What the Russian papers say


MOSCOW, November 26 (RIA Novosti) U.S. proposes new scenario for Ukraine and Georgia's NATO accession/ Oil and gas companies seek income from outside Russia/ Moscow considering cutting oil output along with OPEC/ Cost of Prirazlomnoye project may grow by $1 billion/ Crisis is a great peacemaker/ Russian prices stable despite falling global prices/

Nezavisimaya Gazeta, RBC Daily

U.S. proposes new scenario for Ukraine and Georgia's NATO accession

Unable to recruit the support of its allies for including Ukraine and Georgia into the NATO Membership Action Plan (MAP), the United States is trying to save face by saying the two countries could join the alliance using a different approach.
Pentagon chief Robert Gates said at the NATO defense ministers' meeting in Tallinn in mid-November there are different doors into NATO, and that some countries had not entered via MAPs.
U.S. Ambassador to Ukraine William Taylor yesterday took up the idea, saying Washington would try to convince the allies to bypass MAP in the case of Ukraine.
Joining NATO via MAP is no longer the only option, he said. The plan has become so politicized and contradictory that we should probably abandon it altogether. There are other ways to advance to the next stage, NATO membership, Taylor said.
Dmitry Rogozin, Russia's envoy at NATO, said: "This is unimaginable in the current conditions. Serious people in Washington, Brussels and other capitals know that changing Ukraine's status now would completely destabilize the situation in the country and possibly even provoke its disintegration."
Alexander Khramchikhin, an analyst at the Moscow-based Institute of Military and Political Analysis, said it was unclear what the Americans were trying to achieve by pushing Ukraine into NATO contrary to the will of their European allies.
"Attempts to disregard the consensus principle underlying NATO operations, let alone to force the allies to accept a decision, may push the bloc to the edge of collapse," Khramchikhin said.
West European bloc members are angry with the U.S. and its East European clients, and will certainly not fulfill the orders of the outgoing U.S. administration, the analyst said.
Germany and France were against a hasty expansion of the bloc through the admission of Russia's unstable neighbors from the very beginning.
The situation has become even more complicated since the NATO summit in Bucharest last April. Georgia has lost part of its territory, and the political crisis in Ukraine is growing. Besides, most Ukrainians are against joining NATO.
The NATO-Georgia and NATO-Ukraine commissions will convene during the December 2-3 meeting of the NATO foreign ministers in Brussels to discuss the two countries' readiness for rapprochement with the alliance.


Oil and gas companies seek income from outside Russia

Any foreign-policy moves attempted by the Russian government these days have to be viewed in the context of oil and gas prices, Mikhail Krutikhin, an analyst and partner at the RusEnergy consultancy, writes in the popular business daily Kommersant.
Even during Vladimir Putin's presidency, almost every foreign visit by the Russian leader involved promoting Gazprom's interests. In a similar pattern, energy cooperation issues dominated President Dmitry Medvedev's recent visit to Latin America. Oil and gas sounded like keywords during meetings, even more than military sales.
The U.S. National Intelligence Council said in a report that Russia would be able to develop its potential only if oil prices rise above $50-$70 per barrel. Russian officials seem to share this view. If oil trades at $70 or below, Russia's prosperity will be supported by earlier accumulated oil and gas income, the analyst said.
Even state giants like Gazprom or Rosneft could not expect special priviledges from the tax authorities in this situation. The sector is bound to remain the country's cash cow accounting for 65%-75% of export proceeds, Krutikhin added.
The only solution for them is to take their business to foreign markets where they won't be stripped of such a large share of their income. Countries like Libya, where international corporations never venture, or Venezuela, with local anti-imperialists having shown the door to Western companies, have become attractive destinations for Moscow. Russian companies can operate their without the threat of competition.
Competition for the remaining market niches has grown fierce amid the global crisis. Russia's predicament is even greater, with investment climate in its oil and gas sector far from stimulating an inflow of cash.
Recent legislative amendments have made the most lucrative projects off-limits for foreign investors. The dominance of state monopolies has even put smaller companies out of business. The unpromising picture also includes the inevitable kickbacks to officials which account for nearly one third of oil companies' exploration and production costs.
In this situation, operating outside Russia is the most logical solution even for state controlled companies. They could take their business any place where there are oil and gas assets as yet unclaimed by rivals.
It is amazing that the country's leading sector has lost its attraction to investors through lobbying efforts of the very state monopolies that make up this sector. They are now forced to seek income outside their home country, for example in Venezuela, Krutikhin concluded.


Moscow considering cutting oil output along with OPEC

Russian Energy Minister Sergei Shmatko said during his visit to New Delhi that Moscow would coordinate with OPEC to determine production levels and protect its interests as a major producer.
"We can't rule out cutting production as well," Shmatko said without adding any more details.
OPEC may even reach a quick agreement to cut production at an emergency meeting in Cairo next Saturday. An OPEC representative declined to comment on Shmatko's statement.
OPEC Secretary General Abdullah al-Badri said in September the organization had never discussed with Russia any joint plans on production cuts.
"Russia can reduce oil production, even as OPEC does so, but it does not mean we'll take it as a commitment to the cartel," a government source said.
Prime Minister Vladimir Putin recently met with national oil producers to discuss this method of influencing prices. In the wake of that meeting, state companies and agencies were instructed to study the possibility of building more oil storage tanks, the source added. Neither Putin's spokesman Dmitry Peskov, nor the Energy Ministry spokesman agreed to comment.
Oil producers made no comment on Shamtko's statement on Tuesday either. But LUKoil Vice President Leonid Fedun mentioned the need to coordinate with OPEC and even a possibility of Russia joining the oil cartel. He estimated that oil companies would be able to slash production by 300,000-400,000 barrels per day with government support.
That is possible theoretically, as the bulk of oil output is sold as part of contracts under 12 months, said Denis Borisov, an analyst at the Solid investment financial company, adding that the idea is hardly practical.
"Russia isn't like Saudi Arabia, we cannot just stop the tap. The wells will freeze in winter, and it will be too expensive to restart production," echoed Valery Nesterov from Troika Dialog.

RBC Daily

Cost of Prirazlomnoye project may grow by $1 billion

The cost of the Prirazlomnaya drilling rig, which the Sevmash shipyard has been building for the past 10 years, has grown by nearly $1 billion. Analysts say the Prirazlomnoye offshore oil deposit in the Barents Sea will be commissioned on time in 2011 despite the current market situation.
A newspaper source at the shipyard in northern Russia said the latest cost of the ice-resistant rig, which should be completed in 2010, was 79.4 billion rubles ($2.9 billion, including VAT) together with the design stage assessed at 7%-8% of the total cost.
Prirazlomnoye's recoverable oil reserves are estimated at 83.2 million metric tons (611.52 million bbl), the development period is 25 years, and the ice thickness 1.6 meters.
Initially, the field was to be commissioned in 2004, after 10 years of development, but the deadline has been postponed several times because of problems with the rig construction.
A source with close ties at Sevmorneftegaz, a subsidiary of gas monopoly Gazprom, which holds the development license for Prirazlomnoye, said the development cost had been evaluated at over $3 billion. He said the project's financial costs were being reviewed to take into account new aspects in the infrastructure and latest oil prices.
A manager of Sevmorneftegaz said oil production at Prirazlomnoye would be profitable even if oil prices were low. He said the project's base price which is economically efficient, is $17-$21 per barrel. However, the rig was estimated to cost $1.6 billion then.
"If we halt the project now because of the crisis, we will be unable to restart it later," the source said. He said Gazprom's project budget for next year had been provided in full, and there are no reasons to fear the commissioning of the field would be postponed.
Valery Nesterov, an analyst at the Troika Dialog investment company, said the project's profitability could plunge because of falling oil prices and because it entails the use of expensive technology to produce and transport oil in Arctic conditions.
However, prices may improve by 2011, and new techniques tested at Prirazlomnoye could be later used in other Arctic projects, he said.

Izvestia, Gazeta, Kommersant

Crisis is a great peacemaker

Billionaires Vladimir Potanin and Oleg Deripaska declared peace yesterday after months of conflict over Norilsk Nickel. Quarreling during a crisis has proved too costly a pastime.
"The crisis was what made us forget our personal ambitions and focus on restoring the company's financial standing," Vladimir Potanin, head of Interros (who controls 30% of Norilsk), said yesterday at a news conference to announce an agreement had been reached.
He and the second Norilsk majority shareholder, Oleg Deripaska (who owns a blocking stake in the company via RusAl), agreed to start with a clean sheet by appointing a state representative to head the board of directors, and including four members each from Interros and RusAl on the board. The board will also have three independent directors, Norilsk Nickel general director Vladimir Strzhalkovsky (a Putin man who joined the company directly from the government where he headed the Russian Federal Tourism Agency) and a VEB representative. Potanin and Deripaska will not be on the board at all.
At first sight, the decision appears to be a compromise. Both shareholders have equally distanced themselves from the company. But a detailed examination will reveal that the compromise is in Potanin's favor. It was he who proposed Strzhalkovsky as general director. The RusAl seats on the board could also be taken up by VEB representatives. (RusAl used Norilsk stock as collateral to obtain a Western loan, and had it not been for VEB, which granted it a timely loan to repay the foreign debt, Norilsk might have found itself in foreign hands.) In addition, as was said on the sidelines of the news briefing, the parties agreed that Interros would propose two of the three independent directors.
Another concession by Deripaska was his agreement to allow Norilsk to buy out its shares from minority holders to the sum of $2 billion. Up till now RusAl has been actively opposed to such a buyout and even used legal action to block it. Now all reciprocal claims are settled, and RusAl is even planning to offer its shares for repurchase. Not surprising considering the company's huge debts.
"The state has never tried or will never try to nationalize Norilsk Nickel," Deripaska told the briefing.
"Such statements are a positive signal to the market and above all to foreign investors, although everyone realizes this is no more than a statement," said Olga Mitrofanova, an analyst with the Aton investment company.

Novye Izvestia

Russian prices stable despite falling global prices

Economic laws mean that reduced demand should cause consumer prices to drop. Although this trend has been demonstrated in the West, primarily in the United States, Russian prices remain unchanged.
Analysts said Russian businessmen are still not used to free-market economics and prefer to stockpile their goods rather than sell them cheap.
Russia experienced long-term consumer price hikes caused by soaring oil, gas and food prices and frenzied consumer demand.
However, oil prices have plunged 2.5-fold; Russia has had a bumper harvest this year; and financial problems tend to reduce consumer demand. All these anti-inflation factors are supposed to bring prices down.
This is what is now happening in the West. The U.S. Department of Labor said nationwide consumer price indices had declined by 1% this October and hit an all-time high since 1947 when records began.
Economists explained this process by the U.S. economic recession forcing national companies to reduce prices in order to encourage demand.
This October, prices increased by 0.9% all over Russia, and rose by another 0.4% in early November. Since January 2008, nationwide inflation has reached 12%, exceeding 2007 levels.
Yevgeny Nadorshin, an analyst at the International Institute of Economics and Finance, said the relatively flexible U.S. market was used to free-market economics, that it raised prices in case of commodity shortages and lowered them when stocks were high.
Nadorshin said the Russian market was not yet prepared for this, and that overstocking was a new phenomenon here. He said domestic demand had long spurred price hikes, that Russian retailers and wholesalers were used to raising prices and did not want to reduce them even when conditions required.
Dmitry Sorokin, deputy director of the Russian Academy of Sciences' Institute of Economy, said Russia lacked full-fledged market economics.
"Adequate price dynamics are only possible in conditions of a de-monopolized economy. Wholesale and retail trade accounts for 20% of the Russian GDP and for 10-12% of GDP of industrial nations," Sorokin told the paper.
He said companies close to the Russian government, rather than those introducing state-of-the-art technology, had better chances of beating the competition.
"I am convinced that many wholesalers and retailers are overstocked, but that some of them prefer to raise prices in order to raise profits and to compensate for reduced sales," Nadorshin said.

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