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Kommersant: Russian-Ukrainian gas-for-fleet tradeoff spells no obvious gains for Kiev – analyst; RBC daily: President Medvedev calls foreign investors to risk their money in Russia; Nezavisimaya Gazeta: Genocide rhetoric, new foreign policy tools; Gazeta.ru, Vedomosti, Kommersant: French EdF to double stake in South Stream project; Kommersant: Food prices in Russia rise three times as fast as in the EU.

Kommersant: Russian-Ukrainian gas-for-fleet tradeoff spells no obvious gains for Kiev - analyst

Almost as soon as ink dried on Russian-Ukrainian agreements extending Moscow's naval presence in the Ukrainian port of Sevastopol in exchange for a Russian gas price discount, the Ukrainian opposition began criticizing the tradeoff, an influential analyst writes.

Dr. Arkady Moshes, director of the Russian program at the Finnish Institute of Interational Affairs (FIIA), says the agreements were interpreted so differently that Russian Prime Minister Vladimir Putin had to fly to Kiev to make sure there won't be any surprises regarding ratification, and that the Ukrainian President will not change his mind at the last moment.

The Ukrainian opposition slammed the Kharkov agreements reached last week by Ukrainian President Viktor Yanukovych and his Russian counterpart Dmitry Medvedev, saying they prioritized financial and economic issues and accusing the president of "selling off his homeland."

The agreements do not eliminate the risk of Kiev losing its gas transit revenues. Ukraine has failed to persuade Moscow to renounce construction of the South Stream project, a proposed gas pipeline to transport Russian natural gas via the Black Sea to Bulgaria, Italy and Austria, the analyst writes.

Moreover, Russia has assumed no clear short-term commitments to transport fixed gas volumes via the Ukrainian pipeline system and Kiev has pledged to buy more Russian gas, the analyst writes.

The sides have agreed on a gas price discount, but the pricing formula remains unchanged. Former Ukrainian Prime Minister Yulia Tymoshenko was constantly criticized for accepting this pricing method. The current strategic deal will become a mere respite if gas tariffs are almost inevitably raised due to continued oil price hikes.

Ukraine will get almost no cash for leasing the Sevastopol port to Russia. This issue could be negotiated by assessing Moscow's hypothetical expenses for withdrawal of the Black Sea Fleet from the Crimea and the construction of a new naval base elsewhere.

The Yanukovych team proceeded from pure business logic. It appeared that the sponsors of the pro-government Party of Regions would exchange a low-value (for them) asset for substantial economic benefits making it possible to renounce domestic reforms and to retain control over the rent-payment mechanism.

But several days later the exchange seemed disproportionate and even dangerous. In a not too distant future, Kiev may have to pay Moscow with Ukrainian assets, including its aircraft industry, railroads, port infrastructure and retail gas trade.

Ukrainian President Yanukovych, who will assume sole responsibility before the oligarchs, fears this prospect more than a consolidated opposition and a possible defeat during parliamentary elections, the analyst writes in conclusion.

RBC daily: President Medvedev calls foreign investors to risk their money in Russia

Russia is more than oil and gas, diamonds and gold. It has high intellectual potential, President Dmitry Medvedev told Scandinavian business leaders. He told a Russian-Norwegian business forum that only half of all asset funds in the Russian market are invested by foreign concerns, and asked his audience to participate in the "Russian Silicon Valley" project.

Medvedev summarized the preliminary results of direct investment funds and venture funds in 2009. In his words, about 150 funds are operating in Russia with total assets of $14 billion, with foreign investors contributing only a half of this. "This is too little," he complained. He invited Norwegian business leaders to take part in building a Russian high-tech center in Skolkovo, similar to the U.S. Silicon Valley. He cited an example of a successful partnership, Norway's state pension fund Global, which holds stakes in 64 Russian companies worth $3.5 billion.

Scandinavian companies have been active in investing in second and third tier stock in Russia in the past two years.

This year Finland's Evli Bank announced new projects in Russia and plans to invest T700-900 million in local property. Nordea Bank, SEB group, Pohjola Bank, and East Capital also announced expansion plans; however, all of these plans mainly involved their own business development or investment on the private equity market.

"I have been in Russia for about six years, but I have never heard of Scandinavian funds or banks investing in venture capital projects here," Raimo Valo, head of Swedbank Russia, told RBC Daily. He said the largest Scandinavian investor in Russia is IKEA. Seppo Remes, chairman of the board and co-founder of EOS Russia, who has lived in Russia for 19 years, said he had heard of Finnish funds that were involved in local high-tech projects, but added that they had already backed away from them. Albina Nikkonen, executive director of the Russian Private Equity and Venture Capital Association (RVCA), couldn't immediately think of a Scandinavian investor in the Russian market either: "Maybe there are projects, but they are not publicized."

Russia's National Association of Innovation and IT Development recently estimated that a total of 1.3 trillion rubles was provided for innovation projects last year, while only 50 projects actually started. Analysts believe this unimpressive result is due to a lack of trust in Russian government programs on the part of investors. Olga Uskova, the association's president and head of the Cognitive Technologies company, said kickbacks to local officials may now be as high as 60%-75% of the contract value, not 10% as before.

Nezavisimaya Gazeta: Genocide rhetoric, new foreign policy tools

The thaw in Turkish-Armenian relations, which began last fall, is bound to benefit the business communities of both countries, a Russian analyst writes. However, the new diplomatic rapprochement scenario turned out to be in conflict with Armenia's historic policy which is based on the events of 1915. Historically, Turkey has been extremely sensitive about recognizing the events as genocide.

Alexander Karavayev, deputy general director at Moscow State University's Center for CIS Studies, describes the historic drama of the Caucasus as more than clashes between civilians and the army, but rather as a bitter guerilla style struggle of a minority people living on the outskirts of a big empire put up for their independence. It is obvious why some are keen to label the conflict as genocide: It could not be used as a manipulator in today's politics without a fervent belief in the systematic and conscious extermination of a victimized ethnic group. This approach has been effectively used by Abkhazia and South Ossetia to gain independence.

Armenia needs it as a tool to boost foreign-political influence.

"So what would be the objectives in the multi-move game played by the EU and the United States in exploiting genocide rhetoric?" the analyst asks. By encouraging Armenia and Turkey to stabilize relations, Washington is trying to bring Armenia closer to Turkey; in addition, it has the long-term goal of pulling Turkey into the EU. This will require a painstaking effort to clear the historic tangle left by the Ottoman Empire.

The European social and political alliance requires that potential members go through a penance and absolution ritual.

It asks that "big" nations apologize to "small" ones for the damage done in earlier ages. The Katyn experience has shown that no country will be spared, especially not Turkey. Europe will insist on imposing penance on Turkish society as part of the price of joining the group, Karavayev writes.

According to the West, a symbolic move should be made in Armenian-Turkish relations. Likewise, Russian-Polish relations would not have budged from the deadlock had Vladimir Putin not dropped to his knees and made his Katyn speech. In fact half of all Russians believed until recently that the Polish officers had been executed by the Nazis.

Turkish Prime Minister Tayyip Erdogan was offered a similar scenario, Karavayev suggests. The problem is that Armenia has chosen a very aggressive tactic for its genocide propaganda, demanding that each and every country assume a clear position and take sides (stand by Turkey or condemn it).

Poland was not that exacting with Russia.

This tactic of demanding immediate answers and using them to make important decisions about security, trade or other issues will get us nowhere. This rhetoric of genocide is incompatible with present-day politics. It would be advisable, for the sake of resolving current problems, to put a moratorium on discussing this sensitive issue, because it cannot be resolved any time soon. Otherwise, diplomacy will become useless. Life goes on, and progress should not be sacrificed for the sake of a historic approach.

Gazeta.ru, Vedomosti, Kommersant: French EdF to double stake in South Stream project

The French company, Electricite de France (EdF), has doubled its stake in the planned South Stream pipeline to 20%.

The agreement will be signed during the St. Petersburg Economic Forum in mid-June 2010, Prime Minister Vladimir Putin said.

It has so far not been decided how the stakes of the other participants in the project, Russia's Gazprom and Italy's Eni, will be cut to accommodate EdF.

South Stream is to be built along the Black Sea bed bypassing Ukraine to deliver 63 billion cubic meters of natural gas annually to Greece, Italy, Bulgaria, Serbia, Hungary, Slovenia and Austria.

It was rumored that a conflict of interest between the cofounders, Gazprom and Eni, which hold 50% each, could delay construction. However, Putin has said the project is proceeding to plan and the last agreement necessary for starting construction was signed with Austria last week.

"The task now is to start implementing the project and to complete it in the second half of 2015," Putin said. Two years ago, the deadline was 2013.

Russia and Italy spent a great deal of time discussing how much EdF should get and most importantly, how much each cofounder should cede. The proposed ceiling was 10%. The Russian prime minister did not specify the figures, but analysts think it was the Italian company that agreed to give up more.

"Russia is unlikely to cut its stake to below 50%," said Alexander Razuvayev, chief analyst at investment company Galleon Capital. "This is a matter of principle; the reduction of Russia's stake would mean losing dominance in the project."

Gazprom retained a controlling stake in a similar project, Nord Stream, while the German partners ceded parts of their stakes to admit new members.

"Italians have become tired of South Stream," said Dmitry Aleksandrov, an analyst with the investment company Univer.

"Eni CEO Paolo Scaroni has more than once proposed merging the Russian project with the planned Nabucco pipeline," he said.

The Italian company will cede nearly half of its stake to the French partner, which will also have to take on a commensurate part of the financial burden and implementation risks.

Russia and Gazprom are taking a big risk, said Mikhail Korchemkin, director of the US-based consultancy East European Gas Analysis. South Stream will not help Gazprom to increase natural gas export to Europe but will triple delivery costs compared to the current route across Ukraine.

According to Putin, this is the price one has to pay for reliable supplies. The South Stream pipeline is crucial, given internal political wrangling in Ukraine over recent gas contracts with Russia, he said.

Kommersant: Food prices in Russia rise three times as fast as in the EU

Consumer inflation in January-March 2010 was 3.2% in Russia and 0.6% in the European Union. What is most striking is the pace of the increase in food prices in Russia compared to that in the EU, where state subsidies to farmers are among the largest in the world.

According to an inflation survey of the 27 EU countries, based on information of the Eurostat and national statistics services, published by Russia's statistics service on Monday, food prices rose 4.1% in Russia and 1.2% in the EU countries.

The only EU country that saw food prices increase faster than in Russia was Hungary (4.6%), while food prices in Ireland and Spain fell.

Russia's Agriculture Ministry blames the problem on retailers.

"We are keeping wholesale prices in check by providing all-round assistance to agricultural producers; it is the retail chains that raise prices," said Oleg Aksyonov, head of the ministry's Department of Agricultural Policy.

But analysts and market participants link the increase to retailers' expenses on related products.

"Food prices are increasing at a faster pace in Russia not because of domestic producers (they raised them 0.9% this year, while retail prices have risen 3.8%). The increase is driven by other price components - the cost of delivery and packaging, as well as wages," said Andrei Sizov, executive director of Sovecon, Russia's oldest agricultural markets research and consulting agency.

"The pace of the increase in food prices is slower in the EU due to tougher competition between retailers. In Russia, retailers account for only 30% of food sales," he said.

Alexei Popovichev, executive director of Rusbrand, the non-profit Association of Branded Goods Manufacturers, said the main reason for the fast pace of the increase in food prices in Russia is rising costs for the services of natural monopolies and the cost of raw materials, in particular milk.

Prices of dairy products and eggs have risen 2.6% in Russia, while prices in the EU have fallen by 0.2%.

Another reason was a delayed increase in food prices triggered by the weakening ruble. Food supply contracts are signed for long periods, Popovichev said. In 2009, prices did not soar because companies included ruble devaluation in their outlays.

April 27, 2010 

RIA Novosti




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