Russia 090527

Basic Political Developments Russia ready for strong UN resolution on N.Korea Russia warns North Korea over "war of nerves": report - A war of nerves over

North Korea should not be allowed to grow into a military confrontation, a Russian official said on Wednesday in a clear reference to Pyongyang's decision to drop out of an armistice agreement.

Russia takes security measures after N.Korea test: report - - Russia is taking preventative measures, including military ones, after North Korea tested an atomic bomb, Interfax news agency quoted an unidentified official in Russia's security services as saying on Wednesday. The official said the measures -- which did not include troop movements -- were needed in case a nuclear war broke out on the Korean peninsula, Interfax reported.

Russian Prime Minister Putin may sign an agreement to build the first nuclear power station in Belarus during his visit to Minsk on Thursday, Vedomosti reports, citing Sergei Kiriyenko, general director of state corporation Rosatom.

Japan seeks to implement Russia nuke deal - Japan is considering invoking a special provision of a nuclear deal with Russia to get around an international inspections requirement, diplomatic sources say.

Russia-NATO council to convene in Brussels - The meeting will focus on both security in the Euro-Atlantic region and relations between Russia and NATO, which were temporarily broken off after last August's Georgia-Russia war.

NATO-Russia Council to condact meeting at ambassadors level in Brussels Russia seriously concerned over growing Taliban influence – Churkin Ukraine gas aid in focus as energy talks continue - Russia and the European

Union will continue talks next week about financial aid to Ukraine, to ensure stable gas supplies. Russia's Energy Minister Sergei Shmatko told RT the EU has not decided whether to take part in the $5 billion loan.

Russian arms exports expected to grow $800 million in 2009 Modernized sub on the water - The Zvezdochka yard in Severodvinsk,

Arkhangelsk Oblast, has put the nuclear sub “K-119 Voronezh” back on the water after a six-month planned repair and modernization operation.

Bidders line up for Opel - German Chancellor Angela Merkel will meet with bidders for GM’s German subsidiary, Opel, on Wednesday, including a consortium of Canada’s Magna and Russia's Sberbank, and the heads of its main rival, Italy’s Fiat.

The Russo-German Car Axis - Merkel may put Putin in Opel's driving seat. Opel seen as Magna's Russia play Putin pens first works: How to fire people - This week Russia's Prime Minister

Vladimir Putin will complete a clean sweep of the artistic disciplines after turning his hand to writing. Mr Putin's first ever column for a Russian media outlet will be published on Friday, entitled Why it's hard to fire people.

Conversation with the Man Closest to Medvedev: Igor Yurgens

Calling the Young to Arms - Plans for a Professional Military Put on the Backburner as Russia Continues Drafting High School Graduates, Albeit for Shorter Service Terms

National Economic Trends Russia’s 2009 Economic Forecast Lowered at Bank of America Russia re-weighting of FX reserves? - There are rumours doing the rounds again

this morning that the CBR is planning to revise the weights in the rouble basket. The rumour suggests an increase from "45% euro weighting at present, to 55% in October and 60% in December"

Business, Energy or Environmental regulations or discussions Government-Proposed Changes to Bankruptcy Laws - According to Vedomosti,

among the proposals: a company with overdue debt payments may seek a 2-year protection period (unless overdue debt is more than total value of assets) without recourse to a court order.

Small, Big Businesses Petition Government - Despite the billions of rubles the government has earmarked to support private businesses, Russian entrepreneurs said Tuesday that they were still unsatisfied.

Russian gencos - capex delays: good enough Rosatom sees electricity demand recovering in two years Sberbank to Form Food Chain With Sistema Owner, Kommersant Says Gold Output Rises 38% in First Four Months Mechel announces bridge loan extension Acron is awaiting approval for joint venture with the state GAZ owes RUB42bn to banks GAZ provides update on engine strategy - Igor Kulgan, the Head of GAZ's

Engines Division, held a meeting with analysts to provide an update on the company's strategy in the segment

S7 to join oneworld; Star content to wait on Russia Facebook says 'da' to Russian investor Internet Advertising Poised to Grow - Russia's once-booming advertising market

will contract by at least 10 percent this year, but Internet advertising remains unaffected and looks poised to grow, ad executives said Tuesday.

Activity in the Oil and Gas sector (including regulatory) Rosneft Receives First $400 Million of $15 Billion China Loan Russian Govt OKs 4 New Production Licenses in Yamal-Nenets Region Novatek converts four licenses from exploration into production NOVATEK acquires one of Russia's largest fields Novatek says will pay cash for Yamal LNG Novatek weighs up Yamal LNG move NOVATEK buying 51% of Yamal LNG from Timchenko for $650 mln Transneft digs in with Belarus bypass - Russia is set to start work on a new oil

link to the Baltic Sea next month, pipeline monopoly Transneft said, launching a project that will allow Moscow to bypass Belarus.

Transneft views increase of Charter capital as a preferable way of sourcing funds to finance new projects

Vagit Alikperov is urging the state to speed up the distribution of oil and gas deposits, including those earmarked as national reserves, in anticipation of a global economic recovery.

Lukoil Head to Visit Iraq for West Qurna-2 Oil Talks

Gazprom Gazprom May Join Iran-Pakistan Gas Pipeline, Kommersant Reports Gazprom eyes role in Iran-Pakistan pipeline: report Gazprom eyes role in Iran-Pakistan pipeline Gazprom-Japan LNG spat reported - GAZPROM sources have told Russian

reporters that it has asked Japanese buyers of LNG to reduce delivery prices. Romania: Romgaz-Gazprom joint venture to be set up Energy: Romanian-Russian company Romgaz-Gazprom, a second Danube hydra-

electric power station New potential delays for oblgaz consolidation into Gazprom Gazprom's New Weakness Offers Opportunity - Gazprom has gone from being a

great commercial hope to an ailing giant. Gazprom's owners need to face up to the crisis and institute reforms.

Gazprom's Loyalists in Berlin and Brussels - Gazprom Germania has affiliates and subsidiaries in around 20 countries in Europe and Asia as well as within the United States

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Full Text Articles

Basic Political Developments

Russia ready for strong UN resolution on N.Korea http://en.rian.ru/russia/20090527/155099525.html

09:2727/05/2009

UNITED NATIONS, May 27 (RIA Novosti) - Russia's ambassador to the United Nations has said his country is prepared to back a strong resolution against North Korea over its recent nuclear test.

Russia has in recent years joined China in opposing tough sanctions against the reclusive communist state, but has voiced alarm over Monday's underground nuclear test explosion, conducted near Russia's border.

After Tuesday's closed-door talks at the UN headquarters in New York, Vitaly Churkin told reporters: "We are prepared to support a strong resolution."

He said that "various opinions and various proposals" were put forward at the meeting, attended by diplomats from the five permanent Security Council members - Russia, the U.S., the U.K, France and China - as well as South Korea and Japan.

However, Churkin said it was too early to discuss specific measures.

"We first need to inform the capital, and then we plan to work on this as intensively as possible," he said.

Pyongyang is already under UN sanctions over its first nuclear test, carried out in 2006. A diplomatic source in the UN told RIA Novosti that "various options for a resolution on sanctions" were put forward during the UN consultations.

On Tuesday, North Korea reportedly fired two short-range missiles into the Pacific in apparent defiance against international pressure over its nuclear test explosion. The missiles bring the total number launches to six in the past three days.

South Korea's Yonhap agency attributed the report to an unnamed government official, who called the launch "saber-rattling."

The Security Council held an emergency session hours after Pyongyang announced its underground nuclear test blast, which Russia later said had a force similar to the bomb that destroyed Hiroshima.

Churkin said after the session that the members "voiced their strong opposition to and condemnation of the nuclear test."

U.S. President Barack Obama, South Korean President Lee Myung-bak and Japanese Prime Minister Taro Aso discussed the issue by telephone on Monday night.

The White House said in a statement that all three "agreed to work closely together to seek and support a strong United Nations Security Council resolution with concrete measures to curtail North Korea's nuclear and missile activities."

Russia warns North Korea over "war of nerves": reporthttp://www.reuters.com/article/newsOne/idUSTRE54Q1CP20090527

Wed May 27, 2009 4:04am EDT

MOSCOW (Reuters) - A war of nerves over North Korea should not be allowed to grow into a military confrontation, a Russian official said on Wednesday in a clear reference to Pyongyang's decision to drop out of an armistice agreement.

"We assume that a dangerous brinkmanship, a war of nerves, is under way, but it will not grow into a hot war," Itar-Tass news agency quoted an unnamed foreign ministry source as saying.

"Restraint is needed," the source added.

The foreign ministry often uses statements sourced to unnamed officials leaked through official news agencies to lay down its position on sensitive issues.

North Korea has responded to international condemnation of its nuclear test and a threat of new U.N. sanctions by saying it was no longer bound by the armistice signed with South Korea at the end of the 1950-53 Korean War.

Russian President Dmitry Medvedev has condemned North Korean tests but his foreign ministry has warned the international community against hasty decisions.

(Writing by Oleg Shchedrov; Editing by Angus MacSwan)

Russia takes security measures after N.Korea test: reporthttp://www.reuters.com/article/newsOne/idUSTRE54Q1CQ20090527

Wed May 27, 2009 4:04am EDT

MOSCOW (Reuters) - Russia is taking preventative measures, including military ones, after North Korea tested an atomic bomb, Interfax news agency quoted an unidentified official in Russia's security services as saying on Wednesday.

The official said the measures -- which did not include troop movements -- were needed in case a nuclear war broke out on the Korean peninsula, Interfax reported.

(Reporting by Guy Faulconbridge, editing by Jon Hemming)

http://www.reuters.com/article/rbssEnergyNews/idUSLR55417220090527

www.vedomosti.ru

Russian Prime Minister Putin may sign an agreement to build the first nuclear power station in Belarus during his visit to Minsk on Thursday, the paper reports, citing Sergei Kiriyenko, general director of state corporation Rosatom.

Japan seeks to implement Russia nuke dealhttp://www.upi.com/Top_News/2009/05/25/Japan-seeks-to-implement-Russia-nuke-deal/UPI-82221243254229/

Published: May 25, 2009 at 8:23 AM

TOKYO, May 25 (UPI) -- Japan is considering invoking a special provision of a nuclear deal with Russia to get around an international inspections requirement, diplomatic sources say.

The proposed agreement, which has yet to be ratified by the Japanese Diet, would allow Russia to enrich uranium from spent nuclear power plant fuel at a facility in Seversk now closed to international inspectors because it is designated for military uses. Russia plans for it to be converted to a civilian facility, the Japanese news service Kyodo reported Monday.

Unnamed sources told the news agency Tokyo is considering invoking a special clause in the proposed deal to get around a stipulation calling for Moscow to accept International Atomic Energy Agency inspections at Seversk ahead of the deal. The provision is reportedly meant to ensure Japanese nuclear materials are not used for Russian military purposes.

Kyodo said the special clause allows Russia to go ahead with enrichment work at the Seversk plant without receiving actual IAEA inspections if Moscow re-designates the plant as a civilian use facility and tells the IAEA it is ready to host inspectors there.

The nuclear cooperation deal was struck between Japan and Russia this month, the news agency said.

Russia-NATO council to convene in Brussels http://en.rian.ru/world/20090527/155099993.html

1:1427/05/2009

BRUSSELS, May 27 (RIA Novosti) - A meeting of the Russia-NATO Council at the level of ambassadors will be held on Wednesday in Brussels.

The meeting will focus on both security in the Euro-Atlantic region and relations between Russia and NATO, which were temporarily broken off after last August's Georgia-Russia war.

The sides are also expected to discuss the recent nuclear tests by North Korea, and are likely to issue a statement on the issue.

North Korea fired short-range missiles into the Pacific on Tuesday in apparent defiance against international pressure over its recent nuclear test. UN Security Council has unanimously condemned the nuclear test blast, and several countries have called for further sanctions.

The Belgian capital is set to host a Russia-NATO meeting at the level of foreign ministers in September, and a meeting of chiefs of general staffs in October.

NATO's new secretary general, Anders Fogh Rasmussen, is expected to visit Moscow later this year.

NATO-Russia Council to condact meeting at ambassadors level in Brusselshttp://www.itar-tass.com/eng/level2.html?NewsID=13981415&PageNum=0

BRUSSELS, May 27 (Itar-Tass) - The first after the “pseudo spy scandal” and mutual expulsion of diplomats meeting of the NATO-Russia Council at the level of ambassadors will be held in Brussels on Wednesday. According to Russian Ambassador to NATO Dmitry Rogozin, “a deep content analysis of our relations” is to take place at this meeting. According to him, two main issues are on the agenda – the discussion of the principles of reforming the NATO-Russia Council for improving the quality of its work after which it will be possible to speak about the political dialogue’s normalisation.

Rogozin also did not rule out that the meeting participants will consider the situation formed after the North Korean nuclear test. “This theme is not on the official agenda, but it falls under one of directions of our work on non-proliferation,” the diplomat noted.

The Wednesday meeting of the NATO-Russia Council will be the second after the resumption of its work (April 29) after the South Ossetian conflict. According to Rogozin, “the weather in our relation is far from summer.” This situation has been aggravated “by the absurd decision of the Alliance to expel two Russian career diplomats and its stubborn desire to conduct, in spite of everything, its manoeuvres in Georgia.”

The Russian ambassador also noted that the “spy scandal is factually over on the reciprocity principles.” “NATO expelled two our diplomats and we expelled two their staff members. We are quits now and can move forward,” he said.

“The majority of members of the NATO-Russia Council, and first of all Russia realise that this council should work given any weather. The recurrence of the situation in which the work of this body was blocked as a result of a major crisis in August last year, is inadmissible,” Rogozin stated. In this connection the RF ambassador to NATO said that there exist three initiatives on the qualitative improvement of the principles and procedure of the work of the NATO-Russia Council, formats of its meetings and subject matters for discussion. “One of these initiatives belongs to Russia, the rest - to NATO countries. All of them are actively discussed at preparatory consultations and contain a number of very interesting for our dialogue proposals, the discussion of which in detail is so far early, however,” Rogozin said.

As for a meeting of the foreign ministers that will open the way for the resumption of the military partnership between Russia and NATO, the RF ambassador said that Russia is ready to hold such a meeting as early as in June, while NATO countries hold to different

positions. “Some of them agree with the Russian stance, and others propose to hold the ministerial meeting in September after the change of the NATO secretary general and the summer holiday season,” Rogozin noted.

On July 1, current NATO Secretary General Jaap de Hoop Scheffer of the Netherlands will be replaced on the post by the former Prime Minister of Denmark, Anders Fogh Rasmussen.

The NATO-Russia Council (NRC), was established at the NATO-Russia Summit in Rome on 28 May 2002. It replaced the Permanent Joint Council (PJC), a forum for consultation and cooperation created by the 1997 NATO-Russia Founding Act on Mutual Relations, Cooperation and Security, which remains the formal basis for NATO-Russia relations. The (NRC) is a mechanism for consultation, consensus-building, cooperation, joint decision and joint action, in which the individual NATO member states and Russia work as equal partners on a wide spectrum of security issues of common interest. The spirit of meetings has dramatically changed under the NRC, in which Russia and NATO member states meet as equals “at 27” in areas of common interest – instead of in the bilateral “NATO+1” format under the PJC.

The NRC was established by the 2002 Rome Declaration on “NATO-Russia Relations: a New Quality,” which builds on the goals and principles of the 1997 Founding Act. Its purpose is to serve as the principal structure and venue for advancing the relationship between NATO and Russia.

In accordance with the Rome declaration, NATO member states and Russia work as equal partners in areas of common interest in the framework of the NRC, which provides a mechanism for consultation consensus-building, cooperation, joint decision and joint action on a wide spectrum of security issues in the Euro-Atlantic region. The members of the NRC, acting in their national capacities and in a manner consistent with their respective collective commitments and obligations, take joint decisions and bear equal responsibility, individually and jointly for their implementation, it is said in the NRC press release.

Work under the NATO-Russia Council focuses on all areas of mutual interest identified in the Founding Act. Cooperation is being intensified in a number of key areas, which include the fight against terrorism, crisis management, non-proliferation, arms control and confidence-building measures, theatre missile defence, logistics, military-to-military cooperation, defence reform and civil emergencies. New areas may be added to the NRC’s agenda by the mutual consent of its members.

Russia seriously concerned over growing Taliban influence – Churkinhttp://www.itar-tass.com/eng/level2.html?NewsID=13981400&PageNum=0

UNITED NATIONS, May 27 (Itar-Tass) - Russia is seriously concerned over the continuing spread of the influence of the Taliban and extremist ideas “both in the territory of Afghanistan and outside,” Russian Permanent Representative to the United Nations

Vitaly Churkin said on Tuesday at an open meeting of the UN Security Council that discussed issues of combating terrorism.

“This testifies to the persisting desire of radical forces to gain power and establish control over the situation in the region in general,” he noted. In such conditions the Russian side considers “inappropriate and dangerous the attempts at departing from the policy of isolation of the leaders of extremists and at establishing contacts with prominent leaders of the Taliban, socially in violation of the current sanctions regime,” Churkin stated.

“We call on all states to rigorously apply restriction measures to the sanctions list’s figures envisaged by resolutions of the UN Security Council” and the guiding principles of the work of the United Nations Counter-Terrorism Committee, the RF diplomat said. He also stressed the need for all states “to continue to submit to the committee applications for inclusion in the sanctions list of persons and organisations liked with the Taliban or Al Qaeda,” including those financing their terrorist activities with profits gained by means of illegal growing, production and trafficking of Afghan drugs, as well as to actively provide the available additional information on such persons who had earlier been put on the list.”

It is from the total and conscientious fulfilment by all states of their obligations in this sphere that “the success of our common efforts aimed at countering the real and changing threat to international peace and security emanating from the Taliban and Al Qaeda, depends,” the Russian ambassador emphasised.

The Counter-Terrorism Committee was established by Security Council resolution 1373 (2001), which was adopted unanimously on 28 September 2001 in the wake of the 11 September terrorist attacks in the United States.

The Committee, comprising all 15 Council members, was tasked with monitoring implementation of resolution 1373 (2001), which requested countries to implement a number of measures intended to enhance their legal and institutional ability to counter terrorist activities at home, in their regions and around the world. Those measures include taking steps to: Criminalize the financing of terrorism; Freeze without delay any funds related to persons involved in acts of terrorism; Deny all forms of financial support for terrorist groups; Suppress the provision of safe haven, sustenance or support for terrorists; Share information with other governments on any groups practicing or planning terrorist acts; Cooperate with other governments in the investigation, detection, arrest, extradition and prosecution of those involved in such acts; and Criminalize active and passive assistance for terrorism in domestic law and bring violators to justice.

According to a UN press release, an important part of the work of the Security Council’s counter-terrorism committees is stocktaking and reviewing efforts so as to ensure the effectiveness of United Nations sanctions regimes, the heads of three subsidiary bodies said on May 26. Indeed, one of the major initiatives undertaken by the Counter-Terrorism Committee, set up pursuant to resolution 1373, over the course of the last six months is

the stocktaking exercise, its Acting Chairman, Jean-Pierre Lacroix of France, told a meeting of the Security Council.

“Stocktaking allows the Committee to enhance its regular dialogue with Member States, and to further identify areas where the implementation of resolution 1373 (2001) is still inadequate,” he stated, adding that the exercise will form a major part of the Committee’s work in the coming months.

The review process is also critical to the Council’s 1267 (1999) Committee concerning Al Qaeda and Taliban sanctions, particularly with regard to the names on the group’s Consolidated List of individuals and entities subject to restrictions, according to the UN release.

Committee Chairman Thomas Mayr-Harting of Austria said the review is essential to ensure the List is as accurate and updated as possible to help Member States effectively implement the sanctions.

A serious challenge facing the Committee is the growing number of cases before national and regional courts filed by listed individuals and entities who take legal action against the sanctions measures. “The review is therefore an important step towards both improving due process and strengthening the regime,” Mr. Mayr-Harting said.

“By either removing names from the List where listing is no longer appropriate, or adding new identifiers and information regarding names remaining on the List, the review will help to improve due process and the quality of the Consolidated List and to implement the sanctions regime more effectively,” the official noted.

Ukraine gas aid in focus as energy talks continue http://www.russiatoday.ru/Business/2009-05-27/Ukraine_gas_aid_in_focus_as_energy_talks_continue_.html

27 May, 2009, 10:57

Russia and the European Union will continue talks next week about financial aid to Ukraine, to ensure stable gas supplies.

Russia's Energy Minister Sergei Shmatko told RT the EU has not decided whether to take part in the $5 billion loan.

SS: “The EU has no adequate estimation of the problems that may occur with the stability of gas supplies in the coming winter. We are concerned that Ukraine won’t keep to the schedule of filling its gas storages. This may result in serious problems with gas supplies to Europe next winter. Besides we hear more often President Yushanko’s calls to review the current gas contracts. These risks are very high for Russia and we want to share them with our European partners. We will continue negotiations and in summer we will have a clear understanding of what to do.”

RT: What part of this $5 billion intended for Ukraine is Russia ready to finance?

SS: “I think it’s a commercial issue and Gazprom should take a decision according to the profitability of gas supplies and the structure of their expenses. I think we can take a significant part of this financial burden. But it’s very important for Russia that an international pool of investors or European financial institutions organize this financing. Russia wants to take part in it but doesn’t want to be the one responsible for the whole situation.”

RT: The EU Parliament voted for the 3rd energy pact, how this can influence the realization of the South Stream pipeline project?

SS: “Russia considers the third energy pact as discriminatory. We see risks in it for the operations of Russian companies on the European market. We discussed this issue quite sincerely at the Russia-EU summit in Khabarovsk. We are going to insist that the realization of this pact should not limit the activity of our companies in Europe.”

Russian arms exports expected to grow $800 million in 2009http://www.mosnews.com/military/2009/05/27/1947/

Today, 12:09 PM

In spite of the global financial crisis, the value of Russian weapons exports in 2009 will be $700-$800 million greater than last year, head of Russia’s arms sales control agency has said.

According to Valery Varlamov of Rosoboronexport, last year the agency sold weapons and military machines worth $6.75 billion abroad, RIA Novosti reports Wednesday.

Russia’s arms sales normally show an annual increase of $700 to $800 million, Varlamov said.

“And in spite of the crisis, this year will be no exception,” he added.

Russia sells weapons to 80 countries, with 50 percent of exports being Russian-made aircraft.

Modernized sub on the waterhttp://www.barentsobserver.com/modernized-sub-on-the-water.4596589-58932.html

2009-05-27

The Zvezdochka yard in Severodvinsk, Arkhangelsk Oblast, has put the nuclear sub “K-119 Voronezh” back on the water after a six-month planned repair and modernization operation.According to Zvezdochka press spokesman Yevgeny Gladyshev, the yard now hopes that the vessel soon will be ready for sailing, Regnum reports. The vessel of the 949A Antey project (Osckar II) has Zaozersk in the Kola Peninsula as its home base. The submarine was built in 1988.According to Wikipedia, a total of 11 vessels of the 949A Antey project have been built. One vessel is still under construction.

Bidders line up for Opelhttp://www.russiatoday.ru/Business/2009-05-27/Bidders_line_up_for_Opel.html

27 May, 2009, 11:48

German Chancellor Angela Merkel will meet with bidders for GM’s German subsidiary, Opel, on Wednesday, including a consortium of Canada’s Magna and Russia's Sberbank, and the heads of its main rival, Italy’s Fiat.

German Cabinet ministers, representatives from Opel’s parent company General Motors, and the US Treasury Department will also take part.

Fiat's Chief Executive on Tuesday further improved his offer, saying he would need less money from the government and promising to keep most workers at Opel plants. Opel employs some 25,000 people in Germany alone. General Motors has until June 1 to sell the asset or face bankruptcy. Germany’s Economy Minister Karl-Theodor zu Guttenberg says no decision has been made yet, as all offers have their downsides

“The bids we have seen so far have their deficits as well, and what is absolutely unacceptable for the German taxpayer and for the german Government is that the whole risk lies on the shoulders of the German taxpayer. There is no preferred bid at the moment, absolutely not.”

Many German politicians say they favor the Magna-Sberbank offer. Fiat was under fire for not having attended a meeting of Opel's powerful Trade Union, with Klaus Franz, Opel chief employee representative, noting that the Union thought that the Magna bid was in pole position.

"Both investors agreed that Opel Vauxhall can only have a future with a highest degree of autonomy and independence from General Motors. Fiat was invited by us as the first company. Fiat did not take/accept this invitation. We think that this is unacceptable and a sort of provocation. According to the criteria that I've mentioned, our current opinion is that Magna is clearly in a leading position."

The Russo-German Car Axis http://online.wsj.com/article/SB124336820854755599.html

Merkel may put Putin in Opel's driving seat. MAY 27, 2009

As implausible as it sounds, Berlin is about to top Washington's car bailout mess -- by adding a Russian twist. German taxpayers may today be asked to dole out billions in state guarantees so that the Kremlin can "save" GM's Opel unit from bankruptcy.

After weeks of haggling, Chancellor Angela Merkel appears ready to name her favorite candidate to buy Opel, because parent GM may enter Chapter 11 bankruptcy by June 1. Since all the bidders for Opel -- Fiat; the investment firm RHJ International; and car supplier Magna in a joint offer with Russia's Sberbank -- reportedly are demanding between €5 billion to €7 billion in German government financing guarantees, "buying" may perhaps not be quite the right word.

GM said earlier this month that its three European car brands -- Opel, Saab and Vauxhaul -- recorded a €1.5 billion first-quarter loss. That's why Opel would also need government bridge loans to keep it afloat until any takeover is completed.

And yet Berlin seems determined to put the taxpayer on the hook to protect as many of the 25,000 Opel jobs as possible. This is an election year and the ruling Christian Democrats and Social Democrats are afraid that massive layoffs and plant closures will spoil the September poll. Neither appears to have the courage or foresight to put a sounder plan before voters, which would explain the long-term economic costs of bailing out Opel.

The favorite to get Berlin's green light is the Austro-Canadian auto-supplier Magna -- presumably because its purchase plan promises to save the most jobs. That ought to make its bid immediately suspect. Auto analysts believe Europe's car industry suffers from a 25% overcapacity, so shedding only 2,500 jobs sounds wildly optimistic.

Although Magna dominates the German media headlines, the car-parts supplier would take only a 20% stake in Opel next to GM's 35% and 10% for the unions. The rest would be held by Russia's state-controlled Sberbank -- run by former economics minister and Putin ally German Gref. Prime Minister Vladimir Putin would finally have a foot in a major Western company -- courtesy of €5 billion in loan guarantees from German taxpayers.

Chancellor Merkel discussed the Magna-Sberbank offer on Saturday with the Russian leader. As part of the deal, Opel would cooperate with Russian carmaker Gaz, owned by Oleg Deripaska. The tycoon is in financial trouble and so is his debt-laden Gaz. In mathematics, the multiplication of two negative numbers yields a positive result. Combining two loss-making carmakers will not have a similar effect.

And the price tag could get even higher for German taxpayers. Germany's manager magazin and Dow Jones Newswires report that Commerzbank may give Magna a €4 billion loan for the acquisition and investment in Opel. Following an €18 billion bailout this year, Commerzbank is now 25% state-owned. In other words, a state-controlled German bank would lend Magna the money for the Opel deal -- which requires further multi-billion euro loan guarantees -- so that the near-bankrupt German carmaker could be controlled by a Kremlin-controlled bank and cooperate with a near-bankrupt Russian carmaker. Other than that, this is a transparent and straightforward business deal in the obvious interest of the German taxpayers.

Mrs. Merkel has said she wants to ensure that no taxpayers' money ends up in the U.S. She seems less concerned about taxpayer money helping a Russian oligarch and facilitating the Kremlin's economic expansion into the West. Compared to the Magna-Sberbank bid, Fiat's offer to fuse Opel with Chrysler for €6 billion in German loan guarantees seems like an exercise in free-market economics.

No matter which suitor "wins" here, billions of state guarantees and bridge loans may save some Opel jobs, at least for now. But that can only happen at the expense of workers whose jobs are destroyed at more efficient carmakers that don't get state aid. Such schemes punish good management by distorting competition. It's not the government's role to "save" jobs, but to provide the framework for their creation. Moreover, it is far from certain that any subsidized investor will keep his end of the bargain and spare Opel workers from economic reality.

The true outrage here is that Berlin knows precisely what the optimal course of action would be. Economics Minister Karl-Theodor zu Guttenberg suggested last week that "orderly insolvency" might be better for Opel, out of which it may emerge profitable again -- a course that would save more jobs down the line than any bailout ever could.

Mrs. Merkel may want to think hard before wasting taxpayers' money, particularly if that money would put Mr. Putin in Opel's driver's seat.

Opel seen as Magna's Russia play http://www.theglobeandmail.com/report-on-business/opel-seen-as-magnas-russia-play/article1154302/

Eric Reguly

Rome — Globe and Mail Update, Tuesday, May. 26, 2009 07:47PM EDT

Until a few weeks ago, Fiat SpA seemed the only credible buyer of Opel, the near-bankrupt German division of soon-to-be-bankrupt General Motors Corp. (GM-N1.440.010.70%)

Fiat's Italian-Canadian boss, Sergio Marchionne, had saved his own company from almost certain death in the middle of the decade. He vowed to work the same magic on Chrysler, which last month agreed to form a transatlantic partnership with the Italian auto maker.

Opel would be the next addition and, once driven into Fiat's garage, Mr. Marchionne would be the king of a global auto empire second only to Toyota and roughly equal to Volkswagen. Fiat currently ranks a lowly ninth; by Mr. Marchionne's own admission, it lacks the bulk to survive as an independent player.

Then he ran into Ontario's Magna International (MG.A-T37.880.280.74%) – which may be on the verge of upsetting Mr. Marchionne's grand plans.

Wednesday, the German government is scheduled to pick the preferred bidder for Opel. Several ranking German politicians have strongly suggested that Magna, a company barely known in Europe, has the upper hand.

Both Fiat and Magna said they expect the preferred bidder to be chosen as early as today because the clock is ticking. GM probably will file for Chapter 11 bankruptcy protection by June 1; GM and the German government, which would pump billions of euros in aid into Opel, would like Opel's ownership more or less settled before that date, for fear of seeing it entangled in the parent company's bankruptcy proceedings.

Opel has 25,000 workers in Germany, and Magna's proposal is winning political points because it calls for fewer job losses than Fiat's bid. Mr. Marchionne argues that some European factories must be closed because of the industry's production capacity glut.

Magna thinks Opel's German factories, if not all of their jobs, can be spared as the company ramps up its presence in Russia. Unlike Fiat, the Magna partnership has also vowed to inject fresh capital into Opel.

Analysts and investment managers say politics could sink Fiat's bid. German Chancellor Angela Merkel and her Christian Democratic Union Party will soon go into campaign mode for the Sept. 27 federal elections.

“With the election coming so soon, she doesn't want to be seen as Opel's undertaker,” said Georg Thilenius, of Dr. Thilenius Management, a Stuttgart fund manager. “Magna will probably win because they will guarantee the most jobs.”

Magna Steyr, Magna's European subsidiary, said Magna co-CEO Siegfried Wolf will be in Berlin Wednesday to meet Ms. Merkel. Mr. Marchionne met the Chancellor Tuesday in Berlin to present his latest pitch for Opel.

In a Bloomberg TV interview afterward, Mr. Marchionne said his talks with the Chancellor were “constructive” but would not rank his chances of winning Opel. “It's a lottery right now,” he said.

Magna announced last week that it and Kremlin-controlled Sberbank, Russia's biggest bank, would invest €700-million ($1-billion) in Opel. Some of the investment, Magna said, would be guaranteed by the German state. If successful, Opel would be owned 35 per cent by GM, 35 per cent by Sberbank and 20 per cent by Magna, with 10 per cent put aside for Opel employees.

A third bid for Opel, which appears to have little chance of success, comes from RHJ International, the Belgian private equity firm.

Meanwhile, OAO Gaz, the ailing Russian car maker owned by Oleg Deripaska's Basic Element group, wants to open its factories to Opel models to supply the Russian market. Gaz, however, would invest no money in the new Opel.

For Magna, the play for Opel is a Russia play. Company chairman Frank Stronach views Russia as a key growth market over the next few years, convinced that the country wants to build a homegrown auto industry. In addition, Russia's parts industry is antiquated and fragmented, which represents another opportunity for Magna.

Although Mr. Stronach has stated often that Magna would not compete with its customers, he has softened that stance in recent weeks, pointing to joint ventures and other hook-ups between competing auto makers around the world.

“You know [owning a car company] is what Frank has always wanted to do,” one high-ranking industry executive said Tuesday.

“An Opel connection with Russian banking – it's not a bad play,” the source said.

Magna already manufactures vehicles on contract for Chrysler LLC, Mercedes-Benz, BMW AG and others, so it has gained experience on vehicle development and assembly through almost a decade of contract manufacturing.

Some German politicians who have seen the outlines of the rival Magna and Fiat takeover proposals have hinted strongly that they prefer Magna's, even though the Canadian company has no dealer network, no experience managing a major car maker, and might have trouble reconciling the dual role of supplier of parts to, and competitor with, client auto makers.

In an article published Monday, the German magazine Der Spiegel quoted Roland Koch, Governor of the state of Hesse, where Opel has its headquarters, as saying that Magna's offer is “closest to the hopes and wishes” of politicians and Opel employees. German Foreign Minister Frank-Walter Steinmeier called the Magna proposal “a very solid plan.”

Mr. Marchionne has said the combined Fiat-Opel could save billions of euros by combining the two companies' car platforms and research and development efforts.

But the Fiat plan recognized the industry's overcapacity. At first, Fiat said that as many as 18,000 employees of Fiat and GM Europe, which is dominated by Opel, might have to go if Fiat and GM Europe were to merge. He has since revised the plan, saying that perhaps as many as 10,000 workers would go at GM Europe, with no more than 2,000 workers eliminated at the German factories.

Magna has said it might eliminate 9,000 jobs across Europe, and the German factories would be the least to suffer. Magna, in fact, has vowed to expand capacity at two of Opel's plants.

By last night, Fiat seemed to be fighting a losing battle, with more German opinion makers jumping on the Magna bandwagon. As Fiat lobbied the government in Berlin, Magna and RHJ presented their plans to labour representatives at Opel's headquarters in Ruesselsheim; “Magna is clearly in pole position,” Klaus Franz, head of the company's employee council, said after the meeting.

In Berlin, Peter Struck, parliamentary head of the Social Democratic Party, told reporters that Magna has the leading offer. “The Chancellor has to examine the offer by Magna very closely because in my opinion … it's the most realistic, the best offer.”

Putin pens first works: How to fire people http://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=10574807

9:52AM Wednesday May 27, 2009By Shaun Walker

In the past year he's been painting pictures, singing songs, and demonstrating his expert judo moves. This week Russia's Prime Minister Vladimir Putin will complete a clean sweep of the artistic disciplines after turning his hand to writing. Mr Putin's first ever column for a Russian media outlet will be published on Friday, entitled Why it's hard to fire people.

But while the previous efforts, along with his skiing, tiger-shooting and bare-chested fishing expeditions, have been propaganda for personal abilities, the article seems to have a more serious point.

Written for a niche monthly magazine, Russian Pioneer, it reads as the first admission by Mr Putin of the scale of infighting that raged in the Kremlin during his eight years as president.

"Conflicts within a team, especially within a big team, always arise," writes Mr Putin, in extracts leaked to a Russian news agency. "This happens every minute, every second - simply because between people there are always clashes of interest."

Most analysts believe that during Mr Putin's presidency, a vicious battle was fought for power and influence between liberals and hardliners within and around the Kremlin.

This continues today as the relatively liberal President Dmitry Medvedev and his close associates appear to be fighting off challenges from a hardline group of conservative former KGB officers. Mr Putin is sometimes lumped in with the latter group, but many analysts suggest that he actually played a delicate balancing act to stop the two groups from descending into all-out war.

The scuffles are rarely aired in public and Mr Putin himself has not made direct reference to them before. But now he seems to confirm the most radical of interpretations. "I can say honestly that while I was president, if I hadn't interfered in certain situations, in Russia there would long ago ceased to have been a government."

The magazine's editor Andrei Kolesnikov said he had not had to make any corrections as the article was written in excellent Russian, albeit with Mr Putin's famous idiosyncratic expressions in abundance.

For any corporate hotshots looking for tips on how to get rid of underachieving employees in times of economic crisis, the article lays out the "Putin method" of firing, which - on paper at least - sounds surprisingly humane.

"Sometimes from outside it seems like someone should simply be swept aside with a broom," writes Mr Putin. "But I can assure you that it's not always like this. You should never bad-mouth someone behind their back, and it's impermissible to fire somebody and toss them aside just because somebody has told you something bad about them."

Mr Putin also claims that he always gives people the right to fight their corner. "In contrast to previous, Soviet rulers, I always do it personally. I usually call the person into my office, look them in the eye, and say: 'There are concrete complaints. If you think this isn't true, then please, you can fight against it; argue your case'."

Conversation with the Man Closest to Medvedevhttp://www.khaleejtimes.com/DisplayArticle.asp?xfile=data/opinion/2009/May/opinion_May132.xml&section=opinion&col=

Jonathan Power (POWER’S WORLD)

27 May 2009 Igor Yurgens is probably as close to Dmitri Medvedev as one can get without interviewing the president himself. His influence is regarded by those who follow the inner workings of the Kremlin as immense.By disposition a liberal academic, committed to the rule of law, he runs his own think tank, which gives him the research and intellectual firepower to influence his close friend.  Yurgens had something to do with clearing the path for the president to give his first on the record interview to the remarkably brave and independent newspaper, Novaya Gazeta, whose star reporters, including Anna Politkovskaya, have been gunned down.

I recently interviewed Yurgens and we talked about Georgia, where the Russian army last August defeated the Georgian forces, which had precipitated an unnecessary war by invading its neighbour, the pro Russian mini state of South Ossetia.I’ve long maintained that although Russia was acting within its rights in repulsing the unprovoked Georgian attack, it used a sledgehammer to kill a wasp. The Russian military used tactics that not only overwhelmed the Georgian army it created extensive destruction and civilian suffering. They seemed to be unnecessarily brutal.“Yes, maybe”, replied Yurgens, “The Russian reaction was too heavy. And there was no attempt at public relations before the event to explain what and why the Russians were doing. But then we always make the mistake of being too heavy handed. But if Medvedev hadn’t given the order to intervene – and remember the military had worked themselves up - Medvedev would have been a lame duck president for the rest of his term.”Within a couple of days of the invasions Yurgens rushed to Moscow for back channel talks at the State Department. He told me “I felt deceived by [Secretary of State] Condoleezza Rice. The US did know a week before the invasion, because the Russians made sure that the 800 American soldiers stationed in Georgia were not in the way in case we had to intervene. Also both American and Russian intelligence could see and follow the movement of the Georgian army. So the US had the opportunity to intervene and tell the Georgians not to go ahead with their planned attack on South Ossetia.”“But by then within the administration, opinion, including that of [President George W.] Bush and Rice, who a month before had publicly warned the Georgian leader [Mikheil] Saakashvili not to initiate a war, had shifted in Cheney’s direction. I got this impression from Bill Burns, who I’ve known for a long time, the number two in the State Department and a very informed ex-Ambassador to Moscow.”“Cheney in effect undermined Bush and Rice. He knew that right wing academics, ex-American diplomats and others, who journeyed to Georgia in the preceding weeks, had dropped hints to Saakashvili that if it came to a showdown Bush and Rice would be compelled to support the Georgians, despite their earlier warnings. Saakashvili was emboldened to do what he had long planned. He thought he could get away with it. And he thought by poking us in the eye he would strengthen his weakening position at home, where he was becoming less democratic and 20 more ruthless by the day.”Back home in Moscow, Yurgens says that Medvedev wants to heal the breach with both the European Union and America. Medvedev “likes” the new President, Barack Obama, who has assumed power “with new ideas”. “Let’s change our institutions and then we won’t depend on the subjective”, is Medvedev’s opinion, concludes Yurgens. I met Yurgens in Copenhagen whilst he was attending the Baltic Development Forum and he had some interesting thoughts about the role of Scandinavia in being a “back door” for the Russian desire to participate in building a “European House”, an ambition of the former Soviet president, Mikhail Gorbachev and former Russian president, Vladimir Putin. The recent Danish Prime Minister, Anders Fogh Rasmussen and the former foreign secretary, Uffe El lema, both told me that they welcomed this Russian attitude, even if it was still at an incipient stage. In fact, Elleman said Scandinavia is “the front door, not the back.”

Yurgens admitted that this ambition was probably more prevalent in the north west of Russia than it the Asian part. “We had no gulag experience and our culture is totally different. Less monasteries and churches were closed here in the Soviet period than elsewhere, and we had democracy before Ivan the Terrible”. Yurgens argues that Russia is mainly benign; although with a propensity to over react, as it did with Georgia. As Elleman observes, “Russians have a tendency to shoot themselves in the foot.” Nevertheless, with Medvedev making Yurgens one of his closest advisors, this should give the West hope. The question is, will we respond to Medvedev’s olive branches. Or will we just compound the problems?Jonathan Power is a veteran foreign affairs commentator based in London

May 26, 2009Calling the Young to Armshttp://www.russiaprofile.org/page.php?pageid=Politics&articleid=a1243361732

By Dmitry BabichRussia Profile

Plans for a Professional Military Put on the Backburner as Russia Continues Drafting High School Graduates, Albeit for Shorter Service Terms

As Russia prepares to call the slimmest generation of its young men in the country’s postwar history – those born in 1990 and 1991 who have now reached the draft age – to duty, help for the ailing Ministry of Defense suddenly came from its former competitor, the Ministry of Education and Science. Being enrolled in a university has for a long time been the excuse most young men used to dodge the draft, but now the Education Ministry claims that higher learning institutions will only be allowed to accept students who do well at the nationwide standardized exams.

For years, the military viewed Russia’s higher education institutions as the draft dodgers’ best friend, since the easiest way to shun compulsory military service for a bright young man of eighteen was to enter a university. Male university students were eligible for the so-called “waivers,” which allowed them to postpone being drafted into the army at least until graduation.

This year, however, the Ministry of Education and Science plans to force the universities to enroll new students only if the latter pass the so-called standardized tests with more or less satisfactory results. So far, the Russian schoolchildren’s standardized test performance has been remarkably poor, with up to 70 percent of students getting the Russian equivalent of the American “C” and “C minus.”

This year, standardized testing will be held in the entire country for the first time, promising a rich “harvest” of young men for the Defense Ministry. Higher education institutions, including those where students have to pay for their education, will not be allowed to enroll students with low standardized test records. The draft will continue until

July 15, which will allow the military to draft the boys born in the summer of 1991, provided that they fail the testing which began on May 26.

“The Ministry of Defense needs to fill some 700,000 places with drafted soldiers. In spring and summer it plans to draft about 300 thousand people,” said Sergei Krivenko, the coordinator of a coalition of Russian NGOs defending the rights of the drafted soldiers and their families. “The reformed Russian army is expected to have about one million servicemen and 700,000 of them will be boys drafted into the army for one year. That means that the Defense Ministry has dropped its plans to switch to a professional army – at least for the moment.”

Next year, the military is expected to face similar problems with drafting new soldiers, since Russia’s demographic decline, which began in 1990 to 1991 continued throughout the 1990s. The switch from a 1.5 year service term to a year-long one creates additional problems. In an attempt to make up for these losses the military lobbied the Russian Parliament to lift most of the waivers in 2007 to 2008, and made an enormous effort to attract more applicants to the contract service.

Citizen and Army, an umbrella group of NGOs whose work Krivenko is coordinating, has been alarmed by the growing number of reports about young soldiers being forced to sign contracts for an additional 2.5 years of service, making the real duration of their service three and a half and not one year long. This issue was broached at a meeting of the Citizen and Army’s activists with the military’s top brass at the office of Russia’s Human Right Commissioner Vladimir Lukin.

“We only offer soldiers to sign a contract when they reach the eleventh month of their service, or after they are discharged. We are under strict regulations on that matter,” Vasily Smirnov, the head of the Chief Mobilization Directorate at the Ministry of Defense said during this meeting. “We are trying to act on the issues raised by human rights activists. Medical commissions that check the young conscripts’ health are now open for visits by the soldiers’ relatives. Young soldiers now are allowed to carry and use mobile phones to keep in touch with their relatives at home. We only ask soldiers not to make such calls when they are on duty. These kinds of calls should be made in their personal time.”

The official position of the human rights activists from Citizen and the Army is to push for a professional army, which they consider to be a better solution for both the conscripts’ families and the state as a whole. In private conversations, activists make no attempts to hide their hostility toward the military. “I am ashamed for our Defense Ministry,” Valentina Melnikova, the head of the Union of the Committees of Soldiers’ Mothers, said at the meeting in Lukin’s office. “The war in Georgia [in August 2008] was indeed won by 18 to 19-year-old boys. Why weren’t they paid or compensated in some other way for combat action they had to participate in? And what is the status of our troops in South Ossetia and Abkhazia? Who is going to take care of them and their families if they are attacked and harmed?”

Disregarding the longstanding tradition of “counterattacking” critics from the outside, the officers of the General Staff present at the meeting were understanding of Melnikova’s critique. “It is thanks to your uncompromising stand in defending the soldiers’ rights that we are seeing some positive changes in the army,” said Alexander Nikitin, the head of the General Staff’s department of legal oversight. “We investigate every complaint of yours on reported breaches of the soldiers’ human rights. Last year alone, we registered 70,000 cases of the soldiers’ rights being abused. Hundreds of thousands of servicemen had their rights restored and respected following our investigations.”

The most common breaches of the soldiers’ rights include, for example, “surprise” medical tests before they are enrolled in the army, when families of future soldiers are not notified about the examinations and fail to provide evidence of their sons’ disabilities. Other violations include the “older” soldiers stripping the new ones off their money and property and denying soldiers the right to visit their parents on leave.

“The good thing is that the military finally started listening to civil society,” said Krivenko. “Action is sometimes taken and certain promises are made. And in the army, even a couple of words from a high-placed official are sometimes enough. We love to take the military at their word. For example, today’s statement from the deputy of the General Staff on soldiers’ rights is a very important one. He said soldiers could call home in their free time. We shall take him at his word, making sure that the officers do not prevent the soldiers from making calls.”

National Economic Trends

Russia’s 2009 Economic Forecast Lowered at Bank of Americahttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=aqGpEmeAZz5g

By Stephen Kirkland

May 27 (Bloomberg) -- Russia’s economy will shrink 4.9 percent this year, according to Bank of America Corp.-Merrill Lynch & Co., which lowered its forecast from a contraction of 2.1 percent.

Last Updated: May 27, 2009 01:19 EDT

Russia re-weighting of FX reserves? http://www.businessneweurope.eu/dispatch_text8733

Timothy Ash, RBSMay 27, 2009

There are rumours doing the rounds again this morning that the CBR is planning to revise the weights in the rouble basket. The rumour suggests an increase from "45%

euro weighting at present, to 55% in October and 60% in December".

There is a lot of confusion around about the exact share of the rouble basket; last week there were rumours that the current the 41% share of euros in the basket had actually increased to 47.5%, subsequently denied by the CBR.

Part of the confusion surrounds the CBR's net versus its gross FX reserve position. The CBR's net FX reserve position excludes government FX funds held in the Reserve Fund (US$106.8bn as of the end of April) and the National Wealth Fund (US$86.3bn), plus around US$20bn in commercial bank FX balances held at the CBR. The CBR aims to keep the basket weighting of net reserves, i.e. around US$170bn (end April), at 41% euro, 47.5% US dollar, with the balance in Sterling and Yen. Interestingly, according to the CBR, the balance of Euros and US dollar in the Reserve Fund and the National Wealth Fund are kept close to 46:44 in Euros and US dollars with the balance in Sterling (approximately 10%) and roubles. Most commercial bank FX reserves at the CBR are, apparently held in euros.

Still, this would suggest that gross reserves are probably made up of approximately 46-47% US$, and 43-44% euros, again with the balance in sterling and yen.

Interestingly, as resources in the Reserve Fund are drawn down to cover budget financing needs, the FX are in effect moved over into the CBR's net reserve account; the CBR actually prints roubles to cover the MOF's budget financing needs and technically does not have to sell FX on the other side. This is a simple booking-keeping transaction between the CBR and the MOF, with gross reserves at the CBR remaining unchanged. In effect though, through this process the share of euro's in net reserves should increase gradually towards the 44% mark.

Beyond the above largely technical change in reserve levels, we doubt that the Russian authorities are planning a fundamental change in the composition of net reserves to as much as 60% euros, as hinted above. In particular, the weighting of net FX reserves currently reflects more the structure of trade/external liabilities of Russia; reserve cover provides a hedge for broader trends in the economy. Herein we do not see much of a reason for a fundamental change in the structure of net reserves. Data for 2007 (the latest available) showing the regional structure of trade shows that of total trade turnover (approximately US$577bn), indicates that the EU accounts for 45% of Russia's trade turnover. For the Euro area, however, the share is just 37.5%. While trade volumes increased significantly in 2008, as commodity prices boomed, as these prices have subsequently receded in 2009 at least we think the structure of trade is still probably close to those in 2007. Further, note that a significant proportion of trade with the EU/Euro area is also probably denominated in US dollars, e.g. commodities. Meanwhile, in terms of Russia's external liabilities (US$435.5bn) we would venture that as much as two thirds of this is still denominated in US-dollars.

The above would suggest little reason for the authorities to change the FX composition of net reserves. There may, however, be a drive by the CBR to change the weighting of

euros/dollars in the National Wealth Fund. Note that the National Wealth Fund is more of a long term investment vehicle managed by the CBR/MOF, with the aim of generating high returns for the future. Given the increasingly negative global market view towards the US dollar it might well be the case that the Russian authorities are considering increasing the weight of euros in the National Wealth Fund, which in any event only comprises around one-fifth of gross reserves of Russia.

All this said, we think that discussions over re-weighting Russia's net FX reserves is somewhat peripheral to the bigger discussion over whether and when Russia moves to free flat the rouble. At that date, which we think is sooner rather than later, the discussion over the weighting of the rouble basket will be redundant.

Business, Energy or Environmental regulations or discussions

Government-Proposed Changes to Bankruptcy Lawshttp://www.businessneweurope.eu/dispatch_text8733

Citibank, RussiaMay 27, 2009

Similar to Chapter 12 amendments, the government may change the way creditors deal with heavily leveraged companies in cases where there is outstanding debt. According to Vedomosti, among the proposals: a company with overdue debt payments may seek a 2-year protection period (unless overdue debt is more than total value of assets) without recourse to a court order.

This is a government attempt to enhance restructuring laws. The news indicates to us that the government would like to become less involved in future restructurings instead of actively bank-rolling the companies most under pressure. This is hardly positive for those companies which expected VEB and VTB to continue to extend credit on favorable conditions.

Small, Big Businesses Petition Governmenthttp://www.themoscowtimes.com/article/600/42/377450.htm

27 May 2009By Nadia Popova / The Moscow Times

Despite the billions of rubles the government has earmarked to support private businesses, Russian entrepreneurs said Tuesday that they were still unsatisfied.

While the owners of small enterprises were picketing outside the Economic Development Ministry to mark national Entrepreneur Day, their colleagues from big business were complaining to President Dmitry Medvedev at his residence in Barvikha, in the Moscow region, about the inaccessibility of credit.

"Freedom for small businesses!" said a poster held by Natalya Degtyaryova, a protester and owner of a small store in Lipetsk.

The crowd chanted, "Stop lying about the support of small business," while picketers held up signs reading, "My business was killed by a bureaucrat" and "No to raider attacks."

"My business was all but destroyed when I refused to pay a bribe two months ago," Degtyaryova said. "The consumer market control department said they found 'low-quality' wine in my shop and took several bottles with them."

"They told me through one of my suppliers that we could settle the problem in a friendly way if I pay 5,000 rubles," she said. "When I refused to pay it, they fined me 100,000 rubles." The minimum fine for such a violation is 3,000 rubles.

There were hopes, though, that fewer people will have Degtyaryova's problem in the future, as all unscheduled inspections of small and middle-sized businesses were banned starting May 1.Other picketers complained that government measures to aid small businesses didn't work. "My rent rose 700 percent in January," said Olga Mikhaylenko, the owner of a Moscow hat maker. "And this is despite the fact that we are renting from the city."

Mayor Yury Luzhkov said lease payments for office space rented from the city should not exceed 1,000 rubles a square meter -- about 8 percent of the average rate last year, before rental prices plummeted.

Medvedev admitted Tuesday that some measures adopted by the government did not work properly. He was speaking at a meeting with 31 businessmen, including Troika Dialog chairman Ruben Vardanyan and MDM-Bank chairman Igor Kim, as well as producers of bread, wine, car components and software.

"Not all forms of support have passed the test of time, not all of them have been realized as quickly as we wanted them to," Medvedev said.

The participants agreed with Medvedev. "All those who came, from mineral resources extractors to a meat-processing factory owner, complained about the inaccessibility of bank loans," said a source present at the meeting, who asked not to be identified because of the sensitivity of the situation.

But businessmen raised other issues, as well.

The chief executive of Kirov-based Vesna toy factory, Olga Dorotyuk, complained that there was no federal body to deal with the toy industry's problems, the source said. The complaint prompted Medvedev to appoint Deputy Prime Minister Igor Shuvalov to oversee the country's toy industry.

Dorotyuk was unavailable for comment late Tuesday.

"The conversation was very informal and relaxed," said the chairman of the ABBYY, a document-recognition software company, David Yang, who was present at the meeting. "I was afraid that the president would be telling us what to do." Medvedev promised that the role of the state in the economy would shrink while the importance of private businesses would grow, Yang said.

Russian gencos - capex delays: good enoughhttp://www.businessneweurope.eu/dispatch_text8733

Troika, RussiaWednesday, May 27, 2009

Having plugged in reported 2008 IFRS results, applied a reduced WACC, factored in a stronger ruble in 2009 10, changed our 2009 10 electricity output projection, revised downward the capex programs at Mosenergo, RusHydro and OGK 1, and plugged in a heavy cut in 2009 capex at OGK 2, we upgrade our target prices by 12 110% for the four OGKs, Mosenergo and RusHydro. Our new target price for RusHydro is $0.051 per share. OGK 2 offers the highest upside, followed by OGK 5, but we retain our BUY recommendations on all of these stocks. On 2010E EV/EBITDA, Russian gencos look cheaper than GEM peers.

_ Private gencos' 2009 capacity commissioning cut 65%. In April, the Energy Ministry stated that the adjusted forecast implies commissioning just 3.657 GW this year (including 1.627 GW by private gencos). The new forecast implies 65% less new capacity to be commissioned in 2009 by private gencos, we estimate, which already implies a delay. Hence, the old capex programs can be generally delayed, at least for 2009 capex, we believe. The Energy Ministry will wait until end May for proposals from OGKs and TGKs about possible amendments to mandatory investment programs in terms of timeline or location.

_ Long term capacity market concept - end June? The Energy Ministry plans to submit the long term capacity market concept to the government at end June, Energy Minister Sergei Shmatko stated in mid May. The rules of the market will take into consideration the interests of the government and the public, but "we are ready to provide excessive terms of attractiveness for investments in the electricity sector", he reportedly stated. While the final rules of the long term capacity market model are not yet determined and could imply a risk to our valuation, the minister's readiness to provide attractive investment terms for the sector is positive.

_ Liberalization scheme - currently intact. From July 1, the share of liberalization is supposed to rise from the current 30% to 50%, reaching 100% by January 1, 2011 for industry. The issue of delaying electricity market liberalization is not being discussed, Energy Minister Sergei Shmatko stated at end April. The Economics Ministry is not

considering changing the liberalization scheme, though it will strive to limit electricity tariff growth, Interfax cited Economics Minister Elvira Nabiullina as saying at end April. Hence, we believe that the liberalization remains intact.

Rosatom sees electricity demand recovering in two years http://www.businessneweurope.eu/dispatch_text8733

VTB CapitalMay 27, 2009

Sergey Kirienko, the Head of Rosatom (which operates the nuclear power plants in Russia, a 23GW installed capacity genco) said yesterday that he saw electricity demand picking up in two years. On the back of this forecast, the company has altered its long-term investment plans and is delaying the commissioning of two units per year from 2012-13 to 2014-15. Kirienko mentioned that electricity consumption was growing in the South Region despite the economic slowdown, saying that Rosatom would bring a new unit at Rostovskaya NPP on line by the end of the year. Our View: Rosatom's forecast of electricity demand seems a little bit pessimistic. We see demand reaching 2008 levels by 2012. Overall, we welcome the adjustment to the plan for commissioning nuclear units: since nuclear power is cheap it creates downward pressure on free electricity prices.

Sberbank to Form Food Chain With Sistema Owner, Kommersant Sayshttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSJXYBFj14HA

By Maria Ermakova

May 27 (Bloomberg) -- OAO Sberbank, Russia’s biggest bank, plans to enter the grocery business after it gained retail space after a customer defaulted on a loan, Kommersant said.

OAO Sberbank acquired 250,000 square meters (2.7 million square feet) of selling space from the Alpi chain and will combine that with another retailer, Mosmart, which is being bought by AFK Sistema shareholder Evgeny Novitsky, the Russian newspaper reported.

Sberbank and Novitsky have asked Vitaly Podolski, a former chief financial officer of X5 Retail Group NV, Russia’s biggest retailer, to run the new company, Kommersant said. Podolski, Novitsky and Mikhail Bezelyanskiy, one of Mosmart’s owners, couldn’t be reached for comment, according to the newspaper.

To contact the reporter on this story: Maria Ermakova in Moscow at mermakova@bloomberg.net

Last Updated: May 27, 2009 02:09 EDT

Gold Output Rises 38% in First Four Monthshttp://www.themoscowtimes.com/article/1009/42/377455.htm

27 May 2009 Reuters

Russian gold output rose by 37.8 percent to 43.28 tons in the first four months of this year, from 31.41 tons a year ago, mainly because of the launch of new ore processing capacities, an industry lobby said Tuesday.

The Russian Gold Industrialists' Union said the Kupol mine, majority owned by Kinross Gold Corp, on the far eastern Chukotka Peninsula, and Peter Hambro Mining's Pioneer mine, in the Amur region, accounted for most of the rise.

Another contributor was the Olympiada mine in the Siberian region of Krasnoyarsk, which is owned by Russia's largest gold producer, Polyus Gold.

Russia's gold output started rising from last year following five years of decline after some of the country's biggest miners raised production.

Production in the first quarter of this year showed a year-on-year increase of 42 percent to 31.39 tons.

In the first four months of this year, output from mines rose by 45.6 percent to 36.44 tons, the union said in a statement.

Mechel announces bridge loan extensionhttp://steelguru.com/news/index/2009/05/27/OTU5OTY%3D/Mechel_announces_bridge_loan_extension.html

Wednesday, 27 May 2009

Mechel OAO one of the leading Russian mining and metals companies, announced a two-month extension of its bridge loan taken to finance the acquisition of Oriel Resources Ltd.

On May, 22nd 2009, following negotiations with the banking syndicate which provided Mechel with a one-year loan for financing of Oriel Resources Ltd acquisition, an agreement for a two-month payment term extension was reached. The new payment date is July 15th 2009.

The Company and creditor banks representatives agreed on the basic principles of the bridge loan refinancing for a term of up to 3.5 years, and the extension period will be used to execute the agreement. At the moment the participating banks of the syndicate are in the process of internal procedures performing in order to get the final approval of this agreement conditions.

Mechel is one of the leading Russian companies. Its business includes four segments:

mining, steel, ferroalloys and power. Mechel unites producers of coal, iron ore concentrate, nickel, steel, rolled products, hardware, heat and electric power. Mechel products are marketed domestically and internationally.

Acron is awaiting approval for joint venture with the statehttp://www.businessneweurope.eu/dispatch_text8728

UralSib, RussiaMay 26, 2009

Final decision on the project in the offing. In an interview with Vedomosti today, Acron (AKRN - Buy) CEO Alexander Popov said the company is awaiting state approval for the creation of a joint venture Sol Zemli, in the near future. According to Popov, the Industry and Trade Ministry gave positive feedback on the project; also Acron has received approval from most of the parties involved and is anticipating a positive final decision by the state may be done soon. In January, Acron made a proposal to the state to create a joint venture, Sol Zemli, under which Acron would gain control by contributing its licenses for a potash deposit at Talitsky and a phosphate one at Oleny Ruchey, while the state will provide up to a $2 bln credit line towards the JV in exchange for a 25% plus one share stake in the shareholder capital.

Credit line may be provided at 10-12%. Popov also highlighted that if approved, the credit line to the joint venture may be provided at an interest rate of 10-12%, which we consider attractive.

GAZ owes RUB42bn to banks http://www.businessneweurope.eu/dispatch_text8733

bneMay 27, 2009

Russian carmaker GAZ Group owes RUB42bn to banks, the governor of the Nizhny Novgorod Region Valery Shantsev said Tuesday reports Prime Tass.

GAZ has its production in the region. Shantsev said that GAZ Group had restructured 11 of its 13 loans.

GAZ provides update on engine strategy http://www.businessneweurope.eu/dispatch_text8733

VTB CapitalMay 27, 2009

Igor Kulgan, the Head of GAZ's Engines Division, held a meeting with analysts to

provide an update on the company's strategy in the segment. The key takeaways from the meeting are as follows. __ GAZ does not plan to resume purchases of engines from Sollers for its light commercial vehicles (LCV). In the coming years, it will only buy engines from Sollers for its PAZ small buses (as well as small amounts within state orders), but PAZ will switch to in-house engines once GAZ has launched production of its new medium-sized diesel engine. __ GAZ will equip its LCVs with engines produced at the Group's Ulyanovsk Motor Plant (UMZ). Over the past few years, the company has upgraded UMZ engines to improve their quality and ensure good compatibility with its LCVs (several years ago, GAZ attempted to install UMZ engines on its LCVs but failed due to quality and compatibility problems). __ GAZ continues to talk with the Bank for Development (VEB) about attracting funds to complete its medium-sized diesel engine project. The company needs to raise RUB 7bn (USD 225mn), which would allow it to launch production of the new engines in November

S7 to join oneworld; Star content to wait on Russiahttp://www.atwonline.com/news/story.html?storyID=16719

Wednesday May 27, 2009

Russia's S7 Airlines will join oneworld next year, the 10-member group announced, adding 54 new destinations and eight new countries (Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan and Uzbekistan) to the alliance's network.

S7 will be the second Russian carrier in an alliance. Aeroflot joined SkyTeam three years ago ( ATWOnline , April 17, 2006) . S7's first step toward integration will be its June 1 addition to oneworld's Global Explorer round-the-world fare. British Airways will be its sponsor and adviser during the 18-month alliance implementation program.

S7 carried 6 million passengers in 2008 and operates 26 A320 family aircraft, seven A310s and two 767s. It earned a $3 million net profit in 2008 on revenue of $1.7 billion and is 25% state owned. Oneworld members BA, American Airlines, Iberia, Japan Airlines and Royal Jordanian serve S7's Moscow Domodedovo hub. Mexicana is set to join the alliance this year ( ATWOnline , April 11, 2008) .

"S7 fills one of oneworld's few remaining membership white spaces with a carrier that matches our alliance's demanding quality requirements. It will expand oneworld's presence substantially in Russia and the [CIS]," oneworld Managing Partner John McCulloch said. S7 CEO Vladimir Obyedkov said membership "will also strengthen us financially, through revenues from passengers transferring to our network from our oneworld partners and the cost reduction opportunities the alliance offers."

Meanwhile, in Athens Star Alliance CEO Jaan Albrecht said he was not bothered by the fact that his group will be the only one of the three global alliances to lack a Russian member. He stressed there is no "rush for Russia" and that Star talked to S7, the defunct AiRUnion alliance and Transaero Airlines in the past as part of its strategy to recruit members in Russia, Brazil, India and China. It has secured commitments from major carriers in the latter three nations.

"The Russian airline industry is still very unsettled," he told ATWOnline yesterday at the Aegean Airlines joining event in Athens (see story below). "There are still too many airlines in Russia and it's still a very uncertain environment. Look at what happened to AiRUnion. Two years ago they were the upcoming airline group in the CIS, but they folded. We have time. We will not rush into announcing a member because others do so" ( ATWOnline , Oct. 24, 2008) .

by Kurt Hofmann and Cathy Buyck

Facebook says 'da' to Russian investor http://money.cnn.com/2009/05/26/technology/facebook_investment.fortune/?postversion=2009052621

Financier Alexander Tamas explains the logic behind Digital Sky Technologies' $200 million investment in Web site. By Jessi Hempel, writerMay 26, 2009: 9:31 PM ET

CARLSBAD, Calif. (Fortune) -- Even before the official kickoff of the seventh annual annual "D: All Things Digital" conference, Facebook was making waves at the event: Hours after the company announced a $200 million cash infusion from Digital Sky Technologies that values the social media site at $10 billion, Digital Sky partner Alexander Tamas was making the rounds at the Four Seasons Aviara resort and talking up his latest deal.

I caught up with Tamas, along with Facebook Chief Operating Officer Sheryl Sandberg and Washington Post chairman and CEO Don Graham. Tamas' Digital Sky is based in Moscow and London, and its recent investment in Facebook gives the investment firm a roughly 2% stake in the company.

Tamas says he believes Facebook is worth every cent of the $10 billion valuation. He says he flew to Palo Alto for his first meeting with Chief Executive Mark Zuckerberg several months ago and walked away certain Facebook would be the most important global Internet company.

"A lot of this is about Mark," he said, a grin spreading from ear to ear. "He is somebody who wants to build a real business." It's a sentiment most of Facebook's investors have expressed, and Graham, an unabashed Zuckerberg fan, nodded vigorously beside Tamas.

Despite the down economy, Facebook has had no shortage of interested investors. Sandberg reiterates the company wasn't proactively searching for money - and insists Facebook doesn't need the funds to maintain its operations. "We always were open to the right opportunities and the right partnership," she said. "And they have good experience across different types of properties."

Indeed, Tamas and his team will bring invaluable knowledge about doing business in Russia and Eastern Europe, where companies are testing different types of business models for social networks. Digital Sky Technologies has investments in several of the largest Internet companies in Russia so the partners are able to evaluate not one strategy, but several strategies in the Russian market place.

"The mistake people are making here is to say display advertising does not work in social networking," said Tamas, describing the American marketplace. "That is true, but what does work is much more intelligent ads. It's much more like television. People have not taken advantage of what Internet as a medium can do."

And he's not focused solely on advertising. Tamas has a good deal of experience with both virtual goods and different payment models. As Facebook builds out its business, the company must learn as much as possible about different revenue streams.

Of course, the $10 billion valuation may seem high in the current economy. But it is a good deal less than the $15 billion value attached to Microsoft's $240 million investment for a 1.6% percent stake in the company. Sandberg points out that economic conditions were fairly different a year and a half ago and adds that that was before she arrived at the company. Also: Microsoft's investment was in large part strategic.

But valuations are hard to arrive at. Which brings us back to Silicon Valley's other hot social media property: Twitter. What does the Facebook crew think about it?

Sandberg is diplomatic, noting "the world is moving to real-time sharing" and saying there's room for a number of players.

Tamas is more direct in his opinion of the emerging Twitterverse.

"It's a very interesting company and has interesting potential - but it's in a completely different league," Tamas said. He'd better hope he's right about Facebook's primacy: After all, he has more than $200 million riding on it.

Internet Advertising Poised to Growhttp://www.themoscowtimes.com/article/600/42/377454.htm

27 May 2009By Jessica Bachman / The Moscow Times

Russia's once-booming advertising market will contract by at least 10 percent this year, but Internet advertising remains unaffected and looks poised to grow, ad executives said Tuesday.

Kiril Matveyev, director of Aegis Media, said the country's market would shrink by at least 10 percent this year in ruble terms, a drop that both well outpaces the forecasted 5.9 percent decline in the global market and reinforces the country's status during the crisis as a black-sheep BRIC country.

While the advertising industry showed positive growth in the first quarter in Brazil, India and China, Russia's plunged 30 percent, Matveyev told an industry conference.

With the country's gross domestic growth down 6 percent and industrial production down 17 percent year on year in April, ad executives said they did not expect the ad market to recover until next year.

"There is a significant correlation between GDP growth and the advertising market," said Martijn Peeters, a division director at PricewaterhouseCoopers.

"Almost every industry in Russia is affected by the crisis, and consumer behavior has completely changed. So any research that you did last year you can throw it out the window," Peeters said.

Sergei Vasiliyev, director of Video International, said the "main driver" behind a 20 percent drop in television advertising in the first quarter was decisions by small and medium-sized businesses to slash their television budgets by 52 percent in the first quarter.

"Small and medium-sized businesses are not doing that great, to put it lightly," Vasiliyev said. "We have seen 30, 40, 50 percent declines in airtime reservations from small businesses."

The 50 biggest TV advertisers, meanwhile, have increased their television budgets by 15 percent, he said.

But Vasiliyev cautioned that the worst was yet to come for television, which fared much better in the first quarter than the print and outdoor advertising markets, down 35 percent and 42 percent, respectively, compared to the same period in 2008, according to data from the Russian of Association Communications Agencies.

"I think the bottom will be hit in June and July, with a volume decline of 25 to 30 percent. And then in the fourth quarter, things will get better, and we will see volumes down around 17 percent, like what we saw in April," Vasiliyev said.

It may be doom and gloom for traditional advertising media this year, but the same story isn't true for the Internet, said Alexei Katkov, commercial director for Mail.ru.

"Before the crisis, a little more than half of all companies in Russia used targeting advertising," he said. "Now, 90 percent of them are looking to target. And if you want to catch a specific type of person or group, you're certainly not going to use TV. Targeting is best done through the Internet."

Katkov said the Internet advertising market did not contract in the first quarter, and he expects year-end revenues to be on par with those in 2008, or 1.2 billion rubles.

With Internet use growing rapidly in Russia, Katkov said he expected new media to soon come to dominate the advertising market, overtaking all other media except television.

Activity in the Oil and Gas sector (including regulatory)

Rosneft Receives First $400 Million of $15 Billion China Loanhttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=auZlkbFJQhzs

By Brad Cook

May 27 (Bloomberg) -- OAO Rosneft, Russia’s largest oil company, said it received the first $400 million of a $15 billion loan from China that will be repaid in oil.

State-run Rosneft said on its Web site late yesterday that it expects to receive additional payments “in the coming days.”

Last Updated: May 27, 2009 00:41 EDT

Russian Govt OKs 4 New Production Licenses in Yamal-Nenets Region OAO Novatek 5/26/2009URL: http://www.rigzone.com/news/article.asp?a_id=76511OAO Novatek has received approval from the Federal Agency for Subsurface Use to convert four exploration licenses into new production licenses on fields located in the Yamal-Nenets Autonomous Region. Throughout 2007 and 2008, NOVATEK financed the successful exploration activities on the Severo-Khancheyskiy, Novoyurkharovskiy, Yarudeyskiy and Raduzhny license areas, and as a result, the Company was able to demonstrate recoverable reserves under the Russian reserve classification categories “C1 + C2” of 80.2 billion cubic meters of natural gas and 7.5 million tons of gas condensate. The four production licenses were issued in accordance with current Russian legislation on a non-competitive basis as a result of the work performed by the Company in compliance with the initial terms of the licenses. In accordance with the new license agreements, the Company will continue to undertake further exploration activities as well as start the development activities on the discovered fields.

Novatek converts four licenses from exploration into productionhttp://www.businessneweurope.eu/dispatch_text8728

Alfa, RussiaTuesday, May 26, 2009

According to a press release distributed by Novatek yesterday, the company has received approval from the Federal Agency for Subsurface Use to convert four exploration licenses into new production licenses on fields located in the Yamal-Nenets Autonomous Region. Novatek performed exploration activities on the Severo-Khancheyskiy, Novoyurkharovskiy, Yarudeyskiy and Raduzhny license areas in 2007 and 2008, and was able to demonstrate recoverable reserves of 80.2 bcm (C1 + C2) of natural gas and 7.5m t of gas condensate. The four production licenses were issued in accordance with current Russian legislation on a noncompetitive basis as a result of the work performed by the company in compliance with the initial terms of the licenses.

NOVATEK acquires one of Russia's largest fieldshttp://www.businessneweurope.eu/dispatch_text8733

Troika, RussiaWednesday, May 27, 2009

NOVATEK has reported that it will pay $650m for a 51% stake in Yamal SPG, the license holder of the 1.26 trln m3 Yuzhno Tambeiskoye field. Yamal SPG was previously thought to belong entirely to Gazprombank, though NOVATEK says it acquired the stakes from three companies related to Volga Resources, which is reportedly controlled by Gennady Timchenko. Volga Resources is a circa 5% shareholder in NOVATEK. Whatever the case, such a large field could only have been transacted with Gazprom's blessing. Kommersant this morning cites an unnamed company source as saying that Volga Resources would use the proceeds to buy NOVATEK shares, apparently from the company (because the source says the deal will require almost no financing on NOVATEK's part). If true, this would indicate that Timchenko is committed to NOVATEK's future and gainsay any concerns that a core shareholder is taking cash out of the company. The purchase could effectively raise NOVATEK's 2P equity held gas reserves by an estimated 30 60%. We estimate that the company is paying $0.16 0.35/boe (depending on how strictly the Western audit converts the Russian C1+C2 reserves) - a very low price for one of Russia's largest gas fields. NOVATEK becomes the first independent company in Russia to obtain meaningful exposure to Yamal, Russia's next major gas producing region. However, development on the Yuzhno Tambeiskoye field will likely begin only in the next eight to 10 years (we wait to hear the development guidance during the conference call that the company is likely to hold). As such, while we recognize the long term growth potential provided by the field's massive size, along with possible JV opportunities, and take account of the relatively small price paid for an asset of such quality, we treat the acquisition as neutral for the stock at the moment. Unlike last year (remember the major hydrocarbon discoveries in Brazil), the market does not currently reward Russian companies for large new and undeveloped assets, at least

not immediately. Nevertheless, we think that it is possible and perhaps appropriate that NOVATEK updates its long term production plans.Oleg Maximov

Novatek says will pay cash for Yamal LNGhttp://www.reuters.com/article/rbssOilGasExplorationProduction/idUSL011936820090527

MOSCOW, May 27 (Reuters) - Russian gas firm Novatek (NVTK.MM) will make a $650 million acquisition of gas firm Yamal LNG in cash, its chief financial officer said on Wednesday, denying media reports it may make the payment in its shares.

"It is a cash deal... in several tranches. The first tranche will probably be next week," said Novatek's CFO Mark Gyetvay adding that the remaining sum could be raised from the debt market.

Kommersant business daily quoted unnamed source on Wednesday as saying Novatek could grant $650 million worth of its shares to businessman Gennady Timchenko for his 51 percent stake in Yamal LNG. (Reporting by Katya Golubkova, writing by Dmitry Zhdannikov; editing by Alfred Kueppers)

Novatek weighs up Yamal LNG movehttp://www.upstreamonline.com/live/article179434.ece

News wires

Russian gas player Novatek could grant $650 million worth of its shares to businessman Gennady Timchenko instead of paying cash for his 51% stake in the Yamal Liquefied Natural Gas project, according to local media reports.

Earlier this week Novatek announced the $650 million acquisition of the Yamal LNG stake, which gives it exploration and development rights to the South-Tambeyskoye gas field.

Novatek was not immediately available for comment.

Moscow-based financial daily Vedomosti added that $650 million in shares would double Timchenko's stake in Novatek to around 10%.

Wednesday, 27 May, 2009, 07:03 GMT  | last updated: Wednesday, 27 May, 2009, 07:03 GMT

NOVATEK buying 51% of Yamal LNG from Timchenko for $650 mln (Part 3)http://www.interfax.com/3/495821/news.aspx

MOSCOW. May 26 (Interfax) - The board of directors of independentgas producer NOVATEK (RTS: NVTK) has approved purchase of a 51% stake inYamal LNG for $650 million, NOVATEK said in a statement. Yamal LNG is the operator of the South-Tambeyskoye field. The shares are being acquired from three structures affiliated withthe Volga Resources SICAV SIF S.A. fund. It was reported earlier that Gennady Timchenko, the founder of oiltrading company Gunvor, is the main owner of Volga Resources fund. The company has already received clearance for the transaction fromthe Federal Antimonopoly Service. Gazprom (RTS: GAZP) had previously announced plans to build an LNGplant at the field. At the time it had named ExxonMobil, ConocoPhillipsand Shell as potential participants in the project. NOVATEK'sacquisition of the stake puts it in position to participate in the LNGproject. NOVATEK CEO Leonid Mikhelson commented: "The acquisition of theSouth-Tambeyskoye field significantly increases our resource base." It is not the first time NOVATEK has had a stake in the field. In2003 it acquired a blocking stake in Tambeyneftegaz, which held thelicense to the field. But NOVATEK sold the stake to Gazprombank in June2005 and in July the license to the field was transferred to Yamal LNG.At that point Nikolai Bogachev controlled the field. In 2006 Gazprombank filed suit over the transfer of the license.The litigation ultimately led to Bogachev's withdrawal from the project.In late 2006, he sold 74.9% stakes in both Tambeyneftegaz and Yamal LNGto a group of investors led by tycoon Alisher Usmanov. The other 25.1%stakes were held by a Gazprom company: Gazprombank-Invest LLC. In early 2009 Usmanov said that he had sold the Yuzhno-Tambeyskoyefield to structures close to Gazprombank at the end of 2008. South-Tambeyskoye contained 1.256 trillion cubic meters of C1+C2reserves as of January 1, 2008. The gas condensate resource amounted to40 million-60 million tonnes.

Transneft digs in with Belarus bypass

http://www.upstreamonline.com/live/article179400.ece

News wires

Russia is set to start work on a new oil link to the Baltic Sea next month, pipeline monopoly Transneft said, launching a project that will allow Moscow to bypass Belarus.

Transneft first proposed expanding the Baltic Pipeline System to Ust-Luga, near the Russian port of Primorsk, after a dispute with ex-Soviet neighbour Belarus disrupted oil flows to Europe via the Druzhba pipeline in 2006.

"We plan the first welding on the pipeline on 10 June," Transneft spokesman Igor Dyomin told Reuters.

Work had already begun to pave the way for the pipeline through the forest, he said.

The new pipeline, known as BTS-2, will have capacity of 1 million barrels per day and is an extension of the existing Baltic Pipeline System. It will include a spur to feed crude to Surgutneftegaz' Kirishi refinery.

The first phase of BTS-2 is due to be completed in September 2012.

Russi is also building a pipeline to its Pacific coast to move oil from huge new fields in eastern Siberia to energy-hungry Asian markets, a move that will diversify Moscow's energy reach beyond its traditional markets in Europe.

Initial estimates for the cost of BTS-2 were around $2 billion, but Transneft's latest estimate last June was for 120 billion roubles ($3.9 billion).

Tuesday, 26 May, 2009, 13:28 GMT  | last updated: Tuesday, 26 May, 2009, 13:28 GMT

Transneft views increase of Charter capital as a preferable way of sourcing funds to finance new projectshttp://www.businessneweurope.eu/dispatch_text8733

Citibank, RussiaMay 27, 2009

Transneft's CEO Nikolay Tokarev said yesterday in interview that "it could have been simpler and more appropriate to finance projects by growth of Charter capital".

As a reminder, last week Interfax reported that the government was considering increasing Transneft's Charter capital to fund its export pipeline projects such as BPS-2 and ESPO. Interfax quoted its source in the government that the Energy Ministry was seeking a way to remove the investment component from the new pipeline tariffs to provide comparable economics of crude oil exports via westbound and eastbound (ESPO) routes.

This indicates to us that the government is concerned about the funding of Transneft's capex, despite a recent US$10bn loan from China. It is possible that while the scope for

future tariffs hikes is limited, future capex significantly exceeds the ESPO and BPS-2 investments. Transneft recently announced estimated investments associated with ESPO construction that lead to the total project capex of Rbl 853bn vs. Rbl 864bn in our forecast, of which only Rbl 238bn had been spent by the end of 2008. Overall, we estimate the company's 2009-20E capex growth at Rbl 951bn but on the top of that we forecast Rbl 844bn maintenance investments that drive total capex to Rbl 1795bn (US$56bn) during the period.

http://www.reuters.com/article/rbssEnergyNews/idUSLR55417220090527

www.vremya.ru

The head Russian oil major LUKOIL (LKOH.MM: Quote, Profile, Research, Stock Buzz) Vagit Alikperov is urging the state to speed up the distribution of oil and gas deposits, including those earmarked as national reserves, in anticipation of a global economic recovery.

Lukoil Head to Visit Iraq for West Qurna-2 Oil Talks by  London BureauDow Jones Newswires 5/26/2009URL: http://www.rigzone.com/news/article.asp?a_id=76481LONDON (Dow Jones Newswires), May 26, 2009 The head of Russia's largest independent oil producer Lukoil Holdings (LKOH.RS) said Tuesday he is due to visit Baghdad for talks on a contract to develop the West Qurna-2 oil field in southern Iraq, the RIA Novosti news agency reports.Lukoil was involved in the development of the first phase of West Qurna and signed a contract with the Saddam Hussein regime to develop the second stage, but the deal was frozen in 2002. Iraq and Lukoil agreed in 2008 to establish a working group to amend the original contract on West Qurna-2."I plan a visit to Baghdad to continue the dialogue," Vagit Alekperov said. "I hope we reach an understanding and that the conditions including the company in the project are mutually acceptable."West Qurna-2's proven recoverable reserves have been estimated at around 6 billion barrels of oil. Under the terms of the contract, output could amount to 4.8 billion barrels of oil and 56.4 billion cubic meters of associated gas. Investment in the project could reach $4 billion.Ali Hussein Balo, chairman of the oil and gas committee of the Iraqi parliament, earlier said in an interview with RIA Novosti that Lukoil would have an opportunity to renew the contract.Baghdad is also discussing the West Qurna-2 oil field with Chevron Corp. (CVX) and Total SA (TOT). However, analysts say that Iraq is likely to resume work at West Qurna-2 with Lukoil after Russia recently wrote off the bulk of the country's debt of around $12 billion.  

Gazprom

Gazprom May Join Iran-Pakistan Gas Pipeline, Kommersant Reportshttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=acctf7Oj2EbQ

By Mark Sweetman

May 27 (Bloomberg) -- OAO Gazprom may join a project to build a natural gas pipeline from Iran to Pakistan after Russia welcomed an accord on its construction because it will help strip the Nabucco project of a resource base, Kommersant said.

Gazprom is interested in the project and is ready to help its Iranian partners enter new markets, the Moscow-based newspaper reported, citing Sergei Kupriyanov, the Russian company’s spokesman.

Construction of the pipeline should be started in September and completed in 2014 under an agreement signed by the Iranian and Pakistani presidents, Kommersant said.

The project benefits Russia because Iranian gas will flow to Southeast Asia and so won’t compete with Russian gas exports to Europe in the medium term, the newspaper said, citing an unidentified senior government official. This will help take away gas from the proposed Nabucco pipeline, which Russia sees as a rival to its South Stream project, Kommersant said.

To contact the reporter on this story: Mark Sweetman in Moscow msweetman@bloomberg.net

Last Updated: May 27, 2009 01:38 EDT

Gazprom eyes role in Iran-Pakistan pipeline: reporthttp://www.thenews.com.pk/updates.asp?id=78756   Updated at: 1210 PST, Wednesday, May 27, 2009    

MOSCOW: Russian gas export monopoly Gazprom is keen to participate in a pipeline to carry Iranian gas to Pakistan, the Kommersant daily reported on Wednesday, citing company and government officials.

"We are ready to join the project as soon as we receive an offer," Russia's deputy energy minister Anatoly Yankovsky told the daily. The paper quoted another top government official as saying Moscow sees the pipeline as a means to divert Iranian gas from competing with Russian exports on the European market.

"This project is advantageous to Moscow since its realisation would carry Iranian gas toward South Asian markets so that in the near future it would not compete with Russian gas to Europe," Kommersant wrote.

Gazprom eyes role in Iran-Pakistan pipelinehttp://www.google.com/hostednews/afp/article/ALeqM5i6-iLT_b3Nu1fKk-eeO0vtD1tgnQ

2 hours ago

MOSCOW (AFP) — Russian gas export monopoly Gazprom is keen to participate in a pipeline to carry Iranian gas to Pakistan, the Kommersant daily reported on Wednesday, citing company and government officials.

"We are ready to join the project as soon as we receive an offer," Russia's deputy energy minister Anatoly Yankovsky told the daily.

The paper quoted another top government official as saying Moscow sees the pipeline as a means to divert Iranian gas from competing with Russian exports on the European market.

"This project is advantageous to Moscow since its realisation would carry Iranian gas toward South Asian markets so that in the near future it would not compete with Russian gas to Europe," Kommersant wrote.

Russian exports satisfy over one quarter of Europe's gas needs, but the European Union has sought to lessen its dependence with the construction of the Nabucco pipeline to pump Caspian Sea gas to Europe which would bypass Russia.

The multi-billion dollar Iran-Pakistan pipeline, which aims to pump an initial 11 billion cubic metres of Iranian gas per year to Pakistan, could deprive the Nabucco project of one possible source for gas supplies.

Gazprom spokesman Sergei Kupryanov confirmed the company's interest in the project, Kommersant reported.

It cited an unnamed official in the company as saying Gazprom could serve as the pipeline operator or also participate in its construction.

The start date for construction of the much-delayed pipeline is planned for september 2009 to be completed in June 2014, the paper reported.

Iranian officials have said the supply of gas to Pakistan could begin in three to four years.

The pipeline project, when initially mooted in 1994, had proposed to carry gas from Iran to Pakistan and India. But India withdrew last year from the talks over repeated disputes on prices and transit fees.

The 900-kilometre (560-mile) pipeline is being built between Asalooyeh in southern Iran and Iranshahr near the border with Pakistan and will carry the gas from Iran's South Pars field.

Iranian officials said Monday that the final contract would be signed in three weeks.

Gazprom-Japan LNG spat reportedhttp://fairplay.co.uk/login.aspx?reason=denied_empty&script_name=/secure/display.aspx&path_info=/secure/display.aspx&articlename=dn0020090526000011

Daily News 26 May 2009

GAZPROM sources have told Russian reporters that it has asked Japanese buyers of LNG to reduce delivery prices. Long-term delivery contracts for the LNG to be shipped to Japan obliged Gazprom, and the project company Sakhalin Energy, to start deliveries last September, the sources added. But Sakhalin Energy’s spokeswoman Yevgeniya Oleinikova told Fairplay that the February start-up had been planned for more than a year and that her company is meeting its contract obligations. She did not deny the reports ... /no further access to article/

Romania: Romgaz-Gazprom joint venture to be set uphttp://www.roumanie.com/romania-news-1001275.html

Bucharest, May 26 /Agerpres/ - The Romanian Romgaz and the Russian Gazprom will set up a joint venture to build several natural gas storage facilities and thermal power plants in Romania, Economy Minister Adriean Videanu said Tuesday at the EU-Russia Economic Forum in Bucharest.

The two companies will own the joint venture in equal shares of 50 percent each, Videanu said.

'Following talks with the Russian officials during my visit to that country, we have decided the setup of a Romgaz-Gazprom joint venture to build gas storage facilities and produce electricity in this part of Europe,' Videanu explained.

He underscored that a joint committee aimed to analyze the development of the two countries' collaboration projects in the energy field will also be established.

In addition, Romania plans to develop a strategic energy partnership with Russia.

'Romania plans to ensure the EU's energy stability and security by developing energy sources and routes. Romania has been undergoing an extensive reorganization process of

the energy sector, which proves its potential. As EU member state Romania is an element of energy stability, proved during the gas crisis, when the country made available energy resources to its neighbors, Minister Videanu stated. AGERPRES [by Romaniapress]

[www.Roumanie.com]

Energy: Romanian-Russian company Romgaz-Gazprom, a second Danube hydra-electric power station http://english.hotnews.ro/stiri-regional_europe-5746429-energy-romanian-russian-company-romgaz-gazprom-second-danube-hydra-electric-power-station.htm

de A-M. B. transl/adapt. C.B. HotNews.ro Marţi, 26 mai 2009, 16:12 English | Regional Europe

Russian company Gazprom and Romanian company Romgaz will create a mixed business for constructing a gas depot in Romania. Additionally, Romanian minister of Economy Adriean Videanu announced today at the EU-Russia economic Forum that there will be a second hydra-electric power station on the Danube river.

Romanian minister for Economy Adriean Videanu stated on Tuesday that Romania will prioritise the development of its economic relationship with Russia. "Romania has great potential for renewable energy and hydro-electric energy. We will start investing in hydra-electric power stations alongside European and Russian investors", Videanu said today.

Romanian minister of Economy announced that his team will choose the site for a second hydra-electric power station on the Danube river by the end of the current year. Macin is the favourite location so far.

Videanu also talked about a second nuclear station, stating that its construction might start until September.  

New potential delays for oblgaz consolidation into Gazpromhttp://www.businessneweurope.eu/dispatch_text8728

Rencap, RussiaTuesday, May 26, 2009

Prime-TASS announced that on 19 May Prime Minister Vladimir Putin signed Decree #693-r, which allows Gazprom to purchase the government's stakes in Kamchatskgazprom (92.25%) and Daltransgaz (27.39%) from Rosneftegaz at prices, which may not below an independent appraiser's valuation.

Kamchatskgazprom and Daltransgaz together with about 70 oblgazes were initially included in the list of assets, which were to be transferred from Rosneftegaz to Gazprom

in exchange for 0.89% stake of the latter. The new decree, which calls for a separate purchase of the Far East assets, indicates, in our view, that the initial plan might have been changed, and the transfer of the oblgazes stakes may be indefinitely delayed. However, we still believe that the transaction might have rather been postponed than cancelled, as the transfer of government's stakes in regional gas distributors from Rosimushestvo to Rosneftegaz (which is the first stage of the swap) is almost completed.

Irina Elinevskaya

Gazprom's New Weakness Offers Opportunityhttp://www.themoscowtimes.com/article/1028/42/377459.htm

27 May 2009 By Anders Aslund

Gazprom has gone from being a great commercial hope to an ailing giant. Gazprom's owners need to face up to the crisis and institute reforms.

A year ago, Gazprom was the third-most valuable company in the world with a market capitalization of over $350 billion. It has shrunk by two-thirds to about $120 billion, declining to the world's 40th-largest company, even though it still accounts for about 20 percent of Russia's market capitalization and roughly 10 percent of its gross domestic product.

In the first quarter, the country's gas exports plunged by 56 percent from last year, which is compelling Gazprom to cut its production ever more. During the first 10 days of May, it plummeted by 34 percent. Even in the fourth quarter of last year -- when production, exports and prices were still going strong -- Gazprom's profit shrank to $1.4 billion. The company is expected to suffer a multibillion-dollar loss this year.

Gazprom has persistently been poorly managed, but its problems reached a peak when it turned off the spigot to 20 European countries for two weeks in January. It has cut off supplies to former Soviet republics many times, and eight European countries suffered somewhat in 2006, but this time Gazprom established its reputation as an unreliable supplier. Its European clients are not likely to come back any time soon. In the present recession, in which energy supplies are ample, other options look more attractive than Gazprom.

Unfortunately, Gazprom is a state corporation with few commercial advantages. Independent gas producers, notably Novatek, produce gas far cheaper, and they manage to sell increased amounts on the domestic market, unlike Gazprom. With its unwieldy bureaucracy, Gazprom can only produce from giant fields, leaving most secondary and tertiary fields undeveloped, since it prohibits more agile independent companies to do so.

Nor does Gazprom have a comparative advantage in the transportation of gas. No other company has so many explosions on major pipelines. Moreover, Gazprom is notorious

for including shady intermediaries, which later prompt the company to shut off its deliveries.

Few companies procure at more excessive prices. When Gazprom built Blue Stream, Hermitage Capital Management showed that Gazprom's cost per kilometer of pipeline was three times greater than on the Turkish side. This seems to be a standard excess cost for Gazprom.

Gazprom's only comparative advantage is its control of one-quarter of the world's gas reserves, but these reserves do not actually belong to the company. They are only licenses granted by the government. In reality, government protection is its only true strength.

In their excellent book, "Putin and Gazprom," former Deputy Prime Minister Boris Nemtsov and former Deputy Energy Minister Vladimir Milov clarify the real purpose of Gazprom: to transfer assets out of the company to government officials.

The current recession exposes Gazprom's weakness and offers an excellent opportunity to reform it. In a rational market economy, such a company would not exist. The Natural Resources and Environment Ministry would deprive it of neglected or mothballed licenses. Independent gas producers would quickly outcompete Gazprom in production. Its share of Russia's gas output has actually fallen to 75 percent in May 2009 from 83 percent in May 2008. The gas pipeline system should be separated from production and be opened on equal pricing conditions to independent producers.

The arguments for a profound reform of the country's gas sector have never been stronger. How long is the Kremlin prepared to tolerate Gazprom's massive waste of resources?

Gazprom's management -- which is to say the Russian government -- does not seem to understand the severity of the crisis. Instead of apologizing to their European customers for the supply cut and trying to woo them back, Gazprom is pursuing an aggressive, self-defeating policy that further alienates customers.

With the sharply reduced gas exports to Europe, Russia has no need for additional pipelines, such as Nord Stream through the Baltic Sea to Germany, costing about $15 billion, and South Stream through the Black Sea to Italy, costing about $20 billion. Gazprom, which is already heavily indebted, cannot afford such expensive pipelines. Moreover, the gas conflict in January demonstrated that the biggest problem is Gazprom and not gas transit. The existing transit pipelines through Ukraine and Belarus have ample excess capacity and are much cheaper. This eliminates the need for alternative pipelines.

Even so, the Kremlin is trying to accelerate the construction of Nord Stream and South Stream. It also sharply criticized the March 23 EU-Ukraine declaration on the gas transit system through Ukraine, which would solve the problems with its gas transit for a paltry investment of $3.5 billion. Such protests against improved governance are clearly not in

Russia's national interest.

Since Gazprom has been forced to reduce its output, it has neither the need nor financing for the expensive development of its new mammoth fields, Shtokman in the Barents Sea and Yamal in the far northern tip of Siberia. Even so, it is now proceeding with contracts for the development of the Shtokman filed for an initial $15 billion. Its partners, France's Total and Norway's StatoilHydro, should call its bluff.

In the current gas glut, Gazprom no longer needs Central Asian gas, which it has contracted at prices above the current market prices. The Turkmens were not surprised when the pipeline taking their gas through Russia blew up on Russian territory. After all, Moscow embargoed all of Turkmenistan's exports for 18 months in 1997 and 1998 until Ashgabat built a pipeline to Iran.

For the European Union, Gazprom's new weakness offers a once-in-a-lifetime opportunity for the gas trade with Russia to operate better, and Gazprom's shareholders have an evident interest in going along with European gas reforms to recover the markets the company has lost. The two should come together and reform both the European and Russian gas sectors. The centerpiece should be an all-European gas reform, with unbundling of transportation and gas production.

Therefore, the Europeans should take up President Dmitry Medvedev's recent proposal for a new legal framework on energy cooperation. Medvedev wants to replace the Energy Charter of 1991, which nearly all other European countries have ratified. Both Russia and Europe need an agreed legal framework for global energy cooperation.

Gazprom's acute crisis offers the best opportunity for Russian and European energy reform. In the current recession, Russia can no longer afford Gazprom management's egregious waste.

Anders Aslund, a senior fellow at the Peterson Institute for International Economics, is co-author of the new book "The Russia Balance Sheet."

Gazprom's Loyalists in Berlin and Brusselshttp://georgiandaily.com/index.php?option=com_content&task=view&id=11869&Itemid=132

Roman Kupchinsky

Gazprom's extensive network of loyalists, often act as "men of sacrifice," devoted to cleansing the image of the Russian state owned gas monopoly. Working out of a modern office building in Berlin owned by Gazprom Germania, a German registered company fully owned by Gazprom Export which, in turn is run by Gazprom, they have built up a considerable empire for the Kremlin. In turn they are being whitewashed by other loyalists in the offices of Brussels-based PR firm GPlus Europe.

Gazprom Germania has affiliates and subsidiaries in around 20 countries in Europe and Asia as well as within the United States. In 2007 Burghard Bergmann, the former head of the German energy company, E.On, and a member of Gazprom's board of directors, demanded that this company be liquidated since he saw no reason for its existence (Kommersant, October 31, 2007). The Russian side arrogantly refused and this curious company continues to function.

The founder of Gazprom Germania is Hans-Joachim Gornig, the former deputy chief executive of the German Democratic Republic's gas and oil industry. In 1990 Gornig convinced the then head of Gazprom, Viktor Chernomyrdin, to establish Gazprom Germania. This might have been a new scheme by two old comrades to insure Russian hegemony over the newly unified Germany and maximize profits, or an effort to secure the supply of Russian gas as Germany's only hope of maintaining its booming industrial strength.

But Gornig is not only the managing director of Gazprom Germania, he is also the manager of ZMB GmbH, a subsidiary of Gazprom Germania since 1993. Furthermore, Gornig is suspected of fraud and embezzlement. In 2008 the German media reported that Gornig arranged contracts between ZMB GmbH, with the company Gasconsult GmbH in which he was the co-owner. According to the conditions of the contracts, amounting to 1 million Euros, Gasconsult GmbH was to provide communication and PR services to the ordering party. However, in reality these services were provided by the employees of Gazprom Germania (Der Spiegel, August 25, 2008). Gazprom and Gazprom Germania refused to comment on the allegations within the German media (www.russia-ic.com, August 25, 2008).

To ensure an "impartial" resolution of the matter, Russian investigators were dispatched to conduct an internal audit of Gazprom Germania, but the results were not publicly disclosed. The German prosecutor's office could not act on the case, since no-one had filed a complaint. Finally a Russian "overseer" was appointed as the co-manager of the company: Andrei Biryulin, (a manager at Gazprom Marketing and Trading Ltd, another subsidiary of Gazprom Germania).

Gazprom Germania has also been plagued by charges that some of its highest level managers were former agents of the notorious East German Security Service, the Stasi. Felix Strehober, the financial director of Gazprom Germania, came under investigation in May 2008 for allegedly lying about his past as a former East German spy, according to Cologne chief prosecutor Guenther Feld. More than 100 documents from the Stasi archives were uncovered accusing him of working with state security, while he was a student in East Berlin. Strehober, who studied in Moscow from 1978 to 1982, joined the Stasi in 1985 and worked for the feared East German secret police until 1989 (DPA, May, 7 2008). Strehober was fined for hiding his past, but no verdict was reached and his case was suspended.

Gazprom Germania's director for personnel and organizational matters, Hans-Uve Kreher, was an informal employee of the Stasi and collaborated with the organization

under the operative pseudonyms of Roland Schroeder and Hartmann. Kreher himself does not deny that he had worked with the Stasi. A company spokesman declared that they knew about his past, however, he added that "we are not an enterprise penetrated by Stasi agents" (Die Welt, February 11).

The GPlus Europe team of Gazprom loyalists working the Gazprom account is an assorted, but highly well-connected group. Their mission is to portray Gazprom and its affiliated companies as fully transparent entities. The team consists of fourteen individuals, all funded by Gazprom Export with four members concentrating on PR within Germany alone. The rest have responsibilities for PR within the rest of Europe. The head of the Germany team is Peter Witt, formerly Germany's deputy permanent representative to the EU.

A leading member of the Gazprom team is Gregor Kreuzhuber who, according to the GPlus Europe website: "Spent over ten years in the European Commission as a spokesperson and political adviser to two different Commissioners. His last post was with Commission Vice-President in charge of Enterprise and Industry Gunter Verheugen" (www.gpluseurope.com, May 23).

Another member of the Gazprom network in Brussels is Daniel Brinkwerth: "Prior to coming to Brussels, Daniel worked with both the German Foreign Affairs and Economics Ministries, and did a stint at the German Embassy in Tokyo. He assisted research projects at the German Council on Foreign Relations looking into the impact of globalization on national sovereignty and of the Free University of Berlin into tools for policy analysis" (www.gpluseurope.com, May 23).

The third influential member of the Gazprom team in Brussels is Julius Freytag von Loringhoven who joined GPlus Europe in 2008 from the European Government Affairs office of BP, where he was working as an advisor on energy and climate change. He is a specialist in energy policies, renewable energies, electricity and gas markets, the European Emissions Trading Scheme and on questions of energy security (www.gpluseurope.com, May 23).

There is no doubt that these highly qualified, well connected and very bright individuals employed by GPlus Europe and Gazprom Germania serve a vital purpose in creating an illusion that Gazprom is honorable and transparent, and that it is indispensible for European energy security. As the point men for Putin and Alexander Medvedev, the head of Gazprom Export, who pays their salaries, they are indeed "men of sacrifice" working for a cause which lead to the energy subjugation of the EU by a shady clan within the Kremlin.