Russia
Russia 090313
Basic Political Developments
• Kudrin to attend G20 financial meeting
• Russia opposes minimum fiscal stimulus for G20
• British Minister Praises Russia's G20 Role
• Building a Tower of Babel at the G20 Summit - But more likely than not, President Dmitry Medvedev will return from the summit in three weeks with little to show for the G20's anti-crisis efforts.
• Moscow to host CIS Economic Council meeting
• Transnistrian, Moldovan leaders to meet in Moscow
• Pirated Chinese weapons worry Russia
• Space station's close call with junk: More to come
• South Ossetia becomes stronghold of KGB and Russia’s intelligence services
• Senior policemen Amirkhan Tatiev short dead in Ingushetia
• Land mine explosion in Chechnya kills civilian
• Police say unauthorized action in Moscow involved 30 people
• Russian opposition holds 'Day of Dissent'
• Russian Cops Quiz Anti-Putin Protesters
• St. Petersburg "dissenters" hand anti-crisis demands to authorities
• Russian Agency May Monitor Officials’ Finances, Kommersant Says
• Surprise Pick for Agriculture Minister - President Dmitry Medvedev appointed Yelena Skrynnik, the little-known head of equipment leasing company Rosagroleasing, as agriculture minister Thursday in a surprise decision praised by industry insiders.
• Nemtsov in Bid to Be Next Mayor of Sochi
• Litvinenko suspect Lugovoi may run for Sochi mayor
• Gryzlov's Son Joins United Russia
• Kremlin loyalist says launched Estonia cyber-attack
• Nashi Activist Says He Led Estonia Cyberattacks
• Lessons From the Russia-Georgia Cyberwar
• Russia’s FSB 2008 report issued; 104 terrorist attacks foiled last year
• Hotwired Justice - The European Court of Human Rights yesterday delivered a landmark ruling in a case brought by a Russian against the FSB’s handling of an investigation. The court’s finding – that the investigative methods used jeopardized Anatoly Bykov’s right to a fair trial – will have implications for law enforcement agencies beyond Russia. But it is just one of many Russian cases that the Strasbourg court is inundated with.
National Economic Trends
• Russian monetary base up $728 mln in week to $106.9 bln
• Ignatyev Against Controls
• Russian bank balances fall to 381.4 bln rbls
• Budget Surplus Falls To $3.3Bln
• February budget slips into deficit
• Trade Balance Widens In January
• Trade Surplus Up To $9.4Bln
• Remittances Fall 26%
• PPI increases for the first time in five months
• RBS: Russia update
Business, Energy or Environmental regulations or discussions
• Novatek, Rosneft, Polymetal May Move: Russia Equity Preview
• Russia ponders ways to protect private stock investors
• Central Bank to conduct first 3-mth repo deals on MICEX March 13
• VTB group loaned 109 bln rubles in Feb
• Sberbank targets 100% Belpromstroybank control
• MOSCOW BLOG: Russia stabilises but banks remain the danger - Investors into Russian equities were starting to breath again by the start of March as the fear of a complete meltdown began to recede. The news in general wasn't good, but at least it wasn't appalling either. Russia's economy is stabilising, but the banking sector could still buckle and bring the economy to its knees.
• State will not purchase metals from producers
• Putin Offers Miners a Crash Course on Crisis
• Russian Electric Utilities: Awaiting Key Decisions
• Enel cuts modernization CAPEX for OGK-5's existing units
• RusHydro holds conference call - The long-awaited listing of RusHydro's GDRs will be completed in late 2Q09. The bourse was not disclosed.
• Alfa Seeks $1Bln in Debt From Deripaska's Firms
• Alfa to recover $1bn debts from Deripaska empire
• Rusal Pledged Stakes in Units for Russia Bailout Loan, VEB Says
• Rusal Pledged Stakes to Russia as Loan Collateral, FT Says
• Svyaznoy shakes hands with VimpelCom
• Svyaznoy reportedly has marketing agreement with Vimpelcom
• Norwegian Stake in Russian Joint Venture Seized
• Sistema reportedly sells 50% stake in MTT to Synterra
• Moscow City Government to compensate AFI for infrastructure works on Tverskaya Zastava
Activity in the Oil and Gas sector (including regulatory)
• Russia to propose oil forum for OPEC members
• Russia to propose new pricing formula on crude at Moscow conference
• Russian president says Russia keen on fair, stable oil prices
• KAZAKHSTAN & TURKMENISTAN DEAL BLOW TO NABUCCO PIPELINE PROSPECTS
• Rosneft plans for development 245-South block in Algeria are approved
• Rosneft’s O’Brien Says Planning to Start Vankor Output This Year
• LUKoil, NLMK Reach Lube Deal
• ONGC looking for Imperial team
• Novatek Operational Update Leads Us To Lift 4Q08 Ebitda Estimate
Gazprom
• Gazprom Considers Investing in Japan Power Utilities (Update1)
• Gazprom to carry out explorations at 4 Uzbek blocks by end-2010
• GAZPROM: Is it Time to Hit the Reset Button?
• On meeting of Gazprom’s Central Subsurface Use Commission - The meeting considered the issues of obtaining the rights to use the subsurface resources of the Yamal-Nenets Autonomous Okrug and the Okhotsk Sea offshore areas.
• Taqa May Spend up to $4 Billion on Takeovers in 2009 (Correct) - The company also plans to invest 600 million euros ($769 million) with OAO Gazprom, Russia’s natural-gas exporter, in their Bergermeer Dutch gas storage project.
• Zenit St Petersburg will have to cut their budget by 10 percent this year, according to the club's owner, Russian energy giant Gazprom.
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Full Text Articles
Basic Political Developments
Kudrin to attend G20 financial meeting
LONDON, March 13 (Itar-Tass) -- Russian Deputy Prime Minister and Finance Minister Alexei Kudrin will attend the G20 ministerial meeting that opens on Friday.
“We have to coordinate the anti-crisis policy and design anti-crisis measures to prevent similar crises in future,” an official in the Russian delegation said.
Russia believes certain provisions in the communiquй of the meeting need to be specified. In particular, the proposal to earmark not less than two percent of the GDP for anti-crisis measures does not correspond to the existing situation in various countries of the group. Therefore, the concrete bailout volumes shall not be fixed.
“Differentiation is necessary by groups of countries. It has to be discussed taking into account the opinion of BRIC countries” (Brazil, Russia, India and China), the official said.
Russia also believes the British proposal to decrease the refinancing rate does not reflect the specifics of developing and oil producing countries. “The economic situation differs and there is no single recipe for all,” he said.
The finance ministers will discuss the reform of the International Monetary Fund, specifically the amount of additional reserves, quotas and decision-making mechanisms.
“Such institutions as the IMF should not just provide urgent aid to certain countries, but also envisage the consequences, which the world economy would face in six-twelve months because of the anti-crisis measures,” the official said.
The ministers will also consider the capitalization of development banks. Thus, the World Bank can provide to all of its members not more than 100 billion dollars in three years, which is clearly insufficient in current conditions. However, developed nations are in no hurry to up its capitalization.
“There should be no group egoism and the task of the G20 is to consider how the world economy would react, to balance the instruments and measures that are taken to confront the challenges faced by various groups of countries. Hypothetically, it can be supposed that growing crisis phenomena can make certain states bankrupt and it is necessary to prevent such areas of social and political instability,” the official said.
Russia opposes minimum fiscal stimulus for G20
Thu Mar 12, 2009 9:54pm EDT
MOSCOW (Reuters) - Russia will oppose UK proposals for all G20 members to set a mandatory minimum fiscal stimulus level at 2 percent of gross domestic product and cut interest rates, a Russian delegation source told reporters on Thursday.
The source said both proposals were included in the draft communique circulated by G20 host Britain ahead of a meeting of G20 finance ministers and central bankers in Horsham, southeast England on Friday.
"We need to differentiate between groups (of countries). We will need to discuss it taking into account opinions of BRIC countries," the source said regarding the minimum fiscal stimulus requirement.
Delegations from Brazil, Russia, India and China will meet ahead of the G20 meeting on Friday. Russia's own fiscal stimulus package currently amounts to 4.5 percent of GDP.
The source said another UK proposal calling for all G20 countries to cut interest rates in line with similar policies in the United States and the euro zone countries did not reflect the realities of commodity-exporting economies.
"The economic situation is different and there is no common recipe for interest rate policy," the source said. Russia has been raising its interest rates to support the rouble's exchange rate and stem capital flight.
UK Foreign Office Minister Mark Malloch-Brown criticized Russia and other emerging nations for not doing enough to stimulate their economies and for keeping high interest rates to support their currencies and stem capital flight.
(Reporting by Gleb Bryanski; Editing by James Dalgleish)
British Minister Praises Russia's G20 Role
13 March 2009
The Moscow Times
British Foreign Office Minister Mark Malloch-Brown said Thursday that Russia was playing a "major role" in the preparations for the G20 summit next month in London.
Malloch-Brown is on a two-day trip to Russia to discuss strategy and agenda topics for the April 2 summit, and he met Thursday with First Deputy Foreign Minister Andrei Denisov.
Malloch-Brown, speaking at a briefing held by the Association of European Businesses, said the Russian government and Britain "shared" four main objectives for the summit: developing a unified strategic vision for tackling the problems in the world's real and financial sectors; discouraging the growth of national protectionism through a recommitment to free-trade; tightening banking and financial regulation; and creating aid packages for poorer countries.
On Friday, he is to meet Foreign Minister Sergei Lavrov and presidential economic adviser Arkady Dvorkovich.
Building a Tower of Babel at the G20 Summit
12 March 2009
By Martin Gilman
By now almost everyone on the planet has felt to one degree or another the most virulent global economic crisis since the Great Depression. Its largely unanticipated destructive force has humiliated once-mighty financial institutions and companies, humbled economists, devastated investors, scared consumers and challenged public authorities around the world.
It is natural that at a time of such confusion and even desperation many people look to their leaders for solutions. This is the context in which the much-hyped expectations of many are focused on the second summit of the Group of 20 countries in London on April 2. But more likely than not, President Dmitry Medvedev will return from the summit in three weeks with little to show for the G20's anti-crisis efforts.
The G20 "sherpas" will meet on Thursday in London to prepare the summit agenda. Undoubtedly, they will once again produce empty pledges to avoid protectionism, coordinate policies, strengthen regulatory oversight and -reform international financial institutions.
Regarding the threat of protectionism, the G20 pledge in November to forego any protectionist actions and promote the Doha Round of trade talks was ignored, but nonetheless, it is likely to be repeated this time along with a promise to monitor such measures. Much effort will be expended on the search for scapegoats or secondary issues like tax havens. There will be more calls to coordinate regulatory regimes, but U.S. authorities have already insisted that they will continue to conduct their own regulation of financial institutions and markets.
In any case, it is hard to conceive that this heterogeneous group could ever agree on much. Its membership reflects geographical and social factors as much as economic size. It excludes some of the world's 20 largest economies, such as Iran and Taiwan, while smaller economies, such as Saudi Arabia, Argentina and South Africa, are included.
The preponderance of European countries in the G20 is reflected in the stalemate on reform of the International Monetary Fund. Other than calls for surplus countries to place more of their money for use in its lending operations, there is unlikely to be any real steps to improve governance by shifting control of the IMF from overrepresented European countries to China, Russia and South Korea. Despite some hypocrisy, none of the existing shareholders seems willing to cede its share or, more sensibly, to consolidate the European representation into a single vote.
Thus, Russia, China and other major emerging economies, the new creditor class of the 21st century, have been largely disenfranchised by the "debtors" who control the international financial and economic institutions. The only way that the G20 can really make a difference is by recognizing this new reality and having the political courage to start a realignment of power and control to reflect the tectonic shift in relative global economic forces. Unlikely as it may seem, this is a chance for Medvedev to display real leadership.
The United States is also underrepresented -- at least relative to its share of global gross domestic product -- but it could still try to make common cause with the new creditors. It is hard to imagine that President Barack Obama would be willing to offend his host and allies on one of his first forays into foreign affairs.
Ironically, if the IMF's shareholders had taken Russia's proposal in 2006 to appoint the experienced Czech Josef Tisovsky as head of the fund rather than French politician Dominique Strauss-Kahn, perhaps it would now be in a better leadership position in the current crisis. But Russia's views are not taken seriously, not least because they could upset the long-standing predominance that the Europeans enjoy. And no matter how concerned the United States is about the crisis, a real reform of the IMF and other institutions is just politically too costly.
In London, the heads of government will also discuss their numerous proposals to revive their economies through tax cuts and spending. But any proposal that binds stimulus packages to a percentage of GDP is likely to meet resistance.
This is because the crisis manifests itself in different ways in different countries. There is little need to dwell on the adverse impact of the crisis on Russia. The collapse of oil prices, bank credit, government revenues and the ruble together underscore the country's economic predicament. But unlike all the other G20 economies where stagnation is the primary concern, Russia is the only one trying to contend with stagflation -- that lethal combination of economic stagnation and inflation.
In the context of any coordinated effort to stimulate the global economy, as White House economic adviser Larry Summers called for earlier this week, Russia's hands are tied. Unlike many countries where a major expansion of public spending is constrained by large debt burdens, Russia -- which has not forgotten the lessons from its 1998 default on domestic ruble-denominated bonds -- has little sovereign debt (4 percent of GDP at the end of 2008).
Instead, a Russian effort to expand government spending, as its contribution to boost to the global economy, is restricted by inflation. Russia's inflation rate rose to a four-month high in February as the weaker ruble drove up the price of imports. The annualized rate jumped to 13.9 percent from 13.4 percent in January. February's increase in inflation reflects the ruble's sharp but controlled depreciation of about 35 percent between Nov. 11 and Jan. 22.
These devaluation effects could last through April before we see what impact the decline in real income and shrinking money supply will have on dampening inflation. It is by no means a given that the official inflation forecast of 13 percent for 2009 will be realized. Much will depend upon how the authorities revise the 2009 budget.
Russia is already making too large a contribution in the G20 framework in terms of relative fiscal effort. Its budget balance -- and hence its contribution to real GDP -- could swing from a budget surplus of 4 percent of GDP in 2008 to a budget deficit of as much as 8 percent of GDP in 2009. This 12 percentage-point injection, envisaged by Finance Minister Alexei Kudrin, is almost twice as much as contemplated by the United States. The net result will be sustained inflation and poorer medium-term prospects.
Kudrin should aim for a much smaller deficit, and he would still be able to say that Russia is doing more than most to boost the global economy.
Martin Gilman, a former senior representative of the International Monetary Fund in Russia, is a professor at the Higher School of Economics.
Moscow to host CIS Economic Council meeting
RBC, 13.03.2009, Moscow 09:53:05.Moscow will host a meeting of the CIS Economic Council. The meeting's agenda includes 19 issues, including a draft action plan to implement the CIS economic development strategy for a period until 2020. The first stage of the strategy has been designed for 2009-2011, and includes steps to alleviate the aftermath of the global financial crisis. For instance, the document provides for a closer industrial cooperation between the governments, and implementation of joint interstate programs, including in energy, transportation and agriculture. The strategy lays a special emphasis on boosting the competitive edge of the output and rollout of innovative technology.
The Economic Council will consider energy production and consumption forecast until 2020, as well as innovative cooperation and other issues.
Transnistrian, Moldovan leaders to meet in Moscow
RBC, 13.03.2009, Moscow 09:30:08.Transnistrian leader Igor Smirnov plans to consider signing an agreement on friendship and cooperation between Transnistria and Moldova at the meeting with Moldova's President Vladimir Voronin in Moscow, which is to be attended by President of Russia Dmitry Medvedev. The draft agreement was submitted to Moldova in April 2008, as well as Tiraspol's non-aggression proposals. Smirnov announced the plans at his meeting with Ukraine's special envoy on Transnistrian settlement Viktor Kryzhanovsky yesterday.
In turn, the Ukranian envoy said Ukraine opposed any separate negotiations without the country taking an active part. Smirnov, however, stressed that such negotiations were out of the question. Russia acting as an intermediary had offered a venue for the talks to give them an impetus, and Transnistria felt it should seize the opportunity. To keep negotiations going it is necessary to prevent Moldova from speculating on guarantees and deceiving the global community, Smirnov noted adding that he was carrying a document to this effect to Russia.
Vedomosti
Pirated Chinese weapons worry Russia
Spokespersons for the Russian defense industry have dismissed foreign media reports on Moscow's refusal to sell Sukhoi Su-33 Flanker-D carrier-borne fighters to Beijing over fears of piracy as a "newspaper hoax."
However, this denial will not solve the problem of Chinese piracy with regard to state-of-the-art Russian defense technology.
Although the Russian defense industry has profited from the sale of military airplanes and helicopters to China, Beijing has not assembled Su-27 Flanker fighters from Russian components under a license contract since 2004.
It is also unclear how many Shenyang J-11 (JianJi-11) advanced fourth-generation fighters similar to the Su-27 have been manufactured for the Chinese Air Force to date.
Moreover, China has started copying Russia's S-300 surface-to-air missile (SAM) systems and X-55 cruise missiles. A Chinese version of the Mil Mi-171 Hip helicopter, being assembled in Sichuan province under another license contract since 2008, may appear soon.
In December 2008, Russian Defense Minister Anatoly Serdyukov visited Beijing. However, there are no guarantees that China will honor an intellectual property protection agreement signed during his visit.
Analysts from the Moscow-based Center for Analysis of Strategies and Technologies said, apart from popular tea kettles and steam irons, China was now copying motor vehicles, locomotives and other sophisticated technology, and could also launch weapons production in the near future.
Such weapons will have the same specifications as their Russian equivalents and will be just as reliable and easy to repair, the analysts said. In the next five years, cheap Chinese planes, helicopters, tanks and other military equipment will probably offer tough competition to their Russian equivalents on South Asian, African and Latin American markets.
It is impossible to stop the Chinese arms-export surge because Beijing has enough funding to buy the required prototypes in or through third countries. Consequently, Moscow must develop and manufacture competitive military equipment in order to defeat its rivals who are dumping cheap and substandard weapons on global markets.
Space station's close call with junk: More to come
By SETH BORENSTEIN – 7 hours ago
WASHINGTON (AP) — The near-hit of space junk Thursday was a warning shot fired across the bow of the international space station, experts said. There's likely more to come in the future. With less than an hour's notice, the three astronauts were told they'd have to seek shelter in a Russian capsule parked at the space station in case a speeding piece of space junk hit Thursday.
If it hit and they were in the main part of the station, they'd have only 10 minutes of safety, Mission Control told them. A hole in the space station could mean loss of air, loss of pressure and eventual loss of life.
The crew moved so fast that they may have left their instruction manual on the other side of a closed hatch. Inside the Soyuz, they waited for 10 minutes, ready to flee to Earth if the worst happened. On the ground, space debris experts fretted.
"We were watching it with bated breath," NASA space debris scientist Mark Matney said. "We didn't know what was going to happen."
The debris missed. Engineers still don't even know by how much and may never get a good figure. It could have been a few hundred feet or a couple miles.
In space, Commander Mike Fincke said they watched out the Soyuz window.
"We didn't see anything of course. We were wondering how close we were," he radioed Houston.
Matney, who has been with NASA since 1992 called it the closest call he can ever remember.
But it happened a month after two satellites collided in orbit, adding several hundred pieces into the space litter belt. And in the last few years, the problem of debris in space has gotten much worse with satellites destroyed on purpose.
"It's yet another warning shot that we really have to do something about space debris now. We have to do something on an international level," said Harvard astrophysicist Jonathan McDowell, who tracks everything in orbit.
"As we continue to put stuff up there, the predictions are that the rate (of close calls) will increase," added William Ailor, director of the Center for Orbital and Reentry Debris Studies at the Aerospace Corp. in El Segundo, Calif.
The U.S. Space Command tracks 13,943 orbiting objects 4 inches or larger. Only about 900 of those are working satellites, McDowell said. The rest is litter. There are thousands more smaller pieces of junk that can't be tracked as easily.
In space, size doesn't matter too much after about 3 or 4 inches. Speed does. The object that put the scare into the space station was probably 5 inches, Matney said. McDowell figures it was even bigger, maybe a foot: "a long thin thing" with a thread or string attached.
It was traveling 5.5 miles per second — about 20,000 mph, according to NASA spokesman Josh Byerly.
At that speed, something 5 inches "will wreck your whole day," Matney said.
Usually with enough warning, NASA will just move the space station out of harm's way. But NASA didn't learn of the threat until Wednesday night. This piece was in an odd orbit that kept dipping into Earth's atmosphere, making it hard to track, Matney said.
NASA didn't notify the astronauts until a couple hours after they woke on Thursday because they wanted to try to get more information about the debris, said NASA spokesman Kyle Herring
The object likely was a "yo weight" used to stabilize a global positioning satellite placed in orbit in 1993, McDowell and Matney said. It is ejected when the satellite is in its proper position.
NASA spokesman Byerly said station crews have used Soyuz as a precaution five times because of debris. But NASA space junk expert Matney said he couldn't it recall ever being used because of space debris.
The space station and space shuttle have been hit by debris in the past. But so far the only holes have been in the station's solar panels and in the shuttle radiator, neither of them dangerous, McDowell said.
"It just needs to hit at exactly the wrong place and then you have a problem," McDowell said.
The trash is even worse in the orbit of the Hubble Space Telescope. The February satellite crash increased the risk of junk hitting the space shuttle when it repairs Hubble. NASA is still calculating whether it's safe enough to do the repairs later this year.
Smaller space debris often falls into lower orbit and eventually burns up as it returns to Earth. But David Wright, a physicist with the Union of Concerned Scientists, said, "some of the big things will be up there for centuries and those are the ones that can really wreak havoc."
Lately, countries and companies launching satellites design their rockets and satellites to limit debris. But that needs to be made mandatory, McDowell said. And the latest problems may spur that type of action, Ailor said.
Russia's state-run Vesti-24 television reported on a lighter moment in the space station evacuation. Apparently the crew members left an instruction manual on board and Fincke had to be told by Mission Control how to go about getting back onto the station once the threat had passed.
Associated Press Writer Steve Gutterman contributed to this report from Moscow.
South Ossetia becomes stronghold of KGB and Russia’s intelligence services
12.03.2009
Russian Border Guards, the part of the Federal Security Service (FSB), have been deployed in South Ossetia. However, they will not only be guarding the South Ossetian border but are also intended to conduct espionage against Georgia, intelligence expert Konstantin Preobrazhensky, a former KGB agent, who now lives in the United States, writes in The Georgian Daily. Preobrazhensky notes that beyond this, South Ossetia has established its own KGB and even its own Foreign Intelligence Service, headed and run by Russian citizens andstaffed also with Russian personnel, but which provide Moscow with deniability.
The Intelligence Directorate of the Border Guards is part of the little-known FSB Intelligence Service. It is the third Russian intelligence service besides the SVR (Foreign Intelligence Service, formerly the First Chief Directorate of the KGB) and the GRU (the Main Intelligence Directorate of the Russian Army). The FSB intelligence Service was organized in the early 1990s on the basis of the First Departments of the provincial directorates of the Soviet KGB. The First Departments were managing foreign intelligence mostly by recruiting foreigners visiting their regions. Nowadays, the FSB Intelligence Service mainly targets the republics of the former Soviet Union.
A number of South Ossetia’s leaders have an explicit KGB background, the expert marks. Its current Prime Minister, Aslanbek Bulantsev, is an ethnic Ossetian and a citizen of Russia. He is a former officer of the KGB Financial Department and a former Ossetian minister. In 1986-2006, Bulantsev served as Head of the Financial Department of the KGB/FSB in Russia’s North Ossetia. South Ossetia’s Defense Minister for many years, Vasily Lunev, used to be a military commissar in Perm Oblast. The Secretary of South Ossetia’s Security Council, Anatoly Barankevich, is a former deputy military commissar of Stavropol area and served as a Deputy Head of the military commissariat in Chechnya during the war there.
The FSB can use military commissariats as a cover, for example when it plans secret home searches without a warrant. During his time in Chechnya, Barankevich’s main occupation was most probably to register all the male population of Chechnya to disclose terrorists and their family members, a task otherwise performed by the FSB. Barankevich could thus well have been covering for FSB searches on behalf of the military commissariat.
The advancement of former KGB financial department officers has received some attention since President Putin’s ascendance to power. The know example is the notoriously corrupt Andrei Belyaminov, the Head of the Russian Federal Customs Service. In the KGB First Chief Directorate (Intelligence), he was only a cashier. In the late 1980s, Belyaminov was posted at the KGB station in East Germany and made friends with Putin there, undoubtedly his path to promotion, Preobrazhensky points out.
But the KGB of South Ossetia is not allowed to manage espionage. In October 2008, following Russia’s recognition, South Ossetia obtained its own Foreign Intelligence Service. Given that there has never been a single professional spy in this tiny provincial republic, it is obvious that this service will be manned by intelligence professionals coming from Russia. But given that the territory of Georgia is already covered by the FSB, the question of this agency’s rationale remains unanswered. It appears likely that the “South Ossetian” foreign intelligence service has been created to spy on the American interests in Georgia. Crucially, the South Ossetian service will remain formally independent, indeed, in Russian parlance the service of an independent state. That will allow Moscow the ability to disclaim responsibility should its activities be uncovered, the analyst stresses.
The promotion of a KGB financial specialist to the post of Prime Minister of South Ossetia in October 2008, in this context, could have two reasons. Firstly, his professional knowledge of the governmental financial system made him an expert in money-laundering. Secondly, his belonging to the privileged KGB elite could provide him with impunity.
Senior policemen Amirkhan Tatiev short dead in Ingushetia
NAZRAN, March 13 (Itar-Tass) -- A senior policeman was shot dead in Ingushetia in North Caucasus late on Thursday.
Police said Major Amirkhan Tatiev was killed after unknown gunmen opened fire at his car in the settlement of Ordzhonikidzevskaya.
Tatiev worked as a detective of the main interior department of the southern federal district.
The gunmen escaped from the scene in a car and are being searched for.
Land mine explosion in Chechnya kills civilian
MOSCOW, March 13 (RIA Novosti) - A civilian was killed in an antipersonnel mine explosion in southern Chechnya, a police official in the southern Russian republic said on Friday.
The incident occurred on Thursday in a wooded area near the village of Dargo in the Vedeno district, police said, adding that the details were being investigated.
Major fighting between federal troops and separatists in Chechnya ended years ago, but militants continue staging attacks on troops and authorities. Woods and mountains remain littered with mines and booby traps.
Police say unauthorized action in Moscow involved 30 people
MOSCOW, March 12 (Itar-Tass) – About 30 people took part in the attempt to organize an unauthorized street action in Moscow Thursday night, Victor Biryukov, the chief press officer of Moscow City’s Department of the Interior said.
The number of mass media people who had come to cover the event was twice as big as usual.
About ten participants in the action were detained.
Interior officials said the participants in the action, which the city authorities had denied permission for, gathered on the downtown Prospekt Mira Avenue and started moving by sidewalks towards the Sukharevskaya metro station, located at the crossroads of Prospekt Mira and another very busy transport artery, the Garden Ring.
As they reached a place not far from the metro, they went into the carriageway of the street after the red light for pedestrians had switched on, and the traffic had to stop for a short while in both directions.
“Administrative protocols are being filled out on the detained citizens at the moment” at a police branch where they were delivered right from the street. “In most probability, the court will award penalties to them,” Biryukov said.
He indicated there are no reporters among the detainees.
“A small confusion occurred when the policemen detained several reporters in the crowd of people but when the situation was clarified they police let them go immediately,” Biryukov said.
Earlier, representatives of the United Civic Front said they would hold ‘marches of dissenters’ in Moscow and a few other Russian cities March 12. They did not have permissions from local authorities for such actions anywhere, however.
The Interior Ministry warned them at once that any actions of this kind are inadmissible, and Deputy Minister Mikhail Sukhodolsky said the police will cut short toughly all the attempts to hold them.
Moscow police placed about 4,000 inspectors in various places of the downtown Thursday night. Their main duty was to ensure law and order during and after a game between the Moscow-based CSKA football club and the Shakhtar club from the East Ukrainian city of Donetsk.
The two teams played at the Luzhniki stadium.
The number of policemen placed at the sites where the ‘dissenters’ planned holding their actions was about 450.
There were no mass actions under the United Civic Front auspices in other cities either.
In St Petersburg, the police detained five ‘dissenters’ who tried to organize an unauthorized picket.
Russian opposition holds 'Day of Dissent'
By DAVID NOWAK
[pic]
updated 2:27 p.m. ET March 12, 2009
MOSCOW - Kremlin opponents led police on a chase through Moscow's subway system on Thursday, then emerged to march down a major avenue and call for Prime Minister Vladimir Putin's resignation.
It was the largest of a handful of protests across Russia, and several activists and journalists were detained, including an Associated Press writer and photographer who were later released.
In Moscow, St. Petersburg and a few other cities, activists linked to the opposition movements of former chess champion Garry Kasparov were criticizing the government's response to the financial crisis, demanding Putin's resignation and defending their right to public expression.
The protests were planned in stealth to avoid a police crackdown, said Alexander Averin, a member of Kasparov's new movement, Solidarity.
In Moscow, activists met in the evening at a central subway station, where organizers had said they would announce further plans. Police have broken up previous protests, beating and detaining opposition activists, journalists and passers-by, and Averin said they did not want to tip off the authorities ahead of time.
But the time and place of the initial gathering was announced on the Internet, and more than 50 police were on the platform at the appointed hour, outnumbering scattered groups of activists.
Shouting through bullhorns, police ordered people to leave the platform and head out onto the street, but several dozen protesters made their way on trains to another station and continued moving through the underground system. They shouted "Russia without Putin!" and "Down with KGB power!"
Dozens of activists emerged from a station a few kilometers (miles) away and marched down Propekt Mira or Peace Avenue, shouting slogans, unfurling a banner that read "Putin — out" and burning a portrait of President Dmitry Medvedev before dispersing without major incident.
An AP reporter and photographer were detained at the subway station and held at a police station there for an hour, along with four other journalists and a Moscow coordinator for Kasparov's United Civil Front, Lolita Tsaria, who was detained as she left the station and tried to unfurl a banner. Two plainclothes officers dragged her to the police station.
The Moscow police press service said about 10 people were detained and indicated all had been released or soon would be, with some facing fines.
The rally in St. Petersburg attracted only a handful of people, one of whom was detained. Averin said he had no turnout figures for protests in the Ural Mountains city of Yekaterinburg.
Protests ranged from opposing price rises on transportation, including the St. Petersburg subway, to anger that the government has not done more to help businesses.
Russia's small and disorganized opposition forces hope to capitalize on social discontent as the economic downturn deepens.
"There is a definite growth of the protest mood among the population," said Olga Kurnosova, a St. Petersburg leader of another of Kasparov's groups, Other Russia.
None of Thursday's protests, collectively called the "Day of Dissent," had been cleared with city authorities, and police had warned they would intervene. Opposition activists contend that the law does not require permission for protests.
Police also detained several activists ahead of Thursday's protests.
Oleg Kozlovsky, head of the opposition group Oborona, or Defense, said police detained him Wednesday outside Moscow State University, where he was distributing leaflets and addressing students using a megaphone.
Kozlovsky was released later Wednesday, but he said three colleagues who were detained Tuesday remained in custody.
Kasparov was in the Black Sea resort of Sochi, where he planned to meet with residents who are being forced from their homes as Russia prepares to build Olympic facilities ahead of the 2014 Winter Games.
___
AP correspondents Steve Gutterman in Moscow and Irina Titova in St. Petersburg, Russia, contributed to this report.
Russian Cops Quiz Anti-Putin Protesters
10:22pm UK, Thursday March 12, 2009
Protesters in Moscow who demanded Russian Prime Minister Vladimir Putin's resignation have been detained for police questioning.
Several dozen protesters marched down the capital's Mira Avenue chanting "Russia without Putin", "We need another Russia" and "Revolution".
They also burned a picture of President Dmitry Medvedev.
The protesters were carrying flags of writer Eduard Limonov's National Bolshevik Party and former world chess champion Garry Kasparov's United Civil Front.
But neither of the opposition party leaders took part in the march.
The gathering in Moscow was the largest of a handful of demonstrations across Russia.
Along with calls for Mr Putin to quit, the groups were criticising the government's response to the financial crisis.
Russia's small and disorganised opposition group hope to capitalise on social discontent, as the economic downturn deepens.
Activist Alexander Averin said the demonstrations were planned in secret to avoid a police crackdown.
Law forces regularly squash non-authorised protests by government opponents.
St. Petersburg "dissenters" hand anti-crisis demands to authorities
ST. PETERSBURG. March 12 (Interfax) - St. Petersburg "dissenters"
handed their anti-crisis demands to the city authorities during a
planned action on Thursday, the United Civic Front (UCF) said in a
statement.
"Five people, including representatives of the UCF, Oborona and
National Bolsheviks, took part in the action," the statement says.
An OMON police bus and several patrol cars were awaiting the
dissenters near Smolny, the statement says.
"Before the action, a UCF activist, Alexei Yemelyanov, was detained
and taken to the 76th police station. He was holding an 'anti-crisis
package' for St. Petersburg Governor Valentina Matviyenko including
bread, salt and other staples," the UCF press service reports.
Nevertheless, the opposition did manage to hand over its address to
Smolny.
"It contains the opposition's demands: to cancel the sequestering
of social spending in the city budget, to freeze housing and communal
tariffs, and to ensure the freedom of assembly," the statement says.
Three participants in the action were detained by police.
No local officials could be immediately reached for comment.
Russian Agency May Monitor Officials’ Finances, Kommersant Says
By Maria Ermakova
March 13 (Bloomberg) -- Russia’s Financial Monitoring Agency may require banks to monitor officials’ finances to help fight money laundering, Kommersant reported.
The agency may require banks to monitor all financial operations, except for communal services and mobile phone payments, made by government officials, lawmakers, senators and their closest relatives, the newspaper said, citing Galina Bobrysheva, head of the agency’s monitoring service.
The agency may submit monitoring proposals to the government by the end of the first half, according to Kommersant. The government would have to approve amendments to the Russian law on money laundering to enable such monitoring, the newspaper said.
To contact the reporter on this story: Maria Ermakova in Moscow at mermakova@
Last Updated: March 13, 2009 01:43 EDT
Surprise Pick for Agriculture Minister
13 March 2009
By Maria Antonova / The Moscow Times
President Dmitry Medvedev appointed Yelena Skrynnik, the little-known head of equipment leasing company Rosagroleasing, as agriculture minister Thursday in a surprise decision praised by industry insiders.
Skrynnik, 47, who holds degrees in business management and medicine, will replace Alexei Gordeyev, who was nominated as governor of Voronezh last month after being minister for almost a decade.
She will be the third woman in the Cabinet and the first woman ever to head the Agriculture Ministry.
"You have been dealing with issues of rural areas and organizing agricultural production. I think you are doing this successfully," Medvedev told Skrynnik during a meeting at his Gorki residence outside Moscow, according to a transcript on the Kremlin's web site.
Skrynnik promised that the ministry would work "openly, clearly and effectively" and said she would meet with farmers during spring sowing in the fields.
Medvedev said he had known Skrynnik since he began overseeing the four national projects -- which include agriculture -- as a first deputy prime minister in late 2005.
Skrynnik became CEO of state-owned Rosagroleasing, which leases cattle, equipment and machinery to farmers, in 2001. She previously headed Rosleasing, an association of Russian leasing companies, and was one of the people who helped set up the leasing sector in Russia, according to an official biography provided by Rosagroleasing.
Last fall, she joined the Supreme Council of the United Russia party, which apparently was also caught off guard by Medvedev's announcement Thursday.
United Russia deputies rejected a motion by Communist Deputy Alexander Shirshov in the State Duma on Wednesday that an official request be sent to the government to appoint Skrynnik to the post.
Shirshov, who is not on the Duma's agriculture committee but has a -background in the industry, told The Moscow Times on Thursday that he did not know that Skrynnik would be appointed but he was pleased with Medvedev's decision.
He said the sector needed an urgent rescue, and Skrynnik was well acquainted with the issues. "We need a breakthrough right now, so we need a person with energy rather than a bureaucrat," he said.
Skrynnik is personally responsible for several successful decisions in the sector, including easing the imports of agriculture equipment, he said. "She has intuition, maybe because she is a woman, and women tend to do things that only intuition can explain," he said.
Duma Speaker Boris Gryzlov, who heads United Russia's faction in the Duma, and senior party official Vyacheslav Volodin both applauded Skrynnik's appointment on Thursday.
Skrynnik also won praise from the Russian Grain Union. "Under her guidance, Rosagroleasing was built from scratch," said union vice president Alexander Korbut.
Appointing a businesswoman as minister is both unusual and symbolic, said Yevgeny Minchenko, an analyst with the Institute of Political Expertise. "This is the start of a trend of attracting business managers to the government," he said.
Medvedev recently unveiled a "Golden 100" list of people who might be recruited for government positions, but while it included many businesspeople, Skrynnik was not on it.
Still, she is considered to be in "Medvedev's orbit" because of her work with him while he oversaw the national projects, Minchenko said.
"In this way, the number of Medvedev's appointees is increasing, while the group under Igor Sechin's influence is shrinking," he said, referring to the current deputy prime minister who is believed to have wielded enormous influence during Vladimir Putin's presidency. Gordeyev was seen as being close to Sechin's group.
Liberal-minded Industry and Trade Minister Viktor Khristenko, who like Skrynnik is from Chelyabinsk, probably played a role in her appointment, said Vladimir Pribylovsky, head of the Panorama think tank. "This would not have been done without Khristenko," he said, adding that Khristenko and Skrynnik are often seen together at official and nonofficial events.
Nemtsov in Bid to Be Next Mayor of Sochi
13 March 2009
By Nabi Abdullaev / The Moscow Times
Opposition leader Boris Nemtsov submitted documents Thursday to run for mayor of Sochi, the Black Sea resort that will host the 2014 Winter Olympics.
It was the first bid by the opposition to win a prominent government post since authorities rejected former Prime Minister Mikhail Kasyanov's candidacy for the presidential election in January 2008, saying signatures collected in his support were falsified.
Nemtsov, a Sochi native who served as Nizhny Novgorod governor and then deputy prime minister in the 1990s, said he would not collect signatures but post a cash deposit instead with the city election commission to be registered as a candidate.
He said this would prevent officials from removing him from the race over allegations of fake signatures, a common ploy used to remove opposition candidates and parties from elections.
Nemstov, who leads the Solidarity opposition movement, met with Sochi residents after filing his registration papers.
"I will definitely not steal," he told them, according to Solidarity's Internet blog. "I may make mistakes, I may spoil relations with someone because of my temper, but I will not steal."
Calls to Nemtsov's cell phone as well as that of his spokeswoman went unanswered Thursday afternoon.
The mayoral election will be held April 26. The incumbent mayor, Vladimir Afanasenkov, resigned in October citing poor health after being elected with more than 80 percent of the vote in June. He was backed by United Russia, the ruling party led by Prime Minister Vladimir Putin.
United Russia has not backed a candidate for the election.
Three other contenders have applied to run: local businessman Pavel Yemelyanenko, retired military officer Sergei Bernasovsky and the head of the St. Petersburg-based Airlen airline, Nikolai Kuznetsov. Local Communists have said they will nominate a candidate before a March 26 deadline.
The next Sochi mayor will have a strong say over how the government will spend billions of dollars to build infrastructure for the Olympics. Deputy Prime Minister Dmitry Kozak, who oversees the preparations for the event, said recently that the Olympics budget amounts to more than 200 billion rubles ($5.7 billion).
The Sochi vote could be a test for Solidarity, a loose umbrella opposition group formed in December. After popular elections for governors were cancelled in 2004, mayoral elections allow the opposition perhaps its only chance to participate in big politics.
Meanwhile, an opposition group linked to Solidarity, The Other Russia, held unauthorized rallies for a "Day of Dissent" in several cities on Thursday, demanding Putin's resignation. One protester was detained in St. Petersburg.
Litvinenko suspect Lugovoi may run for Sochi mayor
MOSCOW, March 13 (RIA Novosti) - The main suspect in the Alexander Litvinenko murder case, Russian MP Andrei Lugovoi, may run for mayor in the Black Sea resort of Sochi, a senior Russian MP said on Friday.
"The Liberal Democrats consider Andrei Lugovoi the movement's leading candidate for the Sochi mayor elections," said Igor Lebedev, the leader of the ultra-nationalist LDPR faction in the Russian parliament.
Lebedev said the party still had two weeks to choose its candidate for the election, scheduled for April 26. Sochi will host the 2014 Winter Olympics and the next mayor is likely to play a major role in the redevelopment of the city for the showpiece international event.
Former Russian security officer Litvinenko died of radioactive poisoning in London on November 23, 2006. British investigators accused agent-turned-businessman Lugovoi of the murder, and demanded his extradition, sparking a major diplomatic row.
Moscow refuses to hand over Lugovoi, who has repeatedly denied involvement in the murder, citing lack of evidence and Russian legislation, which does not allow extradition of Russian citizens to other countries.
Lugovoi, 42, was elected to parliament from the LDPR in 2007. Party leader Vladimir Zhirinovsky named Lugovoi as number two on the party list two months before the parliamentary elections.
In November last year, the supreme council of the LDPR appointed Lugovoi as the party's supervisor in Russia's Far Eastern Primorye Territory, the Kamchatka Territory and the Irkutsk Region.
The LDPR is the third largest party in the State Duma after United Russia and the Communist Party.
Other candidates for Sochi mayor include former deputy prime minister Boris Nemtsov, local businessman Pavel Yemelyanenko, retired military officer Sergei Bernasovsky, and the head of the St. Petersburg-based Airlen airline Nikolai Kuznetsov.
The next Sochi mayor will oversee construction of infrastructure for the Olympics and most likely play a major role in the management of the sums involved. Deputy Prime Minister Dmitry Kozak, who oversees the preparations for the event, recently said that the Olympics budget amounts to more than 200 billion rubles ($5.7 billion).
Gryzlov's Son Joins United Russia
13 March 2009
The Moscow Times
The son of State Duma Speaker Boris Gryzlov has decided to join United Russia after losing his independent bid for a seat on a St. Petersburg district council, the party said Thursday.
"We need new ideas and fresh forces, and I am very glad that Dmitry Gryzlov has expressed his readiness to work with us," Vadim Tulpanov, leader of St. Petersburg's branch of United Russia, said in a statement.
In the run-up to the March 1 vote in St. Petersburg, the election commission in the district where Dmitry Gryzlov was running found that 100 percent of the signatures collected in his support were falsified and disqualified him as a candidate. But the city election commission returned him to the race. Gryzlov reportedly placed eighth in the vote.
Boris Gryzlov was the chief of United Russia until Prime Minister Vladimir Putin assumed the post in April.
Gryzlov remains No. 2 in the party and heads its Duma faction.
Kremlin loyalist says launched Estonia cyber-attack
Thu Mar 12, 2009 10:44am EDT
By Christian Lowe
MOSCOW (Reuters) - An activist with a pro-Kremlin youth group said Thursday he and his friends were behind an electronic attack on Estonia two years ago that paralyzed the NATO state's Internet network.
Ex-Soviet Estonia blamed the Russian government for the attack at the time, though Moscow denied involvement. The incident prompted the NATO military alliance to review its readiness to defend against "cyber-warfare."
Konstantin Goloskokov, an activist with Russia's Nashi youth group and aide to a pro-Kremlin member of parliament, said he had organized a network of sympathizers who bombarded Estonian Internet sites with electronic requests, causing them to crash.
He said the action was a protest against the dismantling in 2007 of a Soviet-era monument to the Red Army from a square in the center of Estonia's capital Tallinn. The removal prompted two nights of rioting by mainly Russian-speaking protesters.
"I was not involved in any cyber-attack. What I did and what my friends did was no kind of attack, it was an act of civil disobedience, absolutely legal," 22-year-old Goloskokov told Reuters in a telephone interview.
"Its aim was to express our protest against the policy of soft apartheid which has been conducted by the leadership of Estonia for many years and the climax of which was the dismantling of the ... soldiers' (monument) in Tallinn."
OVERLOADED WEBSITES
"We made multiple requests to these sites," he said. "The fact that they could not withstand this is, strictly speaking, the fault of those people who from a technical point of view did not equip them properly."
He said his action -- known as a distributed denial-of-service attack -- was his own initiative and he received no help either from Nashi or from Russian officials.
The creation of the youth group was masterminded by Kremlin officials and its activists have had audiences with former President Vladimir Putin, who is now prime minister. Nashi's former leader is now the head of a government agency.
Nashi stages regular protests outside the embassies of Western states with which the Kremlin has disagreements, and its activists picket meetings of opposition parties.
Kristina Potupchik, a spokeswoman for the organization, said it had nothing to do with jamming Estonian Internet sites. "If anything did happen, it was the personal initiative of Konstantin Goloskokov," she said.
Russian officials allege that Estonia routinely discriminates against its Russian-speaking minority and accuse European institutions of turning a blind eye.
The decision to move the Red Army monument in Tallinn was seen in Moscow as a deliberate snub to the sacrifices the Soviet Union made to liberate eastern Europe from German occupation during World War Two.
But Estonians, like many eastern Europeans, say Nazi rule was replaced by decades of brutal Soviet repression which only ended with the fall of the Berlin Wall.
Estonia's government denies discriminating against Russian-speakers. It said the presence of the Red Army monument in the center of the capital was causing public order problems, and moved it instead to a military cemetery.
(Editing by Andrew Roche)
Nashi Activist Says He Led Estonia Cyberattacks
13 March 2009
The Moscow Times
A member of the pro-Kremlin youth group Nashi said Thursday that he was behind the cyberattacks that paralyzed Estonian government web sites in retaliation for Estonia's decision to move a Soviet war monument in 2007.
The activist, Konstantin Golo-sko-kov, told The Moscow Times that he led a group of several dozen "IT specialists" in attacking the web sites in late April 2007.
"This was an answer to the policy of soft apartheid that the Estonian government has conducted for years," Goloskokov said, referring to claims that Estonia discriminates against its Russian-speaking population.
Goloskokov said his group had acted on its own, not with Nashi. He also said the attack was not illegal because it did not involve hacking.
Several government web sites went down for hours as a result of so-called DDoS attacks -- multiple requests from thousands of computers across the globe triggered by a computer virus, Estonian authorities have said.
Goloskokov said he used "a -special program," not a computer virus.
Estonia has accused the Russian government of being behind the cyberattacks, a charge it has denied. The attacks followed riots by Russian speakers in Tallinn as authorities relocated the World War II monument from a central square.
Lessons From the Russia-Georgia Cyberwar
Georgian official and U.S. security experts look back at the Internet attack that preceded the military conflict.
March 12, 2009
By Kenneth Corbin
WASHINGTON -- With the benefit of hindsight, the Russian military campaign against Georgia last summer seems to offer conclusive proof that cyberwar has come into its own.
Speaking here at the FOSE convention, an annual trade show for government IT workers, Georgia's Secretary of National Security, flanked by a pair of U.S. security experts, recounted the experience of last July when the small nation in the Caucasus saw its digital infrastructure brought to its knees.
"It's distressful to think of the way in which the technology which is so helpful and beneficial for all of us to get all the nations together and then ... is used for the purposes [where] people suffer," said Eka Tkeshelashvili, who at the time of the Russian invasion was Georgia's foreign minister.
Aug. 7 marked the official date of the onset of the conflict, when Russia launched air and ground strikes in the disputed territory of South Ossetia, but the offensive began in earnest the previous month with a massive Internet attack on Georgia's government Web sites and commercial operations.
"Today, cyberspace has clearly emerged as a dimension to attack an enemy and break his will to resist," said Paul Joyal, managing director of public safety and homeland security for National Strategies Inc.
"We're seeing now this tectonic shift in military affairs, where [cyber] warfare will Change the laws of combat and the principles of military science," he said. "And what found is that it all came together in the Russian-Georgian war of August."
In July, a group of cyberwarriors, whose formal connection with the Russian government remains unclear, managed to enlist scores of mercenaries and volunteers to cripple Georgia's Internet infrastructure through an array of botnets, distributed denial-of-service attacks, logic bombs and other online offensives.
The attackers posted lists of targets online, including the official Web sites of the Georgian president, several government ministers and even the U.S. embassy. Legions of "hacktivists" answered the call and overwhelmed the sites, knocking dozens offline for days.
Georgia leaned on its allies, and managed to get the sites hosted in neighboring Turkey, but not before its communications system had been effectively shut down.
"Making strong alliances with the friends who can provide partners is absolutely key, especially for the small countries like Georgia," Tkeshelashvili said. For her, the events of July "demonstrate how vulnerable and unprepared we can be," and underscored the importance of maintaining a variety of communications channels.
One of the principal aims of cyberwarfare, which is seen increasingly as a prelude to overt military conflict, is to isolate and silence the enemy. Defacing government Web sites has proven an effective way to spread disinformation and propaganda. Last July, for instance, hackers infiltrated official Georgian government sites to make the president look like Hitler.
But it's more than just an information war. The attackers struck hard at Georgia's banking system, overwhelming financial sites with so many fraudulent transaction attempts that it became impossible to tell the good from the bad.
Sensing that the system was under siege, international banks shut down service. As a result of the spillover effect, several days passed without a single transaction being processed inside Georgia, Tkeshelashvili said.
Georgia can thank the broad phenomenon of globalization and the distinctly supranational nature of the Internet for much of the commercial impact, said Stephen Spoonamore, a partner with Global Strategic Partners who advises large financial institutions on cybersecurity issues.
"What crippled Georgia was the commercial linkages that got shut off," Spoonamore said. "Banking, credit card functionalities -- once they're gone most of the cell phones associated with them are gone, too."
In the case of Georgia, cell phone service went down the day after the banking system crashed.
Spoonamore likened the response of the global commercial enterprises to the Georgian crisis to a herd of gazelles fleeing after a lion pounces on one of their ranks. Eager to mitigate the threat of the cyberattack, major banks shut down online connection with Georgia, a small country of relatively minor financial significance. Georgia was isolated, intentionally "cut off from the digital herd," Spoonamore said.
Spoonamore traces the origins of the cyberattack on Georgia to the Russian Business Network (RBN), a shadowy group of sophisticated cybercriminals that formed around St. Petersburg and rose to prominence with massive spamming and phishing attacks around 2004.
While the cyberattacks do not carry the official fingerprints of the Russian government, Spoonamore pointed out that the original leaders of RBN were politically connected, and many had worked alongside Vladimir Putin.
After an expose by the Washington Post, RBN as a corporation went dark, but has since reinvented itself as a decentralized franchise model.
"RBN now has morphed itself into a structure very similar to al Qaeda," Joyal said. "Now we're seeing this diffusion of responsibility, activities, etc., in a very decentralized way where everyone can pile on and get involved in a so-called cause."
The presenters said that that facility likely enabled the reconstituted RBN to quickly and effectively marshal a widely distributed group of "cybermilitants" against Georgia. Spoonamore said that the server responsible for one of the crippling attacks was geolocated to Turkey, evidencing the international character of cyberattacks. In response to the growing international threat from the Internet, NATO is developing a cybersecurity response center in Estonia.
It will have to be a unique operation that defies any traditional military response. After all, a military strike against the server farm in Turkey where the machine responsible for the attack on Georgia would have also taken out the computing infrastructure that controls the majority of the air-traffic control systems in the Middle East, Spoonamore said.
Russia’s FSB 2008 report issued; 104 terrorist attacks foiled last year
12.03.2009
A total of 104 terrorist attacks were prevented in Russia last year, the Federal Security Service (FSB) of the Russian Federation said in a report issued yesterday, news agencies are reporting from Moscow.
The planned attacks included those slated for last summer in the southern resort cities of Anapa and Sochi, which will host the2014 Winter Olympic Games, news agency RIA Novosti cited the FSB report.
Russian special-task forces also killed 243 militants, including 23 gang leaders, in south Russia where separatist and terrorist activities were frequent last year, said the report on the work of the National Anti-Terrorism Committee in 2008.
The report said that 576 more militants were detained, 640 arms caches and militant bases, containing 1,407 weapons, 2,401 kg of explosives and 454 pieces of self-made explosive devices, were found, accoridng to RIA Novosti.
In the FSB press release it is marked that courts of Bashkortostan and Tatarstan, the Chelyabinsk and Kurgan areas have sentenced 31 members of the international terrorist organization Hizb ut-Tahrir.
"In the republic of Mary El, Krasnoyarsk, Perm and Tyumen areas five representatives of the international terrorist organization, Islamic Movement of Uzbekistan, were detained and extradited to the Republic of Uzbekistan,” the press release says.
The anti-terrorism commissions and operative staffs in subjects of the Russian Federation have become the basic structural parts of the nation-wide system of counteraction to terrorism. They have carried out more than 300 anti-terrorism exercises.
Activity of 25 organizations is forbidden in the territory of the Russian Federation, 18 from which are recognized terrorist, and seven - extremist, is marked in the press release.
March 12, 2009
Hotwired Justice
By Roland Oliphant
Russia Profile
One Small Step for Europe Is One Giant Leap for Russia
The European Court of Human Rights yesterday delivered a landmark ruling in a case brought by a Russian against the FSB’s handling of an investigation. The court’s finding – that the investigative methods used jeopardized Anatoly Bykov’s right to a fair trial – will have implications for law enforcement agencies beyond Russia. But it is just one of many Russian cases that the Strasbourg court is inundated with.
The case has taken years to be resolved, and relates principally to events that took place in 2000, when the former Head of the Krasnoyarsk Aluminum plant, Anatoly Bykov, was arrested for the attempted murder of his rival Vilori Struganov.
On October 3, 2000, in the village of Oviny (a suburb of Krasnoyarsk), a businessman came to Bykov and told him that he had committed the murder, apparently as a show of loyalty, and presented him with a watch and documents belonging to the deceased as evidence.
It was a set up. Struganov was not dead - the murder had been faked (somewhat inexpertly - TV news reports from the alleged crime scene showed the body being removed head first and placed in an ambulance. Sharp-eyed viewers noted that by superstition bodies must be removed from a house feet first, and by law they must be placed in a coroner’s van – not an ambulance), and the “businessman” – an acquaintance of Bykov by the name of Alexander Vasilenko – was wearing a wire for the FSB.
It later transpired that Vasilenko had already submitted a written statement to the FSB claiming he had received an order from Bykov to kill Struganov. The FSB then provided Vasilenko with recording equipment, and sent him to Bykov in order to extract a confession of complicity. He did not exactly manage this – in the conversation that followed, Vasilenko told Bykov that he had carried out the “hit” of his own initiative, and Bykov (it seems) did not say anything to suggest he was expecting the news. But it was enough to earn Bykov a six-and-a-half-year suspended sentence for attempted murder (in 2002 the Russian Supreme Court, recognizing the difficulty of connecting Bykov explicitly to the crime, changed the conviction from “murder” to “preparation,” but did not change the sentence).
But it was the conviction’s dependence on the use of a wire that was its undoing in Strasbourg. The court found that by using Vasilenko to secretly record what was meant to be a private conversation, the FSB had violated Bykov’s right to remain silent and not incriminate himself. In other words, the court found that the FSB had conducted an “interrogation,” but Bykov could have exercised his right to silence if he had known about it. Further, because Vasilenko was sent into Bykov’s home, the FSB violated his right to private and family life (under Russian law the investigators should have obtained a court warrant).
Secretly recording information is a useful tool for law enforcement agencies, and the issues here go to the heart of human rights law. How far can, or should, human rights hinder the world of law enforcement bodies? That is why it was heard by the 17 judges of the European Court’s Grand Chamber, and took so long to resolve. The eventual finding - unanimous agreement that Russia had violated paragraph 3 of Article 5 (Right to liberty and security) and Article 8 (right to respect for private and family life) will affect the work of law enforcement bodies throughout Europe. “This means that no European country can have laws that violate these rights,” said Genrik Padva, the lawyer who represented Bykov in Strasbourg.
But more importantly, it may drive home respect for the convention in Russia. “We are hoping that there will be no such violation in the future,” said Padva. “Previously, it gave the investigating services have too much latitude, and this means that citizens’ rights are often violated. Bykov isn’t going to get anything from this. The real beneficiaries will be people who are being investigated in a similar way.”
This is the latest in a series of high profile findings against Russia at the European Court. In November, the court found Russian forces guilty of the murder and mutilation of two Chechen civilians. Last month the court found that a Russian Judge, Olga Kudeshina, had been unfairly dismissed after complaining about pressure from above to deliver certain verdicts. At the beginning of March, the court issued a resolution demanding that Russia take legislative measures to avoid delays in implementing court decisions. And the deluge of cases shows no sign of letting up: on Wednesday, organizers of the Moscow gay pride parade sent a case to the European court seeking €1.7 million in compensation for the banning of 165 marches in the past year.
But these are only the most prominent. Russia has the greatest number of cases at the European court. The range is hugely diverse. They include victims of war crimes in Chechnya seeking justice for extra-judicial killings and torture (many of these cases are brought through the Russian Justice Initiative, founded by Human Rights Watch workers); ethnic, religious and sexual minorities complaining of discrimination; opposition groups seeking to affirm their right to assembly; and those complaining about the authorities’ failure to follow their own regulations (and especially of long delays, or complete failure, in implementing legal decisions).
The fact that Russia is the biggest single source of cases at the European Court has drawn criticism from some in Russia. Russian Justice Minister Aleksandr Konovalov responded to the Kudeshina finding and another on the same day ordering Russia to pay compensation to the relatives of four people who went missing in Chechnya between 2002 and 2005, by questioning the court’s impartiality. "Unfortunately, decisions made in the recent months and even years, give grounds to doubt the full objectiveness and lack of bias in the European court," he told RIA Novosti.
But others, both inside and outside Russia, point out that all legal avenues must be exhausted in the applicant’s home country before a case can be taken to the European Court. “The best way to resolve the problem is for Russia to reform its own legal system, so these cases don’t have to go to Strasbourg,” said Theodorian Pangloss, a legal monitor for the Council of Europe at a press conference on Wednesday.
The Bykov case produced a land-marking ruling that will affect European law profoundly, and had to be scrutinized by Europe’s most senior judges before a ruling was reached. Such a case would probably go to the higher courts in any country. But the other cases involving Russia, many of which have become routine, could -- and probably should – be resolved at home.
National Economic Trends
Russian monetary base up $728 mln in week to $106.9 bln
MOSCOW, March 13 (RIA Novosti) - Russia's Central Bank said on Friday the country's narrowly defined money supply (M1) was 3 trillion 741.4 billion rubles ($106.9 billion at the current exchange rate) as of March 10, up 25.5 billion rubles ($728.3 million) in the week since March 2.
According to the Bank, M1 money supply consists of the currency issued by the bank, including cash in vaults of credit institutions, and required reserves balances on ruble deposits with the Central Bank.
Ignatyev Against Controls
The Central Bank Chairman Sergei Ignatyev said Thursday that he was strongly opposed to the introduction of currency controls.
"I am personally strongly against the introduction of capital controls," Ignatyev told a news conference after a meeting with European Central Bank representatives in Vienna.
Ignatyev also said the ruble exchange rate had stabilized and the Central Bank was not having to intervene much in the currency market. (Reuters)
Russian bank balances fall to 381.4 bln rbls
03.13.09, 03:29 AM EDT
MOSCOW, March 13 (Reuters) - Banks' balances in their correspondent accounts at the Russian central bank fell to 381.4 billion roubles on Friday from 396.2 billion roubles in the previous session, the central bank said.
All figures are in billions of roubles
BALANCES March 13 March 12
Total 381.4 396.2
Moscow region 239.8 254.1
Banks' deposits at
The central bank 144.8 129.5
NOTE - Correspondent account balances are an indicator of Russian banks' liquidity.
Keywords: RUSSIA BALANCES/
(Moscow Newsroom, +7495 775 1242, moscow.newsroom@)
Budget Surplus Falls To $3.3Bln
13 March 2009
Combined Reports
The government's budget surplus shrank to 116.3 billion rubles ($3.3 billion) at the end of February from 359.8 billion rubles the previous month, the Finance Ministry said Thursday, citing preliminary figures.
Revenue reached 1.2 trillion rubles, or 11.2 percent of the amount the government planned for 2009, while spending was 1.1 trillion rubles, or 12 percent of planned expenditures, the ministry said.
Revenues collected by the Federal Tax Service accounted for 480 billion rubles of the total, while the largely oil-based tariff revenues collected by the Federal Customs Service accounted for 416 billion rubles.
Russia is bracing for a recession and its first budget deficit after 10 years of growth as slowing global demand pushes down the price of Urals crude oil, the country's chief export earner.
The Finance Ministry is due to submit a revised budget to the government later this month that includes a shortfall of about 8 percent as revenue drops 30 percent.
Prime Minister Vladimir Putin has called for the budget to be recalculated based on a oil price of $41 per barrel. The previous budget was based on an average price of $95 per barrel.
At the beginning of March, the country's oil funds, the Reserve Fund and the National Welfare Fund, stood at 4,870 billion rubles and 2,996 billion rubles, respectively.
February budget slips into deficit
VTB Capital
March 13, 2009
According to the Ministry of Finance, the Russian state budget surplus in January-February was RUB 116.3bn, with cumulative revenues reaching 11.2% of the 2009 plan (non-sequestered version) and expenditures rising to 12% of the plan. In February, the budget slipped to a RUB 240bn deficit, from an almost RUB 360bn surplus in January.
The budget surplus in January was a one-off due to the more than RUB 300bn increase in 'other revenues'. February revenues were only 4% of the revenues planned in the current budget (with oil prices at USD 95/bbl). More importantly, they accounted for only about 7% of the likely revenues in the revised budget (based on oil at USD 41/bbl). This highlights the downside risks to the government's forecast of a budget deficit of 8% of GDP this year. Budget expenditures increased 67% MoM in February. However, they stood at only 7.5% of the planned expenditures for this year (in the revised budget, expenditures are likely to remain the same or slightly increase). This suggests that expenditures may surge at the end of the year, as they usually do.
Trade Balance Widens In January
Troika
March 13, 2009
The Central Bank reports that the trade balance widened to $9.3 bln in January from $4.6 bln in December. Though exports declined 43% y-o-y in nominal terms, imports also dropped 34% y-o-y. Thus, the trade balance has started to provide enough liquidity to the forex market to allow the Central Bank to stabilize the exchange rate.
The rapid adjustment of foreign trade to new external budget constraints illustrates our view that there does not exist a "breakeven oil price" for the current account, even in the shortrun, if the country is not able to borrow from abroad. The economy corrects domestic demand and the exchange rate, and the current account remains positive at any oil price.
At the beginning of the year, the trade balance declined in nominal terms compared with January 2008 ($18.9 bln). However, in real terms, net exports grew by at least 15%, we estimate. While the fall in nominal exports was associated with the correction in commodity prices, real exports shrank by only around 5-7% and the decline of real importswas close to 25-30%. As a result, net exports grew y-o-y in real terms.
Net exports this year will be up in real terms. However, domestic demand should also recover to allow GDP to demonstrate positive growth. We reiterate our view that this is possible, as macroeconomic policy seems to be quite relevant at the moment.
Trade Surplus Up To $9.4Bln
13 March 2009
Bloomberg
Russia's trade surplus rose in January from the previous month as the weaker ruble eroded companies' demand for imported goods, the Central Bank said in a statement Thursday.
The surplus rose to $9.4 billion from $4.6 billion in December. Exports fell to $19.7 billion from $28.5 billion in December. Imports, which have become more expensive since the ruble lost 17 percent against the euro in December and a further 7 percent in January, tumbled to $10.3 billion from $23.9 billion, the bank said. The European Union is Russia's biggest trading partner.
The price of the Urals blend of crude averaged $43.88 a barrel in January, which was 9 percent more than the average price in December. Energy, including crude oil and natural gas, accounted for 69 percent of exports to the Baltics and countries outside the former Soviet Union, the Federal Customs Service, which uses a different methodology than the Central Bank, said in a statement on March 5. Machinery and other manufactured equipment comprised 44.3 percent of imports.
Russia's trade surplus in 2008 was 37 percent higher than the previous year at $179.8 billion. The average price of Urals last year was also 37 percent higher than in 2007 at $95.11 per barrel, according to Bloomberg data. The Central Bank expects a trade surplus this year of "several" tens of billions of dollars, first deputy Central Bank Chairman Alexei Ulyukayev said this month.
Remittances Fall 26%
Remittances from Russia to former Soviet republics fell 26 percent in the fourth quarter as wages and employment shrank during the country's worst economic crisis in a decade, the Central Bank said on its web site late Wednesday.
Funds sent to the Commonwealth of Independent States amounted to $3.17 billion, a decrease of $1.1 billion compared with the third quarter, the Central Bank said. Remittances to the CIS accounted for 92 percent of the total sent abroad from Russia last year. (Bloomberg)
PPI increases for the first time in five months
VTB Capital
March 13, 2009
Producer prices increased 2.9% MoM in February, the first rise since August last year when they increased 0.4% MoM. In YoY terms, the PPI continues to decline (minus 5.7% YoY). However the pace of producer price deflation moderated from January, when the PPI was down 1.8% MoM and 9.2% YoY.
The data reveal two major trends. First, prices remain high in the food and machinery & equipment industries. This is likely the combined effect of rouble depreciation, resilient demand for food and government support for the automotive sector.
The second trend is a substantial monthly increase in mining, refined products and coking coal and metals. We attribute this to exporters preferring to supply their products to the international markets rather than locally, partly due to the weaker rouble. This particularly applies to the steel sector, which is trying to benefit from the fact that it is temporarily more competitive (before foreign producers revise input prices in April).
Overall, the increase in the PPI might suggest a MoM rebound in industrial production in February. This is in line with the Manufacturing PMI survey and railways cargo turnover data published earlier this month. However, it is too early to say that we are on a strong recovery trend.
Russia update
Timothy Ash of Royal Bank of Scotland
March 13, 2009
Quite a few interesting developments today in Russia worthy of comment:
(-) The MOF posted budget data for January thru February. These showed a surplus of RUB116.3bn, or 0.2% of GDP, which compares with the full year target still to run a surplus of RUB1.9 trillion (3.7% of GDP). February's data was notable in that it showed a marked deterioration compared to January. One-off factors (perhaps disbursals from the fiscal reserve) had appeared to buoy revenues in January (+11.6% YOY) while spending growth was limited to 5.4% YOY. In February the marked deterioration evident in Q4 resumed with revenues down 29% and spending up by 47.7% YOY. Clearly if February's trend continued over the year, the deficit would extend towards the RUB3 trillion level or 7.5% of GDP warned at by the government. PM Putin today confirmed that various anti-crisis measures would amount to around RUB3 trillion, with funds drawn from the fiscal reserve to cover these sums.
(+/-) The CBR reported merchandise trade data for January (revisions to data previously reported). This showed a slight improvement from December, driven by a collapse in imports, as the domestic economy slowed and presumably as the rouble devaluation made imports less competitive. On a monthly basis the surplus thus increased to US$9.4bn, double the December outturn, but less than half the year earlier level. Exports by dollar value dropped 43% YOY, with imports contracting by 34.1% YOY. Assuming this trend sustains to year end would suggest a cut in the merchandise trade surplus to around US$90bn, i.e. lower by around US$110bn YOY, and likely still pushing the current account into deficit.
(+/-) The governor of the CBR, Sergei Ignatiev, has been on the wires "re-assuring" that the Russian authorities are in control of the exchange rate, following the early year maxi-devaluation of the rouble. Ignatiev indicated that the CBR is having little problem defending the current regime, and even hinted that the CBR would do nothing to stop the currency from appreciating. Ignatiev drew attention to the fact that the CBR had stemmed the loss in FX reserves (see below), and thought that estimates of capital flight (US$90bn annually for 2009) could well be revised down. Ignatiev also talked tough on interest rates, suggesting that given that inflation remained at around 13-14% it was difficult to see scope to trim official rates; the CBR's refinancing rate is currently 13%; this view was further support today by comments from PM Putin.
Encouragingly, Ignatiev argued against using capital controls to defend the exchange rate but tellingly indicated that he only hoped his colleagues in the CBR/government shared his view. A remarkable statement for a governor of a central bank and implying almost that he is not in control of the institution which he heads. Indeed, this latter defence was not very convincing, and there does now appear to be a concerted view emerging within government, and United Russia in parliament, that the use of capital controls would be one means to stem the loss in FX reserves. Perhaps Ignatiev's comments were in fact a plea to head off pressure for the imposition of such controls, which would obviously be very negative, and take Russia back years.
On the exchange rate front, the CBR is currently trying to hold the line, and appears to have stemmed capital flight. Our big concern now is the growth outlook. If the economy pushes deep into recession in 2009, with little prospect of a recovery in 2010 we think that elements within the government will begin to look for accessible levers to pull to kick-start the economy. An obvious one would be the exchange rate, and hence we still think there is a high probability of the basket being further devalued to year end, probably to around 50.
Thinking thru the capital controls story, the danger is that Russia follows Kazakhstan in forcing exporters to sell FX. In the short term this would likely bring an appreciation of the rouble against the basket, as FX availability increases. However, over the longer term it would likely just restrict the free flow of capital/FX, further undermining economic activity and sentiment, and actually accentuating capital flight. It might then just accentuate the eventual FX correction when it eventually comes; we would share with Ignatiev's less than enthusiastic stance on the benefits of capital controls at this point in time.
(+/-) Certainly, FX reserve loss has moderated since the CBR devalued the basket. Indeed, reserves fell only US$3.9bn in the week to March 6, and flat-lined in the month of February, after a loss of US$30bn a month over the previous 7 months.
(-) In a separate development note that President Putin has suggested that Russia will not hold Ukraine to the agreement reached in January to purchase contracted volumes of gas in 2009. This signifies a major warming in relations between the Putin and Tymoshenko camps. The Russian MOF has recently reconfirmed that it is in negotiations to provide a US$5bn loan to Ukraine to allow it to buy gas in H2 2009 for consumption in 2010. Presumably Moscow assumes that in exchange for providing such financing facilities and cutting Ukraine slack over the volumes of gas purchased, it can secure access to interesting strategic assets in Ukraine (e.g. VEB's recent purchase of Prominvestbank in Ukraine).
Business, Energy or Environmental regulations or discussions
Novatek, Rosneft, Polymetal May Move: Russia Equity Preview
By Maria Kolesnikova
March 13 (Bloomberg) -- The following shares may have unusual price changes in Russia trading. Stock symbols are in parentheses, and prices are from the previous close unless otherwise noted.
The ruble-denominated Micex Index sank for a second day, dropping 1.5 percent to 728.23 at the close in Moscow. The 50- stock RTS Index fell 1.4 percent to 618.93.
OAO Novatek (NOTK RX): Russia’s biggest independent gas producer said in a statement the net foreign exchange loss for 2008 was 3.6 billion rubles ($102.5 million). Novatek fell 1.9 percent to 72.16 rubles in Moscow.
OAO Rosneft (ROSN RX): Crude oil rose for the first time in three days in New York before OPEC meets this weekend to consider a fourth production cut. Russia’s largest oil company fell 0.5 percent to 144.02 rubles.
OAO Polymetal (PMTL RX): Gold futures rose for a second straight day in New York on demand for a store of value as the recession widens. Silver also advanced. Russia’s largest silver producer rose 0.5 percent to 214.67 rubles.
To contact the reporter on this story: Maria Kolesnikova in Moscow at mkolesnikova@.
Last Updated: March 12, 2009 23:00 EDT
Russia ponders ways to protect private stock investors
RBC, 13.03.2009, Moscow 10:54:43.Self-regulatory professional market participants have sent in their proposals to set up a compensation fund for retail investors to the Federal Financial Markets Service. It is presumed that the fund - to be managed by the Deposit Insurance Agency - will cover losses of private non-professional investors incurred from bankruptcies of brokerage companies. The proposed fund size ranges between RUB 5bn and RUB 30bn (approx. from USD 141.68m to 850.1m), RBC Daily wrote today. According to estimates by the National Association of Stock Market Participants (NAUFOR), the bulk of money on special broker accounts and the value of securities held on private accounts ranges from RUB 300,000 to 600,000 (approx. from USD 8,500 to 17,000). NAUFOR believes that 100 percent of the asset value, but no more than RUB 600,000 (approx. USD 17,000), should be offset. The compensations should be based on the market value of the securities as of the date of the insurance event. The fund should be made of government money, fines and contributions from brokers.
Central Bank to conduct first 3-mth repo deals on MICEX March 13
MOSCOW. March 13 (Interfax) - The Central Bank on March 13 will
conduct its first repo transactions on the MICEX Stock Exchange in the
regime Repo Auctions vs. Bank of Russia for terms of three months, the
exchange said in a ruling by its management board.
Previously, the Central Bank could only conduct such operations for
terms of one day and seven days. However, it was announced that
operations for terms of 90 and 180 days were a possibility.
The decision by the management board currently applies to only one
day, but in future the Central Bank plans to conduct such transactions
for three months regularly, a source at the exchange told Interfax.
Increasing the term of repo transactions with the Central Bank will
reduce the burden on the Bank itself and its counterparties, as they
will not have to constantly renew deals concluded for one day and seven
days, as they do now.
The Central Bank said earlier that the maximum amount of funds
available at this auction will be 250 billion rubles.
VTB group loaned 109 bln rubles in Feb
MOSCOW. March 12 (Interfax) - The VTB (RTS: VTBR) group loaned over
109 billion rubles to business and individuals in February, the bank
said in a statement.
Construction and the construction materials industry got the most
loans, 9 billion rubles, followed by power generation with over 6
billion rubles, chemicals with over 2.8 billion rubles, metallurgy -
over 2 billion rubles and nuclear industry - over 2 billion rubles.
Federal and municipal bodies received over 8 billion rubles in VTB
loans. The defense sector and space got over 4 billion rubles and
agriculture - over 2 billion rubles. SME received a total of
approximately 7 billion rubles in loans.
Individuals received loans totaling more than 15 billion rubles, of
which mortgage loans accounted for over 1 billion rubles.
Sberbank targets 100% Belpromstroybank control
Galt & Taggart
March 13, 2009
Russian state-owned Sberbank is considering the possibility of participating in the privatization of Belpromstroybank (BPS), and a top Sberbank official said the final goal is a 100% controlling stake in the Belarusian state bank. Sberbank recently began valuing BPS' assets, and is aiming to complete due diligence procedures by the end of March.
MOSCOW BLOG: Russia stabilises but banks remain the danger
bne
March 13, 2009
Investors into Russian equities were starting to breath again by the start of March as the fear of a complete meltdown began to recede. The news in general wasn't good, but at least it wasn't appalling either. Russia's economy is stabilising, but the banking sector could still buckle and bring the economy to its knees.
Russia has bled some $130bn in capital since September, with $30bn leaving in January alone. But by February the haemorrhaging had slowed to $4bn of flight capital - a term that has not been used in Russia since the 1990s - and central bank reserves even increased by $1bn in the last week of February, partly thanks to plunging imports, which have been falling faster than oil prices.
More importantly, the devaluation of the currency has slowed: the ruble has lost about 35% of its value since September when it was trading at around RUB26 to the dollar. However, by the start of March the currency was closer to RUB36 per dollar and the Central Bank of Russia's (CBR) upper limit for the new band of RUB41 seemed to be holding. Currency traders report that in the first weeks of March, the CBR had stopped intervening in the foreign exchange market.
As the currency settled into a new level, the first green shoots of confidence had begun appearing by the middle of March. A few businessmen who had been hording cash were starting to use their piles to snap up some of the plethora of bargains on offer, although most were still husbanding their resources as the global crisis clearly still has some way left to run.
The average Russian is also faring better. Contrary to investor fears, the Russian consumer is still shopping, with real consumption up by 2% year on year in January. Retail sales continue to rise and domestic producers are benefiting from import substitution. For consumers, the weight of the global crisis won't be as heavy as that being borne by their western peers. "Russian household debt, at 9% of GDP, averages $850 per person, with less than 15% of this in foreign debt. This contrasts mightily with European household debt levels at over 50% of GDP and 25% in [Central European countries]," investment bank Troika Dialog said in a recent report.
Taking stock
This emerging optimism is also reflected in the equity markets. Russian stocks are always either amongst the best or worst performing in the world. After falling from 2500 points to 500 between September and January, the RTS Index was definitely in the "worst" category. But in February, the Russian stock market flipped into its "best" mode again and outperformed all the leading global markets, albeit by falling less than anyone else.
"Year-to-date, the RTS Index is still in negative territory, with absolute returns of minus 14%. Nevertheless, the performance should be viewed in the global context: year-to-date, global markets, the S&P 500, and the MSCI EM have posted respective minus 23%, minus 23%, and minus 16% returns. Furthermore, in February, the Russian market became Europe's best performing, rising 7%; this came against a very negative backdrop as all of its neighbouring markets crumbled. The Turkish market fell 10.4%, markets in Eastern Europe declined 9.8% on average, and Brazil declined 5.0%."
Everyone agrees that Russian shares are ridiculously cheap - amongst the cheapest in the world on a price/earnings basis - but that hasn't been enough to start a stampede to buy them. Still, a few brave investors (presumably those who made money in the previous booms) are starting to bottom fish. "While the RTS could clearly fall further, and the global environment is highly uncertain, it is striking that some of the biggest corporate names in the world's eighth-largest economy are trading well below their book value - and some at less than the value of their cash holdings," says Liam Halligan, chief economist at Prosperity Capital Management, Russia's largest dedicated fund, which took in its largest single investment ever in January. "The RTS as a whole is now trading at a P/E of 2.4 times - the lowest of any stock market in the world. Yet this is an economy awash with relatively debt-free, fast-developing companies, to say nothing of Russia's vast reserves of tangible, unimpaired assets - not just oil and gas, but metals, minerals, timber, water and arable land. Faced with these fundamentals, investors are now slowly returning to the Russian market."
Don't bank on it
Still, green shoots are not about to give way to bluebells yet. The fragile and shallow bank sector remains vulnerable and could yet collapse unless domestic money starts flowing again soon.
After earning $16bn in profits in 2008, the bank sector could easily cover the extra $15bn needed to cover the growing amount of bad loans at the end of last year. However, the stationary economy means that the number of bad loans is continuing to rise and the big unknown is how bad it will get.
In previous emerging market crises, non-performing loans (NPL) have reached 35% of the sector's total outstanding debt. The result is bankruptcy on a massive scale that can take years - even decades (think Japan) - to overcome. If NPLs rise to 5.5%, banks would need to find twice as much money as in 2008 for provisions, but as they can take this from earnings, their capital adequacy levels (the money banks need to meet depositor demand at any time for cash) will remain at a comfortable 15%, reckon analysts at Troika.
The CBR is predicting the bad debt level will hit 10% this year, which is bad news as banks will have to come up with about $45bn of provisions. This will eat into their capital and so destabilise even well-run banks. At this level of NPLs, a wave of bankruptcies is almost inevitable. Despite the state's large reserves (the third biggest in the world), even the Kremlin can't afford to recapitalise the entire banking sector and will have to let a lot of banks go. Happily these will mostly be small banks, but the trick will be to manage the process so no one panics and kicks off system-destroying bank runs.
NPLs would have to rise to over 14% (requiring $60bn in provisions) to drive the capital adequacy ratio down below the danger level of 12%, which would put the entire bank system in real danger of a systemic meltdown. "In this case, bad debt charges would need to hit $60bn - four times the 2008 level - which we believe is unlikely," say analysts at Troika.
This is all assuming that there are no more external shocks, which is far from certain. If banks like Morgan Stanley are right and oil prices do fall to $25 or below, then a second round of ruble devaluation would be devastating. If NPLs then rose closer to the full-blown emerging market crisis levels of say 20%, the entire capital of the banking sector would be wiped out, as banks would need to find some $104bn for provisions - almost as much as the entire sector's capital base of $109bn.
Even though the numbers in the milder scenarios should be manageable, there is plenty of room to trip up even here. Currently, NPLs are an average of 2.5%, but once they get over 5.0%, some banks will inevitably go bust; as the mini-banking crisis of 2004 showed, it only takes one small bank for people to lose confidence in all banks and start runs on even the strongest.
State will not purchase metals from producers
Alfa
March 13, 2009
Yesterday Prime Minister Putin stated that the state does not intend to purchases metals from Russian producers owing to budgetary limitations. This message was echoed by a report from the Ministry of Industry that it would not support such purchases. The Ministry had been reviewing a proposal from producers to purchase metals for the state (e.g. Norilsk Nickel's CEO requested that the government purchase nickel, copper and PGM).
It is clear that that state will not purchase ferrous or non-ferrous metals for the state reserve. In the case of steel, we always felt it was unrealistic to expect this kind of purchase because of the issue of storing such large volumes of the product. We believe the news is only marginally NEGATIVE for the industry, as there was little expectation of state support through purchasing metal.
Nickel and copper producers obtained some support from the government when export duties for these metals were abolished. Tariffs were recently increased on steel products to support domestic prices. Some producers obtained financial support through state bank loans - both at the company and at the oligarch level. We believe the state will limit its support of these measures and would not agree to provide cash transfers, or other means such as purchasing metals, to directly transfer value to metals and mining companies.
Putin Offers Miners a Crash Course on Crisis
13 March 2009
By Ira Iosebashvili / The Moscow Times
Prime Minister Vladimir Putin sat down with coal miners in the industrial city of Novokuznetsk on Thursday, a week after President Dmitry Medvedev called for the government to make its anti-crisis plan understandable to ordinary citizens as well as politicians.
In a question-and-answer session with miners, Putin explained the causes of the financial crisis and outlined the state's plans for battling unemployment, falling pensions and poor living conditions in the regions.
Using relatively simple language, Putin told the miners that the crisis is a "perfect storm" in the world economy that started in the United States, "the very heart of the global economy," and contrasted Russia's efforts to fight the crisis with those of other countries.
"Out of the developed countries, Japan is making the biggest allocation for crisis relief, around 2 percent of its GDP," he said. "The measures that our government has taken come close to 4.5 percent. And if you count the Central Bank's efforts in ensuring the liquidity of the banking system, then our anti-crisis measures amount to 12 percent of GDP.
"There's not a single country in the world that is doing as much."
Putin said 43 billion rubles ($1.2 billion) had been allocated to fight unemployment, and he promised to open an employment office in every region. He said the budget deficit would be about 8 percent, echoing for the first time comments made by Finance Minister Alexei Kudrin last week.
He also promised to index pensions to keep up with the effects of inflation and a falling ruble and said 3 trillion rubles would be spent to support the pension system.
The Central Bank won't cut the key refinancing rate below the level of inflation, currently at 13 percent, he said, because to do otherwise would bring about the "destruction of the banking system."
Putin also talked about the woes of the gas industry and said Russia would not "finish off" Ukraine by imposing fines for violations of its agreement with Gazprom.
Ukraine should be fined for not taking the volume of gas stipulated in the contract, but Russia was forgiving the fines, Putin said. "We're realistic. Ukraine is in a state of prebankruptcy, and you know very well that you can't finish off a partner," he said.
The prime minister also railed against oil and power companies for keeping gas and electricity prices' costs high even in the face of plummeting commodity prices. "Our oil companies saw that they could compensate within the country for losses suffered abroad," he said.
Later, at a meeting of a government commission on regional issues, Putin said the federal budget for regional aid would increase by 300 billion rubles and that conditions for regional governments to receive state co-financing for projects would be eased.
"For instance, 95 percent of a regional employment program could be financed by the state, and only 5 percent by the region," he said.
The Novokuznetsk trip included a visit to a mine, an industrial complex and the home of a miner. As Putin left the apartment building of the miner, he stopped when he spotted a young boy waving to him from a window. Told that the boy, Vitaly Maslov, suffered from cerebral palsy, Putin returned to the building and went up to meet the child, according to the government's web site.
The trip came after Medvedev demanded that the government rewrite its anti-crisis plan in simpler terms on March 4.
One analyst said, however, that if a simplified plan was developed, it probably would not come from Putin.
"Putin easily adapts to whatever environment he's in," said Alexei Mukhin, an analyst with the Center of Political Information. "With miners, he speaks simply. At economic forums, he speaks in a completely different way.
"If there's going to be such a plan, it would probably come from someone in Medvedev's inner circle, like Kudrin or [Economic Development Minister Elvira] Nabiullina," he said.
Russian Electric Utilities: Awaiting Key Decisions
VTB Capital
March 13, 2009
Speaking to the press yesterday, Vladimir Shkatov, Deputy Head of Electricity Market Council (the executive body which runs the electricity market), touched on a number of noteworthy developments which in our view will shape the performance of the stocks in the sector. We summarise the key points below, and a number of other recent events.
New series of discussions about freezing the electricity market
Vladimir Shkatov said that in April he expected government bodies to engage in a new series of discussions about freezing the liberalisation of the electricity market. We consider that April-June is likely to be very important for the sector: the government meeting to discuss the sector's capex is scheduled for early April while the approval of the three-year energy balance and limits for electricity sector tariff growth for the same period will be considered in May-June.
This supports our expectation that a new wave of pressure on the electricity sector is possible from large consumers looking for cheaper monopolies' tariffs. It might well be that after the break up of UES and Chubais' resignation, the electricity sector has lost its lobbying power in decision-making circles and could suffer more than other industries during this crisis. On the other hand, we are slightly encouraged by the position of the Energy Ministry to proceed with the planned pace of power market liberalisation. We note that Minister of Energy Sergei Shmatko has previously opposed freezing the liberalisation of the power market and said that the Ministry was seeking other ways of supporting energy consumers in the current situation.
All in all, we expect to see a clear indication, either that the electricity sector will continue subsidising the Russian economy or will become an infrastructure engine for economic growth, within the next three months (when the Government approves the three-year energy balances and limits on monopolies' tariffs growth).
Enel cuts modernization CAPEX for OGK-5's existing units
Alfa
March 13, 2009
According to Kommersant, Italy's Enel, which owns around 56% of OGK-5's equity, has announced that it is not going to finance OGK-5's modernization program. Italy's energy holding is facing financial problems, e.g. the size of Enel's debt currently amounts to around €50 bln, making this the largest amount of all European power peers. As a result, the company's management has decided to cut Enel's CAPEX plans. However, Enel has announced that it does not plan to change OGK-5's investment program concerning new construction, e.g. the construction of two CCGT-410s at Sredneuralskaya GRES and Nevinnomysskaya GRES.
RusHydro holds conference call
VTB Capital
March 13, 2009
RusHydro held a conference call for investors and analysts yesterday chaired by CFO Sergey Yushin (it lasted an hour and 40 minutes, mostly devoted to a Q&A session). The key takeaways, which mostly confirm our positive view on the company, are below.
The long-awaited listing of RusHydro's GDRs will be completed in late 2Q09. The bourse was not disclosed.
In January and February, the genco's electricity production grew 25% YoY and 20% YoY, respectively (despite the Russian average dropping some 7%).
Free electricity prices have declined some 20% YTD, but RusHydro expects them to improve later this year. Accounts receivable amounted to over RUB 2bn and have increased several hundred million roubles so far this year.
RusHydro has managed to decrease its 2009 planned capex expenditures 8%, from RUB 79.4 to RUB 73bn, on the back of lower materials expenses and from scaling down expenses on early stage capex projects.
The genco has started to review its supply contracts with RusAl and intends to negotiate better terms. RusHydro provided RAS financial guidance for 2008 and 2009.
Management sounds upbeat. We believe that the news about listing the GDRs (which we think will probably be in London) will be positively received by the market. The statements about 2009 production support our positive view and we note that the decline in free prices does not exceed our assumptions (a 30+% drop in free USD-denominated prices). Moreover, current developments might bring some additional benefits for the company, such as renegotiating the long term contracts with RusAl and the possibility of the genco expanding its share in the BEMO project.
Alfa Seeks $1Bln in Debt From Deripaska's Firms
13 March 2009
Combined Reports
Alfa Bank, Russia's biggest private lender, is seeking to recover about $1 billion of debt from companies controlled by Oleg Deripaska after rejecting a payment moratorium agreed to by other banks.
The Island of Jersey's Royal Court last month froze ?13.7 million ($19 million) of assets belonging to EN+, the Jersey-based company through which Deripaska controls aluminum producer United Company RusAl, according to EN+ and Alfa Bank.
Alfa Bank is controlled by billionaires Mikhail Fridman and Pyotr Aven.
The ruling is only "the first step," said Vladimir Tatarchuk, deputy chairman of Alfa Bank.
"We are in negotiations over the restructuring of the entire debt owed by BasEl companies to Alfa Bank group, which stand at about $1 billion," he said, referring to Deripaska's Basic Element holding company.
"We don't yet see acceptable conditions for the restructuring, and we believe that BasEl is a long way from having exhausted all possibilities for restructuring the debt," Tatarchuk said.
The court order prevents EN+ from reducing assets held in Jersey below ?13.7 million pending the resolution of the case, which was brought by Amsterdam Trade Bank, a wholly owned subsidiary of Alfa Bank.
Sergei Rybak, a spokesman for Basic Element, said the group's debt to Alfa Bank was "less" than $1 billion, without being more specific.
"Our companies are conducting restructuring talks and have reached significant progress in certain cases," Rybak said. "Alfa's actions often undermine normal work of our companies and fulfillment of agreements with other lenders."
EN+ spokesman Pyotr Lidov said the company was in talks with the Alfa Bank unit that filed the suit in Jersey.
RusAl on Friday reached a so-called standstill agreement to stop repayments for two months on $7.4 billion of loans from more than 70 banks, including ABN Amro, Citigroup, BNP Paribas and Merrill Lynch.
Tatarchuk said he would not support a similar standstill agreement with Russian banks.
"We are not prepared to enter a two-month payment standstill on RusAl's basic debt," he said. "It doesn't offer anything."
Deripaska was the first of Russia's billionaires to cede assets to banks last year as credit markets seized up and the country was pushed to the brink of recession. In October, he was forced to give up stakes in Canadian auto-parts maker Magna International and German builder Hochtief to Western banks after they lost more than half of their market value.
Deripaska said Feb. 22 that he did not need financial help from the state to service debt.
State bank VEB last year took over RusAl's $4.5 billion debt to foreign lenders that the company used to purchase a stake in Norilsk Nickel.
Alfa to recover $1bn debts from Deripaska empire
bne
March 13, 2009
Alfa Bank is trying to recover around $1bn of debt from Basic Element (BasEl), Oleg Deripaska's holding company, according to newswires.
"We are in negotiations over the restructuring of the entire debt owed by BasEl companies to Alfa Bank group, which stand at about $1 billion," Vladimir Tatarchuk, deputy chairman of Alfa Bank said, as quoted by Moscow Times.
"We don't yet see acceptable conditions for the restructuring, and we believe that BasEl is a long way from having exhausted all possibilities for restructuring the debt," Tatarchuk said.
Sergei Ryabak, a spokesman for Basic Element, said Basel's debt to Alfa was less than $1bn.
According to business daily Vedomosti, the debts of UC Rusal, Deripaska's aluminium producer, to Alfa, total only around $100m. In contrast to other creditors, however, Alfa is not prepared to make any concessions on repayment, and has rejected a payment moratorium agreed to by other international banks.
A law suit brought by Alfa affiliates led to the Island of Jersey's Royal Court last month freezing just under $20m of assets belonging to Deripaska's Jersey-registered company EN+. Tatarchuk yesterday called this ruling "only the first step".
"Our companies are conducting restructuring talks and have reached significant progress in certain cases," Basel's Sergei Rybak said. "Alfa's actions often undermine normal work of our companies and fulfillment of agreements with other lenders."
It was announced on Friday March 6 that RusAl had reached a so-called standstill agreement to stop repayments for two months on $7.4bn of loans from a consortium of more than 70 banks, including ABN Amro, Citigroup, BNP Paribas and Merrill Lynch.
"We are not prepared to enter a two-month payment standstill on RusAl's basic debt," Tatarchuk said, as quoted by Moscow Times. "It doesn't offer anything."
(Reuters, Bloomberg)
Rusal Pledged Stakes in Units for Russia Bailout Loan, VEB Says
By Denis Maternovsky
March 13 (Bloomberg) -- United Co. Rusal, billionaire Oleg Deripaska’s aluminum company, pledged stakes in production units for the $4.5 billion loan it received last year from VEB, the chairman of the state bailout bank said.
The stakes are in addition to the 25 percent of OAO GMK Norilsk Nickel that Rusal pledged in October, VEB Chairman Vladimir Dmitriev said, according to the bank’s press service.
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@
Last Updated: March 13, 2009 03:05 EDT
Rusal Pledged Stakes to Russia as Loan Collateral, FT Says
By Kevin Crowley
March 13 (Bloomberg) -- United Co. Rusal has pledged 25 percent stakes in its subsidiaries to the Russian state as a condition of its government loan, the Financial Times reported, citing an interview with the head of state-owned bank VEB.
VEB has taken collateral that fully covers the $4.5 billion bailout loan given in October, the FT said, citing the bank’s chairman Vladimir Dmitriev.
The stakes are in addition to Rusal’s 25 percent holding in Norilsk Nickel, which has already been put up as collateral to VEB, the FT said.
Dmitriev didn’t name the subsidiaries, saying they are among Rusal’s most important assets, the FT reported.
To contact the reporter on this story: Kevin Crowley in London at kcrowley1@
Last Updated: March 12, 2009 23:19 EDT
Svyaznoy shakes hands with VimpelCom
RBC, 13.03.2009, Moscow 11:45:59.One share of Russia's major handset retailer Svyaznoy, which belonged to the chain's chief executive Maxim Nogotkov, has been transferred to VimpelCom (the Beeline trademark) as collateral as part of an exclusive marketing agreement between the retailer and the cellular provider. According to today's RBC Daily newspaper, Svyaznoy has agreed to sell roughly 4.8m VimpelCom contracts per year within a three-year period for a consideration of around $300m. As revealed by a senior manager of one of the handset retailers and a source familiar with the business of both companies, this share provides VimpelCom with the preemptive right to acquire the retailer, and it was assigned to the telecom provider as collateral for the money received as a result of signing the three-year marketing agreement. According to one of the sources, Svyaznoy already received $100m from the cellular company in late 2008. VimpelCom's press office neither confirmed nor denied these reports. Yesterday, Maxim Nogotkov declined to comment.
Svyaznoy reportedly has marketing agreement with Vimpelcom
VTB Capital
March 13, 2009
RBC-Daily speculates this morning that last year Vimpelcom and Svyaznoy signed an exclusive marketing agreement under which Svyaznoy has to sell 4.8mn of Vimpelcom's SIM cards annually for three years for around USD 300mn. The paper adds that Maxim Nogotkov, the major owner of Svyaznoy, has passed one share of Svyaznoy to Vimpelcom as a pledge under the marketing agreement.
Despite the rather high average dealer commission (USD 20.8) which Vimpelcom pays to Svyaznoy under the agreement (if the news is true), we see a partnership between Vimpelcom and Svyaznoy as important: with Evroset and Svyaznoy as partners, Vimpelcom controls around 50% of all the Russian gross adds market. This would mean that it could save on advertising, preserve its own customers from churn to other operators (even if Vimpelcom's prices increase) and grab a decent share of subscribers churning out from other operators.
Norwegian Stake in Russian Joint Venture Seized
By ANDREW E. KRAMER
Published: March 12, 2009
MOSCOW — Already jittery investors were alarmed on Thursday when a Norwegian cellphone company announced that a Siberian court had seized its multibillion-dollar investment in a Russian joint venture and would turn it over to a company thought to be allied with a Russian oligarch.
The decision signaled an escalation in a long-running dispute between the Norwegian company, Telenor, and the Alfa Group, an alliance of Russian businessmen that was also at the center of a separate fight with the British oil giant BP last summer. That dispute also shook faith in the Russian market.
Russia’s stock market fell on the news of the asset seizure.
Telenor has accused the Alfa Group, whose principal partner is Mikhail M. Fridman, of filing groundless lawsuits to gain control of Vimpelcom, the cellphone company that they own jointly. One such lawsuit prompted the ruling Wednesday.
A judge in the Siberian city of Omsk ordered court bailiffs to seize Telenor’s 29.9 percent share in Vimpelcom. The judge had earlier ordered Telenor to pay a fine of $1.7 billion after Alfa accused Telenor of obstructing the expansion of Vimpelcom into Ukraine to protect other Telenor businesses in that country. Telenor denied the accusation and refused to pay the fine. The shares were seized in lieu of the payment.
Telenor has called the original ruling and the decision to allow seizure of its shares groundless and is appealing to a higher court in the Siberian city of Tyumen.
Lawyers for the Norwegians, however, were not hopeful about the outcome of that appeal.
“It’s like going from the frying pan into the fire,” said a lawyer for Telenor, who spoke on the condition of anonymity out of fear of angering the Russian courts.
The beneficiary of the Omsk lawsuit was a little-known company, Farimex Product, which Telenor contends is affiliated with Mr. Fridman’s Alfa Group; Alfa, which already controls 44 percent of Vimpelcom, has denied it is linked to Farimex.
“This is a yet another escalation of the attempts to steal our Vimpelcom shares with the aid of Russian courts,” Telenor’s director for Central and Eastern Europe, Jan Edvard Thygesen, said in a statement.
The business dispute has spread to other jurisdictions. The Norwegians and Russians are also in court in Ukraine and in the Southern District of New York.
The Siberian court ruling came the same day Telenor won a judgment against Alfa Group in New York, in a case related to a Ukrainian cellphone company also jointly owned by Alfa and Telenor.
Alfa Group issued a statement Thursday saying its assets were at risk of being seized in the New York case.
Sistema reportedly sells 50% stake in MTT to Synterra
VTB Capital
March 13, 2009
Vedomosti, quoting its unnamed sources in AFK Sistema, speculates this morning that the conglomerate has agreed with Synterra to sell 50% in MTT for USD 54mn. Under the deal, Synterra will take MTT's debt obligations (excluding the debt to AFK Sistema).
We see the potential deal as positive for Sistema, as MTT's core business was interregional traffic transport for operators (mainly mobile). This market has changed since December 2008 when the regulators allowed mobile operators to use their own backbone networks for intranet interregional traffic.
We also expect that MTS's potential acquisition of Comstar UTS (which we see as a direct competitor to MTT in several key businesses) will also decrease the value of MTT for Sistema (as the holding company). The other M&A activity in the industry (Golden Telecom-Vimpelcom deal, potential deal between Megafon and Synterra) might also decrease the operator's traffic in the MTT network. We estimate MTT's 2008 revenues at USD 1.2bn with EBITDA profitability at 10-13% and total debt of USD 150mn.
Moscow City Government to compensate AFI for infrastructure works on Tverskaya Zastava
VTB Capital
March 13, 2009
Kommersant reports today that Moscow City Council is to compensate USD 70mn to AFI Development in connection with the infrastructure construction on Tverskaya Zastava. This is in line with the investment contract for constructing the project. The company estimates the outstanding infrastructure development costs at USD 110mn. These will be incurred by City Council.
AFI will continue its project, which envisages constructing a shopping centre with a NSA of 114,000 square metres on Tverskaya Zastava. The company is financing this with a USD 280mn credit given out by Sberbank in 2007. The project is to be completed in 2012. Infrastructure works are related to the redevelopment of the whole Tverskaya Zastava project.
We note that the company is currently concentrating on developing three projects that are funded through existing debt and equity (see our AFI Development: Building Castles in the Air? of 19 November 2008). Moscow City Government and AFI Development were quoted in Kommersant as saying that they expect the current negotiations over terms to be finalised soon.
Activity in the Oil and Gas sector (including regulatory)
Russia to propose oil forum for OPEC members
Thu Mar 12, 2009 10:58pm IST
MOSCOW, March 12 (Reuters) - Russia plans to invite OPEC members and other major oil producers to discuss global prices at a meeting in Moscow at the end of the year, the country's senior energy official said on Thursday. Deputy Prime Minister Igor Sechin, speaking ahead of a March 15 meeting of the Organisation of the Petroleum Exporting Countries (OPEC), said he favoured a more transparent pricing mechanism for Russia's main Urals export blend URL-E.
"Our proposal is to begin moving toward a new system of pricing," Interfax news agency quoted Sechin as saying during a meeting with President Dmitry Medvedev.
Sechin, an influential deputy to Prime Minister Vladimir Putin, said Russian crude traded on a calculation based on the most heavily traded Brent and WTI (U.S. crude) blends.
"There can be doubts, to say the least, about how fair these coefficients are," Interfax reported him as saying.
Russia, the world's largest non-OPEC oil producer, has attended recent meetings of the group as an observer. Sechin said he would represent Moscow at Sunday's meeting in Vienna, Interfax reported. For a preview, click on [ID:nLB454095]
"We will raise the idea of organising an international conference of the biggest oil producers and invite, in your name, OPEC countries and other producing countries to Moscow at the end of the year," Sechin told Medvedev.
The Kremlin said on its Web site, kremlin.ru, that Medvedev and Sechin discussed energy pricing in domestic and international markets during a meeting at a Kremlin residence in Gorky, just outside of Moscow. It did not give any more details.
In comments broadcast on state-controlled Vesti 24 television channel, Sechin also said cooperation between OPEC members and other oil producers had already succeeded in stabilising crude prices at around $40 per barrel.
"We consider this to be the result of joint efforts," he said. "We support cuts in supplies to the market and Russia is participating in this work."
Since September, OPEC has agreed to lower output by 4.2 million barrels per day and is estimated to have delivered about 80 percent of these cuts.
Moscow has not officially joined OPEC members in pledging cuts, although oil production in Russia fell last year for the first time in a decade. (Reporting by Robin Paxton; Editing by Keiron Henderson)
Russia to propose new pricing formula on crude at Moscow conference
12 March, 2009, 16:50
Deputy Prime Minister, Igor Sechin, says Russia will propose a new oil pricing formula at an international conference it is planning for later this year, inviting major oil producers to Moscow.
Speaking ahead of the OPEC meeting in Vienna on March 15, Sechin noted that the most heavily traded crude blends were West Texas Intermediate (WTI) and Brent, with other blends trading at a coefficient, with the fairness of those coefficients open to question – particularly with global reserves of oil and oil products growing.
“We propose to start moving to a new system of pricing. In this situation, given the large supply of oil and oil product commodity reserves – the problem of back-up reserves has particular significance.
In addition, we suggest organising an international conference of the biggest oil producers and will invite OPEC and other producer countries to Moscow and the end of the year."
The Deputy Prime Minister added that Russia supports a further cut in oil output, with reserves on the markets growing to 62 days, noting that this is depressing prices, and adding that previously coordinated production cuts had enabled oil prices to stabilize at about $40/bbl.
Russian president says Russia keen on fair, stable oil prices
MOSCOW, March 12 (KUNA) -- Russian President Dmitry Medvedev underscored here on Thursday his country's interest in fair and stable price for oil in world markets.
Medvedev said in a statement carried by Interfax news agency that Russia does not want high nor unjustified prices for oil but at the same time it is interested not to see a serious decline of these prices.
He called on member countries of the Organization of Petroleum Exporting Countries (OPEC) and other producing countries to work for a just and acceptable level of oil prices.
For his part, Russian Deputy Prime Minister Igor Ivanovich Sechin said that Russia will invite all member states of the OPEC producing countries to participate in an international conference to be held in Moscow at the end of this year to discuss the pricing policy.
He added that Russia will invite all these States to participate in the proposed conference to develop a new system for determining oil prices.
KAZAKHSTAN & TURKMENISTAN DEAL BLOW TO NABUCCO PIPELINE PROSPECTS
3/12/09
Turkmenistan and Kazakhstan have reaffirmed their support for a Russian-backed project to expand natural gas exports out of Central Asia. The news is not a welcome development for those advocating the construction of a new European export route, dubbed Nabucco.
According to a statement issued by Kazakhstan’s government, Prime Minister Karim Masimov and Turkmen President Gurbanguly Berdymukhamedov met in Tehran on March 11 on the sidelines of the Economic Cooperation Organization summit and renewed their commitment to the stalled expansion of the Prikaspiisky pipeline network. [For background see the Eurasia Insight archive].
"During the meeting much attention was paid to the construction of the Prikaspissky gas pipeline project. The parties noted that ’everything is on schedule and no problems in the implementation of this project are anticipated,’" the statement said.
The pipeline is a joint Gazprom, KazMunaiGaz and Turkmengaz project. According to Gazprom’s website, the conduit is designed to carry up to up to 30 billion cubic meters (bcm) of Turkmen gas and 10 bcm of Kazakh gas a year. Construction is due to start later this year.
Some experts believe that if the Prikaspiisky expansion proceeds, there might not be sufficient export supplies available to make the planned Nabucco route economically viable. [For background see the Eurasia Insight archive].
Rosneft plans for development 245-South block in Algeria are approved
Thursday, Mar 12, 2009
Algerian National Agency for the Valorisation of Hydrocarbons Resources ALNAFT has approved the plans for development of the fields of Eastern Takuazet, Western Takuazet and Northern Tesselit located at Gara Tesselit area (block 245 South) at the oil and gas basin Illizy at the East of Algeria by Algerian-Russian alliance Sonatrach/Rosneft-Stroytransgaz Ltd.
The Alliance has been formed in the year 2001 by Algerian National Oil and Gas Company Sonatrach (40%) and joint venture of Rosneft and Stroytransgaz - Rosneft-Stroytransgaz Ltd. (60%).
The first plan includes the development of two oil fields Eastern and Western Takuazet, discovered in the years 2003-2004, and the second - gas condensate field Northern Tesselit, discovered in the year 2006.
In accordance with the Production Sharing Agreement on the terms and conditions of which the contract for the development of the block 245-South has been executed, each of the parties are entitled dispose on their own their share of oil, which will be produced at Gara Tesselit area. As regards to the gas, according to the framework agreement signed in the year 2008 Sonatrach shall be responsible for selling of all produced gas.
The oil and gas fields would be put into operation within the period from 2009 to 2012.
Within the period of exploration works, which has commenced at the year 2001 and has been completed at December 31, 2007, the seismic surveys 2D has been performed in the volume of 1,200 linear kilometers and 490 km2 of the 3D seismic surveys, and also 6 exploration wells have been drilled with the aggregate depth of 16.3 thousand meters. The total cost of performing of exploration works has amounted over USD 100 mln.
In 2001, a consortium of Russian companies Rosneft and Stroytransgas won the first international tender in Algeria for exploration, development and production of hydrocarbons on territory of 245-South block. The block with area of 6548 km2 is located on East of Algeria in oil and gas basin of the Illisi and looks like a plateau with rocks, dried up river channels and sand-dunes. A highway as well as oil- and gas pipelines are running thought the block. For working as operator during exploration works a joint company Rosneft-Stroytransgaz Ltd was created.
On March 24, 2001 a contract with Sonatrach for developing of Gara Tesselit on conditions of product sharing was made. The President of Algeria signed a decision about coming this Contract into force on May 2001 giving effect to production sharing agreement. Share of Sonatrach in production sharing agreement is 40%, Rosneft-Stroytransgaz Ltd. has 60%. For meeting requirements of the legislation of Algeria for exploration and development of the fields, Rosneft-Stroytransgaz Ltd. And Sonatrach registered a joint extractive enterprise Gara Tesselit on October 14, 2008 with economic interest similar to production sharing agreement.
Rosneft’s O’Brien Says Planning to Start Vankor Output This Year
By Guy Collins
March 13 (Bloomberg) -- OAO Rosneft, Russia’s largest oil producer, is planning to start production from its Vankor field in eastern Siberia during the second half of this year, Peter O’Brien, vice president for finance and investments, said in a Bloomberg interview.
He also said Rosneft is “nicely profitable” in the first quarter and generating free cash flow.
Last Updated: March 13, 2009 03:38 EDT
LUKoil, NLMK Reach Lube Deal
13 March 2009
The Moscow Times
LUKoil president Vagit Alekperov and Novolipetsk Steel chairman Vladimir Lisin signed an agreement Thursday that would see the oil giant supply the steelmaker with lubricants for the next three years.
Neither the amount of supplies nor the sum of the contract was disclosed.
The supplies from LUKoil will replace those that Novolipetsk, or NLMK, used to import. In 2007, the latest year for which data was provided, LUKoil provided 67 percent of NLMK's lubricants.
"The agreement allows us to save on buying lubricants ... and to provide for the constant improvement of the quality of oils purchased by cooperating in development of new products," Lisin said in an e-mailed statement.
Producers have been moving toward local suppliers since prices for imports were sent soaring by the devaluation of the ruble, which has lost one-third of its value against the dollar since July.
Speaking to reporters on Wednesday, Lisin said NLMK was exporting nearly all of its output as the steel sector had come to a standstill. The firm is currently working at 85 percent capacity.
NLMK's accounts receivables now stand at 1.5 billion rubles ($42.6 million), 1 billion of which is owed by Oleg Deripaska's GAZ Group, the country's second-biggest carmaker, Lisin said.
"GAZ will have to go bankrupt," Lisin said, adding that NLMK no longer supplied the carmaker.
ONGC looking for Imperial team
By Upstream staff
India’s state-run ONGC is planning to appoint a 10-member team which will include a new chief executive to manage the recently acquired Imperial Energy in Russia.
After taking control of Imperial on 13 January, ONGC has so far retained the service of chief executive Simon Hopkison and group finance director John Hamilton.
India;s Hindu Business Line reported according to sources, the company plans to select a team from its own stable to manage the business of Imperial. “The process of short-listing suitable candidates is on. However, the job is easier said than done as the team would have to work in not-so-hospitable environment in Russia,” a source said. ONGC was unavailable to comment.
While the fate of Hamilton is not known, sources said that ONGC is planning to replace the existing management team including the chief executive, primarily on cost considerations. “The existing management cost structure of Imperial is substantially high and efforts are on to bring it down,” the source added.
Elaborating on the job on hand for the new management team, sources said that Imperial currently produces 8000 barrels of oil a day from 42 to 43 wells in its onshore assets.
“While the current per well production rate of 200 bpd is reasonably good, considering the high acquisition cost, production should be stepped up at the earliest,” he said adding that the company was slated to drill a total of 92 wells to push up the production to 32,000 bpd by 2011-12.
Thursday, 12 March, 2009, 04:08 GMT | last updated: Thursday, 12 March, 2009, 04:10 GMT
Novatek Operational Update Leads Us To Lift 4Q08 Ebitda Estimate
Troika
March 13, 2009
NOVATEK issued a press release yesterday providing some guidance for its upcoming 2008 IFRS results, due Wednesday, March 18. The most important takeaway is that the realized gas condensate export price (net of export duty) contracted by just 50% Q-o-Q in 4Q08, while we were modeling a significantly more negative trend, given the exceptionally poor netbacks posted by oil companies. As a result, we are bumping up our 4Q08 EBITDA estimate by roughly 20% to around $200 mln. If we are right in our estimate, 4Q08 would seem remarkably strong. We plan to issue a full results preview early next week.
The company also stated that its full 2008 net forex loss amounted to R3.6 bln ($141 mln), which implies a 4Q08 loss of slightly over $90 mln. At the same time, NOVATEK will book a R1.1 bln ($43 mln) gain on deferred taxes from a reduction in the deferred tax liability that resulted from a government amendment to corporate income tax from 24% to 20%. Rosneft also showed a gain from this (though of a different magnitude) last week. Both theforex loss and deferred tax gain are non-cash items and deserve little attention (though the net effect should be slightly positive), while what seems at first glance to be a solid liquids performance deserves a positive reaction.
Gazprom
Gazprom Considers Investing in Japan Power Utilities (Update1)
By Shigeru Sato and Yuji Okada
March 13 (Bloomberg) -- OAO Gazprom, Russia’s largest gas company, is considering investing in Japanese power utilities in a bid to expand fuel sales to the world’s second-largest economy, its chief financial officer said.
“The commissioning of Russia’s first liquefied natural gas plant on Sakhalin Island and sales of the fuel to Japan gives us an opportunity for such investment in utilities, although we have no specific plans yet,” Andrei Kruglov said in an interview in Tokyo today.
Russia, holder of the world’s largest natural gas reserves, last month opened its first liquefied natural gas plant on Sakhalin Island, allowing the gas export monopoly access to markets in Japan, South Korea and the U.S. The new LNG plant, part of the Sakhalin-2 project in the nation’s far east, is just 160 kilometers (100 miles) from the northern tip of Japan’s Hokkaido island.
While Kruglov didn’t identify utilities for potential investment, he said companies with the closest access to gas end-users were attractive to Gazprom. The Sakhalin-2 project has contracts to deliver LNG to nine Japanese power and gas utilities including Tokyo Electric Power Co. and Tokyo Gas Co., as well as a client in South Korea and one in North America.
To diversify its customers away from traditional European buyers into Asia, Gazprom is moving ahead with plans to develop 68 trillion cubic meters of potential reserves in East Siberia and on Sakhalin island, according to a company document distributed at a Tokyo press conference earlier.
Control of Sakhalin-2
In 2006, Gazprom took control of the Sakhalin-2 development from Royal Dutch Shell Plc after regulators threatened to close the $22 billion project on environmental grounds in a move that underscored the Russian government’s increased control over its domestic resources.
Exxon Mobil Corp., the world’s largest publicly listed oil company, said last month it had halted work on two deposits at its Sakhalin-1 oil and gas project after the Russian government failed to approve budgets and work plans for 2008 and 2009.
“The destiny of Sakhalin gas is that the gas we are exporting and that we are planning to export shouldn’t be affected by any conflict of interests,” Kruglov said. “Under Russian regulations, Gazprom takes charge of all natural gas exports.”
Russia has called on Sakhalin-1 investors to sell all natural gas from the project to Gazprom at prices lower than domestic market levels, the Sankei newspaper reported on March 9. Exxon Mobil had planned to construct an export pipeline to China, the report said.
Production Peaked
Production at Sakhalin-1 peaked at 250,000 barrels a day in February 2007 and averaged 193,000 barrels of oil a day last year, according to the Russian Energy Ministry’s CDU-TEK unit. Output may fall by 11 percent in 2009, Exxon said in September.
Irving, Texas-based Exxon said in February it still was discussing with Gazprom whether some natural gas from the Sakhalin-1 venture can be exported, rather than sold locally.
Gazprom’s view is that natural gas from Sakhalin will be transported by a proposed pipeline from the island to the Pacific port city of Vladivostok, Kruglov said.
Exxon owns 30 percent of the Sakhalin-1 project as does Japan’s Sakhalin Oil and Gas Development Co., or Sodeco. OAO Rosneft, Russia’s largest oil producer, and India’s ONGC Videsh Ltd. each own 20 percent.
Kruglov also said Gazprom is seeking global strategic investors who can buy and hold more than a 3 percent of its shares over the long term.
“Conservative investors such as pension funds and companies that can hold our shares for a long period of time must be our strategic partners,” he said. “But speculative investors seeking a short-term return, like hedge funds, may not be desirable partners.”
To contact the reporter on this story: Shigeru Sato in Tokyo at ssato10@.
Last Updated: March 13, 2009 01:34 EDT
Gazprom to carry out explorations at 4 Uzbek blocks by end-2010
12.03.2009 14:43:29
Russian gas giant Gazprom is expected to carry out geological exploration works at four blocks in the Ustyurt area of northwest Uzbekistan by the end of 2010, a spokesperson for the Uzbek government's department for the fuel and energy industry told Prime-Tass on Wednesday, 11 March.
Gazprom will operate under a programme approved by the Uzbek government, the spokesperson said. Under the programme, Gazprom is also expected to estimate the hydrocarbon reserves of the Agyinsky, Aktumsuksky, Nasambeksky, and Shakhpakhtinsky blocks by the end of 2011.
In 2006, Gazprom signed an agreement with Uzbek state-owned oil and gas company Uzbekneftegaz to develop seven investment blocks of the Ustyurt area with estimated gas reserves of about 1 trillion cubic meters.
In 2007-2008, Gazprom carried out the first stage of the geological exploration at the blocks. In March 2009, the company returned the licenses for three of the blocks, namely the Akchakalsky, Kuanyshsky, and Zapadno-Urginsky blocks, saying that they were not economically profitable.
GAZPROM: Is it Time to Hit the Reset Button?
The Oil & Gas Journal published an EPRINC paper on March 9th that evaluates natural gas pricing and the role of Gazprom in supplying the European market. The report concludes that instead of running away from Gazprom, the EU should run towards Gazprom by taking a majority stake in the major transit routes supplying Russian gas to the EU.
Washington, DC (PRWEB) March 12, 2009 -- The Energy Policy Research Foundation, Inc. (EPRINC) has released a report evaluating natural gas pricing and transportation costs in the European market. EPRINC concluded that current economic circumstances provide a unique opportunity for Europe to stabilize the transit of gas supplied by Russia by taking a majority equity stake in the Ukrainian and Belarusian transit routes. The report was also published in the March 9, 2009 edition of the Oil and Gas Journal. The full report, entitled "Gazprom, Is It Time to Hit the Reset Button?", can be downloaded at .
Diversification away from Russian gas has been a major theme, not necessarily faithfully implemented, of European energy security policy over the last 20 years. The view that "excessive" dependence on Russian gas would place Europe in a vulnerable position has been a central theme in U.S. foreign policy which has encouraged the Europeans to seek alternatives to Russian gas, through greater production from the North Sea, imports of LNG, alternative fuels, and direct pipeline links to the gas reserves in Central Asia. The Russian-Ukrainian "gas" war that took place for 20 days in January 2009 and the disruption in December 2005 have reinforced European and American concerns regarding the reliability of Gazprom as a major gas supplier. However, Europe will likely consume large quantities of Russian gas for years to come. Planned export pipelines that circumvent Ukraine and Belarus will ensure that Russian gas reaches Europe, but the European Union must ask itself if it wants a fragile Eastern European ally, Ukraine, to be increasingly marginalized by these alternative routes.
It is EPRINC's assessment that the current environment of rising transit risks for European gas from Russia and lower gas prices offers an opportunity to revisit the concept of a Western European owned and operated consortium to take control of the Ukrainian and Belarusian pipelines. A more effective strategy for Europe would be not to run from Gazprom, but instead run towards Gazprom. With regard to the West's relationship with Gazprom, this may be a propitious time to "hit the reset button."
According to Lucian Pugliaresi, EPRINC's President, "The dramatic fall in oil and gas prices over the last 8 months, and the subsequent loss in revenues for all parties involved, provides a unique opportunity to make some headway on the recurring crises over the transit of Russian gas to Europe."
About the Energy Policy Research Foundation, Inc. (EPRINC):
EPRINC was incorporated in 1944 in New York and is a not-for-profit organization that studies energy economics with special emphasis on oil. It moved from New York to Washington, D.C. in 2007. It is known internationally for providing objective analysis of energy issues. EPRINC researches and publishes reports on all aspects of the petroleum industry which are made available free of charge to all interested organizations and individuals. It also provides analysis for quotation and background information to the media. EPRINC has been called on to testify before every session of Congress in the last decade. The Foundation briefs government officials, public groups, legislators, and provides written background materials on request. EPRINC does not speak for the industry or any of its segments.
Views expressed in publications, interviews and testimony result from the Foundation's own analysis and are not meant in any way to represent a consensus of industry views. EPRINC's supporters recognize the importance of a credible, authoritative and impartial organization that can help industry and government officials, the media, and the general public better understand the petroleum industry and the markets in which it operates.
EPRINC publications are available for free on the foundation's website:
March 12 2009 11:25
Moscow
On meeting of Gazprom’s Central Subsurface Use Commission
The Company’s Headquarters hosted a regular meeting of the Gazprom Central Subsurface Use and Licensing Management Commission headed by Alexander Ananenkov, Deputy Chairman of Gazprom’s Management Committee.
The meeting considered the issues of obtaining the rights to use the subsurface resources of the Yamal-Nenets Autonomous Okrug and the Okhotsk Sea offshore areas.
Special attention was paid to the allocation of responsibility areas of subsurface resource development to the Company’s subsidiaries with due regard of the potential expansion of the corporate resource base.
Background:
Gazprom’s Central Subsurface Use and Licensing Management Commission is a permanent body established for improving the management efficiency and raw material base development at Gazprom Group.
The Commission’s activity is targeted at optimizing the Gazprom raw material base, securing the planned gas production levels and increasing the efficiency when exploiting subsurface resources.
Taqa May Spend up to $4 Billion on Takeovers in 2009 (Correct)
By Eduard Gismatullin
(Corrects power-generating capacity in 11th paragraph.)
March 12 (Bloomberg) -- Abu Dhabi National Energy Co., the state-controlled power and oil producer known as Taqa, plans to spend as much as $4 billion on acquisitions this year to become a global producer.
…The company also plans to invest 600 million euros ($769 million) with OAO Gazprom, Russia’s natural-gas exporter, in their Bergermeer Dutch gas storage project.
“We hope to start construction in the third quarter,” Barker-Homek said, adding the facility will have a capacity of 3 billion cubic meters. Taqa bought BP Plc’s Dutch production and storage facilities last year…
Reuters, Thursday March 12 2009
… Soccer - Big-spending Zenit St Petersburg will have to cut their budget by 10 percent this year, according to the club's owner, Russian energy giant Gazprom.
UEFA Cup holders Zenit had the biggest budget in Russia at well over $100 million last year.
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