AUDITING COMMISSION AND SLAVNEFT: WASHING HANDS

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AUDITING COMMISSION AND SLAVNEFT: WASHING HANDS

Kompaniya, December 16, 2002, p. 12

Auditing Commission Chairman Sergei Stepashin says that the valuation of the state-owned stake in the Slavneft oil company, done by independent experts for the Russian Federal Property Fund, is incorrect. According to Stepashin, the asking price for the 74.95% stake in Slavneft is too low by almost $1 billion. Auditing Commission studies show that the opening bid at the Slavneft auction ought to be $2.5 billion, and the final price should be around $3-3.2 billion. Stepashin’s statement is indirectly supported by the $207.5 million paid for an 11% stake in Slavneft sold by the government of Belarus to Sibneft. Many analysts believe that the controlling interest in Slavneft might indeed be valued at a higher price.

But Stepashin has chosen a curious time to make this statement. Even if the Russian Federal Property Fund was prepared to raise the starting price, it would be very difficult to change the auction terms (or cancel them) in such a short time. Under the circumstances, Stepashin’s statement seems more like an intention to continue participating in the fate of Slavneft for a while longer; the Auditing Commission’s audit of Slavneft will take until February 2003. Otherwise, the statement could be seen as insurance against any outcry over the results of the Slavneft auction.

NATO: THE GOOD AND THE BAD

Versiya, December 16, 2002, pp. 2-3

In Russia, NATO used to be generally viewed as an aggressive military bloc; but a recent poll shows that Russian citizens have drastically changed their views of NATO’s activities over the past year. Many respondents – almost 60% – are now quite well-disposed towards it. Even more surprisingly, 25% of respondents believe that Russia should do more than maintain friendly relations with NATO: it should become a NATO member. Only 23% of respondents take a negative view of NATO.

THE KREMLIN AND THE NATURAL MONOPOLIES

Zavtra, December 19, 2002, p. 1

According to our sources close to the government, executive branch bodies linked to the presidential administration are planning and implementing a whole range of “active measures” aimed at creating conflict and exacerbating differences, including personal differences, within the leftist-patriotic movement; the goal is to cast doubt on the consensus with the leadership of the Communist Party and the People’s Patriotic Union of Russia, which has proven its effectiveness in a number of regional elections. The reason for the Kremlin’s grave concern lies in the prospects of the popular-patriotic forces in the forthcoming election cycle, which all analysts say are threatening and frightening for the present “hierarchy of governance”.

In order to somehow alleviate the citizenry’s negative view of the government’s liberal-monetarist agenda, a Cabinet meeting was called to discuss the natural monopolies; the rise in their tariffs next year was set within the framework of the predicted inflation rate (12-15%). The only exception is the “totally pro-Putin” Gazprom, headed by Alexei Miller, who has been permitted to raise natural gas prices by 20%; this can also be attributed to the Kremlin’s need for extra campaign contributions from Gazprom. The tariff increases are expected to happen in two or three stages, within the first quarter of 2003, thus enabling the natural monopolies to accumulate extra money – some of which will be used as unofficial compensation for “the state’s” costs due to postponing the housing and utilities reforms. Then, after some direct pre-election belt-tightening, an explosive rise in tariffs is scheduled for December 2003 – to be approved by a new Duma.

UPDATES ON STATE INVESTMENT AND BEREZOVSKY

Profil, December 16, 2002, pp. 8-9

Anatoly Chubais, chief executive of Russian Joint Energy Systems (RJES), has received approval for an investment program of 23.5 billion rubles (though RJES initially requested 31.5 billion rubles). Chubais had asked the government for 31.5 billion rubles for the natural monopolies investment program. The Gazprom investment program has also been cut back (from 188 billion rubles to 179.7 billion rubles). While giving the program overall approval, the Cabinet asked Gazprom CEO Alexei Miller to rewrite some of it in light of the natural gas prices proposed by the government for next year. The main complaints against Gazprom remain as they were: the government (primarily the Economic Development Ministry, headed by Herman Gref) is displeased with the efficiency of Gazprom’s management, with the lack of a coherent restructuring program, with the disappointing lack of transparency in Gazprom’s finances, and with its huge debts. In commenting on Gazprom’s investment program proposals, the Economic Development Ministry noted the lack of figures for the economic effectiveness of programs being implemented, or any time-frames for their completion. Moreover, the Economic Development Ministry said the construction costs for many Gazprom facilities were inflated, in the absence of any real competition in selecting contractors.

Prosecutor General Vladimir Ustinov recently said that there has been no response from Britain to Russia’s request for the extradition of Boris Berezovsky. The Prosecutor General’s Office has been forced to re-submit the request, but there is still no response.

However, observers say this does not guarantee a carefree life for Berezovsky. December 17 is the deadline for a review of his British residency application. It remains unclear what impact the Russian extradition request will have on this matter. Moreover, not all is going well with Berezovsky’s party-building efforts either. The extraordinary congress of Liberal Russia reinstated him as a co-leader of the party, dismissing the co-leaders who had split with Berezovsky – Sergei Yushenkov and Viktor Pokhmelkin. However, it turned out that Yushenkov and Pokhmelkin had moved faster than Berezovsky’s supporters, expelling the latter from the party. Yushenkov and Pokhmelkin have also secured some backing behind the lines: the Justice Ministry considers that the extraordinary congress of Liberal Russia contravened the federal law on political parties.

ROSAVIAKOSMOS UNDER PRESSURE

Konservator, December 20, 2002, p. 6

At last week’s colloquium of Rosaviakosmos (Russian Aerospace) and the Transport Ministry, it was revaled that Russia’s aviation industry is in worse shape than the government had believed. Economic Development Minister Herman Gref criticized the performance of Rosaviakosmos; this could indicate that its management team is about to be replaced. Gref said that Russia could be left without an aviation industry entirely; the aircraft fleet is shrinking, while demand for cargo and passenger transport is increasing. Russia currently has 5,971 aircraft: 3,931 planes and 2,040 helicopters. Among them are only 22 new-generation planes (11 Il-96-300 planes, eight Tu-204 planes, and three Tu-214 planes). There are also 47 foreign-made aircraft.

If aviation enterprises cannot ensure stable production of aircraft meeting modern requirements within the next two years, they will be forcefully squeezed out of the market by foreign companies. The most terrible aspect of this is that the disastrous situation in the aviation industry has taken shape just as demand for cargo and passenger flights is growing. According to forecasts, demand will double by 2010.

According to Gref, Rosaviakosmos has no clear plan for saving the Russian aviation industry. Firstly, Rosaviakosmos is delaying over the tender for producing a regional passenger jet. This tender should have been called in 2001, but plans for developing the aircraft still remain on paper only – even though the federal budget allocated funding for the project.

Gref expressed doubt that the Rosaviakosmos management team could carry out its promise to organize production of new Russian-made planes by 2006. By that year, tougher international standards will be in force – standards which no existing Russian-made planes can meet. Thus, the government would be forced to lower import tariffs on foreign-made planes. But Gref considers that a solution to this crisis does exist: restructuring the Russian aviation industry. He said: “If no large consortiums are set up in this sector soon, by 2006 we won’t have an aviation industry or any domestically-produced planes. And when Russia joins the World Trade Organization, we will simply be inundated with Airbuses and Boeings.”

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