NOVOSIBIRSK DEFENSE ENTERPRISES GAINING NEW STATUS

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NOVOSIBIRSK DEFENSE ENTERPRISES GAINING NEW STATUS

Kommersant, July 20, 2002, p. 5

A joint meeting of the Russian Ammunition Agency (RAA) and the presidium of the administration of the Novosibirsk Region was held on July 19. Novosibirsk Governor Viktor Tolokonsky and RAA head Zinovy Pak agreed to work out a detailed development plan for a number of local enterprises managed by the agency, giving the status of state-run enterprises to two plants. There are 12 enterprises managed by the RAA in the Novosibirsk Region. These enterprises produce 28% of defense products manufactured in the region. Among these enterprises are Sibselmash, the Iskra machinery plant, the Kometa federal state-run unitary enterprise, the Luch scientific manufacturing enterprise, the Kuibyshev chemical plant, the Applied Physics Institute public stock company, and more.

The administration of the Novosibirsk Region has repeatedly requested to meet with the RAA in order to decide the future of the enterprises. Although last year the companies’ revenues increased by 54%, many of them have seen their profits decline, so their financial situation deteriorated even further. For instance, the Kuibyshev chemical plant – the only producer of components for the missile fuel oxidant of Topol-M missile systems – has practically ceased to function, and is on the verge of bankruptcy.

Zinovy Pak visited this enterprise as soon as he arrived in the region. After the consultation at the plant, Pak and Tolokonsky decided that it is necessary to restructure the plant and give it the status of a state-run enterprise, along with the Novosibirsk Experimental Measuring Equipment Plant. As for Iskra, Pak does not consider it appropriate to give this enterprise this status. According to him, the RAA plans to give the status of state-run enterprises to only 15 enterprises. The extent of budget funding support will not depend on volumes of state arms procurement or the extent to which production capacities are used. Although Pak and Tolokonsky did not sign any agreements during their meeting, the development program for enterprises managed by the RAA will be worked out by the end of August, and proposals for restructuring will be discussed some time longer.

PLUTONIUM HORROR

Vremya MN, July 20, 2002, p. 3

According to “The Guardian,” Chechen terrorists have obtained radioactive metals, including plutonium, as a result of a leak at the Rostov nuclear power plant in Volgodonsk. “The Guardian” cites some sources in the US administration. According to the newspaper, these materials could be used for making a “dirty” nuclear bomb. American sources have already speculated that Chechen terrorists closely connected with rogue states may well hand over the stolen materials to their allies.

Russian officials informed the IAEA about this incident, and the agency, in turn, informed the United States. However, the Nuclear Energy Ministry of Russia and the authorities of the Rostov nuclear power plant later refused to confirm the reported theft.

According to some sources, there are up to 400 tons of concentrated plutonium in Russia. Last month the G-8 promised to give Russia $20 billion to dismantle old weapons and military hardware.

However, the same source says that such incidents take place not only in Russia. Mathew Bann, research assistant at the Harvard University Nuclear Projects Department, says: “There is nothing new about the fact that nuclear fuel has been stolen from a nuclear power plant. Such cases happened in the USSR too. In 1996, Chechen terrorists packed a considerable amount of Cesium-137 together with explosives and installed this in the Izmailovsky Park in Moscow. Fortunately, the bomb did not go off then.”

It is not quite clear whether the report in “The Guardian” is true. Rostov nuclear power plant spokeswoman Yelena Kovaleva said: “Nothing has been stolen from the plant. You may view this statement as the official reply of the authorities of the power plant. We don’t know the source of this report. Yesterday, we had a phone call from “The Guardian”: we were asked about the theft of plutonium. But there is no plutonium at the power plant! The plant uses Uranium-238 enriched with Uranium 235. You can imagine what would happen if such an incident took place. Local media make a mountain out of a molehill, and as for theft of nuclear fuel…”

Theoretically, nuclear fuel could be stolen from the power plant in three ways: in the course of transportation of the fuel, by means of bribing most of the personnel and the senior executives of the enterprise, and an armed assault on the power plant. Although the third method is the most direct, it is absolutely ruled out in practice. After the explosion of a block of apartments in Volgodonsk in autumn 1999, numerous services guarding the nuclear power plant, surrounding it within a 30-kilometer radius, were told of the significance of the facility they are guarding.

THE FINANCE MINISTRY IS SHORT OF MONEY

Finansovaya Rossiia, July 18, 2002, p. 4

Deputy Prime Minister and Finance Minister Alexei Kudrin reported on July 16 that the financial reserve, which the government had counted on as a source for servicing foreign debts next year, might be insufficient. The draft budget for 2003 says that the financial reserve ought to reach 180 billion rubles by the end of this year. However, the finance minister reported that it had barely managed to reach 40 billion rubles by July 1.

At January 1, 2002, the financial reserve held 89 billion rubles.

Of this, 10 billion rubles was refunded to companies which had over-paid profit tax. The Taxes and Duties Ministry refunded 40 billion rubles to companies for other reasons. Moreover, extra funding was allocated to regions for salary increases for state-sector workers. The Taxes and Duties Ministry then fell 40 billion rubles short of its tax revenue collection targets.

The Finance Ministry foresaw this situation; that is why Deputy Finance Minister Sergei Kolotukhin said a month ago that Russia might borrow $1.5-2 billion on the Eurobond market this autumn. However, independent analysts believe the state can avoid borrowing abroad by increasing GKO and OFZ government bonds. As soon as September, the government will have to choose one of these options.

MORE DOLLARS THAN RUBLES IN RUSSIA

Finansovaya Rossiia, July 18, 2002, p. 3

The Russian Economic Society has done a study of the relative amount of rubles and dollars in Russia, in order to clarify how much influence Central Bank policy has on monetary processes in Russia and Russia’s financial independence. The data used covered 1996 to 2002, and is expressed in US dollars at the corresponding exchange rates. Figures were based on Central Bank statistics. Since there is no exact information about dollars being hoarded by Russian citizens, RES analysts worked on the assumption that this money fluctuated between $20 billion and $50 billion during the period in question.

Based on this analysis, it can be concluded that starting from 1999, the amount of dollars in Russia significantly exceeded the amount of rubles: by 104% at the start of 1999, by 94% in 2000, by 47% in 2001, and by 26% at the start of this year. The difference is gradually decreasing, which is generally a positive sign. The same pattern is being observed in 2002.

The fact that the amount of dollars exceeds the amount of rubles means that the Russian economy is more dependent on the policies of the US Federal Reserve than the Central Bank of Russia; in other words, Russia’s degree of financial independence in the monetary area remains low.

RUSSIA WILL GO ON THE OFFENSIVE AGAINST DOUBLE STANDARDS

Slovo, July 19, 2002, p. 3

Security Council analysts have prepared a special report on countering policies of double standards being used against Russia. The report raises the issue of the need to counter-sue a number of leading Western banks which have been engaged in unlawful activities on Russian territory over the past decade.

One focus of interest for the analysts was a French bank called Credit Agricole Indosuisse (CAI). This bank is the main creditor of the notorious Noga company (Switzerland). This company has been engaged in legal action against the Russian government for several years, constantly attempting to freeze bank accounts and other Russian assets abroad, including military hardware.

CHECHNYA: WILL THE GUERRILLAS TRY TO TAKE GROZNY?

Inostranets, July 16, 2002, p. 7

Defense Minister Sergei Ivanov recently displayed some intercepted papers signed by Chechen separatist leader Aslan Maskhadov, indicating that the guerrillas had plans to take the city of Grozny; Ivanov said the plans had been disrupted thanks to a successful operation by the federal forces. However, since then new reports have appeared that the guerrillas will make an attempt to take the capital of Chechnya after all; they will also attempt to capture some other major towns.

The very fact that the guerrillas had a plan for taking Grozny drew the attention of a number of analysts; this in itself says a great deal about the strength and capabilities of the guerrillas.

It should also be noted that Maskhadov is an experienced and cautious military commander; he is unlikely to attempt a venture that is doomed to fail.

According to some souces, federal military intelligence is already reporting that guerrillas are accumulating arms and ammunition in Grozny, Gudermes, and Argun.

There are reports of guerrillas arriving in those cities from the highlands of Chechnya, and being accomodated in apartments and bases which are part of the conspiracy.

The guerrillas have all checkpoints and bases of the Russian Armed Forces and Interior Ministry under constant surveillance, studying approaches to them and their internal layout.

Analysts note that a major advance by the guerrillas is very likely within the next two or three weeks.

DIVISION COMMANDERS OF AN ILLITERATE ARMY

Nezavisimoe Voennoe Obozrenie, July 19, 2002, p. 3

The spring conscription campaign in the Russian Armed Forces was completed at the end of June. The results have been presented to the Federation Council by Lieutenant-General Vasilii Smirnov, acting chief of the main organization and mobilization directorate of the General Staff.

According to Smirnov, there were over 160,000 new conscripts; troop strength is now up to 94-99%. However, out of all the conscripts whose name are on the lists at conscription commissions, only around 30% are in suitable physical condition for military service. Around 7% of the conscripts had a police record; around 30,000 youths attempted to evade conscription – 2,000 more than in the autumn campaign last year.

But the really frightening figure in Smirnov’s report is that 40% of conscripts are high school drop-outs.

Smirnov completed his report to the Senate with a disturbing prediction: by 2012, troop strength will be down to 50%.

AEROFLOT: CHUKOTKA AIRLINES?

Ekonomicheskie Novosti Rossii i Sodruzhestva, No. 13, July, 2002, p. 5

The Cabinet has recommended excluding Aeroflot from the list of strategic enterprises for which privatization decisions must be made by the president himself. Although Aeroflot is not mentioned in the government’s privatization plans for 2002, it is still possible that it might pass into private ownership by the end of the year: into the hands of Roman Abramovich, governor of Chukotka. Abramovich controls Millhouse Capital UK Ltd; a leading shareholder in this company has initiated an extraordinary meeting of Aeroflot shareholders, and it is believed that the meeting will re-elect the board of directors.

On February 19, some Aeroflot shareholders – Carroll Trading and Millhouse Capital UK Ltd, which control a combined stake of 26-28% – proposed to give the board of directors extra powers and change the requirements for membership of the board.

All these proposals were approved at the annual general meeting on May 25. Seven of the eleven seats on the board went to the state; three to private shareholders representing Abramovich’s group; and one to Valerii Okulov, presently the general director of Aeroflot. According to the amended regulations, the board of directors can now dismiss the general director by a simple majority.

This scenario is somehow reminiscent of the recent privatization of the Taganrog Trade Port. Late last October, Prime Minister Mikhail Kasianov made a similarly sudden decision to sell a large state-owned stake in the port, which had been 60% state-owned. On December 27, at an extraordinary shareholders’ meeting called by the state, the general director was replaced with a man representing the interests of a major private shareholder: the Northern Steel (Severstal) company. On January 24, Northern Steel – headed by Alexei Mordashov – became the new owner of the port. The entire operation took only three months.

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