MOSCOW, August 28 (RIA Novosti)
Medvedev tries to affirm Russia's influence in SCO/Ukraine joins anti-Russian coalition/Tensions with U.S. will not be fatal for Russian economy/ Foreign firms will need government approval for strategic deals in Russia/ Alfa Group cancels High River Gold stake purchase/ AvtoVAZ, Nissan to assemble Japanese cars in Russia's Far East
Medvedev tries to affirm Russia's influence in SCO
Moscow is unlikely to win support for its military operation in Georgia and recognition of Abkhazia and South Ossetia in Dushanbe, the capital of Tajikistan, where a summit of the Shanghai Cooperation Organization (SCO) opens today.
The SCO is a regional organization comprising Russia, China, Kazakhstan, Tajikistan, Kyrgyzstan, and Uzbekistan. India, Iran, Mongolia and Pakistan have observer status.
Russia's position in the SCO has plummeted as a result of the war against Georgia, but analysts say Russia could still use it to get a mandate to deploy its troops in the former breakaway republics of Georgia.
Its wider aim is to convince summit participants to recognize Abkhazia and South Ossetia.
Moscow thinks the SCO is the best organization to win allies. It has been trying to turn it into a NATO opponent, encouraged its members to jointly resist U.S. missile shield plans for Central Europe, and added anti-U.S. statements in SCO summit declarations.
Now Moscow will see how its partners behave in a critical situation when the West has threatened it with isolation and it needs friends more than ever before.
However, there are grounds to think they will not give President Dmitry Medvedev assistance. In the past three weeks, SCO members have not expressed support for Russia's operation to enforce peace on Georgia, and no SCO member has joined Russia in its recent recognition of Abkhazia and South Ossetia.
Sergei Mikheyev, deputy head of the Center for Political Technologies, said the SCO was unlikely to support Russia. China will not do it because of its problems with Taiwan, although it has approved Russia's decision unofficially, he said.
Many SCO members may dissociate themselves from Russia; some are already doing this.
On Tuesday, Deputy Prime Minister Sergei Ivanov held talks in Moscow with Rustam Azimov, first deputy prime minister of Uzbekistan, to prepare Prime Minister Vladimir Putin's visit to Tashkent.
According to sources of the popular business daily Kommersant, Uzbekistan has taken a very tough stance on the majority of issues of interest to Russia. In fact, it has rejected several joint projects, possibly following the talks President Islam Karimov held in Beijing on August 8-9.
However, Moscow still hopes to at least attract its partners to the peacekeeping mission in the South Caucasus. Mikheyev said Russia could use the Collective Security Treaty Organization (CSTO) to legalize the deployment of its troops in Abkhazia and South Ossetia, while the SCO as a political organization could issue the mandate.
In the past, such mandates were provided by the Commonwealth of Independent States (CIS), which Georgia has announced it is withdrawing from.
The Collective Security Treaty Organization is a regional security group comprising Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, Uzbekistan, and Tajikistan.
Ukraine joins anti-Russian coalition
Ukraine's instant support of the West's stance on South Ossetia and Abkhazia will obviously get Kiev something it wants very much - NATO membership. Analysts are apprehensive, however.
They warn that the Ukrainian government is getting dragged into other players' game which could result in the restoration of the Iron Curtain, splitting the country in two.
The conflict in the Caucasus has drawn Ukrainian officials into the realm of Western interests. Ukraine has never been so actively involved in international talks and consultations since it became independent.
British Foreign Secretary David Miliband visited Kiev on Wednesday after condemning the recognition of Abkhazia and South Ossetia as "unjustified and unacceptable." He discussed a broader coalition against Russia's "aggression" in Georgia.
The coalition began to take shape on Tuesday, when Western leaders began taking turns to condemn Russia. However, neither the shape of the planned coalition nor the possible instruments available to pressure Russia and influence the situation in the Caucasus have been made known.
Ukraine's Foreign Ministry made a show of cancelling an earlier planned visit to Moscow. It also made a very harsh statement about a "de-facto annexation of part of Georgia's territory" and that establishing puppet regimes in the republics was evidence of a revival of the "right of force" doctrine in Russia in settling international problems.
President Viktor Yushchenko has never made a secret of how he feels about Russia. But the extreme harshness and confidence of his latest anti-Russian rhetoric can only be explained by a solid Western backing.
Germany, which had been strongly opposed to Ukraine's fast-track integration with NATO, said earlier this week it had changed its position and was willing to vote for granting Ukraine the MAP this year. Ukraine will probably be given a significant role in the new air defense system currently under construction in Europe because of its geographical location bordering on Russia.
Vladimir Fesenko, head of the Penta applied research center, said the situation was clear: a new Iron Curtain will be drawn between Russia and the West cutting straight through Ukraine. This situation is likely to cause Russian-Ukrainian relations to become increasingly strained, and, still worse, with an "economic war" and a split in Ukraine, since its western and central regions support Yushchenko's pro-Western policies, while the eastern and southern sides are pro-Russian, the analyst said.
Tensions with U.S. will not be fatal for Russian economy
U.S. businessmen and analysts say terrorizing Russian business over the Georgian war would run contrary to Washington's interest. Most Russian analysts say the United States cannot inflict serious damage on the Russian economy in any case.
Dmitry Serebrennikov, chief of the investment division at Finam holding, said: "The United States is not Russia's main trading partner - their mutual turnover accounts for less than 4% of Russia's foreign trade. Therefore, cuts in U.S. demand for Russian exports will not have a serious effect even in the middle term."
However, tensions with the U.S. could create some problems for some Russian companies.
Mikhail Korchemkin, director of the consulting company East European Gas Analysis, said: "Gazprom's advance into the European markets has been blocked by the European Union's new directive [on security of natural gas supply]."
He said sanctions would complicate the issue of permits to build gas pipelines across the Baltic and Black seas. Deterioration in the situation in the Caucasus would also complicate Gazprom's gas swap negotiations with Azerbaijan.
"These contracts will suit Azerbaijan only until the Nabucco pipeline is commissioned, after which it will not need the route across Russia," Korchemkin said.
Theoretically, Russian metal giants, which have assets in the U.S., may also have problems. Norilsk Nickel has bought OM Group for $400 million. Evraz owns Oregon Steel Mills and Claymont Steel, in which it has invested nearly $3 billion. The other day Severstal agreed to buy PBS Coals Corporation for $1.3 billion.
Russian metals companies, primarily Severstal and Evraz, currently account for over 9% of the United States' steel market.
Mikhail Armyakov, chief analyst at Sovlink, a company set up to attract foreign investment to the Russian fuel and energy complex, said they would have no problems if they honor all provisions of local legislation.
"But Russian companies willing to buy assets in the U.S. will find that it has become much more difficult to do," he said.
Analysts agree that political tensions with the United States will not seriously affect the Russian economy.
Dmitry Sachin, head of investment group East Kommerts, said: "Tensions with the United States will not be fatal for the Russian economy."
Dmitry Bogdanov, vice president of the Kapital Asset Management Company, said: "Russia will remain a key energy supplier for Europe and is also becoming a crucial market for European and American goods and services."
Foreign firms will need government approval for strategic deals in Russia
Under a law regulating foreign access to strategic assets, even deals between overseas companies seeking Russian strategic assets must be approved by the Russian government.
One of the first to bump into this condition is India's Oil and Natural Gas Corporation (ONGC): it is buying a 100% stake in Britain's Imperial Energy, which owns oil fields in the Tomsk Region. The companies agreed that the deal would not go through if the Russian authorities failed to approve it before June 30, 2009.
"The company has no strategic deposits," said its spokeswoman Aleksandra Shubenkova. Imperial Energy's resources, she said, as estimated by DeGolyer & MacNaughton, amount to 125.5 million metric tons of oil equivalent, and to be strategic, a field requires more than 70 million metric tons.
But Svetlana Levchenko, sectoral head at the Federal Anti-Monopoly Service (FAS), believes the deal comes under a law on foreign investments in the strategic sector and the ONGC will have to present a business plan according to FAS procedures.
If FAS categorizes Imperial assets as strategic, then the government must stop the deal, said Ilya Rachkov, a partner with Noerr Stiefenhofer Lutz: state-owned foreign companies are banned from controlling Russian strategic assets. In such non-100% cases, FAS recommends filing an approval request, Rachkov said. He had a similar situation with a client: an American company bought a German firm that owned Russian assets connected with explosives sales.
Control over overseas deals involving foreigners is not a Russian invention: it is exercised in the United States and in Europe, said Vladimir Khvalei, a partner with Baker & McKenzie. But such deals are hard to trace, especially when companies are private and use offshore "cushions." In that case, the effectiveness of the law will depend on the toughness of the penalties for dodging it, he believes.
Under Russian law, a buyer of an "unauthorized" asset can be banned from voting with its shares, Rachkov said. This is an effective mechanism. Some shareholders, wishing to strip foreign participants of the right to vote at a general meeting, could demand voiding the deal, said Maria Minskova, a senior lawyer at Gide Loyrette Nouel.
Control over foreign investments is global practice, said Alexander Ivlev, a partner with Ernst & Young. He approves of the law, but if the agreement procedure is gobbledygook to companies, the inflow of foreign investment could slow down.
RBC Daily, Kommersant
Alfa Group cancels High River Gold stake purchase
Russian investment company Alfa Group has cancelled plans to buy a 32% stake in Canadian gold mining company High River Gold. The deal, announced earlier this month, was the first one in the sector that did not go through.
Alfa must have been scared off by the nearly 10% drop in gold prices since August 1, and an almost 50% plunge of HRG stock.
Analysts fear that the current downward trends on the commodities markets may lead to a fundamental reevaluation of assets and termination of more M&A deals.
HRG owns the Berezitovoye gold deposit in the Amur Region, in Russia's Far East. It also holds 85% in Russian company Buryatzoloto, which owns the Zun-Kholba and Irokinda mines in Buryatia and a silver mine, Prognoz, in Yakutia.
Alfa-Group's decision to back from the deal has jeopardized HRG's plans to develop gold deposits in Buryatia and buy new assets in Russia and Africa, which were to be financed with the money gained from the C$286.4 million (US$280 million) deal.
"The market has slumped dramatically, which made the price we offered include a 100% premium of the stocks' current value. We did not want to sign the deal under these conditions. One doesn't do this during the first three days of a slump," said Alexei Mikhailovsky, CEO of United Gold Company, the precious metal mining arm of Alfa Group.
He said Alfa was more comfortable to take some time: "We have maintained good relations with the company, and we like it on the whole."
He still has not ruled out a possibility of another Russian player targeting HRG.
"The Canadians specifically need a Russian strategic partner, capable of providing financial and administrative support," he added.
Zenit Bank's Igor Nuzhdin said Severstal and Highland Gold were likely to be interested in the asset, even if they don't rush to buy right away.
Industry watchers expect consolidation in gold mining to slow down. "The dollar's appreciation and growing political tensions have cooled down investors' interest to gold mining assets," said Dmitry Skvortsov from the Bank of Moscow. He said gold and other precious metals are no longer attractive as an "investor's safe haven," so investors are targeting other sectors instead.
AvtoVAZ, Nissan to assemble Japanese cars in Russia's Far East
Russia's largest carmaker AvtoVAZ and Japanese automotive giant Nissan are planning to assemble Japanese vehicles at the Komsomolsk-on-Amur Aircraft Production Association (KNAAPO) in Russia's Far East.
KNAAPO, which is part of the United Aircraft Building Corporation that consolidates private and state assets manufacturing, designing and selling military, civilian, transport, and unmanned aircraft, also plans to mass produce the Sukhoi Superjet 100 (SSJ) medium-haul passenger airliner soon.
Moreover, it manufactures Sukhoi Su-27, Su-30-MK and Su-35 Flanker fighters, which are sold on global markets by Rosoboronexport, Russia's largest state arms exporter, part of the state-owned Russian Technology Corporation, now growing into an industrial behemoth with assets in many sectors, from defense to automotive to civil aviation.
Russian Technology Corporation is also a majority AvtoVAZ shareholder.
Two AvtoVAZ managers said the company, which had agreed to sell a 25% stake to French carmaker Renault in late 2007, wanted to assemble Nissan vehicles in the Far East, and that KNAAPO was ready to allocate production facilities.
Although spokespersons for the Renault-Nissan alliance declined to comment on the issue, a source close to Nissan said the company wanted to expand operations in Russia's Far East.
A source close to KNAAPO said Russian Technology CEO Sergei Chemezov was concerned about the plant's long-term future because the company lacked warplane contracts and because the SSJ-100 project was behind schedule.
He called the Nissan project an attractive option.
A source close to the UABC management said AvtoVAZ was interested in KNAAPO, but that no bilateral talks were underway.
A source at AVTOVAZ said Nissan cars could also be assembled at a local shipyard near KNAAPO, that the sides would start selecting production facilities this September, with a planned annual market capacity of 300,000 vehicles.
This idea sounds logical; instead of assembling cars in European Russia, producers should also meet the demands of the Far Eastern market, VTB analyst Yelena Sakhnova told the paper.
Sollers, an umbrella brand for Russian steel giant Severstal-Avto and its subsidiaries, also wants to assemble South Korea's Ssang Yong and Japan's Isuzu vehicles in the region.
Sakhova said AvtoVAZ, Nissan and Sollers will face tough competition from used Japanese cars in Russia's Far East, that annual production must total at least 25,000 vehicles, and that design capacity was estimated at 50,000 cars per year.
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