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    MOSCOW, June 27 (RIA Novosti) Abkhazia may be divided into Russian and Georgian zones of influence/ Moscow has no need to rush new agreement with EU - expert/Three victories at Euro-2008 cause surge of patriotism in Russia/ Russian steel giant expands in America/ Gazprom to buy Gazprom Neft from Eni, Enel/ Russian diamond cutters outraged by Alrosa's price spike


    Abkhazia may be divided into Russian and Georgian zones of influence

    According to the newspaper's sources in the Georgian Foreign Ministry, Tbilisi has submitted to Russia a package of measures to settle the Georgian-Abkhazian conflict. It provides for dividing the breakaway republic into a large Russian and small Georgian zones of influence, with Georgia restoring its sovereignty over the republic.
    Abkhazian leader Sergei Bagapsh, who has come to Moscow, was informed about the plan at his meetings in the Kremlin and the Russian government. The long talks he has held here show that Moscow is seriously considering the Georgian proposal.
    The political part of the plan will grant Abkhazia broad autonomy in Georgia, while in fact preserving the status quo north of the Kodori River.
    The business daily reports, that Georgia is prepared to approve the acquisition of Abkhazian assets by Russian companies, but has asked Moscow to at least formally cancel the decrees on special relations between Russia and Abkhazia signed by former president Vladimir Putin on April 15. Unofficially, the measures stipulated in these decrees could be implemented without many obstacles.
    If the sides accept the plan, all parties involved will attain their goals without losing face. Georgian President Mikheil Saakashvili will announce the restoration of Georgia's sovereignty over Abkhazia, which will lose control only over a small part of its territory while becoming de facto independent of Georgia. Moscow's bonus will be Georgia's pledge not to join NATO and the ability to develop Abkhazia economically.
    So far, Abkhazia is unhappy with the plan.
    "We are not satisfied with the status of an autonomous republic of Georgia," Sergei Shamba, the foreign minister of Abkhazia, told Kommersant.
    Yesterday's meeting between Russian President Dmitry Medvedev and Sergei Bagapsh, who the Kremlin press service described as the president of Abkhazia on its website, has provoked the Georgian Foreign Ministry's undisguised irritation. However, the bulk of Georgian politicians have welcomed it.
    Temur Yakobashvili, the Georgian minister for re-integration, said: "Tbilisi welcomes the meeting if Dmitry Medvedev's goal is to gain a better understanding of the situation ahead of the Russia-EU summit."
    The Georgian authorities see that Moscow is discussing the plan, which means that the process of settling the conflict, which has been skidding for years, has started in earnest.

    Vremya Novostei

    Moscow has no need to rush new agreement with EU - expert

    The EU-Russia summit, which opened in West Siberian city of Khanty-Mansiisk Thursday, is the first meeting in the past two years which is expected to have major political consequences.
    With the 18-month suspense now over, the Russian and European leaders will finally announce the start of talks on a new strategic partnership agreement.
    Whether Russia really needs it is the question, said Timofei Bordachev, director of the Center for Comprehensive European and Global Studies at the Moscow-based Higher School of Economics.
    Officials in both Moscow and Brussels have repeatedly said over the part 18 months that an agreement was crucial and that the delays were harming bilateral relations. European politicians and media have shown unusual commitment to convince the public that Russia needed a new agreement and was suffering as a result of the lack of one. What they did was boost Poland's and Lithuania's self-esteem, the analyst said. Those nations were seriously thinking that their veto on the European Commission's mandate was a blow to Russia's interests.
    Today, however, both Warsaw and Vilnius must be thanked for their efforts. The 18-month delay gave Moscow an opportunity to do what was believed impossible. According to official statements, Russia has drawn up its own vision of the new agreement's format and content. Breaking the tradition of following Brussels' proposals, which has prevailed since the 1990s, is a big achievement and quite an unpleasant surprise for some of Moscow's European partners, the analyst maintained.
    As long as Russia grows politically and economically, it is unlikely to benefit from any agreement with the EU, whatever factors drive its growth, Bordachev went on. Europe's development is on the decline. The EU's position in the global economy is shrinking despite the steady growth of the European currency, or probably due to that growth. Europe is suffering an outflow of investment, as cash is attracted to more open and dynamic markets like China, India and the United States.
    Much controversy has arisen between the EU and its most reliable military and political partner, the U.S. The looming prospect of Ukraine and Georgia joining the North Atlantic bloc could seriously undermine relations between Russia and the West, something Europe does not want, seeing Russia as an important export market and energy supplier, the analyst said.
    Therefore, if there is anyone who needs the new agreement, it must be the European Union, not Russia. The latter has no need to rush it, unless it has already passed the economic and political peak of its growth and is liable to slide back at any moment, Bordachev concluded.


    Three victories at Euro-2008 cause surge of patriotism in Russia

    On Thursday, Spain beat Russia 3-1 in the UEFA European Football Championship, more commonly known as Euro-2008. Regardless of the outcome, the Russian squad's impressive performance at the tournament has caused a nationwide surge of patriotism.
    More Russians are now shouting for their home team and will forever remember that feeling of euphoria, pride and solidarity after their three stunning victories against Greece, Sweden and the Netherlands.
    The Kremlin and its spin doctors have been trying in vain to instill mass patriotism, to create a feeling of national self-identity and to make all Russians love their state flag and anthem.
    Two weeks ago there were no signs of all-out patriotism when the country celebrated Russia Day. In fact, most people did not even know what the main national holiday was called.
    The soccer winning streak has changed the situation completely since then.
    Sociologists have long noted that Russians lack national identity. According to influential pollster Bashkirova & Partners, 44% of Russians equate themselves with their birthplace and only 30% associate themselves with Russia.
    The current soccer euphoria can be explained by several favorable factors. Older people who were born in the Soviet Union find it hard to associate themselves with a new country, which also faces an identity crisis.
    Russians have become accustomed to economic and sports defeats during the post-perestroika crisis of the 1990s. Subsequent economic growth caused major changes in the Russian mentality. Russians are greater individualists than most Europeans, regarding personal success and affluence as a high priority.
    On the other hand, the lack of collective self-identity, solidarity and social feedback is becoming more pronounced.
    Sport is a suitable instrument to overcome these contradictions. The Russian national soccer team or any regional club provides ample opportunities for national self-identity. The supporters of any specific team merely notice its drawbacks because it lacks any obvious economic, ethnic and ideological contradictions.
    In December 2006, the Public Opinion Foundation said 21% of Russians were proud of the country's sporting victories, while 4% liked its revival and economic growth. Another 4% were proud of increasing national defense; 3% liked the work of Vladimir Putin; and another 3% were happy about the country's achievements in the field of science and education.


    Russian steel giant expands in America

    The backing by a United States trade union did not help Severstal buy the American steelmaker Esmark. The Russian iron giant, controlled by Alexei Mordashev, had to raise its offer to $1.25 billion to outbid India's Essar Steel Holdings. Russian companies already control 9.1% of the U.S. steel market.
    With Severstal having upped the ante to $19.25 per share, Esmark is now estimated at $775 million. The Russian company must also take on Esmark's $110-million debt to Essar Steel Holdings Ltd. The overall deal, plus debt, will reach $1.25 billion.
    The American market is a special magnet for Severstal. This year alone the Russian steelmaker acquired the Sparrows Point plant from ArcelorMittal, the world's metals leader. Currently, Severstal has several assets in North America: in 2004, it acquired loss-making Rouge Industries in the U.S. and handed it over to its subsidiary Severstal North America (SNA). As a next step it built a new plant, SeverCorr, in Columbus, able to produce 1.3 million tons of high-grade steel annually. Severstal also has American WC1 Steel under its belt, which it bought for $140 million.
    According to estimates by Reuters and CRU consultancy, Russian companies led by Severstal and Evraz have already cornered 9.1% of the U.S. steel market.
    Currently, Severstal is eyeing coal mining assets in the U.S. to hedge against high raw materials prices in the future. All these purchases have made the company the fourth largest steel producer in the U.S. and it wants to increase its American capacities to 11.3 million tons a year by 2012.
    "The new asset will be a good addition to Severstal's logistic and technological chain in North America," said Sobinbank analyst Nikolai Sosnovsky. The company is likely to supply Esmark with slabs from Sparrows Point to upgrade its conversion products.

    RBC Daily

    Gazprom to buy Gazprom Neft from Eni, Enel

    Gazprom has decided to exercise its call option to buy Russian oil and gas assets held by Italy's Eni SpA for $4 billion by April 2009, said Andrei Kruglov, head of Gazprom's finance and economics.
    The gas monopoly also intends to exercise its option to buy a controlling stake in EniNeftegaz (renamed Severnaya Energia, or Northern Energy).
    Analysts have calculated that these assets, if bought at market prices, will cost Gazprom at least $7 billion.
    In April 2007, the EniNeftegaz consortium, comprising Eni (60%) and Enel (40%), paid $5.8 billion for former Yukos assets Arcticgas and Urengoil, and Neftegaztechnologia; and Eni bought 20% of Gazprom Neft.
    Gazprom has an option to buy Eni's stake in Gazprom Neft and 51% of the Russian assets held by EniNeftegaz within two years.
    Gazprom is in no hurry to buy out these assets, because its market value is growing while the buyout price of the package remains $4 billion. The monopoly will make public its offer by the end of August, said Stanistlav Tsygankov, head of Gazprom's foreign relations department.
    Eni is currently trying to convince the Russian mineral regulator, Rosnedra, to extend its gas licenses, blaming failure to implement them on the inactivity of their former shareholder, Tsygankov said.
    Vitaly Gromadin, an analyst at the Arbat Capital investment company, said the exercise of the call option would be bad news for Gazprom Neft's minority shareholders. After accumulating 95% in the company, Gazprom could offer that minorities sell their shares to the company at a price below their market value.
    Gromadin said Gazprom could transfer the call option to Gazprom Neft, but has not done so, which means its shareholders are now running a considerable risk.
    Pavel Strokov, an analyst at Unicredit Aton, part of the international Unicredit Group, said a 20% stake in Gazprom Neft costs at least $7 billion in the current market situation.
    "Gazprom is unlikely to have problems paying for the stake, because it has sold part of Gazprombank shares (its stake has gone down from 42% to 25% plus one share) and can use the remaining stake as a pledge for a loan. Or it can finance the acquisition from the increased operating profits due to growing gas and oil prices," Strokov said.


    Russian diamond cutters outraged by Alrosa's price spike

    Alrosa, Russia's largest diamond producer, forced prices up 15%-25% in June, the Association of Russian Diamond Manufacturers said in a statement. The prices for uncut diamonds grew 9% in 2007 and 6% in the first half of 2008.
    Prices for cut diamonds have grown at half that rate, the statement says. Unlike the monopolized raw diamond market, the cut products market is competitive: if cutters spiked prices, they would fail to sell their products, a representative of the Association explained.
    An Alrosa spokesman confirmed the price rise, adding that the company has had no problem selling its products. Alrosa's goal is to make profit, which it channels into modernization projects among other things, he said.
    Demand for raw diamonds is indeed exceeding supply, confirmed Valery Radashevich, general director of the Russian Jewelers Guild.
    The Association claims that diamond prices are climbing because the Bank of India only issues loans guaranteed by contracts to buy diamonds. But diamonds are rarely cut right away, and the money is funneled into more profitable business activities. The scheme is similar to a financial pyramid which could lead to a crisis when the raw diamonds are finally sold on the market.
    All players will be hit by the crisis then, and Alrosa is supporting a profiteering diamond market, the statement says. The company has also reduced supplies to the domestic market. However, Alrosa's spokesman denied the claim saying the company was still selling 50% of its products domestically.
    Despite their outrage, cutters continue buying from Alrosa, along with increasing imports. Smolensk-based Kristall is doing that, said a company spokesman without citing the margin of imports growth.
    Valery Morozov, head of Ruis Diamonds, said he was not planning to reduce purchases from Alrosa.
    Russian companies focus on cutting large diamonds, which are expensive and therefore do not enjoy demand in Russia, Radashevich said.
    A source close to Alrosa said that Russian cutters are no longer internationally competitive either because of cheap labor in India and China.

    Novosti is not responsible for the content of outside sources.

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