MOSCOW, July 17 (RIA Novosti)
Moody's upgrades Russia and several Russian companies/ Investigators prohibited from selling material evidence/ Belarus not honoring contract terms with Gazprom/ Space is ruining Russia/ Magnitka finds partners in Czech Republic
Vedomosti
Moody's upgrades Russia and several Russian companies
Moody's Investors Service has upgraded Russia's government bond ratings and country ceiling for foreign currency deposits to Baa1 from Baa2.
It assigned a positive outlook to all of these ratings, as well as the A2 country ceiling for foreign currency bonds, the highest rating Russian corporate bonds can have. The A1 country ceilings for local-currency bonds and deposits were affirmed with a stable outlook.
Moody's previous rating for Russia was the same as for Barbados, Kazakhstan and Tunisia. Now Russia has joined the group comprising Mexico, South Africa and Thailand. Hopefully, the next upgrade will team it with the Bahamas and Malaysia.
Moody's new rating for Russia now matches the country's sovereign ratings from Standard & Poor's and Fitch Ratings (BBB+).
Vice President Jonathan Schiffer, Moody's lead sovereign analyst for Russia, said the upgrade reflects the increased budget surplus and reduced foreign debt. "Even if one includes the debt of quasi-sovereign corporations, the public debt is highly affordable," he said.
Schiffer also predicts that President Medvedev will continue, if not improve upon, the macroeconomic policy framework of former President Putin. He said Russian political risk had diminished with this smooth transition.
Another factor in Moody's upgrade was the shift towards greater economic diversification, driven by surging domestic demand and investment outside of the hydrocarbons sector.
The agency also upgraded to sovereign the ratings of six state-controlled banks (Sberbank, VTB, VTB NorthWest, VTB24, Rosselkhozbank and Vnesheconombank), two quasi-state banks (Gazprombank and Bank of Moscow), and two subsidiaries of foreign banks (Raiffeisenbank and DeltaCredit).
Ivan Polikanov from Gazenergoprombank said: "They have the same rating from other agencies, and therefore Moody's upgrade will not increase the limits of their international funds."
Moody's also changed the outlook for Gazprom and Russian Railways from stable to positive.
Kommersant
Investigators prohibited from selling material evidence
The Russian Constitutional Court yesterday invalidated the clause in the Code of Criminal Procedure that allows investigators to sell items seized as evidence in criminal investigations and cases.
This should put an end to a scheme by the Russian Federal Property Fund (RFFI) in which investigators allegedly confiscated items using far-fetched pretexts and sold them later through a chain of intermediary firms.
The Russian business community hopes this decision will speed up the adoption of a law to combat commodity raiding submitted to the State Duma, the lower house of Russia's parliament, in March 2007.
The Constitutional Court took the decision following a complaint filed by Vladimir Kostylev, whose helicopter was confiscated in November 2005 as material evidence in a smuggling case.
Though Kostylev was not a defendant in the case, the Moscow-Smolensk Transport Prosecutor Office said the helicopter was material evidence and turned down Kostylev's appeal to let him keep it in "responsible storage." In June 2006, the helicopter was turned over to the RFFI for sale.
The court rejected Kostylev's complaint against the investigator. Moreover, the businessman did not receive any compensation for the loss of his helicopter.
Formally, the investigators did not violate the law when they decided to sell the helicopter. Article 82 of the Code of Criminal Procedure allows investigators to take decisions on selling items seized as material evidence whose storage is complicated or too expensive.
It is this provision that Kostylev has contested in the Constitutional Court.
The court decision says that Subclause C of the above article, which allows the confiscation of property before the court's verdict comes into force, contradicts the Constitution. It also ruled that property can only temporarily be confiscated without a court ruling, which does not mean terminating the owners the right of ownership.
The Constitutional Court's decision has closed a loophole in legislation that allowed commodity raiding, businessmen say.
Under the RFFI scheme, investigators used any criminal case on smuggling to claim that items allegedly used in the case are being stored in the victim's company warehouse. On this basis the property is subsequently declared to be material evidence in the case and moved to a warehouse accredited with the RFFI.
Once this has been done, the head of the storage company notifies the investigators that he can no longer store the seized evidence, citing a lack of storage space, and the investigator completes the authorization for its sale. The items are then sold at least 10% their purchasing price to an intermediary company.
One of the most well-known cases was the confiscation of 167,500 cell phones from Euroset, Russia's biggest cell phone retailer, in March 2006. The investigators claimed the phones violated safety norms and later sold part of the batch.
Sergei Tsybakov, managing director of the Components and Systems group of companies that supply industrial technology and equipment made by leading world producers, said: "The scheme has been terrorizing the market for five years. Computer equipment worth about $10 million at purchasing prices was confiscated from our warehouse under a far-fetched pretext, and later the RFFI assessor valued it at 42 million rubles ($1.8 million)."
Tsybakov said they had received any compensation for the confiscated property.
Anton Guskov, PR director of the Russian association of companies producing and marketing household electronics and computers (RATEK), said: "There are many more such examples. They confiscate cell phones, computers, yachts, clothes, and what not. According to our calculations, total losses sustained by businesses and reduced profit for the state exceed $10 billion."
Market players earlier said that confiscated property worth over $100 million was sold annually in Moscow in 2005-2006.
Nikolai Komlev, managing director of the AP KIT association of IT companies, said the Constitutional Court's decision should speed up the approval of the law on combating property raiding.
He said the law, drafted with the assistance of RATEK and AP KIT and submitted to parliament in March 2007, was not even discussed in the first reading.
MP Vladimir Pligin, a co-author of the law, said the first reading of the law should be held in September 2008.
"I am glad the Constitutional Court has taken this decision," he said. "But it covers only one type of abuse, whereas the bill my colleagues and I had submitted to parliament provides for a series of amendments aimed at combating property raiding."
In particular, investigators should lose the right to take decisions to sell seized evidence without authorization by the court, and criminal responsibility must be introduced for property valuators.
Vremya Novostei
Belarus not honoring contract terms with Gazprom
Russian energy giant Gazprom is threatening Minsk with legal action if its Beltransgaz company continues to violate its contractual obligations.
Yesterday, Alexander Ananenkov, Gazprom deputy chairman, and Vladimir Mayorov, Beltransgaz general director, had a working meeting in Moscow. After the meeting the Russian company for the first time publicly announced that the Belarusian side was not paying the full price for current deliveries from Russia. Ananenkov told the visiting official that if Beltransgaz were to continue breaching the terms of the existing contract, Gazprom "will exercise its right to go to law."
The Belarusian company is continuing to pay at the rate of $119 per thousand cu m (as was the case in the first quarter), although the contract price has risen to $127.3 since April 1. It is not even that $30 to $40 million is in arrears (so much has accumulated in three months). The Russian company is interested in making Minsk abide by the terms, because this is the first major long-term contract with a CIS country, with the gas price calculated according to a formula pegged to European prices. Under this contract, the next time the price is due to change is January 1, 2009, and then the fuel for Beltransgaz will practically double to follow European prices.
The Belarusian side is arguing that it has not signed any additional agreement on prices with Gazprom. It is not embarrassed that the mechanism and reviewing conditions are spelled out in the basic contract.
Within minutes of 2006 coming to an end Gazprom CEO Alexei Miller and Belarusian Deputy Prime Minister Vladimir Semashko signed a raft of documents, including a "long-term" contract for the supply of 21.5 billion cu m of gas to Belarus annually - the first in the history of the two countries.
The contract stipulated that in 2007 the gas price would be fixed at $100 per thousand cu m, and beginning on January 1, 2008 would be calculated according to a formula similar to the one used in Gazprom's European contracts. Belarus has a customs agreement with Russia, and gas supplied to the republic is not subject to custom duties. Also, the contract includes a set of reducing coefficients: 0.67 for 2008, 0.8 for 2009, and 0.9 for 2010. In 2011, Belarus, like Russia's other industrial consumers, will reach a price level giving Russia the same profits as European supplies, Gazprom said.
Ananenkov told Mayorov that from the start of 2008 the gas price for the republic is calculated according to a formula which is "most suitable" for Gazprom deliveries to CIS countries and Europe. Apart from this year's 33% cut, some additional breaks were given to Beltransgaz. First, beginning on January 1, the price was calculated at a scenario of European gas prices of $260 per thousand cu m, and not $320 (as was the case). That method resulted in $119. From April 1, it could have risen by 7% at the most, up to $127.3, although in Europe its size was approaching $400.
No such breaks are envisaged for the next year, and Minsk has nothing to look to apart from a 20% discount (and absence of any export duties). Considering that the average price of Russian gas in Europe, as Miller forecast, is expected to reach $500 by the end of this year, the situation for Belarus could become dramatic. Rough estimates show that from January 1, 2009 the contract price for Beltransgaz will more than double to $260-270 per thousand cu m. Minsk has already said that it is not going to buy gas at more than $140, and has already penciled in this price in the next year's budget statement.
That is perhaps the reason why Gazprom is threatening to start court proceedings. The five-year gas delivery contract signed between the Russian and Belarusian companies states that disputes between the parties shall be solved in an arbitration court in Moscow. It is understandable, however, that Beltransgaz is unlikely to be forced to follow the court's decisions. And this threat is only a demonstration of Gazprom's adherence to the civilized methods of conflict resolution (as spelled out in the contract). But if the Belarusian authorities persist, Gazprom will perhaps have to enforce its tried and tested means - that of cutting gas supplies. The effectiveness of this tool grows as the fall and the heating season come nearer.
Nezavisimaya Gazeta
Space is ruining Russia
It turns out that the epic Soviet and Russian space programs are both loss-making and ineffective. The Audit Chamber said in a recently published bulletin that space industry companies were channeling profits into offshore tax havens.
The Audit Chamber also criticized the highly corrupt state procurement system and customs authorities who are unable to combat lower-than-market commodity prices leading to reduced tax-and-duty proceeds.
Industry analysts disagreed with Audit Chamber findings and said it merely wanted to get in on President Dmitry Medvedev's anti-corruption drive.
"Despite the multi-billion dollar turnover of foreign companies established by Russian space industry companies, the country does not receive any proceeds from their operations," the Audit Chamber said.
According to its experts, all the profits remain abroad, causing the space industry, a global technology donor, to totter on the verge of loss making.
In March, the Economic Development Ministry mentioned the space industry's unimpressive labor productivity, which is dozens of times lower than that of the European Union and the United States.
The ministry estimated annual per capita output at $14,800, while the respective EU and U.S. output totaled $126,800 and $493,500, respectively. Consequently, U.S. labor productivity in the space industry exceeds that in Russia by 33.3 times. (See Nezavisimaya Gazeta's March 28, 2008 issue).
The Audit Chamber criticized the Khrunichev State Research and Production Center for squandering government funding and for its failure to profit from commercial launches.
"A study of commercial Proton rocket launch contracts signed by the Khrunichev Center has revealed that some of them are more expensive than the income they generate," the Audit Chamber said.
It said the Khrunichev Center's corporate losses stood at 1.75 billion rubles ($68 million) and during the launch of Rokot vehicles at 655 million rubles ($25 million).
Space industry analysts disagreed and said they had never seen such statistics before. Sergei Zhukov, general director of the Russian Space Agency's Center for Technology Transfer, said he knew nothing about the Audit Chamber study.
"Although launch costs soared last year, sky-high profits are now history," Zhukov told the paper. Zhukov said he doubted whether contract prices fell below production costs.
An expert from a major Russian spacecraft developer said on condition of anonymity that the national space industry owed its low commercial-launch profitability to the shrinking global launch services market.
He said neither the European Space Agency with its Ariane launch vehicle, nor Chinese companies could boast better achievements and higher profits today, and that different profit estimates depended on the cost break-down.
The expert said such commercial projects did not incur direct losses, but that even zero profits enabled the industry and its personnel to operate at maximum capacity.
Rossiiskaya Gazeta
Magnitka finds partners in Czech Republic
The Magnitogorsky metallurgical plant (Magnitka) in the Chelyabinsk Region has chosen a strategic partner for construction of a mining and concentration complex (MCC) at the Prioskolskoe iron ore field in the Belgorod Region. The ALTA company from the Czech Republic will be the primary contractor, developing a financial plan for the project construction and supplying the necessary equipment.
The signing ceremony of the memorandum of strategic partnership with ALTA was held in Prague on Tuesday. The event was announced by Magnitogorsky plant CEO Viktor Rashnikov, ALTA President Vladimir Plashil, Czech Prime Minister Miroslav Topolanek, and Industry and Trade Minister Martin Riman. In addition to the memorandum, a framework contract for equipment and service delivery for the initial works for 200 million euros by ALTA was signed.
In November 2006, Magnitka won the tender for the development of the Prioskolskoe iron ore field (reserves estimated at 2 billion metric tons) at the Kursk magnetic anomaly. In January 2008, a Magnitka branch, the Prioskolsky MCC, was established in the Belgorod Region, and a contract for planning works signed with the TsentrGiproRuda design institute. Construction of infrastructure is due to begin in 2009. Iron ore mining is expected to begin in 2012. The enterprise is expected to reach production capacity of at least 25 million metric tons in 2016.
Magnitka managers say Czech ALTA has extensive experience in project implementation with long-term concessionary funding in mining and other industries. The Czech Export Guarantee and Insurance Corporation (EGAP), Export Bank and a few commercial banks have shown interest in developing the Prioskolskoe iron ore deposit.
Viktor Rashnikov commented on the memorandum signing: "Choosing the strategic partner for construction of the Prioskolsky MCC is another step in Magnitka's strategy to expand our reserves." This project will allow Magnitka to satisfy the need for iron ore in the next 60 years.
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