MOSCOW, July 4 (RIA Novosti)
Abramovich resigns as Chukotka governor/ Russia's wealth grows but corruption persists/ Environmentalists tell Putin to relocate Olympic facilities in Sochi/ Gazprom offers market prices for Azerbaijani gas/ Gas price surge threatens Russia with hyperinflation/ Gazprom to spend $24 billion on Far Eastern gas pipeline
Gazeta.ru, Nezavisimaya Gazeta, Vedomosti
Abramovich resigns as Chukotka governor
President Dmitry Medvedev has accepted the resignation of Roman Abramovich, one of Russia's most impressive billionaires, as the governor of Chukotka, a region in Russia's Far East.
However, analysts think the government will continue using this form of cooperation with big business.
Abramovich, Russia's most unusual and richest governor, was elected to the post in late December 2000. According to Forbes, this spring his personal wealth amounted to $24.3 billion, the second largest in Russia after Oleg Deripaska.
He was also the largest taxpayer in Chukotka and has invested over $1.5 billion in the region and attracted another $1 billion from sponsors.
Abramovich first submitted his resignation in 2006, but President Vladimir Putin refused to accept it. In spring 2007, he confirmed his desire to retire, telling Nezavisimaya Gazeta that he had no intention of keeping the post forever.
Political analyst Stanislav Belkovsky said: "After he sold his stake in Sibneft to the state [in 2005] at a high profit, Abramovich had no reason to remain the governor of Chukotka and enjoy its preferential tax regime."
A high-ranking official from Putin's team said yesterday he had learned that Medvedev accepted Abramovich's resignation from a journalist of Nezavisimaya Gazeta. It appears that Prime Minister Putin was not informed about the president's decision, which may point to the appearance of new decision-making mechanisms.
Analysts don't think the resignation of Abramovich means the state will stop its cooperation with big business.
Dmitry Badovsky, deputy director of the Institute of Social Problems, told the online newspaper Gazeta.ru: "The case of Abramovich is unlike any other, but it doesn't mean the idea of social responsibility of business in the development of [Russia's] territories will be laid to rest."
He said the governor's resignation only means that he had fulfilled his obligations to Putin.
It is not clear what Abramovich intends to do now, because he has sold nearly all of his strategic assets and is frequently referred to as an "ex" in the Russian business community.
However, the popular daily Vedomosti writes that he has redirected his talents to the cement business.
According to its source in the territorial administration, Millhouse Capital, a company managing the assets of Roman Abramovich and other former shareholders of Sibneft, has received a license for a major deposit of raw materials for cement production in the Perm Territory, in the Urals, and will build a $500 million plant with a capacity of 2 million metric tons of cement there.
Russia's wealth grows but corruption persists
It is impossible to fight bribery in a poor country. Corruption can be curbed at all levels only in a country with a growing economy and wealth, President Dmitry Medvedev told the media from G8 countries.
Admitting that the problem is unlikely to be resolved by administrative efforts only, he pointed to the importance of further economic growth.
Incidentally, the comments made by Medvedev are the same as what Vladimir Putin said at his final news conference as president. We must certainly try and deal with this problem now that Russia has reached solid economic results, as it is impossible to stifle corruption in a poor country, he added.
Analysts pointed out to a paradoxical situation when commenting on the president's statement: Russia is growing wealthier every day thanks to the inflow of petrodollars, but that does not seem to help in reducing corruption. If anything, the problem is getting worse.
Igor Nikolayev, chief strategic analyst at the FBK private auditing firm, said: "World bank experts pointed out the bizarre phenomenon when analyzing the situation in Russia last year. Although it is true that a poor country cannot curb corruption, it seems that in Russia even wealth does not guarantee a reduction in corruption."
There are no fail-safe ways of fighting a successful battle against corruption, the analyst said. "As for the president's statement, I do not think it means a deviation from earlier goals. The government is obviously serious about fighting corruption, although it did not have the appropriate potential to do it when the goal was announced as a national idea. It is getting bogged down in red tape today, while Russian people have a right to expect quick and decisive action."
Environmentalists tell Putin to relocate Olympic facilities in Sochi
Russian and international environmental agencies for a second time yesterday forced Vladimir Putin to make changes to already approved Olympic building plans. Under pressure, no Olympic construction will be carried out on the Grushevy Ridge, which is a nature reserve. This repeats the history of 2006 when the Eastern Siberia-Pacific oil pipeline project was moved away 500 kilometers from Lake Baikal. The environmentalists' victory in 2006 cost the budget an additional $1 billion. The price of the new triumph scored by nature lovers will be made known on August 1.
Yesterday Putin decided that "if the balances of nature are upset a situation may arise where no amount of money will extricate us from it." The prime minister therefore decided that if construction sites are shifted "we lose some money, but money can be earned." Another of his conclusions was that the conflict with the environmentalists was caused by "decisions that have not been carefully thought out." However, he did not expand on his thoughts on the miscalculations yesterday.
"We have won largely because international organizations, UNESCO in the first place, stepped in," said Mikhail Kreindlin, a Greenpeace-Russia expert on nature protection legislation. In his opinion, "a scandal would have dented badly not only the image of Russian authorities but would also have hit the International Olympic Committee. The IOC must have calculated possible losses and most likely exerted pressure on the Russian government."
The government has pledged to inform the country where the construction sites for the Olympic facilities will be relocated and how much of budget money will be required to honor the agreement with the environmentalists by August 1.
All facilities will be shifted to the ski resort of the Alpica-Service company, a spokesman for the Olympic Committee added.
There were no objective reasons for shifting the facilities - conditions for construction of the [bobsleigh] route are better on Grushevaya Polyana, said a government official. It was a political decision, he said. Business is also interested, the sports functionary added. Now Olympic infrastructure will be available to Gazprom, which owns Alpica-Service.
Gazprom offers market prices for Azerbaijani gas
On July 3-4, Russian President Dmitry Medvedev paid an official visit to Baku, the capital of Azerbaijan, a South Caucasian country, but failed to make headway in talks on buying gas from the republic's State Oil Company.
However, energy giant Gazprom took advantage of Medvedev's visit to advertise a June 2008 offer to buy all Azerbaijani gas at market prices.
Gazprom CEO Alexei Miller said he had offered to swap Russian and Azerbaijani gas on export markets and to supply its gas to Turkey under Gazprom contracts.
Right now, Turkey pays just $120 per every 1,000 cubic meters of Azerbaijani gas.
Under the scenario, Gazprom could sell the surplus gas to Europe, and the State Oil Company, which has not yet signed gas-export contracts with the EU, would appreciate the advantages of free market prices.
Although such export operations would seem pointless to Gazprom, they could probably help streamline gas flows. Moreover, the psychological effect of involving Baku in this program seems more important today.
Gazprom wants to prevent Baku from selling cheap gas to Europe and to persuade it to sell all of its gas to Moscow.
Baku is trying to maneuver between Russia, the European Union and the United States. Azerbaijan would sour relations with Brussels and Washington, which want it to pump more gas to Europe bypassing Russia, if it accepts Moscow's offer.
But Azerbaijan cannot turn down the lucrative Gazprom offer because Moscow is offering to pay much more than the State Oil Company's current customers, Georgia and Turkey.
Nevertheless, officials in Baku are hinting that the State Oil Company wants to independently sell its gas to European customers.
However, Gazprom is continuing to insist on its proposal.
Gas price surge threatens Russia with hyperinflation
By the end of this year, Europe will probably be buying natural gas at $500 per 1,000 cu m, or even at $1,000 if oil reaches $250 per bbl by that time, Gazprom CEO Alexei Miller warned. If his prediction turns out to be true, then Russia is in for 20% inflation, and the global economy a recession.
Selling gas to Europe for $500 per 1,000 cu m, and the proportional growth in prices in the CIS in 2009, Gazprom could earn an additional $15 billion, said UniCredit Aton analyst Pavel Sorokin.
Everyone is convinced that gas prices will rise further, said a BASF manager. He said he was not familiar with Miller's forecast, but hoped the price would not reach $1,000 per 1,000 cu m.
But it might happen, objected Troika Dialog's Yevgeny Gavrilenkov. The price spike may be painful for Europe, but it will survive the shock. If oil price reaches $250 per bbl, the dollar to euro ratio will hit 2:1 instead of the current 1.61:1, which means the prices won't rise so high in Europe, he added.
Surging oil and gas prices could be even more dangerous for Russia than for Europe. If money is flowing freely into Russia's economy, Russia will face hyperinflation.
"No one has made any estimates yet, but it is obvious that such prices ($250 per bbl of oil and $1,000 per 1,000 cu. m. of gas) will entail double-digit inflation figures, the first one being 'two'," a Russian Finance Ministry official said. In this situation the best the ministry could do is to channel the superprofits into the oil and gas reserve fund. However, unlike Gavrilenkov, the ministry official described these figures as "fantastic."
Fuel prices surging to these levels would bring a global recession which would hit everyone severely, warned Adam Sieminski, Deutsche Bank's economist. Even a growth in gas prices to $500 is enough to slow down the global economy similar to the early 1980s situation. The IMF estimated each $25 per bbl increment in the global oil price cuts global GDP by 0.5%, Sieminski said. With average yearly oil prices at $125 per bbl, the global economy will grow by 3.5% in 2008, and only by 2% if the oil price reaches $200.
Gazprom to spend $24 billion on Far Eastern gas pipeline
Energy giant Gazprom wants to build unprecedentedly expensive gas pipelines in Russia. A 2,035-km pipeline linking Sakhalin Island with Khabarovsk and Vladivostok will cost an estimated $21-24 billion, depending on the number of compressor stations enroute.
Analysts said every 1,000 meters plus the required infrastructure would cost $10-11 million, exceeding the price of Nord Stream, a projected offshore pipeline between Vyborg, Russia, and Greifswald, Germany, reportedly the most expensive gas transport project in Europe until now.
There are plans to launch construction of the Sakhalin-Khabarovsk-Vladivostok gas pipeline in September 2009 and to complete it in late 2011, Gazprom's deputy CEO Alexander Annanenkov told a special conference in Vladivostok.
Annanenkov said the feasibility study would be completed by November 2008, and that experts would start analyzing all the documentation and reports next April. Gazprom Invest Vostok, a Gazprom subsidiary, will implement the project.
Mikhail Krutikhin, a partner at the RusEnergy consultancy firm, said Gazprom analysts had estimated average pipeline construction costs at $2-6 million per every 1,000 meters last year.
He said a general plan for expanding the Russian gas sector allotted just $8.6-14.5 billion for building pipelines in Eastern Siberia and the Russian Far East from 2006 till 2030, depending on their connection to the Unified Gas Supply System.
Mikhail Korchemkin, managing director of East European Gas Analysis, a consulting company, said it would be cheaper to build an undersea gas pipeline from Sakhalin to Vladivostok, and that the 2,400-km Project Nord Stream cost 50% less at 7.5 billion euros.
Analysts said the 40% rise in metal prices last year, rising construction costs and high shipping costs for equipment and materials had made the pipeline more expensive.
Korchemkin said expenses could be cut several-fold if Gazprom did not buy the Sakhalin-Komsomolsk-on-Amur pipeline that had reached peak capacity.
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