What the Russian papers say

© Alex StefflerWhat the Russian papers say
What the Russian papers say - Sputnik International
Fewer businessmen to be arrested in second half-year /Russia's eastern pipeline makes competitors nervous /Finance Ministry estimates spending on mass media support in 2011-2013 /Drought and fires pushing up food prices /High risk budget

RBC daily

Fewer businessmen to be arrested in second half-year

Expect fewer businessmen to be arrested in the second half of 2010. The Supreme Court records for the first six months of the year show fewer prison terms for economic crime and less pretrial detention of businessmen.

Following President Dmitry Medvedev's amendments to the Criminal and Criminal Procedure Codes which ease sentences for economic crime, prosecutors have been less likely to ask for pretrial detention as a restraint measure for businessmen. State Duma members hope that in the second half of the year, the penal code liberalization will also extend to the courts.

The number of arrests for economic crime has declined by about a quarter in the first six months of the year, said Vladimir Gruzdev, the first deputy chairman of the State Duma committee on civil, criminal, arbitral and procedural legislation.

Following the presidential amendments and the campaign in the Duma to liberalize criminal legislation on economic crime, prosecutors have been less likely to ask for pretrial detention as a restraint measure for businessmen, Gruzdev said. As a result, in the first six months of the year, investigators have issued a total of 90,000 arrest warrants for all categories of crime, including economic violations. This is a decrease compared with 123,000 arrest warrants issued in the same period last year.

The decline is due to the application of the presidential amendments, says Andrei Nazarov, the deputy chairman of the Duma committee on legislation. Specifically, the amendments to Article 108 of the Criminal Procedure Code, essentially banning the pretrial detention of businessmen, and Article 174 (Explanatory note) of the Criminal Code, prohibiting the application of the article to money laundering in conjunction with other articles, have finally come into effect.

"Proportionately, judges are issuing as many arrest warrants as before, which is a matter of concern for us," Vladimir Gruzdev says. "Members of parliament expect that the next six months will see an even bigger reduction in arrests, as judges are to become more active in applying Article 108 of the Criminal Code," Gruzdev said. "The president has recently met with judges and urged them to do so. Therefore, we expect to see a more significant decline in the number of arrests over the next six months," he said.

Nezavisimaya Gazeta

Russia's eastern pipeline makes competitors nervous

The beginning of Russian oil supplies from East Siberian deposits has made competitors nervous. Aramco, Saudi Arabia's state oil company, was reported yesterday as intending to cut oil prices for its consumers in Europe and Asia in September. Experts say this is only the beginning of the struggle for the Asia Pacific Rim. In the next few years Russia can win over 5% of this market, currently controlled by the Saudi Arabian company.

Aramco will offer the biggest discount for its Asian customers, for whom prices on the Arab Super Light oil will decrease by 85 cents. European customers will see a less significant discount. The new prices will come into effect in September.

Independent analysts assume that with this aggressive pricing for Asia, Aramco wants to make sure it does not lose its share in the Asian crude oil market, which Saudi Arabia currently controls. Analysts say that this is largely because of the growing interest Asian oil refineries have begun to show in Russia's Siberian oil, delivered via the East Siberia-Pacific Ocean pipeline. The ESPO oil supplied to the Asian market is of very good quality, which combined with the strategic location of the port of export in Russia's Far East, makes it highly competitive.

Analysts emphasize that Aramco currently has to assume a defensive stance in a number of markets where it has traditionally been strong. For example, the Saudi Arabian company was the second largest oil supplier to the U.S. market two years ago, where it is currently fourth after Canada, Mexico and Venezuela.

However, Russian experts are reluctant to make far-reaching conclusions about ESPO's prospects and the outcome of the battle for the Asian market. We can now speculate that the ESPO oil has begun forcing out traditional oil suppliers from the Asian market. Considering the ESPO oil's high quality as compared to the Urals oil, it should oust the Arab companies from this market.

Alexander Shtok, a department head at the 2K Audit - Business Consulting/Morison International, emphasizes that the East Siberian oil has only begun fighting its way into these new markets. Export is currently insignificant. The Kozmino Port plans to deliver about 15 million metric tons of oil in 2010, part of which is meant for the United States, the expert says. So, the Russian oil may win about 1.1% to 1.2% of the Asia Pacific Rim market this year.


Finance Ministry estimates spending on mass media support in 2011-2013

In the next three years, the Russian government will spend 174 billion rubles on support for the national mass media. However, in 2012 and 2013, the government will cut the funding allocated and distributed by the Federal Agency for Press and Mass Media from the 2011 level. The Finance Ministry expects media companies to become more sustainable as the advertising market is reviving, and insists on more efficient spending of federal funding.

In 2011, 58.8 billion rubles will be allocated from the federal budget to support national mass media, nearly 4% down from 2010. As a result, spending on the media will account for 0.6% of the total federal expenditures. A small increase in the federal subsidies to the media, to 60.6 billion rubles, is envisaged in 2012, followed by another cut in 2013, to 54.4 billion.

Major national TV channels will be among the key recipients of state support to pay for their nationwide broadcasting. Channel One, NTV and Petersburg TV and Radio Company will receive 4.689 billion rubles in 2010 to cover the cost of broadcasting their programs to Russian cities with populations over 200,000. The subsidy is stipulated in the 2010 federal budget law.

The federal targeted program for the development of digital TV and radio broadcasting in 2009-2015 is another financing priority, according to the Finance Ministry. The program's budget totals 122.4 billion rubles, out of which nearly 76.4 billion is to be provided by the federal government.

In addition, the government will continue financing the Rossiiskaya Gazeta daily and the Voice of Russia radio station, which broadcasts abroad. This year's federal budget stipulates specific subsidies to the VGTRK state broadcaster (15.329 billion rubles), Russia Today TV/radio company (6.483 billion rubles), RIA Novosti news agency (2.431 billion rubles) and ITAR-TASS (950 million rubles).

The funding allocated and distributed by the Federal Agency for Press and Mass Media will be cut by 20% compared with 2011, the Finance Ministry warned. The move implies that the media companies should grow more sustainable as the advertising market is likely to return to its pre-crisis level (it peaked at 277.1 billion rubles in 2008). Another reason to cut the spending is to ensure more efficient use of federal money, the ministry said.


Drought and fires pushing up food prices

Russia is experiencing dramatic wholesale food price increases from the result of a record dry spell which has destroyed much of the country's harvest. Flour and sugar prices have jumped up by many percentage points. So far, retailers have promised not to shift the burden to consumers. But experts say it's inevitable.

Distributors have announced price increases on many food items. Many retailers are pledging not to pass these higher prices to their customers in anticipation of cooler weather and for fear of slowing the market. But some say a growth in retail prices cannot be avoided.

"We see how prices are rising for grain and grain products," Lev Khasis, head of X5 Retail Group, told Reuters. "Many suppliers report price growth and ask us to plan for it. But retail prices will grow more slowly."

The explanation is very simple: competition on the retail market is much higher than in the wholesale sector. This means that wholesale prices will grow more quickly than consumer prices, Khasis added.

The Magnit chain, meanwhile, admitted that it will have to shift some of the burden of increased wholesale prices to consumers. "Flour, cereal, sugar, and pasta distributors have raised prices by an average of 15-60%," said Oleg Goncharov, Magnit's investor relations director. "And we will have to pass this increase onto consumers since we have no way of reducing our margin."

Vlada Baranova, press secretary for the Seventh Continent chain, says that the market is overheated by speculators: suppliers of all foods are demanding a price increase of 15-20%. In Moscow, Baranova said that at this point there is no run on flour, sugar or cereals, but in Belgorod, Ryazan and Perm, flour sales have increased 50% to 100%.

Experts say the heat and crop failure will provoke inflation. VTB analysts say wheat went up 50% and barley 80% in July. If high fodder prices hold, meat producers will have to push prices up to avoid a cut in profits. In this case, the dry spell "could add a further 1.5% to the 2011 inflation rate."

On Thursday, Prime Minister Vladimir Putin announced a ban on grain exports from August 15 through the year's end. The government believes this step will stabilize grain prices in Russia.


High risk budget

The federal budget structure is stable and delicate at the same time, according to Russia's Ministry of Finance. The traditional Russian economic risks are still out there.

Russia's Finance Ministry has published the key points of its budget policy for the next three years. The Russian economy is gradually beginning to respond to the revival trends emerging in the global economy: inflation is going down and GDP is up with the oil price stable. "The Russian budget is also starting to gain weight after a two-year's lapse, but this trend is still fragile and unstable," a ministry source explained.

The oil price level that used to be sufficient to ensure a deficit-free budget is no longer enough to compensate for the gap between budget revenues and expenditures due to the increased social spending and anti-crisis policies such as cutting taxes, the document reads.

Oil is back to its pre-crisis level, but the federal budget is not. While in 2007, with the oil price at $69.3 per barrel, Russia had a budget surplus equal to 5.4% of the country's gross domestic product, this year, with the oil price predicted to remain at $75, Russia is expected to have a deficit of 5.4%-5.5% of GDP.

This is hardly surprising, said Natalia Orlova, chief economist with Alfa Bank. The economy has contracted significantly due to a drop in the non-oil income, while spending on retirement pensions has been raised 30% annually over the past three years. This year, oil prices would have to rise to $120 per barrel for Russia to close its budget deficit-free, she estimates.

The Finance Ministry points out four major risks threatening the current budget. The first one is traditional and is posed by a potential drop in oil and gas income due to a fall in oil price or the discounted export duty on East Siberian oil. The second risk is mounting inflation, which would entail greater social spending. The third one has to do with the ruble appreciating against the dollar and the euro, which would affect the export-import balance. And finally, there could be an unexpected inflow or outflow of speculator capital, as the Russian stock exchange is still dependent on international markets.

The Russian budget is prone to all the standard risks, said Yaroslav Lissovolik, chief economist with Deutsche Bank in Moscow. "The government must watch out for yet another factor: a slowdown of the global economy may also affect the budget structure," he added.

RIA Novosti is not responsible for the content of outside sources.

MOSCOW, August 6 (RIA Novosti)

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