MOSCOW, February 4 (RIA Novosti) Kyrgyzstan agrees to close U.S. air base/ Regional security organization builds up muscle/ Europe wants Russia to join Nabucco project/ RusAl halts overseas operations
Kyrgyzstan agrees to close U.S. air base
On Tuesday, Russian President Dmitry Medvedev held negotiations with his Kyrgyz counterpart Kurmanbek Bakiyev in the Kremlin. Bakiyev announced the Kyrgyz government's decision to close the U.S. air base at Manas international airport in Bishkek.
President Bakiyev explained the decision by Washington's reluctance to agree financial terms with Bishkek to deploy the air base and by negative public reaction. President Medvedev hinted that the Kremlin was ready to continue cooperating on the Afghan issue even after the U.S. has withdrawn from Kyrgyzstan.
In return, Moscow pledged to issue a $2 billion easy-term loan to Kyrgyzstan to provide the republic with $150 million in free aid and also wrote off Bishkek's $180 million Russian debts.
Vladimir Yevseyev, a senior research associate with the Russian Academy of Sciences' Institute of World Economy and International Relations (IMEMO), said the United States would not face any major problems after pulling out of Bishkek and would simply have to reroute supplies via Pakistan, Kazakhstan or Uzbekistan.
Vitaly Shlykov, member of the Russian Defense Ministry's Public Council, said the dismantling of the Manas air base could force Washington to downsize its operations in Afghanistan, and that this ran counter to Russian interests.
"Although Moscow does not receive any profit from the U.S. presence in any part of Asia, it is much less unpleasant than a stronger Taliban in the context of security," Shlykov stressed.
Under a separate agreement, Russia will invest $1.7 billion in construction of the Kambaratinskaya hydropower plant and equipment purchases. Bishkek will also receive a $300 million loan with 0.75% interest to prop up the republic's financial system. The loan is to be repaid within the next 40 years.
Moreover, the Kremlin wrote off Bishkek's $180 million Russian debts, part of which was repaid in kind. Last week, Russia's Deputy Prime Minister Igor Sechin held talks in Bishkek and negotiated the purchase of a 48% stake in Dastan Co. manufacturing naval weapons and special-purpose submersibles.
Kyrgyzstan, now suffering from the global financial and economic crisis, will also receive $150 million worth of free Russian aid. This is quite appropriate because inflation in the republic reached 22.5% last year and $3 billion in foreign debt in 2007. Moreover, Turkmenistan has raised gas prices by almost 100% dealing a crippling blow to the Kyrgyz economy.
Regional security organization builds up muscle
The Collective Security Treaty Organization (CSTO) is holding a special summit in Moscow today, aimed at completely changing its image: the CSTO is to get its own armed forces.
Last fall, when following a war with Georgia, Russia found itself on the brink of a full-scale face-off against the West, President Dmitry Medvedev proposed that the CSTO set up its own collective rapid reaction force. The idea, if implemented, will lead to the Russia-led organization becoming a full-blooded military political alliance.
The force is planned to include mobile units and troop units from the seven member countries. Most of forces will be provided by Russia (an airborne division and an assault-landing brigade) and by Kazakhstan (an assault brigade). The other members could contribute a battalion each.
"Russia is no doubt interested in a structure that could somehow counterbalance NATO." believes Andrei Fedorov, director of political programs at the Council on Foreign and Defense Policy. "It appears logical, because the military potential of our CSTO partners could hardly be described as effective, and the domestic situation in some of them, far from stable. But these factors will make any new set-up, no matter what it is called, a "paper tiger," which may be good in the information war, but useless in practice. Besides, any expansion of the CSTO, unlike NATO enlargement, appears unlikely and could only be implemented by including South Ossetia and Abkhazia, if at all."
However, sources in the Foreign Ministry who assisted in the CSTO reform, warned against overdramatizing the planned changes. "To say that Russia is turning the CSTO into a NATO counterbalance places a very simple interpretation on the tasks facing the rapid response force. It should be remembered that some of the organization's members border the highly unstable Afghanistan," a high-ranking diplomat told Kommersant.
Europe wants Russia to join Nabucco project
The European Parliament has admitted to the hopelessness of the Nabucco pipeline project, planned to pump natural gas from Central Asia to Europe, and wants Russia to join it to ensure its revival.
However, the Russian government is unlikely to accept the invitation, especially since it is building the South Stream pipeline.
According to a European diplomatic source, the proposal has been outlined in a report on the EU's strategic energy review prepared by European Parliament experts. It is to be voted on by lawmakers on February 4 in Strasbourg.
So far, Europe has found only one supplier for Nabucco, Azerbaijan, but it can only provide less than half of the pipeline's planned capacity.
Alexander Shtok, due diligence director at 2K Audit Business Consulting, said: "Turkmenistan and Kazakhstan, which were initially seen as the main suppliers for Nabucco, have so far not assumed any commitments. Moreover, Russia is working hard to buy as much natural gas as possible in these countries."
Vyacheslav Bunkov, an analyst at the Aton investment company, said: "The futility of Nabucco is becoming evident to everyone, since only Iranian gas is a viable alternative to Russian supplies. But Europe, which wants to diversify its gas supply routes to the maximum, knows its energy dependence would strengthen if it opts for Iran."
Europe fears Gazprom's "pipeline pincer strategy" because Nord Stream and South Stream will take over a substantial part of its gas supplies. Europe's attempts to lure Russia into Nabucco could be also aimed at forcing it to abandon the South Stream project.
Analysts say that Russia's involvement in Nabucco would be technically justified only if it halted construction of South Stream, being built along the bottom of the Black Sea, and focused instead on the EU pipeline that will run across Azerbaijan.
"Russia would not benefit from joining a project rivaling South Stream," Bunkov said. "It is much more profitable to own one more pipeline running toward Europe than to share it with other suppliers."
The $10 billion Nabucco pipeline, backed by the European Union and the U.S., was originally intended to link energy-rich Central Asia to Europe through Turkey, Bulgaria, Romania, Hungary and Austria, bypassing Russia and Ukraine. Construction has been tentatively scheduled to begin in 2010.
Vedomosti, Vremya Novostei
RusAl halts overseas operations
United Company Russian Aluminum (UC RusAl), the world's largest producer of aluminum and alumina, is being forced to close down its Windalco plant in Jamaica and Eurallumina in Italy for a year, citing plummeting global alumina prices.
However, a source in the company confirmed that Windalco's 850-strong staff will remain in employment during the shutdown period, and that only 250 people working under temporary contracts will be laid off.
Eurallumina will apply to the Italian government for financial aid to support the company's employees during the break in operations.
RusAl has also announced a 37% cut in production at its Irish facility, Aughinish Alumina. Therefore, the production of alumina will drop to 3.45 million metric tons, down 30% from 11.2 million tons, once Windalco and Eurallumina close.
Alumina prices have dropped 60% since the summer highs, said Marat Gabitov from Unicredit Securities, to $184 per ton from $445 in the summer. Global industry leaders have already announced plans to slash this year's output by 4.5 million tons, since it is pointless to have stockpiles in the current situation.
It is wise of RusAl to close down its Western operations, said Alexei Morozov, an analyst with UBS.
RusAl is barely making any profit, and halting "excessive" production plants should help the holding's overall cost reduction drive and solvency. Norilsk Nickel is also following the same policy, Morozov said referring to the mining giant's reported decision to suspend several projects in Africa and Australia.
Cutting production at cost-consuming operations is a solution to maintain the company's cost-efficiency, agreed RusAl spokesperson Vera Kurochkina. "Our six-month plan is to only keep those operations where expenditure would keep us among the world's top ten producers by costs," she added.
RusAl will also revise its plans to cut aluminum production. In December, the holding said it would reduce output by 4%, or 180,000 tons. The economic effect of this year's optimization program is estimated at $200 million, Kurochkina said.
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