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Russia 110222Basic Political DevelopmentsFeb 23: Public holiday in Russia, Defenders of Fatherland DayRussia seeks to evacuate nationals as Libyan airspace closed - "Libyan airspace remains closed and permission for the flight of Russian planes is being coordinated through diplomatic channels," a Russian emergencies spokesperson Irina Andrianova said.Libyan airspace still not opened to Russian planes - "A total of 134 people - employees of Russian Railways, Gazprom and relatives of officials of the Russian Embassy - are ready to be evacuated from Tripoli. The latest information available to us indicates that 563 people should be evacuated," Andriyanova said.Emergencies Ministry coordinating evacuation from Libya - “At the president’s instruction the Emergencies Ministry plans to send four planes to Libya – two Il-76 transport planes and Il-62 and Yak-42 passenger jets. Another two jets – Yak-42 and Il-76 – are reserved,” she said. Russian Emergencies Ministry to evacuate Russians from LibyaRussians Pulled Out of Rebellious Libya - Speaking earlier on?Ekho Moskvy Radio, Valentin Manzhiyev, who works for?Russian Railways subsidiary ZarubezhStroiTekhnologia, said about 350 Russians currently working in?Libya were unable to?leave the?country. Russia offers New Zealand quake help - According to the Kremlin’s Press Service, Medvedev also says in his message that Russia is prepared to help cope with the aftermath of the natural disaster. Russians may be among 65 dead in New Zealand’s devastating quake Russia says S-300 deliveries to Venezuela pending - "Venezuela has rescheduled the dates several times, but now we have agreed on a timeframe for the deliveries," Rosoboronexport special programs director Nikolai Dimidyuk told reporters.Russia may lose up to $10 bln in weapons contracts due to instability in Middle East, North Africa – sourceLukashenko: Russian-Belarusian military cooperation successful despite rifts - "Although individual problems have been observed in recent years, military cooperation between Belarus and Russia has been developing successfully," Lukashenko told the military commanders on Monday.Azerbaijan intends to impose fee on Baku-Russian border highwayKarabakh: Parties eye another summit amid persisting tensions in the conflict zone - Armenian President Serzh Sargsyan will be in Russia later this week in what appears to be preparations for another Russian-hosted summit with the Azerbaijani leader amid growing military tensions around Karabakh. Kyrgyzstan: Moscow Slams Bakiyev Officials for Trafficking Drugs - Was Bordyuzha referring to the transfer of troops that stopped the drug shipments? Or was he suggesting, as interpreted by Lenta.ru, that some members of the security forces continue to smuggle drugs?SCO needs unified list of banned terrorist groups - executive committee directorRussia to demand punishment for Japanese radicals who desecrated flag - The Russian embassy in Tokyo is preparing a note to the Japanese foreign ministry demanding to launch criminal investigation into the recent desecration of the Russian flag, a diplomat said.Xinhua: Deadlock in Russia-Japan islands row hard to break - Were the four islands in Japan's hands, they could possibly be used by Tokyo and Washington to check Moscow. In that case, among other consequences, Russia would lose free access for its Pacific Fleet to the Pacific Ocean. The second factor is that, with the Asia-Pacific gaining increasing international influence, the Southern Kurils, as Russia's foothold in East Asia, have become the showcase of its presence and strength in the region.Polish foreign minister admits mistake by crashed plane crew - "Polish pilots clearly made a mistake, now matter how many times we deny it – they should not have landed in fog," Sikorski said.Kremlin Chief of Staff May Run Foreign Intelligence - President Dmitry Medvedev may name his chief of staff, Sergei Naryshkin, head of the Foreign Intelligence Service, or SVR, Vedomosti reported, citing unidentified administration officials. FSB deputy director fired - “Following Ushakov’s dismissal there could be decisions about a number of senior officials in the FSB,” the source added.Medvedev Warily Chimes In on Turf War - President Dmitry Medvedev carefully weighed in?Monday on?a turf war between the?Investigative Committee and?Prosecutor General's Office, which clashed over an?illegal gambling ring in?the Moscow region allegedly protected by?local police and?prosecutors.UK, Russia to launch UK Russia Year of Space - Russia and the UK are due to launch Russia UK Year of Space, timed for the 50th anniversary of Yuri Gagarin’s space flight. The ceremony to launch the Year is due at the Russian Space Agency Roskosmos, where the agency chief Anatoly Perminov and British Minister of State for Universities and Science David Willetts will sign a joint statement on promoting the two countries’ cooperation in space exploration.Rocket failure: Russian, Indian scientists differ on cause - The Russians have pointed their fingers at the rocket's bigger heat shield (4 metre) as the proximate cause for high atmospheric load on the rocket that broke it. Refuting that theory, Indian officials cited an earlier GSLV rocket that went up with a heat shield of similar size. 30 Canadian bison flying to Russia - The programme aims at getting bison back to Siberia, where they lived 5,000 years ago.?? Russian authorities are distorting situation over Yukos case - Khodorkovsky's lawyerPutin invited to swap places with Khodorkovsky - The poster, which was removed by police officers after hanging for more than half an hour, showed Putin behind bars next to a portrait of Khodorkovsky during his pre-prison days as Yukos chief executive.The commander of the emergency landed Mi-171 has received a suspended sentence. Man trying to sell bomb detained in Moscow region - A 47-year-old man was detained by police near the village of Zaitsevo in the Serpukhov district of the Moscow region while trying to sell an improvised explosive device, a source in law enforcement services told Interfax.Abu Dhabi Royal to Invest in Chechnya as Putin Pushes Rebuild - Royal Group, which invested in Al-Reem, a $60 billion man- made island project in Abu Dhabi, recently sent a delegation to the region, Kadyrov said in an interview with Bloomberg News in Moscow on Feb. 19. Medvedev thanks traditional religious leaders of North Caucasus for fight against radicalsPutin to seek 2050 gas 'roadmap' on Brussels visitEU energy laws threaten gas pipeline- Yazev: European plans to liberalise energy markets have undermined Russian investments and pipelines linking the Nord Stream gas pipeline to Germany, Russian Gas Society President Valery Yazev said on Monday.Vladimir Putin and the people - Russia's Prime Minister is feared in the West – but adored at home, says Mary Dejevsky. Is the reason we don't trust him that we don't really understand him?Is Vladimir Putin the Unlikely Ally of Sea Shepherd Conservation Society? – by Yuri MamchurLife raft from missing Amethyst trawler found near KamchatkaElectricity failure leaves 70,000 Vladivostok residents without water suppliesMt. Elbrus’ Slippery Slopes - Kabardino-Balkaria’s Insurgents Have Changed Their Tactics – Do the Authorities Think It Is Time to Change Theirs?While Authorities Say That the Middle Class Will Account for the Majority of the Russian Population by 2020, Critics Say It’s ImpossibleRIA Russian Press at a Glance, Tuesday, February 22, 2011National Economic TrendsPresident instructs Putin, Zubkov to improve situation on grain market - “I instruct the head of government and you to compile such proposals which will tell qualitatively on the fodder grain market,” he addressed the vice-premier. Russia: commodity interventions on the grain market is the effective method of price stabilizationRussia's Sechin Defends Investment Climate - Deputy Prime Minister Igor Sechin, Russia's energy czar and one of its most powerful officials, gave a rare interview to The Wall Street Journal. Below are some edited excerpts (translation by Nonna Fomenko and Anna Masterova, WSJ) After Some Encouraging Momentum Built Up in the First Half of 2010, Russian Consumers Have Grown a Tad More Cautious as Household Disposable Incomes Keep ShrinkingBusiness, Energy or Environmental regulations or discussionsGazprom, Alliance Oil and Rosneft: Russian Equities Preview MOSCOW BLOG: Who will win the 2011 equity race? Financial watchdog calls for suspension of competing projects on Micex, RTS VTB executives elected to Bank of Moscow boardVTB Gains Bank Of Moscow Board Seats; Protests Subsequent Meeting Five VTB executives elected to Bank of Moscow BoD as power struggle continues Barclays, Santander ‘Driven Out’ of Russia as State Banks Gain HSBC joins the crowd in departuresTelenor's stake in Vimpelcom may be diluted NRB stake in Aeroflot decreased to 9.7%Deripaska Rebounding From Near-Crash Stares Down Rival Potanin Power Machines Wins $188 Million Turbine Supply Order From IES Ford, Russia's Sollers to invest $1.4 bln in joint ventureActivity in the Oil and Gas sector (including regulatory)Russia Will Cut Oil Export Tax to 60% in 2012, Vedomosti Says Rosneft sees offshore, overseas as key to growthRosneft To Expand Africa, Arctic Offshore ExplorationMongolia Considers a New Oil Supplier - Mineral Resources Authority of Mongolia (MRAM) signs on February 18 a memorandum of understanding with an the Russia’s oil company TNK-BP, concerning the delivery of Russian oil products to Mongolia. Russia's TNK-BP eyes Lotos, daily reports - Leading Russian oil company TNK-BP is interested in buying a controlling stake in Poland's second-largest refiner, Lotos, daily Rzeczpospolita reports.GazpromRussian-Kyrgyz JV takes over fuel supply for U.S. Manas baseGazprom dispatched jet to Libya to evacuate its technical specialistsGazprom supplying more gas because of cold - Mr MillerA difficult balancing act for head of Gazprom - Alexei Miller has to champion natural gas, while playing down price pressure from alternative supplies, says Sarah ArnottGazprom feels the heat as its gas market dominance is threatened - Gazprom's headquarters may be an imposing tower block fortress dominating the Moscow skyline, but there are plenty of reasons why the gas bosses inside might be feeling vulnerable these days. Gazprom chief Alexey Miller warns Europe on 'safety' of Middle East oil and gas supplies - Europe needs to reconsider the “stability and safety” of its oil and gas supplies from the Middle East after protests that have pushed the oil price above $105 per barrel, Alexey Miller, the chief executive of Gazprom, has warned. Gazprom spins the table on Kiev once more- Gazprom CEO Alexei Miller said on Monday that the Russian gas giant has no plans to give in to Ukraine's requests to revise the price of its gas supply contract, as the two countries continue to play pass the parcel with the issue. ------------------------------------------------------------------------------------------Full Text ArticlesBasic Political DevelopmentsFeb 23: Public holiday in Russia, Defenders of Fatherland Day seeks to evacuate nationals as Libyan airspace closed 22/02/2011Russia is seeking permission for its planes to enter Libyan airspace, which has been shut down amid mass anti-government protests, to evacuate its nationals from the turbulent North African state."Libyan airspace remains closed and permission for the flight of Russian planes is being coordinated through diplomatic channels," a Russian emergencies spokesperson Irina Andrianova said.Russia is to send four airplanes to evacuate a total of 563 Russian nationals from Libya. Most of them are employees of the Russian Railways monopoly and Gazprom energy giant, or families of Russian diplomats.Foreign media reports said up to 500 people could have been killed by government forces since protests against the country's long-time leader Muammar Gaddafi began February 15, and thousands more have been wounded.The Libyan authorities officially confirm 84 deaths.MOSCOW, February 22 (RIA Novosti)Libyan airspace still not opened to Russian planes at 11:00 | Interfax-Ukraine Russia's Emergency Situations Ministry and Foreign Ministry are working together to secure permission for Russian airplanes to fly through Libya's airspace to evacuate Russian citizens from the country, Emergency Situations Ministry spokeswoman Irina Andriyanova said on Tuesday. "The airspace over Libya remains closed. Flyover permission for Russian airplanes is being negotiated through diplomatic channels," she said.However, the Russian Emergency Situations Ministry is preparing to send its first Ilyushin Il-76 airplane, currently based at the Ramenskoye airfield outside Moscow, to Libya, she said."A total of 134 people - employees of Russian Railways, Gazprom and relatives of officials of the Russian Embassy - are ready to be evacuated from Tripoli. The latest information available to us indicates that 563 people should be evacuated," Andriyanova said."In compliance with orders given by the president of the Russian Federation, the Emergency Situations Ministry plans to send a total of four airplanes to Libya - two Il-76 transport airplanes, an [Ilyushin] Il-62 passenger airplane and a [Yakovlev] Yak-42 passenger plane.Two more planes - a Yak-42 and an Il-76 - will act as backup aircraft," she said. Read more: Ministry coordinating evacuation from Libya, February 22 (Itar-Tass) - Russia’s Emergencies Ministry together with the Foreign Ministry are coordinating the issuance of an overflying permit for evacuation of Russian citizens from Libya that is engulfed by riots, Emergencies Ministry spokeswoman Irina Andrianova told Itar-Tass on Tuesday. “Until this time Libya’s airspace remains closed and the overflying of Russian planes through the territory is being coordinated through diplomatic channels,” she said. Despite this fact an IL-76 plane is being prepared for the take-off at the Ramenskoye airfield near Moscow, she said. “In Tripoli 134 people – employees of the Russian Railways Company, Gazprom and families of Russian diplomats – are ready for evacuation. According to the latest information, 563 Russian citizens shoul be evacuated from Libya,” Andrianova said. “At the president’s instruction the Emergencies Ministry plans to send four planes to Libya – two Il-76 transport planes and Il-62 and Yak-42 passenger jets. Another two jets – Yak-42 and Il-76 – are reserved,” she said. Russian Emergencies Ministry to evacuate Russians from Libya 22, 2011 10:09 Moscow TimeThe Russian Emergencies Ministry is preparing the evacuation of Russian nationals from Libya. Four planes are due to take off form Moscow to Libya before noon today. According to preliminary reports, more than 500 Russians are due to leave the North African country. These are mainly diplomats, and staff workers of the Gazprom and Russian Railways Companies. ?Russians Pulled Out of Rebellious Libya February 2011By Nikolaus von TwickelAs the?bloody violence in?Libya spread Monday, Russia began to?pull out specialists working on?high-profile investment projects in?the North African country.Russian Railways said in?a statement on?its web site that it was bringing home all its 204 engineers working on?a rail link between Benghazi and?Sirte.The eastern port city of?Benghazi saw the?worst anti-government violence Sunday in?which more than 200 people were killed, according to?human rights groups.Speaking earlier on?Ekho Moskvy Radio, Valentin Manzhiyev, who works for?Russian Railways subsidiary ZarubezhStroiTekhnologia, said about 350 Russians currently working in?Libya were unable to?leave the?country. Gazprom said it was pulling out some 20 company representatives from?the country, RIA-Novosti reported.The energy giant had just last week signed an?agreement with Italy's Eni to?jointly develop the?Elephant oil field in?southern Libya.It was unclear how evacuations would be executed from?the hard-hit eastern part of?the country. Reports said Monday that a?Turkish Airlines plane could not land in?Benghazi because the?airport had been taken over by?protesters.The Foreign Ministry said the?Emergency Situations Ministry is ready to?dispatch an?evacuation mission if necessary and?advised Russians not to?travel to?Libya. President Dmitry Medvedev later weighed in by ordering to organize the evacuation. In a?statement on?its web site the?Foreign Ministry called for?an end to?the violence and?for political dialogue. "This is the?only way to?avoid further civilian victims," the?statement said.The possibility of?a violent overthrow of?Muammar Gaddafi's 42-year reign is calling into?question all foreign investment in?the country.Like major Western countries, Russia has been eager to?get a?foothold into?Libya since the?energy-rich country opened for?investment??.In 2008, then-outgoing President Vladimir Putin traveled to?Tripoli where he oversaw a?debt-for-contracts deal that included a?$3.5 billion agreement to?build a?550-kilometer high-speed railway between Sirte and?Benghazi. The?project is scheduled for?completion in?2012, Russian Railways said on?its web site.The work includes a?rail welding plant in?Ras Lanuf, which was opened by?Russian Railways chief Vladimir Yakunin last June.In October 2008, Gaddafi made his first visit to?post-Soviet Russia, setting up his trademark Bedouin tent inside the?Kremlin walls.Still, the?economic risk for?Russia is small, Yevgeny Satanovsky, head of?the Institute of?Middle Eastern Studies, said Monday. "Thanks partly to?our Western competitors, we have not yet been successful in?sinking large sums into?that country," he told The?Moscow Times by?telephone.Meanwhile, Liberal Democratic Party leader Vladimir Zhirinovsky offered asylum to?the embattled Gaddafi. "I suggest you make Moscow your permanent home — I sincerely invite you as a?dear guest," Zhirinovsky said in?a statement on?the party web site.Russia offers New Zealand quake help 22, 2011 11:42 Moscow TimeRussian President Dmitry Medvedev has?extended condolences to New Zealand's leaders over yesterday’s destructive earthquake in the Pacific country. According to the Kremlin’s Press Service, Medvedev also says in his message that Russia is prepared to help cope with the aftermath of the natural disaster. The death toll of the quake in the city Christchurch has reached 65, while more than 200 others are still buried beneath debris. ???Russians may be among 65 dead in New Zealand’s devastating quake Sixty-five people are confirmed dead after a major earthquake shook the city of Christchurch in New Zealand Tuesday. Russians may be among the dead, the Russian consulate in Wellington reports. This is the second major quake to hit the city in five months. The quake has led to extensive damage in the city and to power cuts. City authorities are running out of ambulance support. Roads across Christchurch are buckled and ground water is flowing across streets. A state of emergency is announced in the city. Several hundreds of Russians live in the city and may have fallen victim to the quake. The Russian embassy in New Zealand is currently investigating whether or not Russian citizens were among the dead or casualties. Russia says S-300 deliveries to Venezuela pending 22/02/2011Deliveries of S-300 missile defense systems to Venezuela have been delayed, but will go ahead, an official at Rosoboronexport, Russia's state-owned arms export monopoly, said on Tuesday.In November, Venezuelan President Hugo Chavez said that Russia had agreed to lend his country over $4 billion to buy weapons."There is a contract with Venezuela but it's not yet being implemented," Rosoboronexport special programs director Nikolai Dimidyuk told reporters."Venezuela has rescheduled the dates several times, but now we have agreed on a timeframe for the deliveries," he added.Venezuela is one of the biggest buyers of Russian arms.ABU-DHABI, February 22 (RIA Novosti)02/22 12:36 ? Russia may lose up to $10 bln in weapons contracts due to instability in Middle East, North Africa – source: Russian-Belarusian military cooperation successful despite riftsToday at 09:51 | Interfax-Ukraine Belarusian President Alexander Lukashenko has confirmed his readiness to broaden military and military-technical cooperation with Russia, which he said, is an important factor for maintaining peace and stability in the region. "Although individual problems have been observed in recent years, military cooperation between Belarus and Russia has been developing successfully," Lukashenko told the military commanders on Monday.The regional military grouping remains operational and joint tactical and combat training is continuing, he said.Lukashenko announced that the next Belarusian-Russian tactical drill will be held in Russia in September.But alongside bilateral cooperation, crisis management mechanisms must be perfected within the Collective Security Treaty Organization (CSTO)"Here the main emphasis will be laid on the maintenance and employment of the Collective Operational Reaction Force," he said.Lukashenko, as president of the country which holds the rotating presidency of the CSTO, said that "uniform standards of tactical interoperability between the armed forces of the CSTO member states must be formed, and their collective component must be brought into line with the agreed parameters.""Although individual problems have been observed in recent years, military cooperation between Belarus and Russia has been developing successfully," Lukashenko told the military commanders on Monday.The regional military grouping remains operational and joint tactical and combat training is continuing, he said.Lukashenko announced that the next Belarusian-Russian tactical drill will be held in Russia in September.But alongside bilateral cooperation, crisis management mechanisms must be perfected within the Collective Security Treaty Organization (CSTO)"Here the main emphasis will be laid on the maintenance and employment of the Collective Operational Reaction Force," he said.Lukashenko, as president of the country which holds the rotating presidency of the CSTO, said that "uniform standards of tactical interoperability between the armed forces of the CSTO member states must be formed, and their collective component must be brought into line with the agreed parameters." Read more: intends to impose fee on Baku-Russian border highway | 22.02.11 | 10:21 Karabakh: Parties eye another summit amid persisting tensions in the conflict zone President Serzh Sargsyan will be in Russia later this week in what appears to be preparations for another Russian-hosted summit with the Azerbaijani leader amid growing military tensions around Karabakh. In a brief statement on Monday Sargsyan’s press service announced that the Armenian head of state will fly to Russia’s northern city of St. Petersburg on February 25 and that his working visit will also include a meeting with Russian President Dmitry Medvedev. No further details about the agenda of the talks were provided by either Yerevan or Moscow. It is expected, though, that Karabakh will be at the core of the discussions considering the recent announcement of another Russian-mediated Armenian-Azerbaijani summit early next month. President Medvedev will host that summit on March 5, in the southern Russian resort town of Sochi. The meeting in such a trilateral format will be the first since October when Russia brokered a deal on the swap of prisoners of war, civilian hostages and human remains between the conflicting parties as part of broader confidence-building measures to keep the simmering conflict at bay. While exchanges of several hostages and dead bodies did initially take place in November, the situation on the ground has remained far from being calm even after the Astrakhan meeting. The latest flurry of diplomatic activity around Karabakh that also included Russian Deputy Foreign Minister Grigoriy Karasin’s visit to Yerevan last week comes at a time of growing tension along the line of contact of Karabakh-Armenian and Azerbaijani troops near the disputed area.In one such latest incident Azerbaijan accused the Armenian military of killing one Azeri soldier and wounding another in a ceasefire violation – a claim vigorously denied by military authorities in both Karabakh and Armenia.Stepanakert and Yerevan, in their turn, have pointed an accusatory finger at Azerbaijan, blaming Baku for the persisting tensions, injury and loss of life along the line of contact. Also, reports appeared on Monday saying that seven Azerbaijani soldiers were shot dead the previous day by a comrade at a military base in the country’s northwestern district bordering on Karabakh. Azerbaijan’s defense ministry said it was the result of an “internal incident” involving a shooting rampage by one serviceman. Kyrgyzstan: Moscow Slams Bakiyev Officials for Trafficking Drugs 22, 2011 - 2:37am, by George Camm Nikolai Bordyuzha has said what we’ve all been thinking.The chief of the Russia-led Collective Security Treaty Organization (CSTO), the region’s dithering, would-be NATO, has said that members of deposed President Kurmanbek Bakiyev’s court were trafficking narcotics through southern Kyrgyzstan. That part of the country was Bakiyev’s home base and, after his bloody ouster last spring, the epicenter of ethnic violence that left hundreds dead and thousands wounded."A year ago, before the events in Kirgizia, some security forces, controlled by President Bakiyev among others, controlled drug traffic through the south of Kirgizia," Bordyuzha, referring to the country by its Soviet-era moniker, said in comments carried by RIA Novosti on February 21.Whether Bakiyev was complicit, or, as many suspect, profiting directly from the drug trade, Bordyuzha didn’t elaborate. But he made a comment about Kyrgyzstan’s current security forces, or “siloviki” -- a term referring collectively to agencies with the legitimate right to use force, including police, army, intelligence services and others -- that left journalists guessing about his meaning:?"Over the last month, several caravans of drugs have been intercepted and, moreover, this transfer was made possible by security forces," he said, adding that the new Kyrgyz authorities could use some help in the fight against drugs.Was Bordyuzha referring to the transfer of troops that stopped the drug shipments? Or was he suggesting, as interpreted by Lenta.ru, that some members of the security forces continue to smuggle drugs?In any case, Moscow has genuine reasons to worry. According to Russian media reports, 30,000 Russians die every year from heroin, 90 percent of which comes from from Afghanistan. Most of that transits Kyrgyzstan and Tajikistan.?Bishkek’s newly reconstituted Drug Control Agency (disbanded by Bakiyev in October 2009) could use some teeth; it’s even rumored to lack the authority to interdict shipments passing over Kyrgyzstan’s borders. Perhaps that’s why the agency’s superiors have refused interview requests for the past five months -- loath to show how impotent and vulnerable they still are?Even so, Bordyuzha’s statements, which should be read as Moscow’s official position, raise a few questions.?How long has he known about the Bakiyev connection and why has he waited until now to talk about it? And, because almost all Afghan heroin transiting Kyrgyzstan must first pass through Tajikistan, what does he have up his sleeve for Dushanbe??02/22 11:38 ? SCO needs unified list of banned terrorist groups - executive committee director to demand punishment for Japanese radicals who desecrated flag Russian embassy in Tokyo is preparing a note to the Japanese foreign ministry demanding to launch criminal investigation into the recent desecration of the Russian flag, a diplomat said.Japanese right-wing campaigners dragged the Russian flag along the ground outside the Russian Embassy in Tokyo on February 7, demanding the return of a group of disputed Pacific islands. The embassy sent a protest note to the Japanese Foreign Ministry just after the incident.Later that day, the Russian embassy in Tokyo had also received an envelope containing a bullet and a letter which said "The Northern Territories are Japanese land.""We are preparing a note demanding criminal action against individuals who desecrated the Russian Flag, according to article 92 of the Japanese criminal code," the source said.The Russian diplomat added that situation in Tokyo "remains tense" as "Japanese radicals continue to send various insulting mails to Russian institutions."Both Japan and Russia have laid claims to the South Kuril Islands, called the Northern Territories by the Japanese, since they were annexed by the Soviet Union at the end of World War II. The dispute has prevented the two countries from signing a peace treaty to formally end hostilities.The sparsely populated islands in dispute are in the Kuril chain between Japan's northern island of Hokkaido and Russia's far eastern Kamchatka Peninsula, with the closest just 15 km (9 miles) from Hokkaido.Tensions escalated since Russian President Dmitry Medvedev visited one of the disputed islands on November 2010 last year. Japanese Premier Naoto Kan called the visit an "inexcusable rudeness."The Northern Territories Day is marked annually in Japan on February 7. Every year, right-wing activists cruise the streets in vans equipped with loudspeakers to play nationalist music and chants.TOKYO, February 22 (RIA Novosti)Deadlock in Russia-Japan islands row hard to break 16:57:49BEIJING, Feb. 22 (Xinhua) -- Analysts say the Russia-Japan deadlock over four disputed Pacific islands is unlikely to end in the near future, with neither side apparently willing to budge.On Monday, the Russian Foreign Ministry summoned the U.S. ambassador in Moscow over a recent statement from Washington in support of Japan's territorial claims on the islands.On Saturday, Japanese Chief Cabinet Secretary Yukio Edano inspected the disputed northern islands off Hokkaido from the air.Edano, who is also Japan's minister in charge of Northern Territories issues, has thus become the first top Japanese government official to view the islands, known as the Northern Territories in Japan and the Southern Kurils in Russia.LOCKED HORNSAnalysts and observers said Edano's aerial inspection was a gesture aimed at reasserting Tokyo's claims to the disputed chain.However, they believe Russia is unlikely to back off as ensuring control over those islands is an important part of its overall strategy in the Far East and even the Asia-Pacific region.Edano told reporters after the inspection the islands were closer to Hokkaido than he had thought, adding "people will show more interest in the issue once they understand this proximity."He also said Japan would like to have further discussions with Russia in "a calm environment."Earlier, Japanese Foreign Minister Seiji Maehara reiterated his government's stance on the disputed islands, saying they were legally sovereign Japanese territory.Maehara told a press conference that regardless of how many Russian dignitaries visited the islands or how much Russia's military presence grew in the area, the islands were originally Japanese territory from an international legal standpoint.In a statement released Saturday, the Russian Foreign Ministry said Russia hoped Japan would engage in calm discussions on the possible conclusion of a long-awaited peace treaty."Russia hopes that Tokyo will overcome this ambiguity, which can only disorient public opinion, and make a staunch final choice in favor of a calm, non-preconditioned, free from ostentatious public relations campaigns and reciprocal historical references, discussion on the peace treaty," the statement said.Russia and Japan have long been at odds over the islands, namely Iturup, Kunashiri, Shikotan and the Habomai rocks.The territorial dispute has prevented the two countries from signing a peace treaty following the end of World War II.In recent months, the row has escalated following a series of visits to the islands by top Russian officials, including President Dmitry Medvedev.BILATERAL TIES AT "WORST POINT IN DECADES"Maehara's hardline attitude on the northern islands has only incurred a counter-productive reaction from Russia. His Russian counterpart Sergei Lavrov warned that "when radical approaches to signing a peace treaty take over in Japan ...then talks have no prospects."In the hope of breaking the deadlock on the border issue, Maehara visited Russia on Feb. 10 and held talks with Lavrov, achieving no result except reiterating Japan's consistent stance on the issue.The islands have long been a choke point for the comprehensive development of Russia-Japan relations.Though both sides have shown a positive approach to their border negotiations, including some proposed solutions since the end of World War II, the dispute has basically remained unsettled.According to Kamitsuki Toyohisa, counselor for European Affairs at the Japanese Foreign Ministry, the relationship between Japan and Russia is currently "at its worst point in decades."STRATEGIC INTERESTSEarlier this month, Medvedev ordered the deployment of sufficient weapons to guarantee the security of the Southern Kurils, stressing they were "an integral territory" of Russia with strategic significance.He also called for effective efforts to attract more foreign investment for the isles, to accelerate their economic development and improve the living conditions of local residents.The uncompromising stance, said observers and analysts, stemmed mainly from the following three considerations.First, the geographical position of the Southern Kuril islands bears considerable geopolitical importance, underpinning Moscow's Asia-Pacific strategy.Were the four islands in Japan's hands, they could possibly be used by Tokyo and Washington to check Moscow. In that case, among other consequences, Russia would lose free access for its Pacific Fleet to the Pacific Ocean.The second factor is that, with the Asia-Pacific gaining increasing international influence, the Southern Kurils, as Russia's foothold in East Asia, have become the showcase of its presence and strength in the region.This helps Russia secure a bigger say in Asian-Pacific affairs and thus defend its big power status and national interests in the region.Finally, the islands have an abundance of natural resources, including biological resources, oil reserves and ore deposits. Polish foreign minister admits mistake by crashed plane crew crew of crashed Polish presidential plane clearly made a mistake when they tried to land in dangerous weather conditions, Polish Foreign Minister Radoslaw Sikorski said."Polish pilots clearly made a mistake, now matter how many times we deny it – they should not have landed in fog," Sikorski said.Then president Lech Kaczynski, his wife and dozens of high-ranking Polish officials were killed on April 10, 2010, when their Tu-154 plane crashed near the Russian city of Smolensk.Moscow-based CIS International Aviation Committee (MAK) released a report on January 12, citing pilot error as the main cause of the tragedy. Polish experts and officials have criticized the report, saying it did not consider all the evidence.The late president's twin brother criticized the pilot error version, saying that it "tarnishes Poland's reputation" and "offends Polish nationals."Polish investigators will deliver their own report in late March."Russians should be grateful if the Polish report demonstrates that the work of Russian air traffic requires changes. Russians are interested in making their flights safe," the foreign minister said."We have common interests. Problems begin when politics begins to interfere," he added.WARSAW, February 22 (RIA Novosti)Kremlin Chief of Staff May Run Foreign Intelligence (Correct) Henry Meyer(Corrects name of agency in headline and lead.) Feb. 22 (Bloomberg) -- President Dmitry Medvedev may name his chief of staff, Sergei Naryshkin, head of the Foreign Intelligence Service, or SVR, Vedomosti reported, citing unidentified administration officials. Naryshkin would replace Mikhail Fradkov, who may be appointed head of the Russian Chamber of Commerce and Industry, the Moscow-based newspaper reported today. Fradkov was a prime minister under former President Vladimir Putin. To contact the reporter on this story: Henry Meyer in Moscow at hmeyer4@. To contact the editor responsible for this story: Willy Morris at Last Updated: February 22, 2011 00:44 ESTFSB deputy director fired Andy Potts at 22/02/2011 11:17Vyacheslav Ushakov, deputy chief of the FSB security forces, has been fired by Dmitry Medvedev.But in a move which many had linked to the agency’s failure to prevent the Domodedovo terrorist attack, or to the on-going power struggle over illegal gambling near Moscow, the FSB's verdict is that the official, pictured above, left, was breaking internal rules.The initial statement from the presidential press service said Ushakov's dismissal was due to “admitted shortcomings in his work and violations of professional ethics”.SpeculationThat opaque wording prompted speculation that it was the president’s anger at transport security lapses, or official embarrassment over the casino scandal which had sealed Ushakov’s fate.But RIA Novosti reported that the FSB rebutted claims that airports or gambling dens lay behind Medvedev’s decision to wield the axe.“The decision was taken following a proposal from the Director of the FSB following the lack of respect Vyacheslav Ushakov showed for certain principles of conduct and the restrictions, prohibitions and obligations related to military service,” an FSB statement read.“He also violated a regime of measures imposed by the security services.“There is no direct or indirect connection between Ushakov’s dismissal and the illegal gambling in Moscow Region or the terrorist attack at Domodedovo.”The start of a purge?Ushakov’s dismissal could be the first of many, with Medvedev known to be unhappy about the gambling row and the way an inter-agency battle has gone public, gzt.ru.“Do not draw conclusions about innocence or guilt before the announcement of a court sentence,” he said.“There is even more pressure on the investigation because of the media. This is unacceptable!“Those who are involved in this will be dismissed, regardless or rank and titles.”And RIA Novosti quoted an unnamed security source saying that Ushakov’s departure was “long overdue”.“Following Ushakov’s dismissal there could be decisions about a number of senior officials in the FSB,” the source added.Long careerUshakov, 60, had been working in Russia’s security services since 1975.He became deputy director of the FSB in July 2003 and held onto his post in a 2008 reshuffle which saw Alexander Bortnikov take the top job.But it appears that Borthnikov was ultimately responsible for Ushakov’s departure.Medvedev Warily Chimes In on Turf War February 2011The Moscow TimesPresident Dmitry Medvedev carefully weighed in?Monday on?a turf war between the?Investigative Committee and?Prosecutor General's Office, which clashed over an?illegal gambling ring in?the Moscow region allegedly protected by?local police and?prosecutors.Medvedev called for?people linked to?the gambling den to?be punished, but also threatened to?fire officials who proclaim the?suspects guilty ahead of?a trial."Pressuring the?investigation by?employing mass media is unacceptable. Those caught doing this will be fired regardless of?their rank and?position," Medvedev said at?a meeting with top law enforcement officials in?Moscow.He also called for?an investigation in?a "quiet and?calm manner."The?Investigative Committee, separated from?the Prosecutor General's Office in?December, launched an?attack on?Moscow region prosecutors this month, linking them to?the gambling network.The?suspects denied all charges, and?the Prosecutor General's Office attempted to?close the?cases and?slammed investigators in?public statements.But it also suspended the?prime suspects, Moscow region Prosecutor General Alexander Mokhov and?his first deputy, Alexander Ignatenko, pending an?internal check, an?agency spokeswoman said Monday, Interfax reported.Investigators claimed earlier that the?alleged organizer of?the gambling den, Ivan Nazarov, paid for?posh birthday celebrations and?overseas trips for?Mokhov and?Ignatenko, as well as tours by?their subordinates and?family members. Nazarov was formally charged with fraud Monday. Mokhov reiterated Monday his previous claim that he has paid for?all his trips out of?his own pocket, and?said he has provided paperwork to?prove it to?Prosecutor General Yury Chaika.UK, Russia to launch UK Russia Year of Space 22, 2011 10:11 Moscow TimeRussia and the UK are due to launch Russia UK Year of Space, timed for the 50th anniversary of Yuri Gagarin’s space flight. The ceremony to launch the Year is due at the Russian Space Agency Roskosmos, where the agency chief Anatoly Perminov and British Minister of State for Universities and Science David Willetts will sign a joint statement on promoting the two countries’ cooperation in space exploration. The YuriGagarin50 Internet project has been drawn up as part of the Year of Space, with the authors urging the British to describe their impressions of their meetings with Yuri Gagarin when he visited the UK in 1961. A monument to Gagarin is due to be erected in London this coming summer.Rocket failure: Russian, Indian scientists differ on cause 11:20:00Chennai, Feb 22 (IANS) The mystery over the mid-air crashing of an Indian rocket in December continues with officials of the Indian space agency and experts from Russia, which supplied the cryogenic engine, differing on the possible cause of the rocket's failure. The Russians have pointed their fingers at the rocket's bigger heat shield (4 metre) as the proximate cause for high atmospheric load on the rocket that broke it. Refuting that theory, Indian officials cited an earlier GSLV rocket that went up with a heat shield of similar size. The Indian Space Research Organisation's (ISRO) 418-tonne Geosynchronous Satellite Launch Vehicle (GSLV) rocket (cost Rs.175 crore) carrying advanced communication satellite GSAT-5P (weight 2,310 kg, cost Rs.150 crore) veered off its flight path and began disintegrating within one minute after lift-off from Sriharikota in Andhra Pradesh Dec 25, 2010. 'The Russians have attributed the failure to bigger heat shield. However, we have established why it can't be,' former ISRO chief G. Madhavan Nair, who heads the failure analysis committee (FAC), told IANS. Till date the FAC has met thrice - the first meeting was in January and the subsequent two meetings were held Feb 7 and Feb 14 at Thiruvanathapurm in Kerala. According to the ISRO, the rocket's failure was due to the snapping of 10 connectors that carry command signals from the onboard computer to the control electronics of the four strap-on motors in the first stage. The German made connectors are fixed on a metal plate. The plate, in turn, is fixed to a shroud or cylindrical cover that comes between the cryogenic engine and the lower stage (engine). The shroud made of composites is part of the Russian cryogenic engine and it got deformed due to the flight load which in turn led to the snapping of the connectors. Experts told IANS that the first 15 kilometres of a rocket's flight is a very crucial time as it is subjected to heavy atmospheric loads. It is more so when the rocket is escaping the earth's gravitational pull at 330 metres per second. The flow of air along the rocket will be turbulent at the transonic speed - when the rocket crosses the speed of sound. At that point the air will attach to the rocket at some places and detach at some spots in a haphazard manner. According to Nair, there is no divergence of views between the ISRO and the Russians on the reasons for the connectors demating, that is, the shroud deforming during the rocket's flight. At the Feb 7 meeting, the Russians after analysing the data and the pictures provided by ISRO, agreed that the connectors snapped due to deformation of the shroud. However, they said the rocket suffered heavy atmospheric loads due to its bigger heat shield which in turn resulted in the deformation of the shroud. The Dec 25 GSLV's heat shield measured 4 metre diametre as against 3.4 metre diametre most of the earlier GSLV rockets had. ISRO officials argue that a rocket with a 4 metre diametre heat shield was flown in April 2010. Though the April 2010 rocket too went down into the sea as the Indian made cryogenic engine failed to power the rocket, ISRO officials said the failure happened only after the first two stages performed well. According to them, necessary calibrations have been carried out in the rocket's navigational systems, control dynamics and aerodynamics factoring the bigger heat shield carried by the GSLV rocket. Nair said ISRO's different teams are carrying out various experiments to arrive at the cause of load on the rocket. The Russians, on their part, told ISRO that they would revert after studying the data provided to them. (Venkatachari Jagannathan can be contacted at v.jagannathan@ians.in) 30 Canadian bison flying to Russia 22, 2011 10:49 Moscow TimeThe Republic of Yakutia, in the northeast of Russia, is about to receive 30 bison from the Canadian Elk Island National Park. The bison are due to be flown in by a charter plane in March for breeding, says the Yakutia Region administration. The animals will join the herd that was brought from Elk Island in 2006. Experts believe bison quickly get used to local climatic conditions, although the weather in Yakutia is by far harsher than in Canada. The programme aims at getting bison back to Siberia, where they lived 5,000 years ago.?? February 22, 2011 10:58Russian authorities are distorting situation over Yukos case - Khodorkovsky's lawyer. Feb 22 (Interfax) - Vadim Klyuvgant, a lawyer for Mikhail Khodorkovsky, has accused the Russian authorities of distorting the situation with the Yukos case."I think Mr. Sechin should say this to himself: separate facts from impudent and countless lies, which have surrounded the Yukos case from the very beginning to this day and which are being reproduced by the authorities, including top officials," Klyuvgant told Interfax on Tuesday, referring to Russian Deputy Prime Minister Igor Sechin's interview with the Wall Street Journal, in which he called for separation of "facts from politics and gossip" and said there were no expropriations in the Yukos case.av dpPutin invited to swap places with Khodorkovsky Andy Potts at 21/02/2011 17:28Within metres of Red Square, protestors hung a poster calling for Prime Minister Vladimir Putin to take Mikhail Khodorkovsky’s place in jail.The stunt, on Sunday afternoon, was captured by photographers and posted on LiveJournal. Their images showed the poster, titled “Time to change!”, hanging from Bolshoi Moskvoretskoi Most, which crosses the river next to Red Square.The poster, which was removed by police officers after hanging for more than half an hour, showed Putin behind bars next to a portrait of Khodorkovsky during his pre-prison days as Yukos chief executive.Need for changeRoman Dobrokhotov, leader of the “My” group, told Ekho Moskvy radio station that the image was chosen to symbolise Russia’s need for a new direction, AFP reported.“A symbol of change would be Putin … changing places with Khodorkovsky,” he said.Cops and coffeeAccording to fellow activist Ilya Varlarmov’s blog, the response from the police was somewhat sluggish.Writing on LiveJournal as zyalt, he said that for more than 10 minutes there was no official activity whatsoever, giving the organisers time to return to the poster and straighten out creases where the wind had caught it.Then he claimed that the first officers on the scene waited in their cars while they finished their cups of coffee, before joining security guards from the nearby five-star Balchug hotel to remove the banner.The Khodorkovsky questionFormer Yukos chief Khodorkovsky has become a touchstone for some sections of the opposition after two convictions which many claim are politically motivated.The Kremlin has always denied any involvement in the two trials, even though as recently as last week a court assistant said that judge Viktor Danilkin had a verdict dictated to him from above during the second case, which ended in December.However, the jailed oligarch is seen by many as an unlikely rallying point for revolution, with some feeling that Russia must have candidates to challenge the current elite.The commander of the emergency landed Mi-171 has received a suspended sentence. 22.02.2011, St. Petersburg, 9:50:50 in the Komi Republic, the court delivered its verdict in a criminal case against the commander of the Mi-171 Ukhta Branch LLC Gazpromavia in fact an emergency landing helicopter in December 2009. As the press service of the Northwestern investigation department of the transport of the Investigative Committee of the Russian Federation, the pilot found guilty of committing a crime under st.263 Part 2 of the Criminal Code (violation of traffic safety and operation of air transport, which negligently caused human death and the infliction of serious harm to human health). Convict sentenced to 2 years imprisonment. The sentence came into force. Recall the aircraft, which was carrying 22 employees of Ukhta branch of Gazprom drilling and three crew members, at about 15:00 MSK December 19, 2009. made an emergency landing in the tundra about 700 yards from the mine "Vorkuta". The helicopter, flying from Bovanenkovo in Vorkuta, could not reach the destination of the order of 4.5 km. With a strong contact of the vessel to land one of the passengers suffered injuries, from whom subsequently died. Another man on board was seriously injured. February 22, 2011 10:04Man trying to sell bomb detained in Moscow region. Feb 22 (Interfax) - A 47-year-old man was detained by police near the village of Zaitsevo in the Serpukhov district of the Moscow region while trying to sell an improvised explosive device, a source in law enforcement services told Interfax."Recently police officers established contact with a potential arms dealer and, posing as clients, offered him a deal," the source said.The man was detained while handing over the order, he said.A gas gun adapted to fire combat cartridges, as well as an improvised explosive device made from an artillery shell planted in an iron bucket filled with construction foam with wires attached to it were confiscated from him, the source said."Similar explosive devices have been used by members of armed groups to commit terrorist attacks in the North Caucasus on a number of occasions," he said.tmAbu Dhabi Royal to Invest in Chechnya as Putin Pushes Rebuild Henry Meyer, Zainab Fattah and Ilya ArkhipovFeb. 22 (Bloomberg) -- Royal Group, run by the brother of Abu Dhabi’s ruler, may invest several hundred million dollars in housing and agriculture projects in Chechnya, said Ramzan Kadyrov, the Russian region’s leader. Royal Group, which invested in Al-Reem, a $60 billion man- made island project in Abu Dhabi, recently sent a delegation to the region, Kadyrov said in an interview with Bloomberg News in Moscow on Feb. 19. “We proposed some projects to them and they really liked them,” said Kadyrov, who has spearheaded Russian Prime Minister Vladimir Putin’s campaign to rebuild infrastructure devastated by two wars since 1994. “They said they are ready to participate in building homes and in the agricultural sector.” Russia is trying to lure investment to the North Caucasus region, which has seen almost daily attacks on government officials and police. With the Winter Olympics taking place in the nearby resort of Sochi in 2014, Putin has tried to drum up investment in the mostly Muslim region. “The federal government is trying to attract investments although Chechnya isn’t normally the kind of place where businesses would like to put their money,” said Nikolai Petrov, an analyst from the Moscow Carnegie Center. ‘$100 Million’ Royal Group will spend as much as $100 million in the first phase of a housing project, said Samia Bou Azza, a spokeswoman. The total value “may go up in different phases” and the company is considering investment in livestock, the dairy and power industries, she said by phone yesterday. The plan is part of growing interest in Russian investment in the Gulf region. United Arab Emirates investors, including Gulftainer Company Ltd., a port operator in Sharjah, and Dubai- based Damac Properties last year agreed to spend $800 million in Russia. The deals were sealed during Putin’s investment forum in Sochi. Verno Capital, a Moscow-based hedge fund, in November won a mandate to manage $100 million for Abu Dhabi sovereign wealth fund Mubadala Development. HYPERLINK "" Roland Nash in December quit after 14 years as chief strategist of Renaissance Capital to join Verno in the same capacity. The Chechen leader, 34, said he first discussed investment opportunities at a meeting in June last year with the crown prince of Abu Dhabi, Sheikh Mohammed bin Zayed Al Nahyan. He then met Sheikh Tahnoon bin Zayed al Nahyan, who is chairman of Royal Group and another son of Abu Dhabi ruler Sheikh Khalifa Bin Zayed Al Nahyan, last year. Royal Group is active in media, trade, financing, real estate, manufacturing, construction and technology. 2009 Murder One of Kadyrov’s aides, Adam Delimkhanov, is wanted by Interpol for allegedly masterminding the March 2009 murder of a leading rival of the Chechen president in Dubai. Sulim Yamadayev was gunned down in an elite seafront housing complex, in a high- profile case for the main business and tourist hub in the Gulf, a popular destination for wealthy Russians and other foreigners. Dubai authorities tried two men for the murder, including an Iranian who worked as a groom for Kadyrov’s horses in the city state. After they were convicted of the crime and sentenced to life imprisonment, a Dubai court in December reduced the prison term to 27 months; with time served, they are due for release in mid-2011. The cases of other suspects in the murder are being reviewed by the court and decisions on whether to pursue suspects through Interpol depend on the judgments, Major-General Khamis al Mazinah, deputy commander of Dubai police, said by phone yesterday. ‘Friend and Brother’ Kadyrov said accusations against Delimkhanov, whom he described as a “friend and a brother,” are “untrue” and “unfounded.” According to Dubai police, the Kadyrov aide arranged the delivery of the murder weapon, a gold-plated Makarov pistol. The potential business ties between Abu Dhabi and Chechnya show the controversy surrounding the murder is being forgotten, said Petrov at the Carnegie Center. Abu Dhabi and Dubai are the two biggest members of the United Arab Emirates, the second-largest Arab economy. In 2004, another Gulf state, Qatar, allowed two Russian agents to return home after sentencing them to life for the murder of a former president of breakaway Chechnya, Zelimkhan Yandarbiyev. To contact the reporters on this story: Ilya Arkhipov in Moscow at iarkhipov@Henry Meyer in Moscow at hmeyer4@. To contact the editor responsible for this story: Willy Morris at wmorris@ Last Updated: February 21, 2011 16:00 EST22 February 2011, 10:01Medvedev thanks traditional religious leaders of North Caucasus for fight against radicals, February 22, Interfax - The fight against terrorism will continue in Russia, President Dmitry Medvedev said."Concerning our fight against terrorism, there is only one thing I would like to say. The scum cannot be handled otherwise. The fight against terrorism will be continued, and the murderers, those who are still alive and on the run, will definitely not escape punishment," Medvedev said at the presentation of posthumous awards in the Kremlin.Medvedev also said that he would like to thank the Muslim clergy of the North Caucasus "for their commitment to peace and inter-confessional accord in the region."The president on Monday presented the Order of Courage to the families of four North Caucasus clerics, killed by extremists.All of them had been threatened by extremists many times, Medvedev said.The lives of the clerics killed were entirely devoted to preaching peace and accord, he said.Putin to seek 2050 gas 'roadmap' on Brussels visit: 22 February 2011Russian Prime Minister Vladimir Putin, who will be in Brussels on 24 February, will seek long-term special arrangements for his country's gas supplies to the EU, various speakers said yesterday (21 February). Vladimir Chizhov, Russia's envoy to the EU, warned that the talks could be "unpleasant".Several statements by Russian gas officials appear to indicate that Putin's visit to the EU institutions could mark a turning point in Russia's decades-long relationship with the EU as a gas supplier.Russia could sign a "road map" of natural gas supplies until 2050 with the European Union, Russian energy monopoly Gazprom's CEO Alexei Miller was quoted by the Russian press?as saying yesterday (21 February).Miller said that the issue was expected to be discussed over Putin's visit to Brussels, including "clarifications" regarding the Commission's 'third package' of proposals to further liberalise the EU's energy market (see 'Background').'Unpleasant' talksSpeaking to the press yesterday, Vladimir Chizhov, Russia's ambassador to the EU, said that he expected the discussions between Putin and his Brussels counterparts to be "detailed", but also "possibly unpleasant"."Some EU countries have chosen the most strict version of the energy package," he said, adding that such an attitude could lead to the nationalisation of gas infrastructure and raise new obstacles for Russian business in the EU.In an article published in Russian media, Valeri Yazev, president of Russia's Gas Society, described three possible versions of the third energy package. According to the most strict of these, suppliers would have to sell their gas transport business. A second possibility is that companies are not split up, but an independent operator is appointed for the transport infrastructure, the activities of which are limited to one country. The third possibility is that the company is not split, but a special board takes responsibility for its 'independent' decision-making.Risk means higher pricesReportedly, Lithuania is planning to split its gas company Lietuvos Dujos, in which Gazprom is a shareholder, into a transport and a trade component, with the trade company remaining under the control of the government. Gazprom says the government of Lithuania is only seeking an excuse to nationalise the company.Yazev, who is also deputy chairman of the Russian State Duma (the lower chamber of parliament), said that such an attitude implied "risks" for Gazprom and therefore gas prices for Lithuania would be increased.He added that Russia would before the visit send an official letter to the European Commission, asking it to introduce corrections to the "third package".The Russian Gas Society president told the Russian press that the 'third package', which enters into force on 3 March, would cause Gazprom "direct economic prejudice" and for this reason, Moscow would ask for the "rules of the game" to be changed.The Russian official said that the loss of the rights of the supplier, Gazprom, were intended for the sake of market liberalisation. However, he added that Gazprom is doubtful that market liberalisation in the EU is something that is achievable in the foreseeable future. He also argued the supplier could not lose its supply network without any compensation."As the matter of fact, the Russian company would be deprived of the right to use a gas transport network it had been establishing in Europe for a long period of time for the purpose of achieving the same energy security the 'package' talks about," he said.Nord Stream loses one pipeSpeaking to the Brussels press in a video conference yesterday (21 February), Yazev also made clear that the new EU rules would disrupt Russian investments both in prospecting and building pipelines. He added that the "third energy package" was in fact undermining energy security in Europe.Yazev said that the EU rules were demotivating Gazprom from investing in pipeline infrastructure and gas storage. He cited as an example plans for a second parallel pipe of the Nord Steam pipeline project, linking Russia offshore to Germany, which he said had been suspended.Gazprom would have to reassess its long-term supply contracts with European clients, with regard to the location of delivery and the conditions of delivery, Yazev said. The present practice is that Gazprom sells its gas to European customers.If Gazprom were to move from long-term contracts to sales on spot markets, in the short term prices may go down, Yazev admitted. Long-term gas supply contracts between Gazprom and European customers are pegged to oil prices within a futures market. Gas spot market sales concern immediate deliveries of liquefied natural gas (LNG).But Yazev added that under the spot market system, in the longer term, when demand for gas in Europe has increased, Russia would not be able to respond to that demand, as it would have not invested in new gas fields such as Shtockman or Yamal.He also warned that spot price sales would push Russia to coordinate its gas price policy with gas producers in the Middle East or in northern and western Africa, and as a result prices were more likely to increase. Gas exporting countries, including Russia, already meet in a format known as GASPEC."The third energy package must function from the place where pipelines end, instead of covering them. This is one of the fundamental proposals which we must fight for," he said, referring to Putin's visit to Brussels next Thursday.On the spot In the meantime, it was reported that German utility E.ON Ruhrgas AG has requested that its Russian gas purchases be linked to the spot price. The Wall Street Journal quoted Sergey Komlev, head of Gazprom's export price formulation department, who strongly objected to the change in the sales practice."They [E.ON Ruhrgas] have made a proposal. We don't agree with it," said Komlev. "Our position on this is very firm."CORRECTED-(OFFICIAL)-EU energy laws threaten gas pipeline- Yazev Feb 22, 2011 8:29am GMT(Corrects misinterpretation by Yazev's translator in headline, snap and paragraphs 1, 4 in story published on Monday to clarify that an inland pipeline, which connects to Nord Stream, is yet to be approved. Adds background paragraphs 5, 6.)BRUSSELS Feb 21 (Reuters) - European plans to liberalise energy markets have undermined Russian investments and pipelines linking the Nord Stream gas pipeline to Germany, Russian Gas Society President Valery Yazev said on Monday.The EU's liberalisation laws seek to improve competition in energy markets by breaking up gas and electricity monopolies to allow smaller companies to gain easier access to infrastructure.That means imposing limits for gas suppliers on how much infrastructure they are allowed to own."There will be two pipelines (linking the Nord Stream in Germany), OPAL and NEL. One is under construction, the second is not. Because its construction is being blocked by the adoption of the (EU's) Third Energy Package, it has lost its investment attractiveness," Yazev told reporters in Brussels by video-conference.Last year, Germany's energy regulator exempted from regulation the OPAL pipeline project, which would transport Russian gas arriving via the Baltic Sea, but threw out a similar request by NEL, another project.OPAL is designed to transport gas via Germany to the Czech Republic, while NEL was due to end in Rehden in north Germany.Yazev, who is also deputy chairman of the Russian State Duma, said Prime Minister Vladimir Putin would raise energy issues during a visit to the European Union's headquarters in Brussels on Thursday.His society is pushing Russian negotiators to obtain exemptions from liberalisation during the visit."We submitted our propositions to the Russian committee which is in charge of holding a dialogue with the European Commission about energy -- one of the fundamental propositions is that the investments should be secured that have already been made by Russian businesses," Yazev said via a translator.Yazev said Lithuania and Poland appeared to be interpreting the laws in a literal fashion, which he said could lead to higher prices for gas supplies from state-owned Gazprom (GAZP.MM)."Poland and Lithuania opt for a very straightforward way -- they believe Gazprom should get out of the shareholder structure of the projects," he said."There are certain risks... The prices for Lithuania would be increased, because of more risks," he added.(Reporting by Pete Harrison, editing by Anthony Barker) Vladimir Putin and the people's Prime Minister is feared in the West – but adored at home, says Mary Dejevsky. Is the reason we don't trust him that we don't really understand him?Tuesday, 22 February 2011Later this week, the Russian Prime Minister will be in Brussels – to which you might well respond wearily, "Big Deal". EU-Russia meetings at this level take place every year and soon become non-events, even if they avoid descent into recriminations. This time, however, a real "Big Deal" might not be far off the mark. Russia has spent the past few months signalling that it would like to see relations with the EU shifting from the tetchy political arena to Russia's economic modernisation, and the Prime Minister will have with him a large delegation of ministers and business people to that end. As always, there will be many obstacles to the sort of hi-tech investment Russia is after – not least the recent re-conviction of the country's erstwhile richest man, Mikhail Khodorkovsky, which, to put it mildly, dampens confidence in the business climate and Russian justice. But perhaps the biggest obstacle will remain unspoken. The outside world, but especially Europe – and within Europe especially Britain – has a problem with Russia's Prime Minister, Vladimir Putin.His image is that of a hard man, a foe of democracy who has speeded his country back to Soviet-era restrictions and Soviet-era ambitions, and it reinforces all the historical fears and suspicions harboured by Westerners about Russia. Where many people in the West see someone only a little short of a dictator, keeping his freedom-loving fellow countrymen in thrall, however, this is not how he is seen by most Russians. In his homeland, he has managed the unlikely feat of remaining hugely popular through two terms as President and almost one as Prime Minister, an economic crisis, a series of bomb attacks, several natural and man-made disasters, and a small, not entirely successful, war. Rarely in living memory can there have been such a discrepancy between the image of one leader at home and abroad. Why is there such a gap? The answers expose some of the outside world's many misapprehensions of today's Russia, as personified by Vladimir Putin, and they fit loosely into two categories: who he is and what he has done (or thought to have done) with his power. Among the darkest shadows that hang over Putin in Western eyes is his career in the Soviet KGB – and his subsequent brief period as head of its post-Soviet successor, Russia's FSB. This past has dogged him ever since Boris Yeltsin unexpectedly threw him the reins of power on the last day of 1999. As President, his name is rarely mentioned in foreign reports without an allusion to his work for the KGB. Such a judgement makes two assumptions, neither of them entirely valid in Russia. The first is that a KGB career was of itself negative. In Soviet times, KGB officers were seen in many quarters as honourable and intelligent – more so than the common or garden police – and the service set high standards for its recruits. Influenced in part by films showing James Bond-style derring-do, but also as he saw it by the demanding honour code, Putin aspired to join the KGB from an early age – and he was not immediately accepted. As a school-leaver, he was told to go away and get a university degree first (which he did). The other assumption is that "once a KGB man, always a KGB man" – that the culture and the priorities stick. Putin spent 16 years in the KGB, the last few in what was East Germany. Yet the level of his appointments suggest that he was nowhere near the top of the tree, nor seen as likely to get there. Nor was the KGB the elite corps it had been in its heyday. Even so, for a dyed-in-the-wool career officer, Putin did something highly unusual. After the fall of the Berlin Wall, but with the Soviet Union's collapse not yet in sight, he upped and resigned, choosing to work for one of the most progressive and anti-KGB leaders in the whole of Russia: the mayor of Leningrad (soon to become St Petersburg), Anatoly Sobchak. Now you might argue that he did this as part of an undercover operation orchestrated by the KGB, though there is not a shred of evidence for this. More realistic would be to see here a man who needed to feed his family and understood that the KGB no longer offered a steady job with prospects. But he could have chosen many less radical masters than he did. In deciding to serve Sobchak, Putin actively changed sides. Ah yes, his detractors say, but when he became Russian president, he brought in all his mates from the KGB and so turned post-Soviet Russia into a latter-day KGB state. By their friends shall ye know them. But this is not quite true either. Anyone who finds himself propelled to the top job without a power base needs reliable people around him, and Putin's coterie was bound to include ex-KGB men. And it should be noted that when Putin came to pick a successor, he did not take what might be seen as the "safe" KGB option. Dmitry Medvedev has no background in the security services at all, and not even his worst enemies allege that he has. Most Russians do not see Putin primarily as an ex-KGB man – and those who do would not all regard it as a negative. They see him rather as the feisty President who brought order to the chaos left by Yeltsin, ensured that their salaries were paid, and presided over the fastest rise in living standards Russia has ever experienced. However cynical Russians are today, very few would argue that they are worse off now than they were before 1992 – or even 2000. "It's the economy, stupid," is as valid in Russia as it was for Americans when they elected Bill Clinton. What is more, Russians generally like Putin, and not just because they see him as a strong man, who does not allow himself, or Russia, to be messed around with by arrogant foreigners. They like the fact that he behaves and reacts as they do: sometimes crudely and unguardedly. They acknowledge a shared experience: almost 30 years of constant change and unpredictability from which his presidency brought a period of welcome respite. And they like his summer-holiday showmanship – last year's yellow-Lada road-trip across Russia's Far East; the hunt for the Siberian tiger, the bare-back riding through the wilderness, the polar bear. His fantasies in many respects match theirs. This may be wearing off: Blueberry Hill sung to a celebrity-filled hall may have been a stunt too far, even for charity. But Putin – a boy from a modest background, whose elder brother died during the Siege of Leningrad, who grew up in a "communal" (shared) flat, and became a judo ace to thwart school bullies – had lived a life that struck a chord with his fellow-countrymen. Like them, he was a product, and a survivor, of great change. Even those who can just about stomach who Putin is and understand the transitional Russia that made him, nonetheless condemn the way in which they believe he has used his power. The charge sheet is long, and not all his detractors would sign up to every clause, but here is a summary. He contrived, they say, to reignite the conflict with the Chechens, then waged it mercilessly, first to secure his election as President in 2001, and then to show Russia who was boss. He backtracked on the democracy and human rights that Yeltsin had introduced, closing independent television channels, banning the activities of many non-government organisations, sanctioning the murder of critical journalists (Anna Politkovskaya, for one) and outlawing many pro-democracy demonstrations. An autocrat, he set out to build a structure of power, known as the "vertikal" or pyramid, that would centralise all power with him. To that same end, he abolished direct elections for local governors. He would brook no opposition to his personal power, which is why he had the oligarch and head of Yukos, Mikhail Khodorkovsky, imprisoned. He authorised the pursuit and murder of enemies overseas (a prime example being the polonium poisoning in London of Alexander Litvinenko). His great ambition was to reconstitute the Soviet empire – hence the regular winter gas disputes with Ukraine and the 2009 war with Georgia, which were all about enforcing an exclusive zone of influence. In sum, he was a Soviet leader in spirit, who wanted nothing better than a return to fighting the Cold War. Now, it should be said at the outset that the prevailing Western view of many of these actions, and the prevailing Russian view, are quite different. Where we might see heroic Chechens pressing their just claims for nationhood against an imperial enemy, many Russians see a dangerous nuisance that can only be tamed inside Russia. Oligarchs, but especially Jewish oligarchs (which is very many) are highly unpopular in Russia and did not need Putin to make them so. The idea that Khodorkovsky would be electable in a contest with Putin, however free and fair the terms, is simply ludicrous. The same applies to the indefatigable opposition campaigner and former chess master, Gary Kasparov. And where many Westerners saw a glorious era of freedom under Yeltsin, many Russians experienced material chaos in a country humiliated by its drunken leader. After this, Putin was seen as restoring not only order, but national dignity. Nor would most Russians see another side to the gas dispute with Ukraine or the Georgia war. Like it or not – and many foreigners chose not to like it – Russia had a defensible case in both instances. Ukraine failed to make contracted payments and Georgia attacked the Russian-backed enclave South Ossetia. That a less clumsy approach might bring the desired result with less cost, both in money and reputation, is something post-Soviet Russia seems only now to be starting to learn. Putin was lauded for doing the right thing in defending vital national interests. In other respects, the defence of Putin is more complicated. This is partly because there are genuine disagreements about human rights, and an aggrieved sense in Russia that many Westerners apply a double standard. Partly, too, because – in, for instance, the killing of journalists or political foes, direct blame may not attach to the President, but responsibility for creating a certain climate of permissiveness surely does. Yet the charge that Putin is anti-democratic and power-hungry – for Russia and for himself – represents a very particular misunderstanding. Looked at from Russia, there is no way in which Putin is expansionist. His remark about the collapse of the Soviet Union being "one of the greatest geopolitical catastrophes of the century" reflected a widely shared view among those Russians who remember when the Soviet Union was a superpower. It did not mean that Putin was out to rebuild the Soviet empire. On the contrary, he has signed border treaties with almost every one of Russia's neighbours. The task he inherited from Yeltsin was to accustom one-time Soviet citizens to being Russians again. As for the suggestion that he is personally hungry for power, this is not what his – only moderately successful – attempt to create a "vertical" of power denoted. He inherited a situation in which administration of all kinds was fragmenting. His centralising efforts were widely interpreted abroad as self-aggrandisement. But they reflected not the strength of state and presidential power, but its weakness. Any personal lust for power is also belied by Putin's choice three years ago. Despite his enormous popularity, he rejected a proposal from the Duma (Russia's parliament) to amend the constitution so that he could stand for a third presidential term, insisting that if the President flouted the constitution, this would be a defeat for the rule of law. Some insist that he has continued to rule vicariously through his protégé, Medvedev, but if this was ever true, it is becoming less so with each passing month. In theory, he could stand for another term in next year's presidential elections, but the hands-on managerial nature of the prime ministership may well appeal to him more. So there is a defence of Putin to be made. And it is, rightly, argued that – unlike certain regional officials – he had no need to rig an election, because he could sail to victory. But it has also to be said that not all Russians feel an affinity with their erstwhile President and now prime minister. A visceral hatred resides in the more rarefied echelons of the intelligentsia, reminiscent of that felt by some Britons for Margaret Thatcher. Many of their misgivings match those of sceptical foreigners – on democracy and the rival claims of freedom and stability – but there is also a strong streak of snobbishness. They dislike his brand of Russian, which they feel to be plebeian and coarse. They find it hard to understand why someone they regard as a social and intellectual inferior should represent them and their country in the world. They make common cause with those in the West who regard Russia as a bully smarting from post-imperial nostalgia, and their negative views reinforce each other. Such judgements will be harder to sustain if Dmitry Medvedev becomes a second-term President, as is possible in elections next year. And if he does, it will probably be forgotten that without the patronage of Putin, the all-blogging, all-Tweeting lawyer from a secure family of academics would not be where he is. The post-Soviet transition will finally be complete.February 22, 2011Is Vladimir Putin the Unlikely Ally of Sea Shepherd Conservation Society? Mamchur"Did 'Whale Wars' end whaling? Sure sounds like it" reads the title of the FoxNews report. And just a few months ago, two news articles were titled "Vladimir Putin and World Bank chief stage summit to save the tigers" and "Tiger Summit raises $330 million and concerns." The high-profile conservation conference called by Russian president Vladimir Putin and World Bank chief Robert Zoellick mobilized political, financial and celebrity support behind a goal of doubling the number of wild tigers by 2022, continued the report. The summit took place in Putin's hometown St. Petersburg in November 2010."What's the connection?" you may wonder. The major one is best communicated by these two headlines: Russian border guards fire at 2 Japanese fishing boats off Kunashiri and 20 bullet marks found on fishing boats after shooting by Russians. There is also a minor "personal" connection: Sea Shepherd Conservation Society is based in Friday Harbor, WA, next to my favorite Orcas Island, and a three-hour commute away from Discovery Institute's Seattle headquarters (by car and ferry; Friday Harbor is on San Juan Island).In the past few years, Sea Shepherd went above and beyond. They outdid Greenpeace by actually getting involved and doing something about the murder of whales by the Japanese in the Southern Ocean sanctuary, and by showing PETA that an organization--in fact--can actively protect animals and get media on its side without crossing the law and alienating the society.All the political zoo around the Kuril Islands aside, Vladimir Putin loves animals and fish. Putin's pet is a tiger. Another tiger in Putin's life lives thousands miles away. Amur tigress Serga, who was given a GPS tracking collar by Russian Prime Minister Vladimir Putin two years ago, has given birth to three cubs about four months ago, reports RIA Novosti. Under Putin, the harvest and sale of black caviar was banned in Russia in 2007 but resumed in 2010, limited to 150 kg (330 lbs). The limits have been strictly and successfully enforced.Unlike the Sea Shepherd's vessels, Russian coast guard boats have guns and are allowed to use them on illegal fishing boats in the Russian waters. There have been dozens of cases when Russian Coast Guard fired at illegal Japanese fishing vessels, detained the sailors, and confiscated the ships. Sea Shepherd's supporters would be proud to know that, unknowingly, Russians are their allies, and Putin is their supporter. If Sea Shepherd runs into troubles obtaining the registrations for their vessels in Denmark or Australia (per so-far-unsuccessful Japanese demands), Russia would be a good place to shop for the registration renewals.Life raft from missing Amethyst trawler found near Kamchatka, February 22 (Itar-Tass) -- A life raft from the Amethyst trawler reported missing since February 11 has been found near the Kamchatka coast in the Sea of Okhotsk, a source in the Kamchatka territory administration told Itar-Tass on Tuesday. The raft was spotted by the Kirovka trawler some 100 kilometers off the Amethyst location before contact with it was lost. No one of the Amethyst crew have been found so far. Contact with the Amethyst was lost on February 10. The next day, for the last time the data were received about the location of the ship in the Shelikhov Gulf off Kamchatka’s western coast. The search involving almost all the fishing fleet in the area, helicopters of the Russian Emergencies Ministry and the Kamchatka Airlines and aircraft of the FSB and the Pacific Fleet was launched on February 12. The trawler belonging to the Kamchatka Scientific Research Institute of Fishery and Oceanography and registered in the port of Petropavlovsk-Kamchatsky caught crabs in the sea. Its crew on board numbers 23 people. Electricity failure leaves 70,000 Vladivostok residents without water supplies, February 22 (Itar-Tass) -- An electricity failure has left some 70,000 in several districts of the Russian Far Eastern city of Vladivostok without water supplies, a spokesman for the local water utility, Primorsky Vodokanal, told Itar-Tass on Tuesday. According to the spokesman, a water pumping station feeding Vladivostok’s most populated districts with water was cut off electricity supplies after a break of an electricity transmission line overnight to Tuesday. Repair works are underway. Water supplies are expected to be resumed within the day. Police are probing into the accident. Mt. Elbrus’ Slippery Slopes’s Insurgents Have Changed Their Tactics – Do the Authorities Think It Is Time to Change Theirs?By Tom Balmforth Russia Profile 02/21/2011 The Russian security services on Sunday beefed up security in two parts of the southern region of Kabardino-Balkaria with a new “counterterrorist operation” regime, in response to a rash of insurgent attacks directed at tourists over the weekend. Analysts say that the insurgents were not just trying to blight the region’s fledgling tourist industry, but were also trying to deal a blow to the preparation for the 2014 Olympic Games in Sochi.On February 18 insurgents opened fire on a minivan carrying tourists from Moscow on a highway in the Elbrus region, killing three Russians and hospitalizing two. The following day, a car laden with explosives equivalent to 70 kilograms of TNT was discovered next to a hotel in the nearby town of Terskol. The three homemade bombs in it were defused before they detonated, but a police spokesperson later said it would have been “impossible to avoid a considerable number of victims and considerable destruction” had they gone off. Hours later, a cable car at the foot of the highest peak in Europe was blown up, although no one was injured. The most recent spike in terrorist attacks in the troubled republic is the latest incidence of a growing trend in Kabardino-Balkaria in recent years. Last November the Russian Interior Minister Rashid Nurgaliyev said that terrorist crimes rose five times in the predominantly Muslim republic of 900,000 in 2010 alone. HYPERLINK "" \t "_blank" Kabardino-Balkaria was also rocked last year by an explosion at the Baksanskaya hydroelectric power station in July, at the time seen as a bold attack on the region’s ailing infrastructure. The latest shift in the terrorist strategy, which appears to be targeting the tourism industry, will undermine the local government’s program to stimulate the region’s struggling economy, said Irina Borogan, a security expert and deputy editor of the Agentura.Ru Web site. “Everyone knows that huge amounts have been invested. Attacking tourists is the best way to halt the tourism industry’s development in the North Caucasus.” The assailants may also have been trying to draw attention to the problems of security in the tourism industry as the authorities start to worry about the Sochi 2014 Olympic Games, said Nikolai Petrov, an expert in regional politics with Carnegie Moscow Center. Petrov pointed to last week’s government meeting dedicated to the Sochi games, which came a day before the spate of attacks. President Dmitry Medvedev and Prime Minister Vladimir Putin personally visited the ski resort at Krasnaya Polyana, where a test run was later supposed to take place. In the end, it was abandoned due to heavy snowfall, although the visiting chair of the International Olympic Committee still gave the games’ preparation his full backing.? Medvedev in January ordered five resorts to be built in the region at a projected cost of $15 billion, and the North Caucasus’ mountains already boast a famous ski resort at Elbrus.? However, continuing violence and instability have prevented a steady stream of tourists from visiting the region, and even the recent appointment of Alexander Khloponin as the Presidential Envoy to the North Caucasus, which had produced some optimism among analysts, has had little to no positive effect.By Monday the insurgents had already appeared to have got their way when Khloponin told tourists to stay away from the republic while the counterterrorist operation is ongoing. The Agentura Web site writes that the weekend attacks show that the republic’s President, Arsen Kanokov, has had little success fulfilling his campaign pledges from 2005 to expand the local tourism industry. The terrorists may lose what little credibility they once had among the local population, however. “The insurgents in Kabardino-Balkaria have always said they do not harm peaceful people. The only exceptions to this were people going into the woods who they said they would assume were FSB agents. Now they’ve changed tactics to firing at tourists and locals,” said Borogan. In the Kabardino-Balkaria insurgency there is thought to be more of an ethnic component than in the pan-Caucasus Islamized jihad avowed by Doku Umarov, the terrorist who claimed responsibility for the January bombings at the Domodedovo Airport in the Moscow Region. Historic animosity between the two dominant ethnic groups in the region, the Balkars and the Kabardins, has been aggravated by the region’s leaders both being Kabardins, most colorfully illustrated when a small band of Balkars came to Moscow to petition the federal authorities to intervene in a local dispute over land rights. Petrov played down the relevance of the ethnic question to the weekend’s attacks.While Authorities Say That the Middle Class Will Account for the Majority of the Russian Population by 2020, Critics Say It’s Impossible Svetlana Kononova Special to Russia Profile 02/21/2011 Russia is a country of social contrasts. It has the third highest number of millionaires in the world, after the United States and Germany. At the same time, 80 percent of the population still has a monthly income of less than 25,000 rubles ($860), official statistics show. Such disparity is potentially dangerous, and could lead to social unrest in the future. The authorities are resting their hopes for social stability on the development of a stronger middle class, which they expect to grow to 60 to 70 percent of the population by 2020. But experts are much less optimistic.Some analysts believe that there is no middle class in Russia. Others say it does exist, but differs greatly from the middle class in Western countries. “Middle class is not just about income level. In Western Europe and the United States, people who belong to the middle class are also usually well-educated. They own some property and earn a living either as highly-skilled professionals, entrepreneurs or through self-employment. They are financially independent from the state and can influence politics. And they are the majority of the population. But the situation in Russia is not the same,” said Marina Krasilnikova, the head of the Income and Consumption Research Department at the Levada Center.“Most people in Russia are still poor. The number of people with a higher income, who would meet the middle class criteria in the West, is very limited. Some researchers believe that such people account for no more than seven percent of the population in the country. Others estimate this group as 20 percent of population. But even those people with relatively high incomes may still behave like their poorer countrymen. They spend their money on food and clothes, but do not invest it in education or services. They are very loyal to the authorities and are not interested in politics,” Krasilnikova added.Historical circumstances have created a very specific “post-Soviet mentality” in Russia. This mentality does not encourage long-term future planning, investments, saving or even living an active life. Secondly, according to experts, most high-earning Russians are fully dependent on the state. “Most of these people are employed by the state or work for large state-owned corporations. The number of independent professionals who work for themselves is very limited in Russia. Therefore, the values of the so-called middle class in Russia are the same as the values of their poorer counterparts,” Krasilnikova said.Krasilnikova is quite skeptical about predictions of a rapid growth in the middle class in Russia. “It’s true that a middle class can exist only in democratic countries with developed civil society institutions. But unfortunately, Russia is still not such a country. Social mobility does not work here. A good education does not guarantee a good job and a high income. There are many well-educated people in the country whose work is badly paid,” she said.Recent research conducted by the Ancor recruitment agency found that most well-educated professionals believe the only way they can move up the social ladder is by moving from small towns to big cities, or moving from Russia abroad. The number of people who want to become an entrepreneur or co-owner of a business has also halved since 2007. “The unwillingness of respondents to run their own business can be explained by the consequences of the economic crisis in Russia. The state only supported large companies during the crisis, while most medium-sized and small businesses were forced to solve problems using their own resources, or even close down. Managers therefore understood all the risks involved in creating and running their own business, and probably decided not to commit to such obligations,” said Anna Dobryakova, the director of Ancor Banking and Financial Services. “But moving from the regions to the center gives employees opportunities for professional growth, successful career building and improving their social status and income.”So the Russian middle class, if it indeed exists, is expanding due to continuing urbanization and not through the development of small businesses.Research conducted by Troika Dialog shows just how different the middle class in Russia is from the middle class in Western countries. After interviewing 2,000 members of the middle class aged between 25 and 45, who have an average monthly consumption of $1,100 per person and live in 150 Russian cities, Troika sketched a profile of a typical member of Russia’s middles class. The results reveal many interesting trends. Firstly, Russia’s middle class has limited savings. More than a third of respondents said they do not have any savings at all. A quarter of those surveyed save ten to 20 percent of their incomes, and only 17 percent save more. The rest save less than ten percent. This volume of savings could cover living expenses for just a few months. In most cases, this money is saved in cash or in ruble bank deposits. “Russian middle class representatives are very conservative in their investments. Only a few of them have shares, mutual funds and bonds. Even people whose savings can last for more than one year use market-based instruments very rarely. Only one fifth of them own shares, and ten percent own mutual funds,” said Andrew Kuznetsov, a strategist at Troika Dialog. However, many participants in the Troika survey said they plan to buy shares in the future.The second basic difference between the Russian middle class and its Western counterpart is housing. Only 12 percent of respondents rent a flat, and only seven percent have a mortgage. Others said they live in flats or houses which belong to them or their relatives. More than a third of respondents do not have children, but live in a household with at least three people. This means that living with parents is still common in Russia even for people whose incomes are above average. “But more than a half of these people plan to take out a mortgage in the future, so this market has good prospects in Russia,” Kuznetsov said.The third typical characteristic of Russian middle class behavior is extensive spending. While over a quarter of income is spent on food and clothing, the second largest share in the family budget is spent on luxury items, holidays and restaurants.Average middle-class families in Russia spend their holidays abroad. The most popular destinations are CIS countries, Western Europe, Turkey and Egypt. Only a third of respondents said they have never been abroad, which is a much lower rate than in the United States. A typical family goes out once a month. The number of people who never go out has decreased over the last several years. Within the middle class grouping, the richest people most often spend their free time at restaurants, the cinema and theaters.Another characteristic typical of the Russian middle class is its great love for the Internet. All respondents said it was their favorite source of information. The average middle class man or woman in Russia spends at least three hours a day on the Internet, and tends to trust it more than television. Moreover, respondents regularly shop online. “According to our research, the growth of the middle class in Russia and the typical patterns of its consumer behavior offer a challenge for the development of different markets, such as consumer stocks in general, banks, real estate companies, leisure services and the Internet,” Kuznetsov said. But Krasilnikova is less optimistic. “Even if incomes in Russia grow in the near future, it would not mean that a true middle class would appear in the country,” she concluded.Meanwhile, more than a third of Russians believe they fall into the middle class category, public opinion polls show.Russian Press at a Glance, Tuesday, February 22, 2011 22/02/2011A brief look at what is in the Russian papers todayPOLITICSMost Russians are satisfied by the policies of President Dmitry Medvedev (69%) and Prime Minister Vladimir Putin (73%), the Levada independent polling agency said(Izvestia)Washington expressed its support for Japan in its territorial dispute with Russia over the four Kuril Islands(The Moscow Times, Izvestia)As violence in?Libya escalated, Russia and other states began to?pull out specialists working on?high-profile investment projects in?the North African country, calling into question all foreign investment in the country. The unrest may result in loss of multi-billion contracts for European and Russian companies.An aide to Libyan leader Muammar Gaddafi told Izvestia that his forecast for the African state was unfavorable. “The country is on the verge of devastating civil war. Libya may drown in blood. A threat of inter-tribal massacre persists.”(Izvestia, The Moscow Times, Vedomosti, Kommersant, Nezavisimaya Gazeta, Rossiiskaya Gazeta)ECONOMYRussian officials made many highly controversial statements during Monday’s extended meeting of the Federal Tax Service. On the one hand, officials say the budget receives growing taxes. On the other, Finance Minister Alexei Kudrin again warned about the possible crisis in the state financial system(Nezavisimaya Gazeta, Kommersant, Izvestia)Russian regions are gradually recovering from the economic crisis, with shrinking deficits and decreasing dependence from the federal budget, according to the Russian regional development ministry. However, growing debts and low investment still persist(Vedomosti, Rossiiskaya Gazeta)Yevgeny Primakov, the head of Russia’s Chamber of Commerce and Industry who turns 81 this spring, will not seek another term. Mikhail Fradkov, ex-prime minister and current head of the Foreign Intelligence Service (SVR) was tipped by the media to the post(Izvestia, Vedomosti, Kommersant, Rossiiskaya Gazeta)Moscow's aspiration to become an international finance center will be good for the country, industry leaders agreed last week at a conference in London. Yet, opinion is divided over how far Moscow has come since the idea's conception in 2008.(The Moscow Times)METALS & MININGSilver prices reached its maximum in 31 years. The growing demand pushes up prices for other precious metals, including gold(Rossiiskaya Gazeta)OIL & GASThe Russian energy ministry prepared a tax reform for the oil sector. According to a draft project, an excess profit tax will be introduced, prices will be controlled and maximum export duty will drop to 55%(Vedomosti)Germany’s E.?On seeks to pay spot prices for all Russian gas, Gazprom disagrees(Vedomosti)VEHICLES & ENGINEERINGRussia's Sukhoi has entered a bid with its Superjet 100 airliner to a request for proposals from U.S. largest air carrier Delta Air Lines(Vedomosti)TELECOMS & ITThe Russian Interior Ministry launched a new web site Monday, using advanced web technologies and claiming an era of renewed openness and cooperation with society - a move that comes only a week before recently approved police reforms kick in on March 1(The Moscow Times, Rossiiskaya Gazeta)BANKING & FINANCEAn emergency shareholder meeting of the Bank of Moscow showed that its minority shareholders, who jointly hold a controlling stake, disagree with terms of the bank’s sale. The new board of directors, approved during the meeting, will consist of five VTB candidates, two representatives of the Moscow government and eight representatives of minority shareholders(Vedomosti, Kommersant, Rossiiskaya Gazeta)DEFENSEAs NATO countries continue to cut their military spending, the ex-Soviet states post the record 23% growth in their aggregate defense budget in 2011, the highest in five years(Nezavisimaya Gazeta)CONSUMERBritish-Swiss pharmaceutical giant AstraZeneca said Monday that it will invest $150 million in?building its first plant in?Russia, joining other foreign drugmakers that have started local production in?line with the?government's strategy to?reduce dependency on?imports.(The Moscow Times)SOCIETYAn?open jury trial over the?2009 twin killing of?lawyer and?rights activist Stanislav Markelov and?liberal Novaya Gazeta reporter Anastasia Baburova started in?the Moscow City Court on?Monday(The Moscow Times, Kommersant, Rossiiskaya Gazeta)President Dmitry Medvedev carefully weighed in?Monday on?a turf war between the?Investigative Committee and?Prosecutor General's Office, which clashed over an?illegal gambling ring in?the Moscow region allegedly protected by?local police and?prosecutors(The Moscow Times, Vedomosti, Kommersant, Nezavisimaya Gazeta)The?blogosphere, still in?uproar over reports of?"Putin's Palace," went into?a new frenzy after rumors hit the?web of?another posh mansion, this time allegedly constructed for?the head of?the Russian Orthodox Church(The Moscow Times)SPORTSCrown Prince Salman bin Hamad Al Khalifa of Bahrain called off Formula One’s season-opening race. It is unclear, however, whether the race was cancelled completely or will be held later this year(Kommersant, Rossiiskaya Gazeta)National Economic TrendsPres instructs Putin, Zubkov to improve situation on grain market, February 22 (Itar-Tass) - President Dmitry Medvedev instructed Prime Minister Vladimir Putin and First Deputy Prime Minister Viktor Zubkov to prepare proposals on improving the situation in the grain market, which would help to perfect the situation in this sphere. He emphasised at the same time that the government and heads of regions should fully understand their responsibility for the result of a decision taken. “I’m guided by a premise that this is the government’s responsibility,” the head of state said at a meeting with Zubkov late on Monday evening. The Russian chief executive noted at the same time that he had given an instruction to make an analysis of which mechanism of grain interventions – exchange trading or targeted distribution – is more effective. “I instruct the head of government and you to compile such proposals which will tell qualitatively on the fodder grain market,” he addressed the vice-premier. “It’s all the same for me after all – whether there will be exchange trading or targeted programmes,” Medvedev said. “If you estimate that targeted distribution of grain is capable of yielding a result and will arrest a price rise on meat and dairy, let it be so, but all regional heads should understand their responsibility,” the president underlined. “In actual fact, we transfer to them part of government powers and trust to put things in order in their own food markets,” the head of state noted. “They should understand that it is their responsibility and should guarantee that they can control the situation, head off price hikes, and in some cases, may be, even cut them down,” Medvedev added. According to the Russian leader, a targeted distribution at low prices, suggested by the government, can be implemented only under these conditions. Zubkov informed Medvedev of such a mechanism. He stated that fodder grain for the Interventionist Fund had been purchased at prices twice as low as the present on the market. “Proposals are now drafted to sell all fodder grain from the Interventionist Fund (at governors’ request) at the purchase price, that is 50 percent lower,” the vice-premier said. “In response, regions should conclude agreements with the Agriculture Ministry that they take an obligation to control the situation, to monitor grain prices, to stave off a rise in production cost so as to prevent price hikes for agricultural produce,” he explained. As for food grain, in Zubkov’s opinion, it is possible to continue selling it at the commodity exchange. The proposal in this sphere concerns only a possible delay in tenders for a definite period of time so as to carry out a more detailed examination of the situation with prices. “Exchange trading is a market mechanism, a transparent one,” Zubkov continued. “The government has supported and will support trading not only in grain, but also in fertilizers and other products,” he stated. “However, this could operate effectively under normal conditions, but the situation is now difficult in our country,” the vice-premier stressed, pointing to a substantial shortfall in the last year’s harvest. In this connection, according to the vice-premier, there are apprehensions that the use of only this mechanism can negatively influence the self-cost of agricultural produce. The president gave an instruction to the government early this month to examine effectiveness of using the two mechanisms of grain interventions – exchange trading and targeted distribution. In Medvedev’s words, the main result of any of these methods should be maintaining or even slashing prices for agricultural produce. Russia: commodity interventions on the grain market is the effective method of price stabilization 09:40??Realization of the public commodity interventions is the effective method of price stabilization on the grain market, and a signal for Russian agricultural commodity producers, canceling the speculative demand activity, declared Elena Skrynnik, Minister of Agriculture of the Russian Federation, on February 19. According to her, during realization of the public grain interventions the market faces bearish trends. In the first week of intervention exchange trade, wheat prices lowered by 0.6%. The average price totaled 6400-6700 RUR/t, down 1 thsd RUR compared to the market level. The Government plans to sell 500 thsd tonnes of grains every month. Restoring and development of grain exports is one of the strategic priorities of Russian agro-industrial complex, underlined the Minister. The Head of the Ministry noticed that the conception of melioration improvement till 2020, worked out by the Ministry of Agriculture, will allow stabilizing and increasing grain production.FEBRUARY 22, 2011Russia's Sechin Defends Investment Climate GREGORY WHITE Deputy Prime Minister Igor Sechin, Russia's energy czar and one of its most powerful officials, gave a rare interview to The Wall Street Journal. Below are some edited excerpts (translation by Nonna Fomenko and Anna Masterova, WSJ) WSJ: Russia has long talked about the need to improve the investment climate. But during different years, foreign investors, so to speak, felt different winds. For a while there was a feeling that the government increases its role in business, squeezing the private sector, including foreign investors. Now there is a new wave, that it is necessary to invite and attract foreign investors. What can government do to convince investors that this time Russia can be trusted? Sechin: What has changed in Russia over the past 25 years? Everything has changed. We are a different country! This is the main answer to your question. After the collapse of the USSR, we used the infrastructure of the Soviet period, there was instability, but there are no such problems now. We have political stability, and it's one of the highest in the world, I think. WSJ: [Ousted Egyptian President Hosni] Mubarak probably said the same thing. Sechin: I do not know, never heard of [his saying that]. If you wanted to talk about that issue, I would have prepared.WSJ: I was just asking.Sechin: No, no, you didn't say it for no reason. In this case, we need to more closely examine what has happened in Egypt. See, well, what senior managers of Google have been doing in Egypt, what kind of manipulations of the energy of the people took place there. Let's return to Russia. We have political stability. We have practically replaced all of the old Soviet infrastructure. We have built new gas pipelines. We have created a modern banking system. I think that investors are quite satisfied. With those proposals, which exist in the market.You know, Mr. Browder [William Browder of Hermitage Capital] is often mentioned by the media, in connection with this name you can discuss everything, but not the economic outcomes of his work. I think in terms of profit from cooperation with the Russian assets, he is a happy man. The effectiveness is just the highest—thousands of percent return on invested capital! WSJ: But then the entry to the country was denied for him, and his poor lawyer died in jail. Sechin: A death of any human being is a tragedy. In such cases, one should always act according to law. A criminal case was opened upon the death, the investigation is under way, and I am confident that the court will clear up everything. As for Browder, I, frankly speaking, do not know what kind of visa problems he has. I admit that there are some other reasons for the ban on his entry, but certainly it is not the economy. And certainly it is not his economic interests. Personally I have a very good feeling for Browder. He is adapted to Russia, married to a Russian woman. And of course, his desire to come to Russia is understandable. WSJ: For an investor it's very important to know that there are both stability and prospects. In the beginning of 2005 in Davos, Browder was saying very positive things, speaking in support of Russia. In the end of the same year he is refused a visa, and soon all of his business here was folded up.Sechin: What is important for an investor? To have an economic result. This is his economic efficiency. Browder is a man of genius. He had believed and invested in Russia. And he didn't miscalculate. Economic efficiency of his investments surpasses all imagination.WSJ: Don't you think that it affects the investors' perception of Russia?Sechin: It attracts investors. What is important for them? It is important for the investors to have their property rights secured, and that nobody touched them. Has anything ever been expropriated from Browder? Nothing has been expropriated. Such a thought has never ever crossed anyone's mind. He makes a purchase—very well, then. He collects his dividends, and he earns. What is important for an investor? It's important to have clear rules of the game. And they do exist. No one can say that they unexpectedly change, that one day we have one rules, and the next day we suddenly have other.WSJ: But that's exactly what Browder claims.Sechin: It is difficult for me to comment on this. I think he is doing fine. And what exactly had happened then, needs to be studied.WSJ: And what about the Yukos case?Sechin: It seems to me that we should calmly separate facts from politics and gossip, and then the things will appear in their true light. Tax claims were presented not only to Yukos, but also to other companies, as far as I know. Some companies settled their tax disputes through appropriate tax payments into the budget, while others preferred judicial decisions. Let me remind you that all the decisions of the tax bodies were ratified in courts. There were no expropriations. Moreover, even the bankruptcy of Yukos was initiated by a group of foreign investors, headed by the French bank Société Générale. I believe that everybody was treated equally. Some chose to pay indemnities into the budget, while others chose judicial procedures. Everyone made his own choice and worked the way he considered appropriate. But one mustn't violate the law, against tax crimes, nor against criminal cases.Let me remind you that Yukos leaves a trail of not just simple violations, but of very grave criminal offenses, such as murders, torture and extortion. The cases were investigated, evidence of the motives of the murders were proved, the criminal weapons were produced. The perpetrators were exposed and punished by the court. For example, Pichugin, the head of Yukos's internal economic-security department, who's up to his elbows in blood, got a life sentence.Today many people prefer to forget this. But is it possible to dismiss the victims of these crimes from memory? Is it possible to forget the Mayor of Nefteyugansk, Vladimir Petukhov, who had been shot down by gunmen in broad daylight in a crowded street on his way to work on the day of Khodorkovsky's birthday? Think of the murder of a businesswoman called Valentina Korneyeva, who had been shot down by a gunman before her husband's very eyes right at the door of their flat! Bank Menatep, where the offices of Khodorkovsky, Nevzlin and Lebedev were located at that time, had caught the fancy of her shop "Tea" on Pokrovka Street. The bank was expanding its spaces, and determined to get hold of the building of the shop by any means. Eventually, a killer put a bullet through the temple of the obstinate woman. Just think of what was happening to the people, who were trying to make a compromise with Yukos, protecting their own property rights. Think of the story of Yevgeny Rybin: he had survived two attempts on his life, he was blown and shot at, his driver was killed, and his bodyguard lost both legs in an explosion.And what about blowing up the flat of the mother of a journalist, Olga Kostina, who despite being a Yukos employee, had dared to have her own opinion? The killers came at two in the morning to her parents' home and blew up their flat, ignoring the possibility of killing dozens of people. Judgments were given for all these episodes. The immediate perpetrators were convicted. Is it possible that Yukos management had no relation to what its security service had plotted? And you are reproaching us for refusing Browder a visa…Lawlessness and crime must be fought, no matter where they may occur and what their nature may be. [Criminals] possess a different kind of psychology. Their first crime is followed by another crime, and at the same time they are working out the third one.WSJ: Was the conflict between BP and Russian shareholders of TNK BP—lawsuits have started already—a surprise for Rosneft and the Russian authorities? Sechin: For me, it definitely was a surprise. I think that for Rosneft, too. If we had assumed something like that we would have included it into the overall assessment and, perhaps, would have bargained for more [from BP]. We asked BP whether it would fulfill all the requirements of its shareholder agreement. And just before the signing of the deal, I even appealed to the management of TNK-BP with the request to support it. I met with [AAR shareholder German] Khan and said that we are discussing the possibility of such a deal. I asked him to assist in working with…BP. I hope that all misunderstandings will be resolved and the matter will be settled in a civilized manner, we will be monitoring it. And we would not like Rosneft to have to take some actions to protect its interests, connected to the subjective approach, which is aimed at the delay of the implementation of a major project of its cooperation with BP. If such a subjective approach will be admitted by any of the parties—we do not care which one, BP or AAR—Rosneft would estimate its losses from the unrealized deal and would require compensation from those who would have inflicted the losses. We really want to implement the project with BP. We are not engaged in fraudulent deals. We believe that the future belongs to such an approach, and we are confident that all the problems will be resolved. WSJ: But don't [AAR shareholder Mikhail] Fridman and Khan understand that one cannot get in the way of the historical development of the industry?Sechin: Karl Marx used to say that capitalists in the pursuit of added value can commit any crime. I refer to that just as a joke. It is important that the AAR shareholders realize the necessity to maintain a balance of interests and responsibilities.WSJ: Some people think that it is necessary to somehow change the structure of shareholders of TNK-BP, in order to remove the issue. That Russian shareholders must either sell out to Rosneft, or swap them for shares of BP. How would you look upon it? Sechin: We need to be very careful with this. We do not have any serious proposals that can be discussed. And it is not quite correct from the standpoint of a serious business to discuss rumors or private opinions. WSJ: In terms of the company, would Rosneft be interested in becoming a 50% shareholder of TNK-BP?Sechin: I would say once again that we have not received such offers. But we are ready to consider any serious offers.WSJ: Could you offer such a deal?Sechin: I have not heard that anything is for sale. We have not received any offers and have not discussed these issues with anyone. Here, I think, we must first of all respect the shareholders' rights—whether of AAR, or of the BP group. If they do not plan to do this, we have nothing to talk about. We respect their work, their rights to property. And from the business point of view it is just merely wrong to abstractedly speculate that someone wants something. For me it is actually strange, how it could have been possible to agree to 50-50 [ownership of TNK-BP]. That's a very difficult construction to work in. When the rights are equal, when it is very hard to convince the other, especially if both partners are experiencing some conflict situations, it's all very complicated. Although, of course, it's possible to find a civilized solution even in such situations.After Some Encouraging Momentum Built Up in the First Half of 2010, Russian Consumers Have Grown a Tad More Cautious as Household Disposable Incomes Keep Shrinking Tai Adelaja Russia Profile 02/21/2011 Household disposable incomes in Russia dropped 5.5 percent in January of this year compared to the same time last year, in the latest sign that Russian families still face widespread economic troubles as the economy struggles to recover from the worst financial squeeze since 1998. Disposable personal income, or take-home pay, dipped 48.8 percent in January compared with December last year, the largest monthly drop since the 1998 financial crisis, figures released by the Federal State Statistics Service show.The latest official figures also show that the global downturn has filtered deeper into the real economy, and may have started to weigh heavily on ordinary citizens. The average per capita income fell to 14,014 rubles ($481.2) in January. The average monthly nominal wage amounted to 20,782 rubles ($713.7) last month, representing a 10.2 percent increase compared to January of 2010, but a 22 percent drop compared to December of 2010. Real (inflation adjusted) wages in January 2011 increased by 0.6 percent compared with January 2010, while they fell 23.8 percent compared to December last year, the biggest monthly drop since August 1999. Since the early 1990s, Russia’s State Statistics Service has been keeping track of changes in prices of a set of 83 basic goods and services as a way of comparing purchasing power in different regions. The Russian Consumer Price Index, or CPI – a standard package of goods and services that Russian households purchase for consumption – increased 4.1 percent to 9,073 rubles ($302) in January, the federal agency said Thursday, RIA Novosti reported. In Moscow and St. Petersburg, where living standards are higher compared to the rest of the country, the cost of a standard package of goods and services in late January was 12,728 rubles ($424) and 9,558 rubles ($318) respectively. This represents a monthly price increase of 4.1 percent and 4.7 percent respectively for both cities, and further proves that ordinary households are being financially stretched despite some positive signs of economic recovery. The most expensive region in Russia, as far as basic food and services are concerned, is the mineral-rich Chukotka, which is estimated to hold close to ten percent of Russia's gold reserves. In January, consumers in Chukotka were paying 15,680 rubles ($538.4) (double the average national minimum wage) for a basic set of goods and services, compared to just 7,369 rubles ($253) paid by residents of the Saratov Region – the nation’s cheapest by CPI. Analysts say these bleak statistics show that concerns over the global economic downturn have continued dealing blows to consumer confidence. A poll of consumer optimism among consumers in seven developing countries conducted by the Credit Suisse Research Institute in January shows that only 27 percent of Russians foresee improvement in their financial standing, while ten percent were in fact expecting a decline. The researchers, who found that last year incomes grew the least in Russia and Egypt, said this balance of positive and negative expectations was worse only in the latter. The portion of disposable personal income spent on food was the largest in both countries – 35 percent in Russia and 40 percent in Egypt.According to the most recent statistics compiled by the United States Agriculture Department’s Economic Research Service, U.S. residents spent about ten percent of their income on food. In comparison, people in Mexico spent 22 percent, the residents of China spent 28 percent, and Russians used 37 percent of their income for food. “Consumers in Russia have retained confidence in the job market and many believe in the stability of their personal financial situation,” said Dwight Watson, the managing director at Nielsen Russia and North-Eastern Europe, a research firm that recently conducted a survey of consumer confidence around the globe. “But with growing grocery and utilities prices, [Russians] now find themselves with less disposable income. This is one of the reasons for the slow recovery in consumer confidence in Russia.” Since the 1998 Russian financial crisis, the Russian economy has enjoyed an averaged seven percent growth, resulting in the doubling of real disposable incomes and the emergence of a middle class. However, the economy took a nosedive during the 2008 to 2009 global economic slowdown, as oil prices plummeted and the foreign credits that Russian banks and firms relied on dried up. Since then, the Central Bank of Russia has spent one-third of its $600 billion international reserves, the world's third largest, to prop up the ruble. The government also dished out $200 billion in a rescue plan to increase liquidity in the banking sector and aid Russian firms unable to roll over large foreign debts coming due. With the government’s modernization efforts showing few results so far, the country’s reliance on commodity exports makes it vulnerable to boom and bust cycles that follow the highly volatile swings in global commodity prices. Yet as the economic decline appears to have bottomed out in mid-2009, large segments of the population have yet to feel the end of the financial crisis.This was not the case with well-heeled Russians, who appeared to have shaken off the worst of the depression as the economy stuttered to recovery last year. Russia, which lost more billionaires than any other country during the financial crisis, boasted 114 dollar billionaires at the end of last year, according to an annual ranking of the country’s richest 500 published this month by Finans magazine. The domestic car market could see $40 billion in sales in 2011 on improved consumer confidence, increasing access to credit and a government backed cash-for-clunkers scheme. Mobile phone penetration has soared from 80 million in 2006 to 230.5 million last year, equal to 163.62 percent of the country's population. Even with a modest rise in income, analysts say spending on communication, housing and transport will double. Despite such impressive post-crisis figures, the recovery in consumer spending in Russia has shown signs of slowing in recent months. The monthly rate of inflation, based on the CPI, rose 2.4 percent in January or an annualized 9.6 percent, further proving that the economy is not out of the woods yet. Rising inflation has impacted the cost of basic goods and services, which jumped 12.9 percent on average at the end of 2010 to reach 8,700 rubles ($290), effectively eroding average pension gains. Currently the consumer sentiment index is 13 percent lower than its pre-crisis peak, according to the Levada Center, a leading polling agency. "While consumer optimism gained slightly at the beginning of last year, by the summer that growth fell to zero," Marina Krasilnikova, the head of a department at the Levada Center, said. In her opinion, a key characteristic of 2010 was worsening expectations. "The current situation's assessment is unchanging, and the outlook is even hazier," she said. Krasilnikova said people don't see any signs of a change for the better, sources of economic growth or their own prosperity. "People don't see where they can invest to be confident in the future," she said.Business, Energy or Environmental regulations or discussionsGazprom, Alliance Oil and Rosneft: Russian Equities Preview Stephen BiermanFeb. 22 (Bloomberg) -- The following companies may be active in Russian trading. Stock symbols are in parentheses and share prices are from the previous close of trading in Moscow. The 30-stock Micex Index rose 1.3 percent to 1,712.63 at the close in Moscow. Russia’s dollar-based exchange the RTS climbed 1.12 percent to 1,889.33. OAO Gazprom (GAZP RX): Nord Stream AG, the Gazprom-led venture building a natural gas pipeline from Russia directly to Europe, said construction was on track and deliveries will begin before the end of this year. Gazprom rose 1.7 percent to 198.86 on the Micex. Alliance Oil (AOIL SS): The Russian oil producer and refiner plans to issue fourth-quarter financial results. The company was little changed in Stockholm trading today. Rosneft (ROSN RX): An escalation of violence in Libya drove Brent oil to its highest price in more than two years on concern the turmoil will disrupt supplies. Brent traded at $105.77 a barrel at 8:54 p.m. Moscow time. Russia’s largest oil producer rose 3 percent to 262.36 in Moscow. To contact the reporter on this story: Stephen Bierman in Moscow sbierman1@. To contact the editor responsible for this story: Will Kennedy at wkennedy3@. Last Updated: February 21, 2011 22:00 ESTMOSCOW BLOG: Who will win the 2011 equity race? February 22, 2011And… they're off. Developed market (DM) stocks and global emerging market (GEM) stocks are out the blocks in the race for best returns in 2011. After an easy win for the GEMs in 2010, most of the big names in the sport – China, Brazil and India – have tripped coming out of the blocks at the start of this year. GEMs took in over $100bn in 2010 of fresh money, but some $13bn flooded out again in the first month of this year on the back of rising fears that spiking inflation would derail the GEM story. So for the first time in about a decade, DMs have outperformed the GEMs: the MSCI World Index, a widely followed proxy for the globe's equity markets, has rallied 6.2% so far this year, while the MSCI Emerging Market index is up by only 2.8%. Pundits have been pointing to the better-than-expected economic performance of the DMs and there has been a flight to "quality", but what is really happening is a correction of an overshoot. Too hot to handle While many of the DMs are hobbled by their horrible debt and deficit positions, most GEMs are back to strong growth and so much hot money flooded into these markets that central banks in some, like Brazil and Turkey, were forced to put up administrative barriers and capital controls to keep the unwanted liquidity out. The result of this influx, sourced in part from the US' decision to release another round of $600bn of quantitative easing (QE2) in November, has sent inflation soaring around the world, a problem made worse by the return of the food crisis from 2008 that was temporarily suspended by the financial crisis that started that autumn. Investors have begun to sell GEM stocks, as they are clearly getting expensive. At the same time, they are starting to buy DM assets, as they have clearly gotten too cheap after being ignored for nearly two years. The mainstream media has been having fun with the inflation story, as the rapidly rising inflation rates are clear to all. However, listen closely, because after identifying the trend, they go on to promise that they will explore the "ramifications," but never do. HSBC released a note on February 18 saying that DMs won’t beat GEMs this year, "because the valuation of the MSCI Emerging Markets Index has become too attractive to pass up." HSBC’s Hong Kong-based equity strategist Garry Evans, said: "We remain comfortable that GEM will outperform DM during 2011. While it is possible that GEM might continue to underperform for a little longer, it is highly unlikely to do so for the year as a whole. We fail to find a reason why the long-term structural outperformance of the EM universe should not continue." Of all the GEMs, Russia has done best, mainly as it missed out on the rally in 2010: Out of all the major GEMs, Russia alone took in new money in the first two weeks of February as its stocks caught up with the other GEMs. Moreover, while industry in China and India is approaching full capacity and talk of "overheating" has started, capacity utilization in Russia remains at about 60%, so it still has plenty of growing room before the economy starts to heat up and inflation becomes a real problem. These large flows of hot money and the herd mentality that goes with it are the aftershock ripples from the crisis. Huge amounts of money flooded into GEMs in the second half of 2009 (including Russia), less in 2010 (little into Russia) and now some will flow out again as the wave recedes in the first half of this year. However, the structural problems in the West remain, while growth will clearly be much higher in the east than it is in the west for the foreseeable future. And as every school boy knows, water always flows from high to low. Financial watchdog calls for suspension of competing projects on Micex, RTS , 22.02.2011, Moscow 10:58:05.Head of the Russian Financial Markets Service Vladimir Milovidov announced today that it would be more logical to cease all competing projects on the Micex and RTS stock exchanges, the RBC Daily newspaper reported. According to the official, the unified exchange will cost more for potential investors than the acquisition of one of the two stock exchanges.??????Milovidov believes that the takeover of one of Russia's stock exchanges by foreigners is inevitable against the background of global mergers between stock exchanges. With this in mind, he sees a merger between RTS and Micex as a positive development. "I think Micex should suspend its derivatives market, and RTS doesn't really have any projects that could be suspended," Milovidov stated. If the merger goes through, the shareholders of RTS and Micex would receive the highest dividend payout in the history of stock exchanges in Russia. ??????Specifically, RTS and Micex may allocate RUB 1.5bn (approx. USD 50m) and RUB 12bn (approx. USD 400m) for dividend payments. CORRECTED - UPDATE 2-VTB executives elected to Bank of Moscow board Feb 22, 2011 2:48am EST (Corrects Feb. 21 story to show in paragraph 9 that Borodin is not the sole candidate for CEO role)* VTB gets a third of board seat at Bank of Moscow* VTB wants to buy out City Hall, minority shareholders* Bank of Moscow CEO and co-owner says not in talks with VTB* Values bank at $8.2-$9.6 billion (Adds details, background, analyst quote)MOSCOW, Feb 21 (Reuters) - Bank of Moscow (MMBM.MM) shareholders elected VTB (VTBR.MM) executives to its new board on Monday, signalling a cooling of tensions over VTB's takeover ambitions, analysts said.VTB Chief Executive Andrei Kostin and his first deputy, Mikhail Kuzovlev, were among five top managers elected to the new Bank of Moscow board, Interfax news agency reported.The fact that VTB got a third of the seats on Bank of Moscow's board, done with the backing of City Hall, suggests that it is edging towards a takeover despite resistance from Bank of Moscow's management."The dialogue is ongoing. I think it is a positive move for VTB," Olga Veselova, an analyst with Troika Dialog, said.VTB has been circling Bank of Moscow since President Dmitry Medvedev fired Moscow Mayor Yuri Luzhkov last year, raising the prospect of a redistribution of assets controlled by City Hall.The new mayor, Sergei Sobyanin, is weighing various options for selling the city's 46.5 percent stake in the bank, Russia's fifth largest by assets.State-controlled VTB is seeking to buy the whole of Bank of Moscow and plans to assume control in the first half of 2011, having already won cartel office approval for the deal. [ID:nLDE7190T5]Last week, Bank of Moscow's board cancelled an extraordinary shareholders meeting on March 4 that had been due to elect VTB's Kuzovlev as CEO of the bank, Russia's fifth largest by assets. [ID:nLDE71H1K1]STRATEGIC SELLLast week the board also proposed chief executive Andrei Borodin, who built his career during Luzhkov's mayorship, and his first deputy Dmitri Akulinin as CEO candidates for election at its annual shareholders meeting on May 3.The same day a source said minority shareholders, including management, who control around 40 percent in the bank, would propose selling their holding together with the city's stake to a strategic buyer.Borodin, who together with top manager Lev Alaluyev controls 20.3 percent of the lender, confirmed on Monday minority shareholders could make such an offer to City Hall in coming days, Russian news agencies reported.Borodin added he was not in talks with VTB over selling his stake, but said he estimated the bank's fair value at 240 billion to 280 billion roubles ($8.2-$9.6 billion).Alfa Bank, part of oil-to-telecoms tycoon Mikhail Fridman's empire and Russia's biggest privately owned lender, had expressed interest in Bank of Moscow, calling for its disposal via an open tender rather than a closed sale to VTB.Borodin said he has offers from several potential buyers for Bank of Moscow, whose market capitalisation stood at $7.6 billion on Monday, but did not name them.City Hall, which a source said at the beginning of February valued the bank at 178 billion roubles, could not be reached for comment. Bank of Moscow and VTB declined to comment. (Reporting by Katya Golubkova; Editing by Maria Kiselyova and Hans Peters and Karen Foster) ($1=29.15 Rouble) FEBRUARY 21, 2011, 2:24 P.M. ETVTB Gains Bank Of Moscow Board Seats; Protests Subsequent Meeting William Mauldin Of DOW JONES NEWSWIRES MOSCOW (Dow Jones)--Russian state-controlled bank VTB Group (VTBR.RS) on Monday had five representatives appointed to the board of Bank of Moscow (MMBM.RS), which it is seeking to acquire, but the bank protested that its new board members weren't invited to a meeting later in the day, in violation of corporate rules and the law. VTB is the leading bidder for the city government's stake of about one-half of the Bank of Moscow shares. But the state-controlled bank has faced opposition from rival banks, as well as Bank of Moscow management and other shareholders, as it seeks control. The city recently valued the bank at RUB178 billion ($6 billion). On Monday, following a shareholder meeting at Bank of Moscow, certain members of the board of directors gathered to elect Dmitry Akulinin as the chairman, VTB said. The meeting and its result are a "violation of corporate norms in the interest of existing top management," VTB said in a statement. A spokeswoman for Bank of Moscow declined to comment, and emailed written questions weren't answered on Monday. -By William Mauldin, Dow Jones Newswires; william.mauldin@ Five VTB executives elected to Bank of Moscow BoD as power struggle continues BankFebruary 22, 2011Five VTB executives were elected to the Bank of Moscow's (BoM) 15-member BoD at the bank's EGM, according to newswire reports. The new board members include VTB CEO Andrei Kostin and First Deputy CEO Mikhail Kuzovlev. BoM senior management had reportedly attempted to block the decision to elect the VTB officials, suggesting a struggle for control of BoM, which now appears to be moving towards VTB. The BoD, however, cancelled a meeting scheduled for March 4 intended to elect Mr. Kuzovlev as President of BoM. Instead, the BoD reappointed President Andrey Borodin, Deputy Chairman of the BoD Lev Alaluev, and First Executive Vice President Dmitry Akulinin as BoM BoD members. Mr. Akulinin was elected BoD president. VTB reportedly considers these latest BoD decisions (including Mr. Akulinin's appointment) to be illegitimate, since VTB was not duly informed about the meeting. Moreover, newswire reports suggest that state-owned VEB was also disappointed with the BoD elections because its representatives had failed to be elected. As previously reported, VTB has been targeting BoM for acquisition. While there have been reports that BoM would likely be sold via auction in line with Russian regulations, the sides have reportedly found an alternative mechanism that would effectively allow a direct sale to VTB. While Alfa Bank has publicly expressed interest in the asset, our belief that VTB is the probable buyer of BoM has now been supported by this reported decision to appoint VTB executives to the board. Mr. Borodin, who owns a 20.36% stake in BoM together with Deputy Chairman Lev Alaluev, commented yesterday that he believed BoM was worth RUB240-280bn, which is ~20-40% higher than city officials had estimated earlier this year. As the estimate would put the price at more than two times BoM's reported book value, which was RUB117bn as of 9M10, we believe such a valuation might be difficult to obtain for the sellers, particularly after the most probable buyers have already increased control of BoM. For more information about our view on this potential transaction, please read our February 14 report, "Big Banks Set to Rebound after VTB SPO". Jason HurwitzBarclays, Santander ‘Driven Out’ of Russia as State Banks Gain Jason CorcoranFeb. 22 (Bloomberg) -- Barclays Plc and Banco Santander SA are among western lenders abandoning retail operations in Russia as state companies gain market share and expand into investment banking. Barclays is disposing of the retail unit it acquired for $745 million in 2008, the third-largest U.K. bank said last week. Santander, Spain’s biggest lender, sold its Russian consumer bank to auto-loan specialist Orient Express two months earlier. HSBC Holdings Plc may close its Russian branches, the Kommersant newspaper reported yesterday, citing unidentified people familiar with the matter. “Foreign players without sufficient scale are being driven out of the country,” said Rustam Botashev, deputy head of research at UniCredit SpA in Moscow. “They cannot successfully compete with the domestic banks.” OAO Sberbank, VTB Group, Russia’s top two banks, are exerting a growing dominance. Sberbank has almost 20,000 branches nationwide and accounts for 27 percent of Russian banking assets and 26 percent of banking capital. VTB’s retail business, VTB-24, has more than 530?offices and its investment banking unit is the biggest organizer of bond and equity sales. JPMorgan, HSBC VTB is buying OAO TransCreditBank and plans to take over Bank of Moscow, while Sberbank wants to acquire Troika Dialog, the country’s oldest investment bank. State banks will control more than 60 percent of the underwriting market for domestic bonds if these acquisitions are completed, according to Bloomberg data. Barclays was the leading arranger of international bonds out of Russia last year, followed by VTB Capital and JPMorgan Chase & Co., the data show. Barclays, Banco Santander and HSBC aren’t alone in giving up. Belgium’s KBC Groep NV has to sell part or all of its stake in Moscow-based Absolut Bank as part of a 7 billion-euro bailout agreement with the European Commission, according to KBC spokesman Stef Leunens. Rabobank Groep NV, Europe’s biggest farming lender, asked Russia’s central bank this month to annul its license so it can concentrate on other countries, including China, India and the U.S. “We have changed our priorities,” Manel Vrijenhoek, a spokeswoman for Rabobank, said by phone from Utrecht, the Netherlands. “You have to make choices of how to deploy resources and we see better opportunities in other markets.” UniCredit, SocGen Last year, Morgan Stanley, owner of the world’s largest brokerage, sold its local mortgage unit and Swedbank AB, the biggest Baltic lender, started curtailing its Russian retail operations. HYPERLINK "" Thomas Backteman, a spokesman for Swedbank, said the Stockholm-based lender failed to secure enough scale to be profitable. A Banco Santander official in Madrid declined to comment on the bank’s decision to leave Russia. HSBC, Europe’s biggest bank by market value, will probably decide this month to abandon its consumer business in Russia, after failing to gain market share in the two years it’s been open, Kommersant said. “No decision has been made to exit one of our businesses in Russia,” the bank said in a statement. Barclays, based in London, will focus on organizing bond sales, initial public offerings and cross-border transactions, Hans-Joerg Rudloff, the chairman of Barclays’ investment banking arm, said in an interview Feb. 16. Barclays is one of 22 banks the Russian government hired to help sell as much as 1 trillion rubles ($34 billion) of assets over the next three years. “Subscale businesses don’t belong in our portfolio,” Rudloff said. “We will concentrate on what we know best.” ‘Huge Potential’ Other foreign banks have been more successful in building a foothold. France’s Societe Generale, which gained almost 3 million clients by gaining control of Moscow-based OAO Rosbank in 2008, saw a turnaround in its Russian business last year. Its consumer unit posted a 13 million-euro profit in the fourth quarter, following a loss of 58 million euros a year earlier, according to the bank’s website. Paris-based SocGen expects Russia to be the largest contributor to international retail earnings by 2015, it said last June. The company has more than 600 branches in Russia and more than 16,000 employees, more than in any other country outside of France. UniCredit SpA, Italy’s biggest bank, raised its stake in ZAO International Moscow Bank to 100 percent in June 2007. HYPERLINK "" Raiffeisen International Bank, Austria’s biggest by market value, paid $500 million for Russian lender Impexbank in 2006, making it the country’s largest foreign bank. UniCredit has more than 100 branches and 3,700 employees in Russia, where it is a “top 10 bank,” according to its website. Raiffseisen is the ninth largest bank in Russia by assets. “Foreign banks like UniCredit, Societe Generale and Raiffeisen have been here a long time and have done well,” said Leonid Slipchenko, a banking analyst at UralSib Financial Corp. in Moscow. “Russia remains a growth story and there is huge potential for banks to tap the rapidly growing consumer-lending market.” To contact the reporter on this story: Jason Corcoran at Jcorcoran13@ To contact the editor responsible for this story: Gavin Serkin at gserkin@ Last Updated: February 21, 2011 16:00 ESTHSBC joins the crowd in departures 22, 2011The exodus of foreign banks looks set to continue to accelerate, with reports that HSBC is about to wrap up its Russian retail operations just two years after announcing ambitious growth plans, reports Kommersant.A spokeswoman denied knowledge of any plans by HSBC to shut its retailing business in Russia to EmergingMarkets.me. However, sources indicate that the British bank has lost its appetite for the niche high-end retail sector.The reports come close on the heels of the exit of two other banks, and add to a growing crowd of departures by international players. Barclays said last week it is to sell its retail business in Russia, and that it intends to focus solely on investment banking, whilst the Dutch Rabobank gave up its Russian retail licence. Spain's Santander started the ball rolling in December when it sold its Russian business to Orient Express. Meanwhile the state-controlled giants - and VTB in particular - are leading activity in a partial consolidation of Russian banking through M&A.It was only June 2009 when HSBC Russia a "world-class retail offering", opening four branches in Moscow and one in St Petersburg as the starting point in an ambitious $200m roll out. However, just a year later, CEO Stuart Lawson left the company abruptly, amid rumours that the bank was downsizing in Russia.Telenor's stake in Vimpelcom may be diluted , 22.02.2011, Moscow 11:30:08.Telenor's stake in telecommunications operator Vimpelcom Ltd. may be reduced from 31.7 percent to 25 percent after the merger between Vimpelcom and Egyptian billionaire Naguib Sawiris' telecommunications operator Wind, the RBC Daily newspaper reported today, citing an investment fund source. ??????This may happen if Altimo -which manages the telecommunications assets of Russia's Alfa Group - and Sawiris exercise their rights to swap preferred shares for the ordinary shares of Vimpelcom. As a result, the Norwegian operator will be entitled to less revenue from Vimpelcom and have little say on future mergers and acquisitions, the daily reported.Altimo and Wind are expected to have 31 and 30.6 percent of voting shares in the merged company, respectively.??????The same source told the newspaper that the holders of Vimpelcom's preferred shares would be entitled to swap their preferred shares for ordinary ones in 2012. Altimo is currently the only holder of Vimpelcom's preferred shares. Sawiris will get preferred shares if the merger deal goes through, he added. NRB stake in Aeroflot decreased to 9.7% BankFebruary 22, 2011According to Interfax, National Reserve Bank (NRB), controlled by Alexander Lebedev, decreased its stake in Aeroflot from 12.17% to 9.7%. The 2.47% stake in Aeroflot along with a 10.31% stake in Ilushin Finance Co and an undisclosed stake in Gazprom were used to acquire 100% of a closed- end fund, NRB Equities. We view the news as NEUTRAL for Aeroflot, as the transaction was a technical transfer of Aeroflot shares to a closed-end mutual fund also controlled by Mr. Lebedev. However, we question the initial NRB stake of 12.17%. In January, Mr. Lebedev's stake in Aeroflot reportedly was around 15%. Since then no public information on any sale of the asset has been published. We assume a further 2.83% stake in Aeroflot is controlled by another Lebedev entity.Deripaska Rebounding From Near-Crash Stares Down Rival Potanin Stephanie BakerFeb. 22 (Bloomberg) -- On a Sunday afternoon in January, Russian billionaire Oleg Deripaska gets ready to leave his sprawling mansion in Zhukovka, a wealthy suburb of Moscow where his neighbors include President Dmitry Medvedev and Prime Minister Vladimir Putin. His children, Pyotr, 9, and Marusia, 7, burst in the door, greet their father and run happily down the long hallway. His wife, Polina, who is publisher of the Russian edition of the magazine Hello!, prepares to welcome guests for a party celebrating the Russian Orthodox New Year, Bloomberg Markets magazine reports in its April issue. As snow crunches underfoot, Deripaska, who heads Moscow- based aluminum producer United Co. Rusal, walks around his compound. The estate is surrounded by a 14-foot- (4-meter-) high brick wall patrolled by beefy security guards. He points beyond a white stucco building, saying his mother lives on the other side. The 43-year-old metals magnate grew up poor in a Cossack village in southern Russia, and he has re-created a slice of his rural roots in Zhukovka. In addition to a pool and a studio where he practices yoga in the morning, the compound houses seven horses and six dogs, including one named Aristotle. “I have my best horse here, a stud,” he says. Deripaska has spent relatively little time in Zhukovka since the financial crisis pummeled his metals empire in late 2008, pushing him off his perch as Russia’s richest man. Rusal had accumulated $17 billion in debt in a bull market acquisition binge and struggled to make payments when the value of the assets that had been pledged as collateral collapsed. War Room Deripaska responded by creating what he calls a war room at Rusal’s headquarters in Moscow, where he worked around the clock for a year renegotiating his debts with more than 70 banks before reaching a deal in December 2009. Today, Deripaska is back. He owns 47.4 percent of Rusal, the world’s biggest aluminum maker, which in turn has a 25 percent stake in OAO GMK Norilsk Nickel, Russia’s largest mining company. The Norilsk stake has put Deripaska at the center of Russia’s biggest corporate battle as the mining giant tries to buy him out. In February, Norilsk offered Rusal $12.8 billion for 20 percent of the company to end a feud over its management. Norilsk produces both nickel and palladium, a mineral crucial to the production of catalytic converters in automobiles. A physics graduate who worked in security in the Soviet Army, Deripaska survived the violent dividing of spoils after the collapse of the Soviet Union through a combination of book smarts and street smarts. Deripaska is still fighting his fellow billionaires for primacy in the boardroom as he struggles for control of Norilsk. Billionaires Club Deripaska is a leading member of a club of billionaires in Russia and beyond that has won, lost and regained fortunes in one of the greatest commodities booms in history. Prices of commodities from metals to foods began rising in 2001, reaching records in 2007 before plunging during the financial crisis. They’re now flying high again. The price of aluminum rose 20 percent in the 12 months through Feb. 18. Nickel’s value jumped 41 percent in the same period, palladium 94 percent. Soaring commodities prices have enriched industrialists such as Deripaska around the world. Others include Brazil’s Eike Batista, head of a commodities empire that includes iron ore miner MMX Mineracao & Metalicos SA; Anil Agarwal, founder of Vedanta Resources Plc, India’s largest copper producer; and Andrew Forrest, chief executive officer of Australian iron ore producer Fortescue Metals Group Ltd. Transfer of Wealth “There’s been an enormous demand from China for commodities since 2001,” says Michael Lewis, head of commodities research at Deutsche Bank AG in London. “It’s an unprecedented event. There’s been a massive transfer of wealth from the developed world, which is relatively resource poor, to the emerging markets, which have an enormous share of commodities.” The boom has had its downside. The surge in prices has helped ignite inflation from the U.K. to China and Russia, creating a dilemma for central banks around the world worried about how to stimulate economies while tempering price spirals. The unrest that gripped Egypt beginning in January was driven in part by skyrocketing food prices; annual food price inflation in the country is 18.9 percent. Like fellow Russian magnates Mikhail Prokhorov and Vladimir Potanin, Deripaska remains resolutely bullish about demand for the metals he produces. He says the gusher of new money will eliminate Rusal’s remaining $12 billion in debt in the next four years without doing a deal. Thank You, Asia “The whole industrial world should thank Asia,” he says, sipping green tea while giving his first interview ever at his home. “There are 3 billion people who are about to become more- active participants in economic life: Chinese, Indians, Latin Americans, Africans. They will demand much more infrastructure, equipment, new plants.” In January 2010, Deripaska listed Rusal’s shares on the Hong Kong stock exchange, raising $2.24 billion. The company’s full market capitalization as of Feb. 21 was $25.6 billion. The listing attracted some big-name investors, including hedge-fund manager John Paulson of Paulson & Co.; Hong Kong billionaire Li Ka-shing of Cheung Kong (Holdings) Ltd.; and Nathaniel Rothschild of NR Investments Ltd. HYPERLINK "" Muammar Qaddafi’s Libyan Investment Authority also bought shares, before the recent turmoil in that country. By doing the listing in Hong Kong, Deripaska made a gesture toward what he regards as one of his principal markets, China. “You have billionaires and very influential people around the table,” says Rob Edwards, a London-based metals analyst for Renaissance Capital in Moscow. “They’ve been effective about opening these conduits between China and Russia.” QE Helps Commodities Deripaska says governments and central banks in Europe and the U.S. have helped drive up prices through deficit spending on stimulus packages; so has the U.S. Federal Reserve’s quantitative easing program, in which it pumps money into the economy by buying government bonds. “The whole package of stimulus measures and QE helped us,” he says. Beyond metals, Deripaska also owns a stake in one of Russia’s largest insurance companies, OAO Ingosstrakh; a Siberian power company called EuroSibEnergo that he is planning to list in Hong Kong later this year; construction firms helping to build infrastructure for the 2014 Winter Olympics in Sochi; and GAZ Group, a truck and bus producer that he acquired in 2000. His empire now has assets worth $21 billion. A Deal with GM One potentially valuable holding is his 65 percent stake in GAZ, which on Feb. 1 announced an agreement with General Motors Co. to produce 30,000 Chevrolet Aveo sedans and hatchbacks per year at its plant in Nizhny Novgorod. GAZ and Wolfsburg, Germany-based Volkswagen AG, Europe’s biggest carmaker, said in January that they’re negotiating to build as many as 100,000 VWs a year to feed the growing Russian car market. Deripaska became a devotee of the lean production techniques known as the Toyota Way as he sought to turn around GAZ. He’s now using the principles in his aluminum smelters to standardize production and cut costs. Deripaska is tending to his smelters with one hand and fighting Russia’s biggest investor battle with the other. Potanin, Norilsk’s other major shareholder, wants him to sell Rusal’s stake in the nickel giant. He has refused, only to get higher and higher offers for Rusal’s 25 percent stake. Price Inflation In October, Potanin offered $9 billion for the holding. In mid-February, Norilsk raised its offer, saying it would buy all but 5 percent for $12.8 billion -- representing what was at the time a 43 percent premium to the company’s share price. Norilsk says it has lined up at least eight banks to finance the bid. Rusal must decide on the offer by March 4. The bid has split Rusal shareholders. Prokhorov, the billionaire who owns 17 percent of Rusal, says the latest offer is a fair price. “The situation has obviously come to a dead end, so one of the parties should take the decision to sell,” he said in a statement. Other major shareholders have remained silent, including Viktor Vekselberg, whose Sual Partners owns 15.8 percent, and Ivan Glasenberg of Glencore International AG, the world’s largest commodities trader, which owns 9 percent. Before the latest offer, Deripaska said he viewed his holding as a strategic bet on the continuation of the commodities rally. “It’s a great asset,” he says. “We’re just at the beginning of the new cycle.” Gun Battles The contest is being fought with shareholder votes and strategic share purchases. Fifteen years ago, when Deripaska was getting started in the metals trade, the fight for market share was carried out with guns. In the “aluminum wars” of the 1990s, dozens died and many more were wounded, including two of Deripaska’s managers. President Medvedev and Prime Minister Putin haven’t publicly taken sides in the contest. In the past, Medvedev has encouraged Rusal and Norilsk to combine into a single national champion to rival commodities companies such as Australia’s BHP Billiton Ltd. Norilsk has strong Kremlin connections. Its chairman, Vasily Titov, is also chairman of the management board at state- owned VTB Group, Russia’s second-largest bank. Norilsk’s CEO is Vladimir Strzhalkovsky, a former head of Russia’s State Tourism Agency who worked for the KGB in Leningrad, now St.?Petersburg, at the same time as Putin. Ian Hague, founder of New York-based hedge fund Firebird Management LLC, which invests in Russia and the former Soviet republics, says the government is pulling the strings at Norilsk. Dog’s Tails “We don’t like incestuous situations with oligarchs and the state,” Hague says, adding that Firebird, which has $1.6 billion under management, tendered its stock in Norilsk when the company bought back shares in January. “None of these guys have real political influence anymore,” Hague says. “They do what they are told. They are the tail, not the dog. Russia is a company town.” Deripaska says it’s natural for the government to take an interest in the biggest Russian corporations. His holding company, Basic Element, employs more than 300,000 people, which gives him de facto political influence. And he doesn’t hesitate to use it. “I’m very politically connected to every important figure in Russia,” he says. “There is no one in Russia whom I can’t reach in less than one hour.” At the same time, Deripaska dismisses the idea that Putin is calling the shots at Norilsk. Social Issues “There is a perception in the West that the government is actively involved in everything, but in reality it’s very different,” Deripaska says. “The government in Russia is more focused on social issues now.” Deripaska says his relationship with Putin, whom he first met in 2000, isn’t personal. “I’m not Putin’s friend,” he says. “We have a working relationship.” Deripaska says he hosted Putin once in 2001 at a ski resort he owns in Khakassia, Siberia, though he never skied with him. Powerful as Deripaska is in Russia, he’s not always welcome in the U.S. He says he was officially denied a visa in 1998 and has had difficulties obtaining visas since then. He says he was allowed to travel to the U.S. in 2009, when he met with General Motors CEO Fritz Henderson and Aurora, Ontario-based Magna International Inc. co-CEO Siegfried Wolf, whom he hired last year as chairman of Russian Machines, the company that owns GAZ. An October 2009 article in the Wall Street Journal, citing two Obama administration officials, said the Federal Bureau of Investigation arranged Deripaska’s visit and questioned him about his possible links to Russian organized crime. Deripaska says the report is wrong. ‘State Department Game’ “This may be a State Department game,” he says. “This is not about Rusal.” During the violent turmoil in the aluminum industry in the 1990s, Deripaska says he paid protection money to a man named Michael Cherney, who he alleges was part of organized criminal groups in Russia that extorted money from him, according to court documents. Cherney is suing Deripaska in London’s High Court, claiming he is a former partner who has a right to 13.2 percent of Rusal. HYPERLINK "" \t "_blank" Cherney, who lives in exile in Israel, is on Interpol’s wanted list after Spain’s National Court issued a warrant for his arrest on allegations of money laundering and links to organized crime. Cherney’s London lawyer, Andrew Hearn, says that his client hasn’t been formally charged with any crime in Spain, has offered to be questioned in the Spanish investigation and denies that he extorted money from Deripaska. Lobbying for a Visa To clear up his visa status, Deripaska employed Washington lobbying firm Endeavor Group, founded by Adam Waldman, a former senior counselor at the U.S. Justice Department. Russian Foreign Minister Sergei Lavrov wrote a letter of support in September. “Mr. Deripaska is one of our country’s prominent business leaders,” Lavrov wrote. “A persistent state of limbo regarding Mr. Deripaska’s ability to travel freely between our two countries has become an impediment to the promotion of mutually advantageous contacts between the business communities of the two countries.” Deripaska is welcome in Davos, Switzerland, where he works his connections every year at the World Economic Forum. This year, he hosted a party in a local apartment complex. Female guests were handed shots of vodka as they came through the door. A Cossack band in full traditional costume sang. Deripaska was seen at one point in intense conversation with Jamie Dimon, CEO of JPMorgan Chase & Co. Hatha Yoga Devotee Deripaska’s image in the press is that of a tough tycoon with a well-honed survivor instinct. In person, he’s soft- spoken, with a baritone voice and a deadpan sense of humor. A devotee of hatha yoga, which focuses on controlled breathing, he rarely gets ruffled or loses his temper, friends and colleagues say. To relax, he swims in his pool when he’s not traveling; he says he flew more than 800 hours last year in his Gulfstream V. In more than five hours of interviews, he ate nothing, while repeatedly offering piroshki and calling to his housekeeper Masha to fetch apples and ryazhenka, a fermented milk drink that he produces on his farm in southern Russia. “You need to eat before it gets cold!” he urges his guests. Rural Upbringing Deripaska was born in 1968 in Dzerzhinsk, a city 400 kilometers (250 miles) east of Moscow, where his mother worked in a chemical lab. His parents divorced when he was a toddler and at the age of 4 he moved to the Krasnodar region in southern Russia to live with his mother’s parents. He says they died when he was 8 and he then lived with his grandparents on his father’s side. His father, a military engineer, died -- he won’t say how -- when he was 12. Raised in a small rural settlement where he rode horses and tended chickens, pigs and cows, Deripaska says his grandparents imbued him with the notion that one had to live off the land to survive. “They taught me everything about growing: what’s the right time to plant seeds, how you should plant everything.” His talent for math helped him overcome his difficult upbringing. In 1985, when he was 17, he landed a place studying physics at Moscow State University. After a year, he took a break to serve his compulsory military service in the Soviet army’s Strategic Missile Forces in Chita, Siberia. “I was in charge of security at a very big complex,” he says. “I learned how to manage people in the army.” ‘A Lot of Money’ When he returned to university in 1988, perestroika -- the liberalization of Soviet politics and economics -- was in full swing. Small enterprises sprang up, and Deripaska says he worked nights and summers doing construction jobs around Russia and Kazakhstan, as did many students struggling to make ends meet. “We made a lot of money in those years,” he says. In 1991, the Soviet Union collapsed, and Deripaska took advantage of the ensuing chaos. That year, he says, he set up a trading company called VTK, which he ran on the side while he was finishing his degree. “I represented a few companies that were selling and buying materials,” he says. He says he made his first million dollars on his second transaction, which entailed buying steel at Russian prices and selling it abroad at international market rates. He traded through the newly independent Baltic state of Estonia at a time when Russia’s system of export licenses and quotas was in disarray. Two Systems “It was the reality of post-Soviet Union,” he says. “On paper, you have one system. In reality, you had a completely different system. You just sent cargo to Estonia, and then you traded from the Estonian port all around the world and it was already an independent country.” With his new riches, he decided to invest in an aluminum plant, and settled on Sayanogorsk, a smelter in southern Siberia. In 1992, Russia began privatizing state enterprises by handing out shares to employees and distributing vouchers that could be converted into stock. He says he began buying shares and vouchers in Sayanogorsk, building his stake until he became the biggest shareholder after the state. In 1994, Deripaska took over as general director at the age of 26. As Deripaska was consolidating his hold on Sayanogorsk, gun battles were breaking out across Siberia as different factions competed for control of the region’s aluminum smelters. Deripaska says he was on the receiving end of the violence. An Armed Assault He demurs when asked about a widely published tale that he was attacked at Sayanogorsk with a grenade launcher and was forced to camp out in the smelter to protect it from an armed takeover. “It’s a nice picture,” he says, smiling. “It’s nice for the press to have this; otherwise, no one will read it.” In the spring of 1995, Deripaska says, his deputy at Sayanogorsk, Valery Tokarev, was shot and seriously injured along with a colleague. “It was a mistake when I didn’t pay enough attention,” Deripaska says. Today, he says, “I pay a lot of attention to how to secure my people.” Deripaska’s account of his early years is being challenged in London’s High Court by Cherney, a Ukrainian-born businessman. A judge for London’s High Court, after ruling that Cherney couldn’t get a fair trial in Russia, is scheduled to hear the case in April 2012. Krysha Payments Deripaska’s version of what happened, according to documents he filed in the case, is that starting in 1995 he was forced to pay Cherney and another man named Anton Malevsky to be his krysha, which literally means “roof” in Russian and is a common term for protection from organized crime groups. In court documents, Deripaska labels the payments as extortion. In March 2001, Cherney and Deripaska met at the Lanesborough hotel near London’s Hyde Park. Deripaska says he paid Cherney $254 million after that meeting to end the krysha arrangement. He says he separately gave Malevsky a document promising to pay him an additional amount. Malevsky died in a parachute accident in South Africa later in 2001. Deripaska continued to negotiate with other organized crime figures, his court statement says, paying them $170 million from 2002 to 2004 to end the krysha arrangement. Cherney, 59, tells a more complex story in his lawsuit. He says that he and Deripaska bought shares in Sayanogorsk as partners. He says they each later held a 40 percent beneficial interest in OJSC United Co. Siberian Aluminium, or Sibal. In late 2000, Sibal merged with the aluminum business of OAO Sibneft, a company controlled by Russian businessman Roman Abramovich. Cherney’s Claim The company formed by the merger was Russian Aluminum, or Rusal, in which Sibal and Sibneft each had a 50 percent stake. Cherney claims that when the merger was finished he owned 20 percent of Rusal, shares that Deripaska held in trust with the understanding he would buy Cherney out later. Deripaska says Cherney never owned any stock, nor gave him any money to buy shares on his behalf. Deripaska gradually bought out Abramovich and by 2007 had merged Rusal with Russian aluminum rival OAO Sual Group and the alumina assets of Glencore, making the enlarged company the world’s biggest aluminum producer. Deripaska considers Cherney’s suit a minor annoyance compared with the fight for control of Norilsk Nickel. Deripaska became a big investor in 2008 when he bought the shares of Prokhorov. After feuding with Potanin about business strategy, Prokhorov in April 2008 turned to Rusal, which bought his 25 percent stake in Norilsk in exchange for a 14 percent stake in Rusal, $4.5 billion in cash and $2.7 billion to be paid later. 70 Percent Plunge It turned out to be the top of the market. When the financial crisis hit, Norilsk shares plunged, dropping more than 70 percent from April to the end of 2008. The syndicate of banks that had financed the purchase came calling. In November 2008, Deripaska secured a $4.5 billion loan from state-owned Vnesheconombank, or VEB, to refinance the syndicate loan. The Russian press has called the loan a government bailout. “It wasn’t free cheese,” Deripaska says. “We paid very high interest rates. VEB made a half a billion dollars in 18 months.” In January 2009, Deripaska organized the war room to negotiate with other creditors. “I worked 16-hour days,” he says. “We were in default. No one wanted to call it default. Of course we breached the covenants.” Deripaska says he never worried about the banks seizing his assets. He knew they had no interest in running Rusal’s smelters and mines, which span the globe from Siberia to Nigeria. Cutting Costs Instead, he cut costs at Rusal by 25 percent in 2009 by looking everywhere for savings, from shutting smelters to changing suppliers. He gave the banks a detailed accounting of his moves. “At night, from time to time, I brought them into the war room,” he says. “I showed them: ‘This is the market; this is the cost structure; this is the suppliers program; this is the logistics, where we can save money. This is something you would never get if this management will leave.’” By December 2009, he reached a final agreement with more than 70 Russian and foreign banks to refinance $17 billion of debt. Prokhorov agreed to swap some of his debt for a larger stake in Rusal, and the company began lining up investors for the company’s Hong Kong initial public offering. Gyrating Shares After listing at HK$10.80, Rusal shares declined, dropping to a low of HK$6 in June 2010. They recovered to HK$13.10 on Feb. 21, buoyed by rising aluminum prices and the surge in Norilsk’s share price, which rose 45 percent in the year ended on Feb. 21. Still to be resolved is Deripaska’s role at Norilsk Nickel. The battle at Norilsk intensified as the value of the company increased. At a Norilsk shareholders meeting in June 2010, investors voted to reduce the number of Rusal representatives from four to three, ending the parity between Deripaska and Potanin. In December, Norilsk agreed to sell an 8 percent stake that the company held as Treasury shares to Amsterdam-based Trafigura Beheer BV, the world’s second-largest trader of nonferrous metals, for an undisclosed sum. In January, Norilsk announced it had spent $3.47 billion to buy back 7.2?percent of the company’s shares from minority shareholders. Potanin and management “are concentrating votes,” Renaissance’s Edwards says. “Their strategy is to make Deripaska’s situation seem so weak that he capitulates and says, ‘OK, I’ll sell.’” St. Kitts Ruling Rusal called an extraordinary Norilsk shareholder meeting for March 11 to elect a new board. On Feb. 7, Rusal got an injunction from a court in St. Kitts and Nevis in the Caribbean to block Norilsk subsidiaries based there from selling or voting shares they acquired during the January share buyback. The court also blocked the transfer of shares to Trafigura. Both deals could have been used at the March shareholder meeting in the fight for control. Norilsk maintains that the court order blocks it from completing the share buyback from investors who have not yet transferred their shares or been paid. A hearing on the case is scheduled for March 2. Deripaska has also fought back by arguing that Norilsk under Strzhalkovsky hasn’t come up with detailed operational plans. He says the CEO is proposing $2.8 billion in capital spending this year without spelling out how the money will be allocated. Rusal vs. Norilsk “It was just a blunt number: $2.8 billion,” says Maxim Sokov, Rusal’s director of strategy and development and a Norilsk board member. “At Rusal, we break it down by project, and each project needs to be approved.” The money will be invested in Norilsk’s mines above the Arctic Circle, including construction of a new gas pipeline, a Norilsk spokesman says. Deripaska says that if Rusal management ran Norilsk, it could easily be valued at $80 billion to $100 billion -- which would make Rusal’s 25 percent stake worth from $20?billion to $25 billion. At a marathon board meeting on Dec. 28 in Moscow, Deripaska challenged Strzhalkovsky’s proposal to spend more than $32?billion to expand Norilsk during a 15-year period, saying he had failed to provide details. Norilsk says the investment program is aimed at developing new ore deposits, upgrading one of its smelting plants and expanding production in Australia and Africa. Toyota Way Deripaska himself is fixated on the kinds of production efficiencies made popular by the Toyota Way. During the past five years, his smelters have been trying to adopt the concept of kaizen, which means continuous improvement and involves training workers in standardized production techniques. On its shop floors, Rusal is implementing genchi genbutsu, a term that means “go and see” and has led to steps including reducing the amount of factory floor space so workers have to move materials over the shortest possible distance. “It’s important to change the company’s pyramid,” Deripaska says. “Instead of top-down management, you should understand everything is in the hands of your operator.” As Deripaska sits in his office explaining Rusal’s effort to achieve efficiencies, Andy Youmans, an American consultant from Farmington, Connecticut, walks in, dressed in jeans and a black sweatshirt. Youmans has been traveling to Russia off and on for five years, implementing the Toyota Way at GAZ and Rusal smelters along with his partners Scott Borg and Hajime Oba, a former Toyota executive. Focus on Quality Youmans says the series of global recalls of Toyota cars during the past two years does nothing to discredit the Toyota Way. “Top leadership took their eye off the ball for a while,” he says. “It is precisely because Toyota refocused on the Toyota Way that I am bullish on the company.” Deripaska runs a vertically integrated aluminum producer. Rusal mines bauxite, the raw material from which aluminum is made, in places such as Guinea and Jamaica. The bauxite is processed into a substance called alumina, which is then made into aluminum -- an energy-intensive process where low-cost power is the key to staying competitive. In Russia, Deripaska’s overall strategy hinges on Rusal’s smelters being located next to cheap Siberian hydropower stations, many of which are part of EuroSibEnergo, his independent energy company. EuroSibEnergo has a long-term contract to supply Rusal with power at set rates. Deripaska plans to sell shares in EuroSibEnergo in Hong Kong in the first half of 2011, with a goal of raising $1.5 billion. Hyro Power He has already secured China Yangtze Power Co., the country’s biggest hydro-dam operator, as a cornerstone investor with an initial pledge of $168 million. The two companies agreed to develop hydro- and thermal power stations in Siberia and the Far East. Rusal is aiming to generate 60 percent of its own power in 15 years, helped by the construction of a massive new hydro- power station called Boguchanskaya on the Angara River in eastern Siberia. “The Siberian market has an oversupply of power, so we have more generation capacity than we can use at the moment,” Deripaska says. “There will be more connection with China, more peak capacity transfer to China.” China is also Deripaska’s target market for aluminum. Rusal is betting on 12 percent growth in aluminum consumption in China this year. And what if the overheated Chinese economy loses steam and demand for Russia’s metals dissolves? Deripaska says that’s unlikely. He’s clearly a survivor -- whether he’s dueling with fellow Russians or confronting overdue bank loans. To contact the reporter on this story: Stephanie Baker in London on stebaker@. To contact the editor responsible for this story: Michael Serrill in New York on mserrill@ Last Updated: February 21, 2011 17:00 ESTPower Machines Wins $188 Million Turbine Supply Order From IES Ilya KhrennikovFeb. 22 (Bloomberg) -- OAO Power Machines, Russian billionaire Alexei Mordashov’s equipment maker, agreed to supply 5.5 billion rubles ($188 million) of turbines to utility ZAO Integrated Energy Systems, the companies said today in separate e-mailed statements. To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@. To contact the editor responsible for this story: Amanda Jordan at ajordan11@. Last Updated: February 22, 2011 03:22 ESTFord, Russia's Sollers to invest $1.4 bln in joint venture 22/02/2011MOSCOW, February 22 (RIA Novosti) - Russian carmaker Sollers and U.S. auto giant Ford will invest $1.4 billion in a new joint venture to 2020, which will double Ford's market share in Russia within five years, Russian business daily Kommersant said on Tuesday.On February 18, Sollers signed a memorandum of understanding on setting up a car production joint venture with Ford in Russia, halting talks on setting up a joint venture with Italian car maker Fiat SpA. The issue of intellectual property had been a major stumbling block in negotiations with the Italian auto maker because Fiat refused to grant its Compact White platform to Sollers, Kommersant said.Sollers and Ford will assemble six vehicle models at their joint venture. The Russian auto maker will start producing two models, the Explorer off-road vehicle and the Transit van, at its facilities in Tatarstan in 2012, the paper said, referring to presentation materials prepared by the joint venture.The joint venture will also produce a B+ type sedan, which will be an absolutely new model, which has never been presented on any of the markets. This new compact car has been developed by Ford as a rival to the VW Polo and other low-end cars sold in Russia but will appear on the market only in 2014, the paper said.The JV will also produce Ford's moernized sedan and Kuga vehicles at the Sollers plant located in Naberezhnye Chelny, while Explorer and Transit vehicles will be assembled in Yelabuga starting from 2012. The company will launch the production of Kugas and B+ sedans in 2013 and 2014 respectively. The expected 2016 annual output, including the Ford-Vsevolozhsk plant, which will also become a part of the joint venture, will total 300,000 cars.The main goal of the Sollers-Ford joint venture is to raise Ford's market share in Russia to 9% from the current 4.7%, Kommersant said. Sollers declined to comment on the presentation.Activity in the Oil and Gas sector (including regulatory)Russia Will Cut Oil Export Tax to 60% in 2012, Vedomosti Says Henry MeyerFeb. 22 (Bloomberg) -- Russia will cut its oil export tax from 65 to 60 percent in 2012, and may reduce it further to 55 percent in 2014, Vedomosti reported, citing a Ministry of Energy document. Russia also plans to reduce export taxes on refined oil products to 66 percent next year and to 60 percent in 2014, Vedomosti said. To contact the reporter on this story: Henry Meyer in Moscow at hmeyer4@ To contact the editor responsible for this story: Willy Morris at wmorris@ Last Updated: February 22, 2011 00:16 ESTRosneft sees offshore, overseas as key to growth Feb 21, 2011 10:22am ESTLONDON (Reuters) - Russian oil major Rosneft (ROSN.MM) will outline offshore development and expansion abroad as two of its key areas of growth when it publishes its new strategy later this year, a top executive said on Monday.First Vice-President Pavel Fyodorov told a group of reporters in London state-controlled Rosneft would soon make an important announcement about acquiring offshore expertise but could not comment whether it would be a new partnership or an acquisition of assets or a team of specialists. "Building valuable offshore expertise is a key priority for us ... Offshore is where the company is undervalued by a factor of three," Fyodorov said."We would be seeing ourselves much more as a global diversified energy leader rather than a one-market company"The strategy would follow the appointment of a new chief at Rosneft last year and a landmark share swap and an Arctic development deal between Rosneft and BP (BP.L).Fyodorov declined to comment whether Rosneft could buy out the Russian partners in the TNK-BP venture, who have won a UK court order blocking the deal with BP.Speaking about other trends in the new development strategy, Fyodorov said the company would sharpen its investment focus including divesting some non-core assets."I do hope that, with a few new hires that we will make, there will be a much sharper focus on developing our international presence and diversifying our fiscal exposure and getting ourselves plugged into the global oil and gas industry."Fyodorov said Rosneft was looking at other partnerships with global oil majors like the BP deal as it seeks to become one of the world's largest oil companies."We see (Brazil) Petrobras offshore business as a model for us," he said adding the examples of Petrobras and Norway would serve as a basis for a study, which Rosneft would present to the government shortly, regarding a new offshore tax regime.Speaking about expansion abroad, Fyodorov said Rosneft would mostly focus on upstream, including in Venezuela and new projects in Africa."We see most of our value being created in upstream ... We are very positive on upstream, neutral-to-positive on Russian downstream ... We are being very selective with international upstream, really picking up the best at lowest prices."He also said Rosneft might look at expending its downstream presence in Europe after having bought Venezuela's PDVSA assets in Germany, Ruhr Oel.Speaking about Rosneft's new trading division in Geneva, Fyodorov said it was set up primarily to coordinate crude supplies to Ruhr Oel but added it did not necessarily mean that an old-standing deal under which BP was the main supplier of Ruhr Oel would be scrapped.He also said Rosneft was holding back the development of new East Siberian fields, including the Yurubcheno-Takhomskoye deposits, because it was inefficient under the current tax regime.(Reporting by Dmitry Zhdannikov, Editing by Jane Baird)Rosneft To Expand Africa, Arctic Offshore Exploration Published Monday, 21 February 2011 02:52 pm - ? 2011 Dow Jones (Adds detail on potential partners, reason for strategic shift, view of North African changes.) LONDON -(Dow Jones)- Russian oil giant OAO Rosneft (ROSN.RS) is pushing a major expansion of its offshore exploration business through talks with global companies about new ventures in the Arctic and West Africa, said the company's First Vice President Pavel Fedorov Monday. Rosneft is already talking to "global players" about exploration ventures in Russia's Barents Sea and the Asian part of Russia's Arctic waters, Fedorov told reporters on the sidelines of the Energy Intelligence conference. This follows major joint ventures signed last month to explore in the Arctic's South Kara Sea with BP PLC (BP) and in the Black Sea with ExxonMobil Corp. (XOM). Fedorov didn't name the companies discussing further exploration opportunities, but said Rosneft is open to working with new partners. "Nothing prevents Shell or Total coming to us," he said. Rosneft is also looking at opportunities offshore "a cluster of countries on the West Coast of Africa," he said. "We see offshore as our key strategic thrust for the next couple of decades," Fedorov said. Part of the reason for this shift for Rosneft, which mainly operates onshore, is that exploration in Eastern Siberia isn't expected to yield any "game changing" new discoveries, Fedorov said. Rosneft will move offshore to keep growing, he said. "We see Petrobras's offshore business as a role model for us" in the way the Brazilian company has capitalized itself to expand offshore and built up an indigenous offshore oil industry around itself, he said. Russia does need to change its oil tax regime to allow offshore Arctic development and Rosneft will submit reform proposals to the government within two to three weeks, Fedorov said. The new Arctic offshore tax regime should have lower tax rates upfront, rising later as companies cover their costs, he said. Rosneft will boost its global expansion by offering partners asset swaps from its Russian portfolio, he said, adding several such offers are already on the table. For example, Rosneft has experience with heavy oil fields that could be shared with companies with similar assets outside Russia, he said. Political changes currently sweeping through the Middle East and North Africa could potentially bring new opportunities for international expansion if new governments adopt a different approach to foreign investment, Fedorov said. -By James Herron, Dow Jones Newswires; +44 207 842 9317; james.herron@ Mongolia Considers a New Oil Supplier by P.Shinebayar ??Tuesday, February 22, 2011.Mineral Resources Authority of Mongolia (MRAM) signs on February 18 a memorandum of understanding with an the Russia’s oil company TNK-BP, concerning the delivery of Russian oil products to Mongolia. The MoU was inked by by Amraa Tsengemaa, MRAM deputy director, and by Jonathan Kollek, the TNK-BP Vice-President for sales, trading and logistics.? In accordance with the memorandum, TNK-BP will consider the possibility of concluding mutually beneficial agreements with Mongolian companies on the delivery of oil products. The mix of products, delivery methods, technical characteristics, prices and terms of payment will be agreed between TNK-BP and the Mongolian participants, as determined by the Mongolian Oil Agency. In the case of such agreements being concluded, TNK-BP will then explore the opportunity of delivering oil to Mongolian Refineries, as soon as their respective operations start. “TNK-BP’s emergence into the dynamic and developing Mongolian market will help to promote a competitive environment and to satisfy the growing demand for quality oil products. One of TNK-BP’s priorities is to diversify our sales markets, and the development of the Mongolian economy is opening up promising prospects for the expansion of our business in the country,” said Jonathan Kollek. TNK-BP is the third largest oil company in Russia and among the top 10 private oil companies in the world by production volumes.Russia's TNK-BP eyes Lotos, daily reports February 2011Leading Russian oil company TNK-BP is interested in buying a controlling stake in Poland's second-largest refiner, Lotos, daily Rzeczpospolita reports.The Polish newspaper cites Russian daily Viedomosti, which quotes three sources linked to TNK-BP and the Polish government.A 53-percent stake in state-owned Lotos was put up for sale by Poland's Treasury Ministry in October 2010. The government wants to find a strategic investor to take charge of the company.The deadline for submitting bids for the stake expires on March 18.Viedomosti revealed that TNK-BP representatives arrived to Poland in January in order to discuss the potential acquisition, although they did not confirm their interest publicly.At the end of 2010, Russian Minister of Energy Siergiej Szmatko announced that state-owned oil producers Rosneft and Gazprom Neft might submit a joint bid for Lotos.From Warsaw Business Journal by Natalia KazikGazpromRussian-Kyrgyz JV takes over fuel supply for U.S. Manas base on: Tue, 22 Feb 2011 04:07:04 ESTMANAS, Kyrgyzstan, Feb 22, 2011 (Asia In Focus via COMTEX) -- A new Kyrgyz-Russian venture called GAZPROMNEFT-AERO-KYRGYZSTAN will be the provider of fuel for the U.S. transit center at Manas airport near Bishkek, RFE/RL's Kyrgyz Service reports. Officials of Russia's GazPromNeft-Aero and Kyrgyzstan's gasoline center at Manas airport signed the agreement creating the joint venture today in Bishkek. * Earlier this month, Kyrgyz officials and U.S. representatives agreed that Kyrgyzstan would provide the transit center with 50 per cent of its gasoline needs.* Kyrgyz First Deputy Prime Minister Omurbek Babanov told journalists earlier this month that the Russian side would own 51 per cent and the Kyrgyz side 49 per cent of the joint venture. For full details on (GZPFY) GZPFY. (GZPFY) has Short Term PowerRatings at TradingMarkets. Details on (GZPFY) Short Term PowerRatings is available at This Link.Gazprom dispatched jet to Libya to evacuate its technical specialists, February 21 (Itar-Tass) – Russia’s natural gas industry giant, Gazprom, has dispatched a jet to Libya to evacuate its technical specialists working in that country, a source at the Gazpromavia airline said. The jet bound for Libya’s capital Tripoli is expected to take off from the Vnukovo airport southwest off Moscow at 21:30 Moscow Standard Time /18:30 GMT/, the airport executives said. Gazprom supplying more gas because of cold - Mr Miller, 22 Feb 2011Interfax-Ukriane citing Mr Alexei Miller the Russian gas giant Gazprom chief as saying that the company has raised gas supply to Ukraine to more than contracts stipulated due to the cold weather.Mr Miller say "We're supplying additional volumes in excess of contract volumes, we are making concessions to our Ukrainian friends, so that our Ukrainian friends can stay warm and that Ukraine can receive the full amount of gas."(Sourced from Interfax-Ukraine)A difficult balancing act for head of Gazprom Miller has to champion natural gas, while playing down price pressure from alternative supplies, says Sarah ArnottTuesday, 22 February 2011Alexei Miller will have to perform a careful balancing act when he goes into European energy policy negotiations later this week. The chief executive of Gazprom – the state-owned Russian giant that supplies more than a fifth of Europe's gas – will be called upon to champion the role of natural gas in Europe's energy mix, while playing down the implications of price pressures from shale gas and liquefied natural gas (LNG). At the same time, he has to instill confidence in the security of Russian supply and argue against a policy package that threatens to undermine the company's hopes for a merger with Ukraine's Naftogaz Ukrainy.But Mr Miller is undeterred. "The 20th century was the century of oil, and the 21st century will be the century of gas," he says with conviction. "Gas is the key fossil resource that will ensure the energy balance of Europe in the short term and in the long term."Not everyone agrees. European governments are working hard to diversify away from a reliance on imported Russian gas. In part, the moves are designed to encourage investment in alternative, green technologies such as wind farms. But they are also a security measure in the wake of the series of disputes over transportation via the Ukrainian pipeline, the most recent of which saw supplies cut off for 13 days in 2009.For Gazprom, the political crisis in the Middle East is an opportunity for some positive comparisons. "As far as the events in the Middle East and North Africa are concerned, first and foremost we must reconsider the question of the reliability and sustainability of supply of hydrocarbons from that region to Europe," Mr Miller says.He also takes sideswipes against what he characterises as a US and European media-generated image of Gazprom as an arm of the Kremlim, using energy as a political weapon. According to Mr Miller, Gazprom's image problem is not with European consumers, who have been supplied with gas for 40 years, during which time the company has "never ever broken its contractual obligations". "But the image created by the mass media in the US and Europe is a completely different story," Mr Miller says. "It is highly politicised and has nothing to do with the economics of Gazprom."Image is not Gazprom's only challenge. The company is also struggling to come to terms with what some experts identify as a revolution in the global gas market, transforming the industry from one based on long-term, fixed-price contracts supplied through a highly costly pipeline infrastructure, to a more liquid market with a global price index, much like that of oil.The driving force behind the shift is twofold: the sudden surge of unconventional gas supplies such as shale in the US and coal-bed methane in Australia, and the development of LNG from major suppliers such as Qatar that can be shipped around the world. Between them, LNG and US shale gas have sent gas prices on the spot market plummeting, pushing European buyers to insist that a proportion of the prices they pay under long-term Gazprom contracts fluctuate with the spot price.Mr Miller gives unconventional gas supplies short shrift. Such gas is unsustainably expensive to produce, he says. And the buzz that it is a game-changer in the global gas industry is a just a media campaign. "Shale gas is a very well-planned public relations campaign in the mass media, as are global warming and bio fuels," he says.Gazprom remains confident of Europe's rising appetite for gas, despite European governments' forecasts that the Continent's gas consumption will fall over the coming decades as alternative energy sources kick in and energy efficiency measures such as household insulation take effect. According to Gazprom, in the future gas-to-liquid technology will see demand for gas to power clean cars balloon. But even in the shorter term, climate change targets across Europe will push energy companies to invest in gas-fired power stations at a fraction of the environmental impact of their coal-fired cousins and a fraction of the cost of renewable alternatives, the company says.The global financial crisis has sealed the future of cheap Russian gas in the European market, says Mr Miller. He brands European governments' subsidies for alternative energy sources as "no longer morally valid" while governments struggle to balance their budgets.It is a point that could come up in negotiations with EU policymakers later this week over the bloc's "third energy package", which is aimed at boosting competition by separating supply and production from transmission, but also includes measures to encourage investment in alternative energy sources. According to Mr Miller, the scheme drawn up before the global economic crisis – and due to come into force next month – is no longer viable. "Even with subsidies the future of alternative energy didn't look very bright, but now, after the financial crisis, it looks even dimmer than before," Mr Miller says.But the biggest issue at the talks is the question of enforcing the separation of supply and transmission, which has huge implications both for Gazprom's proposed merger with Naftogaz Ukrainy, and for its investments in new pipelines into Europe avoiding Ukraine.Gazprom's main argument focuses on the risk to investments. "The attractiveness of gas transmission networks for Gazprom and large European energy companies which buy big volumes of gas from Russia will become problematic for investors," Mr Miller warns. But the hit will not only be to the new North Stream via the Baltic to Germany and the proposed South Stream via the Black Sea to Italy and Austria. There are also ramifications for the much-needed upgrade to the trans-Ukraine pipeline which currently carries 80 per cent of the gas Russia exports into Europe.The row in 2009 between Russia and Ukraine over prices and debts saw gas supplies cut for nearly two weeks, and although Western Europe was largely unaffected, some countries such as Bulgaria and Slovakia suffered significant shortfalls. Gazprom's proposed merger with Naftogaz Ukrainy is an effort to avoid a repeat of the crisis. But the deal could be under threat from the EU's third energy package, according to Mr Miller. At this week's meeting, the Gazprom chief executive will call on the EU to focus on the potential benefits to Ukraine, rather than on the ideologically driven policies that mitigate against the €6.5bn-worth of investment the Ukrainian pipeline needs over the next seven years."Ukraine's adoption of the European rules will create problems with investing in gas transportation pipelines and the update of the gas network in Ukraine," he says. "We need not to politicise the issue but to look at the social and economic benefits to Ukraine of such a huge incentive for development."Mr Miller will have to work hard to keep all the plates spinning.A life of energy* Alexei Miller has been Gazprom's chief executive since 2001 and deputy chairman since 2002. He was appointed deputy energy minister for the Russian Federation in 2000.* Born in Leningrad, of German descent, Mr Miller studied for a PhD in economics before starting his career in the St Petersburg mayor's office under Vladimir Putin, now the Russian Prime Minister. He was director general of the Baltic (oil) Pipeline System before joining Gazprom.* He holds a clutch of medals and titles including the Order for Services to the Fatherland and the Sergiy Radonezhsky Order of the Russian Orthodox church.Gazprom feels the heat as its gas market dominance is threatened's headquarters may be an imposing tower block fortress dominating the Moscow skyline, but there are plenty of reasons why the gas bosses inside might be feeling vulnerable these days. By Rowena Mason, in Moscow 9:00PM GMT 21 Feb 2011On Monday, Alexey Miller, chief executive of the state-owned behemoth, was on the defensive as he rounded on all the forms of energy threatening Russia’s gas empire. “Shale gas, we know from the mass media, this is a very well planned PR campaign,” he claims. “There are many PR campaigns like global warming and biofuels.” He also recommends that Europe reconsiders its relationship with the unstable Middle East following violent protests – a region shipping increasing amounts of liquid gas to Western consumers. As for Europe’s attempts to increase electricity from renewable sources, Mr Miller reckons it is no longer “moral”. Europe’s big budget deficits make the huge subsidies for green energy unsustainable, he argues. Then there is the European Union’s third energy package – liberalisation measures to separate supply from transportation due to come into force this spring. The long-planned reforms have some “problems with implementation” that could hinder investments in pipelines carrying gas from Russia, Mr Miller will tell Europe in meetings next week. All the grievances serve to underline the unhappy truth for Gazprom – its upper hand in the relationship with customers is being eroded. Russia and Europe have for a long time been stuck in a mutually-dependant marriage of producer and consumer. Europe gets 31pc of its gas from Russia, and the former Soviet state also gets half of its tax revenue from oil and gas. But now, for the first time, Russia is challengeable as the best exporter of gas for Europe, with shippable supplies available from a growing number of sources. Liquefied natural gas (LNG) currently comes mostly from the Middle East, but with its expansion, supplies are likely to start floating across from Australia and even America. Potentially, an even bigger problem for Gazprom is shale gas, which has depressed global prices to their lowest level in decades. With the discovery of these new unconventional resources, which must be extracted from rock, America has doubled its gas reserves and overtook Russian as a producer in 2009. Gazprom had been counting on the US as a major customer for its giant Shtokman gas field in the Barents Sea. This week, rumours have been abounding that this giant LNG plant will be again delayed, until 2018, from an initial start date of 2014. Just as worrying for Gazprom is the possibility of abundant shale in Poland and Ukraine, potentially replacing old North Sea fields in the UK and Norway that are gradually depleted. On Monday Mr Miller attacked the economics of US and European shale, having previously described the industry as a “bubble” bound to burst. Nevertheless, new shale resources have pushed prices so low that energy buyers like EON and RWE are seeking cheaper deals with Gazprom instead of the current, more expensive oil-linked terms. Russia’s problems run deeper than whether it will be undercut by other producers. Europe is desperate to decrease its reliance on Russian gas for political reasons, since the stand-off with Ukraine in January 2009 that resulted the Kremlin temporarily switching off European supplies. Gunther Oettinger, the European Commissioner, said this month he could live with 25pc to 30pc of gas from Russia – but that level was enough. A perception that Russia may leave Europe short of gas has pushed the Commission to support the heavily-subsidised Nabucco pipeline that is due to bring supplies from gas-rich Azerbaijan by 2015 In short, Gazprom has an image problem, although Mr Miller vehemently refutes the suggestion that the company is unreliable. “First, our image in the eyes of consumers in the EU, we’ve been supplying them for 40 years and we’ve never ever broken our contractual obligations,” he claims. “The problem is politics. It has nothing to do with economics.” Neither is Gazprom immune to hostile politics in its own back yard. After profits fell 9pc to ?3.4bn last quarter, Gazprom came under pressure from Russian Prime Minister Vladimir Putin to “improve efficiency” or risk losing its monopoly status. As it tries to battle off competition and criticism on several fronts, is there any need for Gazprom to feel so threatened? After all, the state energy giant has the option of other customers such as China and the rest of Asia, which are rapidly growing markets. And some of the company’s targets are imagined foes – like the idea that Europe will wean itself off gas any time soon. This will be underlined as Europe increases its gas imports from around 60pc to nearer 80pc by 2030. Russia is likely to remain the main gas exporter to Europe and most experts accept gas as the most likely energy source to take over from high-carbon coal in the medium term. The truth is that regardless of the political posturing, mutual suspicion and fallings-out, Europe and Russia need each other. It’s just that as rival suppliers gain market power and cosy up to Gazprom’s oldest customer, we perhaps might start to see the big behemoth behaving a little bit nicer. Gazprom chief Alexey Miller warns Europe on 'safety' of Middle East oil and gas supplies needs to reconsider the “stability and safety” of its oil and gas supplies from the Middle East after protests that have pushed the oil price above $105 per barrel, Alexey Miller, the chief executive of Gazprom, has warned. By Rowena Mason, in Moscow 6:00AM GMT 22 Feb 2011Mr Miller, the head of Russia’s biggest gas producer and the largest source of European imports, said the events of the past few weeks ought to prompt serious analysis about the stability of imports from the region. “As far as the Middle East and North Africa is concerned. we need to reconsider the question of reliability and stability of hydrocarbons,” Mr Miller said at the Moscow headquarters of Gazprom. “I think the question of reliability and stability and safety of supplies from there should be analysed and considered much more importantly than they were before these events.” His comments show Russia is seeking to capitalise on the turmoil in Libya, Egypt, Bahrain, Algeria and Tunisia to promote itself as a more trustworthy source of gas for European countries. Mr Miller’s remarks come at a time when Gazprom’s dominance as a gas supplier is being threatened by the emergence of shippable liquid gas supplies from the Middle East and the development of cheap and abundant “shale” gas in the US and potentially eastern Europe. Countries in Europe have also been trying to reduce their dependence on Russian gas after a crisis in winter 2008, when the Kremlin turned off the taps to the main supply route through Ukraine following a spat over transit prices. The comments by the Gazprom boss were backed up by a number of Russian energy experts. Konstantin Simonov, director-general of Russia’s National Energy Security Foundation, said: “Remember the revolution in Iran and the oil price. And now we see Algeria and Egypt – what’s going to happen? “The Islamists may possibly come into power and there may be a war with Israel. Remember, that is the channel for delivering gas from Qatar.” Sergey Pravosudov, head of Russia’s Institute of National Energy, added his concerns. “The Gulf of Persia, Iran, Iraq and North Africa are all the same story. Europeans may hope that they will get a lot of cheap gas from there but whether this will come true I’m not so sure,” he said. “Russia is often pictured as the empire of evil, but there are still a lot of contracts between Russia and Europe with good partnerships. I don’t see any reason for looking for gas on the side when Russia is open for partnership and has a reliable supply of gas for Europe,” Mr Pravosudov added. Meanwhile, it was reported that Chesapeake Energy has agreed to sell its interests in the Fayetteville Shale field in Arkansas, US, to BHP Billiton for $4.75bn in cash. Gazprom spins the table on Kiev once more 21, 2011Gazprom CEO Alexei Miller said on Monday that the Russian gas giant has no plans to give in to Ukraine's requests to revise the price of its gas supply contract, as the two countries continue to play pass the parcel with the issue. Miller's response predictably turned the tables on Ukraine's latest request, replying by pushing Moscow's bid for control of Ukraine's gas transit system, reiterating the benefits on offer should Ukraine agree to a merger between Gazprom and Naftogaz. Kiev has repeatedly asked to revise the contract, which was last amended in April shortly after Viktor Yanukovych was elected president of Ukraine. Prime Minister Mykola Azarov insisted recently that Kiev would continue pressing for changes to the pricing formula. However, he yet again received short shrift from the Gazprom chief: "Under the current contract, gas is supplied with a 30% discount compared to the price for European consumers. We do not plan any changes to the price formula or the contract," Miller said.The price Ukraine pays for its gas has only become more of a burden as the government faces growing discontent at home in the face of stringent austerity cuts as it props up the cash strapped economy. Yanukovych secured a 30% discount on the original existing contract - signed by former PM Yulia Tymoshenko to end the last gas war between the two countries in January 2009 with prices at the same level as EU contracts - in return for extending Russia's lease of the Sevastopol base for its Black Sea Fleet.Last week, the IMF spent the week in negotiation with Kiev over the conditions on the next tranche of the $15bn bail out agreed in the summer. Ukrainian households unhappily swallowed higher gas prices last year, as the government sought to save cash by cutting subsidies. However, last week, the government managed to buy itself more time on another round of price hikes - which were set to see domestic gas bills rise by 50%.For its part, although Gazprom has been facing requests for lower pricing from across Europe - the latest coming on Monday from E.On - Moscow has little motivation to lower the price of the contract for Kiev. What would tempt it is control of Ukraine's gas pipeline network, through which 80% of exports to European markets flow. However, with the asset widely viewed as a cornerstone of the country's independence, and given the interests of the powerful business tycoons that back the ruling Party of Regions, Ukraine has flatly refused to consider any such approach. Meanwhile, it continues to appeal to the EU to join in partnership to upgrade the decaying infrastructure. Those pleas have fallen on deaf ears thus far though, with Brussels strapped for cash itself and attempting to push an energy policy of its own that aims at reducing reliance on Russian supplies, not investing in boosting them.Russian Prime Minister Vladimir Putin first suggested a merger between Gazprom and Ukraine's national energy company Naftogaz in April. Miller pressed the issue again on Monday. "Russian industrial customers have much lower gas prices than their Ukrainian counterparts, so if Ukraine agrees to the merger with Gazprom it will receive a stimulus for economic development," Miller said.He then went on to up the pressure by claiming Kiev has little time, and pointing out that Russia is ready to step in where the EU is not ready to tread. The added bonus, he suggested, would be additional income from transit fees, in the face of the twin pipelines Moscow is building to circumvent Ukraine, reports Platts."If the merger takes place, we'll load the Ukrainian gas transportation system to the maximum. If shipments currently are around 95 bcd, it could transport some 120-125 bcd," said Miller, warming to his theme. "In the next seven years, Ukraine needs some EUR6.5bn, with EUR3bn at a minimum to keep the system functional, so Ukraine doesn't have much time to decide what direction it wants to go in."Ukraine's response to the stand off in recent months has been to attempt to loosen its dependence on Russian energy, and - given the EU's reticence, the political pressures at home, and the approach of its backers - the government has little option but to continue in that direction. To that end, it is in the midst of agreeing a JV between Gazprom and Naftogaz, in the hope that it can secure access to Russian upstream assets. It's also teaming up with international energy majors to prospect for unconventional gas deposits at home, whilst also negotiating LNG supplies from the Caucasus and North Africa. ................
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