MOSCOW, May 28 (RIA Novosti) Politically, Russia and the EU are drifting apart - expert/ Only half of CIS nations agree to join common energy space/ Arcelor Mittal quits Russian market/ Gazprom, Lukoil to establish Russia's largest joint venture/ Aeroflot eyes another big-spending project in Europe
Nezavisimaya Gazeta
Politically, Russia and the EU are drifting apart - expert
Today Russia and the EU are ill-fitting partners, writes Yekaterina Kuznetsova, director for European programs at the Center for Post-Industrial Studies. They both have different political values, profess different views on sovereignty, and preach different human rights standards. The Samara summit has clearly demonstrated the limits of Russia-EU cooperation. Despite lavish lip service paid to shared values of the two sides of Europe, lines are now firmly drawn for a full blown conflict of values.
Seen from this angle, keeping the Partnership and Cooperation Agreement (PCA) as the basis for relations is not in either party's interests. Russia wants no curbs on its freedom to act supposedly imposed by "abstract considerations" having nothing to do with "business" (or profit making) and has proposed that values be separated from economics. The European Union, for its part, is unlikely to be interested in deepening relations with a country that purposely sets itself against Europe and its values against European ones. So cooperation between Russia and the EU appears to be possible only within a narrow range of economic conditions, and the playing field is bound to shrink.
Ten years on, the PCA looks outdated and non-productive, and not because it has run its course, but because Russia has failed to tap even a tenth of its potential. The PCA was progressive for its time, if only because it made Russia switch its economic relations with Europe to WTO principles long before Russia's entry to the organization had any real prospects.
Will the European Union "fight" for Russia? I don't think so. It is much simpler to shut one's eyes to the "values" and focus on the "business." For Russia, any new agreement on cooperation with the EU will be less advantageous than the present one. Europe is prepared to accept a special brand of Russian democratic values and human rights, which is demonstrated by the fact that every succeeding document gives an increasingly blurred wording to the goals of cooperation, and the measures proposed turn out to be less meaningful than the objectives they are supposed to meet. Any timeframe or schedule is blushingly omitted. It is difficult to escape the feeling that a new treaty between Russia and the EU is going to be a step down.
Kommersant
Only half of CIS nations agree to join common energy space
Heads of government of six CIS nations signed an agreement to establish a common power-production market, while the other six rejected Russia's proposal. Ukraine and Moldova, both Russia's energy-exporting partners, said the agreement would create a preferential environment for Russia and refused to join the united CIS grid until all tariff disputes were settled and Russia was admitted to the WTO.
Only half of the Yalta summit participants supported Russia's plan. Russia, Kazakhstan, Belarus, Kyrgyzstan, Armenia and Tajikistan signed the agreement in the wake of the heads' of government meeting.
A member of the Tajik delegation said the agreement was very important for Tajikistan which has vast hydro resources, but had been unable to develop its local power generation since Soviet times, whereas the agreement with Russia included Russian investment in the construction of hydro power plants in Tajikistan. The modernization and repair of the existing Nurek hydro power plant and the construction of the Rogun hydro power plant in Tajikistan are a priority. The Russian company RusAL, the world's largest aluminum producer, signed a cooperation deal with Tajikistan in October 2004, to engage in joint power and aluminum production projects, and invest $2.2 billion in the construction of the Rogun hydro power plant.
A source in the Ukrainian delegation said in turn that the agreement would obviously support Russia's interests alone. "In Russia, power generation is subsidized by the government, while domestic energy prices are lower than export ones; for Ukraine, this plan is economically inefficient," he told the paper. "We expected proposals to establish a market, but this agreement would only undermine our power system." The high-ranking Ukrainian representative in the CIS added that they only saw a change in Ukraine's position in the event of Russia joining the WTO.
The refusal of Russia's key transit partners, Ukraine and Moldova, to join the project plays down the new deal's value because Russia will have to agree its energy export and import projects with these two countries separately.
Vedomosti
Arcelor Mittal quits Russian market
Arcelor Mittal, the world's largest steel maker with an annual capacity of 120 million metric tons, has decided to sell a 25.01% stake in its only Russian asset, namely, Severgal, a joint venture with Russian steel giant Severstal Group producing cold rolled steel sheets coated with zinc.
The Severgal venture cost $210 million, including a $90 million loan from the European Bank.
The buyer, Severstal, owns 74.99% in the venture, which can annually produce 400,000 metric tons of zinc-coated rolling stock, but last year it turned out just 274,122 metric tons.
Severstal and Arcelor Mittal representatives declined to comment on the deal's price. But a source close to Severstal said the Severgal stake would be sold for about $20 million. An investment banker reportedly received similar information from Severstal officials.
Arcelor Mittal said it has terminated its license agreement with Severgal for Extragal, a special quality automotive steel made with Arcelor's proprietary technology. Moreover, it will stop selling Severgal products on global markets.
Kirill Chuiko, an analyst with UralSib Bank, said last year's attempt by Severstal owner Alexei Mordashov to buy Arcelor had influenced the latter's decision to quit the project.
Stanislav Fomenko, an analyst with Veles Capital brokerage, said Mittal Steel was unlikely to encourage relations between its new partner and former rival.
Arcelor Mittal spokesman Luke Scheer declined to comment on the deal, and another corporate official explained the decision to sell the Severgal stake, because although the joint venture should supply quality rolling stock to the Russian and CIS automotive industry, it sells most of its products on the construction market.
Igor Korovkin, executive director of the Association of Russian Carmakers, said foreign automakers relocating production to Russia would eventually buy Severgal rolling stock.
Igor Timofeyev, director for strategic planning at Severstal's Cherepovets plant, said Severgal, which now supplies 95% of its products to the domestic construction industry, would sell at least 50% of its rolling stock to automotive giants by 2010.
Timofeyev said the Severgal brand has become famous, and customers realize that its production standards remain the same.
In 2006, Severstal produced 17.6 million metric tons of steel, earned $12.42 billion and $1.18 billion in net profits.
Business and Financial Markets
Gazprom, Lukoil to establish Russia's largest joint venture
Gazprom's oil producing subsidiary Gazprom Neft and Russian private oil company Lukoil have agreed to set up a joint venture within the next three months. A strategic alliance with state-run gas giant Gazprom will be the only possibility for Lukoil to acquire new assets in Russia. In turn, the joint venture gives Gazprom Neft access to the finances of the country's largest private oil company.
The joint venture's aim is to acquire rights to mineral resource management, exploration and production. Alexander Dyukov, Gazprom Neft's president, said the new company must be registered within 90 days. A Lukoil spokesman said the joint venture would be set up even earlier.
"Assets will be contributed to the joint venture by cash funds proportionate to the partners' stakes in the company (Gazprom Neft will have a 51% stake), and the amount of such contributions is currently being discussed. None of the enterprises belonging to the partners will be incorporated into the joint venture," the spokesman said.
The companies will also set up a joint working group to name the deposits and mineral resource areas of interest to the joint venture. They may include East Siberia, the Timan-Pechora basin, and the Caspian Sea area, according to Lukoil's first vice-president Ravil Maganov.
"The company's primary aim will be to acquire assets in Russia," Lukoil said.
Such a joint venture with Gazprom's support is a means for Lukoil to enter new major deposits which are usually given to state-run companies, said Alexander Kuznetsov, an analyst with the Prospekt investment company. "At the same time, Lukoil's financial resources may prove useful to Gazprom Neft. Besides, the joint venture opens up new opportunities for acquiring assets abroad."
In the opinion of Andrei Fyodorov, an analyst with Alfa Capital, one of Russia's largest private investment companies, "in Eastern Europe, which painfully reacts to the acquisition of new assets by Russian owners, the situation may be mitigated by an exchange of assets between the new joint venture and foreign partners, as was the case with Gazprom and the Italian energy company Eni."
Vremya Novostei
Aeroflot eyes another big-spending project in Europe
Aeroflot has offered to buy Serbia's JAT Airways, Serbian Minister of Infrastructure Velimir Ilic said last Friday. Sources in the Russian carrier reiterated their interest in the region. But officially, Aeroflot is not commenting on its possible purchase of JAT.
JAT's current owner is the Republic of Serbia, although its government as early as last year announced its intention to privatize the company. A source in Aeroflot said yesterday: "We are interested in this region, but it is too soon to be definitive on JAT." This cautious behavior is quite justified. JAT has had a checkered past and faces uncertain prospects. It suffered badly in the Balkan wars, especially during 1992-94, when international sanctions put its route network out of action. It was around that time that it last purchased new aircraft. The name JAT, an acronym of Jugoslovenski Aerotransport, is now somewhat redundant with the disappearance of the country it is named after, but survives by tradition.
Aeroflot has two big-spending projects on its hands: one is to increase its plane inventory and another to purchase a 39.9% stake in Alitalia at a tender announced by the Italian government. An attractive feature of the Italian company, according to experts, is its large and modern fleet of airliners, which can be readily integrated into Aeroflot's fleet (Airbus-320 versions being the basic model for both companies).
With JAT, such an incentive is missing. Perhaps Aeroflot hopes to gain access to the "open skies" in Europe through JAT. Russia is not expected to jump on the bandwagon in the foreseeable future, while Serbia may do so in the next few years.
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