What the Russian papers say


MOSCOW, October 23 (RIA Novosti)
Russian, U.S. military chiefs to resume dialogue / Crisis forces Belarus to turn to the West / Russia might join OPEC if gas cartel idea is supported / Thailand chooses Russian helicopters over American / Overseas auto component producers get green light to reopen / Central Bank brings capital back to Russia

RBC Daily, Nezavisimaya Gazeta

Russian, U.S. military chiefs to resume dialogue

The Finnish capital Helsinki on Tuesday played host to private talks between Russian and U.S. military chiefs. The meeting between General Nikolai Makarov, chief of the General Staff of the Russian Armed Forces, and Admiral Michael Mullen, chairman of the U.S. Joint Chiefs of Staff, was organized without prior announcement and at short notice.
Unlike politicians, the military seem to realize that a confrontation will benefit neither party, especially now that the U.S. army is too busy in Afghanistan and Iraq to afford another Cold War with Russia.
The two countries' top military officials have met for the first time since the conflict over South Ossetia and NATO's decision in September to freeze high-level contacts with Moscow in response to the military action in Georgia.
However, it was not the first contact between Makarov and Mullen. Their contacts began with phone calls at the height of the Georgia crisis in August, Nezavisimaya Gazeta reported. Makarov then assured Mullen that Russian forces would not interfere with the delivery of humanitarian aid by U.S. C-17 aircraft and a visit to the port of Poti some weeks later by a U.S. warship.
Russian military sources said the two officials agreed on the future of Pentagon-owned military equipment seized by the Russian army in Georgia.
After Helsinki Mullen flew on to Riga, Latvia, to reassure concerned Baltic states of continued U.S. support. He did not go as far as Brussels though. NATO officials there still tell the media that the alliance had "neither discussed nor abandoned" its decision in September to freeze high-level contacts with Moscow in response to the military action in Georgia.
General Makarov did not rule out that the Russia-NATO Council would resume work in the next few months. Alexander Khramchikhin, chief analyst at the Institute of Political and Military Analysis, does not think it impossible.
"U.S.-Russian military cooperation will have to be restored in one form or another," he said. "Both Russian and American armed forces have neither resources nor desire to start another full-scale Cold War."
The Russian army is launching structural reforms, while the Americans are bogged down in Iraq and Afghanistan.
It is hard to cite one issue that the United States would want to handle without Russia's cooperation, said Jeffrey Mankoff of the Washington-based Council for Foreign Relations. The sad truth is that America now needs Russia more than Russia needs America. One of the key problems which partly compelled the U.S. military to agree to resume contacts with Russia is the current U.S. Army's situation in Afghanistan. Mankoff says they are in dire need of a transit corridor across Russia to supply the allied forces there.


Crisis forces Belarus to turn to the West

Despite Russia's promise to provide a $2 billion loan to Belarus, the National Bank of Belarus has admitted approaching the International Monetary Fund requesting this amount. While Minsk terminated most of its contacts with the IMF back in 2004, uncertainty over Russia's assistance and growing threats to the Belarusian ruble have forced President Alexander Lukashenko to seek help in the West, with the country commencing new trade talks with the European Union.
Currently, Belarus is negotiating with Russia over the possibility of receiving budget credit worth $2 billion. Russian Deputy Prime Minister and Finance Minister Alexei Kudrin announced the positive decision Tuesday, with Belarus to receive the initial loan tranche of $1 billion this year and the remaining sum in 2009.
However, the finances are yet to be allocated, with a number of the credit-related questions left unsolved after Russian Prime Minister Vladimir Putin's visit to Minsk on October 6. It appears that the Belarusian authorities' negotiations with the IMF are just part of the "trade" over the same credit with Russia.
According to the Belarusian Ministry of Statistics, this September the national gold and currency reserves decreased by $658.9 million, or 11.8%. The National Bank estimates its reserves at about $4.94, while according to the IMF the estimations are assessed at $4.12 billion as of October 1. With such rates of capital outflow, the IMF forecasts, the reserves will be insufficient to protect the Belarusian ruble from the rapid devaluation by next March or April.
Meanwhile, the eventual expenses of the National Bank of Belarus are growing. Last Friday, President Alexander Lukashenko ordered to develop a draft decree on a full securing of individuals' deposits in Belarusian banks, which amount to $6 billion. With an increasing pressure upon the Belarusian ruble, it has been strengthening against the Russian ruble, the euro and the dollar since the beginning of 2008.
Belarus is likely to take a similar turn toward the IMF and the West on the political scene as well. Belarusian Deputy Foreign Minister Andrei Yevdochenko announced on Wednesday that the country will initiate signing a new long-term trade agreement with the European Commission, its delegation's visit being scheduled for beginning November.
"With the Commission's delegation expected to arrive for a visit in Belarus, we are prepared for the talks over this essential agreement and the active stage of negotiations," Yevdochenko said.


Russia might join OPEC if gas cartel idea is supported

Russia has decided to increase cooperation with the Organization of Petroleum Exporting Countries (OPEC), because it is interested in stable oil prices. The Ministry of Energy plans to introduce domestic oil production quotas, which will lead to export quotas and strengthen state-run oil companies. Market players believe Moscow may become a full-fledged member of the organization in the future.
"It might be a step toward Russia joining OPEC if the interests of Russian oil producers and the oil cartel coincide," said Natalia Milchakova, head of financial analysis at the Otkrytiye financial corporation.
Her opinion is indirectly supported by a statement made by Deputy Prime Minister Igor Sechin about creating a possible oil production reserve in Russia. "The Ministry of Energy is considering creating an oil production reserve which would allow it to work more efficiently with prices on the market," Sechin said, noting that the reserve must be of a size to "ensure the most effective prices." However, the deputy prime minister gave no details.
In Milchakova's view, Russia intends to adopt oil supply mechanisms used by OPEC (agreed cuts in production).
Sobinbank analyst Alexander Razuvayev believes domestic quotas will make sense only if export quotas are introduced, and these depend on Russia joining OPEC. "Quotas are more an element of political bargaining. Russia is joining the cartel of oil producing countries, in the hope that its members will support its idea of a gas cartel and become its members," Razuvayev said.
In his opinion, OPEC entry and quotas are justified because currently only Rosneft is boosting oil production. By capping output, Russia loses nothing, as might have happened in 2001 - Russia was then strongly urged to enter OPEC, but production was growing by leaps and bounds, and it was unprofitable to cut back.
"Quotas could hold back only over-ambitious investment programs of some oil companies, such as LUKoil," Milchakova said.
She predicts, however, that strategic important projects, such as bituminous oil production, could be shelved for a long time. The decision could send down Rosneft shares, too, because investors purchased its securities in hopes of very high growth rates. Some of the market participants consider that the oil sector is being secretly redivided to benefit Rosneft, because quotas will ease state control over all companies, above all private ones.


Thailand chooses Russian helicopters over American

The government of Thailand, which used to buy only U.S. weapons systems, has now decided to acquire Mil Mi-17 Hip helicopters from Russia.
Thailand's Prime Minister and Acting Defense Minister Somchai Wongsawat, who took over this September, approved a contract for the purchase of three Mi-17 helicopters worth $27.5 million.
Sources said Thailand would receive revamped Mi-171 versions from the Ulan-Ude Helicopter Plant. "This civilian helicopter is, in fact, a dual-purpose version," a source in the defense industry told the paper.
In 2005, the Ulan-Ude Helicopter Plant signed a framework agreement with Bangkok. In the fall of 2006, the then Thai Army Commander, General Sonthi Boonyaratglin, was offered eight helicopters. But the deal never got through because his military government soon resigned.
The Thai army now has over 200 U.S.-made helicopters, including 100 grounded models aged over 20 years. In 2007, seven military helicopters crashed in Thailand, causing loss of life.
A year ago, the Thai government approved a program for repairing and overhauling 15 Bell-212 helicopters worth $29 million. However, the new prime minister, Somchai Wongsawat, cancelled his predecessor's decision.
The U.S. contract was annulled and the purchase of Russian helicopters approved.
This is the first time that a leading South East Asian nation has decided to buy Russian military equipment.
"Moscow has repeatedly tried to sell its weapons to Thailand; but each time the contracts were annulled mostly for domestic political reasons," Alexei Kirichenko, an assistant professor with Moscow State University's Institute of Asian and African Studies, told the paper.
In the 1990s, Russia offered to sell its Metis anti-tank guided missiles, BTR-80 and BTR-80A armored personnel carriers and Igla man-portable air-defense systems (MANPADS) to Thailand, but the talks produced no results.
In 2003, both countries agreed that Russia would deliver satellite equipment to Thailand as payment for $36 million debts owed for Thai rice shipments.
"Since 2004, Bangkok and the Russian aircraft manufacturer Irkut Research and Production Association have negotiated the purchase of 12 Su-30MKI Flanker fighters in exchange for chicken meat deliveries. In late 2007, the Thai government decided to buy Gripen fighters from Sweden," Dmitry Vasilyev, an expert with the Center for Analysis of Strategies and Technologies, told the paper.


Overseas auto component producers get green light to reopen

Auto component manufacturers will again be able to apply for customs tax relief. Analysts estimate that all declared projects for the production of overseas models will bring Russia $3 billion in invesment.
On Thursday, the Ministry of Industry and Trade and the Ministry of Economic Development will sign a joint order allowing auto component makers to re-apply for industrial assembly, said Alexei Rakhmanov, a department director at the Ministry of Industry and Trade, and an official from the Ministry of Economic Development.
An industrial assembly agreement entitles the company to import components for assemblies and units, paying only 0%-3% in duty instead of 5%-20% with the proviso that in three and a half years' time the share of imported parts will be reduced by 30%.
An application for industrial assembly privileges could be filed between September 2006 and October 2007. Russia set that timeline because of its preparations to join the WTO. Those who had no time to draft feasibility studies signed a memorandum of intent with the Ministry of Economic Development, pledging to sign an agreement before the summer. Those who did not were left without privileges.
The new order does not limit the period of application, Rakhmanov said. Applicants are already flocking to sign the new agreement. These are mainly manufacturers of interior decoration, dashboards, transmissions, engines and gearboxes. In 2009-2010, Rakhmanov is expecting a large inflow of applications: auto producers most of which assemble cars from large modules will soon have to find sites for local production of auto components.
About 50 part manufacturers have signed a memorandum of intent, and include Tenneco (exhausts), Magneti Marelli (light fixtures, fuel equipment, etc.), Cummins (engines), and Jonson Controls (seats). However, not all have signed the agreements. Tenneco Automotive, for example, which is planning projects for Tolyatti and St. Petersburg, failed to meet the deadline. Now the company is drafting a feasibility study to sign an agreement, said Dmitry Osipov, head of Tenneco's Russian representative office.
If all declared projects for the manufacture of cars in Russia are realised, Russia will get $3 billion rubles in investment, says Mikhail Blokhin, deputy general director of the National Auto Components Manufacturers Association.


Central Bank brings capital back to Russia

The government has found one more way of curbing capital outflow, which has surged to over $50 billion in the last two months. Officials at the Bank of Russia believe that Russian subsidiaries of foreign banks play a role in it by issuing loans to their parent companies in the past few months.
Last weekend, the heads of several banks were summoned to the regulator for an informal conference, at which officials issued a tacit threat to cut their access to the funds of the Central Bank and other state banks.
Several sources in Russia's banking sector and inside the Bank of Russia confirmed this information, as did the heads of two Russian subsidiaries of foreign banks who said they visited the Central Bank premises on Saturday, but refused to give any details of the conference there.
Another banker said "quite a few" had been summoned to the Central Bank for individual conferences. The regulator's officials told them to cut out operations that lead to capital outflow, the source told Kommersant.
According to the banks' financial statements as of September, their lending to non-resident banks grew by 38.6 billion rubles at Raiffeisenbank, and 36.9 billion rubles at UniCreditBank, while loans granted to Russian resident banks dropped by 2.8 billion and 16.7 billion rubles, respectively.
This signifies that Russian-based subsidiaries of non-resident banks are trying to support their parent banks' cash liquidity, said Yevgeny Nadorshin, senior analyst from Trust Bank.
According to the Central Bank's data, as of October 1, 74 banks with 100% foreign capital operated in Russia, as well as 24 banks with foreign stakes exceeding 50%. Some of them are among Russia's top 100 banks, including UniCreditBank, Raiffeisenbank, HCF Bank, Citibank, ING Bank (Eurasia), the Royal Bank of Scotland, BSGV, Societe Generale East bank, Credit Suisse, KMB Bank, BNP Paribas, Swedbank, Expobank, the Bank of Cyprus, DeltaCredit, and GE Money Bank.
The Central Bank source said the individual conferences focused on consequences for foreign players too heavily involved in this type of operation. "Those who went exceptionally far were warned that if they continued along the same lines, they would lose their chance of getting Central Bank and state banks liquidity support, and may even discontinue working in Russia," the source added.
However, the source admitted that not all Western bankers who deserved a public flogging, got one: "We need to be careful with countries where subsidiaries of major Russian banks operate. They have liquidity problems, too." For example, Russia's VTB expects support from the European Central Bank for its VTB Europe subsidiary, the source added.

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