MOSCOW, April 1 (RIA Novosti) President Putin to meet with Italian business leaders/ Gazprom again postpones commissioning of Prirazlomnoye deposit/ Nord Stream's rising cost will not affect pipeline's profitability/ Russia stops assembling Chery vehicles/ Pernod Ricard and Stolichnaya owner fall out over $3 billion/ Human rights activists want law on NGOs to be cancelled
President Putin to meet with Italian business leaders
A month before the new president's inauguration, outgoing President Vladimir Putin will meet with Italian business leaders. The visiting executives realize only too well that Putin will retain substantial power, and they will willingly talk to him about their problems and plans in Russia.
A high-ranking Kremlin source said this informal meeting was planned long ago.
The Kremlin will release no special statements about the issues to be addressed at the meeting, but Putin and his aides are ready to hear out the Italian business leaders' concerns and proposals.
The source said Germany and Italy are Russia's key economic partners, which is why the president never refuses to meet with German and Italian businessmen and try to meet their requests.
The meeting will focus on economic issues, another Kremlin source said, but it is also possible that they will discuss the president-elect, Dmitry Medvedev.
Most business leaders who will visit President Putin are from companies investing in Russia. Multinational oil and gas company Eni owns 50% in the Blue Stream pipeline project, while the remaining 50% belong to Russia's Gazprom. Italian energy provider Enel holds 59.8% in the wholesale generating company OGK-5 and 49.5% in Russian power supplier RusEnergoSbyt (RES). In April 2007, the Eni-Enel consortium acquired for $5.83 billion several gas companies and a 20% stake in Gazprom Neft, beating state-owned Rosneft at the Yukos bankruptcy auction. Indesit owns the Stinol refrigerator plant in Lipetsk. Techint provides engineering services for the launch of a butyl rubber production at the Tobolsk oil refinery, and is setting up a joint engineering holding with Gazprom to modernize gas equipment plants.
We plan to talk to the Russian president of our current projects' progress status and our cooperation with Gazprom, a source close to Eni said.
Everybody understands that Putin will retain power, and such meetings are extremely important for businesses operating in Russia, another participant said.
The accumulated Italian capital in Russia's economy is $1.1 billion, and 700 Russian-Italian joint ventures are currently operating in Russia.
Gazprom again postpones commissioning of Prirazlomnoye deposit
Gazprom Neft, the oil arm of energy giant Gazprom, has once again postponed the commissioning of the Prirazlomnoye oilfield in the Barents Sea, this time until 2010. At the same time, it plans to increase production to at least 80 million metric tons (588 million bbl) by 2020.
Prirazlomnoye, with recoverable reserves of 83.2 million metric tons (611.52 million bbl), was to come on stream in 2006-2007, but its commissioning was postponed until 2009. Gazprom and Gazprom Neft did not explain why.
The field is one of the main assets Gazprom planned to turn over to its oil division, along with another 10 fields with C1 reserves totaling 650 million metric tons (4.78 billion bbl). Gazprom Neft will not own the fields, but will operate them under contracts.
Yekaterina Kravchenko of BrokerCreditService said the decision to postpone the field's commissioning was not a major setback.
"Even if they postpone its commissioning by another year, there will be no shortage of oil," she said.
However, Gazprom Neft still expects to take over the monopoly's oil reserves. "To date, it cannot increase production to 80 million metric tons of oil a year from available assets," Kravchenko said. Even if it buys several fields with major reserves, it will be unable to produce the additional 30 million metric tons of oil by 2020.
According to Gazprom Neft, it will produce between 80 and 100 million metric tons of oil by 2020 without Gazprom's oilfields, mainly thanks to the production licenses it has bought and the undistributed fields for which it plans to bid at auctions.
Konstantin Batunin, an analyst at Alfa Bank, said: "Financing priorities are the main reason for postponing the transfer of assets. It appears that Gazprom and Gazprom Neft view these projects as expensive for development, and second, are waiting for a change in the tax regime."
The analyst said the two companies have other, less expensive and more attractive, projects in which they can invest.
Nord Stream's rising cost will not affect pipeline's profitability
Compared to initial estimates, the cost of the Nord Stream natural gas pipeline project has nearly doubled, to 7.4 billion euros. Experts explain the increase by the overall rise in the prices of the equipment and the weakening of the dollar, but they think it will not affect the profitability of the gas pipeline, which will link Russia's Baltic Sea coast to Germany.
It is planned that the project's shareholders (Russia's gas giant Gazprom, Germany's BASF and E.On and Holland's Gasunie) will finance 30% of the pipeline's cost (2.22 billion euros), with the remaining 70% to be attracted as loans by the project's operator, Nord Stream AG.
The first leg of the pipeline, with annual capacity of 27.5 billion cubic meters, is to be commissioned in 2010. The first gas supplies are to be started in early 2011. The second leg (with the same capacity of 27.5 billion cubic meters) should be put into operation in 2012-2013, together with the launch of the Shtokman gas condensate deposit in the Barents Sea.
The pipeline will run in the economic zones and territorial waters of Sweden, Estonia and Lithuania, which believe that pipe-laying along the Baltic Sea bed is not ecologically safe. Last year, Estonia refused to participate in the project and banned pipe-laying in its territorial waters. The elaboration of a technically more difficult route via Finland increased the costs of the project by another $1 billion.
However, market players think that the main reason for the rising cost of the project is not additional spending on exploration and expert evaluation, but a rise in the prices of building materials and equipment.
According to Konstantin Gulyaev, an analyst at the Region investment group, "the reasons for the rising costs of the project are the same as were last time - the higher prices of the equipment and pipes, as well as contractors' and transport agencies' servicers." He also recalled that last year's figure of 4 billion euros had been already increased to 6 billion euros.
Konstantin Reili, an analyst at the Finam investment company, cited the weakening of the dollar as another reason behind the rising costs of the project. "Gazprom receives profits in U.S. currency and calculates costs in rubles," he said.
Nevertheless, market players agree that the profitability of the pipeline will not fall. First, the financial burden will be distributed among all the participants in the project and, second, the price of gas, which is to be transported via the Nord Stream pipeline, will also rise because of the record high oil price on the world markets (gas prices, which are calculated by using different formulas for different regions, depend on oil prices). However, the launching of the project may be delayed, which will again increase the cost of the project.
Business & Financial Markets
Russia stops assembling Chery vehicles
The Avtotor automotive plant in Kaliningrad, Russia's Baltic enclave, has decided to stop assembling the loss-making Chinese Chery cars, citing a weaker dollar as the main reason.
Both sides renounced their 2006 plans for building a new plant in Russia.
Analysts said Avtotor had scrapped the Chery project for fear that the government would deprive it of privileges enjoyed by free economic zone residents.
Kirill Tachennikov, an analyst at Otkrytie brokerage, said Avtotor could receive the right to import car components free of charge and would start assembling the more expensive and profitable BMW, Cadillac, Hummer and Chevrolet vehicles instead.
He said government officials did not like the fact that the plant was assembling the inexpensive Chery cars, vying with vehicles manufactured by Russian automotive giant AvtoVAZ.
Russian authorities have disliked Chinese automakers for a long time, Mikhail Pak, an analyst with Kapital brokerage, told the paper. He said not a single Chinese company had received privileges in Russia under industrial-assembly contracts.
Avtotor spokeswoman Yelena Shamayeva said the company did not have its customs privileges revoked.
Last year, 37,120 Chery vehicles, mostly those assembled at Avtotor, were sold in Russia.
Troika Dialog analyst Gennady Sukhanov said subsequent car imports would not affect sales, that compared to China the Russian workforce was more expensive, and that Avtotor had not considerably reduced Chery production costs.
He said Chery production would be unprofitable if Avtotor were deprived of customs privileges.
Chery still hopes to resume production in Russia. This February, corporate officials assessed car-assembly opportunities at the Izhevsk automotive plant (Izh-Avto). In March, the Chinese media reported Chery's plans to spend $422 million on the Izhevsk plant.
Russian carmaker SOK group, which owns Izh-Avto, said Chery wanted to assemble its cars there, but declined to comment on a possible Izh-Avto purchase.
SOK group is also negotiating the sale of Izh-Avto to AvtoVAZ, Tachennikov told the paper. Chery will not assemble its cars in Izhevsk if the deal goes through.
Sukhanov said the project would not receive official backing and customs privileges even if SOK group reaches an agreement with Chery.
Pernod Ricard and Stolichnaya owner fall out over $3 billion
France's Pernod Ricard is buying the Swedish state-owned company Vin & Spirits (owner of the Absolut vodka brand) for 5.6 billion euros, a record sum for an alcoholic drink brand.
This purchase means Pernod is canceling its contract for the distribution of Stolichnaya vodka outside Russia. Earlier, the world's second largest spirits company was ready to set up a joint venture with the Russian government to take over the Stolichnaya brand: a 75% stake in the joint venture would have cost the French company more than $3 billion.
Pernod will soon to repudiate its contract with SPI Group on Stolichnaya sales outside Russia ahead of time and end the negotiations to buy out SPI's brand rights. "The vodka sales contract is valid until December 2010, its repudiation is a matter of several months," SPI president Andrei Skurikhin said yesterday.
Pernod made a choice between two brands - Absolut and Stolichnaya, say analysts. "Pernod took great pains, including its political connections at the highest level, to clinch the Stolichnaya sales contract, but facing 'indifference' to its attempts to break the deadlock, had to refocus on Absolut," Skurikhin said.
A source close to the talks claimed that Pernod had proposed to the Russian government that it give the brand over to a joint venture, 75% owned by the French company and 25% by Russia. For SPI Group to give up its claims to selling Stolichnaya abroad, Pernod was prepared to pay it $3 billion. In the future, the French could have increased their stake to 100% by paying Russia another $300 million.
According to the source, JP Morgan advised Soyuzplodoimport (which controls the Stolichnaya and Moskovskaya brands in Russia) on the deal. Russian President Vladimir Putin and French President Nicolas Sarkozy gave it advance endorsement, and its presentation took place at the Economic Development and Trade Ministry at the beginning of 2008.
A source at SPI Group confirmed that such a scheme had been discussed. A Soyuzplodoimport official spoke of "possible options presented at the Economic Development and Trade Ministry to recover the Stolichnaya brand".
Companies such as Fortune Brands, Bacardi or Campari Group might get interested in the distribution and even purchase of Stolichnaya, according to Symon Hales from DKW. But they will never start negotiations before the owner situation clears up. The analyst estimates the legally unencumbered price of the Stolichnaya brand to be $1.8-1.9 billion.
Human rights activists want law on NGOs to be cancelled
By April 15, all NGOs in Russia are to report on their operations to the Federal Registration Service. However, Russian human rights activists yesterday demanded that the stifling law be annulled since few of them can fulfill the stringent provisions of the law on NGOs.
"NGOs are suffering from stifling red tape no less than small businesses do," they write in the letter signed by the Center for the Development of Democracy and Human Rights, the Moscow Helsinki Group, the Glasnost Defense Foundation, the Public Verdict Foundation, the Golos Association set up to protect people's election rights, and the country's other human rights organizations.
The authors say that the situation is very similar in both sectors, with NGOs and small businesses "facing a huge number of red tape problems," which only large organizations can overcome. It is much more difficult and expensive to register an NGO than a commercial organization, and much easier to close it down.
Lilia Shibanova, executive director of Golos, said: "The operations of a commercial organization can be suspended only if it violates law or permits a gross financial breach. But NGOs can be closed without any reason, or for a far-fetched reason, only because the Federal Registration Service (FRS) wants it."
She cited a recent example of the Samara branch of Golos, which officials tried to close down shortly before the elections.
"They claimed that the branch held debates about the forthcoming elections even though its charter does not stipulate such debates," Shibanova said. "We laid bare the absurdity of the claim in court, but the judge told us that under the new law the FRS may suspend the operation of NGOs."
Russian human rights activists have more than once proposed softening the provisions of the law on NGOs. This time they demand a harsher measure.
"The law on NGOs must be cancelled," Shibanova said. "There is a legal provision for the establishment of [different] organizations in Russia in the law on their operations, and it doesn't matter if it is a commercial or non-profit organization, or a political party."
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