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Russia is likely to simplify visa procedures with the EU countries as early as by the end of spring. At least that is what Russia counts on. In May 2006 Sochi (Russia) will be hosting a Russia-EU summit, which may end up with signing an agreement on simplified visa procedures and readmission.

Presidential Aide and special spokesman for the issues regarding the establishment of an area of common freedom, security and justice between Russia and the European Union Viktor Ivanov mentioned during a round-table discussion in the Russian State Duma that relative documents had already been prepared for signing.

According to Ivanov, readmission does not infringe on the rights and interests of Russian citizens, and is set to avoid illegal migration and illegal penetration into Russia instead.

The Presidential Aide voiced information of the Federal Migration Service, according to which 65-75m employable Russians work legally in Russia. Another 15m work illegally. According to Ivanov, there is a shadow labor market establishing in the country, which has competitive advantage compared to the native labor market.

It is worth mentioning that on March 22, 2006 Russia and the European Union agreed to establish expert groups to implement a non-visa area program. Ivanov confirmed that since the last meeting in Luxembourg in October 2005 the Russian-EU relations in the sphere of migration processes had gone way further. The signing of “road maps” that regulate the nearing of security and justice standards in May 2005 was a remarkable event.

Valkyries Petroleum Corp. announces that all necessary approvals have been obtained and that closing of the acquisition of a 50% interest in Closed Joint Stock Company Oilgaztet (“Oilgaztet”) has occurred. Oilgaztet holds a 100% interest in the Ashirovskoye oil field license which is estimated to contain proven reserves of 2.3 million barrels of oil and possible reserves of 60 million barrels of oil (third party independent 51-101 reserves report prepared by DeGolyer and McNaughton dated November 29, 2005).

The Company has recently drilled a new well on the field which is currently undergoing production testing. Based on the analysis of the electric logs on this well, the Company plans to test 3 distinct zones in the Devonian section. Preliminary results of this testing are expected by the end of February and will be the subject of a future announcement. Operations are also underway to drill a second well in the eastern part of the structure in an area which appears to be prospective in older existing wells but which has not been flow tested to date. Preparations for an early production system are also being finalized.

Valkyries President and CEO Keith Hill stated “We are pleased to close this transaction and look forward to the results of the two new delineation wells. Upon successful confirmation of the main reservoir targets, we plan to aggressively pursue development of this field and hope to reclassify the majority of the existing possible reserves to proven reserves by year end.”

Under the terms of the share purchase agreement, Valkyries has paid US$9 million to acquire a 50% ownership interest in Oilgaztet and has agreed to arrange financing for the Ashirovskoye development plan. A US$1 million bonus will be due to the vendors following the first calendar year in which annual oil production from the Ashirovskoye field exceeds 100,000 metric tons per year (730,000 barrels). A further US$1 per metric ton of oil bonus will be due to the vendors for each additional commercial discovery with approved reserves of at least 50,000 tons on the Ashirovskoye license block. As part of this transaction, a finder’s fee of 120,000 shares of Valkyries common stock will be issued to IMD Resources under a previously disclosed agreement.

By Oilvoice News

Russian President Vladimir Putin has signed the decree “On Open Joint Stock Company United Aircraft Building Corporation,” the presidential press service reported. The federal government will have a 75-percent stake in the new corporation.

The United Aircraft Building Corporation will include Russia’s leading aircraft makers: the Sukhoi Aviation Holding Company (Moscow), the MiG Russian Plane Building Corporation (Moscow), the Ilyushin Aviation Company, the Tupolev Company (Moscow), the Kazan Aviation Production Association, the Komsomolsk-on-Amur Aviation Production Association, the Nizhny Novgorod Aircraft Building Plant Sokol, and the Novosibirsk Aviation Production Association.

All these companies were removed from the list of Russia’s strategic assets. The MiG Russian Plane Building Corporation and the Komsomolsk-on-Amur Aviation Production Association will be transformed into open joint stock companies fully owned by the government.

Within the framework of the project, a government commission will be set up to ensure integration of Russia’s aircraft building sector.

The United Aircraft Building Corporation will “develop, produce, sell, provide maintenance services, modernize, repair and recycle civil and military aviation equipment in the interests of state and other customers, including foreigners, and it will also introduce new technologies and designs in the area of aircraft building,” the decree says.

Earlier reports said it would take from nine months to one year for the country’s aircraft builders to unite. The head of the single corporation will be determined before the end of this year.

The united corporation will have four business units, called Combat Aviation, Civil Aviation, Military Transport and Special Aviation, and Hubs and Components. The annual turnover of the corporation is expected to be between $8.2 billion and $8.5 billion.

The decision to set up such a company was made back in 1999, but words did not translate into action until 2004, when the first steps were made to implement the project. The single corporation could be established before the end of next year. It may be modeled on America’s Boeing or the European Aeronautic Defence and Space Company(EADS).

The creation of the single aircraft building corporation will allow Russia to produce up to 120 civil aircraft a year. Today, the country’s aircraft making industry makes only nine planes a year.

By RBC News

Airbus, the world's biggest builder of commercial jets, is in talks with Russia on forming a $25 billion partnership to develop a new aircraft as President Vladimir Putin accelerates plans to revive the country's aerospace industry.

The accord would generate about $1 billion per year in revenue for Russian companies through 2030, including $20 billion for the development of a new passenger plane, $3 billion in parts orders for Airbus's new A350 airliner and $2 billion for converting single-aisle passenger planes into cargo carriers, Airbus senior vice president Axel Krein told reporters on Tuesday.

"There is a race between the major aircraft manufacturers to form partnerships in countries like Russia and China," said Klaus Breil, who helps manage $6 billion at Adig Investments in Frankfurt, including shares in Airbus parent European Aeronautic, Defense and Space Co., or EADS.

Putin is speeding up plans to consolidate the defense industry, including creating a national aerospace holding company from private and state-owned enterprises to challenge companies such as Paris- and Munich-based EADS and Chicago-based Boeing. Aircraft production in Russia, once the world's biggest builder, collapsed along with the Soviet Union in 1991 as government revenue and orders dried up.

Aeroflot is seeking proposals for 22 long-haul aircraft and plans to announce next month whether it will buy Airbus' A350 or Boeing's 787.

The carrier has said it may sign an option for a further 12 airplanes, a total package valued at about $3 billion.

Airbus' proposal may sway Aeroflot's decision, Aeroflot deputy chief executive officer Lev Koshlyakov said. "Everything can have an influence on the decision," Koshlyakov said by telephone. "Management has a pragmatic approach. However, our shareholders may have different priorities."

The government owns 51 percent of Aeroflot, which is run by CEO Valery Okulov, son-in-law of Boris Yeltsin. Nobody at the Industry and Energy Ministry was available to comment.

The formation of Unified Aircraft is one reason Toulouse, France-based Airbus wants to involve Russia in Airbus's next development project, Krein said. "For us, it is a positive move. We're interested in strong and reliable partnership. We'll do whatever we can to help."

Airbus will take as long as three years to decide what technology to use in the new airliner and it wants Russia to be involved from the start of the project, Klein said, declining to identify which model the new plane will replace.

"Russia needs its own civil aviation industry and very powerful cooperation with international aerospace giants in America and Europe," Boeing Russia president Sergei Kravchenko said in an interview, declining to comment on Airbus' $25 billion proposal. "We'll do our best so that we keep our leading position in cooperating with the Russian industry."

Boeing and Airbus are vying to sell their latest generation of efficient planes to customers seeking better fuel economy. Boeing's 787 will be ready for commercial service in 2008, two years before the Airbus model. The rivals increasingly are seeking to tap into the engineering talent and lower labor costs in Russia's aerospace industry.

Interros, the parent firm of metals giant Norilsk Nickel, has won control of Russia's second-largest gold deposit, Nezhdaninskoye, after buying out Celtic's stake in it, the two firms said Friday.

London-listed Celtic Resources said in a statement that it had agreed to sell a 20 percent stake in South Verkhoyansk Mining Co., or SVMC, to Interros for $80 million.

A news release from Interros cited the same stake and sum of the deal, but gave no details. Company officials could not be reached for comment.

SVMC is the license-holder of the Nezhdaninskoye mine in Sakha, Russia's second largest and one of the biggest gold deposits in Eurasia.

Norilsk's gold unit Polyus, the country's No. 1 gold producer and the mine operator with 50 percent of its shares, had long sought control of the gold field, whose resource base is estimated at around 900 tons of gold under Russian accounting standards.

"The news that Celtic Resources had settled its ownership struggle with Polyus means it can now focus on business development," Aton brokerage said in a research note.

Analysts said the deal was beneficial for both sides. "I think the price that Celtic got is extremely generous," said Rob Edwards of Renaissance Capital.

Celtic said it expected to receive some $10 million as repayment of the principal of the debts owed by SVMC to Celtic.

The company, holding a 20 percent stake, had been locked in a legal battle with Interros, disputing ownership rights for the remaining 30 percent by two offshore firms backing Interros.

Celtic said the $80 million for its 20 percent would be held in escrow and released to it "conditional upon the withdrawal of all legal actions by Celtic in relation to the ownership of Nezhdaninskoye, which is expected to occur by March 31, 2006.

"Consequently, Celtic believes that resolution of the disputed 30 percent interest in SVMC is best left to remaining SVMC shareholders and the third parties," Celtic said.

Celtic said it still aimed "to grow into a significant gold mining company" and would build on the production base at the Suzdal and Zherek mines in Kazakhstan, as well as by way of new acquisitions in the former Soviet Union and elsewhere. It did not elaborate.

Norilsk is controlled by Vladimir Potanin, head of the Interros industrial and banking group, and Norilsk CEO Mikhail Prokhorov.

 Interros plans to invest $1 billion on mining projects this year, with the emphasis on copper and titanium projects, CEO Andrei Klishas said, Bloomberg reported citing Interfax. The money will be spent on acquisitions and exploration.

MUNICH, Germany -- The International Atomic Energy Agency agreed to refer Iran to the UN Security Council, but Defense Minister Sergei Ivanov on Sunday questioned whether any sanctions would bring Iran in line with international demands.

Twenty-seven of 35 member nations on the IAEA board, including Russia, voted on Saturday for Iran's referral to the Security Council over fears it wants to produce nuclear arms.

Iran responded Sunday by announcing that had ended all voluntary cooperation with the IAEA, an action required under a law it passed last year.

Tehran also said an Iranian delegation would hold talks in Moscow on Feb. 16 regarding a Russian offer to enrich uranium on Russian soil as an alternative to Tehran's nuclear program. The remarks were a reversal from Saturday, when a senior Iranian official said the offer was dead because of the IAEA vote.

Ivanov repeated the offer Sunday, saying it would allow Iran to develop peaceful nuclear energy while imposing cast-iron guarantees that potential bomb-making material would be kept out of Iranian hands.

"The fuel will be made elsewhere, then shipped under international controls and sent back as used fuel for recycling," he told an international security conference in Munich. "There is no risk for anyone in this chain of events. I hope that Iran will accept this Russian proposal."

Despite Russia's IAEA vote to report Iran to the council, Ivanov questioned whether sanctions would be the best course to follow. "The case of Iraq shows that sanctions are not always effective. It's a tricky thing," he said.

In general, however, "we've always said we're against any country in the world to develop nuclear weapons," he said. "We're sticking to that."

For the moment, he said, the IAEA should continue its work keeping tabs on Iran's program.

"As long as they are inside Iran, at least we can get some picture of what is happening there," he said.

He said Russia would decide on its position at the Security Council when it hears the report to be drawn up next month by IAEA Director General Mohamed ElBaradei, who has posed Iran with list of questions.

"We do expect answers to each question," Ivanov said.

The senior U.S. official at the Munich conference on Sunday said Washington was determined to build a wide global coalition and would work within the "international system" to put pressure on Iran, seeking to avoid divisions with major allies as during the run-up to the Iraq war.

"Iran will try to divide us," said Deputy U.S. Secretary of State Robert Zoellick. "It's very important that we try to work together, send a common message."

Zoellick said it was also important for the United States to get its message across to the Iranian people, acknowledging that mistakes were made in explaining American policy to Iraqis.

Iran and the threat from Islamist terrorism dominated the annual Munich conference. On Saturday, U.S. Defense Secretary Donald Rumsfeld and European officials united in calling for diplomatic pressure on Iran, but Rumsfeld was quoted telling a German newspaper Sunday that the U.S. had not ruled out a military strike.

//blob//Ivanov, who is also deputy prime minister and tipped as a possible successor to President Vladimir Putin, came under fire at the conference from critics who accused the Kremlin of bullying its former Soviet neighbors, in particular by restricting energy supplies to Georgia and Ukraine or supporting the authoritarian leadership in Belarus.

"We do not put pressure on our neighbors," he insisted, saying Russia was simply applying market economy rules in hiking the price of natural gas exports. He stressed willingness to increase cooperation with the West in fighting terrorism, but complained of double standards.

"Attacks on military personnel of the coalition forces in Iraq are still unequivocally defined as a display of terrorism, and similar actions of militants in Russia are quite often presented as a display of the struggle of the Chechen people for their freedom and independence," he said.

Ivanov suggested that NATO cooperate with Russia and Central Asian nations to combat drugs trafficking out of Afghanistan.

However, harking back to a Cold-War issue, he complained that NATO nations had delayed ratification of an arms control treaty.

"We have seen distinct intentions of the NATO countries to continuously delay the ratification, and that worries us," Ivanov said. NATO has linked the ratification of the treaties to the withdrawal of Russian troops from Moldova and Georgia.

Ivanov defied conference participants to judge Belarussian public opinion. "Whatever type of democratic vote you would like to see, I'm sure he would win -- that is my personal opinion," Ivanov said of President Alexander Lukashenko's candidacy in a March election.

Zoellick fired back that there was only one way to know how popular Lukashenko was. "My test for that would be to open it up and have a free and fair election and see," he said.

By Paul Ames and Ali Akbar Dareini
The Associated Press

Private car assembly company Avtotor said Tuesday it was building a new $200 million assembly plant in Kaliningrad that will have an annual capacity of 150,000 vehicles.

Avtotor, which assembled over 16,000 cars at its existing plant last year, hopes to put the plant into production from 2007, Avtotor spokesman Vladimir Foshenko said by telephone.

A likely tenant for the new plant is Chinese carmaker Chery, Foshenko said, adding that Chery might also contribute to the cost of the new plant.

The companies' cooperation is likely to start as early as this year, when Avtotor begins making Chery models at its existing plant, he said. Avtotor already assembles models for carmakers including BMW and KIA. A final agreement between the companies will be signed in February, Foshenko said. Chery said the companies were in talks.

News of the new plant coincides with President Vladimir Putin's confirmation Tuesday that Russia was currently negotiating with 14 foreign carmakers to bring car production into the country.

Agreements had already been signed with six of the largest foreign makers, he said, according to information posted on the Kremlin web site. Commenting on a possible new automotive champion, an issue that has attracted a lot of recent media attention, Putin said a merger of AvtoVAZ, KamAZ and GAZ was "possible." The deal would be decided on by the companies' owners, he said. "If all the participants in this process come to the conclusion that such an alliance can help develop the Russian car industry, we will of course support such decisions. But we will not impose any decisions."

He said that state involvement at AvtoVAZ "wasn't bad" taking into consideration the carmaker's poor shape, but added that the state was not taking over the country's car industry.

By Anna Smolchenko

In its present form, the bill addresses only six out of 40 factors that hold back the development of subsoil exploration and mining in Russia and deter investors, and it needs further work, Viktor Orlov, head of the Federation Council's committee on natural resources and environmental protection, said at an international forum on mineral resources in Moscow.

"The main problems in mining and exploration will not be resolved by the current [wording of the] legislation, which we have sent back for reworking," Orlov said.

Bills must be approved by the Federation Council after each of their three readings in the State Duma, and are then signed into law by President Vladimir Putin. The subsoil bill -- which has been in the works since at least 2001 -- was presented before the Duma last June but failed to pass first reading due to opposition, including from regional governments.

Natural Resources Minister Yury Trutnev said last December that he would push for the law to be adopted in the second half of 2006.

The subsoil law should not only deal with the distribution of mining licenses but also aim to stimulate more effective use of subsoil resources, an objective the current draft fails to achieve, Orlov said.

Russia's unified tax grade for all deposits and lack of legislation encouraging the activities of small and mid-size mining enterprises discourage companies from fully exploiting their deposits or taking on less lucrative projects, Yevgeny Melekhin, professor at the Moscow University for Geological Exploration, said at the forum. "The tax system makes the development of less lucrative deposits unprofitable," he said.

Trutnev said in December that the law would tackle issues such as the provision of more administrative freedom for the sector, a graded tax system for oil exploration and clear rules on which deposits would be labeled strategic, meaning foreign investors' access would be limited.

However, restrictions on strategic deposits are not Russia's biggest problem in attracting foreign investors, said Anton Yelistratov, an associate at Macleod Dixon, a law firm catering mainly to foreign clients in the mining and natural resources sectors.

Limitations on investment in strategic assets do not worry foreign companies if the rules are concise, clearly grounded and justified by national security concerns, Yelistratov said at the forum. What worries investors more is the general lack of clarity in Russian business rules and the dearth of guarantees that their investments will be liquid, he said.

"Foreign investors are first of all looking for stability. They want to know that in 20 to 50 years time they will still be able to mine their deposits under the same conditions," Yelistratov said.

Russia plans to conduct 1,400 tenders for licenses to develop mineral deposits in 2006, Vladimir Bavlov, deputy head of the Natural Resources Service, said Tuesday.

By Yuriy Humber

President Vladimir Putin told a packed audience of reporters in the Kremlin on Tuesday that Russia needed strong presidential rule, as political parties were still too weak to form the government, but stayed silent on his plans beyond 2008.

Putin began his fifth set-piece news conference by robustly defending Russia's place in the Group of Eight, then repeated his criticisms of foreign-supported NGOs and demanded action on the endemic hazing in the armed forces.

Among his replies to a total of 64 questions, Putin declared that Chechnya was close to becoming a normal part of the country, lambasted Ukraine for tapping into Russian gas exports intended for Europe and chastised Georgia for blaming the Kremlin over last week's bombing of gas pipelines supplying the country.

As usual, the president appeared to have done his homework as he confidently churned out statistics to brief 560 reporters from the Russian and foreign news media on the country's economic performance and fielded questions on salaries and other state payments.

Asked by Vladimir Kondratyev, a journalist from NTV television, whether he had decided who would succeed him when his term expires in 2008, Putin refused to be drawn, saying only that voters would decide.

"We have a lot of people in Russia ... who could lead the country. The people of Russia will have the final say," Putin said. Putin has indicated on a number of occasions that he has no plans to seek a third successive term in office, and that he considers it his duty to select a successor.

He was quite clear, however, that the country "needs strong presidential rule," given "the developing economy" and the ongoing work of strengthening the state.

Putin also appeared to rule out that he would move into business when he leaves the Kremlin.

"I can hardly take over a business structure," Putin said in response to a question about whether he planned to take over as head of state energy giant Gazprom. "My nature and background do not make me feel like a businessman," he said.

In answer to a question about transforming Russia into a parliamentary republic -- a variation on the succession question -- Putin said that the country's political parties were still too weak to be given the right to pick the prime minister and the Cabinet.

"The formation of all stable political parties is not yet complete. How then can one speak about parliamentary rule? This would be irresponsible," Putin said. "Everything is possible in the future, but in my opinion this should be an issue for future generations. I am against introducing such practices into current political realities."

Kremlinologists have speculated that one way of Putin staying in power beyond the end of his second term would be to turn Russia into a parliamentary republic -- a change that would allow him to retain power as a prime minister appointed by parliament.

On Russia's assuming the chair of the G8 this month, Putin lashed out at those who have said Moscow is unfit for the role, and employed a idiom to suggest that the Kremlin's critics could say what they liked, but had no chance of ousting Russia from the group.

"I know the mood of the leaders of the G8. No one is against our active participation in this club. No one wants the G8 to become a gathering of fat cats," Putin said.

As a country that "is developing socially," Russia understands the problems of developing nations better than any other G8 country, he said.

A number of NGOs, Western think tanks and politicians, including U.S. Congressman Tom Lantos, have called for Russia to be expelled from the elite club, citing what they say are the Kremlin's trampling of freedoms.

"Can anyone think how nuclear security problems can be solved without the participation of Russia, a key nuclear power?" Putin said. "Let them talk. ... A dog barks, but the caravan moves on."

In the wake of the spy scandal that erupted last week when the Federal Security Service accused four British diplomats of spying and British intelligence of secretly funding Russian NGOs, Putin acknowledged that nonprofit groups had a role to play in developing civil society, but insisted that NGOs should not be used as instruments in "other states' foreign policy." (See Story, Page 2)

The scandal was triggered by a report on Rossia days after Putin signed off on a controversial law severely restricting the activities and financing of NGOs.

"We support transparent financing so that they are independent and not administered by puppeteers from abroad," he said.

Putin also said the four diplomats would not be expelled.

"Let them stay here and keep their places at the intelligence station. It is pleasant for us to understand that we control these people," Putin said.

Answering a question about the case of conscript Andrei Sychyov, who was beaten at his Chelyabinsk barracks on New Year's Eve and had to have his legs and genitals amputated, Putin said the Army had to tackle the problem of hazing, but said the brutality was also the responsibility of society as a whole.

"That terrible case that took place in Chelyabinsk is under the supervision of the Defense Ministry. That was not only deplorable, but also terrible," he said.

"The Russian Army is part of Russian society, and we are all responsible for the condition this society is in."

Television should also share in the blame, since it showed violent movies, Putin said.

He said that Defense Minister Sergei Ivanov was preparing measures to reinforce control of the Army, including the formation of a military police force to keep order.

On Chechnya, Putin hailed the rebuilding of the republic's government as one of the most important achievements of his presidency, and appeared to hint at a day when final victory over separatist rebels could be declared.

He said that Chechen law enforcement agencies were fulfilling an important role and sometimes "working more efficiently than federal structures." If the positive trend continued, it would soon be possible "to talk about ending the counterterrorist operation in Chechnya," Putin said.

Turning to Russia's relations with its neighbors, Putin said Ukraine had admitted tapping into gas exports intended for Europe. "I am pleased ... that our partners in Ukraine openly said they were taking gas," he said. "It's important that they pay for that."

Putin did not mince his words on Georgia, either, lashing out at the government of President Mikheil Saakashvili over its suspicions that a Russian hand was behind the explosions in North Ossetia that led to much of the country's gas and electricity being cut off for a week. Putin pointed out that workers had been trying to fix the pipeline in freezing temperatures.

"We only saw them spitting at us," he said, referring to Saakashvili's government. "Georgian citizens should know that such a policy toward Russia will not help improve the conditions of ordinary people."

Putin on Domestic and Foreign Policy

Succession: The president declined to name a preferred successor, saying it would be voters who made the ultimate decision. He declined to specify what he plans to do after 2008.

Parties: The president should retain the power to form the Cabinet and hand over the responsibility to victorious political parties only after Russia completes its post-Communist transition to a full-fledged and strong federal state.

NGOs: Civil society should be developed, but any foreign financing of NGOs must be transparent to prevent foreign "puppeteers."

Espionage: Four British diplomats accused of spying will not be expelled. "Let them stay here and keep their seats at the intelligence station. It is pleasant for us to understand that we control these people."

Weapons: Russia has weapons capable of penetrating any missile defense system and has briefed French President Jacques Chirac on its capabilities.

Hazing: The establishment of military police could help prevent hazing.

Chechnya: "Counterterrorism operations" are nearing an end.

Social Spending: First Deputy Prime Minister Dmitry Medvedev was put in charge of the multibillion-dollar plan to improve health care, education, agriculture and housing to ensure that the money would not be stolen.

Gambling: The government and State Duma are drafting legislation to regulate this addiction, which is "no less serious than dependency on alcohol and drugs."

G8: Only die-hard Sovietologists could argue that Russia is not democratic enough to belong to the G8. Russia's presidency is an opportunity to advance energy security and keep the G8 from turning into "a gathering of fat cats."

Hamas: Russia has not classified Hamas as a terrorist organization, but the group needs to abandon its calls to destroy Israel.

Uzbekistan: The Andijan crackdown helped avert "a second Afghanistan" in the region.

Georgia: Independence for Kosovo could cause problems for Georgia in its efforts to regain control over its breakaway regions of Abkhazia and South Ossetia.

Belarus: Russia is supporting not Belarussian President Alexander Lukashenko but "the brotherly Belarussian people."

Olympics: The government backs Sochi for the 2014 Winter Games and will invest in a modern ski resort there even if the city does not win.

Yeltsin: Former President Boris Yeltsin gave Russians "the most important thing: freedom." Putin said he did not know how he would have acted if he had been president in the turbulent 1990s.

By Francesca Mereu and Oksana Yablokova

Norway's Telenor announced three lawsuits against No. 2 mobile phone operator VimpelCom on Thursday and said it might pursue litigation in the United States.

The legal action significantly raises tensions between the Norwegian telecoms giant and Alfa Group, both of which own blocking stakes in VimpelCom. The fight threatens to spook investors.

Telenor executives on Thursday accused VimpelCom of convening an illegal extraordinary shareholders meeting and providing misleading information to shareholders regarding VimpelCom's purchase of Ukrainian RadioSystems for $231.3 million in November.

"We cannot accept that VimpelCom and Alfa Group are now operating with a complete lack of respect for law, transparency, corporate governance and financial controls," Jan Edvard Thygesen, head of Telenor in Eastern and Central Europe, said at a Moscow news conference.

VimpelCom denied wrongdoing and said Telenor's telecoms interests in Ukraine were the real reason behind the lawsuits. Telenor controls Ukraine's leading mobile operator, Kyivstar.

"It appears that Telenor's conflict of interest in Ukraine has prevented it from considering the issue of VimpelCom's expansion into Ukraine fairly and rationally," VimpelCom said in a statement.

Telecoms analysts have also suggested that Telenor is worried about competition in Ukraine.

Telenor denied this Thursday, saying URS's price tag was too high for a market that was being carved up quickly. "You cannot throw good money after bad," Thygesen said, calling VimpelCom's business plan for Ukraine "totally inflated, totally unrealistic."

He said that while Telenor had backed recent acquisitions in Uzbekistan and Tajikistan, it could not stand behind the Ukrainian deal because VimpelCom's plan overestimated URS's income and underestimated the capital required to build it up.

Telenor wants to annul the URS deal in court, and claims that the mobile operator had no legal right to call the Sept. 14 shareholders meeting that approved the purchase. VimpelCom also misled shareholders by failing to disclose URS's beneficial owners and information about the recipients of the sale proceeds, Thygesen said.

VimpelCom chairman David Haines accused Telenor of ignoring the wishes of other shareholders. "Considering 89 percent of the public shareholders who voted were in favor of the URS acquisition after a very open and thorough public debate, Telenor now has to be able to separate its obviously emotionally charged conflict in Ukraine from its responsibility toward all the shareholders in the NYSE-listed VimpelCom," Haines said in a statement.

Telenor controls 29.9 percent in VimpelCom, while Alfa Group's telecoms arm Altimo owns a 32.9 percent stake.

Telenor has filed suit in the Moscow Arbitration Court and may sue in the United States and other countries, Telenor lawyer Peter O'Driscoll said.

Market watchers said the intensifying fight over URS could frighten investors.

"We believe that it would have been better for Telenor to back down and realize that it can lose more by trying to unwind the Wellcom deal than it would lose by letting Vimpelcom into Ukraine," UFG telecoms analyst Alexei Yakovitsky said in a research note. URS operates under the Wellcom brand.

Yelena Bazhenova, telecoms analyst with Aton Capital, noted the strategic importance of the Ukrainian market, saying VimpelCom could provide roaming services to Russian subscribers traveling to Ukraine without paying other operators for use of their networks. VimpelCom operates the Bee Line brand.

VimpelCom has lost nearly a year arguing with Telenor over URS, and in that time the cost of entering the Ukrainian telecoms market has continued to climb, Bazhenova said. "Telenor may have underestimated that Alfa is an aggressive financial investor," she said.

Complicating matters, Alfa's Altimo is a minority owner in Kyivstar and is seeking to gain greater influence on Kyivstar's board through Ukrainian courts. Telenor holds 56.5 percent of shares in Kyivstar, while Alfa holds the remaining 43.5 percent.

The Ukrainian High Commercial Court recently ruled in favor of Storm, 100 percent owned by Altimo, and declared illegal a provision requiring all board members to approve a candidate for Kyivstar's president.

Altimo's legal challenge is "another tactical move to force Telenor to merge Kyivstar into VimpelCom and thus to unlock the value of Alfa's currently illiquid Ukrainian exposure," UFG said in a research note Wednesday.

Last month, Telenor turned up the pressure by refusing to approve VimpelCom's 2006 budget. "You cannot have a situation where management is out spending money without approval by the board," O'Driscoll said.

The budget is likely to be reconsidered at a VimpelCom board meeting next month, Telenor said.

DAVOS, Switzerland — Jim O'Neill, the Goldman Sachs economist who created the BRIC acronym standing for Brazil, Russia, India and China, had some good news about the four countries to present to business leaders attending the World Economic Forum this week: By 2050, the four BRIC economies would be among the seven largest in the world.

He also had a confession to make: Of the four countries, Russia was the one that worried him the most, in large part because he found the government's behavior difficult to understand.

"The motives for the decisions coming out of the Kremlin are difficult for us to understand, although they are not always sinister," O'Neill, head of Goldman's global economic research, said after presenting his latest report Wednesday.

Unfortunately, he will get little explanation of Russia's actions and intentions in Davos this week. The only Russian official to attend this annual meeting of the world's movers and shakers is Economic Development and Trade Minister German Gref. Finance Minister Alexei Kudrin had planned to come but canceled at the last minute. The foreign and energy ministers also were invited but did not R.S.V.P.

The highlight of past World Economic Forum meetings for Russians and Russia watchers has been the Russia dinner.

Deputy Prime Minister Alexander Zhukov attended last year, and Kudrin the year before. This year, however, Gref will be at one of the many other dinners on Friday night, titled Economic Blind Spots, where he will join a discussion on changes in the international division of labor and the consequences of international financial flows.

To be fair to Gref, he is participating in a number of discussions here on a variety of issues. He also held a closed meeting on Thursday with a roomful of business executives, and thoroughly and thoughtfully answered their questions on Russia's tax regime, its high-tech sector, banking reform, intellectual property rights and the gas dispute with Ukraine, which is perhaps the most sensitive issue for the government right now.

The governor of the Perm region, Oleg Chirkunov, also spoke to the gathered executives, but all the questions went to Gref.

"He was straightforward. He dealt with IP, which can be the darker side," said Robert Trent Jones, chairman of Golf Course Architects of California, who built the course at the Moscow Country Club and has another project in the works.

"Gref is one of the good guys," said William Browder, the chief executive officer of Hermitage Capital. "If everyone was like Minister Gref, the economy would be twice as big by now."

Browder is Gref's biggest helper and Russia's biggest cheerleader at Davos. On Thursday, he held a breakfast briefing for journalists and gave a catchy presentation called "What a Difference a Year Makes in Russia," in which he said the gloomy forecasts made at Davos last year were all wrong.

With colorful quotations and easy-to-read graphs, he made the case that Yukos was not the first step in a comprehensive renationalization program, that oil production was not stagnating, capital flight was not skyrocketing, reform was not dead, and social unrest did not and would not bring a color revolution to topple Putin.

The only major mistake Russia made last year, Browder said, was not making the rounds of its European natural gas customers before the Jan. 1 deadline to explain Russia's position "so that they would put pressure on Ukraine."

The reason the government did not do this was the result of 70 years of not having to think about its image, Browder said. "People are operating in the old regime. They never had to think about these things," he said. "Russia makes lots of mistakes, but their biggest mistake is never trying to explain."

Graham Allison, director of the Belfer Center for Science and International Affairs at Harvard University's John F. Kennedy School of Government, said he still had not seen a single clear explanation of Russia's decision to cut off supplies of natural gas to Ukraine over a price dispute.

Russia's action alarmed Europe, which saw its gas supplies sharply drop as a result.

Ukraine has been getting stolen gas from Russia for years, Allison said. "The foreign minister should have come to explain."

Some of the Russian participants were also critical of the government's decision to maintain a low profile at this year's World Economic Forum, where among the 2,340 participants from 89 countries there are a dozen heads of state, more than 70 Cabinet ministers and more than 700 chairmen or chief executives. Russia has 35 representatives here, most of them from big business. The list includes a handful of foreigners doing business in Russia and also three editors, one of them an American citizen.

Lilia Shevtsova, a scholar at the Carnegie Moscow Center and perhaps the lone openly critical voice from Russia this year, said the government was avoiding having to answer unwelcome questions or listen to other people's advice.

The Kremlin wants to restore its status as a superpower by use of "hard power," and has no use for the "soft power" that is the essence of Davos, she said.

"This comes under the major 'screw them, we're not going to listen to your questions,'" Shevtsova said. "This raises many concerns."

Along the same lines, deputy head of the presidential administration Vladislav Surkov canceled a speech before the U.S. Council on Foreign Relations that had been scheduled for January.

Anatoly Karachinsky, head of IBS, an IT holding company, said Russians had come to Davos at times when things at home were not so good and they wanted something from the West. But now, with Russia's oil-fed economy booming and all major international businesses fighting to get into the Russian market, the government feels little need to make its investment case here.

"The government thinks, 'Why come to Davos? They are all coming to Russia,'" Karachinsky said. He suggested this was shortsighted. "Much of the world has a bad image of Russia. Davos is one of the places where you can change your image."

The Indians, for instance, are running an aggressive campaign here to improve their image and attract foreign investment.

According to the Goldman Sachs report, India is on track to be the third-largest economy in the world in 2050, trailing only the United States and China, which will claim the top spot. Japan will be the fourth, followed by Brazil, Mexico and Russia in seventh place. This assumes a growth rate for China of 5 percent and for Russia of 3 percent, O'Neill said.

In 2004, Russia had the ninth-largest economy, lagging behind Germany, Britain, France and Italy. The European countries will all be overtaken by the four BRICs, if the report's predictions prove accurate.

Progress on a hotly debated bill on advertising has stalled once again, as the State Duma postponed the crucial second reading originally scheduled for Friday.

The most contested parts in the legislation include the restriction of beer advertising at sporting events, the reintroduction of commercials to children's television and changes in the regulation of billboard advertising, a spokesman for the Duma committee handling the bill said Thursday.

The bill passed in its first reading last April, but the second reading has now been postponed for a fifth time. Legislation takes its final shape in the second reading before it is subject to a third reading. Approval from the Federation Council and the president are required for a bill to become law.

One of the main issues is the regulation of billboards across the country, with Moscow city officials particularly afraid the legislation will take control over the city's outdoor advertising out of their hands.

While city authorities do not regulate the content of billboard advertising, they can take action if they decide advertising space is being used inappropriately, said Vladimir Makarov, chairman of Moscow's committee on advertising and information. This will no longer be the case if the bill passes in its current form, he said.

Makarov said city officials were also concerned that their ability to take down billboards was likely to become restricted, as the legislation stipulates that a court ruling would be required to move a billboard. Currently, billboard owners are often simply allocated a replacement site if road works or other construction encroaches on an existing location, Makarov said.

Most of the backing for the new rules is coming from a handful of advertising companies, Makarov said.

The National Association of Outdoor Advertising and Information, or NANRI, which lobbies on behalf of the outdoor advertising industry, declined to comment.

NANRI is headed by Sergei Zheleznyak, who is also head of outdoor advertising major News Outdoor Russia, which is part of Rupert Murdoch's media giant, News Corp.

For brewers, the bone of contention is the ban on beer advertising, said Vyacheslav Mamontov of the Beer Union. "If the bill is passed the way it's been proposed, there can't be any broadcasts of sports competitions," he said, adding that beer makers were the main sports sponsors around the world.

The third main issue is advertising on children's television, which was banned in 2001. The legislation, which is opposed by consumer protection groups concerned about junk food advertising, would allow commercials on any program longer than 25 minutes.

The 2001 ban on advertising in children's programs has effectively destroyed children's television, said Tatyana Chernyayeva, head of children's and youth programs for channel TV Center. The lack of money in the sector has impacted quality and quantity, she said.

The International Confederation of Consumer Protection Organizations, however, feels the state should finance children's television. The toll that ads take on children's health is also an issue, as research shows that up to 70 percent of advertising in children's programs in emerging markets is for junk food, said Dmitry Yanin, chairman of the confederation.

The cold snap deepened on Thursday and forced gas monopoly Gazprom to further trim supplies to Europe, which analysts said highlighted Europe's risks of relying heavily on one major supplier.

With temperatures in Moscow plunging overnight to minus 30 degrees Celsius and to minus 50 C in parts of oil-producing Siberia, Gazprom has been forced to crank up supplies to domestic consumers.

The third straight day of freezing weather in Russia has seen deliveries to some of Gazprom's European customers, including Italy, Hungary and Croatia, fall 10 percent to 25 percent below volumes requested.

Neighboring Ukraine has added to the drain on supplies by taking more gas, including from the transit pipelines that ship most of the Russian gas that is bound for Europe.

Gazprom, which is the world's largest gas company and supplies one-quarter of Europe's needs, said clients were asking for too much and that it was already shipping above contract obligations.

Gazprom had already briefly reduced supplies to Europe in early January due to a contract dispute with Ukraine. A second cut in just a month could further damage Gazprom's reputation as a reliable supplier, which many EU states had already questioned during its standoff with Ukraine.

"Unfortunately, the development will again reinforce the idea that Europe is highly dependent on Russia for its gas supplies," said Adam Landes of Renaissance Capital.

European Commission energy spokesman Ferran Tarradellas Espuny told reporters the commission had asked member states and gas companies to give figures on how much of the gas supply had been cut. "There was disruption yesterday, but not a major disruption, though. It's not an extraordinary situation and happens during other winters," he told reporters in Brussels.

Italy said deliveries of Russian gas fell 6.8 percent below demand in the 24 hours to 8 a.m. Moscow time on Jan 19. Italian oil and gas group Eni forecast Russian gas supplies would fall 12.2 percent below demand on Thursday.

Hungary's gas group MOL said its gas imports from Russia were still down by 20 percent to 25 percent on Thursday, which prompted it to ask major consumers to switch to oil.

Industry and Energy Minister Viktor Khristenko said Gazprom was tapping maximum volumes from its underground storages as the use of electricity in Moscow hit an all-time high, but that even that was not enough and the government agreed to use fuel oil reserves.

Interfax quoted an official from state firm Rosreserve as saying some 250,000 tons of additional fuel oil could be released in the near future, with some 60,000 tons already ordered for delivery to St. Petersburg.

 National utility giant Unified Energy Systems on Thursday cut power exports to Finland by 30 percent as it seeks to head off possible shortages in freezing temperatures at home.

A spokesman at Finnish power grid operator Fingrid confirmed the supply cut but said the reduction was not expected to affect Finnish consumers at these levels.

A UES spokeswoman said the reduction would allow UES to provide enough electricity to St. Petersburg and the Leningrad region.

The new state-friendly management at the country's largest carmaker, AvtoVAZ, is busy hammering out a strategy aimed at giving the ailing firm a new lease on life, the company's recently appointed chief said in an interview published Thursday.

In his first interview since taking charge in late December, Igor Yesipovsky said the company's priorities would include improving the quality and image of the Lada model and expanding the range of models the company offers, with the aim of satisfying the jaded Russian customer.

"Today, AvtoVAZ should get a second wind, which will allow it to take a worthy place among the world's carmakers," Yesipovsky told the Tolyatti-based carmaker's corporate newspaper in an interview posted on the company's web site.

Coming just weeks after state-linked executives — including two from state arms dealer Rosoboronexport — took charge of AvtoVAZ, the interview gives little in terms of specifics.

Yesipovsky, one of the two new arrivals from Rosoboronexport, said the strategy would be completed soon, but he did not elaborate further. AvtoVAZ declined to comment on the matter.

The new management has denied charges that the state is moving to take control of AvtoVAZ.

Yesipovsky's remarks coincide with a report in Vedomosti that says he may not be the last official with a link to Rosoboronexport to join the carmaker's senior management.

Plans are now afoot to replace the head of one of the carmaker's key subsidiaries, AVVA, which owns a stake in AvtoVAZ, Vedomosti said.

Rosoboronexport is set to replace AVVA head Yury Zektser with a candidate of its choice at the end of February, the paper said. Zektser, who previously held a seat on the board, did not make the cut in the Dec. 22 round of elections.

Outgoing executives will be kept on as consultants, Yesipovsky said in the interview.

The state-connected management is likely to install its people at the plant's other subsidiaries, the paper said, citing unidentified sources familiar with the situation. AvtoVAZ declined to comment on the Vedomosti report.

AvtoVAZ has a complicated ownership structure, including a number of cross-share holdings. It has three main subsidiaries, including AVVA, which together own more than half of the company.

AVVA is 86 percent owned by AvtoVAZ but it, in turn, owned 38 percent in its parent company as of the end of 2004, according to figures from the company's auditor, PricewaterhouseCoopers.

AVVA was set up in the early 1990s by AvtoVAZ's then-CEO, Vladimir Kadannikov, and now-exiled tycoon Boris Berezovsky as part of a failed plan to raise funds to produce a new generation of Russian cars.

The funds they raised were later converted into stock, and Kadannikov and Berezovsky parted ways.

AvtoVAZ's other main subsidiaries, TsO AFK and IFK, are both majority-owned by AvtoVAZ, but also hold smaller stakes in the parent firm.

Gairat Salimov, an automotive analyst with brokerage Troika Dialog, does not rule out the possibility that other stock-owning subsidiaries may also end up under the state-connected management's control. "Those who control these companies control AvtoVAZ," he added.

In 2005, AvtoVAZ sold more than 648,000 cars in Russia, a 3.7 percent increase over the previous year, the carmaker said.

Russia made 1,050,000 cars in 2005, compared with 1.1 million the previous year, according to preliminary figures from Industry and Energy Ministry. The 2005 production figure was 100,000 vehicles short of the ministry's target.

OTTAWA – December 7, 2005 – Export Development Canada (EDC) today signed a USD 15 million Line of Credit with the Joint Stock Company State Export-Import Bank of Ukraine (JSC Ukreximbank) to facilitate the procurement of Canadian goods and services in an East European market of growing importance to Canadian exporters and investors.

“With their strong economic growth in recent years, Ukraine has become an increasingly important market to Canadian companies interested in Central and Eastern Europe,” noted Benoit Daignault, EDC Senior Vice-President for Business Development. “Our enhanced relationship with JSC Ukreximbank will help us promote Canadian export activity in Ukraine, especially in key strategic sectors such as agricultural equipment, packaging and food processing.

“EDC more recently concluded two important commercial financing transactions with the Bank for agricultural equipment and for a grain port storage facility.  Our positive experience in both cases encouraged us to expand our relationship via this Line of Credit,” added Mr. Daignault. “We have worked with JSC Ukreximbank since 1992 when it began acting as Financial Agent for the Government of Ukraine. The Bank has become one of our key partners in the Ukrainian market.” 

JSC Ukreximbank is a multipurpose bank with 100% of its shares owned by the State, represented by the Cabinet of Ministers of Ukraine. JSC Ukreximbank is among the ten largest Ukrainian banks  and was the sixth largest Ukrainian bank by assets at end-2004, with a network of almost 90 branches and outlets in all main industrial centers  across Ukraine. In addition to its commercial banking activities, JSC Ukreximbank is the only Ukrainian bank that acts as a Financial Agent of the Ukrainian Government in attracting and servicing international loans to Ukrainian corporates that are extended under state guarantee.

Export Development Canada (EDC) is Canada’s export credit agency, offering innovative commercial solutions to help Canadian exporters and investors expand their international business. EDC’s knowledge and partnerships are used by 7000 Canadian companies and their global customers in up to 200 markets worldwide each year. EDC is financially self-sustaining and is a recognized leader in financial reporting, economic analysis and human resource management.

Media contacts:

Export Development Canada                   JSC "Ukreximbank"

Phil Taylor                                             Yaroslava Chamara

EDC Public Affairs                                 Acting Head of Press Center of JSC "Ukreximbank"

(613) 598-2904                                       +38044 247 8913

ptaylor@edc.ca                                     press@eximb.com

"We have contacted PetroKazakhstan and proposed meeting and holding talks to settle our disputed questions," LUKoil Vice President Andrei Kuzyayev told a news conference in Astana Thursday.

Shareholders of PetroKazakhstan, whose assets are all in Kazakhstan, voted Tuesday to sell the company to the Chinese National Petroleum Corporation (CNPC) for $4.2 billion. In accordance with Canadian legislation, the deal must be approved in court. However, the court delayed delivering a judgment for eight days to give the parties the opportunity to settle their dispute over the ownership of Turgai Petroleum, operating in the northern sector of the Kumkol oil field in south-western Kazakhstan, where LUKoil and PetroKazakhstan each hold a 50% stake.

"Under the shareholders' agreement between LUKoil and PetroKazakhstan, LUKoil has the priority in buying 50% of Turgai Petroleum in the event of a change in PetroKazakhstan ownership," Kuzyayev said.

MOSCOW, September 19 (RIA Novosti) - Gazprom CEO Alexei Miller has signed a document approving investment in the North-European gas pipeline (NEG) project, the Russian gas monopoly's press service said Monday.

According to the adjusted business-plan, annual gas exports through the NEG is estimated at 55 billion cu m.

Construction on the pipeline is scheduled to start in 2005 and wrap up in 2010, with the first section's annual pumping capacity of 27.5 billion cu m and the second section extending it to the designed capacity of 55 billion cu m per year.

The natural gas pipeline will link Russia and Germany via the Baltic Sea. The total cost of the project is being estimated at 4 billion euros. (more)

Moscow (FINCONTROL.RU) - On August 25, Russian Prime Minister Mikhail Fradkov signed Instructions No. 1306-r approving the forecast programme of privatising federal property in 2006 and the privatisation guidelines for 2006-2008.  The Russian government has instructed the Economic Development Ministry to ensure the implementation of the 2006 privatisation programme and the guidelines for 2006-2008.

According to the mid-term forecast of social and economic development and the imputed cost of facilities slated for privatisation, the federal budget should receive at least Rbs31 bln from the privatisation of federal property in 2006.  The programme stipulates the privatisation of share packages of joint stock companies that do not exceed 50% of their authorised capital, with the exception of packages in the JSCs from the list of strategic enterprises or companies that are creating integrated structures.

The programme provides for privatising share packages in JSCs in the gas industry and power engineering, construction, filmmaking and distribution, civil aviation, health care, the chemical and petrochemical industries, printing and publishing, geology, the fisheries, poultry, plant and cattle breeding, the timber and medical industries, as well as the shares of foreign economic organisations and machine building JSCs (with the exception of JSCs on the list of strategic organisations).

The privatisation list includes federal state unitary enterprises (FGUP) in civil aviation, geology, oil and gas, fuel, marine and river transport, printing and publishing, health care, and plant, poultry and cattle breeding.  The project of creating integrated structures in the defence industry will be carried on in 2006 within the federal target programme of reforming and developing the national defences in 2002-2006. All FGUPs that are not involved in the fulfilment of Russia’s state functions and open-ended JSCs created during the corporatisation of such FGUPs are to be privatised in 2007-2008.

The privatisation list for the oil and gas industry includes 0.32% in the East Siberian Oil and Gas Company (VSGK, Moscow), 20.88% in Daltekhgaz (Khabarovsk), and 38% in Tyulgannefteprodukt (Tyulgan, Orenburg region). The list of other open-ended fuel and energy JSCs to be privatised include 12.95% in Geoterm (Petropavlovsk-Kamchatsky) and 100% in Razrez Kaa-Khemsky (Kaa-Khemsky, Tuva).

The Russian government plans to privatise the 85.38% stake of the authorised capital in Yeniseizoloto in 2006. The list of machine building enterprises slated for privatisation includes 34.01% in KAMAZ (KMAZ, Naberezhniye Chelny, Tatarstan), 18.52% in Avtoagregat (Kineshma, Ivanovo region), 30.99% in Avtodizel (Yaroslavl), 38% in Omskagregat (Omsk), 38.36% in Mashinostroyeniye Severnoi Verfi (St. Petersburg), and one share in the Kolomensky Zavod holding company (Kolomna, Moscow region).

The list also includes 20% of the Amur Shipyards (Komsomolsk-on-Amur, Khabarovsk territory) and 10% of the Nikolayevsk-on-Amur Shipyards (Khabarovsk territory). The programme for the metallurgical industry stipulates the sale of one share in AlMet (Ulyanovsk) and Gorevsky GOK (Novoangarsk, Krasnoyarsk territory) each.

The privatisation programme for the chemical and petrochemical industries stipulates the sale of 10% in Biopreparat Centre (Moscow), 5.01% in Krasfarm (Krasnoyarsk), 28.37% in Misheronsteklo (Misheronsky, Moscow region), 11.75% in the Solnechnogorsk glass plant (Moscow region), 100% of shares of the Omsk pilot plant Neftekhimavtomatika (Omsk), 1,000 shares of Uralkaly (URKA), and one share of the Kuskovo chemical works and RTI-Kauchuk (both located in Moscow) each. The government also plans to sell the federally owned stake (1.55%) in LUKoil-Permnefteorgsintez.

The list of aviation JSCs to be privatised in 2006 includes 100% of Roshchino airport (Tyumen), 100% of Ulyanovsk Giproaviaprom (Ulyanovsk), 46.49% of Samara Airlines and 74.69% of Khakassia Airlines (Abakan). The 2006 privatisation list of water transport companies includes 100% of the Onega Shipping Line (Onega, Arkhangelsk region), 25.5% of the Tomsk Shipping Line, and 100% of the Mezensk merchant port (Kamenka, Arkhangelsk region).

The privatisation list includes 39 open-ended defence JSCs. The list of non-producing companies comprises 23.93% of the Federal Fund Corporation (FFK, Moscow), 0.25% of the Aviatsionny Fond Ediny Strakhovoi insurance company (AFES, Moscow), and 20% of the Trast insurance company (Chelyabinsk).

To be privatised are four foreign economic open-ended JSCs: 100% of the GPZ foreign trade company and Termoexport (both located in Moscow), 35.83% of the Vneshpromtekhobmen foreign economic operator (Moscow), and one share of the Atomenergoexport foreign economic association (Moscow).

DFAIT - Canadian Foreign Minister Pierre Pettigrew appointed Abina Dann as the new Canadian Ambassador to Ukraine, succeeding Andrew Robinson.  Her biography is provided below:

Abina Dann (BA [Political Science & History], McGill University, 1974; MA [Canadian Politics & International Relations], Carleton University, 1980).  Since 1980, when she joined the Department of Industry, Trade and Commerce, she has served abroad as Trade Commissioner in Sao Paulo, The Hague and New York.  She opened the Canadian Government Trade Office in Mumbai, India, in 1986.  In Ottawa, she served the Department of Foreign Affairs and International Trade as Deputy Director of the Media Relations Office, Director of the Foreign Policy Communications Division and Director for Communications and Media for the 2001 Summit of the Americas.  She served as Press Secretary to both the Minister for International Trade and the Secretary of State for External Affairs, and acted as Official Departmental Spokesperson.  She was also an International Fellow at Harvard University Weatherhead Center for International Affairs.  More recently,she was Director of the department's European Business Development and Connectivity Division.  Ms. Dann succeeds Andrew Robinson.

Bombardier, Canada's manufacturer of regional and business jets, plans to set up a technical maintenance center in Russia to service the growing number of Bombardier aircraft operating in Russia, a senior executive said Monday.

"The volumes are such that we feel it's time to get up a service center in Russia," Bob Horner, Bombardier vice president for business aircraft sales in Europe, the Middle East and Africa said in an interview Monday.

He declined to disclose the amount of planned investment, but said a final decision would be made by the end of the year. The center will be at one of Moscow's airports and will be operated with a Russian partner, Horner said.

The planned center will offer support services for the increasing numbers of Bombardier jets being bought by Russian individuals and corporations, as well as those that pass through Russia.

Over the past five years, Bombardier has sold 16 Global 5000 and Global Express aircraft, as well as 15 new Challenger 300s and 604s, to Russian buyers, Horner said.

Bombardier is not the only foreign company looking to benefit from the growth of the private jet market.

U.S. billionaire Warren Buffett's NetJets, which offers shared ownership of private jets, started operations in Moscow two years ago.

Swiss-based Jet Aviation, which specializes in business aviation services, said last month that by the year's end it would also identify a Russian partner to set up a fixed-base operations office in Moscow.

Jet Aviation outfitted a Boeing 767 belonging to Chukotka governor and Chelsea Football Club owner Roman Abramovich.

According to the Russian Association of Business Aviation, the number of flights on business jets booked by Russian clients is growing by 40 to 50 percent per year, hitting 15,000 in 2004.

In the past two years, Russians have spent as much as $500 million on private jets.

RBC, 15.08.2005, Moscow 19:28:30.  Russia and China plan to increase the volume of trade between the two states to $60bn-$80bn by 2010. In addition, the sides are expected to attract $12bn in Chinese investments to Russia, the economic development and trade ministry's press service reported today following Russian delegation's visit to Beijing. The statement released by the ministry reads that trade between Russia and China totaled $21.7bn last year, 34.7 percent up from 2003. This figure stood at $12.28bn in the first half of 2005, having advanced 28.9 percent.

MOSCOW, July 25 (RIA Novosti) - The Russian Economic Development Ministry has raised the 2006-2008 inflation forecast due to increased government spending, the ministry's Macroeconomic Forecast Director Andrei Klepach said Monday.

In 2006, inflation is expected to be between 7.0% and 8.5% vs. the initial forecast of between 7.0% and 8%. The outlook for 2007 comes in at about 6.0-7.5% vs. 6.0-7.0%. In 2008, annual consumer price growth is predicted at 4.0-4.5%.

Russian Finance Minister Aleksey Kudrin has said the inflation corridor for 2005 would be widened. It is expected to be between 10 and 11% vs. 11.7% last year.

Klepach said that with Russia's social and economic development, inflation would remain high in the medium-term.

In order to restrain inflation, the growth in natural monopolies' tariffs would have to be strictly limited and the growth rate of utility bills would have to be almost halved, Klepach said.

The ministry also raised the GDP forecast for the next three years. In 2006, GDP growth will equal 5.8%, 5.8% in 2007 and 6.0% in 2008.

"The current trend should allow us to reach 6% this year," he said. "But we are sticking to a moderately optimistic outlook." He explained that growth in oil revenues do not automatically lead to a rise in investment. Import growth is currently high and the competitiveness of Russian goods is still declining.

"There is a chance that the growth rate will be higher than 5.9%, but there is also a risk that it may be lower," he said.

MOSCOW. July 18 (Interfax) - Russian Natural Resources Minister Yuri Trutnev and Namibian Finance Minister Saara Kuugongelwa-Amadhila signed an agreement on creating an intergovernmental commission on trade and economic cooperation in Windhoek on Monday.

The commission will supervise implementation of the bilateral agreement on trade and economic cooperation signed in 1997, and will study opportunities for developing cooperation in trade, investment, finance, science and technology, the Natural Resources Ministry said in a release.

The commission will also assist organizations and business circles of both states to develop and diversify their economic relations, including common investments in the markets of other countries, the release said.

MOSCOW, July 13 (RIA Novosti) - The Federation Council, the upper house of the Russian parliament, approved a law on special economic zones in Russia Wednesday.

On July 8 the State Duma, the lower house of the Russian parliament, approved the law, which aims to establish zones in Russia to develop high-tech sectors of the economy, produce new types of goods and develop transport infrastructure.

"Judging by global experience, Special Economic Zones are one of the most effective and promising ways to maintain global competitiveness and develop the state's economic and scientific potential," chairman of the upper house's committee on economic policy Oganes Oganyan, who presented the document, said.

The senator said the law established the concept of a Special Economic Zone (SEZ) as a government-selected part of Russia's territory where a particular form of entrepreneurial activity is pursued. He said "industrial-production" and "technical-innovative" zones would be created.

Mineral resources production and metallurgic production are prohibited in the zones, as is processing minerals and scrap from ferrous and non-ferrous metals. The production and processing of goods subject to excise duties, excluding cars and motorcycles, is also banned.

Besides, the law stipulates that a resident company of an industrial-production zone should invest no less than 10 million euros. "A resident of a Special Economic Zone should invest no less than one million euros within 12 months of signing the contract," Oganyan said.

By Catherine Belton - Staff Writer

Moscow, June 21 (The Moscow Times) - Mounting taxation on Russian oil companies is stifling further industry growth and making them much less competitive than their Western counterparts, LUKoil vice president Leonid Fedun said Monday.

Calling on the government to decide on a course for the oil industry's future development, Fedun said the sector needed $200 billion in investment to develop new oil-producing regions.

"We could increase production to 11 million barrels per day. But to do that we need a different tax regime," he told reporters on the sidelines of a Moscow investment conference organized by Renaissance Capital. "The state needs to decide which scenario for developing the oil sector it wants. ... Now it's heading for a period of moderate growth that will be followed by a moderate fall."

"The more the government takes from oil companies in taxes, the less there is left to invest," Fedun said during a speech to investors at the conference. "Russia faces the task of developing new fields, and this requires huge amounts of money."

The country's "energy security and economic progress are closely linked to the tax burden on the industry," he said.The sector needs $200 billion in investment into developing new oil-producing regions to keep production growing, he said.

We need to double, even triple investments," he said. To do this, he said, the government could either lower the tax burden or companies would have to bring in foreign partners. Last September, LUKoil teamed up with the U.S. major ConocoPhillips, which has bought an 11.1 percent stake in the company. ConocoPhillips has said it may invest $1.5 billion in a joint venture in the Arctic with LUKoil.

Even as world oil prices reach new record highs, the nation's oil boom is starting to sputter out after nearly five years of rapid growth. Oil production increased just 2.9 percent on May, the smallest gain this year, to bring overall production to 9.33 million bpd.

Investment in the sector is falling amid industry fears following the state's partial takeover of Yukos as compensation for massive back tax claims, rising taxation and gridlock in export pipelines.

Last year, LUKoil's output was up 8 percent, not including gas. Fedun said Monday production this year would grow by 8 percent, but he said that would include gas output. He declined to give a figure for crude output. The company's oil production for April stayed flat at 1.75 million bpd.

TNK-BP CEO Robert Dudley told the conference that his firm, Russia's No. 2 oil major by output, expected to pay $11.5 billion in taxes, tariffs and excise duties this year, nearly double the $6.5 billion it paid last year.

He said the company was still negotiating an audit finding by the Federal Tax Service, which said TNK-BP owed nearly $1 billion in unpaid taxes for 2001. "There are no deadlines" for this process, he told reporters on the sidelines of the conference.

Fedun said rising transport costs were another way for the state to seize the oil sector's windfall gains. "Again this is the state monopolies which are redistributing a significant part of oil incomes for their own gain," he said. "You can't separate the tax burden from transport costs."

The growing tax burden is making Russian companies much less competitive than their western counterparts, he said.

Fedun insisted that LUKoil would be able to hold its own in the faltering environment. Unlike other companies, LUKoil has invested significant sums into developing new oil fields in the arctic Timan-Pechora area and in the northern Caspian, he said. "In the next seven to eight years, our main growth will come from these regions," he said.

Moscow, June 20 (RBC Business News) - Capital flight from Russia will be $5 billion to $7 billion this year, Economic Minister German Gref told a government meeting on Thursday. Previous estimates put the figure at an unchanged $7 billion to $9 billion. Ministry officials said fleeing funds would diminish as foreign investment gathered pace, and looked to net capital inflow by 2007.

Under the Ministry of Economic Development and Trade's scenario for economic and social development in the medium term, foreign direct investment is expected to triple over the next few years. The economy will also be affected by Russian entry into the World Trade Organization.

Gref said an investment fund of RUR 69.7 billion would be set up next year, with Ministry of Finance predicts capital flight from Russia at $4.8 billion this year, with a possible net inflow in 2006. “Capital flight is reducing, this is a trend,” said finance minister Alexei Kudrin. In the first quarter of this year, capital flight stood at $900 million, against $4.2 billion in the same period last year, he said.

Officials in his ministry expect net capital inflow to be $1.5 next year, $6.9 billion in 2007 and $11.6 billion in 2008. In 2003, capital flight was reported at $1.9 billion, in 2002 at $8.1 billion, in 2001 reaching $15 billion, and $24.8 billion in 2000.

The Economic Ministry left its GDP growth forecast for this year unchanged at 5.8 percent, predicting 5.6 percent next year, 5.8 percent in 2007 and six percent in 2008. The Ministry expects oil production to drop this year, partly because of the YUKOS affair. Gref said oil production would be 475 million tons in 2005, ten million tons less than planned. Officials reviewed their forecast for the price of Urals oil, reckoning $43 a barrel in 2005 and $35 next year.

The largest part of GDP (RUR 876 billion) was generated by wholesale and retail trade and repair services, 9.4 percent more than in the first quarter of last year; RUR 692.4 billion came from the manufacturing sector, down 0.4 percent; RUR 388.7 billion originated from operations with real estate, up 4.4 percent; RUR 381.1 billion came from transport and communications, 6.2 percent more than last year, and RUR 306.2 billion was obtained from mineral-resources production, up 3 percent.

On May 27, Russia’s Ministry of Economic Development and Trade lowered its forecast for the country’s GDP for this year and next. Minister German Gref said the forecast for 2005 was reviewed from 6.5 percent to 5.8 percent, and for 2006 from 5.9 percent to 5.6 percent.

Last month, the European Bank for Reconstruction and Development (EBRD)published its economic forecast for Central and Eastern Europe, putting Russia’s GDP advance at 5.2 percent for this year.   The International Monetary Fund (IMF) expects Russia’s economy to grow 5.5 percent in 2005, and the World Bank is slightly more optimistic, predicting 6.2 percent growth.

However, none of these forecasts permits Russia to double its GDP by 2012. To achieve this goal, set forth by Russian President Vladimir Putin in his annual address to parliament two years ago, the country’s economy must grow by at least 7.2 percent a year.

Moscow, June 15 (RIA Novosti) - The rate of the ruble against the dollar will remain at 27.7 through next year, a Russian Finance Ministry official told reporters ahead of Cabinet deliberations on the 2006 draft budget and on blueprints for a three-year financial plan. The rate is expected to rise to 28.1 in the year 2007 and further up to 28.3 in 2008, the official said.

The national currency's rate against the euro is expected to remain at US$1.28 through 2006 and to rise to US$1.3 in the two subsequent years. Russia's Stabilization Fund may grow to 2.3 trillion rubles by the end of 2008. This is according to the 2006-2008 financial plan blueprints, which will be unveiled at the Cabinet session Thursday.

The Fund is likely to reach 1,700 billion rubles at the end of 2006, to grow further to 2,000 billion in 2007 and on to 2,300 billion in 2008. Its sustained growth is owing to record-high oil prices on the world's commodity markets, according to the Finance Ministry. However, soaring oil prices are unlikely to boost GDP growth in the three coming years, it warned.

Bidders can receive detailed information on the tender from the coordinator of the tender Commission Bashir Khalilov (Tel: (99412) 498-40-91, 498-56-18, Mob: (99450) 371-17-99. Address: Government House, 40 Uzeyir Hajibayov St., Baky, E-mail: agry@liderkart.com).

The subject of the tender

The tender includes four lots:

 Lot 1:             Purchase of combine harvesters

 Lot 2:             Purchase of wheeled tractors

 Lot 3:             Purchase of farm machinery connected to tractors

 Lot 4:              Purchase of small size machinery (tractors and farm machinery connected to them)

The winners of the tender are to put the required agricultural machinery mentioned in Lot 1, Lot 2, Lot 3 and Lot 4 at the disposal of the Bases of the “Agrolizing” Open Joint-stock Company (OJSC) on SIP terms within 90 days of signing the contract.

Bidders are requested to submit their bids in sealed and signed double envelope in accordance with the Law of the Republic of Azerbaijan “On state purchases”.

The following factors will be taken into account: price, quality, timely implementation of the contract, relevant experience, potential financial capacities, and experience in the provision of technical service for agricultural machinery.

Bidders are required to have the necessary technical and financial potential in oreder to execute the contract.

The Main Tender Terms have been complied in Azerbaijani language. If necessary, they will translated into one of the languages used in international trade.

 Bidders can receive the Main Tender Terms from the above mentioned address aftertransferring to the state budget the participation fee of $1,800 for Lot 1, $ 1000 for Lot 2, $ 500 for Lot 3, and $ 200 for Lot 4 or in mantas equivalent (P/c 2633030000, USD 1133130100, Euro 1133138000, VOEN 1700382471, Sabayil branch#1 of the “Kapitalbank” OJSC, code  200059, VOEN 9900003611, m/h 0137010001031 SWIFT BIK AIIBAZ2X, the “Agrolizing” OJSC )

 The participation fee is non-refundable.

 Bidders are to provide the following documents (except the tender bids and security bid of 2%) to the conductor of the tender before 18.00, June 20, 2005:

-         an application for tender participation

-         a banking certificate confirming the payment of the participation fee

-         a copy of documents confirming the absence of tax arrears and mandatory payments backlog

-         a banking certificate on the financial status of the bidder over the last year

-         a copy of the financial report on the activity of the bidder over the last year confirmed  by tax bodies

-         the bidder’s details (full name, legal status, registration certificate, regulations and an appropriate license)

-         official data on the bidder’s relevant experience, and on potential technical and staff capacities.

 The tender bids should be valid for at least 30 days after the unsealing.

 Bidders must place a security bid of  2% of the tender bid that will be valid for 60 banking days after the unsealing.

 Tender bids without a security bid shall be considered invalid and rejected.

Tender bids are to be compiled in Azerbaijani. Bids submitted in foreign languages should be supplemented with confirmed copies in Azerbaijani.

Bidders should submit their bids to the above mentioned address before 17.00, June 27, 2005. The Commission will not consider any belated documents.

Bids will be unsealed at 15.00, June 28, 2005 at the Board Hall of the Ministry of Agriculture of the Republic of Azerbaijan (room 722, Government House, 40 Uzeyir Hajibayov St., Baky) with the participation of either bidders or their proxies.

The Tender Commission

Moscow, June 7 (RIA Novosti) - Russia's gold and currency reserves increased by 18.3% in January-May, 2005, from $124.541 billion, as of January 1, to $147.36 billion for June 1, the Central Bank of Russia said last Friday.

Reserve assets in foreign currency amounted to $111.643 billion, as of June 1, against $103.742 billion, January 1, and in SDR (special drawing rights) to $2 billion, to double since January 1. The reserve position at the International Monetary Fund made $3 billion, to stay unchanged since January 1.

Gold accounted for $3.731 billion of total gold and currency reserves on June 1, as against $3.732 billion on January 1. Other reserve assets totaled $31.98 billion on June 1, against $17.063 billion of January 1.  At the joint disposal of the Russian Central Bank and government, gold and currency reserves consist of foreign currency assets, gold coin, SDR, the IMF reserve position, and other reserve assets.

Foreign currency assets consist of Central Bank and government currency assets in the form of cash, deposits in nonresident banks, and government and other securities emitted by nonresidents with a rating not below A on the Fitch IBCA and Standard & Poor's classifications, or A2 according to the Moody's. The category of other reserves comprises assets in the form of securities redeemed at preset prices.

He said this would require significant preparations, including integration of Yuganskneftegas, acquired in December, into Rosneft. “I think it will take about a year,” Androsov estimated.

He did not speculate on the planned size of flotation, only saying it could be above or below 25 percent. Androsov noted that bids by foreign companies would be considered. On the value of the offering, he said it had not yet been determined, and the federal property fund was working on it.

Rosneft is 100 percent owned by the government. Its market value was estimated by 2K Audit Business Consultations at RUR 734.2 billion (about $26 billion) as of January 1, 2005. In December last year, Rosneft acquired a 76.79 percent in Yuganskneftegas, formerly the main production arm of oil company YUKOS. Rosneft paid $9.35 billion for the stake.

Funds raised in the planned IPO will compensate the costs connected with the acquisition of a 10.74 percent stake in Gazprom, as part of the Rosneft-Gazprom merger. Androsov said the government could pay for the stake in several installments, and it could use borrowed funds. Valuation of Gazprom stock would be based on domestic share prices, he added.

Moscow, May 20 (RBC Consulting) - Accumulated foreign capital in Russia amounted to $85.1 billion as of March 31, 49.1 percent up on the year, the federal state statistics service reported. This includes foreign investment reflecting redemptions, reassessments and other changes of assets and obligations in Russia’s economy.

Direct investment made up 44.5 percent, up from last year’s 43 percent, and portfolio investment made up 1.9 percent, against 2.5 percent twelve months before.

The largest investors in the Russian economy in the first quarter this year were Cyprus, Luxembourg, the Netherlands, the UK, the US, France, together accounting for 81.4 percent of total accumulated foreign investment.

Foreign investment in Russia in Jan.-March 2005 amounted to $6 billion, 2.4 percent less than in the same period last year. Russia’s investment accumulated abroad made $7.566 billion at the end of March 2005. In the first quarter of this year, Russia invested $6.4 billion abroad, which is 53.4 percent more compared with Jan.-March 2004. Most of Russian investment went to South Africa ($1.25 billion, or 16.5 percent of total investment), the Netherlands ($625 million, 8.3 percent), Cyprus ($561 million, 7.4 percent), the British Virgin Islands ($545 million, 7.2 percent), Ukraine ($479 million, 6.3 percent), Bahama Islands ($437 million, 5.8 percent), Iran ($407 million, 5.4 percent), the UK ($373 million, 4.9 percent), the United States ($352 million, 4.7 percent), and Lithuania ($282 million, 3.7 percent).

Foreign investment in natural resources production totaled $1.183 billion in the first quarter of 2005, of which $954 million was invested in the production of fuel and energy resources. The largest investor in this sector was the Netherlands.

Foreign investment in Russia’s metal industry amounted to $705 million, including $39 million in direct investment and $2 million in portfolio investment.

Moscow, May 14 (RIA Novosti) - The share of the euro in the Russian gold and foreign currency reserves can be increased to 50%, said Pavel Teplukhin, president of the Troika Dialogue managing company. "The country's international reserves must be maximally adjusted to the balance of payment structure," he believes. "And the balance of payments consists of two parts, the trade balance and the capital account."  Russia's main trade partners are EU countries, with whom settlements are made in the euro, Teplukhin said.

On the other hand, debts (to the International Monetary Fund and the Paris Club) are assessed in the dollar though their servicing will cost less owing to their early repayment. The company president views this as one more argument in favor of transition to the euro.

"The euro/dollar ratio in the country's international reserves should be close to 50:50," he thinks. "Until 2007, I would add to the reserves 10% of other currencies which are involved in the international currency relations, in one way or another." One of these currencies should be the Japanese yen, which is a global reserve currency.  "There are also special drawing rights (SDR), a synthetic currency used for IMF settlements that is a basket of currencies of IMF member states," Teplukhin said.

"Russia is becoming an active member of the IMF, not a borrower but a net creditor of the countries that are the recipients of the World Bank and IMF assistance. In this situation, the voice of the Central Bank in currency interventions should become louder," the company president thinks.

In his opinion, the Central Bank should not only tackle the domestic foreign policy but also influence the international dynamics of the exchange rate. To be able to do this, Russia should adopt "a creative attitude to the balance of the dollar, the euro and the yen in its international reserves."   "The Central Bank can play this part now because it is one of the world's largest holders of international reserves," argues Teplukhin.

The Russian gold and foreign currency reserves excede $144 billion and may grow to $170-180 billion by the end of the year, according to the Central Bank's forecast. The Central Bank can use this factor to influence the price of currencies on different markets, the expert thinks. "Russia has never had such a role" but can play it now. "We have the requisite specialists in Vneshekonombank and Vneshtorgbank. They can play the part of an active member of a group that determines the value of international currencies," he concluded.

London, May 11 (RIA Novosti, Alexander Smotrov) - Russian economic growth rate will be at 6 per cent this year, with capital investment to start reviving, forecasted Poul M. Thomsen, IMF Senior Resident Representative in Moscow, and IMF European Department senior adviser. He was addressing a 3rd Banking Conference, "Stake on Russia", now underway in London. These annual conferences were launched by The Banker, The Financial Times Group's monthly journal.

"We expect this year's increase roughly at 6 per cent. Though it is much less than last year, the investment inflow will start reviving," Thomsen said.

He does not think Russia's gross domestic product ought to increase quicker than at an annual 5-6 per cent rate. Otherwise, it will boost up inflation, warned the expert. Thomsen believes that is why the Russian government has to make a choice between a 5-6 per cent increase, with inflation in control, or a quicker growth rate with galloping inflation.

All that implies certain economic political problems, Thomsen said as he called on the Russian government to make use of high global petroleum prices for long-necessary reforms-in particular, in areas such as housing, public utilities, administration, and the use of natural resources.

Not only high petroleum prices promote Russian economic progress but also rising public consumption, as a result of the increase in the population's real incomes and labor efficiency. Economic progress will go on even if petroleum prices get down, he encouragingly remarked.

Another conferee, Hubert Pandza-Business Group Director for Russia of the European Bank for Reconstruction and Development (EBRD), analyzed in his address the prospects for banking reform, the financial sector's current achievements and problems.  He highlighted the EBRD's top priorities for the banking reform of this year through 2008-to make banks more competitive, enhance capitalization requirements, streamline merger and absorption procedures, and improve banking inspection with an emphasis on crisis management.

During the course of the conferences, participants examined corporate and banking capital investment promotion, analyzing Russian bank restructuring and privatization, and taking stock of opportunities for retail banking operations and for crediting market development. Represented at the conference were the Fitch rating agency, Globex Bank, and Russia-based Sberbank, Rosbank and Promsvyazbank, to name just a few.

Moscow, May 3. (RIA Novosti) - Only 10% of enterprises working on inventions put them into practice. The share of such inventions ranges between 0.3% and 5% in comparison with the figure of about 30% in  most post-industrial countries, writes a business weekly, Kommersant-Dengi. Russian inventors today are mostly marginalized people enjoying few rights, as they work on projects that are never used in practice.

Fifteen years ago  about 1.7 million inventor certificates and patents were officially issued, a figure that has now fallen to 109,000. In fact, these figures do not mean much, as Soviet-era inventor certificates that were not needed by anyone than those who registered to ensure accountability or secure a meager pay raise.

However, the present-day statistics are hard to analyze, because not every invention is patented, said Alexander Nikitin, the director of the Federal Institute of Industrial Property (FIPS).

If in the past an inventor certificate cost Soviet citizens nothing, you have to pay the state for protection today. The initial fee is about $100, after which an increasing sum - $20, $30 and so on - is paid every year. But even this sum scares off inventors with low incomes, especially when they have more than one innovation, the weekly writes.

Interestingly, many experts propose that not an invention itself be patented (the inventor in this case submits its complete technical description to the Russian Agency for Patents and Trademarks) but a trademark or technique be registered. The latter is regarded as a commercial secret. If the inventor cares to share information about this with anyone, only they will know.

The number of techniques registered in Russia today is growing in comparison with the invention patents. Experts say people prefer to protect their inventions in their companies and register a trademark, rather than to trust the state with a commercial secret.

Moscow, April 27 (RBC Business Consulting) - If Russia does not take measures to effectively develop its innovation sector over the next two or three years, it might be too late, Oleg Byakhov, director of the department for the strategy of building information society of Russia’s information technology and communications ministry, said at a conference hosted by the Association of Managers on Tuesday. To achieve this goal, the government will have to interfere in the process, with pure market mechanisms unable to heal the distortions inherited from the Soviet era. Notably, both businessmen and officials said the absence of a favorable legal and tax environment was the main problem blocking the country’s movement to the era of innovations, rather than lack of investment. But businessmen criticize a government-sponsored bill on special economic areas.

It is no secret that Russia is not among the world’s innovation leaders. It has not made it into the world’s top twenty, led by the United States, Finland, Sweden, Singapore. Meanwhile, the World Bank estimated that at least 1 million people in Russia are qualified for scientific work, but they are busy in other sectors. Russia accounts for just less 1 percent of the global innovation market, estimated at $1 trillion. Last year, Russia sold $3.9 billion worth of innovation products, far behind the United States’ $690 billion, Japan’s $680 billion and China’s $138 billion.

Knowledge-intensive products in Russia represent only 0.3 percent of the country’s GDP - against 20 percent in the United States and 30 percent in China – while raw materials generate the bulk of the gross domestic product – 67 percent. In Japan, raw materials make one percent of exports, in China – 4 percent, in the U.S. – 8 percent, and in India – 8 percent.

Last year, less than $1 billion was invested in Russia’s knowledge-intensive technologies – a fraction of the world’s $1.7 trillion. In China, investment in the sector reached $20 billion.

Over the past five years, the telecommunications sector took in the bulk of total investment; investment in the food industry made 27 percent, 9 percent went to pharmacy, and only 2 percent – in manufacturing. “This is very sad. Without replacement of our production facilities, we will not be able to offer competitive products on the world market,” Byakhov said.

Yevgeny Utkin, general director of Kvazar-Micro group, predicts dramatic changes on the global innovation market over the next two to three years, by which time three to five percent of the market would be taken by outsiders. “Russia has its last chance to jump into a moving train,” Utkin said, noting that the country had the necessary human, scientific and educational resources. One big problem faced by Russia’s innovation sector is lack of qualified market experts who would be able to sell the country’s research products abroad and introduce them into domestic production.

Partnership between state and private business was also discussed at the conference. Most of Russia’s research institutes are state-owned, which restricts their freedom. Officials taking part in the forum, demonstrated their readiness for dialog with private investors. They admitted that unless Russia makes a real breakthrough in innovations, it would be doomed to be a supplier of raw materials. “Some western analysts forecast that Russia’s population will drop to a mere 100 million people ten years from now, and all of them will be servicing foreign observers coming to the country to monitor the process of pumping of our natural resources. At first sight, this sounds unreal, but such gloomy forecasts may come true unless we take effective measures as soon as possible,” Byakhov said.

The problem is that the government, which seems to have adopted a policy to develop the innovation sector, has done little in the last five years. Officials only have passed basic rules regulating relations in the sphere of innovations. “In the West, such laws have been passed long ago. In our country, there’s still uncertainty about intellectual property rights. We lack a legal and tax environment for innovation companies,” Utkin complained. In India, he said, a law-obedient firm operating in the area paid about five to seven percent of its revenue in taxes; in Russia, it was 50 percent. As a result, such companies had to go under the protection of more friendly tax regime.

Tackling the problem, the Russian government is preparing the bill “On special Economic Zones in the Russian Federation,” envisaging tax breaks for regions having industrial parks and industrial and promotional areas. Companies in such areas will be exempt from taxes for five years, and they will pay lower profit and single social taxes.

However, after closer inspection, requirements set out in the new law are likely to frighten off many innovation companies. “For example, to qualify for the tax breaks, companies operating in the sphere of IT parks, are not allowed to have subsidiaries,” said Parvaz Berzigiyarov, director of the Chernogolovka park. “In this case, how can they enter foreign markets, without subsidiaries abroad? In other words, divergent groups would not even qualify for single social tax privileges.” Doubts have also been raised over restrictions regarding industrial facilities, and there’s some uncertainty about the criteria for distinguishing between IT parks and industrial promotional areas. “This law would not stimulate companies to apply for the ‘special area’ status,” Berzigiyarov said.

Moscow, April 27 (RIA Novosti) - Boeing plans to have invested $2.5-3 billion in the Russian aircraft industry by 2010, the company's Senior Vice-President Mike Cave said at the meeting with Russian Deputy Minister of Industry and Energy Andrei Reus and Defense Industry Department Chief Yuri Koptev.

Cave highlighted that Boeing had invested in the Russian aircraft industry $1.3 between 1991 and 2001, with $1 billion invested between 2001 and 2005.

He praised the level of cooperation reached 14 years after launching beneficial cooperation. According to Cave, about 1,000 Russian specialists are involved in developing the Boeing 787, with the next program calling for even closer cooperation with the Russian aircraft industry.

"The Russian engineers involved in our programs are not mere executors. They make proposals that sunstantially alter our approaches to design. We deem this experience very useful for us," Cave emphasized.

According to him, Boeing regards Russia as a long-term partner. Boeing's officials supported the efforts to pool Russian aircraft makers into a single holding company, OAK.

Boeing is ready to consult the Russian Regional Jet (RRJ) designers and share its latest know-how with the Sukhoi's Civil Aircraft closed corporation. Boeing also commits to launch after-sales maintenance of new Russian-made aircraft in exchange for a specific reduction in import levies and guaranteed contracts with Russian airlines.

According to Mike Cave, these measures will allow advanced Russian aircraft to be promoted on the global market with more success.

"We believe in your strategy and believe that the Russian aircraft industry is capable of developing and selling advanced aircraft. Closer cooperation with Boeing will enable the industry to retain its intellectual potential and ensure its financial stability during the transitional period. We are ready to the role of Investor number one," Cave summed up.

Moscow, April 27 (RIA Novosti) - First Deputy Chairman of the Russian Central Bank Alexei Ulyukayev told a Wednesday news conference that capital flight from Russia could amount to just $3 billion in 2005.

According to the Russian Ministry of Economic Development and Trade , the level of capital flight in 2004 reached $8 billion.

Ulyukayev described the government's inflation target of 8.5% for the year as theoretically attainable. According to Ulyukayev, the export environment in 2005 was even better than last year, which he said had brought about a surplus in capital flows. In the first quarter of this year, he said, capital flight reached $1 billion, which is four times as low as in the first quarter of 2004.

Moscow, April 26 (RIA Novosti) - Russian President Vladimir Putin's address to the Federal Assembly (parliament) is a good signal to foreign investors, head of the American-Russian Business Council Eugene Lawson said in a RIA Novosti interview.

"It was a remarkable speech in many respects. The president's most important signal for foreign business is that Russia is in need of foreign investments", he said.

"It is very important that the president spoke about the tax organs and the need to restrain their powers. It is theme Number One for foreign investors" he noted.

"Everybody agrees that the powers of the tax services in Russia are too broad. If the Putin address is followed by legislative steps to limit them, this will make the position of foreign investors in Russia more stable.", Lawson stressed.

The head of the American-Russian Business Council said that it is also crucial for the foreign business community that Vladimir Putin focused on the problem of Russian bureaucracy.

"It is a serious problem indeed. If practical changes now follow, this will create a favorable climate for foreign investments" the expert said.

To Lawson, prospects of Russian-American economic cooperation were discussed on Sunday at a meeting between Russian and American experts, arranged by the Council for the External and Defense Policy of the Russian Federation and the RIA Novosti agency.

"Overall, I'm optimistic about Russian-American economic cooperation. We have a set of specific energy projects, very good opportunities are open for the development of the infrastructure in Russia and in the field of high technologies. Muchcan be said about big bilateral deals. However, cooperation between medium-sized enterprises is also extremely important and in this field, too, we have many joint projects", Lawson said.

Moscow, April 26 (Moscow Times) -

Russia's two aluminum producers RusAl and SUAL said on Monday they had reached a deal on equal partnership in SUAL's major project in the Komi republic in the Northwest Federal District.

"RusAl and SUAL, joining their efforts for the first time, are creating a serious platform for strengthening the position of the Russian aluminum sector in the international arena," a joint RusAl and SUAL statement quoted RusAl CEO Alexander Bulygin as saying.

"It is a major step forward in the consolidation of the Russian aluminum industry that creates new possibilities for further cooperation between two major Russian aluminum producers," added SUAL Holding president Brian Gilbertson.

The Komi project involves boosting output of raw material at SUAL's Sredny Timan bauxite deposit to over 6 million tons in 2008 from 1.5 million now, as well as building a 1.4 million ton refinery of intermediate product alumina in 2008.

It also includes building a smelter with an annual capacity of 300,000 to 500,000 tons, a project which has been frozen by SUAL and was not mentioned in the statement.

The total project was initially valued at $2.1 billion, but the statement said that under the deal -- without the smelter -- each partner would bear half the $1.2 billion investment.

"The investments are meant for the development of the raw materials base and building the refinery," RusAl spokeswoman Vera Kurochkina said. "At the current stage, RusAl does not participate in the aluminum part of the project but has the right to take part.

A feasibility study to build the smelter has been put on hold until the key issue of long-term energy supplies is resolved," a SUAL spokeswoman said. "As soon as this issue is resolved, we will be ready for talks with all potential participants in the project, including RusAl."

SUAL has held talks with Alcoa, the world's top aluminum producer, on involvement in the smelting part of the project. Last September SUAL said Alcoa pulled out of the project, but later both companies said the talks continued.

"There is perfect logic in this partnership," said Maxim Matveyev, senior equity analyst at Alfa Bank. "SUAL failed to attract a Western major as a partner and doesn't want the project to stall, while RusAl needs the alumina."

Alumina prices surged by two-thirds in the past two years to about $450 per ton, according to Metal Bulletin data. China, the world's biggest aluminum-producing nation, is importing more of the material to supply an industry that expanded 19 percent last year.

RusAl, which aims to become the world's top aluminum producer, is seeking to cut dependence on external supplies of alumina. It produced 2.7 million tons of aluminum in 2004, but only 3.1 million tons of alumina, roughly two tons of which are needed to produce one ton of the metal.

RusAl is expanding its alumina refineries in Russia, Ukraine and Guinea and plans to build new ones at home and in neighboring Kazakhstan. It has also purchased a stake in Australia's Queensland and Russia's Boksitogorsk refineries.

SUAL, which last year produced 923,800 tons of aluminum and 2 million tons of alumina, has said it was looking for a strategic partner in the Komi project, but was ready to proceed with it independently.

SUAL has also said it was seeking a $600 million loan from the European Bank for Reconstruction and Development and the International Finance Corporation for the second stage of the project after receiving $150 million for the first stage.

The SUAL spokeswoman said SUAL was continuing loan talks with the EBRD and IFC on the basis of RusAl's equal participation in the project. She also said RusAl would have an equal share with SUAL in all assets involved in the project.

RusAl is owned by billionaire Oleg Deripaska. SUAL is controlled by another tycoon, Viktor Vekselberg, and a U.S. businessman of Russian origin, Len Blavatnik.

Analytical department of RIA RosBusinessConsulting (www.rbcnews.com)

On Thursday, the government has approved the main guidelines of Russia’s prospective financial plan for 2006-2008, announcing the main parameters of the 2006 budget. Experts assess it as quite realistic. The problem of high inflation remains on the agenda, and the government intends to curb it through strengthening the ruble. It seems the government’s policy is becoming increasingly contradictory: on the one hand, it is trying to curb inflation, “pumping” money out of the economy through the stabilization fund and reducing the money supply by strengthening the national currency;  on the other hand, it is going to increase social spending and state investment. As a result, the Cabinet’s inflation targets look unrealistic. Economists say the situation might improve if the government was using other, non-monetary, measures, to fight inflation.

The financial plan includes two scenarios: an innovation plan (“expected”), projecting an annual growth of 5.9 to 6.2 percent, and a sluggish growth pattern (“basic”), assuming a GDP advance of 4.5 to 4.6 percent. The main distinction between the two scenarios is the projected price of oil. The “expected” pattern sets the price of Urals oil at $34 per barrel for next year, $33 for 2007 and $33.5 in 2008, while the “basic” scenario offers $28 per barrel for 2006 and 2007 and $28.5 in 2008. The “expected” plan says inflation will reach 7 to 8 percent in 2006, 6 to 7 percent in 2007, and 4 to 5.5 percent in 2008; the “basic” financial pattern puts consumer inflation at 7 to 7.5 percent for 2006, 6 to 6.5 percent for 2007 and 4 to 5 percent in 2008.

Economists prefer to comment on the government’s immediate plans only as long term forecasts are subject to significant changes. “Last year, plans were to reduce the percentage of spending other than debt servicing, in GDP. But the concept has changed this year,” Anton Struchenevsky, at Troika Dialog brokerage, told RBC Daily, adding there was little point in discussing the Cabinet’s plans extending beyond 2006.

Back in 2003, Kudrin said the percentage of such spending in GDP would be reduced from 15.5 percent of GDP in 2004 to 14.2 percent of GDP in 2005 and 13.5 percent in 2006. It is clear that the government is now easing its financial policy.

But experts say spending remains within acceptable limits. “The government faced public protests over unpopular social reforms, and it will have to increase social spending,” reasons Struchenevsky, adding that the budget looked realistic, still. In his estimation, there will be no budget deficit as long as the price of oil remains above $27 per barrel.

“It is unlikely that the price would drop so much next year,” the economist said, noting that a budget surplus was a priority. “Russia won investment ratings not thanks to its reforms but owing to its tough budget policy and a budget surplus,” he stressed.

Meanwhile, the government-proposed measured to curb inflation raises questions. Kudrin insists that the inflation target for 2005, at 10 percent, will be achieved through strengthening the ruble. The government’s line seems contradictory: on the one hand, under the pretext of curbing inflation, it is “pumping” excess liquidity out of the economy, sterilizing it in the stabilization fund, and reduces the money supply by strengthening the national currency. On the other hand, it plans to increase spending. “It is for this reason that the government’s inflation forecast seems unrealistic. With rising spending, inflation will be about 11 percent this year, instead of the planned 10 percent, and it is likely to be 9-10 percent next year, instead of the projected 7 to 8 percent,” Struchenevsky said.

Last year, experts warned that firming the ruble was an easy but ineffective mechanism to curb inflation. There are more efficient mechanisms, such as improving investment climate and stimulating industrial growth, Struchenevsky suggested. Dmitry Belousov, at the Center for Macroeconomic Analysis and Short Term Forecasting, urged the authorities to ensure transparency of the housing and communal sector, end monopoly on regional oil product markets and focus on pricing mechanisms used by natural monopolists, especially oil and gas companies.

Another strange thing is that the government is using monetary measures to fight non-monetary inflation. “In the first quarter of this year, high inflation was fueled by an increase in tariffs for housing and communal sector, rising prices for gas and the lack of transparency in this area,” Belousov told RBC Daily. “Our inflation is non-monetary in nature. A monetary factor perhaps will rise, but there are other major options to curb inflation,” he added.

Moscow, April 21 (RBC Business News) - Most Russian businessmen think it is impossible to protect the lawful interests of their operations against the will of regional authorities, an opinion poll by the All-Russia Center for Public Opinion Research (VTsIOM) shows.

In earlier comments, Gref said the small business share of GDP was extremely love in Russia - two or three times lower than in industrially-developed countries. He noted some positive progress had been achieved and called for further advance. Gref said the Ministry supports the idea of “business incubators.” These would grant small businesses two to three years of most-favored treatment, assisting with exports, micro-financing and venture lending. These measures would boost the sector – a factor of the country’s future economic growth, the minister said.

Moscow,  April 21 (RIA Novosti) - Russia is the world's leader in the development of cell communications, Leonid Reiman, Russian Minister of Information Technologies and Communications, told the State Duma on Wednesday.

Three to four million cell phones are sold in Russia every month, he said.

The minister forecasts that there will be some 100 million subscribers to cellur communication services by the end of this year.

The official noted that the number of subscribers of cellular services reached 82 million people as of March 1, whereas in late 1999 - early 2000 the figure was less than a million and the possession of a cell phone was believed to be a luxury only of the nouveau riche.

According to Reiman, cellular communications will continue developing fast in Russia and meet European standards. He specified that according to statistics, for every hundred people there are 67 cell phones in the US, whereas about a hundred cell phones in Europe.

He believes that Russia will approach the European standards in 2006. There are already over a hundred cell phones for every hundred people in Moscow and St. Petersburg now, he added.

The minister also noted that after the market is saturated, there will be a short setback until new updated communication services are introduced.

Moscow, April 21. (RIA Novosti)-Russian oil may for the first time appear on a commodity exchange. The New York Mercantile Exchange and the Budapest stock and commodity exchanges want to trade Urals oil futures in the Hungarian capital. Experts, Vedomosti reports, believe the idea is a good one but would be difficult to implement.

At present Urals is not traded on exchanges: Russian oil is sold at a discount to the Brent crude, which accounts for 2% of global production. However, it still determines prices for 65% of the world's oil output. Urals accounts for about 12% of global oil experts and about 5% of consumption.

Trading in Urals futures in Hungary may be launched in January 2006, said a spokesman for the Budapest Stock Exchange. The Exchange intends to trade them without linking to physical oil supplies, he explained.

Dmitry Lukashov, an analyst with Aton Capital, Russian producers' export revenues would have been almost $900 million higher if Urals had been traded on the exchange last year. But both oil producers and experts say it will not be easy to arrange trading in Urals futures. "The oil market is very conservative," says a representative of a Russian oil major. "Everyone is used to the price of Urals being linked to Brent and it is unlikely anybody wants any changes." If futures on the Hungarian exchanges do not provide for physical supplies, the price of Urals will still be linked to Brent. "And this tool already exists," says Lukashov.

The co-owners of TNK-BP from Alfa Group have wanted to trade oil in Moscow for a long time. In February, Alfa and Expertica sent a proposal to the federal authorities on trading futures of oil exported from Russia. Officials seem to be ready to support the proposal. Yesterday the Finance Ministry, the Economic Development Ministry, the Industry and Energy Ministry, the Federal Antimonopoly Service and the Federal Energy Agency sent proposals to Prime Minister Mikhail Fradkov on setting up an oil and petrochemical exchange in Russia.

By Michael Rothschild
Bloomberg

Moscow, April 18 (Moscow Times) - Citigroup and other banks are arranging almost $4 billion of loans for Russian companies as the country's economic growth outweighs concerns about surprise tax claims and Yukos' unpaid debts.

The loans include a $500 million credit for TNK-BP, which last week said it faces an unexpected $936 million tax claim. The interest margin on the deal is the lowest charged to a Russian company, according to data compiled by Bloomberg.

Banks are cutting the rates they charge and boosting the amount they provide to Russian borrowers. The lenders are vying for business even as banks led by Citigroup, HSBC and Societe Generale fail to recoup the balance of a defaulted $1 billion loan to Yukos, formerly Russia's biggest oil exporter, which collapsed with tax claims totaling $27.5 billion.

"Banks seem to think the risks are worth it," said Yelena Romanova, an analyst at Brunswick UBS in Moscow. "Most of the companies getting large loans are commodities producers so lenders are taking risk in terms of global commodities markets."

Russia is the world's largest gas producer and the second-biggest crude oil and aluminum supplier. Oil and metals account for more than half of the nation's export revenue.

TNK-BP, Russia's third-biggest oil producer, will pay an interest margin of about 0.90 percentage point over the London interbank offered rate on the five-year loan arranged by ABN Amro, Citigroup and Calyon, bankers involved in the deal said. The company's debt is not rated.

Transneft, Russia's government-owned oil pipeline monopoly, on Friday said it boosted a loan arranged by Barclays by 25 percent to $250 million.

ABN Amro on Thursday beat competitors to arrange a $900 million-loan for Gazprom, bankers involved in the deal said.

State-controlled Gazprom is buying state-owned oil company Rosneft, which in December purchased Yukos' main operating unit, Yuganskneftegaz.

Rosneft president Sergei Bogdanchikov earlier this month told bankers that the loan is Yukos' responsibility, Vedomosti reported.

Bogdanchikov warned lenders not to sue a state-owned company, the paper said.

"Yukos did signal something about institutional weakness and political risk," said Roland Nash, head of research at Renaissance Capital in Moscow.

"The debt market is choosing to ignore that now."

Other Russian commodities companies seeking loans include Russian Aluminum, the world's third-largest aluminum producer, which picked ABN Amro, BNP Paribas and Citigroup to arrange a $500 million financing, bankers in the deal said.

SUAL, Russia's No. 2 aluminum producer, is getting a $500 million secured five-year loan from banks led by BNP Paribas, Citigroup and ING, bankers involved in the loan said.

Russian banks are also taking loans. Gazprombank, Russia's third-biggest lender by assets, on Friday said it agreed to borrow $650 million from banks led by ABN Amro, Citibank, Deutsche Bank and JPMorgan Chase, more than double the initial amount sought.

The credit is the largest ever loan for a Russian bank and was provided by 40 lenders.

Other loans banks are arranging include $537 million in commercial loans and export credits for telephone company MegaFon, and a $200 million financing for Bank of Moscow that will be signed this week in Frankfurt.