What the Russian papers say


MOSCOW, May 31 (RIA Novosti) ESPO pipeline project to cost twice as much/ Gazprom tests "gas OPEC" mechanism on domestic market/ Italian consortium to compete with Aeroflot for Alitalia purchase/ Government kills unwanted companies and non-profit groups/ Russia's political parties courting leftist electorate

Nezavisimaya Gazeta

ESPO pipeline project to cost twice as much

The board of directors of Russian national oil pipeline monopoly Transneft has decided to allocate an additional 6.8 billion rubles ($263 million) to build the first stage of the Eastern Siberia-Pacific Ocean pipeline (ESPO). Analysts say the cost of the project will continue to rise because all Transneft's expenses will be covered by an increase in company tariffs. The only restriction in the rise in ESPO construction costs is railway tariffs, which are nearly twice as high as the cost of pipeline transportation at present.
Initially, the project to build the first stage of the ESPO pipeline was estimated at $6.6 billion, and the entire project at $11.5 billion. However, Transneft specialists name other figures today. In its February memorandum on the issue of Eurobonds, the company reported that about 300 billion rubles (over $11 billion) would be spent on the first stage of the ESPO project in 2006-2008. The last decision by Transneft's board of directors increased the ESPO 2007 budget by a further 3.4%, to 205.5 billion rubles ($7.93 billion).
Independent experts say there are more than enough reasons for the rising construction costs. "In the past few months, the cost of pipes for ESPO increased by about 40% and costs for other items in the budget estimate had risen at nearly the same rate," said Mikhail Krutikhin, partner of the RusEnergy consulting firm. According to his estimates, the initial price of transporting a metric ton of West Siberian oil to China was about $53, while today oil transportation costs may exceed $100 per metric ton.
Krutikhin believes that construction of the "eastern pipe" is a "political" rather than "economic" project, therefore any assessment of its efficiency is pointless. "In order to recoup expenses of the ESPO inflated budget estimate, Transneft can introduce a higher common tariff for oil transportation on all export routes," he said. In his opinion, construction companies are not usually interested in saving when building a politically guaranteed project such as ESPO.


Gazprom tests "gas OPEC" mechanism on domestic market

Russian state monopoly Gazprom and several independent producers of natural gas have decided to reduce gas production due to the warm weather. Gazprom openly admits that they are testing mechanism for a "gas OPEC" on the domestic market.
But analysts believe that the reduction is not an attempt at price manipulation. They think the state-run monopoly is trying to share with independent producers the losses incurred from having a lower pipeline capacity.
Gazprom has announced a production cut from 561 billion cu m to 557 cu m per year. According to LUKoil head Vagit Alekperov, independent producers will not reduce output by more than 8% of the annual level, and these voluntary restrictions will last until the third quarter of 2007. Other participants in the meeting where the decision was made, apart from Gazprom and LUKoil heads, included senior executives from TNK-BP, Itera, and Novatek.
"What happened Wednesday is close in essence to the "gas OPEC" idea, which is about regulating prices and production volumes by all producers," says MDM Bank's Andrei Gromadin. "Until now, Gazprom used to set prices and production volumes unilaterally."
Analysts question the official "warm weather" argument. "Russia's gas balance reveals a serious shortage of gas, especially considering Gazprom's plan to increase exports. Economic indicators suggest we must boost production," says Konstantin Selyanin from the Accord-Invest company.
He thinks that the gas output must have been cut for technological reasons, possibly the decreased pipeline capacity after the recent accident in Ukraine.
Gazprom is simply trying to dodge its losses to the formerly independent producers largely controlled by the monopoly. Without the "cartel" it would have to cut production alone.

Business & Financial Markets, Kommersant

Italian consortium to compete with Aeroflot for Alitalia purchase

A consortium involving TPG Capital brokerage, Matlin Patterson Global Advisers LLC and the Italian bank Mediobanca has pulled out of the bid for the state-controlled stake in air carrier Alitalia. Experts said the company made this decision after assessing the Italian airline's 2006 balance sheet.
The consortium made this decision after thoroughly analyzing the terms of the Alitalia tender because it could not meet all the requirements.
The main contender, Aeroflot Russian Airlines, now faces just one rival, namely, a consortium that comprises Italy's second largest carrier Air One and the national bank Intesa Sanpaolo.
The Italian government is ready to sell its 49.9% stake in Alitalia to Aeroflot, which wants 39.9%, and which is now looking for a European bank to provide $900 million credit for the deal.
The bidders must submit their final offers to the Italian Finance Ministry by July 2.
Oleg Panteleyev, head of Aviaport web site's analytical department, said Aeroflot's chances have increased after TPG Capital announced its decision to quit the race. Alitalia's financial standing could have influenced the TPG Capital decision.
The airline's net operating losses soared from 47.5 million euros to 465 million euros in 2006, whereas net losses increased from 168 million euros in 2005 to 626 million euros last year, he said.
"It is unclear whether Aeroflot, which wants to buy Serbian carrier JAT Airways, will be interested in Alitalia," Panteleyev told the paper.
Aeroflot general director Valery Okulov said he was dismayed at the latest, May 24, Alitalia sale terms. He said the proposed tender had initially aimed to reorganize the company and to help it cope with an all-out crisis. The Italian Finance Ministry would now choose the most solvent bidder.
According to Okulov, Aeroflot could have helped Alitalia to join the dynamic Russian air traffic market and to launch entirely new business operations here.


Government kills unwanted companies and non-profit groups

The history surrounding a series of police raids and searches which paralyzed the operations of the NGO Educated Media Foundation, the successor of Internews Russia, is both surprising but typical.
It took a remarkably coordinated effort by various public agencies, including tax authorities, the fire service and the Interior Ministry, to kill the dissenting foundation, which has trained around 15,000 journalists and other professionals for the regional media over 10 years of operating in Russia.
Another important tendency showed itself in the Educated Media case. Law enforcement officers often take action against a director's company, even if it is a private matter.
Internews's troubles began on January 31, 2007, when a criminal case was initiated against its director Manana Aslamazyan, accused of foreign currency smuggling when she failed to declare excessive foreign currency bringing in 9,500 euros (around $2,800 more than the permitted $10,000). Ten weeks later, the police confiscated not the company's accounts, but all information servers and materials. They said they had to search for evidence "which could be relevant to the criminal case," but never explained how documents on journalistic competitions and seminars could help in their investigation.
The Internews case is a typical occurrence rather than an exception. Police detectives and investigators often paralyze the company's work in a bid to find evidence of the director's guilt.
A similar thing happened to the company Sofex Khimzashchita, when the police made investigations into the case against its directors, Yana Yakovleva and Alexei Protsky, accused of illegal trading in poisonous substances. Drug control officers then confiscated all of the company's accounting documents, not just those related to the legal grounds for trading in ethyl ether, which seriously hampered the company's operation.
Incidentally, removal of all documents to prove a director's guilt is not a practice used only to strangle unwanted NGOs. This scheme is also used by corporate raiders for hostile takeovers.

Vremya Novostei

Russia's political parties courting leftist electorate

In December 2007, Russia will elect the State Duma, the lower house of parliament. Different political parties will either merge with their rivals or take them over during the upcoming election campaign.
Sergei Mironov, Speaker of the Federation Council, the upper house of parliament, and leader of the Just Russia Party, which emerged a year ago [after taking over the Motherland (Rodina) Party, the Party of Life and the Pensioners' Party] and recently incorporated the Socialist Party, said he would also like to team up with the Russian Communist Party.
Mironov said such an alliance would facilitate a landslide victory and would help defeat the pro-Kremlin United Russia Party.
However, the Communists turned down Mironov's offer.
On Wednesday, Mironov told journalists that no consolidated election bloc would emerge due to the tough stand by Communist leader Gennady Zyuganov, but the next State Duma would feature partisan alliances.
"We will campaign independently, but will join with the Communists after the elections," Mironov said.
Alexander Konovalov, president of the Institute for Strategic Assessments, said Mironov is supposed to deprive the Russian Communist Party, which is winning at local elections, of a percentage of its voters. This could happen if the people are convinced that there is no difference between the Communists and Just Russia.
A possible alliance between Russian socialists and patriots is quite popular. Any political party wants to win the sympathies of leftist voters. This is proved by the successful showing of the Rodina election bloc at the December 2003 State Duma elections. Rodina co-chairman Dmitry Rogozin is now trying to establish his own Great Russia Party that would comprise different patriotic organizations.
But experts said Rogozin's party has little chance of registering with the Justice Ministry.
Konovalov said Great Russia could receive 15%-20% of the votes because nationalism is quite popular in this country, but that no one would allow this to happen.

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