MOSCOW, July 20 (RIA Novosti) Russian government concerned about petrol prices/ Russia, Britain continue to fight corruption despite political fallout/ Pipeline project plagued by soaring construction costs/ VTB sells non-core assets
Vedomosti
Russian government concerned about petrol prices
Petrol prices in Russia are again on the rise, and this is worrying government officials. In the summer of 2005, the cabinet negotiated a freeze on retail petrol prices with the oil sector. In the summer of 2006, petrol prices rose faster than inflation, and the government's concern is understandable: rising fuel prices add to production costs of other goods and services feeding inflation. Aside from everything else, petrol prices are a political issue affecting voters' pockets.
The government can do little about growing retail prices. In 2005, they were fixed when they reached their peak: at that time it was expected they would fall anyway, for the domestic oil market was overstocked because of high export duties. Prime Minister Mikhail Fradkov is basically right when he speaks of the practice of traders driving up prices. But what matters is not the lack of fair standards, but competition. In order to do something about petrol prices, the government will have to sort out the industry's problems and revise taxation rules for the fuel and energy sector.
There is no quick fix to the problem, it is interesting to see the effect prices have apart from rising inflation. The effects of petrol price growth are best observed from the United States, because the numbers of car and annual fuel consumption there make the matter a real issue. It has been established that petrol, as it increases in price, affects the structure rather than the volume of demand.
Polls in the U.S. in 2005 showed that car owners would think of buying more economical cars if petrol cost reached $3 per gallon.
Energy efficiency is a concept that is so far alien to Russians, and their response to costlier petrol is different. A VTsIOM (All-Russian Center for the Study of Public Opinion) poll in August 2006 revealed that given the same price 18% of motorists would use public transport. In Moscow, this is already an established fact, yet car numbers in the capital have not shown signs of diminishing.
By the beginning of 2006, Russia had 25.5 million cars. The Federal Road Agency forecasts 42 million by 2015. In the first half of this year, 715,000 new foreign vehicles and only 300,000 Russian-made ones were sold (figures by PricewaterhouseCoopers). It looks as if growing petrol prices are forcing needy car owners off the roads, leaving room only for those who do not care how much they have to pay for their fuel.
Rossiiskaya Gazeta
Russia, Britain continue to fight corruption despite political fallout
The Russian Audit Chamber yesterday held a videoconference linkup with London. The British expressed their views about possibilities for Russian auditors to fight corruption, while Sergei Stepashin, head of the Audit Chamber, promised to forward to foreign colleagues the lists of Russia's most corrupt officials.
The audit bodies of Russia and Britain started cooperating in 2002, but yesterday's VC linkup took place in unusual conditions.
Relations between the two countries have been complicated by Moscow's refusal to extradite Andrei Lugovoi, suspected in Britain of complicity in the murder of former security officer Alexander Litvinenko, who died of alleged polonium poisoning in November last year.
Russian Ambassador to Britain Yury Fedotov and Her Majesty's Consul-General in Moscow, Jessica Hand, took part in the conference linkup. Ms. Hand recalled that Britain was one of the top five investors in Russia.
Stepashin said: "Our economic relations are developing dynamically, and will continue to progress."
Replying to a question from Rossiiskaya Gazeta, he said that professionalism and attention to practical issues were the core elements in relations with British colleagues. "Thank God, our work has nothing to do with politics," he said.
The Russian Audit Chamber has devised a strategy to bring together all those fighting corruption and invited British experts to help them to evaluate the possibilities for success in the struggle.
Stepashin told the popular daily that the Audit Chamber was working closely with the U.K. National Audit Office (NAO), which was established 400 years ago. NAO head Sir John Bourn yesterday spoke about the Russian colleagues' courageous fight against corruption.
One of their joint projects is connected with the 2014 Winter Olympic Games, to be held in Sochi on the Russian Black Sea Coast. A working group of the Audit Chamber will check on the use of budgetary allocations to the construction of Olympic facilities there.
Sir Bourn said that the Olympics spelled major problems. London will host them in 2012, and British experts have already started auditing allocations used in them. Russians could use their experience.
The NAO head invited Russian experts to London to exchange experiences.
Nezavisimaya Gazeta
Pipeline project plagued by soaring construction costs
Although the Russian government planned to spend $6.7 billion on the first stage of the East Siberia-Pacific Ocean (ESPO) oil pipeline, the project will require $11.3 billion by late 2008.
The increase caused anger from Russian Prime Minister Mikhail Fradkov, who said rising construction costs exceed nationwide inflation.
Konstantin Serebryany, project director at 2K company, said the North European Gas Pipeline's ground section was initially estimated at $2.5 billion, but eventual construction costs would total $6 billion.
He said nobody knew anything about possible underwater obstacles, and that project costs could soar once again. According to Serebryany, the East Siberia-Pacific Ocean pipeline is constructed across rugged terrain, and any deviation from the preset route could cost several million dollars.
Sergei Pravosudov, director of the National Energy Institute, said rising global oil prices affected the cost of pipes, metals, services, and the dollar's exchange rate. He said rough terrain and bad working conditions were another factor contributing to higher project costs, and that pipelines were becoming more expensive globally.
Semyon Vainshtok, CEO of pipeline monopoly Transneft, said his company was trying to streamline construction costs, and any increases were justified.
Over 1,000 km of the 2,750-km pipeline have been laid to date.
Kommersant
VTB sells non-core assets
Russian foreign trade bank VTB is completing an audit of its foreign assets. The most efficient of them have been incorporated in the bank's London subsidiary, VTB Europe, which will offer investment services in Russia and the Commonwealth of Independent States (CIS).
VTB president Andrei Kostin said yesterday the bank would not buy a major Russian investment company, and assets not incorporated in the London subsidiary would be sold.
According to Kostin, VTB will sell its Swiss subsidiary, Russische Kommerzial Bank (Zurich), to energy giant Gazprom.
"Talks are underway to expand the number of shareholders of Russian Commercial Bank (Cyprus) Ltd," he said. "VTB is also ready to divest a 34.27% stake in [state-controlled] Evrofinance Mosnarbank."
Last fall Kostin announced plans to consolidate the bank's subsidiaries in Western Europe on the basis of VTB Europe (former Moscow Narodny Bank). At the end of the year, the Paris-based BCEN Eurobank, where VTB owned an 87.04% stake, and Ost-West Handelsbank AG (Frankfurt, 83.54%) became subsidiaries of VTB Europe.
Austrian-based Donau Bank has not been incorporated into VTB Europe because it enjoys tax privileges.
In two or three years, VTB Europe should grow into a powerful investment bank operating in Russia and the CIS.
Kostin said the London subsidiary would form a team of respected foreign and Russian investment bankers by the end of summer, adding that part of its operations and personnel could be moved to Russia. VTB is to approve the development strategy for its investment business in September.
Nikita Ryauzov, head of investment banking at MDM Bank, said an office in London was a competitive advantage.
"Experts can work close to investors and the money, because the bulk of money is coming to Russia via London," he said.
Alexei Denisov, first deputy chairman of Sobinbank, said a good location is not enough in a competition against global players.
"We must know what products VTB will offer and with which clients it will work to be able to judge VTB plans for competing with global banks," he said. "As of now, it is unclear why clients, even Russian ones, should choose VTB rather than Morgan Stanley or Goldman Sachs."
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