Russian missiles to be retargeted at Europe
President Vladimir Putin told journalists from the G8 countries that Russian missiles would be retargeted at Europe if the United States carries out plans to establish a ballistic missile defense system in Europe.
According to experts, that is not an American-Russian problem, but a problem of Russia's relations with Poland and the Czech Republic.
Anatoly Tsyganok, the head of the Military Forecasting Center at the Institute for Political and Military Analysis, said: "If the U.S. deploys its ABM systems in Europe, Russia will have the right to inspect silos and radars there. However, it has no relevant agreements with the Czech Republic and Poland, because they have not coordinated the exchange of information."
Colonel General Eduard Vorobyov (Ret.), a prominent military expert, said the U.S. ballistic missile shield would certainly be deployed in Poland and the Czech Republic, but that Russia should nevertheless discuss the issue with them.
"This is a verbal duel, with Russia watching the Western reaction," he said. "Such statements should be followed by practical steps, but not the steps that some hawks expect. The West has accused Russia of rekindling the Cold War. To convince it that this is not so, Russia must take steps to prevent differences."
Russian experts are worried by the possibility of a new round of the arms race.
Yury Kobaladze, managing director for corporate clients at the X5 Retail Group, said: "The reply should be symmetrical, without stimulating the arms race." At the same time, "we must react to the advance of missiles to our borders."
Sergei Karaganov, board chairman of the Council for Foreign and Defense Policy, said the issue of the missiles' targets was of secondary importance.
He said: "When a potential military target appears, missiles are retargeted automatically, which answers the question about the future ABM systems in Poland and the Czech Republic. However, the main goal is to avoid our involvement in an arms race."
Russia will not cede South Kurile Islands to Japan
On Sunday, Russian Foreign Minister Sergei Lavrov drew Tokyo's ire by visiting the South Kurile archipelago, considered by Japan as its territory, for the first time since the breakup of the Soviet Union.
Lavrov, who said joint ventures should be established on the archipelago, told journalists that bilateral talks on the territorial problem has not made any headway. "Our positions are diametrically opposite, and no solution has been found," Lavrov said.
Less than a week before President Vladimir Putin and Prime Minister Shinzo Abe are scheduled to meet at the G8 summit in Heiligendamm, Germany, Moscow has shown that it is confident of its foreign policy and will not back down in the territorial dispute.
Japanese politicians are saying more often that, unlike the early Yeltsin era, it is no longer possible to quickly solve the territorial problem and acquire the four islands from Russia.
President Vladimir Putin has said Moscow has jurisdiction over the islands as a result of World War II.
Tokyo, which knew about Lavrov's plans in advance, prepared a note of protest. However, any anti-Russian rhetoric would be pointless as the Japanese establishment realizes the need for mutual economic cooperation despite the territorial standoff and the lack of a peace treaty. Japan also understands that Russia could develop Siberia and the Far East together with other countries, including China.
The paper's sources said Abe plans to propose nuclear energy cooperation and joint development of the Far East to Putin at the G8 summit. If Moscow and Tokyo sign an agreement on the peaceful use of nuclear energy, then it would become possible to process spent Japanese nuclear fuel in Russia.
Moreover, uranium from Kazakhstan could be enriched at Russian enterprises prior to shipment to Japan. Japanese companies could eventually help build NPPs in the Russian Far East.
Rosoboronexport wants to go euro
Russian arms export monopoly Rosoboronexport has suggested to India that long-term contracts be converted to euros. Russian suppliers complain that the dollar is falling, and weapons manufacture at previously agreed prices is becoming unprofitable.
The two mega-contracts concerned are the supply to and licensed production in India of 230 Su-30 MKI fighter planes (over $4 billion) and the delivery of the Vikramaditya (formerly Admiral Gorshkov) aircraft carrier with an air group of MiG-29K fighters (over $1.5 billion). An alternative solution proposed by Russia in the first case is to increase the annual price indexation from 2.55% to 5%. India will agree to convert the contracts to euros if the price is indexed at 2% annually. The deadline for India's reply is June.
For Rosoboronexport, reducing currency risks in the wake of the strengthening ruble is one of the key objectives, a company spokesman said. An official of one of the Su-30 MKI subcontractors said the proposal to calculate prices in euros applied to all long-term supplies of Russian weapons. As the ruble strengthens, costs increase and contracts become unprofitable.
The Russian proposals are quite justified, said Konstantin Makiyenko, an analyst with the Center for Analysis of Strategies and Technologies. In 2000, when the contract was concluded, no one expected the ruble to strengthen so fast, he said. Similar talks should be held with China: the falling dollar combined with ongoing inflation were a reason for freezing a contract to supply 38 Il-76 military transport planes (over $1 billion), Makiyenko said.
Such moves are already underway. Most new contracts will be pegged to euros or a basket of currencies, said the manager of one of the state banks. An added advantage would be avoiding settlements via American banks, depriving the secret services of information about the size of commission and awards to Russian suppliers, said a defense sector manager.
The order book for Russian armaments at the end of 2006 stood, according to the Center, at $30 billion (including $18 billion for Rosoboronexport). Deliveries in 2006 amounted to $6.46 billion, and foreign exchange earnings totaled $8 billion.
Prague may cancel contract with Westinghouse and use Russian fuel for NPPs
The Temelin nuclear power plant (NPP) in the Czech Republic is ready to cancel its contract with the U.S. company Westinghouse ahead of schedule and switch over to fuel produced by the Russian TVEL Corporation in the near future.
If so, it would be the first case of replacing a supplier in the nuclear power sector ahead of time. However, Czech problems as regards the use of American fuel do not stop Ukraine, which is also experimenting with it.
In May 2007, the Czech Republic took a decision on out-of-core discharge of fuel supplied by Westinghouse to the Temelin NPP without waiting for its burn-up.
"That is an unprecedented event in international practice," said Pyotr Lavrenyuk, TVEL's vice president, on June 1.
He also said that an earlier fuel reload at the first power unit is scheduled for 2009. By the end of this year, the Temelin NPP should make a decision on the second power unit, too.
The reason for such a radical solution is the numerous problems caused by the American fuel - it becomes largely deformed during use.
That has led to incidents at the NPP and unplanned intervals in the NPP's operation leading to losses.
Thus, in the middle of January 2007, Temelin personnel had to stop the NPP's first power unit in order to replace a quarter of its operating zone. It resumed operation only in April.
TVEL was to start deliveries to Temelin in 2010 (it won the international tender for fuel supplies for 2010-2020).
Since its inception in 2000, Temelin received only Westinghouse-produced fuel, though the NPP was built according to Russian technologies and fitted with Russian VVER-1000 reactors, which were considerably modified by Westinghouse.
TVEL's contract with the Czech Republic will allow the Russian company to nearly completely win back its Western fuel market for VVER reactors (in 2006 TVEL pressed Westinghouse back from supplies to the Loviisa NPP in Finland).
Ukraine is the only exception, and Westinghouse is trying to use the same technologies there as it used in the Czech Republic.
Ukraine began to diversify fuel supplies with Westinghouse's help in 2000. At present, six Westinghouse fuel clusters are operating at the third unit of the South-Ukrainian NPP.
That is less than 1% of total fuel used by Ukrainian NPPs, with the rest of the market belonging to TVEL. However, the second stage in Ukraine's use of Westinghouse fuel provides for the loading of another 42 fuel clusters at NPPs.
Business & Financial Markets
RusAl to buy into Norilsk Nickel
Mikhail Prokhorov, the owner of private investment fund ONEXIM Group, will restructure his new project by selling a 22% stake he holds in metals giant Norilsk Nickel to United Company Russian Aluminum (UC RusAl). If the deal goes through, Prokhorov may receive some $12 billion for his energy holding.
RusAl refused to confirm whether he had applied for official approval of the possible acquisition of assets on the Russian non-ferrous market, but said it might diversify its business.
Yevgeny Ryabkov, an analyst with the Antanta Capital investment company, said: "This is a non-core business for the company, but we can assume that it may set up a major firm to produce iron ore."
Sergei Krivokhizhin, an analyst with the Otkrytiye brokerage, said the aluminum giant could approve the integration scheme for diversifying its risks.
RusAl owners had announced their ambitious plans before.
Alexander Livshits, RusAl's director for international and special projects, said: "The company's strategic goal is to increase its capitalization to at least $100 billion."
However, experts said Norilsk Nickel is the only mining and production asset that is attractive for RusAl in Russia.
Norilsk Nickel's capitalization has been evaluated at $38 billion, and Prokhorov's stake therefore costs $7.7-$10 billion.
Dmitry Smolin, an analyst with the UralSib financial corporation, said: "The share in Norilsk Nickel can be sold to RusAl for $10 billion."
Prokhorov may also decide to sell his $2 billion stake in Polyus Gold, the gold-producing asset spun off from Norilsk Nickel.
Analysts say RusAl is now worth less than Norilsk Nickel, at $28-$33 billion, according to Smolin.
Prokhorov announced last week that he had set up a private investment fund ONEXIM Group, which comprises 22% in Norilsk Nickel, 22% in Polyus Gold, and half of Interros assets.
"The fund is an intermediary product that will be later restructured," said Krivokhizhin.
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