MOSCOW, September 21 (RIA Novosti)
Gazprom finds partner for Blue Stream-2 / Russia loses big time PSAs / Rosoboronexport seeking wider client base / Aeroflot ready to buy 44 long-haul aircraft from Boeing and Airbus / Moscow expects relations with U.S. to worsen
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Gazprom finds partner for Blue Stream-2
Gazprom and Italy's ENI will establish a joint venture to build the Blue Stream-2 natural gas pipeline. The Russian gas monopoly will invest $5 billion in the project, which will enable it to supply annually up to 5 billion cubic meters of gas to Italy.
Market players said that together with the North-European gas pipeline, the Blue Stream-2 project would allow Gazprom to establish an almost perfectly balanced system of gas supplies to Europe.
The North-European gas pipeline will carry Gazprom gas to Germany, France and Belgium, while Blue Stream-2 will enable the energy giant to cover Italy, Greece, and potentially Hungary and Bulgaria. Once commissioned, these pipelines will boost Gazprom's sales to Europe by 50 to 200 billion cubic meters a year.
Yury Saakyan, director general of the Institute of Natural Monopolies, believes Blue Stream-2 will cost Gazprom less than the North-European Gas Pipeline ($5 billion and $6 billion respectively), because the pipeline's most expensive first two legs have already been laid.
Gazprom and ENI plan to sign a cooperation agreement before October 15. The partners intend to set up a joint venture on a parity basis. The venture will operate the pipeline construction and hold a license to operate the pipeline after it has been inaugurated. Blue Stream-2 will produce 8 billion cubic meters of gas per year. After commissioning the first leg of the pipeline, Gazprom will be able to export to Turkey 24 billion cubic meters of gas annually.
Cooperation on Blue Stream-2 will be based on the pattern of the North-European gas pipeline, which secured Gazprom access to Germany's domestic market through an asset swap with E.ON and BASF. A source close to ENI told the paper that the portfolio of assets for a swap with Italy should be approved within six months.
So far, the agreement will spell out the basic principles of cooperation, under which Gazprom should finally reach end consumers in Italy, and ENI will be given access to Russian reserves.
Gazprom officials said the monopoly is in hurry to implement the project, because of a rival, Nabucco, expected to produce 31 billion cubic meters of gas per year. The routes of the two pipelines almost coincide. Nabucco is due to be commissioned in 2011. Gazprom has been seeking to block the project in an effort to contract all Central Asian gas. However, the monopoly has signed corresponding agreements only until 2010. In the most optimistic scenarios, Blue Stream-2 will be built in 2012.
Russia loses big time PSAs
A senior official said he doubted the profitability of three production-sharing agreements that were signed in the mid-1990s.
Sergei Fyodorov, director of the Russian Natural Resources Ministry's department for state policy and regulation of nature management, said the three current PSAs for the Sakhalin 1 and Sakhalin 2 energy projects and the Kharyaga oil field in northern Russia had been concluded in a different economic and political era when oil prices were different. A barrel of oil, which cost $16-18 when the Kharyaga contract was being inked, recently reached about $70. But the PSAs still envision the same easy-term tax regime, Fyodorov said.
He said production-sharing agreements stipulate royalties and profit tax. Russia received only about $20 million in royalties from Sakhalin 2, but no profits. He said Sakhalin 2 deposits were yielding 1.5-2 million tons of oil per year (40,275 bbl/d). With oil costing $60 per barrel, Russia could receive $200 in taxes from each metric ton of oil (at $400), or $300-400 million a year under a standard taxation regime.
Fyodorov said he was surprised by attempts to list operational costs as reimbursable expenses. For instance, contractors who installed defective centrifugal oil-well pumps worth $5 million are trying to make Russia pay for these idle pumps. He asked why the state should pay for everything as it did under Communism.
A $20-million pipeline for pumping gas from underground wells had been built and subsequently rejected by the environmental watchdog, which should have done this prior to construction.
There are many other questions, the expert told the paper.
Fyodorov said crude production is lucrative because of current high oil prices. But far from every company is in a hurry to provide Russia with high-profit oil under PSAs. But revenues will fall when they start producing hard-to-extract oil with high water content. "Do you call this a fair production-sharing plan?" he asked.
Rosoboronexport seeking wider client base
Venezuela will continue its across-the-board weapon purchases in Russia, President Hugo Chavez said Wednesday. Experts told the paper they expected additional contracts worth about $1 billion.
But state arms exporter Rosoboronexport has started an effort to wider client base in other countries. It may sell Russian weapons for the first time to regular American customers: Turkey and Saudi Arabia.
Chavez needs transport aircraft, said Konstantin Makiyenko, deputy director of the Center for Analysis of Strategies and Technologies. He is also interested in trainer aircraft, notably the Su-25 Frogfoot. A military diplomatic source said: "Venezuela may soon purchase more than 50 Mi-17, Mi-35 and Mi-26 helicopters from Russia."
Experts are also forecasting weapons contracts with Turkey, though on a smaller scale. Eksport Vooruzhenii (Arms Export) editor Dmitry Vasilyev said Turkey could follow the example of Greece, which in 1998 bought a quantity of Tor-M1 anti-aircraft missiles systems to form an effective complement to its American Patriots. Besides, he said, Russia might supply naval equipment to Turkey. Capital brokerage analyst Mikhail Pak said Kalashnikov assault rifles could be sold to Turkey.
This is not the first time Russia has tried to gain a foothold in countries that traditionally buy only American weapons. It was recently reported that Saudi Arabia might purchase advanced Russian tanks. At the end of August, a group of Russian military experts visited the Kingdom to drum up sales.
One reason why some NATO and Middle East countries are looking to Russian arms and equipment is Washington's overly aggressive foreign policy. "The tough line adopted by the United States toward Iraq and Iran is making other Middle East countries pause and think of future cooperation with that country," said Pak. In his view, a contract with an alternative supplier could protect the buyer's interests.
Rosoboronexport has confirmed his guesses. "These states may display an interest in Russian weapons to diversify their purchases - not to put all their eggs in one basket," said a source.
Aeroflot ready to buy 44 long-haul aircraft from Boeing and Airbus
Now that Aeroflot has failed to persuade government officials to approve its purchase of long-haul Boeings, the Russian national air carrier has announced it will buy 22 Boeing-787s and 22 Airbus-350s.
The government refuses to believe in the sincerity of Aeroflot's intentions, and suspect the company will prefer U.S. aircraft as usual.
For over a year Russia's largest airline has been looking for a way to expand its fleet of long-haul aircraft. Aeroflot managers have favored Boeing-787 Dreamliners, which will be developed four years earlier than the A-350, a favorite of most government officials. Aeroflot's board has repeatedly considered the issue, the last time on September 15, but in vain: no contract has yet been signed.
Yesterday, Aeroflot director general Valery Okulov said his company would not make further choices, and that "the competition is over". Okulov announced that the Aeroflot management is ready to double its order and buy 22 Boeings and 22 Airbuses. Aeroflot wants to receive all the aircraft within six years, B-787s in 2010-2012, and A-350s in 2012-2016.
The 44 aircraft will cost up to $6 billion. However, Boeing and Airbus have already promised Aeroflot to sell them at a "substantial discount." Analyst Yelena Sakhnova from Deutsche UFG believes the deal will be too large for Aeroflot anyway. As a way out, the airline could have most aircraft leased for up to 10 years, she said. Nevertheless, Aeroflot is unlikely to use all the 44 aircraft, since competition on the major routes to Asia and America is fierce, the analyst said.
A Transport Ministry official told the newspaper that Okulov's statement was mere game-playing, aimed at first receiving long-awaited Boeing aircraft, and that the airline may postpone signing a contract with Airbus for a few years. The source said Aeroflot signed a contract for six Il-96s in 1999, but no aircraft has been delivered yet.
A source in the Kremlin acknowledged Aeroflot's tender had been delayed, but said this was preferable. While competing, both Boeing and Airbus improve their positions, and "100% advantage should be taken of any situation." The source said a final decision would be made before this year's end.
Moscow expects relations with U.S. to worsen
Russian-U.S. relations will deteriorate significantly over the next few years, regardless of what administration comes to power in Washington. America will press to isolate Russia's leadership and carry out the "orange" scenario via its puppet politicians.
Moreover, Washington will continue its efforts to disrupt Russia's energy sovereignty and to support disintegration processes within the country. It will try to undermine Moscow's moves in the CIS by speeding up Georgia and Ukraine's accession to NATO.
These are conclusions laid out in a confidential report titled "A probable scenario of U.S. moves against Russia in 2006-2008," distributed in the Russian parliament this week.
It was compiled by Valentin Falin, former secretary of the Soviet Communist Party's Central Committee and USSR ambassador to Germany, and Lieutenant General Gennady Yevstafyev (Rt.), former officer of the Foreign Intelligence Service.
The report gives a detailed description of how Russia's energy sovereignty will be disrupted. The authors believe that the United States will press for ensuring alternative international energy suppliers' access to Russian export pipelines. It will demand that Russian energy producers be privatized with foreign companies' participation, and will try to disrupt plans for energy cooperation with China.
Falin and Yevstafyev expect that Washington will put more pressure on Azerbaijan, Kazakhstan, Uzbekistan and Turkmenistan to initial agreements on the construction of new shipment routes that bypass Russia.
Vladimir Frolov, director of the National Foreign Politics Laboratory, said that the report was an answer to Russia's Wrong Direction, a report published by a working group of the New York-based Council on Foreign Relations last March. The Russian report was prepared for the G8 summit in St. Petersburg, he said, but the Kremlin apparently decided against getting embroiled in quarrels ahead of the meeting and postponed its release.
The report is unlikely to cause a crisis in Russia-U.S. relations, Frolov said. In fact, it is a manifestation of political forces that want neither to confront America openly nor to imitate the American model of a democratic society, he said.