Russia 090518

Basic Political Developments Russia ready to combat A/H1N1 flu: Medvedev -     The vaccine against the

deadly virus will be made in the near future, said the Russian head of state on Saturday when interviewed by the Rossiya television channel.

Russia-US START talks underway: A source in the Russian Foreign Ministry told Interfax news agency that it will be “the first substantive discussion” of a new treaty and not “simply an exchange of opinions.”

New arms treaty between Russia, USA would meet security interests of sides – general: A new Russian-U.S. arms limitation treaty replacing START I expiring in December 2009 would meet the interests of international security, Commander of the Strategic Rocket Force Col. Gen. Nikolai Solovtsov said.

U.S. missile shield may hamper arms reduction talks in Russia - The controversy over U.S. plans for a missile shield in Europe may prevent Washington and Moscow from striking a new strategic arms reduction deal before yearend, a Russian business daily said Monday.

President Medvedev counts on progress in Russia-U.S. relations AFP: Clock ticking as Russia, US kick off nuclear arms talks - Russia and the

United States open fresh nuclear disarmament negotiations this week under pressure to strike a deal by year's end that experts say will have far-reaching consequences for world security

MT: Medvedev Hopeful on Obama Visit - President Dmitry Medvedev expressed optimism Saturday about advancing relations with the United States during President Barack Obama's visit to Moscow in July even on divisive topics such as NATO's eastward expansion.

Pentagon preparing for war with the enemy: Russia - By Rick Rozoff Today Russia's Energy Minister Sergei Shmatko to participate in a video link

between Moscow and Berlin on the Russian energy sector- 1200 GMT On 20 May, Egypt’s Foreign Minister Ahmed Aboul Gheit to visit Russia for

talks with his Russian counterpart Sergei Lavrov. Russia-EU summit to focus on energy initiatives, European security –Chizhov EU FMs meet to prepare for EU-Russia summit, int'l issues WP: Damaged EU-Russia ties bode ill for summit - By Conor Sweeney Russia Profile Weekly Experts Panel: The EU Leaves out Russia - Introduced by

Vladimir Frolov Nicaragua Gets Free GAZ Buses After Supporting South Ossetia Joint Russo-Abkhazian forces assume positions Afghanistan’s second vice president Mohammed Karim Khalili discussed the

current situation in his country with RT - We came here on the invitation of the Institute for Demographic Migration and Regional Development – and, of course, to mark the 19th anniversary of the establishment of political and diplomatic relations between Afghanistan and Russia. And, alongside this seminar, meetings with Russian officials have been made.

Who Is Natasha Tsukanova: The Kremlin’s New M&A Adviser

New presidential envoy introduced to Russia’s Far East governors: First deputy chief of the Russian presidential administration Vladislav Surkov introduced new presidential plenipotentiary representative in the Far Eastern Federal District Viktor Ishayev to the governors of Russia’s Far East.

Japanese Delegation to visit Russia Far East in June Moscow police detained dozens of gay parade participants, including organizer Russian security forces ended counterterrorist operation in Dagestan’s

Karabudahkent area HIV on the rise in Murmansk - Only over the last three months, a total of 163 new

HIV cases have been revealed, which is a more than 30 percent year on year increase.

National Economic Trends Russia’s Economy May Shrink 7.5% This Year, Goldman Sachs Says GDP Plummets 9.5% in Q1 GDP Growth: The Mountain Is Too High to Climb Russian wage arrears fall 9.5 pct in April Russia daily c.bank swap limit at 5 bln rbls Russia - something is cooking, CBR to float the ruble? Domestic debt strategy - Rencap

Business, Energy or Environmental regulations or discussions Russia, Indonesia Upgrade at JPMorgan; China Cut (Update2) Gazprom, Rosneft, Sberbank, TMK: Russian Equity Preview Sberbank announces possible share issue terms around RUB 500bn via up to 15bn

shares Kerimov's representatives join Polyus Gold board - The board includes another

co-owner of Polyus, billionaire Mikhail Prokhorov, and two of his representatives, as well as Polyus CEO Yegeny Ivanov and an independent director.

Russia's big-three mobile operators acknowledged as strategic Commercial Port of Vladivostok Sums up Four Month Work 2009 Efes Breweries Raised to ‘Buy’ at RenCap on Lower Russia Risks Rusisa's AvtoVAZ posts $198 mln loss in Q1 UC Rusal creditors ask the company to transfer its 50% stake in BEMA project

and US$260mn debt to RusHydro Prokhorov Betting On Power Industry - Mikhail Prokhorov, Russia's richest man

according to Forbes, said he would expand his presence in the country's privatized power sector as he opened a 52-megawatt power unit built by TGK-4, half-owned by him, in the Lipetsk region Friday.

IKEA sets itself for the long haul in Russia - Per Kaufmann, the Head of IKEA Russia, spoke with RT about the homeware giants response in Russia to the economic downturn, and its longer term plans for Russia.

Activity in the Oil and Gas sector (including regulatory) Russian official shrugs off Iraq Nabucco gas plan - . "I don't see any tragic events

(in this Iraq deal)," Alexander Saltanov, Russia's special presidential

representative for the Middle East and deputy minister of foreign affairs, told Reuters on the sidelines of the World Economic Forum in Jordan.

Rosneft's Processing Results - Rosneft processed 23 percent more crude in 2008 than a year earlier and will press ahead with refinery expansions.

Novatek profit plunges - Russia's largest independent gas producer, Novatek, posted a year-on-year decline in net profit of 71.5% today, a steeper fall than forecast by analysts.

Tatneft reports strong 1Q09 RAS numbers Russian TMK Is in Talks With EBRD on Loan, Shmatovich Says China starts construction of oil pipeline to Russia - China started the construction

of a crude oil pipeline to Russia, following a loan-for-oil agreement between the two countries last month, the official Xinhua news agency said on Monday.

Russian firm seen as hostile bidder for Nabucco - A Russian oil and gas company considered close to Prime Minister Vladimir Putin has won participation in Hungary's MOL petrochemical group, with the aim of taking over this key member of the Nabucco gas pipeline consortium, experts told EurActiv.

Gas Talks Will Start Soon With Ankara - Gazprom will soon begin talks on extending a delivery contract that expires in 2011, Putin told reporters after a lunch meeting with Erdogan at his Sochi residence

Gas Pipeline Fight Escalates Sharply - A fight to provide Europe with natural gas escalated sharply over the weekend as Gazprom and Italy's Eni agreed to double the capacity of their planned South Stream pipeline and the rival Nabucco project finally secured enough gas to become viable.

RussNeft spent $3 bln in Q1 to buy Deripaska's Cyprus-based companies

Gazprom Govt cuts Gazprom dividend 70% to 0.37 rubles per share Gazprom board recommends sharp dividend cut UPDATE 1-Gazprom to pay lowest dividend since 2000 Gazprom Will Acquire SeverEnergia Gazprom wins extension from Eni, Enel on payment for Severenergia stake Vietnam Min: Gazprom To Supply Coal Gasification Technology Gazprom says offshore pipelines would lower transit risks Gazprom Ready to Buy All Gas From Azeri Nabucco Base (Update1) Gazprom reportedly sold 13.5bcm of gas to Ukraine 1Q09 Gazprom parent deliveries weaker than expected in 1Q09

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Full Text Articles

Basic Political Developments

Russia ready to combat A/H1N1 flu: Medvedevhttp://news.xinhuanet.com/english/2009-05/18/content_11391711.htm

2009-05-18 01:52:20

MOSCOW, May 17 (Xinhua) -- Russian President Dmitry Medvedev has said that Russia is ready to combat the A/H1N1 flu, although the country has so far no report of the deadly flu case, according to local media on Sunday.

    The vaccine against the deadly virus will be made in the near future, said the Russian head of state on Saturday when interviewed by the Rossiya television channel.

    Medvedev said Russia in general has enough reserves of medicines.

    "On the whole the situation is under control, and I believe we are ready to withstand the flu," the Itar-Tass news agency quoted the president as saying.

    Medvedev noted that the entire world has engaged in the research and development of the vaccine now, and it is necessary to attentively conduct Russia's own researches.

    "I think it will appear in the near future," he said, adding that Russian epidemic services are working effectively.

    "I think on the whole the problem (the virus spread and fight against it) is quite solvable," he said.

    Speaking of sanitary measures on flights from the two Americas, the president said that the closely-watched supervision measures are quite efficient.

    Russia currently reports no suspected or confirmed A/H1N1 flu cases. Local media reported that based on the virus sample provided by the U.S. experts, Russian scientists are actively working on the vaccine, which is expected to come out in the next few months.

Russia-US START talks underwayhttp://www.russiatoday.ru/Top_News/2009-05-18/Russia-US_START_talks_underway.html

18 May, 2009, 09:15

Russia and the United States are due to begin talks on Tuesday on a new treaty to reduce the number of nuclear weapons.

A source in the Russian Foreign Ministry told Interfax news agency that it will be “the first substantive discussion” of a new treaty and not “simply an exchange of opinions.”

Assistant Secretary of State Rose Gottemoeller is on her way to Moscow as head of a US delegation preparing the way for President Obama's visit in July.

The Strategic Arms Reductions Treaty, or START 1, which was signed in 1991 currently places a limit of 6,000 warheads on each side. It is due to expire in December.

The Russian and American presidents agreed during their first meeting in London in April upon an immediate start to new START talks. Experts believe that the future agreement will lead to larger arms reductions.

“I think what we are going to see in this new agreement is lower ceilings on the number of warheads that may be deployed on strategic delivery systems – the missiles and the bombers – and we are going to see lower ceilings on the number of missiles and bombers that may be deployed by each side,” said Daryl Kimball, executive director of Arms Control Association. “I think they will be looking for some revised rules and numbers on these issues in the new agreement.”

New arms treaty between Russia, USA would meet security interests of sides – generalhttp://www.interfax.com/3/493932/news.aspx

MOSCOW. May 18 (Interfax) - A new Russian-U.S. arms limitationtreaty replacing START I expiring in December 2009 would meet theinterests of international security, Commander of the Strategic RocketForce Col. Gen. Nikolai Solovtsov said. "The expiration of the START I treaty in December without newunderstandings in this sphere would indisputably undermine the regimenof international control over strategic nuclear armaments. Therefore itwas decided to draft a new treaty between Russia and the United Statesto replace START I," he told the press commenting on the upcoming firstround of Russian-U.S. talks on strategic offensive armaments. "It would meet the interests of this country, if the new treatyrestricted the number of carriers of strategic nuclear weapons, not justwarheads and extended the ban on deploying strategic offensive armamentsoutside of national territory," Solovtsov said. Besides, the new agreement must clearly define all the terms, hesaid. It should also stipulate for a simplified version of the mechanismof inspections of information exchanges tested in the START I. Solovtsov noted that missiles whose service life has not yetexpired will not be decommissioned from his force. "Not a single launcher or missile regiment will be decommissioned,if their service life has not run out. Such an approach will remain withregard to the new treaty that will be signed with the United States,"Solovtsov said. Earlier Russian Foreign Ministry spokesman Andrei Nesterenko saidthat the first round of Russian-U.S. talks on the limitation ofstrategic armaments will be held in Moscow on May 18-20. "It has beenagreed that the first round of full-scale talks will take place inMoscow on May 18 to 20," he said.

According to a U.S. State Department report published in April, asat January 1 Russia had 814 deployed carriers of nuclear arms, includingground based intercontinental ballistic missiles (ICBM), submarinelaunched ballistic missiles (SLBM) and heavy bombers as well as 3,909nuclear warheads. The same report said the United States had 1,198 carriers and 5,576warheads. The sides retained a relative parity in the total number of ICBMs -550 in the USA and 469 in Russia. However, Russian missiles had morewarheads - 2,005 compared to 1,250 in the USA. The United States was superior in the number of strategic bombers216 compared to 77 in Russia as well as SLBM 4321 compared to 268. Italso had more warheads on these carriers - 4,326 against 1,904. START I expiring on December 5 binds Russia and the United Statesto reduce the number of deployed carriers to no more than 1,600 and thenumber of warheads to no more than 6,000. In 2002 Russia and the USA signed the Moscow Strategic OffensiveReductions Treaty which stipulates for the reduction of warheads to1,700-2,000 on each side by 2012.

U.S. missile shield may hamper arms reduction talks in Russiahttp://en.rian.ru/russia/20090518/155035690.html

12:4818/05/2009MOSCOW, May 18 (RIA Novosti) - The controversy over U.S. plans for a missile shield in Europe may prevent Washington and Moscow from striking a new strategic arms reduction deal before yearend, a Russian business daily said Monday.A team of U.S. negotiators led by Assistant Secretary of State Rose Gottemoeller arrives in Moscow on Monday for a first two-day round of official U.S.-Russian talks on a replacement for the Strategic Arms Reduction Treaty (START), which is set to expire on December 5, 2009.Despite optimism expressed by both sides, the Kommersant newspaper said there is only a very slim chance that Moscow and Washington will be able to adopt a new document by the December deadline, because Russia intends to link the issue with the deployment of U.S. missile defenses in Europe.The Strategic Arms Reductions Treaty (START 1), signed in 1991, obliges Russia and the United States to reduce nuclear warheads to 6,000 and their delivery vehicles to 1,600 each. In 2002, a follow-up agreement on strategic offensive arms reduction was concluded in Moscow. The agreement, known as the Moscow Treaty, envisioned cuts to 1,700-2,200 warheads by December 2012.According to a report published by the U.S. State Department in April, as of January 1 Russia had 3,909 nuclear warheads and 814 delivery vehicles, including ground-based intercontinental ballistic missiles (ICBM), submarine launched ballistic missiles (SLBM) and strategic bombers.The same report stated the United States had 5,576 warheads and 1,198 delivery vehicles.

Russian President Dmitry Medvedev and his U.S. counterpart, Barack Obama, agreed during their London meeting in early April on an immediate start to talks on a new strategic arms reduction treaty.Moscow, which proposed a new arms reduction agreement with Washington in 2005, expects the United States to agree on a deal that would restrict not only the numbers of nuclear warheads but also place limits on all existing kinds of delivery vehicles.Moscow also insists on the effective use of control mechanisms and procedures, "which the previous administration ignored categorically," according to Foreign Minister Sergei Lavrov.To meet the ambitious deadline, the sides have five months to overcome their differences in the approach to arms reduction, which includes the deployment of nuclear weapons in space and the so-called retrievable nuclear arsenals (stockpiled warheads).However, they do not even have a draft document and the United States has not yet submitted its written proposals on the issue, the Kommersant said.Meanwhile, the Kremlin could insist that Washington abandons plans to place 10 interceptor missiles in Poland and a tracking radar in the Czech republic before striking a new arms reduction deal. Russia says the U.S. missile shield would be a threat to its national security.Prime Minister Vladimir Putin reiterated during his recent visit to Japan that "Russia will certainly link missile defense with all related issues, including strategic arms reduction."U.S. officials have traditionally maintained that the deployment of a U.S. missile "umbrella" in Europe was aimed at countering the threat of missile attacks from rogue states such as Iran, and repeatedly refused to consider it as a "bargaining chip" in negotiations with Russia.

President Medvedev counts on progress in Russia-U.S. relationshttp://en.rian.ru/world/20090516/155029566.html17:5716/05/2009

BARVIKHA (Moscow Region), May 16 (RIA Novosti) - Russian President Dmitry Medvedev said Saturday he hopes there will be progress on unresolved Russia-U.S. issues at a meeting with his U.S. counterpart Barack Obama in July.

"In early July this year, several days prior to the summit in Italy, we will have a large meeting [with Obama] in Russia. I hope it can move dialogue to a new level," he told journalists after talks with Italian Prime Minister Silvio Berlusconi.

Medvedev and Berlusconi met on Saturday outside Moscow to discuss the upcoming G8 summit due to be held in July in Italy. Berlusconi said in turn that Russia and the U.S. have every chance of resolving any issues between them.

For example, Moscow has been at loggerheads with Washington over plans to deploy a missile defense system in Central Europe. The U.S. earlier signed agreements with the Czech Republic on hosting a radar station and with Poland on the deployment of 10 interceptor missiles by 2013.

Russia says the missile shield would be a threat to its national security while the United States has argued it is needed to guard against the threat of missile attacks from states such as Iran.

Russia and the U.S. have begun work on a new treaty to replace the Strategic Arms Reduction Treaty, START I, which expires in December.

Obama said after a meeting with Russian Foreign Minister Sergei Lavrov earlier in May that Moscow and Washington had a great chance to "reset" relations.

The term "reset" has been used on a number of occasions by the Obama administration with relation to Russia-U.S. ties. In March, U.S. Secretary of State Hillary Clinton presented Lavrov with a yellow box with a large red "reset" button on it, which she asked Lavrov to push with her.

On either side of the button the word "reset" was written in English and what was supposed to be a Russian translation. However, Washington's translators had made a mistake, writing the word, writing the Russian for "overload" on it instead.

Clock ticking as Russia, US kick off nuclear arms talkshttp://www.google.com/hostednews/afp/article/ALeqM5hQDSTbl7Ubsyr-Unm6w_RMBnhO5w

7 hours ago

MOSCOW (AFP) — Russia and the United States open fresh nuclear disarmament negotiations this week under pressure to strike a deal by year's end that experts say will have far-reaching consequences for world security.

The talks mark the resumption, after a generation of drift, of a process begun in 1969 at the height of the Cold War and are a central element of US President Barack Obama's stated desire to "reset" frayed ties with Russia.

The initial two-day negotiating session was due to start Tuesday. Heads of the US and Russian delegations held a technical meeting in Rome last month, but the Moscow talks marked the formal start of the process, officials said.

Disagreements between the two countries on the size, nature and purpose of their nuclear arsenals and strategic weapons systems abound, but both have indicated recently that the political will to overcome them now exists.

"There are good chances for bringing our positions closer and for working out agreements," Russian Foreign Minister Sergei Lavrov said last week after meeting US Secretary of State Hillary Clinton in Washington.

Pressure on negotiators was heightened after the White House announced Obama will travel to Moscow on July 6 for a summit meeting with his Russian counterpart Dmitry Medvedev on reducing nuclear weapons arsenals and other security challenges.

The meeting will allow the United States and the Russian Federation an opportunity "to deepen engagement on reducing nuclear weapons, cooperating on non-proliferation, exploring ways to cooperate on missile defense, addressing mutual threats and security challenges," the White House said in a statement.

The main agreement governing US and Russian strategic nuclear weapons, the Strategic Arms Reduction Treaty (START), expires on December 5 and there has so far been little specific discussion on what the two sides should do next.

Areas of discord include the limits on nuclear warhead numbers, whether the treaty should cover delivery systems like bombers and missiles, verification procedures and other issues of information sharing and confidence-building.

But despite the technical complexity and tight schedule of the negotiations, both countries have deep-seated national interests in ensuring the talks happen and conclude with results both can hold up to the world as meaningful progress.

The format of the talks gives Russia strategic "parity" with the United States, a matter diplomats say is of huge importance to Moscow as it seeks to recover global prestige enjoyed prior to the 1991 collapse of the Soviet Union.

And a return to direct engagement in substance with Moscow on a bilateral matter of international importance helps dispel perceptions that Washington acts unilaterally and will smooth cooperation with Russia on other issues.

That the United States has a need to enter disarmament talks with Russia for reasons that go beyond just limiting nuclear weapons was acknowledged in a report published earlier this month by a high-level Washington policy group.

"The moment appears ripe for a renewal of arms control with Russia," the Congressional Commission on the Strategic Posture of the United States, headed by former defense secretary William Perry, said.

"In support of its arms control interests and interest in strategic stability more generally, the United States should pursue a much broader and more ambitious set of strategic dialogues" with Russia and others, it said.

For Vladimir Dvorkin, a retired general involved on the Soviet side in the landmark Strategic Arms Limitation Talks (SALT) of the 1970s and the START talks of the 1980s, the new US-Russia negotiations are of major significance.

"It is not just about the numbers of weapons," Dvorkin told AFP. "The process itself is important, because the idea of total nuclear disarmament is out there now.

"The process is long -- it will take decades. But it is necessary, because in the final analysis the liquidation of all nuclear weapons is a prerequisite for a new global security arrangement that is not based on the threat of force," he said.

The US delegation to the negotiations is headed by Assistant Secretary of State Rose Gottemoeller while the Russian delegation is headed by Anatoly Antonov, head of the foreign ministry department for security and disarmament.

Medvedev Hopeful on Obama Visithttp://www.themoscowtimes.com/article/1010/42/377196.htm

18 May 2009 Combined Reports

President Dmitry Medvedev expressed optimism Saturday about advancing relations with the United States during President Barack Obama's visit to Moscow in July even on divisive topics such as NATO's eastward expansion.

Medvedev again criticized NATO's ongoing military exercises in Georgia, which Russia defeated in a brief war in August, saying such drills were clearly "provocative" and threatened stability in the region.

He expressed hope, however, that he would have a fruitful discussion on security cooperation with Obama when he visits Moscow on July 6 to 8.

"I hope that in the course of our meeting we will be able to talk about these problems as well and give a new impulse to our contacts in this field," Medvedev said after a meeting with Italian Prime Minister Silvio Berlusconi.

The White House on Saturday also expressed hope that Obama's visit would improve ties. "The summit meeting will provide an opportunity ... to deepen engagement on reducing nuclear weapons, cooperating on nonproliferation, exploring ways to cooperate on missile defense, addressing mutual threats and security challenges and expanding the ties between American and Russian society and business," the White House said in a statement.

It said that after the Russia trip Obama would attend a Group of Eight summit in L'Aquila, Italy, from July 8 to 10, and visit Ghana.

Obama and Medvedev might also consider a Kremlin proposal to work out a new trans-Atlantic security pact between the United States, Canada, the European Union, NATO and alliances of former Soviet republics.

"What's better: to create a new security structure or hold military maneuvers in close

proximity to the area which saw a military action less than a year ago?" Medvedev said in an interview with state television, fragments of which were broadcast Friday.

Medvedev first proposed to work out a new trans-Atlantic security pact in June, but the previous U.S. administration had ignored the offer.

Obama said after meeting with Medvedev in London last month that the proposal is worth exploring -- part of the new U.S. administration's push for better ties with Moscow.

Medvedev reaffirmed Friday that the new security pact he proposed is not aimed against NATO.

Russia and NATO recently started to improve ties frozen after Russia's war with Georgia in August, but tensions soared again over expulsions of diplomats and the NATO exercises that began recently in Georgia. But Georgia and Ukraine say the August war and Russia's subsequent recognition of two separatist regions in Georgia as independent nations underscores the urgency of NATO membership for their countries.

Sergei Bagapsh, the leader of one of the regions, Abkhazia, said Friday that the province's railroads and main airport would be handed over to Russian control for 10 years. But Bagapsh said Russia plans to cut the number of troops it plans to maintain at the main base in Abkhazia from 3,800 to 1,700 because of financial concerns.

(AP, Reuters)

Pentagon preparing for war with the enemy: Russiahttp://english.pravda.ru/opinion/columnists/18-05-2009/107574-pentagon_russia-0

18.05.2009

By Rick Rozoff

On May 12 James Mattis, NATO's Supreme Allied Commander Transformation [ACT] and commander of the U.S. Joint Forces Command, spoke at a three-day symposium called Joint Warfighting 09 in Norfolk, Virginia, where NATO's Allied Command Transformation is based, and stated: "I come with a sense of urgency. The enemy is meeting like this as well."

A local newspaper summarized his speech:

"Mattis outlined a future in which wars will not have clearly defined beginnings and ends. What is needed, he said, is a grand strategy, a political framework that can guide military planning."

He failed, for what passes for diplomatic reasons no doubt, to identify who "the enemy" is, but a series of recent developments, or rather an intensification of ongoing ones, indicate which nation it is.

Last week the head of the U.S. Strategic Command, Gen. Kevin Chilton, told reporters during a Defense Writers Group breakfast on May 7 "that the White House retains the option to respond with physical force - potentially even using nuclear weapons - if a foreign entity conducts a disabling cyber attack against U.S. computer networks...."

An account of his talk added "the general insisted that all strike options, including nuclear, would remain available to the commander in chief in defending the nation from cyber strikes."

Chilton "said he could not rule out the possibility of a military salvo against a nation like China, even though Beijing has nuclear arms," though the likely first target of alleged retaliation against equally alleged cyber attacks would be another nation already identified by US military officials as such: Russia.

In late April and early May of 2007 the government of Estonia, which was inducted into NATO in 2004 and whose president was and remains Toomas Hendrik Ilves, born in Sweden and raised in the United States (where he worked for Radio Free Europe), reported attacks on websites in the country which were blamed on Russia.

Over two years later no evidence has been presented to substantiate the claim that Russian hackers, much less the government itself, were behind the attacks, though it remains an article of faith among US and other Western officials and media that they were.

The response from American authorities in the first place was so sudden and severe, even before investigations were conducted, as to strongly suggest that if the attacks hadn't been staged they would need to be invented.

Right afterward Secretary of the Air Force Michael W. Wynne stated, " Russia, our Cold War nemesis, seems to have been the first to engage in cyber warfare."

MONDAY, MAY 18http://www.reuters.com/article/companyNewsAndPR/idUSL470615020090518

MOSCOW - Russia's Energy Minister Sergei Shmatko to participatein a video link between Moscow and Berlin on the Russian energysector- 1200 GMT

WEDNESDAY, MAY 20

http://www.reuters.com/article/rbssWirelessTelecommunicationServices/idUSLS3582020090518

MOSCOW – Egypt’s Foreign Minister Ahmed Aboul Gheit to visit Russia for talks with his Russian counterpart Sergei Lavrov.

Russia-EU summit to focus on energy initiatives, European security –Chizhovhttp://www.interfax.com/3/493946/news.aspx

MOSCOW. May 18 (Interfax) - Russian initiatives on energy andEuropean security will be highlighted at the Russia-EU Khabarovsk summiton May 21-22, Russian Permanent Representative to the European UnionVladimir Chizhov said in Brussels on Monday. "I would single out three major issues: firstly, the currentsituation caused by the global financial and economic crisis," he said. Secondly, it is the energy initiatives of Russia, he said. "I think no one doubts the importance of the discussion of thissubject in the Russia-EU format," the diplomat said. Thirdly, it is the formation of a new system of European security,he said. "The issue was discussed at the previous summit and would naturallybe discussed again in Khabarovsk. Our partners have taken an interest inour proposals. They do not accept them unreservedly but they have aninterest," he said. President Dmitry Medvedev will lead the Russian delegation tosummit. Czech President Vaclav Klaus, European Commission President JoseManuel Barroso and EU High Representative for the Foreign and SecurityPolicy Javier Solana will represent the European Union.

EU FMs meet to prepare for EU-Russia summit, int'l issues

http://news.xinhuanet.com/english/2009-05/18/content_11395893.htm

2009-05-18 16:44:36

BRUSSELS, May 18 (Xinhua) -- Foreign Ministers from the 27 European Union (EU) member states opened their monthly meeting in Brussels on Monday morning to prepare for the EU-Russia summit later this week, and international issues including the latest development in Moldova, Sri Lanka, Myanmar, Iran and Georgia.

    The EU-Russia summit is scheduled to be held in the far-eastern Russian city of Khabarovsk on May 21-22, and is expected to focus on a recent proposal by Russian President Dmitry Medvedev to discuss a new European Security Treaty, energy security, and negotiations on a new bilateral framework agreement.

    The EU leaders are also expected to explain to Medvedev that EU Eastern Partnership program, which will draw six former Soviet republics closer to the EU, is not aimed at Russia.

    The EU foreign ministers will be joined by EU defense ministers to discuss the EU peacekeeping mission in Bosnia and Herzegovina (EUFOR Althea) and Operation Atalanta, the EU-led anti-piracy effort in Somalia.

    Meanwhile, the foreign ministers will discuss preparation for the June EU summit in Brussels.

    On the sidelines of the two-day foreign ministers' meeting, an EU-New Zealand ministerial meeting, an EU-Albania Stabilization and Association Council session and an EU-Turkey Association Council session will also be held.

Damaged EU-Russia ties bode ill for summithttp://www.washingtonpost.com/wp-dyn/content/article/2009/05/17/AR2009051700501.html

By Conor SweeneyReuters Sunday, May 17, 2009; 7:41 AM

MOSCOW (Reuters) - This week's EU-Russia summit is expected to bring little real progress on issues such as trade, security and energy after a New Year gas row and last August's Georgia war extinguished hopes of warmer post-Putin ties.

"You will see uncomfortable silences and frozen smiles, if we get out of Khabarovsk with minimal damage, even without any breakthrough, this would be enough," said one European diplomat familiar with the preparations for the summit in eastern Russia.

The low expectations contrast with the near euphoric treatment of incoming President Dmitry Medvedev by European Commission President Jose Manuel Barroso and EU foreign policy envoy Javier Solana at last June's summit in Siberia.

Previous summits had been dominated by public spats over Russia's rights record and democratic standards, when a robust Vladimir Putin responded to every criticism of his rule with a similar example of corruption or rights abuse in EU countries.

Putin's 2008 exit from the Kremlin had inspired hopes for a friendlier era between Moscow and its top trading partner, and EU officials had praised Medvedev as a man they could work with.

One year on, officials are sober in their assessment.

"The change of President has not brought big changes in bilateral relations, though in some ways the tone, the language has changed. But the main message we get is continuity," the diplomat said, when asked to compare Putin and Medvedev.

Although Russian officials publicly pay lip service to the EU, diplomats say that in reality the Kremlin prefers to cut bilateral deals with friendly European governments such as Italy and ignore Brussels altogether.

The agenda at the May 21-22 summit includes the EU's new eastern partnership, that takes six ex-Soviet republics closer to its orbit, cooperation on tackling the global economic crisis and talks on a new bilateral framework agreement.

GEORGIA, GAS

Although French President Nicolas Sarkozy, whose country then held the rotating Presidency, played the central role in negotiating a ceasefire between Russia and Georgia, the EU collectively took Georgia's side over the five-day war, something that has not been forgotten in Moscow.

Barroso also expressed repeated frustration at the early January shut down of gas supplies to Europe and the inability of Ukraine and Russia to prevent European consumers losing out through a row which raised questions about Russia's reliability as an energy supplier.

Russia also felt badly stung by the European Commission after Brussels announced a deal with Ukraine to refurbish aging Soviet-era pipelines, a move Moscow felt was taken without consultation about its interests.

In Khabarovsk, Medvedev will press the EU to consider both his plans for a new European security umbrella and a new energy agreement, Russian Foreign Ministry spokesman Andrei Nesterenko said in Moscow on May 15.

"It is a good chance for us to synchronize our watches with our EU partners on complex, relevant questions. Not least amongst the important issues are Europe's energy security and Russian proposals concerning the new legal foundation for cooperation in the energy sector," Nesterenko said.

But the toughest criticism of the EU may come from the leader of its own delegation, the Czech President Vaclav Klaus.

Klaus is an outspoken critic of the way Brussels operates and has not yet signed the Lisbon Treaty into law, with many Brussels officials concerned that he will use the summit platform as an opportunity to chastise Brussels, a spectacle the Russian delegation may await with quiet glee.

(Editing by Louise Ireland)

May 15, 2009Russia Profile Weekly Experts Panel: The EU Leaves out Russia http://www.russiaprofile.org/page.php?pageid=Experts%27+Panel&articleid=a1242410676

Introduced by Vladimir FrolovRussia Profile

Contributors: Vladimir Belaeff, Stephen Blank, Ethan Burger, Vlad Ivanenko

Last week, the European Union launched its new strategic foreign policy initiative (Eastern Partnership) meant to provide a unified political framework to deal with former Soviet States, at a summit in Prague to which Europe invited some of the most unsavory post-Soviet leaders, including Belarus President Alexander Lukashenko (he did not attend), Uzbekistan’s President Karimov, and Georgia’s besieged President Mikheil Saakashvili. Why is the EU focusing on the relationship with former Soviet states, as opposed to making the EU-Russia relationship a clear priority? How should Russia react to the EU’s thrust into its zone of privileged interests?

The Eastern Partnership (EP) is a policy initiative that was first formulated by Sweden and Poland to provide a legal and political framework for the EU’s relations with former Soviet states, in such a way as to encourage their aspirations to join Europe without undertaking the costly obligations to provide a realistic pathway for their actual membership in the European Union.

Russia is not formally covered by the EP, but its unseen presence is strongly felt by all participants. The August 2008 war with Georgia and mounting tensions between Russia and the EU over energy issues have turned the EP from the purely bureaucratic contraption it was designed to be into an important factor of European politics.

Europe is moving into the territory of geopolitical competition with Russia in the areas where Russia, as President Dmitry Medvedev put it shortly after the rout of Georgia’s army by Russian forces, has “privileged interests.”

Not only does this anger and provoke Russia into designing ways to counter the EU’s thrust into the former Soviet Union, it also burdens the EU’s crowded political agenda at the time of Europe’s worst economic crisis in decades, and forces Europe to get deeply involved in some of the most entangled problems of the transition states on former Soviet territory, like the political bedlam in Georgia and the likely disintegration of Ukraine’s economy.

At the same time, Europe is clearly failing to think strategically about Russia, or invest into a qualitative breakthrough in the Russia-EU relationship. The upcoming Russia-EU summit at the end of May is unlikely to break any new ground in this relationship stuck

in mutual recriminations and lingering hostility. A pile of unresolved political problems between Russia and the EU is rapidly accruing.

This is even more striking if viewed against the backdrop of Russia’s rapidly improving relationship with the United States, after Presidents Dmitry Medvedev and Barack Obama agreed to hit the “reset button.” 

Russia views Europe’s thrust into the former Soviet Union with ill-concealed irritation. Moscow has sought specific reassurances from Brussels that the EP has no military or security component, and would not result in foreign military bases in Russia’s backyard. Moscow is particularly sensitive to the EU’s moves to engage former Soviet states in energy cooperation projects that might result in diminishing Russia’s privileged role as the primary energy supplier to Europe. Moscow’s direct pressure on the eve of the Prague summit has led such energy rich nations as Turkmenistan, Kazakhstan and Uzbekistan not to sign the final declaration of a separate energy meeting under the EP umbrella.

Why is Europe trying to provoke Russia? What is it seeking to accomplish with the Eastern Partnership initiative? Why does the EU focus on the relationship with former Soviet states as opposed to making the EU-Russia relationship a clear priority? How should Russia react to the EU’s thrust into its zone of privileged interests? How will the EU’s EP initiative be coordinated with plans for NATO membership for some of those states?  How would the EP affect the complex Russia-EU energy relationship?

Ethan S. Burger, Adjunct Professor, Georgetown University Law Center, Washington, DC:

The EU was entirely justified in not inviting Russia to the Eastern Partnership meeting in Prague. It is not accurate to portray this decision as part of an effort to isolate or provoke Russia. Russia continues to participate in the G20 and other international fora.   

The EU is clearly disturbed by the recent developments in Russian foreign and domestic policies. For example, Russia/Gazprom demonstrated that it is not a reliable supplier of energy, causing economic harm to the EU member-states. The Russian invasion of (incursion into) Georgia is unacceptable, as was its aiding of Abkhazian and South Ossetian separatists. This is not to suggest that the Georgian President Mikheil Saakashvili acted prudently, or that his continued rule is good for his country. Nonetheless, the Russian government would not acquiesce if the West were to encourage separatism in Russia. Of course, such a policy would be fool-hardy, irresponsible and dangerous. It would make the situation in Pakistan seem like a minor irritant.

Russia's intelligence services seem to be increasingly aggressive in their activities, without apparent justification. The Russian Ministry of Justice has apparently set a quota on the number of Russian NGOs it will re-register, raising questions about its commitment to the development of a vibrant civil society in the country. Efforts to establish the rule of law are encountering opposition both within the executive branch and the judiciary (this is illustrated by the failure of Russia to implement the 2008 law on

Counteracting Corruption in a concerted manner). Obviously, progress in this area takes time, and obstacles and individuals opposed to it are numerous.

Of course, this list is not exhaustive. There is evidence that the Russian political system is at a potentially critical juncture. The EU should encourage and support individuals and policies that would make Russia into a responsible member of the European community. Business as usual is unacceptable. The EU is doing the Russian people a big favor in communicating its displeasure with the way things are going at present.

Vlad Ivanenko, Ph.D., economist, Ottawa:

In 2007 I exchanged opinions with the editor of an influential Russian journal about the unhappy state of affairs that dominated the EU-Russian relationship at that time. We agreed that it was important to assemble a group of EU Russian experts to try finding ways to break the existing impasse by proposing new ideas about two topics. We wanted to primarily look at areas of potential economic cooperation between the two parties, and to define the ways to avoid their destructive competition in countries in between.

The abovementioned forum generated some interesting propositions, but, unfortunately, our experts were pessimistic about their implementation. While there was a suggestion that it was Washington that precluded the rapprochement, the prevailing mood was that Brussels was the responsible party. When the Soviet Union collapsed, the EU adopted a policy of eastward expansion, first under the banner of an economic union that later included some components of a political bloc. While Russia was not especially concerned with tighter economic links between its former satellites and the “old” EU, with which it wanted close economic ties as well, it perceived greater political cohesion within the enlarged Europe as a threat.

Formally, the positions of the two sides seem to lie on different sides of the hypothetical “right-wrong” divide. Many observers claim that Russia sticks to the outdated policy of “spheres of influence,” by demanding from the EU not to encroach on what it considers to be its “periphery.” Meanwhile, the EU behaves as a good global citizen by allowing any country that follows a well-defined set of rules (called Acquis communautaires) to be invited to the union. Thus, they argue that the EU does not explicitly exclude Russia from the set of potential candidates, and it is only Russia’s adherence to its “imperialist policy” that prevents both parties from forming a good relationship.

Yet Moscow’s suspicions that the EU rules are used as a cover to promote policies that benefit the union at Russia’s expense cannot be completely discounted. The rules of international alliances favor the founding members more than the rest simply because they reflect their original preferences. This argument explains, for example, why Russia favors the status quo at the UN Security Council, where it is a founding member, but demands an overhaul of the European security system formed around NATO.

In the situation where one side insists on the preservation of existing arrangements and the other demands its abandonment, conflict is inevitable. Being an economist I cannot

comment on what form it will take, but I venture to say that judging by international trade flows, Russia is in a better position to dominate in Ukraine and Belarus. The EU’s authority is stronger in Moldova and neither party to the conflict has enough economic influence in Georgia, Armenia, and Azerbaijan to take their preferences into consideration.

Vladimir Belaeff, President, Global Society Institute, Inc., San Francisco, CA:

As correctly noted, the failing Eastern Partnership of the EU is a Polish-Swedish initiative. Of this duet, Poland’s behavior within the EU requires special scrutiny. A calm, unbiased review of the present (EU) and the past (the inter-war years of the 20th century) unveils a stable pattern of leveraging Polish membership within international organizations in pursuit of particularistic geopolitical objectives (or dreams).

The engagement of “Eastern Partners” is a Polish ambition that primarily focuses on countries like Ukraine, Lithuania and Belarus – regions occupied by Poland up to the 18th century. It may seem bizarre, but the goal of “restoring Poland to its borders of 1772” remains a topic of mainstream geopolitical discourse in Poland at the start of the 21st century. See, for example, the present-day Warsaw periodical Rzecz Pospolita. This “restorationism” articulates territorial aspirations at the expense of modern sovereign members of the United Nations, and in some cases, even some fellow members of NATO. Lest this seem just a strange tale, one should remember that immediately after World War I, one of the first steps taken by the newly-sovereign Poland was the attempted conquest of Ukraine and Lithuania – this was partially successful in 1920, giving Poland control of Western Ukraine and of a part of Lithuania, including Vilnius, the historic capital of that ancient country.

Poland’s hostility toward Russia and territorial ambitions in the east are well known. What is less visible is that in the 130-year-long period from 1790 to 1920, the Poles initiated five episodes of military conflict against Russia, Ukraine and Lithuania. Of these, only one (in 1863) was a territorial insurrection, while the other four were full-scale military campaigns with a regular army, set-piece battles, etc. In Napoleon’s War of 1812, ten percent of the Grande Armée invading Russia was Polish. Poland’s apologists usually respond with narratives of the reasons for such military initiatives by the Poles – but this argumentation actually confirms the significance of the historical facts under discussion – which is the point of interest at present.

The integration of Eastern countries like Ukraine or Belarus into the EU is an unrealistic objective, and not only “because” of Russia’s putative response to such a change. The countries in question are economic problem cases, have very questionable democratic processes, corruption, and in some cases dysfunctional political governance. The EU is not likely to admit new members with difficult baggage.

It appears that specific Polish restorationists, in denial of the above reality, have initiated the Eastern Partnership concept as a placeholder for their grander design, and attempt to leverage Poland’s membership in the EU for their particular goals. Hence, the EP as a

“European” project.Considering the above, it is questionable to what degree the EP initiative has the full support of the general EU membership. Judging from the noted absence of senior EU members at the recent EP meeting, and the lukewarm report by Brussels, one can argue that the EP is not really a priority project in the EU at large.

Therefore, it follows that the recent dysfunction of the Eastern Partnership is not really a “failure” of Europe to engage Russia, but rather the failure of a specific initiative, by specific EU members, pursuing particularistic objectives, who are using the EU as an umbrella.

There are many important and truly far-reaching initiatives between the “grand EU” and Russia, where both sides are fully engaged. The failed Eastern Partnership is a side-show, organized to maintain romantic geopolitical fantasies, and even ambitions of territorial expansion, which date back to the times of Napoleon I.

Professor Stephen Blank, the U.S. Army War College, Carlyle Barracks, PA:

Frolov's solicitude for the EU's workload is touching, but his analysis and questions reveal so much about Russian misperceptions of the EU that we could write a long article or book about the subject.  First of all, his remarks betray Russia's belief that there should be no European security organizations other than itself in the former Soviet space, in other words—that these are not fully sovereign states and should belong to Russia's sphere of influence. 

This point of view runs up against the fact that none of these states is prepared to sell its sovereignty to Russia, and that they have the right to seek whatever partnerships they please and with whomever they choose to do so. Secondly, he, like many other Russian analysts, still fails to understand that the EU has always been a security organization, not just a bureaucratic contrivance. In this he, like they, fails to grasp the transatlantic bargain, to use Harlan Cleveland's term, a major part of which is the project of European integration embodied in the EU. 

Thirdly, he fails to acknowledge that the EU is not bound by Russia's "Sacro Egoismo," the belief that its security interests, as defined by Moscow, take precedence over everyone else's in Europe.  He also fails to acknowledge the years of valiant effort by the EU to deal with Moscow as a strategic partner, only to be shown by Moscow that it counts for nothing in Moscow's eyes - take the unilateral Russian violation of the Medvedev-Sarkozy truce plan for last year's war against Georgia, for example.  

Neither will he admit that Russia has done everything possible to split the membership of the EU, to fracture its unity, and in general to play a political game more apropos to 1809 than to 2009. Undoubtedly, Russia will try to retaliate because it cannot admit the legitimacy of any foreign presence in the CIS, or accept that other CIS states might want and need this new partnership. As for NATO membership or enlargement, that is a dead

issue for now, given the domestic situation in Georgia and Ukraine. But once again, should they choose to join NATO and meet the qualifying conditions, there is no reason in principle why they should not be admitted. 

Russia obviously wants to continue to believe that the NATO of today is the NATO of 1955, and that these former Soviet states have no right to join because it will be offended. But it cannot make its proposal for European security and simultaneously demand a sphere of influence where its security is superior to that of other states, especially as the language of its appeal says that nobody should enhance security at another's expense.

This is the Russian definition that suits the internal and psychological needs of a ruling elite that cannot rule by means other than predation and neo-imperialism. It is hardly an accident that virtually every East European and post-Soviet state, and even states like Pakistan, have recently furnished evidence or claimed that Russia is conniving to destabilize them. Given that clear evidence, why shouldn't these states seek partnership with Brussels and why shouldn't Brussels, which, after all, has equally good evidence of the Russian policy, reply affirmatively?

Nicaragua Gets Free GAZ Buses After Supporting South Ossetiahttp://www.themoscowtimes.com/article/1009/42/377186.htm

18 May 2009 The Moscow Times

Nicaraguan President Daniel Ortega on Friday accepted delivery of 130 buses donated by the Russian government to help ease the country's public transportation problems.

"Brotherly Russia helped us, without any political or economic conditions," Ortega said at the ceremony in the country's capital, Managua, Itar-Tass reported.

In September, Nicaragua became the only country besides Russia to recognize the independence of the breakaway Georgian republics of South Ossetia and Abkhazia after they declared their independence.

"The Russian and Nicaraguan people are connected by the long, strong bonds of friendship, and the buses are just one more vivid confirmation of this," said Russian Consul Igor Kondrashev, also at the ceremony.

The buses, provided by GAZ Group, Oleg Deripaska's troubled automaker, were made at the Kurgan Bus Plant, and each seats 27 passengers. They will be used on suburban routes connecting Managua with regional cities.

Nicaraguan authorities expect the buses to transport 93,000 people per day.

After the ceremony, Ortega and Kondrashev went on a tour of Managua in one of the buses.

Joint Russo-Abkhazian forces assume positionshttp://www.russiatoday.ru/Top_News/2009-05-18/Joint_Russo-Abkhazian_forces_assume_positions.html

18 May, 2009, 11:47

Russian military cargo planes are delivering humanitarian aid to Abkhazia in the form of school books, medical supplies and children's toys. It is being taken to villages by Russian doctors and schoolteachers.

The mission is a joint effort between Russian border patrol officers and volunteers.

“People have not been receiving proper medical treatment for more than five years now, and that's why we are here,” Dr. Tamara Koneva says.

The Gali district is the only territory of Abkhazia where ethnic Georgians are a majority. Over 60,000 refugees have returned to the region from Georgia in recent years.

Many, like the Gvilava family, are waiting for the aid to arrive, and believe the Russian army will help preserve stability. With the arrival of the joint Russo-Abkhazian forces many people here in Gali say they feel much safer.

“They are here to protect us from those who don’t want peace. Of course we're glad,” Dzheiran Gvilava says.

Backing independence

Abkhazia declared independence from mainland Georgia in the early 90s, after it remained a frozen conflict zone for more than 15 years.

In autumn 2008, after Georgia launched a military campaign against one of its breakaway territories, Russia recognized Abkhazia and South Ossetia as independent states.

Following a series of terrorist acts last year, Abkhazia blocked the border with Georgia, blaming Tbilisi for organizing them.

The two states have subsequently signed a number of agreements with Moscow. One of the most significant was a promise by Russia to help secure the new borders after last August's war in South Ossetia.

After the signing of a Russo-Abkhazian bilateral treaty, a joint force was deployed to the checkpoints to minimize terrorist threats. Among their first finds were 52 landmines and some 100 kilos of explosives hidden in the woods.

“The explosives could have been used for terror attacks and provocations. I believe the border patrol did their best to prevent this,” border patrol officer Dmitry Korolyov says.

Besides security, the Abkhazians are hopeful that the new ties with Russia will help them reshape their lives and ensure that there will be no more war.

‘Some US operations in Afghanistan are based on false reports’ - Afghan VPhttp://www.russiatoday.ru/Politics/2009-05-18/_Some_US_operations_in_Afghanistan_are_based_on_false_reports__-_Afghan_VP.html

18 May, 2009, 09:51

Afghanistan’s second vice president Mohammed Karim Khalili discussed the current situation in his country with RT.

RT: First of all, we will begin speaking about the goals of your visit to Russia.

KK: We came here on the invitation of the Institute for Demographic Migration and Regional Development – and, of course, to mark the 19th anniversary of the establishment of political and diplomatic relations between Afghanistan and Russia. And, alongside this seminar, meetings with Russian officials have been made.

RT: Recently, there has been a lot of talking about the smuggling of drugs from Afghanistan into Russia. How do the Afghan government and the Russian government cooperate in fighting drug trafficking?

KK: I agree that, to some extent, the flow of drugs from Afghanistan comes into Russia and from there may find its way to other European countries, but I’ve told my friends here in Russia that we need to address this issue comprehensively. I told them the phenomenon of narcotics is a global phenomenon, not restricted only to Afghanistan. It’s true that these people are misusing the poverty of the people of Afghanistan, forcing them to cultivate drugs. But it’s the international crime gangs that do the trafficking. So there is a need for a strong global will to fight narcotics. It’s mutual cooperation for the benefit of both countries. Russia has good experience and equipment for this.

RT: Mr. Vice-president, if we go now to Afghan and Pakistani issues, recently Pakistan has accused the United States of firing in the region. At the same time, President Hamid Karzai is calling for increasing the presence of US troops in Afghanistan. What’s actually going on there?

KK: In fact, we see that there is a big crisis in the region, like the recent events in Pakistan, and it is of great concern to us. As we have already predicted, and, as it has

been reflected through Mr. President to the international community repeatedly, we are going to ultimately end the extremism and fundamentalism spreading out from certain parts of Pakistan to the region. The vision and understanding in Pakistan is close to that. But the leadership and the people of Afghanistan think that we need more coordination between Afghanistan and Pakistan to fight it. We cannot deal with this phenomenon alone. There is a bigger, global coordinated effort for fighting it in the United States, The European Union and Russia. All of them need to contribute to this fight. Mr. President has welcomed the increase of US troops in Afghanistan to make the fight against these two phenomena more serious.

RT: Mr. Khalili, recently the US troops in Afghanistan have targeted civilians, and dozens of Afghani people became victims of these American raids. At the same time, President Karzai has called on the US troops and the US administration to stop targeting civilians. The advisor for American national security has refused Mr. Karzai’s demands. Do you think there’s a contradiction between President Karzai and the Obama administration? Do you think the Obama administration is now thinking about getting rid of Karzai, about replacing him?

KK: I deeply regret that the war by terrorists continues in my country and in the region. I regret even more witnessing civilians losing their lives. I’m deeply upset about this fact. Mr. President has repeatedly spoken on this issue. On the other hand, we have to accept that civilian casualties are a consequence of war. We just want NATO forces and the United States to identify their mistakes and weak points and try to correct them. The wrong methods of fighting terrorism should be corrected. It should be revised and prevented. We and the allies should do our best to decrease civilian casualties in this war. Still, we aren't seeing the military operation progressing in the way we had expected. Sometimes, the operation is conducted based on false reports. This doesn’t mean that the US administration and Afghanistan are against each other. And this doesn’t mean that the Americans want to get rid of President Karzai, or find a replacement for him. That depends on the people. Five years ago, President Karzai was elected by the people of Afghanistan. This time, Mr. Karzai is running for president and Mr. Vice-president is on his ticket. But Mr. Vice-president believes that anyone who will be the winner of the election will represent the will and wishes of the people of Afghanistan. They are going to respect the choice and the will of the people. And they will expect the international community, including the United States, to respect the will of the people.

RT: Mr. Vice-president, recently there has been news about secret negotiations between the Obama administration and the Taliban movement. At the same time, President Karzai has said that the Taliban, as a movement, is over. Do you think there’s a contradiction between these two statements?

KK: In terms of the Taliban’s return, we’ve had a very clear policy. If they put aside violence and lay down their arms, accept the old and new values which have been introduced and accepted by the people of Afghanistan several years ago, accept the Constitution of the country, which is a very good one, at the regional level, we will

welcome them back into the arms of the people. If the Americans or others will negotiate and convince them to accept the new values, put aside violence and lay down their arms, come back to peace, it will be very good. But, if the Taliban continue the violence, and ultimately, want to impose their Talibani vision and interpretation on the people of Afghanistan, I believe the people have come a long way, and they will not return to the past, to the darkness.

RT: Mr. Vice-president, why, do you think, America and NATO are putting obstacles in front of Russia in providing assistance to Afghani people and rebuilding the infrastructure of Afghanistan?

KK: I don’t agree with this statement – that they’re creating obstacles for Russia’s contribution and humanitarian assistance. There is an elected administration, an elected parliament in Afghanistan. They are the decision-makers in the country. During my visit, I have invited our Russian friends to come and contribute to infrastructure projects in Afghanistan. For the time being, I have not witnessed any problems or difficulties with NATO or the coalition forces in this respect. I’m pleased to see that they’re cooperating with each other. Recently, when there’s been difficulty in transporting equipment supplies for NATO forces through Pakistan's territory, there has been a discussion about transporting these supplies through the Russian territory. So I’d like to thank our Russian friends for providing this cooperation. They are contributing to the fight against terrorism. These are some examples of cooperation between countries, between Russia and NATO. We don’t see any obstacles for Russia in providing humanitarian assistance to Afghanistan. Recently, it has sent a cargo plane to Kabul. We ask our Russian friends to get more involved in humanitarian assistance, in the reconstruction activities and fighting terrorism. We believe that Russia has the power and capability to do so.

RT: Mr. Vice-president, can we say that the United States are sinking in the Afghan swamp, as the Soviet troops did in the past?

KK: You have this belief, and I have my own beliefs. I believe that the United States and the whole Alliance came to Afghanistan on a joint mission, based on a decision made by the UN Security Council, and also on the wishes of Afghanistan, which were reflected by the Bonn Conference. This is a joint mission. We accept that there have been some weak points, and we have to correct the mistakes and make the weak points strong. I hope the mission will be completed in the near future, and we will not be in this state much longer. It’s true that there have been some difficulties, but we’re not talking about “sinking”. I have to say that the presence of the world community is based on the will and wishes of the people of Afghanistan. In the past seven years, whenever there have been public opinion surveys, above 80% welcomed the presence of the world community, and they have insisted on the continuation of the fight against terrorism and extremism in the country. There is a big difference between this state and previous wars in Afghanistan, but we have to accept that there have been some weak points. We have to revise them and correct the mistakes. We should not let these mistakes turn into a big crisis.

RT: Mr. Vice-president, my final question. There have been a lot of summits and conferences on Afghanistan which took place in order to help solve this conflict. In you opinion, what is the way out? Is it military, through the use of force, or is it political, through all Afghan political forces sharing and taking part in political life?

KK: It’s natural that any war, any conflict, is ultimately solved by talks. I believe we need fundamental talks to come to an understanding. As I have already said repeatedly, terrorism is not an Afghan phenomenon. The one that is in front of us is only the front. It’s a global phenomenon. We have misused factors which already existed in Afghan society and imposed terrorism on society. We have to resist and fight. As far as we’re talking about Afghan geography, we need to find and discuss an acceptable and suitable comprehensive solution, but it also needs a big comprehensive plan. It is not such a simple thing to talk and find a solution. One is the elimination of poverty in Afghanistan. Poverty is one of the issues which terrorism and the international crime gangs have exploited, forcing people to get involved. For example, if a member of a family dies because of poverty, a young member of the family will be prepared for suicide attacks, or getting paid to smuggle drugs, to save the lives of the rest of the family. I’ve said this during my visits to Europe, America, and here in Moscow. Elimination of poverty is one of the main factors which can address the root causes of narcotics and terrorism, which are interlinked. We cannot eliminate poverty simply via humanitarian assistance, by providing foodstuffs to the people. There is a lot to be done, especially in infrastructure projects. These plans are not an issue we can discuss in the restricted short time that we have during this interview.

May 15, 2009, 3:46 PM ET

Who Is Natasha Tsukanova: The Kremlin’s New M&A Adviserhttp://blogs.wsj.com/deals/2009/05/15/who-is-natasha-tsukanova-the-kremlins-new-ma-adviser/

By Gregory Corcoran

Natasha Tsukanova resigned from J.P. Morgan Chase last month.

What, you don’t know Tsukanova? We here at Deal Journal must admit to the same curiosity about the Russia-born banker. According to The Wall Street Journal article linked to above, Tsukanova is going to be an informal adviser to the Russian government, working closely with Deputy Prime Minister Igor Sechin, Russia’s top energy official and chairman of state oil company OAO Rosneft.

Sechin is spearheading a drive by the government to expand efforts by both private and state-owned Russian companies to buy assets abroad, particularly in energy and infrastructure. Those efforts in the past have run into resistance from Western

governments. Now, the Kremlin has someone who has been working for a Western investment bank.

It is a role she must be comfortable with. In 1999, according to this WSJ article, Tsukanova, then a 32-year-old banker in London, was part of J.P. Morgan’s “first-ever television spots in a new ad campaign built around the theme: ‘I work for J.P. Morgan.’” The idea was to use a black-and-white image of Tsukanova, among others, to personify what was then fourth-largest bank in the U.S., as opposed to a black-and-white photo of an elderly gentleman with white hair and a bulbous nose, a la J. Pierpont Morgan.

Tsukanova has been working with the state since the beginning of her career. In 1992, she worked at the Russian Privatization Center of the State Property Ministry, according to RIA Novosti, citing an article in the Russian business newspaper Kommersant. She helped organize the voucher auction for the privatization of Yuganskneftegaz, the key production asset of Yukos.

She was named to the board of Vimpel-Communications, the second largest mobile operator in Russia, in 2003, but she no longer is on the board. Norway’s Telenor has been engaged in five-year battle with its Russian partners over VimpelCom, its main Russian investment. Alfa Group, a powerful oil-to-banking conglomerate controlled by a group of Russian billionaires, seeks to push Telenor out, saying Telenor has put its interests ahead of those of the local telecoms companies they both own stakes in.

New presidential envoy introduced to Russia’s Far East governorshttp://www.itar-tass.com/eng/level2.html?NewsID=13948051

KHABAROVSK, May 18 (Itar-Tass) -- First deputy chief of the Russian presidential administration Vladislav Surkov introduced new presidential plenipotentiary representative in the Far Eastern Federal District Viktor Ishayev to the governors of Russia’s Far East. “The Far East Federal District has the biggest territory among all other Russian federal districts. The foresaid district occupies one third of Russia’s territory,” Surkov said.

However, the level of development, the quality and level of life in the Far East Federal District is much lower than the similar average indicators in Russia. Surkov emphasized that new presidential plenipotentiary representative Viktor Ishayev assumes office, when Russia and all countries in the world are experiencing an economic recession. At this difficult period of time Ishayev will have to solve the old problems of Russia’s Far East and new tasks that had emerged during an unprecedented economic crisis.

“Our country cannot have a weak Far East territory, which makes part of an enormous Asia-Pacific region,” Surkov said. The largest world economies are situated around this region. In the Far East territory Russia borders with such important countries, as the United States, Japan and China.

Vladislav Surkov noted that the country’s leadership pays close attention to the Far East territory. Khabarovsk will host a Russia-EU summit in a few days; Vladivostok will host an APEC summit in a few years. Surkov stressed it is particularly important for the chief executives of the Far East territory to pool efforts to solve economic and social tasks.

The new presidential plenipotentiary representative in the Far East Federal District noted that the regional chiefs in all branches of power should pool efforts to resolve the tasks set for the Far East territories. He said the chiefs of the Far East territories came to mutual understanding that guarantees they would pool efforts and consolidate the potential of all regions in order to achieve the main goal – to increase the level and quality of life of people.

Monday, May 18 2009, 12 AM

Japanese Delegation to visit Far EastOfficial circle representatives and businessmen to arrive in Junehttp://vladivostoktimes.com/show/?id=38549&r=8&p=

VLADIVOSTOK, May 018, vladivostoktimes.com The minister of Russian Federation regional development Victor Basargin met with reappointed Ambassador Extraordinary and Plenipotentiary of Japan in Russian Federation Masaharu Kono.

According to the press service of the Ministry of regions, in the course of the meeting the mutual interest issues were discussed, including Russian-Japanese trade economic and interregional cooperation. During the meeting they gave a special consideration to investment cooperation issue. Thereupon the minister gave the Japanese diplomat a list of investment projects. The Russian Federation subjects consider that Japanese capital can participate in it.

Victor Basargin and Masaharu Kono exchanged with their opinions about social economic development of Russian Far East.

The official circle representatives and Japan private company trip over Far East in June, which is organized with the assistance of Russian Ministry of regions, will increase mutual understanding of the countries on the subject.

18 May 2009

Moscow police detained dozens of gay parade participants, including organizerhttp://www.interfax-religion.com/?act=dujour&div=49

Moscow, May 18, Interfax - Nikolay Alexeyev, a prominent activist of the gay movement in Russia, his close associate Nikolay Bayev and 23 more people were detained in the Vorobyovy Gory district in southwestern Moscow on Saturday for an attempt to organize a gay parade, a law enforcement source told Interfax.

Representatives of Moscow sex minorities had announced earlier that their unsanctioned demonstration would take place in Novopushkinsky Park in central Moscow.

An Interfax correspondent reported from the scene that a large number of foreign reporters from the Netherlands, Norway, Greece, and other countries had gathered there. Police have cordoned off the park and put metal bars around it. A number of trucks with Interior Forces soldiers on board are parked along nearby streets.

Russian security forces ended counterterrorist operation in Dagestan’s Karabudahkent area http://www.axisglobe.com/article.asp?article=1822

17.05.2009The Russian Federal Security Service (FSB) Dagestan directorate allege that a large subversive and terrorist group has been located in a large forest south of the village of Kakashura, radio Ekho Moskvy reports. The FSB says the militants planned acts of terrorism against militaries and employees of law-enforcement bodies. Now the special troops of the FSB and Interior Ministry directorate’s forces have been concentrated in the area. In early evening hours the counterterrorist operation regime was cancelled in the area, news agency Interfax says, referring to the FSB Dagestan directorate’s public relations group. A hootch intended for 6-8 people was discovered in the forests between settlements of Kakashura, Kakamakhi, Dorgheli, Kachkalyk and Chanurbe, news agency adds.Earlier today it was reported on a murder by unknown persons in Khasavyurt of Dagestan of a senior lieutenant of police and a local resident. Yet it is not said whether this incident is connected with carrying out of the counterterrorist operation, radio adds.

HIV on the rise in Murmanskhttp://www.barentsobserver.com/hiv-on-the-rise-in-murmansk.4590520-16180.html

2009-05-15 The number of new HIV cases in Murmansk Oblast has increased alarminly over the last three months. Only over the last three months, a total of 163 new HIV cases have been revealed, which is a more than 30 percent year on year increase.

More than 3000 people are now officially registered as HIV infected in region, which is among the highest number in all of Northwest Russia. The increasing number of HIV cases now increasingly worry regional health authorities.

The density of HIV infected is highest in Kandalaksha district (674/100000), while the Kolsky rayon and Murmansk have an infection rate of respectively 447,7/100000 and 408,3/100000, Murman.ru reports.

More than 80 percent of the infected are in the age group 15-30 years, while more than 25 percent are aged 30-39 years. Two thirds of the cases are men. More than 70 percent of the cases have been infected through illegal drug use, the news site informs.

According to HIV Norge, the number of new HIV cases is increasing also in neighboring Norway. There, a total of 299 new cases were revealed in 2008, which 49 more than in 2007. A total of 4086 were registered as HIV positive in the country by the end of 2008.

Sweden last year saw a decrease in the number of new cases. There a total of 8455 HIV cases are registered.

National Economic Trends

Russia’s Economy May Shrink 7.5% This Year, Goldman Sachs Sayshttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=aXd_NAmoYmnA

By Paul Abelsky

May 18 (Bloomberg) -- Goldman Sachs Group Inc. lowered its forecast for Russia’s economy this year after it showed the worst contraction in 15 years in the first quarter.

Gross domestic product will probably fall an annual 7.5 percent, compared with a previous forecast for a 5.5 percent contraction, Rory MacFarquhar, Moscow-based economist at Goldman, said in a note e-mailed late on May 15. Goldman reiterated its prediction for a 3 percent growth next year.

The slump in the first quarter may be attributed to a sharp decline in inventories, MacFarquhar said. Household consumption probably dropped 7 percent in the first three months, while capital investment slid 15 percent, according to Goldman.

To contact the reporter on this story: Paul Abelsky in St. Petersburg at pabelsky@bloomberg.net.

Last Updated: May 18, 2009 01:56 EDT

GDP Plummets 9.5% in Q1http://www.themoscowtimes.com/article/1009/42/377188.htm

18 May 2009 Bloomberg

Russia's economy shrank 9.5 percent year on year in the first quarter, the worst contraction in 15 years, as industrial production slumped and the government's 3 trillion ruble ($93.5 billion) stimulus package failed to boost lending, the State Statistics Service

said Friday.

Gross domestic product shrank 23 percent from the previous quarter, the service said, citing preliminary data. The annual decline was forecast by Deputy Economy Minister Andrei Klepach on April 23.

"The big dip in industrial production jumps in your face," said Tatyana Orlova, an economist with ING who plans to lower her forecast for a 2.7 percent contraction this year. "The government should be worried. It's very easy to come up with headlines announcing bailout measures, but the situation shows that you have to adjust them. It's hard to do these things fast."

Alfa Bank on Thursday joined Goldman Sachs, Citigroup and the International Monetary Fund in revising down the forecast for growth this year. Alfa cut its outlook to a 5.7 percent contraction from a drop of 3 percent.

First-quarter declines in the construction industry and transportation, seen as proxies for economic activity, suggest "further negative surprises," said Natalya Orlova, chief economist at Alfa Bank.

GDP Growth: The Mountain Is Too High to Climbhttp://www.businessneweurope.eu/dispatch_text8616

Alfa, RussiaMonday, May 18, 2009

Russia is seeing a drop in lending activity and investment despite the government's large rescue package. In response to 1Q09's 9.5% y-o-y collapse in GDP, we are downgrading our full-year growth forecast to -5.7%. Given the expected fiscal deficit of 8% of GDP, ruble depreciation looks to be the only way to support the Russian economy.

We cut our FY2009 growth forecast to -5.7%: Preliminary estimates put the first quarter's decline in GDP at 9.5% y-o-y, which leads us to cut our full-year growth forecast from -3% to -5.7%. We anticipate a 19% decline in investment in 2009 coupled with a 8% decline in consumption. We also expect GDP growth to stay negative in 2010, coming in at -1.1%, unless the ruble depreciates significantly.

Negative sentiment toward ruble is pushing deleveraging: Even though Russia has unveiled a large financial rescue package, the 15% decline in investment in 1Q09 suggests that it has failed to support economic growth. Some 33% of retail deposits and 46% of corporate funding are in foreign currency, and the lack of ruble funding is leading banks to reduce lending. Russian banks and companies are also looking to cut their foreign-currency obligations: Russia's foreign debt has fallen by $88bn in the past six months.

Russian banks cutting lending exposure: The ruble's depreciation over the past few

months masked a decline in lending activity. Since February, when the ruble stabilized, the total corporate loan book was down 2% and retail loans had fallen 4%. This trend was driven by state-owned banks, which stopped increasing their market share. The decline in lending suggests pressure from NPLs will increase.

CBR unlikely to withdraw ruble liquidity from banks: NPLs play a key role in whether the CBR is able to reduce support to banks in order to compensate for fiscal injections. In reality, we believe that only state banks will be able to switch to cheaper funding from VEB or state companies. As 27% of the total state funding to the banking system went to private banks, we do not believe this support can be reduced.

Fiscal deficit likely to result in R37.4/$by year-end: We see the fiscal deficit as a major risk to the ruble's stability. Given the expected fiscal deficit of 8% of GDP, we expect the ruble exchange rate to drop to R37.4/$by the end of the year. Since proceeds from both profit taxes and VAT declined in 1Q09, we believe the risk of a higher fiscal deficit is significant and expect the Finance Ministry to favor a weaker ruble in order to revalue the reserve fund and support oil tax collection.

Russian wage arrears fall 9.5 pct in Aprilhttp://www.guardian.co.uk/business/feedarticle/8512747

Reuters, Monday May 18 2009

MOSCOW, May 18 (Reuters) - Russian wage arrears fell 9.5 percent in April, retreating from a three-year high reached in March, official data showed on Monday, suggesting that the pain for Russian firms may be easing. Arrears, a gauge of corporate stress and a trigger for popular protests in Russia's last economic crisis in 1998, stood at 7.926 billion roubles ($247.1 million) on May 1, compared with 8.755 billion roubles a month earlier. Some 95.1 percent of arrears were due to lack of cash at enterprises while the rest was attributed to late transfers from the state budget to public sector entities. The federal statistical service said wage arrears amounted to about 2 percent of total wages due in April with 47 percent of arrears occurring in the manufacturing sector, 16 percent in transport and 15 percent in construction. The data showed about 500,000 people or 2 percent of all working Russians were affected by wage arrears. (Reporting by Gleb Bryanski; Editing by Ruth Pitchford)

Russia daily c.bank swap limit at 5 bln rblshttp://www.forbes.com/feeds/afx/2009/05/18/afx6433035.html

05.18.09, 03:26 AM EDT

MOSCOW, May 18 (Reuters) - Russia set the daily limit for currency swap operations with the central bank at 5 billion roubles ($155.9 million) on Monday, the same as in the previous trading session on Friday.

Limits on how much foreign currency banks can swap for roubles in the central bank were introduced from Oct. 20 in a bid to hinder currency speculators. Operations which do not involve the central bank are unaffected. ($1=32.07 Rouble)

Russia - something is cooking, CBR to float the ruble? http://www.businessneweurope.eu/dispatch_text8616

Tim AshMay 13, 2009

The CBR cut its refinancing rate by 50bps to 12% this morning, following on from a similar cut last month.

The CBR explained the move by the improved outlook for inflation, with its first deputy chairman Alexei Ulyukaev, indicating that inflation might come in close to 11% at the end of 2009, compared with the CBR's 13% target. Clearly with various official (domestic and external) sources still talking down growth prospects for 2009, the CBR is eager to ease rates to help embattled household/corporate borrowers. The latter is certainly understandable given that, against a backdrop of higher oil and commodity prices, the CBR has managed to stop the rot, at least for the time-being, in terms of pressure for the rouble to depreciate still further. The CBR has indeed been activity intervening in recent months to prevent excessive appreciation of the currency; the CBR indeed indicated this morning that it had bought around US$10bn since early April. It may have bought US$2-3bn today.

Commentary by various CBR officials in recent days, at face value at least, appears supportive of a strengthening rouble trend. Ulyukaev indicated yesterday that the CBR might allow the rouble to strengthen back to 35 against the basket, versus 37.3 as of yesterday, and indeed the 41 weak end of the basket set a couple of months back. This was couched by the comment that this would be justified on the back of the improved current account position as oil prices have bounced back to around US$60 a barrel; CBR data shows that the current account still managed to post a US$11.1bn surplus in Q1, which while down on the US$38bn surplus posted one year earlier, was up from the US$8.6bn surplus recorded in Q4 2008. Sergei Shevtsov, the head of the CBR's market department, meanwhile, is quoted on the wires as suggesting that net private sector capital outflows may be limited only to US$70bn for the full year in 2009, which given outflows to date might suggest only limited outflows to year end; i.e. the trend to capital flight from Russia may have been stemmed, or at least if you buy into the official view. Shevtsov also noted that since the currency crisis broke last year, Russians may have accumulated up to US$70bn in FX. He argued that with the crisis easing these funds may now move back into roubles, creating pressures for appreciation.

We struggle a little to understand the CBR's strategy as above; talking up the currency at the same time as you are also actively intervening to prevent its appreciation seems fishy to say the least.

Admittedly oil has rallied back quickly to levels at which Russia's budget and current account positions appear much more sustainable. However, questions still remain as to how durable the past 2 month's risk rally has been and whether oil prices can remain at current levels long, especially if investors begin to take a less rose-tinted view of the green shoots of recovery story. Weak global demand pressures could again begin to re-assert themselves over concerns over supply, while the return of dollar strength (the save-haven trade) would also impact negatively on dollar priced oil.

Comments only a matter of weeks ago by the Minister of Finance, Alexei Kudrin, and indeed the Ministry of Economy's own still downbeat forecast for real GDP growth (-6% for 2009) still suggest a long road to recovery for Russia itself. Against this more measured view from the government, the CBR's stronger rouble strategy appears somewhat perplexing.

For the CBR talking up the currency at present does risk creating another wave of capital inflows, appreciating the currency, and arguably risking taking the wind out of the sails of any turnaround in the Russian economy. We would have thought a better strategy (short of floating) still for the CBR would have been to continue to try and hold the rouble steady, intervene to replenish FX reserves, and bide their time to see if the global recovery really had legs. A premature move to allow the rouble to appreciate risks a bigger downward correction further down the line, as it also risks recreating the market technicals (long rouble positions) which proved so damaging last fall.

One lasting thought herein though is that the CBR has perhaps moved forward plans to let the rouble float. CBR and indeed government officials have long made it clear that this is indeed their goal over the medium term, but were concerned not to do it against a backdrop of crisis (e.g. the period August 2008 thru February this year) or while oil prices were high and the currency appeared to be a one way bet. The CBR was arguably looking for the sweet spot, and perhaps may now think that we are approaching this level, and perhaps mindful that over the slightly longer term the currency may have to weaken to spur growth. Presumably the CBR would not want to introduce the new regime, only to see the currency tank lower in the immediate aftermath of the reform; this would perhaps question the desirability of the move in the first instance and undermine the credibility of the CBR at the same time as CBR governor Ignatiev's term is coming up for renewal. A move now to a free float would also allow the rouble to weaken, if need be later in the year, to kick-start growth, without also forcing the CBR into another embarrassing move in the exchange rate bands. Hence all the talking up of the currency might indeed suggest that a move to a free float might be much closer than hitherto assumed.

Domestic debt strategy

http://www.businessneweurope.eu/dispatch_text8616

Rencap, RussiaMonday, May 18, 2009

Rouble/basket rate remains volatile

The rouble/basket rate weakened when the market opened on Friday (15 May), touching 37.36. However investors preferred to sell hard currency in the middle of the day, strengthening the rouble/basket rate to 37.24 at the close. The oil price dropped again on Friday, leaving little hope for the rouble to resume its appreciation trend at the start of the week.

However, additional demand for rouble liquidity on the eve of the end-of-month tax period could support the currency. The rouble/basket rate weakened to 37.40 this morning.

First-tier bond yields remain attractive The most liquid rouble bonds held their ground on Friday following a rather sharp drop over the previous trading session.

We saw purchases in Moscow-54 and Sistema-1, which had suffered the most on Thursday. Rouble liquidity remains comfortable at the moment, with money market rates setting at 6-8%. Respectively, interbank REPO rates for the most liquid names have been reducing to 8-9% recently (in particular Moscow bonds can be brought as collateral at 8.0%).

Hence, we regard first-tier bond yields, at 14-17%, as attractive for investors to continue buying.

MTS to complete bond placement, three-year OFZ to be placed this week MTS is to complete the placement of its RUB15bn jumbo rouble bond at the start of this week. The new instrument has a two-year put option. The intial coupon rate guidance of 17.0-17.5% has tightened significantly, due to high demand for the new bond, and was finally set at 16.75%. However we expect strong positive demand on the issue's price when it appears on the secondary market. The Ministry of Finance will hold a three-year OFZ auction of RUB4bn this week. According to recent comments by the ministry, the maximum yield of the bond at the auction has been set at 12.5% with little chance of moving higher.

Nikolay Podguzov

Business, Energy or Environmental regulations or discussions

Russia, Indonesia Upgrade at JPMorgan; China Cut (Update2) http://www.bloomberg.com/apps/news?pid=20601116&sid=a7b_oiV6nZj4&refer=africa

By Chen Shiyin

May 18 (Bloomberg) -- Russian and Indonesian stocks were upgraded at JPMorgan Chase & Co. as a recovery in the global economy and investors’ risk appetite drives further gains in emerging market equities. The brokerage downgraded China.

Russia was raised to “neutral” while Indonesia was upgraded to “overweight” within JPMorgan’s global emerging- market portfolio, said analysts led by Adrian Mowat. They cut China to “neutral” after a 20 percent gain this year and lowered South Africa and Malaysia to “underweight.”

JPMorgan last month said the MSCI Emerging Markets Index will rise to 900, the highest level since September, when Lehman Brothers Holdings Inc.’s bankruptcy sparked an exodus from emerging-market assets. The measure has rallied 25 percent this year to 709.38 and developing markets make up all 10 of the best performers in 2009, with Peru, Russia and China leading gains.

“The world has turned on its head and the emerging markets are looking decidedly more sound than the developed markets,” Arjuna Mahendran, Singapore-based chief investment strategist for Asia at HSBC Private Bank, which oversees $494 billion in assets, said in a Bloomberg Television interview today. “I would buy all emerging markets going forward.”

Russian stocks, previously rated “underweight” at JPMorgan, are benefiting from the government’s growth policies, a contracting risk premium and the increasing likelihood of earnings upgrades by analysts, the brokerage said in the note.

Russia, Indonesia

The RTS Index has jumped 48 percent this year, the second- best performer among the 92 global stock indexes tracked by Bloomberg. The ruble-denominated Micex Index has surged 62 percent in 2009.

Indonesia’s Jakarta Composite Index has climbed 28 percent during the same period. The market was upgraded from “neutral” because of the improving commodities and currency outlook, JPMorgan wrote.

Gross domestic product expanded 4.4 percent in the three months to March 31 from a year earlier as local spending accelerated, Indonesia’s statistics bureau said May 15. That’s the fastest pace in Southeast Asia.

Still, JPMorgan has turned less optimistic about China, lowering its rating on the market from “overweight.” The MSCI China Index has gained 20 percent this year and this month touched the highest level since September, just before Lehman’s bankruptcy. The Shanghai Composite Index, which tracks mainland- listed shares, has added 43 percent, the world’s third-largest advance.

Reallocating Capital

“As China discounts its economic recovery, we are reallocating capital to other North Asian economies that are later in the recovery phase,” the JPMorgan analysts wrote.

The brokerage is also downgrading stocks in South Africa and Malaysia from a previous recommendation of “neutral,” citing the “low beta” in the two countries, which may indicate that they fluctuate less when global markets rise and fall.

Templeton Asset Management Ltd.’s Mark Mobius has also predicted a rebound in emerging market shares.

Stocks in developing countries may “break out” into a bull market at the end of the year as falling interest rates and easing inflation make equities more attractive, Mobius, who helps oversee $20 billion in emerging-market assets, said in a May 4 interview.

To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net

Last Updated: May 18, 2009 00:54 EDT

Gazprom, Rosneft, Sberbank, TMK: Russian Equity Previewhttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=aXtleg5sHnew

By Alex Nicholson

May 17 (Bloomberg) -- The following companies may have unusual price changes in Russia trading. Stock symbols are in parentheses, and share prices are from the previous close.

The ruble-denominated Micex Index rose 0.2 percent to 1,002.19, trimming the decline last week to 2.6 percent. The RTS Index gained 0.5 percent to 936.27.

OAO Gazprom (GAZP RX): The world’s largest natural-gas producer said it will double the capacity of a new pipeline to Europe in a plan to outpace a rival project that would break Russia’s control over Caspian resources. Gazprom’s 900-kilometer (560-mile) South Stream pipeline under the Black Sea will be able to ship 63 billion cubic meters of gas a year, more than the 31 billion announced earlier, Chief Executive Officer Alexei Miller said. The shares advanced 0.7 percent to 166.21 rubles.

OAO Rosneft (ROSN RX): Crude oil fell the most in almost a month on May 15 amid concern the global economic recovery may falter, reducing demand for fuel. Shares of Russia’s biggest oil producer retreated 0.5 percent to 174.04 rubles.

OAO Sberbank (SBER03 RX): the country’s largest lender plans a dividend payout of 10 percent of its net income under Russian accounting standards for last year, Chief

Executive Officer German Gref said. Sberbank’s board has approved the possible sale of almost 15 billion common shares, Gref also said. The shares climbed 4.1 percent to 32.99 rubles.

OAO TMK (TRMK RX): The world’s second-largest pipemaker for the oil and gas industry is in talks with the European Bank for Reconstruction and Development on a loan accord to service debt, board member Vladimir Shmatovich said. The shares declined 1.6 percent to 72.01 rubles.

To contact the reporter on this story: Alex Nicholson in Moscow at anicholson6@bloomberg.net.

Last Updated: May 18, 2009 00:00 EDT

Sberbank announces possible share issue terms around RUB 500bn via up to 15bn shareshttp://www.businessneweurope.eu/dispatch_text8616

VTB CapitalMay 18, 2009

--- no more subords planned yet --- creates dilution risks --- BTA deal and/or asset quality deterioration risk remain --- Sell reiterated News: Last Friday, Sberbank's Supervisory Board approved the agenda for the AGM scheduled for 26 June. The key issues to focus on are as follows.

__ Potential share issue. Could be around RUB 500bn and consist of up to 15 billion shares by open subscription (the number of authorised shares has been increased from 7.4 to 15 billion). The right to approve it will be transferred from the AGM to the BoD to speed up the procedure.

__ No new subordinated loans so far. According to German Gref, Sberbank does not plan to attract a RUB 500bn subordinated loan from CBR this year (which has already been reserved in the budget). We believe the bank does not want to take expensive money with government restrictions on using it. This is in line with our view that government caps on interest rates will limit banks' appetite for this instrument.

__ Interest rates to come down, NIM to come under pressure. Sberbank plans to start lowering rates in June, following the CBR's cuts. We believe it would be margin dilutive for Sberbank given that pressure on the funding side will persist. More importantly, it might pressure other market participants to decrease rates as well (given Sberbank's dominant position).

__ the share issue will in our view eventually take place and that creates dilution risks for the current shareholders (although Sberbank is to decide later on whether to do a share

issue).

__ we believe the share issue preparations signal that the BTA deal is becoming more probable the and /or asset quality trend continues to worsen, signalling huge losses to be covered on the horizon.

Kerimov's representatives join Polyus Gold boardhttp://www.reuters.com/article/managementIssues/idUSLI26388020090518

Mon May 18, 2009 3:55am EDT

MOSCOW, May 18 (Reuters) - Four people representing billionaire Suleiman Kerimov have been elected members of a nine-strong board of Russia's largest gold producer Polyus Gold (PLZL.MM: Quote, Profile, Research, Stock Buzz) (PLZLq.L: Quote, Profile, Research, Stock Buzz), Polyus said on Monday.

Last month, sources told Reuters that Kerimov had bought a 37 percent stake in Polyus from tycoon Vladimir Potanin. The deal has yet to be approved by regulators.

The board includes another co-owner of Polyus, billionaire Mikhail Prokhorov, and two of his representatives, as well as Polyus CEO Yegeny Ivanov and an independent director.

Prokhorov remains board chairman. The election of the new chairman will take place at the first meeting of the board, a Polyus spokesman said, without giving the date of the meeting.

(Reporting by Polina Devitt; Writing by Aleksandras Budrys; Editing by Erica Billingham)

Russia's big-three mobile operators acknowledged as strategichttp://www.businessneweurope.eu/dispatch_text8616

Rencap, RussiaMonday, May 18, 2009

According to Vedomosti today (18 May), Russia's Federal Antimonopoly Service (FAS) has acknowledged the country's three-largest mobile operators, MTS, VimpelCom and MegaFon, as strategic. This means: foreign investors seeking to increase their stakes in these companies beyond 50% will require the state's permission; foreign investors controlled by foreign governments will require state permission to increase their stakes in an operator beyond 25%; and foreign investors that already control 5% of an operator should notify the state.

We regard the news as neutral for MTS and VimpelCom, as the FAS decision does not have retrospective force. The FAS decision concerns Telenor (with a 29.9% stake in VimpelCom) and TeliaSonera (with a 35.6% stake in MegaFon), which should notify the state about their holdings (according to Vedomosti, Telenor has already done so).

Ivan Kim

Commercial Port of Vladivostok Sums up Four Month Work 2009During accounting period cargo handling exceeded 1 million 620 thousand tonhttp://vladivostoktimes.com/show/?id=38560&r=8&p=

VLADIVOSTOK, May 18, vladivostoktimes.com According to production management of JSC “Commercial port of Vladivostok” in January-April 2009 came to 1620.3 thousand ton of cargo. 1126.8 thousand ton was handled for export; 252.2 thousand ton of imported cargo; cabotage cargo-241.2 thousand tone, RIA PrimaMedia was reported in press service of JSC “Commercial Port of Vladivostok”.

Over a period of January-April 57509 TEU was handled by container terminal. Cobotage cargo came to 19074 TEU; import-17385 TEU; export- 21050 TEU.

In April 2009 Commercial Port of Vladivostok handled 516.6 thousand tone of cargo. 369.5 thousand ton was handled for export; 80.6 thousand ton for import; 66.5 thousand ton for cabotage.

In April of current year 15522 TEU was handled by port container terminal. This amount includes 5354 TEU of cabotage, 4812 TEU of import, 5356 TEU of export.

According to production manager of JSC “Commercial port of Vladivostok” Sergey Lopunov, over a period of January-April 2009 export metal was the most dynamic. Over four months the port transshipped 900.6 thousand ton of metal production, and 311 thousand ton in April. Also Sergey Logunov noted that in comparison with April of the last year last month cabotage container cargo operations by dedicated terminal of the port increased by 25%. Beside it during accounting period the first in 2009 batch of grain was handled.

Efes Breweries Raised to ‘Buy’ at RenCap on Lower Russia Riskshttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSSh0M.XqP.c

By William Mauldin

May 18 (Bloomberg) -- Efes Breweries International NV, the maker of Stariy Melnik beer in Russia, was raised to “buy” from “sell” at Renaissance Capital.

The Moscow-based investment bank cited lower risks for the Turkish brewer in Russia, as reflected in lower Russian sovereign bond yields, as well as a lack of “expected

liquidity problems,” and “robust growth” of beer sales in Kazakhstan. Renaissance has a price estimate for Efes of $6.70.

To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net;

Last Updated: May 18, 2009 02:13 EDT

Rusisa's AvtoVAZ posts $198 mln loss in Q1http://en.rian.ru/business/20090518/155034907.html

11:0718/05/2009

MOSCOW, May 18 (RIA Novosti) - AvtoVAZ, Russia's largest carmaker, announced on Monday a loss of 6.33 billion rubles ($198 million) in January-March 2009 against a net profit of 281 million rubles ($8.8 million) in the same period of 2008.

Revenues in the reporting period declined 54.6% to 16.99 billion rubles ($530.9 million)

The carmaker has suspended production several times this year amid declining sales and demand and also due to payment disputes with car part suppliers

Production costs doubled to 17.51 billion rubles ($547 million) in the reporting period while operating loss amounted to 1.43 billion rubles ($44.7 million) against an operating profit of 1.68 billion rubles ($52.5 million) in the same period a year ago.

The company's assets declined 13% in the reporting period due to the continued economic crisis and lower demand for cars, AvtoVAZ said.

According to the Association of European Business, AvtoVAZ's sales of cars and light commercial vehicles fell by 39% to 88,720 vehicles in the first three months of 2009.

UC Rusal creditors ask the company to transfer its 50% stake in BEMA project and US$260mn debt to RusHydro http://www.businessneweurope.eu/dispatch_text8616

Citibank, RussiaMay 18, 2009

UC Rusal's creditors (RusHydro partner on BEMA project) are proposing to transfer its liabilities for a US$260mn loan raised for BEMA project financing to RusHydro together with its 50% stake in the project, Interfax reports. The joint position of creditors asking for such restructuring of the UC Rusal loan was stated in the letter from Barclays (the agent on the issue) to RusHydro and UC Rusal. The first payments on the loan must be performed in March 2010. However, UC Rusal's representative mentions that the BEMA

project is a strategic priority for UC Rusal and was approved by the committee of creditors at the beginning of the year. UC Rusal is likely to decline the creditors' proposal given that the first payment on the loan is a year away.

However, the news is likely to be taken negatively by the market for RusHydro, as the company might have to finance the whole project raising its capex and debt burden (while the project's economics are now more uncertain given the dramatic drop in aluminium prices).

Prokhorov Betting On Power Industryhttp://www.themoscowtimes.com/article/600/42/377171.htm

18 May 2009 By Nadia Popova / The Moscow Times

YELETS, Lipetsk Region — Mikhail Prokhorov, Russia's richest man according to Forbes, said he would expand his presence in the country's privatized power sector as he opened a 52-megawatt power unit built by TGK-4, half-owned by him, in the Lipetsk region Friday.

Prokhorov also said he was worried about a second wave of the crisis, comparing the possible deluge to 19th-century painter Ivan Aivazovsky's "The Ninth Wave." But Prokhorov praised the government for taking the right steps to combat the crisis.

"Our company is the first company to open a generation unit since the crisis began, and we want to fulfill all our investment obligations," Prokhorov said at the unit's opening ceremony in the Lipetsk regional town of Yelets, located 380 kilometers south of Moscow.

Prokhorov's Onexim Group took on the investment obligations last year when it bought about 50 percent of TGK-4, an electricity and heat generator that runs 25 stations in European Russia.

"However, we will also think about where we want to build because some of our consumers may consume more, while others may not survive," Prokhorov said.

Lipetsk Governor Oleg Korolyov was quick to assure Prokhorov that he was spending his money in the right place. "Cherkizovo Group will build Europe's biggest meat processing plant in Yelets soon, so there will be a guaranteed consumer," Korolyov said.

But TGK-4 chairwoman Yulia Basova, who also attended the opening, noted that the company was in talks with the Energy Ministry to delay the launch of a 240-megawatt power unit in the city of Lipetsk from 2010 until 2013 because of a lack of consumers and no access to gas supplies. TGK-4's investment program through 2014 amounts to $800 million.

Prokhorov said investment in the electricity sector was "key" for him. "We are planning to raise our stake in the energy sector," Prokhorov said, declining to elaborate as he talked to reporters after the opening ceremony. "Private Russian business is obliged to invest in the energy sector."

TGK-4 invested 1.5 billion rubles ($46.6 million) in the construction of the Yelets unit.Prokhorov was ranked the country's richest man with a $9.5 billion fortune by Forbes magazine's Russian edition in May, but he said "these estimates don't mean anything to me." In fact, he said, "I don't agree with them." He declined to explain why.

Asked whether the crisis would grow worse in Russia, Prokhorov referred reporters to "The Ninth Wave" by Aivazovsky, famous for his trademark seascapes. The painting depicts people on the wreckage of a ship facing a high wave as dawn breaks after a night storm. The picture is called "The Ninth Wave" because seamen believe that the ninth wave is the strongest in a storm.

"Do you like 'The Ninth Wave' by Aivazovsky? Then hang it on your wall and keep looking at it all day long," Prokhorov said.

"The situation is not easy, but the government is doing all it can to locate problem spots in the economy," he said.

Prokhorov said, however, that annual inflation could never be lower than 8 percent, a figure far higher than the 2 percent to 3 percent typical in Western economies. "In my personal opinion, Russia's economy by definition generates inflation of 8 percent a year," Prokhorov said.

"Russia's natural monopolies and housing companies are monopolized, their tariffs are growing and there is no competition among these companies," Prokhorov said. "In such circumstances, inflation lower than 8 percent would begin to kill development." The Economic Development Ministry forecasts inflation of 13 percent this year.

Prokhorov also said aluminum prices have stabilized, allowing United Company RusAl to become profitable again. "Prices for aluminum will grow in the future," said Prokhorov, who owns an 18.5 percent stake in RusAl. Prices have shot up 18 percent since hitting an eight-year low in February.

Turning to his personal investment strategy, Prokhorov said he wanted to wait before buying any development companies because "the crisis hasn't affected them completely." He also said he considered it risky to bail out banks until the amount of bad assets reaches its peak.

"Our group doesn't have any loans, and we are keeping enough cash for development," Prokhorov said. "We have diversified our investment, and we are still looking for opportunities for the time being."

Some local journalists, though, seemed to be more interested in Prokhorov's status as Russia's most eligible bachelor than his investment plans.

"Have you seen his car? Is it a Maybach?" a female TV reporter asked her colleague as Prokhorov made his opening speech.

Curvy models invited to participate in the ribbon-cutting ceremony drooled over the 44-year-old businessman. "Look how tall he is! He looks so slim and healthy, so energetic," one model said.

"How right you are. He's so sexy!" another replied. "What does he own, 28 percent of Norilsk Nickel?"

Prokhorov sold his 25 percent stake in Norilsk Nickel to RusAl in April 2008.

IKEA sets itself for the long haul in Russiahttp://www.russiatoday.ru/Business/2009-05-18/IKEA_sets_itself_for_the_long_haul_in_Russia.html

18 May, 2009, 10:46

Per Kaufmann, the Head of IKEA Russia, spoke with RT about the homeware giants response in Russia to the economic downturn, and its longer term plans for Russia.

RT: How has Ikea been performing so far this year on the Russian market?

PK: "We are a bit surprised because we are doing rather well. We still have a double-digit increase on what we call comparative units – so to say we can really compare. We see in shopping centers that those retailers offering a low price are doing better than those in middle or upscale."

RT: You say "rather well". How does that compare to last year?

PK: "In comparison with last year's sales we are doing a lot more. So we are selling more than 10% more than actually we did last year. But the rate of that increase has gone down. So we see that the crisis is coming, so the increase of our sales in comparison to last year is not as strong at the beginning of the year, in fall, as now.

We would have expected that actually our sales would have been lower because there is so much talk about the crisis. The sales increases in Russia today are the best we have in Europe. So we are actually increasing a lot more than in Western Europe. Eastern Europe is ahead of Western Europe, which shows there is a demand that is still there. It might be a basic demand – that there are as not as many sofas, tables, chairs yet – which means there is a basic demand to fulfill….. Russia is the first concern of increase within the IKEA world…..It's more than 10%, more than a double digit increase."

RT: Are there any areas with notable change?

PK: "Maybe the small articles – what we call satellites or accessories, are increasing a little more than furniture. We try to keep the stock the same but the turn over on the smaller articles is bigger so over time, more of them will be in stock."

RT: How has the company's strategy changed on the Russian market due to the financial crisis?

PK: "Our strategy has not changed yet. We are trying to prepare ourselves for when that will happen. We can say that with the crisis, of course we have the devaluation of the rouble, so we have increased our prices a little bit, but not at all as much as the devaluation in order to keep up. So we are still increasing less than the inflation in Russia, which means that we keep on being competitive.

If you look at when we started in Russia in 2000, since then, we have increased our prices once. Other than that, we have always been decreasing. At the same time, there's been a strong inflation in Russia which means we are more and more competitive and better priced in the eyes of the customer – which can also explain why we are not hit so hard now by the crisis. Or, rather, yet, because it could still come."

RT: How long do you think it will be before the company breaks even in Russia?

PK: "As we are still importing more than we would like to, as we would like to buy more in the Russian market, and we are trying to buy as much as we can, we are even reinforcing that now with the rouble devaluation, but still that hit so us hard that we pushed profitability in front of us. That will push breaking even farther up in time."

RT: How would you rate the investment climate in Russia today?

PK: "Of course, it is harder, because people have less money. But, on the other hand, construction is less expensive, land plots (if you can find them) are cheaper, etc. So it weighs itself out quite a bit. On the other hand, to get rouble financing is not that easy, and if you can get it, it costs quite a bit of money – the interest rates are high. So from that stance, you can say the investment climate is not favorable, if you want to borrow in roubles."

RT: What problems has the company run into?

PK: "We have problems in Samara where we have a shopping center and an IKEA store which we believe are ready but we are not getting the permits. So from that point of view you can say the investment climate has gone down, but I do not believe that this has anything to do with the crisis.As there is quite a big investment into one of these centers, it is clear that if we are not able to open it up, then the board will ask the question – do we dare to invest in opening

new centers? Because if the same thing happens, you are putting in money, but you can't sell. So, of course, that can – will – have an influence on IKEA."

RT: Have you seen any changes in the labor force due to the crisis?

PK: "It's easier to find the kind of people we are looking for today than before. It seems like more competent people are out on the market. So clearly you see a difference there. Also, we see a diminishing turn over in stores, with the tendency that it is more difficult to find another job today. Before it was very easy. Today we are getting to more normal level compared to other countries."

RT: Are there any plans for expansion – both in Russia, and maybe the CIS?

PK: "We are looking to either expand the shopping side at IKEA or to put "big box" retailing – put some on the side.  We are looking at quite a number of cities to see if we will buy a site. But we will see what will happen with Samara. That will be sort of decisive about whether we will actually go ahead or not.We are looking for sites in Ukraine, also Minsk, and Kazakhstan in Almaty. But we have not come so close where we have bought except for Ukraine where we are the owners of one site in Odessa. Now, the economy is such in Ukraine where we have said, we have the site and we have the drawings, so we are working on it, but we are not pushing. Because we are waiting for the economy in the country to show some signs that it will be better in the future.

It seems like economists agree that Russia is in a better position than Ukraine from a macroeconomic point of view. So it's clear that we don't see the same sort of problems in Russia as in Ukraine."

Activity in the Oil and Gas sector (including regulatory)

Russian official shrugs off Iraq Nabucco gas planhttp://www.guardian.co.uk/business/feedarticle/8511849

Reuters, Sunday May 17 2009SWEIMEH, Jordan, May 17 (Reuters) - A deal that could kickstart the Nabucco gas pipeline project and reduce Europe's dependence on Russia was no tragedy for Moscow, a Russian official said on Sunday.Russia opposes the Nabucco scheme and is developing the rival South Stream project to supply Europe. Moscow signed deals to accelerate South Stream on Friday. "I don't see any tragic events (in this Iraq deal)," Alexander Saltanov, Russia's special presidential representative for the Middle East and deputy minister of foreign affairs, told Reuters on the sidelines of the World Economic Forum in Jordan.Supplies from Iraq's Kurdistan region through Nabucco would not make Russian gas supplies any less attractive to Europe in the future, Saltanov said.

Austria's OMV and Hungary's MOL formed a consortium with the United Arab Emirates' Crescent and its affiliate Dana Gas on Sunday to pump up to 3 billion cubic feet per day (cfd) of gas from Iraq's Kurdish region. Around half that could feed the Nabucco pipeline to Europe.Europe relies on Russia for around a quarter of its imports. A cut-off in Russian supplies to Europe last winter due to a dispute with Ukraine left thousands without heating and added urgency to Europe's search to diversify gas sources. (Reporting by John Irish; writing by Simon Webb, editing by Will Waterman)

Rosneft's Processing Resultshttp://www.themoscowtimes.com/article/1012/42/377178.htm

Rosneft processed 23 percent more crude in 2008 than a year earlier and will press ahead with refinery expansions.

Rosneft processed 360.5 million barrels of oil last year compared with 294.1 million barrels in 2007 to take advantage of high refining margins, or the profit from turning a barrel of oil into fuels, Rosneft said in the report. That represented 46 percent of its crude production, it said. (Bloomberg)

Novatek profit plungeshttp://www.upstreamonline.com/live/article178707.ece

Wire reports

Russia's largest independent gas producer, Novatek, posted a year-on-year decline in net profit of 71.5% today, a steeper fall than forecast by analysts.

Novatek, Russia's largest gas producer after gas export monopoly Gazprom, blamed the decline on a significant foreign exchange loss as well as lower revenues.

Net profits for the first three months of this year came to 2.14 billion roubles ($66.73 million), down from 7.5 billion during the same period last year, and lower than an average forecast of 2.2 billion roubles gleaned from a Reuters poll of 12 analysts.

Earnings before interest, taxation, depreciation and amortisation came to 6.9 billion roubles for the quarter, down 37% year on year from 10.9 billion roubles.

Total revenues also decreased, falling 18.7% year on year to 17.0 billion roubles, according to a Reuters report.

"The pricing environment for liquid hydrocarbons remained difficult throughout the first quarter 2009 and negatively impacted our liquids sales, despite recent signs of improvement," Russia Novatek boss Leonid Mikhelson said a statement.

Friday, 15 May, 2009, 16:32 GMT  | last updated: Friday, 15 May, 2009, 16:32 GMT

Tatneft reports strong 1Q09 RAS numbershttp://www.businessneweurope.eu/dispatch_text8616

Troika, RussiaMonday, May 18, 2009

Tatneft released 1Q09 RAS results on Friday. The company's RAS numbers are a more meaningful leading indicator of US GAAP earnings than those of most of its peers. EBIT came in at $392m, some 66% above our US GAAP estimate. Although Tatneft's unconsolidated EBIT tends to outstrip the company's consolidated US GAAP operating income in most quarters, the relative difference is usually somewhat smaller than this, and the RAS EBIT therefore provides upside to the US GAAP result. We expect Tatneft's EBITDA to get a 40% boost from the sale of some 700,000 additional tonnes of crude added to inventory in 4Q08 as the company awaited better pricing. Net income came in higher, at $648m, due to a R10bn ($290m) adjustment related to a technical reversal of past provisions for losses. This non cash item is unlikely to be reflected in the 1Q09 US GAAP figures.

We expect Tatneft's 1Q09 US GAAP results by mid June, about two months earlier than last year. The company's disclosure practices have steadily improved over the past two years and are now roughly comparable to integrated majors such as Rosneft and LUKoil.

Russian TMK Is in Talks With EBRD on Loan, Shmatovich Sayshttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=aVVovhM3x3DU

By Daryna Krasnolutska

May 16 (Bloomberg) -- OAO TMK, the world’s second-largest pipemaker for the oil and gas industry, is in talks with the European Bank for Reconstruction and Development on a loan accord to service debt, board member Vladimir Shmatovich said.

The company is also talking to Russian lenders Sberbank, VTB and Gazprombank, Shmatovich told reporters on the sidelines of the EBRD annual meeting in London today. The company needs to refinance $1 billion this year, he said.

“We do carry a significant debt, Shmatovich said. “To service the debt we are working with the banks and the EBRD, we are also developing a cost cutting program.”

TMK’s net debt more than doubled to $3.06 billion by Jan. 1 this year, from $1.35 billion a year earlier, the company said earlier. It spent more than $1.3 billion on North American and Kazakh assets last year to diversify sales outside Russia.

TMK plans to announce the deal with the EBRD within two months, Shmatovich said. He declined to comment on the size of the loan.

Demand for Russian oil and gas pipelines contracted between 10 percent and 15 percent in the first quarter, Shmatovich said. Still, he expects the company to be profitable this year.

“We hope that the main decline has already happened and we expect the contraction not to exceed 15 percent in all of 2009 from 2008,” Shmatovich said.

The pipemaker doesn’t intend “any significant dividend at all,” he said.

Luxembourg-based Tenaris SA is the largest maker of steel tubes for pipelines.

To contact the reporter on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net

Last Updated: May 16, 2009 08:12 EDT

China starts construction of oil pipeline to Russiahttp://www.guardian.co.uk/business/feedarticle/8512610

Reuters, Monday May 18 2009

BEIJING, May 18 (Reuters) - China started the construction of a crude oil pipeline to Russia, following a loan-for-oil agreement between the two countries last month, the official Xinhua news agency said on Monday.Chinese vice premier Wang Qishan announced the launch at a ceremony on Monday in Mohe in China's northeast Heilongjiang province, where the transnational pipeline starts, Xinhua said. China agreed in April to lend $10 billion to Russian oil pipeline monopoly Transneft and another $15 billion to state-run oil major Rosneft in exchange for 300 million tonnes of Russian oil to be transported over the pipeline over 20 years.The planned pipeline will run about 67 kilometres in Russia and 960 kilometres in China to end at the Daqing oilfield.Russia started construction of the pipeline to China in late April.About 15 million tonnes of crude every year will be sent to China from Russia upon the completion of the pipeline, which is scheduled for October 2010, and the volume will be increased in the future. China currently receives most of its Russian oil supplies via rail. (Reporting by Eadie Chen and Chen Aizhu; Editing by Ken Wills) (eadie.chen@reuters.com; +8610 6627 1268; Reuters Messaging: eadie.chen.reuters.com@reuters.net))

Russian firm seen as hostile bidder for Nabucco   http://www.euractiv.com/en/energy/russian-firm-seen-hostile-bidder-nabucco/article-182411

Published: Monday 18 May 2009   

A Russian oil and gas company considered close to Prime Minister Vladimir Putin has won participation in Hungary's MOL petrochemical group, with the aim of taking over this key member of the Nabucco gas pipeline consortium, experts told EurActiv.

Speaking to EurActiv on condition of anonymity, international energy experts deplored the West's "blindness" at what they described as a Kremlin attempt to interfere with EU plans to set up a foreign energy policy. 

Austria, Germany and Italy were singled out as countries whose leaders "thought they were doing big business" with Russia, but had in fact been manipulated by the Kremlin. 

The warnings came as the EU and Russia are preparing for a bilateral summit on 21-22 May, at which energy security issues are set to dominate the agenda. 

MOL bid 'politically motivated'

According to the experts, the Kremlin's political motivations were laid bare when Russian oil company Surgutneftgas recently seized control of 21.2% of Hungarian petrochemical giant MOL. 

Surgutneftgas, a secretive oil company known to be close to Russian Prime Minister Vladimir Putin, has spent 1.4 billion euros on the deal, more than twice its market value, the experts pointed out, underscoring the move's strategic dimension. 

The deal took place on 29-30 March, in the middle of a political crisis which saw the resignation of former Hungarian Prime Minister Ferenc Gyurcsány (EurActiv 23/03/09). But Gordon Bajnaj, who replaced Gyurcsány, later condemned the deal. "The problem in the MOL business is [that] we don't know who is behind the case," said Hungarian Foreign minister Péter Balázs. "Russian methods are based on Byzantine traditions and not on Protestant ethics. It is really difficult to negotiate with this culture," he told EurActiv Hungary in a recent interview (EurActiv 24/04/09). 

Austrian connection 

Other Hungarian officials suggested that Russia was in fact operating through OMV, an Austrian oil and gas group whose bid to acquire MOL was rejected in 2007. 

In June 2007, OMV launched an unsolicited bid on MOL, which was rejected by the Hungarian company. The European Commission also objected to the hostile takeover, citing competition concerns. 

The failed takeover attempt later prompted OMV to sell its remaining 21% stake in MOL to Russia's Surgutneftgas. The deal, signed in March this year, was described by MOL as "unfriendly". 

But the Austrian company denies accusations that it was being manipulated by Moscow. OMV spokesperson Thomas Huemer recalled a statement made in 2007 by Zsolt Hernadi, MOL's CEO, who said he would prefer to be taken over by a Russian firm than to cede control to OMV. "Now this wish came true," Huemer said. 

Surgutneft is now the largest shareholder in MOL, but has not yet obtained the formal approval of the Hungarian authorities to be registered as a shareholder. A shareholders' meeting held immediately after the takeover took measures "to preserve their independence". 

But the experts said Surgutneftgas is now likely to apply pressure to oust MOL's Hungarian management and replace it with a Russian-friendly team. 

The strategy, they said, is clearly aimed at obstructing the construction of the Nabucco gas pipeline project. 

Speaking to the Moscow press, Russian Energy Minister Sergei Shmatko denied that Surgutneftgas was aiming to block Nabucco. "[Surgutneftgas's stake in MOL] is not even a blocking package. The interest of Surgutneftgas is, by buying the Hungarian shares, to increase its processing capacities, which are quite insufficient in Russia," he was quoted as saying. 

Positions:

MEP András Gyürk (Hungary, EPP ED) recently put a written question to the European Commission asking whether it considers the sale of MOL shares to Surgutneftgaz to be in accordance with EU principles of transparency. 

He noted that EU legislation on the internal market in electricity and gas includes provisions that allow the Commission to scrutinise foreign takeover bids on EU energy companies. "Under the legislation, which is awaiting adoption, national authorities may refuse to approve the transaction if the Commission likewise raises an objection. Would this provision be applicable to the abovementioned sale of shares in MOL?," Gyürk asked. 

"Does the Commission have any instruments by means of which to monitor attempts by purchasers in third countries to buy holdings? What action will the Commission take to prevent further attempts to purchase them?," he said. 

A prominent Croatian oil expert, speaking on condition of anonymity, was quoted by the daily Javno in the following terms: 

"The entry of Russian Surgutneftgaz into the ownership structure of Hungarian oil company MOL presents the culmination of ten-year efforts of Russian oil companies to conquer the markets of Southeastern Europe. They already have a dominant role in many of those markets, but they never managed to do that in Hungary and Croatia before. Still,

now that Surgut has entered MOL, whereby it also entered the ownership structure of INA [a Croatian oil company], the Russian company has set the scene for assuming control over the energy markets of Southeastern Europe, from Slovenia to Bulgaria." 

"Such a domination is one of Russian policy's long-term strategic goals, so increasing pressure of the Russian politics on the governments of Hungary and Croatia could be expected in the forthcoming period. The Russians are aware that their dominance over these markets allows them to increase Europe's dependence on their sources of energy and they will undoubtedly do everything to realise their goals." 

Gas Talks Will Start Soon With Ankarahttp://www.themoscowtimes.com/article/600/42/377192.htm

18 May 2009 Combined Reports

Prime Minister Vladimir Putin held energy talks with his Turkish counterpart Recep Tayyip Erdogan on Saturday, as Russia seeks to expand cooperation with its neighbor.

Gazprom will soon begin talks on extending a delivery contract that expires in 2011, Putin told reporters after a lunch meeting with Erdogan at his Sochi residence.

The two countries will also consider building a second branch of the Blue Stream pipeline that links Russia to Turkey under the Black Sea, Putin said.

Erdogan took the occasion to thank Russia for delivering extra gas during the winter when other suppliers cut short their deliveries.

"Russia has never let Turkey down with gas supplies. When we experience difficulties, Russia always comes to our aid and increases the necessary volumes," he said, Interfax reported.

Putin invited Erdogan after Turkey last week said it would reach an agreement with the European Union on the Nabucco pipeline, a project that would bypass Russia in bringing Caspian resources to Europe.

Gazprom, which is pushing a rival project called South Stream, is seeking to thwart Nabucco by buying up all excess gas volumes produced by neighbors such as Azerbaijan and Turkmenistan.

Turkey is Gazprom's fourth-largest customer by volume, receiving Russian gas via Bulgaria and Blue Stream. Russia delivered 23.8 billion cubic meters of gas in 2008, 10 bcm of which is delivered through Blue Stream. This year, the countries expect that figure to increase to 25.5 bcm.

The countries agreed in March on the creation of a working group for the Blue Stream project, which Russia hopes will enable it to deliver gas to the Middle East.

(Bloomberg, MT)

Gas Pipeline Fight Escalates Sharplyhttp://www.themoscowtimes.com/article/600/42/377172.htm

18 May 2009By Anatoly Medetsky / The Moscow Times

A fight to provide Europe with natural gas escalated sharply over the weekend as Gazprom and Italy's Eni agreed to double the capacity of their planned South Stream pipeline and the rival Nabucco project finally secured enough gas to become viable.

Gazprom chief Alexei Miller and Eni chief Paolo Scaroni signed an agreement Friday to boost the South Stream's capacity to 63 billion cubic meters a year from 31 bcm after the Italian company pressed for the boost, Miller said.

He said it would cost 8.6 billion euros ($11.6 billion) to build the pipeline, which will cross the Black Sea to Bulgaria and potentially have two legs going through Serbia, Hungary, Greece — and likely Slovenia — and ending in Austria and Italy.

The agreement, signed in the presence of Prime Minister Vladimir Putin and his Italian counterpart, Silvio Berlusconi, also defined how Gazprom and Eni would divide the gas to sell from the pipeline.

Neither company said why they agreed to expand the pipeline or what proportion of the gas they would own.

Also Friday, Gazprom and national gas companies from Bulgaria, Serbia and Greece signed deals to create joint ventures in these countries to perform feasibility studies and construction for the project.

Construction will finish by the end of 2015 at the latest, Miller said, adding that Gazprom and its partners would try to speed up the work.

"We … see the potential for this deadline to be moved forward, and we will do our best for the project to begin operation earlier," he said, Interfax reported.

Miller said the agreements on Friday marked the start of work to actually implement the project. Gazprom, however, has not yet enlisted Slovenia or Romania to fill the gap as the one remaining transit link for the pipeline to reach Austria.

For Russia, which has long touted itself as the only realistic gas supplier for Europe from the east, South Stream would capture an extra slice of a lucrative market where Gazprom already provides a quarter of the imports. In a further attempt to underline the futility of seeking alternative deliveries, Putin on Friday took a dig at Nabucco as an ill-conceived

way for Europe to grow more independent from Russia by importing gas from Central Asia and the Caspian Sea area.

"For starters, before investing billions of dollars in a pipeline, burying the money in the ground, they need to understand where the gas will come from for this pipeline," Putin said, referring to Nabucco backers. "By all means, if there's confidence that the project will be implemented, for God's sake let them do it."

On Sunday, two companies that are key partners in Nabucco announced that they had entered a deal that would give them enough gas to fill the pipeline by 2014. Austria's OMV and Hungary's MOL received 10 percent each in Pearl Petroleum, a company that is investing $8 billion in two Iraqi gas fields.

OMV will produce gas from "very large gas reserves … which has significant potential to serve as feedstock for the Nabucco pipeline," Helmut Langanger, the company's executive vice president who signed the deal, said in a statement.

The European companies acquired the stakes from United Arab Emirates-based Crescent Petroleum and Dana Gas, OMV and Dana announced in separate statements. OMV paid $350 million for its stake, while MOL gave 3 percent of its shares to each of the Arab companies in exchange for the interest in Pearl Petroleum.

Badr Jafar, a Crescent Petroleum executive director, said the project had the potential of "linking the region's significant gas reserves to Europe by pipe for the first time." He stressed that the partners would first seek to meet the local demand.

The fields — Khor Mor and Chemchemal, located in Iraq's semiautonomous Kurdistan region — could produce more than 3 billion cubic feet of gas by 2014, Dana Gas said. Nabucco's first phase, expected to be completed by 2015, will require half of this amount to operate.

This is the exact amount of gas that will remain available after the fields supply the local market and Turkey, Reuters reported, citing an unidentified industry source.

The deal is not a sure bet, however, with some challenges coming from Iraq's shaky statehood. Iraq's Oil Ministry has attacked oil and gas contracts awarded by the Kurdish regional government to international oil companies as illegal. Kurdish authorities have denied any wrongdoing, saying the agreements comply with the Iraqi constitution.

Deputy Foreign Minister Alexander Saltanov downplayed Nabucco's progress, saying on the sidelines of an economic forum in Jordan that it wasn't "tragic" for Russia and would not prevent the country from being a key supplier to Europe, Reuters reported.

Germany's RWE, another shareholder in Nabucco, signed a potential supply deal for the pipeline in Turkmenistan last month that gave the company rights to develop a Caspian Sea gas field.

In a further victory for Nabucco, the European Union won Turkey's consent at an energy summit in Prague earlier this month to sign a transit agreement for the pipeline by the end of next month.

Estimated to cost 7.9 billion euros to build, Nabucco is planned to take Caspian and Asian gas at the eastern Turkish border and carry it to Austria. Its other shareholders are Bulgaria's Bulgargaz, Romania's Transgaz and Turkey's Botas.

RussNeft spent $3 bln in Q1 to buy Deripaska's Cyprus-based companieshttp://www.interfax.com/3/493958/news.aspx

MOSCOW. May 18 (Interfax) - Russian oil company RussNeft (RTS:RUSN) acquired 93.5% stakes in three Cyprus-registered companies in thefirst quarter of 2009, RussNeft disclosed in its quarterly reportpublished on Friday. The companies are controlled by Oleg Deripaska's Basic Elementgroup (Basel), a market source told Interfax. The acquisitions - Optimal Factor Investments Limited, TallisHoldings Limited and Credenzaco Investments Limited - increasedRussNeft's financial investments item by 104.4 billion rubles (about $3billion), according to the quarterly report. The deal means that Deripaska has recovered the money he spent topurchase RussNeft in 2007, the source said. RussNeft apparently financed the purchase using a $2.7-billion loanfrom Sberbank Russia (RTS: SBER) disclosed in the quarterly report. Deripaska can use the cash to repay debts at other Basel companieswhile RussNeft deals with repaying the Sberbank loan. Basel was never formally the owner of RussNeft as the FederalAntimonopoly Service and the government commission on foreign investmentdid not approve the acquisition. Meanwhile, Sberbank holds 100% ofRussNeft shares as loan collateral. However, the oil company's boardchairman is Vladislav Soloviev, the head of En+, which manages Basel'senergy assets. Deripaska is seeking a buyer for RussNeft. Sources familiar withthe situation earlier reported that talks are underway with Gazprom Neft(RTS: SIBN), but that Basel values RussNeft at $7.5 billion-$8 billion,while Gazprom Neft is only offering to pay the amount of the company'sdebt.

Gazprom

Govt cuts Gazprom dividend 70% to 0.37 rubles per sharehttp://www.interfax.com/3/493908/news.aspx

MOSCOW. May 18 (Interfax) - The board of directors of Gazprom (RTS:GAZP) "in accordance with a government directive" has recommended adividend for 2008 equal to 0.37 rubles per share, the gas giantreported. That is more than 70% less than the 1.28 rubles per share themanagement board had recommended in keeping with Gazprom's establisheddividend practice.

Gazprom board recommends sharp dividend cuthttp://www.reuters.com/article/rbssOilGasExplorationProduction/idUSL022989020090518

Mon May 18, 2009 2:41am EDT

MOSCOW, May 18 (Reuters) - The state-controlled board of Russian gas export monopoly Gazprom (GAZP.MM: Quote, Profile, Research, Stock Buzz) recommended on Monday a drastic cut in the firm's dividend for 2008 following instructions from the government, Gazprom said in a statement.

The board proposed the firm's annual general meeting to cut the dividend payment to 0.37 roubles per share.

Sources told Reuters in April the firm's management was proposing a dividend of 1.28 roubles per share, down from 2.66 roubles paid in 2007.

(Reporting by Dmitry Zhdannikov; editing by Toni Vorobyova)

UPDATE 1-Gazprom to pay lowest dividend since 2000http://www.reuters.com/article/rbssEnergyNews/idUSLI23810820090518

Mon May 18, 2009 3:03am EDT

* 2008 dividend to fall 86 percent

* Gazprom says cut comes after instruction from government

* Shares show mild reaction to news

(Adds background, share price)

MOSCOW, May 18 (Reuters) - The Russian state told its gas monopoly Gazprom (GAZP.MM: Quote, Profile, Research, Stock Buzz) to cut the 2008 dividend by 86 percent to the lowest level since 2000, the firm said on Monday as it faces a sharp fall in gas demand in its main markets.

Gazprom, the world's largest gas producer which supplies a quarter of Europe's needs, said in a statement its state-run board proposed cutting the payout to 0.37 roubles ($0.011) per share.

The last time Gazprom paid such a low dividend was for 2000 when it approved a payout of 0.30 rouble per share.

Sources told Reuters in April the firm's management proposed a dividend of 1.28 roubles per share, down from 2.66 roubles paid in 2007.

Shares of Gazprom were down 2 percent at 0650 GMT, slightly outperforming the broader market .MCX.

Gazprom's gas production fell by more than a quarter in April to the lowest levels in a decade, continuing its spiral downward in response to plummeting European demand. [ID:nL2356210] (Reporting by Dmitry Zhdannikov; editing by David Cowell)

Gazprom Will Acquire SeverEnergiahttp://www.moscowtimes.ru/article/1009/42/377190.htm

18 May 2009 BloombergGazprom will pay Eni and Enel $1.5 billion for a controlling stake in gas explorer SeverEnergia, the Italian companies said Friday in separate statements to the Italian stock exchange.

Gazprom will pay $600 million to power utility Enel and $900 million to oil producer Eni, the companies said. SeverEnergia was set up by Eni and Enel to bid for Russian energy assets.

Eni's stake in SeverEnergia will fall to 29.4 percent from 60 percent, while Enel will reduce its holding to 19.6 percent from 40 percent. The agreement will be completed at the end of June, with payment made in two tranches this year and next.

Gazprom, Eni and Enel will work together to explore for gas in western Siberia and aim to begin pumping there by June 2011. They expect output to reach at least 150,000 barrels a day within two years of starting production, according to the statements.

Gazprom wins extension from Eni, Enel on payment for Severenergia stakehttp://www.interfax.com/3/493920/news.aspx

MOSCOW. May 18 (Interfax) - Italian Eni and Enel, which purchasedtwo production companies belonging to the defunct Yukos at auction twoyears ago, have given Gazprom (RTS: GAZP) until 2010 to pay for a stakein those assets. Gazprom will pay $1.5 billion in two tranches in 2009-2010 for a51% stake in Severenergia LLC, which owns the two companies, Arcticgasand Urengoil, Gazprom said in a statement. Gazprom's option to purchase the stake was originally set to expirein April. The decline in Gazprom revenue due to lower demand for gas andprices has complicated the task of completing the acquisitions the gasgiant initiated previously. For instance, Gazprom's more austere budgetdoes not allocate $4.2 billion for the purchase of a 20% stake inGazprom Neft (RTS: SIBN) from Eni. That money was borrowed from majorRussian banks instead. According to the latest financial statement, theGazprom group has raised $6.75 billion in financing from statestructures. The three companies signed an implementation agreement laying outthe terms of the Severenergia deal in Sochi on Friday. Gazprom CEOAlexei Miller, Eni chief Paolo Scaroni and Enel's head of explorationand production, Marco Arcelli, signed the agreement for their respectivecompanies. The purchase agreement is slated for signing at the end of June2009. Once the deal is closed, Gazprom will have a 51% stake inSeverenergia and Eni and Enel will have 49% via a joint venture, ArticRussia B.V., in which Eni has 60% and Enel - 40%. Severenergia will be the first Russian-Italian company to carry outactive operations in Western Siberia, the statement says. Enel CEO Fulvio Conti said Friday's agreement was an important steptoward developing Enel's integrated operations in Russia, to include gasproduction, electricity generation and its subsequent sale. Gazprom'sentry into the equity of Severenergia will guarantee stable supplies ofgas on favorable terms for the electricity stations of OGK-5 (RTS: OGKE)via Enel's share in Severenergia production, he said. The start of gas production at Severenergia is now scheduled tobegin in 2011 - a year later than was planned previously - at theSamburgskoye field, to which Arcticgas holds the license. Over theensuing two years, production will be increased to 150,000 barrels ofoil equivalent. Severenergia also controls the Yevo-Yakhinskoye andYaro-Yakhinskoye fields and the Severo-Chaselsky section. The sides also agreed the process for renewing the licensing

agreements and drafting a plan for developing the fields. The new planwill be agreed by the three companies within 90 days, after which allthe necessary permits will be acquired, including extensions to thelicenses by Rosnedra. Severenergia submitted its plan for developing the fields toRosnedra more than a year ago.

Vietnam Min: Gazprom To Supply Coal Gasification Technologyhttp://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=200905150629dowjonesdjonline000461&title=vietnam-mingazprom-to-supply-coal-gasification-technology

HANOI -(Dow Jones)- Russia's OAO Gazprom (GAZP.RS) signed Friday an agreement to supply its underground coal-gasification technology to Vietnam, Vietnam's Ministry of Natural Resources and Environment said.

The agreement was signed in Hanoi with Vietnam's Dong Duong Co., the ministry said in a statement.

Dong Duong will use the technology for gas production in the Red River coal basin in northern part of the country, it added.

The ministry said it supports the idea of using Gazprom's gasification technology to extract gas from the Red River coal basin as it is environmental friendly.

Details about the agreement weren't provided.

-By Vu Trong Khanh, Dow Jones Newswires; 844 35123042; trong-khanh.vu@ dowjones.com

Gazprom says offshore pipelines would lower transit riskshttp://www.energycurrent.com/index.php?id=2&storyid=18109

From the Web via YellowBrix

5/18/2009 5:13:18 AM GMT

MOSCOW: Gazprom (RTS: GAZP) believes new offshore gas pipelines need to be built to develop the European gas transportation system, a source at the company told journalists on Friday.

In the run-up to the signing of an agreement between Gazprom and Italian, Greek, Serbian and Bulgarian energy companies on the South Stream gas pipeline, the source

said that, given the new realities, energy security systems should be based on the construction of offshore gas pipeline systems free from transit risks.

When "the weak political regimes and economies of transit countries start using the transit through their territory as a method of foreign economic competition and pressure, energy supplies via a system of land-based gas pipelines become insufficient," the source said.

"Sea-based pipelines are an optimal way of building new gas pipelines to Europe both in terms of security and in terms of technical, economical and environmental factors," the source said.

The source also described as unfounded "the popular view that Russia is making the EU dependent on its energy supplies by building these gas pipelines." European countries depend on Russia for 30% of their gas supplies on average, he said.

(c) 2009 Daily News Bulletin; Moscow - English. Provided by ProQuest LLC. All rights Reserved.

Gazprom Ready to Buy All Gas From Azeri Nabucco Base (Update1)http://www.bloomberg.com/apps/news?pid=20601087&sid=aFDux_hYlA3Y&refer=home

By Torrey Clark and Stephen Bierman

May 15 (Bloomberg) -- OAO Gazprom, the world’s largest natural gas producer, is ready to buy all the gas from the second stage of an offshore Azeri development slated as a resource base for the Europe-backed Nabucco pipeline project.

“We’re ready to buy the whole volume of Shah Deniz II,” Gazprom Deputy Chief Executive Officer Alexander Medvedev said in a Moscow interview with Bloomberg Television today.

Gazprom’s network is the “optimal” route for gas from Azerbaijan to reach Europe, Medvedev said. Russia’s gas exporter is due to sign accords today on building the South Stream pipeline under the Black Sea to the European Union with Greece, Bulgaria and Serbia at an event attended by Prime Minister Vladimir Putin.

Azerbaijan lacks a direct gas link to Europe and has been unable to agree with Turkey on terms for the transit of larger planned volumes. State-run Gazprom’s purchases of Azeri fuel could undermine the supply base for European-supported pipeline projects, such as Nabucco, designed to diversify supply routes away from Russia.

Shah Deniz is the only deposit mature enough currently to be considered as a base for forming contracts for Nabucco, Olav Skalmeraas, a StatoilHydro ASA vice president for natural gas, said in Baku last month. The Norwegian company oversees the marketing of fuel from Shah Deniz II.

Spiting Nabucco

“For Gazprom, buying Azeri gas for the short or long term does not make any sense,” Mikhail Korchemkin, managing director of East European Gas Analysis, said by e-mail. “Apparently the government considers spiting Nabucco a higher priority than maximizing budget revenues and profits of Gazprom.”

Azeri gas can only be re-exported at prices it would take to buy volumes, Korchemkin said. To re-export Azeri volumes, Gazprom would need to cut production and exports of Russian gas, its main source of profit, he said.

“It does make sense for Azerbaijan to sell spare gas to Russia until Nabucco is built,” Korchemkin said.

Gazprom’s agreement with its main South Stream partner, Eni SpA, won’t limit where the Italian company will be able to sell gas, Medvedev said. If the link carries volumes of 47 billion cubic meters of gas a year, Eni will be able to sell 12 billion cubic meters, he said.

“We are entering a new stage of the project realization and on the corporate level we will accelerate the preparation of the feasibility study then the comprehensive feasibility and then the fifth stage begins,” Medvedev said, adding that Gazprom has enough gas for South Stream without Azeri fuel.

Additional Output

The second phase of Shah Deniz could add 12 billion to 14 billion cubic meters of annual gas output in three to five years once a market is found and transit for the fuel ensured, Azeri President Ilham Aliyev said on April 18. In 2007, Azerbaijan produced 10.3 billion cubic meters, according to BP Plc’s Statistical Review of World Energy.

The State Oil Co. of Azerbaijan, or Socar, plans to meet Gazprom this month to negotiate a deal to begin selling gas to Russia beginning next year, Vagif Aliyev, general manager of Socar’s investment division, said in April. Socar’s partners in Shah Deniz, including StatoilHydro, BP and OAO Lukoil, are not participating in these negotiations, he said.

Gazprom’s production and exports will probably fall 10 percent this year to 495 billion cubic meters and 150 billion cubic meters respectively, Medvedev said. Average prices during the year will be less than $300 per 1,000 cubic meters, he said.

To contact the reporters on this story: Stephen Bierman in Moscow sbierman1@bloomberg.net; Torrey Clark at tclark8@bloomberg.net

Last Updated: May 15, 2009 12:36 EDT

Gazprom reportedly sold 13.5bcm of gas to Ukraine 1Q09 http://www.businessneweurope.eu/dispatch_text8616

VTB CapitalMay 18, 2009

According to Gazprom's quarterly report, the company sold 13.5bcm of gas to Ukraine in 1Q09.This is significantly above the earlier stated figure of 2.5bcm. Vedomosti speculates that the difference could be attributed to the 11bcm in underground storage which Naftogaz of Ukraine had previously received from Rosukrenergo.

In a separate development, Gazprom and Eni signed an agreement doubling the planned capacity of the South Stream project to 63bcm. The tentative start of the project is in 2015.

The discrepancy in gas volumes sold to Ukraine is worth USD 4bn, and as yet it is unclear whether this gas has actually been sold to Ukraine, or whether it is part of the deal whereby Naftogaz legally receives ownership of gas in the storage facilities. Depending on the essence of the deal, the effect on Gazprom's income statement could differ.

As for the Eni agreement, it increases the chances of the South Stream project being realised ahead of the competing Nabucco pipeline. In terms of the availability of resources, South Stream seems to be the safer bet. However, the European desire to diversify supplies provides a strong lobby for the Nabucco pipeline. We note that both projects are currently at an early greenfield stage.

Gazprom parent deliveries weaker than expected in 1Q09http://www.businessneweurope.eu/dispatch_text8616

Troika, RussiaMonday, May 18, 2009

Gazprom's 1Q09 RAS report, while irrelevant in terms of financial numbers, provides very important gas operating data from the parent company. While gas sales to all destinations are different from those reported in IFRS by the amount of resale operations, the underlying trends are very similar.

On the export side, we expected exceptionally low numbers in the first place. Gazprom delivered 29.1bn m3 to Western and Eastern Europe, down 39% y o y, while FSU deliveries amounted to 20bn m3, down 11% y o y. We had projected similar figures and

are hence not overly surprised by them.

The negative surprise came on the domestic side, where deliveries came to 103.4bn m3, down 13% y o y. This is awful, as domestic demand contracted by just 5.6% y o y during 1Q09, which implies that either Gazprom was losing market share at home, or the underlying demand in the country was much weaker than the government figures we track would suggest. In all, we are disappointed with the performance on the domestic side, while the export business was as appalling as we had expected.

In separate news, Gazprom on Friday agreed to pay Eni and Enel $1.5bn for a 51% stake in SeverEnergia, the company that holds 100% stakes in former YUKOS gas assets Arctic Gas and Urengoil. The payments will be made in two tranches in 2009 10. The deal and the price had been widely anticipated.