15:40 GMT +320 October 2017

    What the Russian papers say

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    MOSCOW, November 13 (RIA Novosti)
    Parliament buzzing with rumor of early elections / Moscow expects Barack Obama to be flexible on missile defense / Gazprom may gain access to Spanish oil and gas market / Russia may refuse to build pipeline branch to China / Caspian Pipeline Consortium faces bankruptcy / Government keen to know who owns offshore assets /

    Gazeta, Vedomosti, Nezavisimaya Gazeta

    Parliament buzzing with rumor of early elections

    The State Duma, the lower house of Russia's parliament, will this week adopt amendments to the Constitution to increase the presidential and parliamentary terms to six and five years respectively, and to introduce annual government reports to the Duma. The Federation Council, the upper house, will approve them next week.
    They are probably in a hurry because important decisions may be announced at the November 20 congress of the pro-presidential United Russia party.
    The Duma committee on constitutional law and state development, which met at 9 a.m. yesterday, recommended adopting the amendments proposed by President Dmitry Medvedev simultaneously in three readings. Committee chairman Dmitry Pligin said the bill would be heard and adopted on Friday.
    "It took them longer to consider the law on appointing governors after [the school hostage crisis in] Beslan [in 2004]," an MP said.
    Analysts explain the unusual haste with reference to the upcoming tenth congress of United Russia on November 20, where important decisions, including personnel ones, may be announced.
    Mikhail Vinogradov, director of the Petersburg Politics foundation, said: "Theoretically, haste engenders intrigue ahead of a congress."
    "Everything necessary must be done in time for the congress," said Vladimir Zhirinovsky, leader of the Liberal Democratic Party of Russia and deputy speaker of the State Duma. In his opinion, there is a 60% probability that the congress will announce decisions to replace the State Duma speaker and the prime minister.
    Vladimir Putin's status puts him above everyone else, and so he can easily leave the post of prime minister to become the true national leader, Zhirinovsky said.
    Vadim Solovyov, member of the Duma committee on state development, views this as the beginning of preparations for early presidential and parliamentary elections.
    "They need to distract people from problems during the crisis and maintain Vladimir Putin's image, which may be undermined by the crisis," Solovyov said.
    Gleb Pavlovsky, head of the Effective Policy foundation, said: "Putin's party membership could be the right signal to United Russia and the people, because it would signify consolidation."
    However, the decision to hastily approve the bill was cancelled by midday on November 12. A source in the Presidential Executive Office said it happened after consultations with Vladislav Surkov, first deputy chief of the Kremlin staff. The second and third readings of the bill will be held next week.
    Presidential press secretary Natalia Timakova said: "The president did not imply early elections when he spoke about extending the [presidential and parliamentary] terms."
    After his meeting with Medvedev yesterday, Putin for the first time publicly expressed his opinion about the president's proposal. He said he supported the idea but did not say if he would run for the presidency.
    "It would be premature to speak about this now," Putin said.
    During his two presidential terms, Putin invariably protested amending the Constitution.


    Moscow expects Barack Obama to be flexible on missile defense

    Moscow seems to be stalling in negotiations with Washington, obviously waiting for Barack Obama to replace George Bush as U.S. president.
    Wednesday's visit by Under Secretary William Burns to Moscow essentially failed, and news agencies quoted Kremlin sources as saying that the Bush government was using the talks to drive the president elect into a dead end.
    Russian officials have obviously and deliberately avoided contacts with the outgoing U.S. administration of late, preferring to put off decision-making until Obama's inauguration. From that perspective, Burns' very arrival could be a sign of Moscow somewhat relaxing its stance with regard to Bush's team.
    However, the cold welcome given to the U.S. official showed that Russia's confidence in its chosen policy was stronger than ever.
    Moscow must therefore cherish hopes that the next U.S. president will be more accommodating on the missile-defense issue than this one.
    Kim R. Holmes, the Heritage Foundation vice-president of foreign and defense policy studies, said he had a feeling that a confrontation with the United States was something the Russian government sought because it made Vladimir Putin more popular and Russia a stronger player on the global arena, and inspired fear in Europeans.
    "The Russian government is cashing in on the financial crisis, using it to manipulate relations with America and bolster its own popularity in the country," echoed Maria Lipman from Moscow's Carnegie Center.
    This may not yet be a Cold War, but is no longer a partnership, according to Holmes.
    "Obama cannot be expected to treat relations with Moscow as his top priority at a time of economic recession," Lipman predicted. "Russia isn't even his most pressing foreign-political problem, not with his hands full with Iraq, Afghanistan, Iran and the Middle East, which unfailingly play a special role in each U.S. president's policy."
    The timeout enables Russia to decide what specifically it expects from Russian-American relations. "So far, it is only clear what Russia doesn't want: it doesn't want Georgia and Ukraine to join NATO and U.S. radar and interceptors deployed in Central Europe," Lipman said.
    However, the analyst does not think the government is going the best way about these important problems. "By giving an ultimatum on the U.S. missile defense plans, without specifying if the addressee is the current government or the next, Russia has in fact slashed America's options for making concessions," she concluded.

    Vedomosti, Kommersant

    Gazprom may gain access to Spanish oil and gas market

    Russian energy giant Gazprom, which has not previously worked in Spain, wants to buy a 20% stake in the local oil and gas company Repsol that has been put up for sale by Sacyr Vallehermoso, a diversified group engaged in construction, real estate, contracting, property ownership, and services.
    Repsol YPF is one of the world's top 10 oil and gas companies. It owns 57% of oil and gas processing facilities in Spain and annually markets 55 million metric tons of oil and 32 billion cubic meters of gas.
    Russian Deputy Prime Minister Alexander Zhukov said yesterday Gazprom was considering buying the 20% stake in Repsol.
    Spanish Minister of Industry, Tourism and Trade Miguel Sebastian Gascon replied that he was not aware of the gas monopoly's intentions, and that an intergovernmental commission had not discussed the possibility.
    He added that the government would not interfere with a private deal.
    A Repsol employee said he knew nothing about the talks. Had Sacyr conducted such talks, we would have known even though we do not hold the shares, he said.
    Representatives of Sacyr, Repsol, Gazprom and the La Caixa bank, the second largest shareholder of Repsol, refused to comment.
    A Sacyr spokesperson said, however, that her company was considering divesting some assets, including the 20% stake in Repsol. She did not say how much Sacyr hoped to receive for the stake.
    While Sacyr bought the stake for nearly 6.5 billion euros two years ago, it was only worth 3.5 billion euros on the Madrid stock exchange yesterday.
    Konstantin Cherepanov from KIT Finance said the deputy prime minister had complicated Gazprom's negotiating position, because the seller could increase the price now that the possibility of the deal has been made public.
    Gazprom's rivals could be France's Total and the Anglo-Dutch Royal Dutch Shell, according to Dow Jones. Representatives of the two companies refused to comment.
    The Spanish market, one of the largest in Europe, has been closed to Gazprom. Like Portugal, Spain is not connected to Russia through pipelines and receives its gas mostly from Algeria.
    Maxim Shein from Broker Credit Service said: "The deal would allow Gazprom to get a foothold on the Spanish oil and gas market, where prices are attractive for suppliers."
    Pavel Sorokin, an analyst at UniCredit Aton, is not convinced Gazprom wants to buy Repsol. The gas monopoly may be interested in Repsol's gas liquefaction assets, he said, but it is unlikely to pay $4.4 billion for them.


    Russia may refuse to build pipeline branch to China

    Russia has not come to terms on a loan and oil supplies with China, and may now refuse to build a branch from the Eastern Siberia-Pacific Ocean (ESPO) oil pipeline to the border with China.
    "The working groups have stopped discussions because the Chinese partners put forward absurd loan terms," said a source with connections in the negotiating team.
    Rosneft, Russia's largest state-owned oil producer and oil pipeline monopoly Transneft expected to receive $15 billion and $10 billion respectively from China in return for long-term oil supplies and the construction of a branch from the ESPO pipeline to the border with China.
    The source said China refused to set a fixed price on the money but proposed allocating it in the form of a bank loan, and also insisted that Russia provide numerous guarantees of its repayment, as well as guarantees of revenue and oil production.
    Analysts think the source meant the interest rate on the loan.
    Alexander Razuvayev, an analyst at Sobinbank, said: "China has probably proposed the so-called floating rate, which means that the interest on the loan may grow. Of course, this does not suit Russia."
    A floating interest rate refers to any type of debt instrument, such as a loan, bond, mortgage, or credit, that does not have a fixed rate of interest over the life of the instrument.
    Analysts say that guarantees of revenue imply a scheme according to which Russia is to pay for the loan with oil, thereby getting nothing, or much less than it initially expected from oil supplies to China.
    China wants to receive Russia's potential oil export revenues in the form of oil supplied in repayment of the loan.
    Russia is unlikely to accept such terms, but refusal will bury the pipeline branch project, on which the two countries agreed less than a month ago. The relevant agreement was signed by Transneft head Nikolai Tokarev and Jiang Jiemin, director general of CNPC.
    "The branch will not be built unless the sides come to terms. Why build the pipeline if China may refuse to buy oil? In this case, the money spent on the branch will have to be written off as irrecoverable losses," Razuvayev said.
    Vitaly Kryukov from the Kapital investment corporation said: "China's demands are excessive, but Russia's requirements are not modest either. They should coordinate mutual compromises."


    Caspian Pipeline Consortium faces bankruptcy

    Unless Caspian Pipeline Consortium (CPC) shareholders decide on pipe expansion before the end of the year, a parallel oil pipeline might be built or the company could go bankrupt, a Transneft spokesman said yesterday.
    These decisions reflect the interests of the consortium's state shareholders - Russia and Kazakhstan, he said. Bankruptcy is more likely, he said, because the CPC's debt by the end of September stood at $4.7 billion.
    A spokesman for the Russian prime minister said the government knows nothing about such options, while a spokesman for KazMunaiGaz declined to comment.
    However, according to Mikhail Barkov, Transneft vice president, the options were discussed with Kazakhstan when Industry and Energy Minister Viktor Khristenko visited Astana early in May. No final decision has been made yet, he said.
    On November 25, the CPC board of directors will again discuss expanding the Tengiz-Novorossiisk pipeline from 32 million to 67 million metric tons of oil. The decision must be unanimous, and is only opposed by BP, the Transneft spokesman said.
    A BP spokesman said the company had not yet made up its mind and was examining different options, including selling its stake in the consortium.
    BP owns 6.6% of the CPC via two joint ventures - one with LUKoil and one with KazMunaiGaz. LUKoil has received no offer from BP to buy out its stake in the venture, the company's spokesman said. His opposite number from KazMunaiGaz declined to comment.
    In the spring, Oman decided to pull out of the consortium, citing its inefficiency. In November it was reported that Russia had purchased its stake in the CPC (7%). Talks are currently under way with Kazakhstan to sell it part of the package, Energy Minister Sergei Shmatko said early in the week.
    A Chevron representative hopes CPC shareholders will arrive at a consensus on pipeline expansion by the end of the year.
    Valery Nesterov, a Troika Dialog analyst, estimates the construction of a new pipeline at $3-4 billion, but considers the project to be too costly and bankruptcy more likely. Yet if Russia and Kazakhstan agree on a CPC bankruptcy, the project's private shareholders will be more cooperative.
    The Caspian Pipeline Consortium is the operator of the Tengiz-Novorossiisk oil pipeline. Its shareholders are: Russia (31%) and Kazakhstan (19%), with private companies - Chevron, Exxon, BP and others - holding the remaining 50%.


    Government keen to know who owns offshore assets

    Russia's Federal Financial Markets Service has ordered all stock market players to disclose end owners. The order has been registered with the Justice Ministry.
    The regulator is determined to find out who really is behind most of the market players, as these people are often hidden in offshore jurisdictions. This new attempt to make indirect owners reveal themselves might even be successful: they might comply in return for state support for their businesses.
    All market players will have to disclose complete information on their ownership structure, including all holders of "5% or more in the company's share capital." The information has to be delivered within 15 days after each reporting quarter. The new FFMS rule applies to all companies operating with the regulator's licenses.
    FFMS head Vladimir Milovidov described the current situation as "regulating mythical shares held by mythical players."
    The regulator has made numerous attempts to force financial companies to disclose their end owners, as the majority of professional market players are registered in offshore zones. However, it never set directly prohibitive rules.
    "Financial institutions are weakened, and are unlikely to put up resistance while straining their hardest to survive the crisis," said MDM Bank chairman Oleg Vyugin, former FFMS head.
    Analysts expect market players to try to find loopholes to avoid complying with the new regulatory requirement.
    "If someone really wants to hide the information, they will find a way to do so," said Andrei Novakovsky, a partner at the law firm Liniya Prava (Line of Law).
    Market players are likely to resort to indirect ownership options such as funds and trusts. Since the new regulation includes the option of citing a non-profit organization as an owner, then a foreign trust could be a perfectly valid solution. "This gives a loophole to avoid the new rule, if a fund is recognized as a non-profit organization," the lawyer explained.
    "Moreover, FFMS does not specify any penalty for failure to provide the information," added Eduard Savulyak, head of Tax Consulting U.K.'s Moscow office.
    However, the current liquidity squeeze might act as a disciplining factor, as market players are ready to consent to just about anything to become eligible for government financial support.
    "In 2004, Russian banks disclosed their beneficiaries in order to get on the deposit insurance system," said Mikhail Turetsky, partner at Baker & McKenzie. "This time around, a chance to get CBR refinancing loans or other government support options could have a similar stimulating effect."

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