MOSCOW, August 4 (RIA Novosti) South Ossetia teeters on the brink of war / Russian military sees growing superiority of leading Western countries as main threat / Cuba rejects Russia's military aid / The Kremlin promises to crack down on corruption / Sibur's deal postponed due to foreign investment law / Russian consortium buys into Canadian gold producer
Vremya Novostei, Nezavisimaya Gazeta, Novye Izvestia
South Ossetia teeters on the brink of war
Late last week saw the biggest clashes in the Georgia-Ossetia conflict zone in the past four years. The authorities in South Ossetia report they have started the evacuation of civilians, in the first place children, to safe areas inside South Ossetia and to North Ossetia, which is part of Russia.
For the second time in a month the unrecognized republic has declared total mobilization of army reservists and issued a call for volunteers "from all over the North Caucasus."
"On Saturday night it was a real slaughter-house here," a woman from the South Ossetian capital told Novye Izvestia.
According to Nezavisimaya Gazeta, only secret contacts between Russian and Georgian diplomats have so far prevented large-scale hostilities in South Ossetia.
"Contacts between Russian and Georgian diplomats took place yesterday evening, the result was a calm night today," a competent source told Nezavisimaya Gazeta on Sunday. "The contacts were initiated by the Georgians, who asked [Moscow] to persuade Tskhinvali to show a maximum of restraint. Apparently this has been done."
Georgian Reintegration Minister Temuri Yakobashvili believes that the rebel region wants to drag Georgia into a military conflict. In response, official Tskhinvali invites its opponents to negotiate within the Joint Control Commission (JCC), the only internationally recognized civilian organization in the conflict zone, which consists of four chairmen from Russia, Georgia and the two Ossetias.
The Russian Foreign Ministry is pressing for a resumption of talks "in the JCC format," because "scenarios with the use of force would dash any hopes for the settlement of the Georgia-Ossetia conflict."
However, Vremya Novostei believes that calling for negotiations within the JCC format in August 2008 is strange to say the least because Georgia officially announced its withdrawal from the JCC back in March, saying that it did not accept a format in which it had only one vote against three opposing votes. In exchange Georgia proposes the "2+2+2" format: Russia plus Georgia, the Tskhinvali authorities plus the authorities of the Georgian enclaves in South Ossetia, the European Union plus the OSCE.
That option does not suit Moscow and Tskhinvali. Moscow is happy with the present format as an instrument to bring pressure on Tbilisi, whose eagerness to join NATO irritates the Kremlin. And the regime of Eduard Kokoita, for whom Moscow appears to have some serious questions regarding the spending of the money allocated for the development of the unrecognized republic, risks being left with no way to survive if there is progress in the negotiations.
Vedomosti
Russian military sees growing superiority of leading Western countries as main threat
The Russian Defense Ministry believes that in 2030 the world will have only one superpower, the United States. The most Russia can do is to stop its technical lag behind other armies and the least is to preserve military conscription.
In 2030 the U.S. will remain the sole superpower while NATO will make a bid to attain the status of the only organization in the world with discretionary powers to use force. The forecast is contained in the draft concept of the development of the Russian armed forces to the year 2030 from which news agencies published extracts on Friday.
The deployment of the U.S. antimissile defense, putting weapons in space and creation of new types of armaments such as aerospace intercontinental-range complexes are named as some of the biggest security threats to Russia.
The authors of the concept believe that to neutralize them Russia needs modern strategic nuclear forces as well as conventional forces. It is to maintain the strength of the latter that army conscription will be preserved until 2030. The document recognizes the growing technical lag of the Russian Army behind those of advanced countries and urges the need to bridge the gap.
An officer with the Defense Ministry has confirmed that all these theses are contained in the concept, which is to be approved and published within the coming weeks. It is needed to explain to society the underlying logic of military development, he said.
As distinct from previous doctrines, with their vague talk about a multipolar world or the fight against terror, the new theses are more concrete and sensible, thinks Mikhail Barabanov, the science editor of "Arms Export" (Eksport vooruzheniy) magazine.
The U.S. will do everything it can to preserve its hegemony in the world, according to Alexander Rahr, an expert at the German Council on Foreign Relations, but the fate of NATO hinges on the outcome of the Afghanistan operation: if that fails it will mean the end of the alliance.
The official admission of our technical lag is to be welcomed, says Konstantin Makiyenko, an analyst with the Russian Center for Strategic and Technological Analysis. The next step is to clearly understand that Russia is a second-rate power and its spending on its army should be comparable to that of France, 15 billion euros a year (in 2008 it stands at 340 billion rubles, i.e. less than 10 billion euros).
Novye Izvestia
Cuba rejects Russia's military aid
Cuba is no longer inclined to cooperate with the Russian military after Moscow suddenly closed its radar base at Lourdes in 2001, a high-ranking Cuban diplomat told Russian news agencies on Saturday.
It looks as though the visit by Russia's Security Council head Nikolai Patrushev to Havana did not live up to hopes. America is for Cuba more important today.
Patrushev's meetings with the Cuban leadership (on July 30-31) were supposed to have shown that Cuba, Russia's traditional economic partner, remained its ally on all security matters. But when the talks wound up, no agreements followed in the military field.
The Cuban spokesman said his country's top leadership felt "hurt" when Russia decided to close the radar installations in 2001 without consulting or cooperating with Havana. "We were simply ignored," he said. The Cubans are unlikely to be pleased now either, when Russian politicians have begun discussing the deployment of Russian military hardware in Cuba, again ignoring the opinion of the Island of Freedom.
When Raul Castro, soon after taking over from his brother Fidel, made it plain that Cuba was ready to talk with the United States, it became clear Havana had changed its tack and was unwilling to continue military cooperation with Moscow. This came as a surprise to Moscow, because only two weeks previously it was rumored that in response to an American anti-missile shield in the Czech Republic and Poland, Russia could establish bases for Tu-160 and Tu-195 strategic nuclear bombers in Cuba.
Meanwhile, Russia could benefit from economic cooperation with Cuba.
Leonid Grigoryev, president of the Institute of Energy and Finance in Moscow, believes that the two countries have enormous potential for cooperation. What Moscow needs to do is change its priorities. "Russian tourists, not missiles, should go to Cuba," he said. "Europe is sated with our tourists? Then we should build hotels in Cuba. Castro is planning privatization? We should join in. The scope for economic development is enormous, but if we behave as strangely as we are currently behaving, the United States could easily overtake us."
RBÑ Daily
The Kremlin promises to crack down on corruption
Lobbying, which used to be regarded as semi-criminal in Russia, will be legitimized. The initiative was announced last week by the Kremlin, which published a long-anticipated plan to combat corruption.
Market players are skeptical over the effectiveness of such a law, and believe businesses will still need an informal middleman who could be sent into the corridors of power "with a suitcase full of money."
Attempts to civilize lobbying practice have been made several times in Russia's recent history. The first law on regulating lobbying was drafted by the State Duma in the early 1990s, but it never went further than the first reading. The lobbying theme again cropped up in 2003 when Yukos contemplated the possibility of official financing of political parties.
"Our bill, of course, had no chance of being passed because it was directed against bribe-taking by bureaucrats and, for that matter, deputies themselves," says Boris Nemtsov, one of the drafters of the lobbyism bill, former deputy of the State Duma and leader of the SPS (Union of Right Forces) party.
Market players support the law, but they have no illusions about its effectiveness. "Bringing the opinion of the industry to the government is no problem today, it listens to us, but nobody is obliged to react to our proposals and coordinate the interests of the producer, consumer and the state," says Alexei Kim, director of the corporate relations department at the Phillip Morris group of companies.
In the opinion of Sergei Frolov, director general of Korona K, active in the gambling business, legalized lobbyism will give the government officials an extra chance to line their pockets by issuing lobbying licenses.
"An official lobbyist who has obtained a license won't get anywhere because the final say will still be with the person who comes to a government office with a suitcase full of money, figuratively speaking," says Frolov.
Lobbyism today is such a diversified sphere of activities that it is very difficult to define in a law what is lobbyism and what is not," says Yevgeny Minchenko, director of the International Institute of Political Analysis.
Another problem is the peculiar format of interaction between government and business in Russia. If, in the wake of the adoption of the law on lobbyism, specialized offices similar to those of lawyers spring up, the idea will be a non-starter.
"The situation is such that those who supervise business in the executive and legislative branches prefer to deal with number ones", says Alexander Shokhin, the head of the Russian Union of Industrialists and Entrepreneurs, an association of major businessmen.
Kommersant
Sibur's deal postponed due to foreign investment law
A transaction under which managers of Sibur, Russia's largest petrochemicals company, are to buy out a 51% stake, has been put off.
The company buying the stake on behalf of the management is the Cyprus-registered Hidron Holdings, whereas six of Sibur's enterprises cannot be sold to foreign investors according to legislation on foreign investment. Moreover, there is no approved procedure for coordinating such transactions.
Sibur managers hope to use the delay to improve the financial aspects of the transaction.
Under the law signed by the president on May 5, 2008, a foreign company must coordinate planned acquisitions of stakes in Russian companies of strategic importance for the economy with authorities.
A source close to the details of the planned transaction said Sibur is not a strategic company but six of its subsidiaries are. One of them is Sibur Tyumengaz, the tariffs for one of whose gas pipelines are approved by the government. Another one is Tomskneftekhim, whose gauging equipment is based on defense technology.
Hidron signed a preliminary agreement with Gazprombank, one of Russia's three largest banks, on the acquisition of 50% plus one share in Sibur for 53.5 billion rubles ($2.26 billion) a month before the approval of the law, but failed to close the deal. Now Sibur's managers will have to coordinate it with a special government commission.
Andrei Zelenin, a managing partner in the Lidings law firm, said there is no legal procedure for applying the above law. "Sibur may be the first company to experience the effects of the law," he said. "The decision will create a precedent."
Zelenin said the authors of the law had failed to exclude foreign companies with Russian beneficiaries from the law either through an oversight or on purpose, to cut the number of offshore companies in the Russian economy.
A source in Sibur said: "The delay has allowed making the deal more beneficial to the managers by cutting financing."
Vitaly Kryukov, an analyst with the Capital Investment Group, said coordination of the transaction might take long, so it would be better for Sibur to exclude said assets from the transaction or re-register Hidron in Russia.
Yury Volov of the Bank of Moscow disagrees with this opinion: "It would be unwise to remove Hidron from the offshore zone, where Sibur operates according to international law and can easily attract funds."
The analyst said it is fairly difficult to attract funds in the current situation and so the delay can indeed simplify financing.
Vedomosti
Russian consortium buys into Canadian gold producer
Veromart Securities Inc., an indirect wholly owned subsidiary of Alfa Group, has signed a strategic investment agreement with High River Gold Mines Ltd.
Alfa Group is one of Russia's largest privately owned financial-industrial consortiums.
The Canadian company has issued up to 160 million common shares in two tranches for the transaction, which Alfa Group will buy out to become the High River's largest shareholder (32%). The second largest beneficiary is Sprott Asset Management, with approximately 10%, said Dan Hrushewsky, High River's vice president for investor relations.
Alfa Group will pay $286.4 million for the transaction, to be closed in two tranches, with $134.3 million paid for an 18% stake on August 29. Tranche 2, to close on or before December 15, 2008, is subject to shareholder approval.
High River is an unhedged gold company with assets in Burkina Faso and in the Siberian republic Buryatia. It owns an 82.87% stake in Buryatzoloto. The Berezitovy Gold Mine in the Amur Region in Russia's Far East is expected to achieve commercial production shortly.
Hrushewsky said partnership with Alfa Group would allow High River to develop its projects in Russia and other regions. It particular, it will use the resources raised from the transaction to advance the Prognoz Silver Project in Yakutia, one of the world's five largest silver deposits with C2 reserves estimated at 71.5 million ounces.
High River controls a 50% stake in the mine through Buryatzoloto. On July 31, it agreed to buy the remaining 50% from Argentum, paying for the acquisition with its shares and repayment of a $70-million debt.
Alexei Mikhailovsky, CEO of United Gold Company, the precious metal mining arm of Alfa Group, said the group's investment in High River was a strategic move.
The group owns a 19.5% stake in Canada's Silver Bear Resources, which is conducting exploration at the Mangazeiskoye deposit next to the Prognoz project.
Mikhailovsky said this is a solid foundation for the two companies' synergy and that High River has a major growth potential. So far, it is the fifth largest gold producer in Russia.
When the deal was announced, High River was valued $432.9 million, which means that a 32% stake in it costs $132 million.
Pavel Shelekhov, an analyst at Capital Investment Group, said Alfa Group is buying the stake at a large premium because of the promising situation on the commodities market, where an ounce of gold currently costs as much as $900.
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