What the Russian papers say


MOSCOW, August 7 (RIA Novosti)
Government's tariff policy increases oil companies' outlays / Ukraine admits to supplying weapons to Georgia / Investors' confidence undermined by Putin's words / Murdoch disenchanted with Russia / Sakhalin-I starts to make profit / Russia considers deploying missiles in Belarus in response to U.S. plans

Vremya Novostei

Russia considers deploying missiles in Belarus in response to U.S. plans

Russia is still considering its response to the U.S. plans to deploy a missile defense system in Poland and the Czech Republic, but has not yet taken any specific action.
However, officials in Moscow have made repeated statements about possible actions.
Alexander Surikov, Russia's ambassador to Belarus, said Wednesday he did not rule out the possible deployment of Russian Iskander tactical missile systems and strategic bombers in that country.
"When Poland signs an agreement on hosting the U.S. anti-missile base, we'll be able to discuss additional aspects of military-technical cooperation with Belarus," he said emphasizing that it was not a question of bringing nuclear weapons back to Belarus. Even though such a possibility has been discussed by experts, he said that the allies are restricted by a nuclear agreement they are unable to violate.
A well informed military source in Moscow, who insisted on being quoted anonymously, confirmed to Vremya Novostei Wednesday that there were plans to deploy radar equipment and missiles in the Kaliningrad Region, Russia's Baltic coast exclave, to intercept missiles launched at Russia. He said he had no such information about Belarus.
The source sounded skeptical about the Russian diplomat's statement about placing Iskanders in Belarus: "It is unclear how that could help, because the U.S. bases in Poland and the Czech Republic will be farther from the Belarusian borders than the Iskanders' range, which is only 175 miles."
The expert added that Russia had other strategic missiles, such as the RS-16 or RS-20 to intercept missiles, which do not even have to be deployed in Belarus or the Kaliningrad Region, vulnerable as it is.
As for a possible deployment of the Strategic Air Force to Belarus, that would be "downright stupid," the source said. "Tu-160 strategic bombers with an 8,000-mile range can perform any combat task from their permanent bases in Russia. The country also has excellent long-range bombers Tu-22M3, which cover up to 1,120 miles at supersonic speed. They could be an appropriate response to the U.S. anti-missile plans for Europe," he added.
In addition, he said, officials in Moscow still hope that the U.S. may reconsider its missile defense plans after the November presidential elections.

Nezavisimaya Gazeta

Ukraine admits to supplying weapons to Georgia

Ukraine's Defense and Foreign ministries have confirmed the statement made by Eduard Kokoity, president of the breakaway republic of South Ossetia, about delivering military equipment to Georgia.
The Ukrainian authorities have not specified the type and amount of weapons they supplied to Georgia. Analysts said the deliveries are aimed at creating problems for Russia in the region.
Ukraine and Georgia signed an agreement on military technical cooperation in 2005, immediately after Viktor Yushchenko was elected president of Ukraine. In the fall of 2005, Kokoity for the first time said publicly that Ukraine was supplying T-72 tanks, Mi-8 helicopters, armored personnel carriers, missiles and other weapons to Georgia.
In 2007, the Ukrainian authorities classified information about its military supplies.
"It was done on the order from President Yushchenko," a former employee of the Ukrainian Defense Ministry told the popular daily Nezavisimaya Gazeta. He said the data provided by Ukraine to the UN Register of Conventional Arms were "declarative and voluntary," and therefore likely to be incomplete.
During a visit to Tbilisi in June 2008, Ukrainian Defense Minister Yuriy Yekhanurov said openly that Ukraine was supplying arms to Georgia.
He also said the Georgian and Ukrainian authorities had agreed on joint research into new weapons with a view to joining NATO.
Ukrainian analysts believe that Viktor Yushchenko and his friend, Georgian President Mikheil Saakashvili, deliberately fanned tensions by saying that the issue concerned national security to encourage NATO to admit them to the bloc.
According to analysts, Russia is both countries' hypothetical "external enemy," although they never say so openly. Saakashvili is playing this card now over tensions in South Ossetia.
Last spring, Yushchenko told the West about threats to Ukraine's sovereignty and territorial integrity after the media published Putin's statements at the NATO summit in Bucharest, Romania, where he called NATO's promise of eventual membership to Georgia and Ukraine "a direct threat" to Russian security.
Mikhail Pogrebinsky, director of the Center for Political and Conflict Studies in Kiev, said Ukraine was supplying weapons to Georgia to create problems for Russia.
"The international practice is to refrain from supplying weapons to regions with a high risk of armed conflicts," he said. "Kiev probably thinks that the more weapons in Georgia, the more problems for Russia and the better for Ukraine."


Investors' confidence undermined by Putin's words

Few politicians can weigh their words in dollars, pounds or other monetary units. One of them is Russian Prime Minister Vladimir Putin.
"Mechel was selling raw materials in Russia at twice the export price. And where has the margin for the state taxes gone?" Putin said at a conference of Russian steel producers on July 24. The metal giant's market value immediately plummeted by over $114 billion and has continued to fall since, causing losses for thousands of investors.
Finance Minister Alexei Kudrin said he could not forecast the macroeconomic consequences of the incident, while Russia's Central Bank said cautiously that the net annual inflow of capital this year would be around $40 billion, or half the figure for last year.
The concern has spread beyond the stock market. Media baron Rupert Murdoch said the other day: "The more I read about investments in Russia, the less I like the feel of it."
The Russian authorities worked hard ahead of the March 2 presidential elections to convince Russian and foreign businesses that the change of leadership would not affect investment climate or damage the established system of relations. The consequences of the change have now become apparent.
The first alarming signal was the problem with Russian-British oil venture TNK-BP. Foreign investors were told to abandon their illusions and know that all strategic decisions related to mining business must be coordinated with the Kremlin.
The second signal was designed for the Russian business. The example of Mechel was designed to demonstrate that owning an asset that brings billion-dollar revenues was not simple in Russia.
There is nothing new in these signals. Mechel's problems began five years after the persecution of the oil major Yukos, whose chief, Mikhail Khodorkovsky, dared to disregard Putin's opinion. The Yukos affair damaged Russia's investment climate, but high oil prices, the country's rapid economic growth and its high consumer demand potential, as well as other factors promised major revenues for investors, encouraging them to disregard political risks.
The same logic will most likely influence the current situation. The effects of Putin's statements may wear off by the end of the year, and investors, who have nowhere else to go after the subprime meltdown, will return to Russia.


Murdoch disenchanted with Russia

Media tycoon Rupert Murdoch is hastening to sell off his Russian assets, the largest of which is News Outdoor Group (NOG), an outdoor advertising company. The most probable buyer is France's JCDecaux Group. But the group is unlikely to pay the $1.65 billion the company was worth a year ago. Its value has decreased as a result of the world financial crisis and a sharpened conflict with the Moscow authorities.
Until now NOG spokes people have only made clear Murdoch's intention to sell his outdoor advertising assets. In June, 2007, Maxim Tkachev, NOG managing director (with assets in Russia, Eastern Europe, Israel and India), said News Corp. had decided to "attract a strategic investor into the Russian business."
News Corp. is the third most-profitable media company in the world. Its earnings in the 2008 fiscal year (ended in June 30) was $33 billion, net profits $5.4 billion, and capitalization $37.11 billion. As of July, Murdoch held 38.6% of voting shares.
Russian analysts took no time to respond to Murdoch's plans. Igor Jurgens, a board member of the Russian Union of Industrialists and Entrepreneurs, said on Wednesday that the Russian economic authorities should give "an adequate response" to the tycoon because the fundamentals of the investment climate in Russia had not changed.
News Corp. is unlikely to sell the holdings at prices estimated in August 2007 by TPG Capital, a U.S. investment firm, said Alexei Dyomkin, a Trust Investment Bank analyst. At the time Trust offered $1.65 billion for the entire company. "With the current financial meltdown, ad industry leaders are slipping too," he said. "The capitalization of France's JCDecaux (one of the world's outdoor ad leaders) has dropped by 37% in the past six months: from $8.8 billion at the end of 2007 to the current $5.6 billion. In December, its EV/EBITDA was 13, and is now 8." "Media holdings can depreciate overnight and drastically," agrees Alexander Golovtsov, head of analysis at UK Uralsib.
Still, the most likely buyer of News Corp.'s outdoor assets is France's JCDecaux, which is now seeking ways to entrench itself in Russia. Three informed sources say the French are the only remaining bidder for NOG.


Sakhalin-I starts to make profit

According to unofficial sources, the Sakhalin-I oil and gas PSA reached a reimbursement point in June. Investors received their money back and the project started to make a profit.
A representative of the consortium, which is taking part in the PSA project, has neither confirmed nor denied the information, but analysts believe it is quite possible with the current high oil price.
As of January 1, 2007, the outstanding reimbursement figure was $6.9 billion, meaning the consortium should have earned that amount in 18 months. Valery Nesterov from the Troika Dialog brokerage said it was possible given high oil prices and production at Sakhalin-I.
In a typical PSA, the investor begins to channel a share of the profits directly to the state only after all initial costs have been recouped. But in Sakhalin-I, the government has had a share in the oil sales returns since 2005, said a source in Exxon, the project operator with a 30% stake in it.
The scheme of earning income and returning costs is determined by the specific PSA conditions. An 8% royalty is taken from the revenue, while the remaining amount is used with 85% cost-stop, meaning the investor can channel only 85% of revenues to pay back costs. The remaining 15% is divided between the investor and the government at a ratio of 85:15, with a 35% profit tax levied on the investor's share.
Under the Sakhalin-I PSA conditions, the distribution of income between the investor and the state will only change once the project's profitability (the ratio of cumulative receipts and payments) exceeds 17.5%, rather than at the reimbursement point. The government's share will then grow to 50%, and to 70% after profitability exceeds 28%.
Moreover, the ownership of the infrastructure built by the investor will also go to the state after the reimbursement point under the PSA conditions. However, the investor will retain preferential rights to use the facilities before the project is completed. It follows that the reimbursement point proper does not entail any significant changes in the conditions of the project, said Mikhail Subbotin, director of the SRP-Expertiza consultancy.
"It is a landmark and good news for investors who can be sure that their money has not been lost but paid back in the first place," Subbotin added.
Nesterov said that the consortium's income would grow as well as the state's after some decision is made about the marketing of gas from Sakhalin-I. So far the participants in the project have failed to agree the issue with Gazprom.


Government's tariff policy increases oil companies' outlays

Transneft tariffs have grown by 10.7%, which means another $1-$1.5 billion in profits for the oil pipeline monopoly and additional outlays for oil companies.
On Tuesday, the Federal Tariff Service approved an increase of 19.5% for the monopoly's dispatcher service, which is a part of the pipeline tariff. Analysts say this will add between 4% and 12% to tariffs. But yesterday the service said the tariff would increase by 10.7% from August 5.
The last time Transneft raised its tariffs was in January, when they increased by 19.4%, which puts annual growth at 32.2% compared with last year.
The service said the tariff's increase at the end of December 2007 did not take into account the 2008 allocations of 20.8 billion rubles ($884.7 million) for the construction of the Kozmino terminal, which will cost 49.5 billion rubles ($2.1 billion), as well as the growing cost of servicing loans taken out to build the East Siberia-Pacific Ocean (ESPO) pipeline.
Denis Borisov, an analyst at the Solid investment financial company, said the new tariff increases would earn Transneft another $1.5 billion.
Valery Nesterov of Troika Dialog thinks the additional revenue will exceed $1 billion.
The market reacted to the news by adding nearly 3% to the pipeline monopoly's value. But oil companies are outraged.
The government promised to build the ESPO pipeline on borrowed funds without burdening Transneft's customers, say two of Russia's three largest oil producers.
Troika Dialog analysts say the government's decision is strange, because oil companies' outlays will grow irrespectively of their using the ESPO or not.
A TNK-BP spokesman declined to comment, while Rosneft's representative said they were still assessing the situation.

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