MOSCOW, October 30 (RIA Novosti) Moscow formalizes relations with Abkhazia, S. Ossetia / President Medvedev to act as "lightning rod" for Premier Putin / Financial crisis explodes myth of Russia as energy superpower / Former socialist bloc threatens European economy / First companies to receive money for refinancing foreign loans named / Oil traded below production costs
Kommersant
Moscow formalizes relations with Abkhazia, S. Ossetia
The State Duma, the lower house of Russia's parliament, ratified treaties of friendship, cooperation and mutual assistance with Abkhazia and South Ossetia on October 29.
The three countries say this has removed the last obstacle to the deployment of Russian military bases in the two republics, but analysts are not convinced this will strengthen stability in the Caucasus.
Grigory Karasin, Russia's deputy foreign minister, said: "We need to have one brigade, or approximately 3,800 troops, in each of the two republics to ensure the security of Abkhazia and South Ossetia."
A Russian base in South Ossetia could be deployed near Tskhinvali. Sergei Shamba, the foreign minister of Abkhazia, said his republic would assign land plots for Russian bases in Sukhumi and Ochamchira.
"These will be naval bases, with a clause on their deployment to be added to an agreement on military cooperation," Shamba said. "The drafting of the bill could not begin before Russia ratified the friendship treaty. We will step up the work now, especially on military agreements."
According to sources in the Russian Foreign Ministry, Moscow is also trying to encourage more countries to recognize the independence of the two republics.
So far, only Nicaragua has followed Russia's example, but a high-ranking Russian diplomat has told the business daily Kommersant that "efforts to attain this goal have never stopped," adding that Venezuela was a distinct possibility.
Lawyer Aslan Abashidze, a professor at the Moscow State Institute of International Relations, said recognition simplified relations between the two sides but could not settle problems in relations with those who refuse to recognize the newly free country's independence.
"Abkhazia and South Ossetia, which have proclaimed their independence, should have citizenship and passports, but their citizens will be able to travel with such passports only to Russia and Nicaragua," Abashidze said. "To be able to freely travel around the world, they will need passports recognized by the international community, for example Russian ones. But this will make them Russian citizens."
"Both Georgia and Russia have lost," the lawyer said. "Georgia has lost part of its territory and aggravated contradictions with Russia. Moscow, which has assumed control over part of Georgia, has most likely lost the rest of it forever. The winner is clearly the third party - NATO and the United States. NATO can now deploy its bases in Georgia close to Russia's border. In principle, this situation may develop into a geopolitical confrontation."
Gazeta.ru
President Medvedev to act as "lightning rod" for Premier Putin
The president's and prime minister's ratings have plummeted to their "pre-war" level because of the tightening financial markets. Incidentally, Dmitry Medvedev's popularity is dwindling faster than that of Prime Minister Putin's, suggesting that the president is acting as a "lightning rod" for the premier.
The Levada Center, a Moscow-based pollster, published the October ratings of confidence in the president, prime minister and other Russian officials Wednesday, after conducting a traditional survey of 1,600 respondents in 128 cities and towns in 46 regions of Russia on October 17-20. Statistical error does not exceed 3%.
The most important news is that the popularity ratings of the two people who make national headlines, the president and prime minister, began falling in October because of the raging financial crisis.
The two officials' popularity skyrocketed in September, immediately after the August 8-12 "five-day war" in the Caucasus, as 83% of Russians said they approved of Medvedev's actions, and 88%, of Putin's.
However, in October, when the global financial crisis became a new public focus, Putin's rating dropped by 5% and Medvedev's by 7%.
Although still high compared with other times during his presidency, Medvedev's personal rating is plummeting faster than that of the prime minister, sociologists said.
Simultaneously, Medvedev's negative rating is growing, as the number of people who do not approve of his policies has reached an all-time high of 27%. This suggests a reversal of their former roles in public opinion, as well as that their shares of responsibility for problems in the country have changed from Putin's presidency.
"The prime minister's popularity has always been below that of the president's, while the government acted as a lightning rod for the president, but now these roles are reversed. The president is more likely to draw blame away from Putin now, helping him avoid accusations of triggering the crisis with his actions," Levada Center analysts believe.
Putin and the government he heads have never become an integral whole in public opinion. Putin's personal rating is far above that of his cabinet, which only enjoys the confidence of 59% of Russians (as many as in August). The cabinet's rating after the war in Georgia was 66%.
On the other hand, it is still the government's highest rating ever. Analysts say that only Viktor Zubkov's cabinet once had a comparable popularity - but not equal - to this level, and that was shortly before Zubkov's resignation.
Nezavisimaya Gazeta
Financial crisis explodes myth of Russia as energy superpower
Russians are discussing ways to fight the financial crisis at home and have no time to think that the global crunch may explode the myth of Russia as an energy superpower, a Russian analyst writes in the Nezavisimaya Gazeta daily.
Yekaterina Kuznetsova, director for European programs at the Center for Post-Industrial Society Studies, said oil prices had been falling for the fourth month in a row and were unlikely to start growing again in conditions of economic uncertainty and looming recession.
Falling incomes and the liquidity crisis have forced such large companies as Rosneft, LUKoil and TNK-BP to ask the government for loans. This will increase their indebtedness, but not investment in exploration and production, Kuznetsova said.
Analysts say Russia needs to increase oil export by at least 55 million tons (404.25 million bbl) a year to operate the Eastern Siberia-Pacific Ocean oil pipeline at a profit, which is impossible because its oil production is falling.
The foreign policy atmosphere is not favorable for establishing major energy alliances with Europe, the analyst said. The latest evidence of Europe's displeasure with Russia is the decision of the EU, the largest consumer of energy and the main source of new technologies for geological exploration in Russia, to cut the number of EU-Russia summits to one a year.
Although oil prices have been high for years, Russia has not used the oil windfalls to establish itself in other energy markets. It has not built the infrastructure or accumulated enough oil and natural gas for alternative markets, Kuznetsova said.
The global natural gas trade is gradually moving from traditional pipeline supplies to LNG deliveries by sea. According to Royal Dutch Shell, the LNG demand has been growing by 7%-10% annually, whereas the figure for natural gas is only 2%-3%.
Over 25% of gas sold on the global market is supplied in the liquefied form. Gazprom's reliance on pipelines, which are expensive to service and will become vulnerable if gas reserves become exhausted, is again pushing Russia into a technological and political dead end.
The petrodollar shower over Russia effectively stopped all attempts to introduce energy saving systems. Russia, which is lagging far behind Europe in this respect, spends four to six times more energy on production than the European countries.
Instead of introducing effective energy saving technologies, the Russian authorities regularly raise domestic gas prices, which has never affected producers before. However, the financial crisis will break this vicious circle, the analyst concludes.
Gazeta.ru
Former socialist bloc threatens European economy
The former European socialist bloc is having trouble repaying loans borrowed from industrial EU nations. Although Russia is better off, plunging oil prices may also force Moscow to beg the International Monetary Fund (IMF) for loans.
China finances the U.S. budget deficit, while Western Europe is doing the same for East European nations.
However, the United States borrows dollars, while Eastern Europe owes a lot to Switzerland, Sweden and euro-zone countries.
The problems which appeared last year have started to snowball as European banks refuse to lend money to unreliable debtors.
This concerns debtors and creditors alike. The Bank for International Settlements (or BIS), an international organization of central banks, said European banks accounted for 75% of $5 billion loans taken out by developing countries.
Hungary, Lithuania, Latvia and Estonia have the greatest debts. Credit default swap insurance risks have soared dramatically, totaling 15% for Russia and 30% for Ukraine, respectively.
Debtor nations having a 5-15% foreign-trade deficit must post a foreign-trade surplus in order to repay their debts.
In effect, they have to boost exports and imports, thus reducing national living standards with unpredictable political and social consequences.
Although Russia still posts a foreign trade surplus, it could face problems caused by plunging oil prices that account for the bulk of tax and foreign currency proceeds.
When a barrel of oil costs $65, rather than $130, this is fraught with far greater expenses, including external corporate-debt payments in conditions of reduced currency proceeds.
In the event of a possible foreign trade deficit, Russia would have to borrow foreign currency loans from foreign banks and the IMF, which has only gained notoriety for sex scandals in the last few years of the raw materials boom.
Kommersant
First companies to receive money for refinancing foreign loans named
Vnesheconombank's supervisory board has approved the allocation of money for the first Russian companies experiencing difficulties with refinancing their loans from foreign banks. The sum allocated, according to VEB Chairman Vladimir Dmitriev, is just under $10 billion out of a total of $50 billion. Among those being rescued from margin calls are RusAl, X5 Retail Group, VympelCom and RZD.
Kommersant was yesterday able to confirm the information that VEB had allocated loans to Alfa Group, RusAl and RZD structures.
VEB reservedly commented on the refinancing of foreign loans for Russian structures. Although the committee for granting requests met for the first time a week ago, the bank is still withholding information on the make-up of the committee. Sources in the bank explain this secrecy by saying that "all key decisions on state support distribution are taken at the top and the bank only fulfils them." Dmitriev's statement, recorded on October 28, was aired on the Vesti Channel only after the VEB chief called on Prime Minister Vladimir Putin yesterday morning.
The largest loan, according to the paper, will be issued to RusAl. According to news agencies, RusAl has already informed Western banks that provided it with a $4.5 billion loan to buy a blocking stake in Norilsk Nickel in the spring of this year that the debt was being refinanced by VEB.
A source close to one of the RusAl shareholders said that two weeks ago the company received a margin call from its lending banks, which demanded that the quality of its collateral be improved after Norilsk shares dropped in price early in October (October 8 marked an all-time low since the middle of 2005). RusAl declined to comment yesterday.
A source in the VEB board believes RusAl will be able to receive $4.5 billion for debt refinancing despite a $2.5 billion VEB cap on one borrower.
Analysts have criticized the government's choice. Alexei Moiseyev from Renaissance Capital said: "VEB loans are needed above all by companies without an investment rating." "X5 and VympelCom are themselves able to generate resources necessary to repay their debts. RZD is completely free of such problems," it is believed in Renaissance Capital.
"The state will give priority to companies important for national security and socio-economic stability," said Vladimir Tikhomirov from Uralsib. "The key names on the list are RZD and X5. VympelCom is perhaps not the kind of company the government needs badly. RusAl, on the other hand, is partly important for maintaining defense capability."
Vedomosti
Oil traded below production costs
Russia's domestic oil trading session for November has finally begun. The prices are ridiculously low. Oil producers are getting desperate, especially independent ones, and are thinking of halting production.
Oil trading sessions for domestic deliveries next month usually begin around the 20th of the current month. This time around, the trading was delayed because the expected prices were bound to inflict losses on producers.
The problem is that the government is keeping November export duties at $372.2 per metric ton, unchanged from October, pushing prices below the cost of production as global crude slumps.
The oil export tax was set in late September and based on the global Urals price of $97 per barrel, which had plunged to $65 by the time trading began. Domestic prices are usually based on export parity plus a domestic market premium of 800-1,000 rubles ($30-37) per ton.
However, as exports became unprofitable with costs exceeding the marketing price (15,818 and 12,387 rubles per ton, respectively), producers promptly realized that the domestic market situation would not be much different. Oil companies have asked the government to cut the export duties and still hope their request will be granted.
The first indicative prices were announced last week. According to Infotech Consult, sellers offered the commodity at 4,000-4,500 rubles per ton while buyers did not offer more than 2,200-2,500 rubles. Trading stalled.
Having despaired of winning governmental favors, the market players finally began trading Tuesday night. TNK-BP, according to Infotech Consult, offered crude at its West Siberian outlets at 2,000 rubles per ton. By midday, many local consumers had bought the required amounts at this exorbitant price. Other customers expected to buy small amounts much cheaper, for 1,500-1,600 rubles per ton (about $8 per barrel), which would cover less than half of the producers' mineral tax.
The situation worsened even compared with last week, as the dollar went up and global oil prices down: on October 22, export parity of domestic oil prices was 1,000-1,500 rubles per ton, while yesterday it plunged to minus 250 rubles per ton.
"The situation is critical," said Yelena Korzun, director general of the Association of Small and Medium-Sized Oil Producing Enterprises. "Oil is traded at a loss. Independent companies are likely to be worst affected as a lack of refining capacity and the absence of retail outlets exacerbate their situation," she added.
She said oil producers are trying to arrange for oil storage in their own oilfield tanks or with Transneft, but this is not a cure-it-all solution. Many independent producers are abandoning wells and are likely to cut production by 60%.
But hope spring eternal. Alla Afanasyeva, the head of the oil and gas department at Kortes Information Center, said contracts are currently drawn up with provisions that prices could be adjusted if the export duty is cut.
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