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    MOSCOW, November 11 (RIA Novosti)
    Russia proposes changing the world/Lebanese business leaders ready to work with Abkhazia, S. Ossetia/Quality of Russian missiles under question/Central Bank to finance completion of Transneft's eastern pipeline/Shares in Ural mining firm slump after government attack/ Diamond prices in Russia not set to drop steeply

    Kommersant, Nezavisimaya Gazeta, Vedomosti

    Russia proposes changing the world

    The EU foreign ministers yesterday made a decision to resume talks with Moscow on a new partnership and cooperation agreement (PCA) at the EU-Russia summit, which will begin in Nice, France, on Friday. Russian President Dmitry Medvedev is due to attend the summit.
    However, Moscow plans to discuss not simply relations with Europe, but review the current world order.
    The previous PCA was signed in June 1994, entered into force in December 1997 and expired in December 2007.
    The EU, which previously insisted that Russian troops in Abkhazia and South Ossetia should be replaced with EU observers, has changed its mindthanks to the efforts of French President Nicolas Sarkozy.
    Sarkozy said Moscow had fulfilled the four key EU provisions on the peace settlement in the South Caucasus and that it would be unreasonable to create a new crisis in European-Russian relations.
    Britain and Sweden, which had condemned Russia's actions in Georgia, yesterday changed their positions. Their foreign ministers, David Miliband and Carl Bildt, said a new PCA would meet the interests of the EU, but stressed that relations with Russia would never be the same after the events in Georgia.
    Poland has supported the change deserting the radically minded Lithuania, which is unable to veto the resumption of the talks.
    Vladimir Gutnik, head of the European Studies Center at IMEMO (Moscow-based Institute of World Economy and International Relations at the Russian Academy of Sciences), said the EU wanted the resumption of relations with Russia more than Russia, because it needs to discuss crucial energy, trade and environmental issues.
    Vladimir Chizhov, Russia's EU envoy, said one of the key issues on the summit agenda is Medvedev's initiative, proposed last June, to create a new model for Euro-Atlantic security.
    "Influential EU countries are set to discuss practical matters," Chizhov said. The discussion will also be useful because Medvedev will go from Nice to an emergency summit of the world's 20 leading economies in Washington being held to tackle the ongoing financial crisis threatening to plunge the world into a recession.
    He will be able to discuss the problem with president-elect Barack Obama.
    "Our idea of the new PCA is based on a combination of methods and specifies the involvement of all Euro-Atlantic countries, notably members of NATO, the CIS, the CSTO (Collective Security Treaty Organization) and EurAsEC (Eurasian Economic Community)," Chizhov said. "All national and collective players must contribute to drafting the agreement, which should include new principles for the behavior of states and organizations in the sphere of security."

    RBC Daily

    Lebanese business leaders ready to work with Abkhazia, S. Ossetia

    Saad Hariri, head of Lebanon's parliamentary majority, said his country was ready to establish relations with the two states, Abkhazia and South Ossetia.
    He also said that Lebanese business leaders had decided not to wait until the country's government officially recognizes the two countries. A business group is due to visit the two capitals soon.
    Analysts expect several more countries will follow suit.
    It was indicative that Saad Hariri should make the statement of Lebanon's willingness to establish friendly ties with Abkhazia and South Ossetia, as he is the leader of a pro-Western ruling majority. The Lebanese political elite's U-turn toward Moscow must be linked to last Friday's agreements reached by Hariri and Russian Prime Minister Vladimir Putin, specifically Russia's pledge to assist in restoring economic and political stability in Lebanon.
    The two officials also agreed on Russian military supplies for Lebanon. The Lebanese defense minister will visit Moscow soon to discuss the details of the deal.
    "Lebanon is a free player, not bound by any commitments to the West," said Dr. Fasikh Baderkhan, a senior research fellow with the Institute of the Middle East Studies under the Russian Academy of Sciences. "Hariri was only speaking of economic cooperation for the time being. It looks like Lebanon's financial leaders, who are influential in the country, have spotted opportunities for profit in the two republics."
    Lebanon's initiative reflects the recent international trend to review the August events in the Caucasus. Western media and politicians, who initially took Tbilisi's side, are more often backtracking on this one-sided approach and putting the blame on Georgia for the aggression.
    "Europe understands that the accusations against Russia are inappropriate, but the West cannot openly admit it yet. That is why the signals are conveyed though pro-Western politicians in emerging democracies, such as Saad Hariri, who are making the statements in the run-up to the EU-Russia summit in Nice," said Alexei Mukhin, head of the Center for Political Information, a Moscow think tank.
    The political analyst did not rule out that other nations could follow Lebanon's example soon: "There are two possible motivating factors here: some countries would do it in return for expected economic favors from Russia, others to spite the United States and NATO."
    Mukhin expects such countries as North Korea, Iran, Venezuela and Bolivia to follow suit. However, Venezuela and Bolivia's decision will depend on the policies adopted toward them by U.S. President-elect Barack Obama.

    Nezavisimaya Gazeta

    Quality of Russian missiles under question

    Russian President Dmitry Medvedev bases his national-development concept on the Five I's, namely, investments, infrastructure, institutions, innovations and intellect. But one more "I" may soon be added.
    In his recent state of the nation address, President Medvedev promised to deploy Iskander (SS-26 Stone) tactical missiles in the Kaliningrad Region, Russia's Baltic exclave, to counter the deployment of U.S. National Missile Defense (NMD) elements in Poland and the Czech Republic.
    However, the reliability of Moscow's response is raising doubts because the relatively new Iskander missiles have up to now only been used in test-firing.
    It will be virtually impossible to set up the proposed five Iskander brigades in the next 4-5 years because Russia lacks the required production facilities and workforce. Not a single country has purchased and adopted these missiles to date.
    The theater-level Iskander which was developed primarily for the Russian Army has a 280-km range and carries a 480-kg warhead (export version). Consequently, it is pointless to class the missile in the strategic-weapons category.
    The missile has an inertial guidance system and a terminal phase optoelectronic homing warhead, which explodes near the target. In effect, the low-flying Iskander system uses a terrain-contour matching (TERCOM) system for greater accuracy.
    However, this requires high-precision aerial photos and satellite images. Moreover, strategic defense systems could be effectively used to jam the Iskander-missile electronics. A possible Iskander launch could therefore be neutralized in a matter of seconds, rather than minutes.
    Missile designers have so far declined to comment on these issues.
    Under the May 24, 2002, Russian-U.S. Strategic Offensive Reductions Treaty, the Kremlin was to have scrapped three UR-100NUTTH (SS-19) inter-continental ballistic missile regiments (46 launchers) in the Kaluga Region south west of Moscow.
    Although President Medvedev has decided to retain the obsolete ICBM regiments which expended their service life three years ago, this will not make them more reliable because all malfunctioning components are currently checked prior to individual launches.
    Analysts said it would be very hard to inspect all the missiles, and that numerous abortive launches were inevitable. Thus the sixth "I" may be unfeasible.


    Central Bank to finance completion of Transneft's eastern pipeline

    Seeking to support infrastructure projects, the Russian government has decided that the Central Bank will finance the completion of the East Siberia-Pacific Ocean (ESPO) oil pipeline.
    The move may damage Russia's image and undermine trust in its financial system.
    The government has been using Vnesheconombank (VEB) to protect major companies and financial institutions from the financial crisis, but has decided that Transneft will receive funds from the Central Bank.
    Finance Minister Alexei Kudrin said yesterday that the oil pipeline monopoly would issue bonds for sale to state-owned and private banks, which will subsequently put them in pledge at their full value with the Central Bank.
    This actually means that Transneft will receive funds from the Central Bank.
    Khalil Shekhmametyev, chief analyst at the Otrkitie financial corporation, said: "VEB's actions are constrained by limits on risks per borrower or a group of borrowers. In addition, since funds will be allocated against the pledge of bonds, the company can expect a major inflow of capital because bonds are a more liquid instrument."
    Analysts say VEB will not take part in this scheme.
    Alexander Razuvayev, an analyst at Sobinbank, said: "Vnesheconombank finances exclusively the foreign debts of companies, while the issue of bonds is a domestic matter. Besides, Transneft needs the money not for repaying loans, but to implement pipeline projects, above all the ESPO. The most likely buyers of its bonds will be Sberbank and VTB, and possibly private banks."
    Transneft must complete the ESPO project without delay to gain access to Southeast Asian markets.
    "Commissioning the pipeline in the middle of a crisis is a strategic goal for Russia," Razuvayev said. "Transneft has always been an instrument of state policy, and it is therefore not surprising that the government is ready to do anything to support it."
    However, the use of the Central Bank's money may have a negative effect and undermine Russia's image.
    "The use of the Central Bank's reserves will lower Russia's rating and undermine trust in its financial system," Razuvayev said. "But this will only matter if Russia attempts to take out large foreign loans. Given the global financial crisis, nobody will lend it money."


    Shares in Ural mining firm slump after government attack

    Russian potash miner Uralkali lost two thirds of its capitalization on the London Stock Exchange Monday after the Russian government said the company would have to pay the costs of an accident at one of its mines that occurred two years ago.
    The company's capitalization fell by 62.28% in London, to $2.76 billion at the end of trading Monday forcing the company's value to an all-time low from the highs of 2007 and its estimate of $7.4 billion during its IPO.
    Uralkali fell by 29.35%, to $3.25 per share on Russia's RTS (capitalization to $6.9 billion), and by 29.81%, to 87.49 rubles per share on the MICEX.
    Timur Nasardinov, chief trader at Troika Dialog, said that the number of Uralkali GDRs traded in London on Monday was equivalent to 15 million shares, or 0.7% of the company's share capital. About 9 million shares more (0.4%) was sold in Russia, mostly by Western investors.
    They are unsure of the possible repercussions of a renewed probe into the accident two years ago at an Uralkali mine in Berezniki, Nasardinov said. He likened the situation to last summer's crash of Mechel's shares after Prime Minister Vladimir Putin attacked the mining giant for inflating domestic coking-coal prices and offered to send its owner Igor Zyuzin a doctor and "clean up" all his problems. Mechel's capitalization slumped by 30% in one day.
    An Uralkali representative refused to comment.
    The government's problems with Uralkali emerged Friday night. One of Uralkali's mines at the Verkhnekamskoye potash deposit was flooded in late 2006, but a Rostekhnadzor commission recognized that it happened for reasons outside of the company's control.
    However, this year as the rot set in Deputy Prime Minister Igor Sechin instructed the safety watchdog to conduct another probe, find the guilty party and calculate the cost of the damage.
    In a best-case scenario, the government will fine Uralkali 14.7 billion rubles, the estimated cost of replacing the rail link, building a heat and power plant, and resettling local residents. If the worst comes to the worst, the company will face damages equal to losing 120 million metric tons of resources.
    Citi estimates a fair value for the company at $9.7 billion, and UBS at $16.46 billion. But its shares will only reverse their downward trend once a probe has bean completed and the consequences for Uralkali become clear, said Marina Alekseyenkova from Renaissance Capital: "Investors are concerned whether or not the company will maintain its current asset structure, or even keep its license."
    Representatives of Capital World Investors, T. Rowe Price Global Investment and Mackenzie Financial Corp, the three major holders of Uralkali GDRs, declined to comment.

    Izvestia, Novye Izvestia

    Diamond prices in Russia not set to drop steeply

    There is no way the financial crisis will not also be felt on the diamond market. For the first time in the past five years, diamond prices have started falling. In response, diamond producers have agreed to cut diamond supplies while appealing to consumers to invest in "eternal valuables."
    Analysts with Gryphon Asset Management, an international investment company, say the fall in diamond prices is caused by growing unemployment in the United States. Traditionally, Americans account for half of global demand for precious stones, but the overseas crisis has left them with no money to spend on baubles.
    To support demand, De Beers and Alrosa, major players on the diamond market, have decided to reduce diamond supplies, while De Beers has launched an unprecedented PR campaign to promote its products. The company has chosen the right time for the campaign - the Xmas holidays are near at hand while diamonds top the list of wealthy clients' gifts.
    "Present-day consumers are unlikely to invest in luxuries. However, this price fall is a temporary thing. Firstly, demand will increase after the crisis, with resumed economic growth. Second, if the crisis proves long-term, prices are likely to go up," said Dmitry Baranov, a leading expert with the Finam Management company. There are a limited number of players on the diamond market. They can always set up some sort of diamond OPEC with the opportunity of fixing their own prices.
    The Russian Diamond Producers Association has confirmed that the diamond market is in a tight situation right now and it is difficult to predict what will happen next. At the same time, experts are convinced there will be no drastic fall in diamond prices, since this has never happened before.
    Russian jewelers are also sure that demand for diamonds will always be high, even under the current tight conditions. They are inspired by the fact that over the past three to four years, the average purchase price increased by 70%-80%, from $250-$300 to $700-$800.
    Undoubtedly demand for diamonds in Russia is not on a par with that of the United States. Experts have calculated that Russia exports 96%-97% of its diamond output, with the remaining 3% to 4% selling on the domestic market where prices remain steady. By the most optimistic estimates, Russian diamond lovers consume no more than 10% of the world's annual diamond production worth about $100 million at wholesale prices. This will not have any major influence on the global market and will not drive down domestic diamond prices.

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