCOW, July 24 (RIA Novosti)
Evraz to take over Industrial Union of Donbass / Inefficient and old regional leaders to lose their posts in Russia/ Chery production to start in Russia/ Ukraine's prime minister claims to have agreed terms with Gazprom/ Buccleuch Property buys Russian properties with $19 million joint venture/


Evraz to take over Industrial Union of Donbass

Russian steel producer Evraz Group is negotiating a merger with the Industrial Union of Donbass (ISD), one of Ukraine's largest steel trading and holding companies.
If the deal goes through, Evraz, whose largest shareholder is Russian billionaire Roman Abramovich, will control ISD and its value will grow to $50 billion, making it one of the world's top five steel producers.
ISD's talks on a merger with Russian holding Gazmetall, co-owned by another Russian tycoon, Alisher Usmanov, have failed.
According to sources in Russian and Ukrainian investment banks, talks between Evraz and ISD have reached the final stage. Credit Suisse is the consultant in the transaction.
Petro Antropov, head of KBC Securities Ukraine, said the planned merger had been discussed at the shareholders' meeting of the Alchevsk Iron & Steel Works, in which KBC holds a minority stake.
KBC Securities is a wholly owned subsidiary of KBC Group and has its main office in Brussels with complementary activities in 19 subsidiaries, including in Kiev (Ukraine).
Evraz has declined to comment, but a source close to company shareholders confirmed that there is a preliminary agreement on a merger with ISD.
The source refused to divulge details, but said it would be a merger, with Evraz taking over a controlling stake. ISD's non-core assets will not be part of the deal.
ISD vice president Oleksandr Pilipenko refused to comment on the proposed merger. "All companies are holding talks to get information about the assets of the top 30 metal companies," he said. "We are negotiating with Novolipetsk Steel, Evraz and ArcelorMittal."
The Russian, Ukrainian and London offices of Credit Suisse, as well as Roman Abramovich's Millhouse Capital, which owns 36.44% of Evraz, refused to comment.
ISD was set up in 1995 and has assets in mining and steel making. Its main assets are the Alchevsk Iron & Steel Works, the Alchevsk Coke Plant, and the Dneprovsky Iron and Steel Plant named after Dzerzhinsky, as well as ISD Dunaferr in Hungary and ISD Huta Czestochowa in Poland.
This year, it plans to produce 11-12 million metric tons of steel. Its owners are Sergei Taruta and Vitaly Gaiduk.
Evraz Group is one of Russia's largest steel and mining companies. Its main beneficiaries operating through Cyprus-based Lanebrook are Millhouse Capital of Roman Abramovich (36.44%), company founders Alexander Abramov (24.29%) and Alexander Frolov (12.15%), as well as shareholders of the Ukrainian group Privat (9.72%).
Evraz has traded on the London Stock Exchange since June 2005. Its value on the LSE as of yesterday was about $34 billion. Last year, its plants produced 16.33 million tons of steel.


Inefficient and old regional leaders to lose their posts in Russia

President Dmitry Medvedev said yesterday it is regrettable that posts in Russia are assigned for reasons of personal acquaintance or loyalty. There is a huge problem with finding candidates for departing governors, he said at a special meeting on personnel issues.
The president does not like the current system of appointments and the lack of clear and comprehensible criteria, an official on Medvedev's team said. Governors are appointed on personal recommendations. The latest example is Roman Kolpin, who has become the governor of Chukotka on the recommendation of his former boss, Roman Abramovich.
Medvedev is worried that businessmen are seldom offered high government posts, and that there is no real choice of candidates. One of the two candidates proposed by the presidential envoys as stipulated in legislation is usually a dummy, a source in the Kremlin told the popular daily Vedomosti.
The new criteria for choosing gubernatorial candidates, drafted to suit Medvedev's requests, stipulate that candidates should have experience of managing a large group of people and a budget of several billion rubles.
They should be younger than 55, and not necessarily have a service record in law enforcement and security agencies.
The best combination is when a candidate has experience in both business and state administration, "like Medvedev," a source in a Kremlin department said.
He said the administration had tried to set up a backup team of such people in the regions, state agencies and business. At present, the list includes 24 candidates, which is not enough for the planned mass renewal of governors and regional leaders, 16 this year and 10 in 2009.
The first to go will be the governors whose terms expire in 2008-2009 as well as such veterans as Yuri Luzhkov, Murtaza Rakhimov and Mintimer Shaimiyev.
The pro-Kremlin United Russia party has been trying since last year to supply the much needed managerial candidates. In 2008, they formulated the goal of collecting "the golden thousand" of professionals, including governors.
Vyacheslav Volodin, secretary of the Presidium of United Russia's General Council, said the lists would include efficient deputy governors, speakers of regional legislatures, regional ministers, and district and city mayors.
United Russia plans to publish this database, to help governors form their teams and top authorities to select governors.
Another source close to the Kremlin said the recent statements and efforts to weed out ineffective and old governors and other regional leaders are not a precursor to a personnel revolution.
They are designed to cool passions, because the regional authorities and opposition are dissatisfied with the current system, and some regional leaders hold the same view. The Kremlin has simply decided to snatch the initiative from them, the source said.


Chery production to start in Russia

The Taganrog auto plant in Russia will soon start assembling China's Chery Fora car under the Vortex Estina brand, plant deputy director Andrei Kudrin said in a July 21 letter to his dealers.
The letter was obtained by Kommersant.
Andrei Kudrin did not give the number of cars assembled and the date of launch, only saying the dealers would begin taking deliveries of cars in August.
The Vortex Estina sedan will be powered by 1.6 liter and 2 liter gasoline engines of 119 hp and 136 hp, respectively. The car will sell at $16,100 to $18,300, depending on available equipment. Standard fitments include safety cushions for driver and passenger, ABS, EBD, hydraulic servo steering, electrically operated windows and mirrors, CD/mp3 player, onboard computer, and signaling. The plant management has declined to comment.
Until April 2008, Avtotor of Kaliningrad had been assembling the Chery in Russia, but according to unofficial sources, was made to stop the operation under federal pressure. As a result, Chery sales dropped: in the first half of 2008 they went down by 47% (the Russian market of foreign makes increased by as much). Chery's Russia office said they wanted to improve the model's standing in Russia through imports, not through local manufacture.
Chery's arrangements with the Taganrog plant are "not clear" to Ivan Bonchev, of Ernst & Young. He said that if the Chinese let the plant assemble and sell the vehicle in Russia, the model will inevitably compete with the imported Chery. Two sources close to the Taganrog plant say that the partnership will be broader. Aside from the Vortex Estina, Russlegavto capacities will be used to assemble the Tiggo SUV.
Output of both models will reach 70,000 units per year. The Tiggo will be sold in Russia by the Chinese under its present brand name. The Taganrog plant will only be paid the assembly fee. Later, sources say, Taganrog and Chery plan to expand the line of models assembled, increasing the combined production of vehicles to 150,000 a year.
The sale of future models will also be shared. Common investment will total $100 million, and production will include body welding and painting, with the Russian side shouldering most of the costs.


Ukraine's prime minister claims to have agreed terms with Gazprom

On July 23, Ukrainian Prime Minister Yulia Tymoshenko announced once again the success of talks with Gazprom's management. She said she had reached agreement with Gazprom on a gas price formula for 2009 and a gradual switchover to a market-based approach.
However, she did not explain what the proposed compromise really meant. "We have chosen a price formation model and found a compromise on price formation guidelines for 2009," Tymoshenko told the government.
Gazprom also refused to comment on the transaction.
Official information on the results of Gazprom CEO Alexei Miller's meeting with Yulia Tymoshenko and Oleg Dubina, head of Naftogaz Ukraine, is scant. Gazprom's press release said the sides summed up their cooperation in the first half of the year and noted that the two companies' interaction was developing in a dynamic and constructive way.
Miller also said that gas supplies to Ukraine would be carried out in full in 2008. Dubina said that Russian gas transit via Ukraine even surpassed the planned volumes.
However, the present idyll does not mean mutual understanding in the future. Russia has already said that in 2009 the gas price for Ukraine may reach $400 per 1,000 cu m (against the current price of $179.5). However, the final contract will be signed only when Russia comes to terms with Central Asian countries, primarily Turkmenistan, on the price formula. In 2008, Gazprom must supply not less than 55 billion cu m of Central Asian gas to Ukraine.
This is an advantageous position for Russia allowing Gazprom to put all the blame for price rises on Central Asia.
The current gas price at the Ukrainian border is formed in the following way: Gazprom buys gas from Turkmenistan at $140 per 1,000 cu m, pays about $35 for gas transportation, and keeps the remaining $4.5 as a margin. It is clear that with a rise in Central Asian gas prices to $300 or even $350 per 1,000 cu m (which, analysts believe reflects the real gas price in view of the rising oil, fuel oil and diesel prices), the gas price at the Ukrainian border will increase by $160 or $210, respectively. Russia cannot cut costs in the other constituents of the price formula.
Theoretically, Ukraine can offer some compromises to Russia. According to Yevgeny Minchenko, chairman of the board of the Institute of Ukraine, Russia can press for concessions in a situation when there is no unity in the country. Ukrainian President Viktor Yushchenko is interested in high gas prices for Ukraine, as he can put the blame for it on Tymoshenko who promised, when coming to office, to settle all problems with Gazprom, personally with Putin, and with Central Asian countries.
Minchenko believes Ukraine has broad opportunities for a possible compromise with Russia. First, Gazprom wants a share in the Ukrainian gas pipeline system, but Kiev does not want to give it on principle, and some politicians have even elevated the matter to a national policy issue. Second, Gazprom would not mind getting access to a larger quota of gas sales to end industrial consumers in Ukraine. At present, Naftogaz accounts for 90% of all gas sales in Ukraine.
On July 23, Gazprom confirmed, albeit indirectly, the possibility of getting some concessions from Ukraine. "Not only the price formula, some other aspects are being negotiated with the Ukrainian government," Gazprom reports. It is still a mystery what aspects are meant.
However, no compromise can be accepted without Central Asia's participation. Theoretically, if Ukraine meets Russia halfway, Russia can ask Turkmenistan to switch over to the European price level in three to four years (as it has been done for Belarus) instead of setting too high gas prices now. In any case, the time for search of a compromise is limited and the deadline is the end of the year.


Buccleuch Property buys Russian properties with $19 million joint venture

Buccleuch Property, chaired by Scottish landowner Richard Scott, 10th Duke of Buccleuch, has expanded into Russia with a $19 million joint venture.
As the property market continues to slide in the United Kingdom, Buccleuch has bought a 2,400 square meter office building on Moscow's Bolshaya Dmitrovka Street, within minutes of Red Square.
The acquisition was made through a joint venture with Groupe Hoche Espais, a French-Spanish development firm, and Montaigne Asset Management.
Buccleuch Property and Groupe Hoche Espais own 49% each, while Montaigne Asset Management has a 2% stake in the venture.
Pietro House, a 2,400 square meter property built in 1912, is the company's first foray into the enigmatic Russian market. In 2003, the real estate agency Reconstram converted the former apartment house into an office complex.
Buccleuch Property said the owners would annually earn over $2.8 million. Pietro House is fully leased to foreign businesses including U.K. law firm Denton Wilde Sapte and Turkish Airlines. Future plans for the building include converting it into luxury apartments, for which there is high demand in the center of Moscow.
Buccleuch Property represents the commercial property investment interests of the Buccleuch Group, managing commercial real estate worth $700 million and owning 113,000 hectares of land in the U.K. and continental Europe. The Duke of Buccleuch's family also owns the 120-room Drumlanrig Castle, the oldest in Scotland, and the 4,500 hectare Bowton estate near Edinburgh.

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