Russia should be the first to step away from CIS - expert
The Kremlin has hinted that Russia no longer needs the Commonwealth of Independent States (CIS) and might consider other forms of cooperation with former Soviet states.
Late last week, Ukrainian Foreign Minister Boris Tarasyuk, fueled by the Russia-Ukraine gas dispute, questioned the "future of the CIS."
In response, Mikhail Margelov, chairman of the Russian Federation Council's international affairs committee, said, "The CIS has passed away but not because of the color revolutions. The organization had been amorphous, without common legislation or direction, but rather with a lot of declarations."
The influential Russian politician said the Shanghai Cooperation Organization (SCO) and the Common Economic Space (CES) offered a better future for cooperation.
Experts do not think this was Margelov's personal opinion. Arnaud Dubien, head of the CIS program at the Paris-based International Institute for Strategic Studies, said that until recently Margelov's public statements did not differ much from the Kremlin's official policy. Dubien said that real integration had occurred not under the CIS but in the Eurasian Economic Community (Eurasec) and the Collective Security Treaty Organization (CSTO). Dubien said Moscow probably decided to grab onto the initiative to dissolve the CIS so as not to leave the pleasure to others.
Sergei Karaganov, chairman of the Council for Foreign and Defense Policy, said Tarasyuk's statement suited Moscow. "Russia should take Tarasyuk at his word and close down the CIS as soon as possible," he said. "The organization has long outlived its purpose."
The political scientist said the CIS prevented Russia from pursuing "a reasonable and balanced" policy regarding the former Soviet countries, "a policy that would be non-imperial but clear-cut." Therefore, Russia should take the first step to withdraw from the CIS, Karaganov said.
Russia's policies based on high oil prices - expert
If there might have been some doubts in the past as to where the incumbent president and the government would take Russia, 2005 has removed them, says Konstantin Sonin, professor of the Russian School of Economics.
First of all, large businesses are being nationalized, as seen in the examples of Gazprom, Sibneft, Silovye Mashiny and AvtoVAZ. Apparently, the reason for such moves is a misunderstanding of what constitute "state benefits." At the same time, most Russians seem to share the Kremlin's obvious mistrust of market institutions concerning the economy and elections. Moreover, the policy of moving toward a state-owned economy has proved very advantageous for those who are pursuing it. Having tasted the lucrative plan, they are now unable to give it up.
Only professional economists are worried by the fact that the real grounds for this policy of dismantling the market are record-high oil prices.
Secondly, suppression of the smallest opposition has continued on the domestic political front throughout the year. Lack of any politically important figures in the government proves that President Vladimir Putin, in one way or another, will try to stay for a third term. All of United Russia's "victories" in 2005 regional elections have been achieved by including potential winners in the pro-Kremlin party. There is no reason to believe that they will remain loyal to the incumbent government should the situation in the economy deteriorate. In other words, the current political course is based on the ability of those in power to ensure a comfortable existence for the elites, which again requires high oil prices.
Thirdly, Russia's foreign policy has been outlined as building an energy superpower, whose key geopolitical weapon will be its natural resources. In pursuing this policy, the country risks seeing the entire world united against it. The danger is that in all these three components of Russian political strategy, everything depends on oil prices.
Reforms to continue unless Kremlin finds mechanism for transfer of power
A majority of Russian political scientists are inclined to believe that 2005 was not a turning point in terms of reversing democratic reforms. The political situation caused the authorities to remove economic modernization from the agenda and activate a number of populist measures. On the other hand, it became obvious that the main and only political trump card of the current administration still lies in Vladimir Putin's immense popularity. The authorities are looking for a mechanism for the transfer of presidential power. As soon as these issues are solved, everything will return to normal.
"It is obvious that United Russia is being assigned the role of a consolidating force with which more and more influential elites must integrate," Alexei Makarkin, deputy general director of the Center for Political Technologies, said. "The main aim of this process is transition to a dual model of state administration where, for example, Vladimir Putin becomes the leader of United Russia, and with his unquestionable authority and influence, balances the main vertical of power." Makarkin is almost sure that the Kremlin has been looking for a mechanism for the transfer of power this past year.
Paradoxically, the main threat to this process may emanate from United Russia. "Currently, the notorious 'vertical of power,' which subdues everybody, is nothing but a 'horror story' invented by the opposition," Konstantin Simonov, director of the Center for Current Politics in Russia, said. In his opinion, governors see United Russia membership as a kind of absolution: they are loyal to Moscow, which, in turn, will not interfere in their affairs.
Simonov said local authorities still wanted to live according to their own rules, not federal rules: "Judging by some statements, for example, by [Tatar President Mintimer] Shaimiyev on 'the Tatar state,' which is much older than the Russian one, the struggle in this field will continue to be tough next year." A consolidating role for United Russia is not yet a fact, Simonov said.
Gazprom to prove its attractiveness to investors
On December 24, when the Russian president removed the "ring fence" around Gazprom's shares, the company's capitalization was more than $160 billion. In September, when authorities began preparing for the liberalization, it amounted to $90 billion. Analysts say that expectations of the pivotal event are already included in the price, and now investors will assess the efficiency of investment in Gazprom from the point of view of purely corporate risks.
Gazprom's stagnating production is one of the biggest concerns being raised. Costs are continuing to increase and the gas monopoly is showing an inability to generate cash flows, the Aton investment firm wrote in a report.
There are other obvious risks as well. The biggest one is related to the notorious campaign to raise gas prices for Ukraine. Blackmailing its neighbor with threats of suspending supplies, Gazprom's management seems to forget that export revenues are used to secure its loans many years in advance. In addition, Gazprom, as the borrower, is responsible for delivering gas to the border of the purchasing country. Even the tiniest disruption of supplies may prompt creditors to recall their money, or at least, insure their risks. This will create a precedent; until now, Gazprom's spotless record had ensured the disruption risk is assessed at zero when issuing loans.
Yet another commercial risk attracting investors' attention is that the concern is paying increased tariffs on every new gas pipeline.
A separate problem is its ADR program because the gas giant wants to raise its share to 40% of its capital (at present it includes only 4.4% of its shares deposited in the Bank of New York). With a new emission, the issuer's risks are minimal. But if shares "with a record" are included in the ADR program, investors will forever face the threat of international investigations into Gazprom's murky operations. This may be convenient for the government should it want to crack down on one of the shareholders. The problem is that it cannot fully control this risk.
Rosneft's IPO under question
The central event of 2005 - Gazprom's purchase of Sibneft - looks as if it is going to be the main headache of 2006. An initial public offering planned by Rosneft (part of Rosneftegaz), through which the Russian state-owned companies hope to recover some of their debts resulting from the $13 billion deal, may be in question.
Rosneft President Sergei Budanchikov claims that his company's current capitalization is $30 billion. And even last year's far from transparent deal to buy Yuganskneftegaz, confiscated from Yukos for tax debts, is unlikely to be a snag. "Western investors are cynical people. They will forget a good deal if good profits are shown," the head of one of Russia's brokerages said.
But Washington is not always ready to forgive what Wall Street may close its eyes to. This is indicated by the refusal of former U.S. Secretary of Commerce Donald Evans to head Rosneft's board of directors. It is hard to say exactly what President George W. Bush's friend did not like: Rosneft's participation in the Yukos affair, Russia's "gas" pressure on Ukraine, or its sale of missiles to Iran.
Almost parallel with Evans' refusal, and as part of an anti-laundering campaign, the Federal Reserve and the U.S. Treasury levied an $80 million fine against ABN-Amro, Rosneft's main lender and financial consultant. The major Dutch bank with which Bogdanchikov has cooperated ever since he ran Sakhalinmorneftegaz has been chastised for failing to provide sufficient information on transactions involving clients from Lebanon, Iran and Russia.
Odds are that the Russian authorities will have to look for alternative ways of refinancing Rosneftegas' debts. Approaching Roman Abramovich (who personally received only $4 billion of the $13 billion, according to newspaper Biznes) or Surgutneftegaz, supported by Putin's long-standing pal Gennady Timchenko, is the least painful measure of all in macro-economic terms.