A LAW REMOVING CAPITAL FROM RUSSIA

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A LAW REMOVING CAPITAL FROM RUSSIA

Nezavisimaya Gazeta, January 23, 2003, EV

A law that removes capital from Russia – this is how Kakha Bendukidze assesses the effect of production sharing agreements.

No other specific problem of the Russian economy has been discussed as long and with so little effect as the issue of production sharing agreements (PSA) and use of Russian industry, in particular, its conversion potential. The Duma has once again held hearings on that topic.

Speaking at the hearings, United Heavy Machinery (OMZ) Director General Kakha Bendukidze said: “The very structure of the law seems to have been deliberately aimed at preventing the capital invested in the development of Russian fields from entering Russia.”

In his view, this is promoted by the very principle of cost refund which acts as an incentive for operators to buy equipment abroad. “Why should they want cheap Russian machines and equipment, if the services of expensive contractors from their own countries are paid for anyway? The world’s leading companies will not suffer any losses because they have longstanding contacts with equipment producers with whom they can always make a deal at what price to make supplies to one country and at what price to another. We will never be able to expose such machinations.”

As a businessman and industrialist, Kakha Bendukidze knows first hand that “the standard of the law that provides Russian companies 70% in contracts for goods and services guarantees nothing to Russian producers”. In his speech he quoted a few examples of bypassing that standard. “Our American rival in manufacturing drilling equipment set up a wholly-owned Russian subsidiary, which can now participate in 70% of the competition. It is quite obvious that any production development is out of the question – the purchased American equipment will by supplied by the supposedly ‘Russian’ company, so the letter of the law is fulfilled.”

Kakha Bendukidze rightly asks: why provide operators with concessional tax rates, only a third of regular rates, if contracts bypass Russian industry and the state will only receive its pared-down production share in the remote future?

RUSSIA EXPRESSES OPTIMISM ABOUT GAS SUPPLY TO EUROPE

Izvestia, January 23, 2003, p. 2 EV

The 33rd World Economic Forum will open on January 23 in Davos, Switzerland. Unprecedented tension in international relations, fear of new terrorist attacks, expectation of war in Iraq, recession of the world leading economies, last year’s corporate scandals in the United States and as a consequence diminished trust of citizens in governments and employees have prompted the motto of the World Economic Forum 2003 which reads “Building Trust”. The forum’s organizers have sent to participants in the forum the results of a poll conducted among 36,000 people in 42 countries. The results show that people around the globe are not content with the direction in which the world is developing, while more than half the population of rich Western countries do not expect anything encouraging and optimistic in future. Together with China and India Russia ranked among five countries with most optimistic populations. Herman Gref, the head of Russian delegation and Minister of Economic Development and Trade will share his optimism about the growth of the Russian economy with other participants in the forum.

Russia-related themes will be given attention to at two events in the forum. A discussion “Russia and Europe: New Partnership” is scheduled for January 25. The business climate in Russia will be discussed at a round-table on January 27. Communications Minister Leonid Reiman and Chairman of the Federal Securities Commission Igor Kostikov are expected to participate in the forum. Presidential economic adviser Andrei Illarionov will deliver a report on “Petroleum and conflicts”. Head of the Committee on Financial Monitoring Victor Zubkov will inform his foreign colleagues about Russia’s experience in money laundering prevention.

Prime Minister Mikhail Kasyanov, who attended last year’s World Economic Forum in New York, has decided not to go to Davos. Economic Development and Trade Minister Herman Gref will report on achievement of the Russian government.

Gref has been accompanied by his deputy Maksim Medvedkov who is responsible for talks with the World Trade Organization. The outlook for Russia’s accession to the WTO will become one of the key topics while discussing the relationship of Russia and Europe. Most EU member-states want to see Russia as a WTO member but at the same time stipulate conditions which are unacceptable for Russia. Apart form the demands to ensure foreigners unrestricted access to communications, banking and insurance markets as well as to cut down the government support to the agricultural industry, discontent with charges for gas and electric power supply has been recently expressed.

The European Commission is concerned about that fact that domestic prices for gas and electric power in Russia are several times less than those charged by Gazprom and Russian Joint Energy Systems for export to Europe. The commission also reproaches the Russian government for subsidizing the industry.

Nonetheless, European commissioners are concerned about prices of Russian gas and electric power less that the regularity of their supply to EU markets. The energy dialogue will be discussed both at a scheduled round-table discussion and bilateral meetings of Herman Gref with EU senior officials. Currently, Gazprom satisfies 40% of the gas demand in Europe. Despite the declared liberalization of Europe’s gas market which presupposes a larger number of suppliers the Russian gas monopolist does not have an equal competitor so far. A Russian-Ukrainian gas transportation consortium project and construction of the North-European gas pipeline evoke the greatest interest at the moment. The North-European pipeline will run under the Baltic Sea and ensure direct supply of gas to Germany.

BEREZOVSKY OUT TO BOOST HIS PRESENCE IN THE DUMA

Moskovsky Komsomolets, January 23, 2003, EV

Boris Berezovsky’s political aspirations are growing as we watch. We have learned that he has planned a large-scale campaign to help his associates obtain seats in the Duma of the next convocation. Having begun with Communists, Berezovsky switched to other parties and is currently holding talks with the Union of Right Forces party, and even with United Russia. The subject of the talks is the same: places on the parties’ lists for candidates promoted by Berezovsky.

The leaders of United Russia may fail to see how Berezovsky’s well-disguised proteges gain membership of the party. Meanwhile, the oligarch’s negotiators are all set. Our sources maintain that an old associate of Berezovsky’s, Igor Shabdurasulov, is supervising talks with the Unity faction. It was he who was responsible for establishment of regional branches of the movement in 1999, when Unity was being founded. Old links do not fade away, and it is through regional branches that the talks are being conducted now.

As for the possible alliance with the Union of Right Forces, Berezovsky is associating with no ordinary members. We have information that the oligarch maintains close relations with the official URF representative in London. He is also said to be speaking with the party’s leader, Boris Nemtsov, by phone quite often.

But that is not all. Berezovsky’s mind is teeming with ideas, one of which involves reviving the “Women of Russia” movement!

It is obvious that Berezovsky has decided to play on several fields at once, hoping to gain success somewhere. According to our sources, one of the plans Berezovsky has with regard to the next Duma is to set up a group of parliamentarians under his guidance, which will consist of his proteges in the Duma.

DEFENSE MINISTER’S DECEPTIVE MANOEUVRES IN VOLGA-URALS MILITARY DISTRICT

Izvestia, January 23, 2003, p. 3

Defense Minister Sergei Ivanov, who is currently visiting military units of the Volga-Urals Military District (VUMD), deliberately disrupts the plans of his subordinates. Yesterday in Yekaterinburg instead of visiting a battle-prepared division the minister set off for am artillery unit from which thirteen privates had fled in last year’s December to the garrison prosecutor’s office. Being satisfied with the measures undertaken (almost the whole command staff was replaced there because of the flourishing “dedovshchina” – cruelty to new conscripts), the minister gave an instruction to take him to a firing range which also had not been included into the list of supposed visit sites. There, accompanied by VUMD Commander-in-Chief Alexander Baranov, the minister inspected the weaponry.

PROSECUTORS INVESTIGATE EPIDEMIC IN NORTH CAUCUSUS MILITARY DISTRICT

Izvestia, January 23, 2003, p. 3

The Military Prosecutor’s Office of the North Caucasus Military District (NCMD) has begun an inspection of living conditions, food provision and medical services in 28 garrisons of the district, according to acting prosecutor of NCMD Anatoly Romashko. The inspection was triggered by an outbreak of an acute respiratory viral infection which has already killed one soldier. Eighty-nine privates have come down with pneumonia, while one hundred and eighty-four men were taken to hospital to be treated from the acute respiratory viral infection. In the words of Anatoly Romashko, a fact-finding commission of the military prosecutor’s office is working to find out the reasons for the outbreak of the infection. It is considering several versions. According to one of them, the epidemic occurred due to improper vaccination of the servicemen. Chief of the medical service of the training regiment Maj. Vladimir Vitkovksy is being prosecuted for negligence.

GREF INTENDS TO SHED LIGHT ON ECONOMIC AND FINANCIAL OPERATIONS OF GOVERNMENT DEPARTMENTS

Nezavisimaya Gazeta, January 23, 2003, EV

A fierce debate has broken out in the Russian government over whether the ministries and government departments should reveal some internal information. A draft directive “On provision of access to government and federal department-related information” which was drawn up by the Ministry of Economic Development has been a topic of dispute over the past few days.

While it has an unremarkable title, the directive has revolutionary content. If the current version of the document is passed, government bodies will have to publish on the Internet all the documents they handle except for those including state secret information. This refers not only to orders and instructions. Outsiders will have an opportunity to look into the “inner sanctum” of any public establishment: its economic and financial activities. Citizens will get to know how their money is distributed in the ministries. In particular, the directive in question will require departments to publish data on all civil agreements concluded by them, which means that any journalist will be able to know the contractors of any ministry, terms of contracts, and so on.

Journalists may draw conclusions about whom this distribution of public contracts is meant to benefit, for the ministries will have to publish information on the membership of all tender commissions. All in all, the directive in questions lists 51 items of information for compulsory online publication.

Needless to say, the directive has caused discontent among all executive bodies. Thirty-three federal departments have proposed their own amendments to it, which negate the democratic objective of the document. The Nuclear Energy Ministry proposed the largest number of amendments. The Ministry of Civil Defense, Emergencies and Natural Disasters and the State Customs Committee also submitted a great many “constructive” suggestions. For instance, the Customs Committee put forward a proposal to publish only standard forms of contracts instead of unveiling significant terms of contracts; which is not the same, mildly speaking. It is worth noting that the agencies which regularly give rise to rumors of corruption have submitted the largest number of amendments. In the meantime, defense establishments remained quite indifferent to the proposal, for their activities are classified as state secrets.

Despite the fact that the draft resolution has not been approved by the majority of agencies concerned, the Ministry of Economic Development and Trade still submitted it to the Cabinet for consideration, which is quite a rare thing. But it is impossible to agree upon such a document, since it infringes the interests of ministries and state committees too obviously. Our source with the Ministry of Economic Development reported that the government supports the proposal.

The directive in question is a temporary measure. As soon as March, the Ministry of Economic Development and Trade will submit to the Cabinet a draft law “On provision of access to public authorities and local government related information” which is going to affect a wider range of issues with regard to transparency of government. So the big debate over this problem is still to come.

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