MOSCOW, December 20 (RIA Novosti) Russia will have to recognize Kosovo's independence / Medvedev forges ahead but fails to win in first round / Russia pays for Caspian project by agreeing to higher Central Asian gas price / Russian diamond giant to search for oil and gas in Angola / Steel giant expands its forest products business / PwC will audit Russian Central Bank's financial report for 2007
Nezavisimaya Gazeta, Vremya Novostei
Russia will have to recognize Kosovo's independence
Russia insists that Belgrade and Pristina should continue negotiations until they find a compromise on the status of Kosovo. Experts say foreign policy consequences may be dramatic if Kosovo unilaterally proclaims its independence.
Alla Yazkova, head of the Mediterranean and Black Sea center at the Institute of Europe of the Russian Academy of Sciences, said the current illegitimate attempt to sever 15% of territory from Serbia reminded her of the 1938 Munich agreements, which allowed Germany to take over part of Czechoslovakia, an act condoned by Britain and France.
The expert said the supporters of Kosovo's independence should know that proclaiming independence before the presidential elections in Serbia in January or February next year is likely to bring to power Serbian nationalist Tomislav Nikolic and provoke armed resistance.
Borislav Milosevic, former Yugoslav ambassador to Russia and a brother of the late President Slobodan Milosevic, said: "The tactics of Western powers regarding Kosovo's status rests on reliance on their presidential candidate, Boris Tadic."
The protocol of Serbia's association with the European Union, to be signed on January 28, 2008, should become the carrot for the Serbian advocates of European integration.
Alexander Rahr, program director for Russian and CIS affairs at the German Council on Foreign Relations, said: "A UN Security Council resolution approving Kosovo's independence is not realistic. At the best, Russia could abstain. But many countries will recognize Pristina after it proclaims independence. The United States will do this on the same day. The problem will undermine the common foreign and defense policy of the European Union, just like the invasion of Iraq in 2003 did, weakening the EU."
According to the German expert, "failure to approve the Security Council resolution on Kosovo will not seriously affect relations between Russia and the West. Who has recognized North Cyprus and Taiwan? Who recognized East Germany in the 1950s and 1960s? Raging passions did not prevent the West from maintaining relations with East Germany."
Rahr believes that "Russia and several other countries will not recognize Kosovo's independence for several years. The EU will eventually recognize it, and Russia will do the same in about 10 years, when Kosovo joins the EU."
Vedomosti
Medvedev forges ahead but fails to win in first round
If a presidential election were held this Sunday, 45% of those surveyed would vote for Dmitry Medvedev. This is 5% less than the level of support Vladimir Putin had in December 1999, according to the VTsIOM public opinion agency.
The survey was taken five days after Medvedev's nomination, on December 15-16, among 1,600 people in 153 towns and villages. The statistical margin of error does not exceed 3.4%.
The president's choice of successor at once surged ahead of his rivals by several dozen percentage points. Vladimir Zhirinovsky (LDPR) and Gennady Zyuganov (Russian Communist Party) each gained 5%, and Boris Nemtsov (SPS) received 1%. Vladimir Bukovsky and Mikhail Kasyanov had zero ratings.
VTsIOM general director Valery Fedorov put Medvedev's advantage down to several reasons: "He is young and energetic, his business profile is in social affairs, and as distinct from other government members, he is not disliked by Russians, as is for example Mikhail Zurabov, a former health minister."
Medvedev has the support of 61% of United Russia supporters, 46% of A Just Russia followers, and 18% of Communists.
Such support for a "social deputy prime minister" is not accidental. The party of power has many public sector workers among its voters, while the main program platform of A Just Russia is a "socially oriented state", according to Fedorov.
Medvedev cannot yet win in a first round. But this situation will not last long, Fedorov said. That Medvedev is Putin's protege became known just over a week ago.
Besides, people are tired of elections and do not want to hear of politics ahead of the New Year.
One third of those polled could not decide on anyone, with another 8% saying they would not vote.
Fedorov's prediction is: Russian backing for Medvedev will start rising in mid-January 2008 and his victory in the first round will depend on turnout: it is realistic for as many people to turn out for the presidential vote as did for the parliamentary elections (63.78%).
The turnout at Putin's first election in 2000 was 68.7%.
A Medvedev win in the first round is possible, said Mikhail Vinogradov, general director of the Center for Current Politics, although his starting rating is entirely a projection of Putin's rating.
Kommersant
Russia pays for Caspian project by agreeing to higher Central Asian gas price
On December 20, Russia and Kazakhstan will sign an agreement on the construction of a Caspian gas pipeline from Turkmenistan to Russia. The pipeline will make it possible to increase Central Asia's gas export capacity to Europe from 55 billion to 75-85 billion cubic meters. Russia has managed to ensure Kazakhstan and Turkmenistan's participation in the project only by agreeing to a 15%-40% rise in their gas export prices in 2008.
Kazakhstan's energy ministry said Russia and Kazakhstan would have equal shares in the operator of the project and Turkmenistan would hold a minority stake.
According to Russian gas giant Gazprom's data, the gas pipeline's capacity will be 20 billion cubic meters. A source in the Kazakh government said that initially the sides were negotiating the pipeline's capacity of 30 billion cubic meters. However, they have not yet agreed on the volume of long-term gas supplies, while the capacity of 20 billion cubic meters guarantees at least minimum profitability rates.
The agreement, which should have been drafted by September 1, has taken nearly four extra months to prepare. Konstantin Cherepanov, an analyst at KIT Finance investment bank, said the delay was caused by the Central Asian countries' demand to raise purchasing prices.
"In November, Turkmenistan raised gas prices for Gazprom from $100 to $130 per 1,000 cubic meters for the first half of 2008 and to $150 for the second half of the year, while Kazakhstan's officials declared their intention to raise gas prices from $165 to $190. Gazprom will agree to this and it will be Russia's 100% payment for the Caspian gas pipeline," Cherepanov said.
In his opinion, Central Asian countries have a better understanding now of their place on the world's energy map, so they will continue to exploit the confrontation between the United States, the European Union and Russia. "While they are with us, they will demand further concessions for their compliant behavior. Otherwise, they will give us up in a critical situation."
According to the last press release of the Kazakh energy ministry, the guests will raise two more issues at Vladimir Putin's meeting with Kazakh President Nursultan Nazarbayev on December 20 - a rise in tariffs for the transit of Turkmen and Uzbek gas via Kazakhstan from $1.1 to $1.5-1.85 per 1,000 cubic meters/100 km.
In the opinion of all polled experts, the construction of the Caspian gas pipeline is unlikely to take the alternative gas pipeline projects off the agenda, because the EU's requirements for gas imports will grow to 600 billion cubic meters by 2030.
Business & Financial Markets
Russian diamond giant to search for oil and gas in Angola
On Wednesday, a consortium established by Russia's largest diamond producer Alrosa, Sonangol and Dark Oil of Angola received an oil and gas prospecting license.
Analysts said Alrosa would also involve energy giant Gazprom in the new project.
The license is for blocks in the Lower Congo and Upper Kwanza districts, between the Etosha, Okavango and Kassanje basins, as well as on the country's continental shelf, Alrosa said in a press release.
Analysts put Angola's annual oil production at about 100,000 metric tons.
In 2005 Alrosa, which mines 97% of Russian diamonds and accounts for 25% of global diamond production, bought controlling stakes in oil and gas holding company Sakhaneftegaz (50.3%) and exploration company Yakutskgeofizika (75% plus one share), both in the Yakutia Republic in Eastern Siberia.
In late 2006, the diamond monopoly obtained control over the Alrosa Gas company.
The purchase of non-core assets providing uninterrupted heat and energy supplies to diamond deposits is reportedly a key to diversification. However, analysts told the paper off the record that Alrosa planned to sell the assets to Gazprom.
The media said both companies wanted to establish a joint venture comprising Alrosa's gas assets and several Gazprom divisions by late 2007, and that it would launch prospecting operations and develop gas fields next year.
Nikolai Androsov, director of the business restructuring department at independent consulting group 2K Audit - Business Consulting, said Alrosa had received a license desired by many monopolies, that it could share assets with some of them in exchange for projects in Russia, and that Gazprom could become the main partner.
Bank of Moscow analyst Dmitry Skvortsov said Alrosa would cooperate with Gazprom, and that it was trying to ensure maximum possible business diversification.
He said Mechel, one of Russia's leading mining and metals companies, had defeated Alrosa in a recent tender for the sale of coal deposits in Yakutia.
Skvortsov said Alrosa would most likely team up with an oil and gas company having the required technologies in order to implement the Angolan project.
Gazeta.ru
Steel giant expands its forest products business
Finland's UPM-Kymmene, one of the world's largest timber corporations and leading global magazine paper maker, and Sveza, a company controlled by Severstal owner Russian billionaire Alexei Mordashov, will set up a joint venture in Vologda, investing $1.44 billion.
The two companies will build a timber processing plant, comprising a pulp mill (with planned capacity of 800,000 metric tons), a lumber mill (300,000 cubic meters) and a wood-based panel factory (450,000 cubic meters).
Mordashov has come forward with the idea of establishing a so-called public-private partnership with all financing divided into two groups: all investment in production will come from the venture partners, while money for infrastructure development is expected to be raised from the Investment Fund.
For the Finnish company, which has been in the Russian market for 14 years now, the joint venture will offer a way of avoiding increasing export duties on unprocessed timber, which have risen from 6.5% to 20% since July 1.
Starting on April 1, 2008, duty will hit 25% (no less than 15 euros per cubic meter) and on January 1, 2009, 80%.
"The underlying idea of export duties is to attract investment so that plants that are able to turn out products with increased added value could be built in Russia," said Anastasia Kopylova, an analyst with the Lesprom agency.
Sveza, in turn, is getting from UPM the popular brand of a partner that knows the Russian market and can share its experience, management knowhow and well-oiled outlets, Kopylova said.
The UPM-Sveza project will be one of the largest in the industry.
Other projects include a plant in the Tomsk Region to be built by China's Henda-Sibir company (80,000 cubic meters of plywood, 400,000 cubic meters of board, and pulp, with $1.6 billion in investment and 2016 as the deadline).
Finland's Stora Enso is planning a pulp and paper mill in the Nizhny Novgorod Region at a cost of about 1 billion euros.
The Ilim Group will build a pulp, paper and paperboard mill for $1.5 billion in the Arkhangelsk Region in 2012.
Estonian Pulp, a joint Norwegian-Estonian venture, has announced plans to build a plant in the Pskov Region to produce 600,000 metric tons of pulp and 450,000 tons of paperboard, with investment estimated at 800 million euros.
Vedomosti
PwC will audit Russian Central Bank's financial report for 2007
Despite complaints about its operations, PricewaterhouseCoopers Audit has won a joint tender with Financial and Accounting Consultants (FBK) to audit the Russian Central Bank's 2007 financial report prepared according to Russian Accounting Standards.
Deloitte & Touche CIS finished second in the tender.
The company to audit its financial report according to International Financial Reporting Standards (IFRS) will be chosen by the bank's board of directors. PwC has done the job for the last three years. The Russian Audit Chamber inspects the accounts covered by the law on state secrets.
The PwC and FBK tandem has won all the Central Bank audit tenders since 2003, when the rule prohibiting one company to audit the bank for more than three years in a row was enforced.
PwC is currently involved in a lawsuit initiated by the Moscow department of the Russian Tax Service, which claims that it owes the Russian treasury 290 million rubles ($11.73 million at the current exchange rate) in taxes, fines and penalties.
In another lawsuit, tax inspectors want the court to recognize as illegal PwC's 2002-2004 contracts to audit Yukos, declared bankrupt in August 2006, and to transfer 16.8 million rubles ($679,600) of its earnings under the contracts to the federal budget.
The Central Bank's National Banking Council (NBC) was not impressed by the results of a PwC inspection made by the Finance Ministry at the request of the tax service.
Leonid Shneidman, department head at the Finance Ministry, said inspections should not influence the choice of an auditor unless otherwise stipulated in the rules of the audited organization.
There is no such rule in the Central Bank, said Pavel Medvedev, a member of parliament and the NBC, adding that the only obstacle was license suspension or revocation. Even if a company loses a lawsuit, it will still be able to audit financial reports.
Agvan Mikaelyan, director general of FinExpertise, a company that took part in previous tenders, said PwC's victory shows that the complaints have not undermined its reputation, although winning a tender does not guarantee winning a lawsuit.
The Central Bank is quite comfortable with the PwC, which has good working relations with the IFRS London Committee and helps the bank to quickly get consultations with the committee, said a PwC spokesman.
PwC, FBK and the Central Bank refused to say how much the contract is worth. According to a PwC employee, this is a status project, and so the price is comparable to the prime cost.
Market players who attend such tenders say PwC's contract to audit the Central Bank costs $200,000-$250,000.
"We wanted several times more," one of them said. An auditor from another company said such audits cost $2.5-$3 million.
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