Ruminations on Russia

2007-09-08T12:55:00.000+04:00

I have moved. The unbelievable pain of finishing Gas - Hot and Otherwise means I have given up on Blogger and moved to WordPress.

This version of Ruminations will stay here for a while, but all the posts are duplicated over at the new Ruminations. If you go to the old site you should be re-directed to the new Ruminations.

And here is the new RSS feed.

See you there.

Untitled

2007-09-07T18:02:00.000+04:00

So much to write about, too much time spent in SVO and the route therefrom to home. SVO is a shithole, so bad that it makes Heathrow Terminal 2 look like a paragon of virtue. Oh and the "otherwise" of hot air is the start of Duma election season, but I guess that deserves its own derision.

The gas wars are on the boil again (way too many mixed metaphors going on here). China has figured out that it does not have enough gas and has not bought enough or built enough pipelines and so is rationing gas and building a pipeline to China from Turkmenistan. Although Jerome a Paris is generally skeptical about pipelines, and not without reason, construction has started (or so a small bird tells me.) Oh and then there is the one about the delay in Karachaganak gas to 2012.

If you are interested in gas, and like being warm in winter and cool in summer then you will have seen a take on these graphs below at some time. The first shows GAZP's own production. The bits you should worry about are above the yellow line. Not that they don't exist its just that they may take some time to arrive (see previous thoughts on Shtockman).

The graph below shows the total supply of gas required to meet forecast demand. If you can get over the fact that by 2015 the gap between known GAZP supply and expected GAZP supply is 100bcm p.a. out of a total of 550bcm p.a. and why not, people continued to buy pools of AAA rated worthless mortgages way after they knew that they were worthless. So with that intellectual honesty established; the next concern is whether Central Asian (shitty nomenclature) is actually a. going to produce all the gas forecast (Kazakhstan and Turkmenistan) and b, whether they are going to actually send it via Russia to feed Russia and Europe (once the gas enters the pipeline its fungible whathever fiction RosUkrEnergo maintains.)

Everyone wants a piece of Trashcanistan's gas and ever since the great Turkmenbashi shuffled off to wherever Turkmenbashi's shuffle, the Russians, Chinese and Americans have all been telling the President with the unfeasibly long name to send his gas their way. Logically it should go through Russia - as a pipeline exists, but the Chinese are quite keen on it and are therefore building one. None of JaP's thinking about thinking about for them - the logic is easy; lots of people need lots of energy. Secure it early and don't worry about reversions to the mean (you measily analysts know what I mean).

The Americans, as a proxy for Europe (that worked well last time), want to send it under the Caspian and thence along the Freedom Corridor i.e. not Russia or Iran in to Europe or Turkey. This option is currently coming 6th of the available three.

The last of my pretty pictures shows how much gas has to come from independents. I chose this particular description because it highlights the supply sum; Gazprom production plus expected Central Asian supply + a known/expected independent production (after price liberlization) plus another number (the source of which is not known) equal demand. Magic - here's my personal version of this equation; amount spent = amount earnt plus the amount I would like to earn.

Some of these numbers are getting a little dated (2005 actuals) but nothing has changed to make me worry that that my bets will be wrong, including the likelihood of a very nasty earnings season for banks.

China has enacted a new industry policy on natural gas use to address the supply shortage and optimize usage, the nation's planning agency said yesterday. The guideline says residential gas use is a top priority, while usage in petrochemical plants is discouraged, the National Development and Reform Commission said on its Website. The policy, described by the NDRC as of "strategic importance," became effective on Aug. 30 after approval by the State Council. New methanol projects that use gas as a base will be barred. Methanol, which can also be derived from coal or crude oil, is an industrial chemical and a fuel that can be mixed with gasoline and diesel to cut pollution. The use of natural gas in other petrochemical projects and power-generation plants will also be limited or outlawed. For example, gas-fired power plants will be banned in certain coal-rich regions. The guideline said urban residential gas use is the most favored option. "We have to ensure gas will be first used in the residential sector," the planning body said. "We should consider social benefits, environmental benefits and economic benefits" while deciding where the gas resources should be used first. The NDRC said gas use should be well planned for better conservation and higher usage. Existing gas-based petrochemical projects, especially fertilizers, will remain in operation. Those approved and under-construction projects, which have signed long-term gas-purchase contracts, also won't be affected, the NDRC said. China wants cleaner-burning natural gas to account for 5.3 percent of total primary energy consumption by 2010, up from 2.8 percent in 2005. But supply may not catch up with the strong demand, typically in booming coastal regions. Several major gas-transport projects have lately been announced or launched. Sinopec Corp on Friday started building a 1,702-kilometer pipeline to transmit gas from the Puguang field in Sichuan Province to Shanghai. China National Petroleum Corp announced early last week the route for a mega cross-country gas pipeline, at more than 7,000 kilometers long, to transport Turkmenistan gas via far northwestern Xinjiang Uygur Autonomous Region to Shanghai in the east and Guangzhou in the s [From Новости Neftegaz.RU | Policy on natural gas streamlined in China]

When In Rome

2007-09-07T16:15:00.001+04:00

I had failed to spot this little tidbit. Any clues in here as to why RenCap are off to Africa?

Mr Misamore and two other Yukos executives, David Godfrey and Daniel Feldman, told the Financial Times that the group of investors behind the Monte Valle bid included a representative of Moscow investment bank Renaissance Capital and another from US hedge fund VR Capital. They claimed that two members of the group, Renaissance Capital vice-president Bob Foresman and VR Capital president Richard Deitz, had called to ask them to unwind the legal attachments protecting the assets from the bankruptcy sale, saying that in return, state-run Rosneft would drop its creditors’ claims on the Dutch holding. Mr Feldman said Mr Foresman had called him two days before the sale, “to know if there was a way to make a deal that would provide them with comfort”. “He called the day before the auction and said you have to understand if we can work out a compromise you can come back and work in Russia.” Mr Feldman left Russia in February, fearing arrest. The claims could not be fully verified: Mr Foresman declined to comment. Mr Deitz said he did not recall all the details of his conversation with Mr Godfrey. Mr Deitz said he had “never in his life” met with Rosneft, while Monte Valle owner Stephen Lynch also said he had no talks with Rosneft or the authorities prior to the sale. The allegations are the latest twist in a bankruptcy process marred from the outset by claims it has been rigged in favour of Rosneft. [From FT.com / Companies / Energy Utilities Mining - Investors made backdoor Yukos approach]

Ways to Waste Your Time

2007-09-06T14:41:00.001+04:00

1. Fly via the 3rd World Airport otherwise known as Sheremeytevo and then drive in to the center of Moscow - approx 2 hours 30 minutes*

2. Work in a multi-story building with too few lifts and large numbers of (principally) girls who fill in the gaps between smoking with a bit of work

3. Drive in Moscow between the hours of 00.01 and 23.59

* Timing does not include retrieval of bags or passport control queues. Though passport queues are redundant when carrying a small child - oh what a joy walking to the front of a 40 minute queue with small child. Any suggestions as to where I can acquire a lifelike blow-up baby for queue-jumping much appreciated.

Tips on Investing from the Russian Government

2007-08-30T15:21:00.001+04:00

According to the Moscow Times (no link love due to ante-deluvian archiving policy) Oleg "the natural resources beast" Mitvol is off to the US to lecture the likes of Capital International on how to invest in Russian E&P stocks.

Presumably such tips include;

Open a short position - launch an enquiry

Close short position, open long position, meet with relevant governor. Admit that you were in the wrong, sell long position.

Brilliant investment advice.

Oleg Mitvol, the environmental regulator who threatened to halt a $20 billion Shell project last year, said Wednesday that he planned to advise U.S. fund managers on how to invest in Russia's natural resources.

Mitvol will hold meetings with investors from Capital Research & Management, American Century Investments, Fidelity Investments, UBS, State Street and Wells Capital Management during a trip to the United States next week, the deputy head of Federal Service for the Inspection of Natural Resources Use said in a statement.

Mitvol said he would travel from Sept. 4 to Sept. 7, on an invitation from the investors. He will be accompanied by Igor Maidanov, director of the Natural Resources Ministry's department for international cooperation.

Mitvol to Go on U.S. Lecture TourLast year, Mitvol led a campaign against Shell's Sakhalin-2 project in the Far East, which did not subside until the foreign-owned development ceded control to state-run Gazprom.

Bloomberg

Russia Cuts Off Gas Via Druzhba - No Really

2007-08-15T18:36:00.000+04:00

I have not read Transitions Online, but it gets mentioned reasonably frequently in the english language Russian blogosphere so when this article Europe’s Escape Routes, was linked to via the authoritative The Oil Drum, which found the story on Business Week, it seemed worth a read.

I was close to giving up after reading the first paragraph:

Wary of Moscow's stranglehold on natural gas supplies, the EU hopes several planned pipelines will provide a way out. Russia's threat in early August to nearly halve the amount of gas it exports to Belarus over unpaid bills must have brought back bad memories for many in Europe.

on the assumption that everyone, bar Edward Lucas, has just about worked out that Russia has to sell its gas to Europe in order to pay for the developments that will allow it to sell its gas to Europe. But I struggled manfully through to the second paragraph:

Memories, for instance, of earlier this year, when Russia cut off the gas that flowed through its Druzhba pipeline to Belarus in a dispute over price hikes and tariffs. At that time, a wave of disruption surged down the supply chain.

Just imagine the turmoil, if you aren't getting gas through Druzhba then all those cars won't run. Except that the author was talking about natural gas, not US gas. No wonder it had knock-on effects in the supply chain. If you were waiting for gas through the Druzhba pipeline then your supply chain is probably pretty screwed-up.

Within days, the Czech Republic and Slovakia (who rely on Russia for around 65 percent of their natural gas) saw their shipments halved. Poland and Germany began tapping reserves, and other countries looked to increase imports from other suppliers like Norway.

Except that the Druzhba is an oil pipeline as a cursory search would show this as the top hit:

Druzhba pipeline - Wikipedia, the free encyclopedia
The Druzhba pipeline (Russian: нефтепровод «Дружба») is the world's longest oil pipeline, it carries oil some 2500 miles from southeast Russia to points in ...
en.wikipedia.org/wiki/Druzhba_pipeline - 24k - Cached - Similar pages

At which point I gave up - moron.

Technorati Tags: Gas, Russia

2007-08-15T11:32:00.000+04:00

Volga Views

Big sky in the Saratov Oblast, right down by the Kazakh border.

Crossing the Volga, elevation courtesy of GAZP. If I recollect this is facing south so Saratov is on your right and Engels (the city, not the person) is on your left.

Ecto3 Blogging

2007-08-14T12:46:00.001+04:00

After some considerable, but worthwhile wait, Ecto3 has been released; albeit in Alpha version.

Has not crashed my struggling laptop yet.

Government

2007-08-02T01:04:00.000+04:00

Writing in today's (01/08/2007) FT Quentin Peel once again manages to put
the western side of the Russian debate, whilst acknowledging Russian
concerns and western policy mistakes and missteps. It is a difficult line
to tread, and in this case done with some nuance.

What confounds many of us who try to convey a balanced view is the utter
cynicism with which the Fifth Directorate Thugs conduct business. a
mirror to the same cynicism displayed in the UK and US without even a
smattering of a critical press to print, and embarrass, just how corrupt
the posturing is.

Reverting to the taxi driver school of foreign reporting, and as a result
of a 2 hour journey to DME in the middle of July: if the vlast had to
experience this, how different it would be. The ability to drive would
help - some 40-50 per cent of licences are bought.

Neil Buckley, the very antithesis of a competent foreign reporter, has over
the last few days reported that we await VVP's glorious return in 4 years
for another 7 years.

God forbid (as if he/it/she had anything to do with it): damn this
certainty, can' t we have some hope that things might get better.

Watching Your Own

2007-08-01T22:27:00.000+04:00

Returning to London to get SWMBO and CC#1 via Domodedovo. Firstly huge
kudos to East Line for DME, it is really a first class airport these days
(well compared to everywhere else), once you have checked in (albeit avoid
Sector B if you can). Time between checking in and having a beer in my
hand must have been at least 7 minutes. Of which, 3 minutes was waiting
for a beer and 2 minutes in passport control. Not sure if the whizzy
security machine is of any use (in my previous incarnation I looked at a
number of these technologies - let's just say there is probably a reason
that they are not used in London or New York).

None of which is pertinent to the subject of this story. The coffee shop
at DME gives an excellent view of the businessmen leaving the BA lounge,
which given the time of year are all British (or American) as the
biznessmen are now safely ensconsed with the tall and beautiful who have
been topping up their tans for a month already.

And what a strange lot we are. Guys, it was 25 degrees in Moscow today - a
worsted wool suit with tie in a shirt whose neck size might have been
appropriate when you were 18. Pasty and with an unhealthy addiction to
crackberries.

They actually made Russian youth look healthy.

A Rare Insight

2007-07-31T19:18:00.001+04:00

It's not often that anyone being quoted in a newspaper adds any value to the reader (as opposed to the journalist).

However, Yury Korgunyuk from the Indem think tank hits more than one nail on the head here, or the same nail multiple times - unimportant really.

The underlying story is that the narod are becoming increasingly restless over corruption. The corruption that matters to them is the day-to-day stuff; breathing, living and eating (and driving). Using the bread and circuses approach, Sergei Naryshkin (another maybe for President) has been given the task of addressing corruption (The Kremlin, Russia should get there if the pochta works.)

His not entirely stupid plan is to increase salaries and then fire anyone caught practicing bribery. Which is where the plan then falls apart as Korgynyuk explains.

Actually the first quotation comes from someone else:

"Yuzhakov, head of the Center for Strategic Development, said the compensation package under the pilot program would be comparable to a "performance-related bonus."

It is unclear whether the compensation package would be comparable to the money bureaucrats can make through unofficial business channels."

and then Korgynyuk:

"and so are their bosses, which is the real problem, said Yury Korgunyuk, a political analyst at the Indem anti-corruption think tank.

"It's just rubbish," Korgunyuk said. "The corrupt will check up on the corrupt. And anyway, what's the point of such a program when a bribed judge will decide whether the official has been dabbling in corruption?"

Laws currently on the books are sufficient to deal with corruption, but no one adheres to them, Korgunyuk said."

Nothing more to be said on this subject.

Plan Aims at Making Bribes Unattractive (warning due to an anti-deluvian approach to archives this link will expire only shortly after I post.)

Technorati Tags: Corruption, Russia

Reiman vs Alfa - An Ending?

2007-07-30T10:30:00.001+04:00

The end of an era approacheth? It looks as though Friedman has been finally convinced to back off. That's what happens when everything goes silent.

What is not addressed is Bermuda's monetary authority's suit to have IPOC dissolved - not much fun for Usmanov to buy IPOC and then find that they don't own exist. In short, Alfa got their stock and Reiman lost his reputation.

FT.com / Companies / Telecoms - Russian phone feud peace deal:
Russian phone feud peace deal
By Neil Buckley in Moscow
Published: July 30 2007 03:43 | Last updated: July 30 2007 03:43
One of Russia’s longest-running and most bitter corporate feuds has been settled in what could clear the way for an ownership shake-up in the booming Russian mobile telecoms sector.

The telecoms arm of the Alfa Group conglomerate, controlled by the oligarch Mikhail Fridman, and Ipoc, a Bermuda-based investment fund, have signed a “peace agreement” ending their battle over a 25.1 per cent stake in MegaFon, Russia’s number three mobile telecoms operator.

The groups agreed late last week after several months of talks to end all court actions and renounce legal claims against each other.

Alfa’s telecoms arm, now known as Altimo, bought the MegaFon stake in 2003 from entrepreneur Leonid Rozhetskin.

But Ipoc challenged the deal, saying it had earlier options agreements with Mr Rozhetskin to buy the stake. The conflict generated legal and arbitration proceedings in Switzerland, Bermuda, Russia, Sweden and New York, several of which in the past year had found in Altimo’s favour.

The two companies refused to comment, but people familiar with the negotiations said the peace deal left Altimo in control of the 25.1 per cent MegaFon stake. Ipoc directly and via an intermediary company, Telecominvest, controls another 39.3 per cent of MegaFon.

The deal clears the way for Ipoc to negotiate the possible sale of its MegaFon stake to Alisher Usmanov, another billionaire Russian businessman.

With analysts estimating MegaFon’s market value at about $15bn, 39.3 per cent would be worth about $5.9bn.

People familiar with the situation said Mr Usmanov had contacted Ipoc about a sale but made it a condition that the dispute with Altimo be resolved.

The peace deal could also clear the way for a long-awaited initial public offering of MegaFon.

The Alfa-Ipoc battle generated particular controversy, as Alfa repeatedly alleged in legal action that Leonid Reiman, Russia’s telecommunications minister, was Ipoc’s owner, and not its ostensible owner, Jeffrey Galmond, a Danish lawyer. Mr Reiman and Mr Galmond have denied the claims.

But a Zurich arbitration panel said in May 2006 it believed Ipoc’s beneficial owner was an unnamed individual who “served as a high-ranking officer in the Russian Federation with the function of co-ordination and regulation” of communications in Russia.

Wing Mirrors

2007-07-26T21:20:00.000+04:00

Have you any idea how much they cost? A lot in any language.

And I have had two pairs stolen this week from the road outside work.
Random or what? Try driving around Sadovaya Koltso with no wing mirrors -
price ceases to be a factor.

Which took me down the backroads just outside the 3rd ring (of Uranus?) in
to Moscow's netherworld where you can buy wing mirrors (and their motors)
for 60 per cent of the official dealer price (you have to love drivers even
if you wish they weren't yours once you have learnt what Rumsfeld would
have called the unknowable knowns).

Shitty mud and concrete tracks in what in any other 20 million person city
would be high-to-mid-end housing.

Who said you needed to travel to regions to find life - which is where I am
headed as I write this. Sunshine on the Volga for me.

(Sent from my handheld)

Quotations Entirely Relevant to Russia

2007-07-26T17:10:00.001+04:00

"The only thing that saves us from the bureaucracy is inefficiency. An efficient bureaucracy is the greatest threat to liberty."

Eugene McCarthy, Time magazine, Feb. 12, 1979
US politician (1916 - 2005)

You Know You Have Been in Russia Too Long When.....

2007-07-25T09:19:00.001+04:00

On waking on an overcast 25th July your first thought is;

oh well that's the end of summer.

How to Deal with Corruption?

2007-07-24T18:59:00.000+04:00

I enjoyed this piece from bne. The government should do something about corruption however, it is worried that getting rid of corrupt chinovniki would undermine the work of government.

If my personal dealings have anything to do with anything firing the most corrupt chinovniki would have no impact on their ability to do their work as they don't - work that is. Their job is to return the investment which bought them their post, not to do the job they are officially paid to do. Added to which the likelihood of them being fired is close to zero as they are, almost without exception, former employees of the three letter power agencies. They can be spotted a mile off by their complete lack of knowledge of the industry in which they work, $2,000 suits and shoes, well what more can be said.

BUSINESS NEW EUROPE - bne Page:
Poll: Russians want a clamp down on corruption
bne
July 24, 2007

Corruption is top of Russians wish list as the country swings into election cycle, according to a poll released this week.

The Kremlin has already launched a low key anti-corruption drive this year that has seen the arrest of several senior bureaucrats from various ministries.

The Kremlin is trying to strike a delicate balanced between warning apparachiki against putting their hands in the till and starting a pogrom against the universal corruption that would wreck the operation of government.

Forty-five percent of Russian citizens surveyed in July want the government to concentrate on the fight against corruption, compared with 41% in 2006 and 38% in 2005, according to a poll by the Yury Levada Analytical Center.

Corruption is top of citizens' wish list. Those that are most concerned by wages, pensions and benefits for neutralizing inflation has grown by 6% to 39% from 33% a year earlier.

The percentage of citizens who want prices for commodities and services to be lowered has shrunk from 47% to 40% over the past three years, and of those who want prices to remain under state control has remained almost unchanged - 36% and 39%, respectively.

Technorati Tags: Corruption, Russia

Equity Financing in Russia Asks: Why Do They Hate Us?

2007-07-24T18:03:00.001+04:00

I successfully managed not to post a quick response to Kuznetsov's comment on my post where I somewhat sharply described the stuff he writes as crap peddled, or his subsequent post "Why do they hate us?" This was partially because the Russia Blog would not let me/was having a technical bad hair day for the second day in a row and partially because there is enough unhelpful inflammatory rubbish going on between Russia and the UK as it is.

Silence however, would be a little too much to ask. I will endeavour to be balanced, as anyone who can determine that I hate Russians from suggesting that he writes crap is clearly a little sensitive.

Criticism is hardly alien to Russian culture; it gets ladled out with big stolovaya spoons at pretty much any opportunity. The first Volgotanker post-shareholder meeting dinner I attended way-back-when still wins the award for most destructive toasting. However, in Moscow circles criticism is again a little taboo at the margins. And criticism does not indicate anything other than a view that things could be done a. better or b. better not done at all.

Constructive criticism would be more useful than describing a blog as peddled crap; and the response from Kuznetsov that I am a crap writer - whilst closer to the mark than he imagines - is equally useless as piece of criticism. Suggesting that because I am aware that the garden does not universally smell of roses, and write about it, that I should return to the UK shows a level of sensitivity which is bordering on the paranoid. I have lived in Russia longer than I have lived anywhere, and am way more qualified to be critical than I am of the UK. If I hated the place I would not still be here, and I came to do nothing other than participate in the boom, bust and boom again. I don't need to write that the garden is rosy - I invest in the garden; real money in primary issues which grow young companies.

Oh and if anyone thinks that I am hiding I would suggest that 30 seconds with google will provide you with my identity. I am partially anonymous for a very good reason. This likelihood of this blog impacting my business negatively is a very non-trivial greater than 100%. I don't use it for publicity - I use it to write what I see, what I think and to work out what I am thinking.

Russia Blog: Equity Financing in Russia Asks: Why Do They Hate Us?:
Equity Financing in Russia Asks:
Why Do They Hate Us?
Vladimir Kuznetsov
Director of Equity Financing, FINAM Investment Company, Moscow

Aeroflot Comes in from the Cold

2007-07-24T16:21:00.000+04:00

Before I get to more serious discussions, a small diversion. The online magazine, The First Post, has an Aeroflot ad embedded in this article.

I have used their delightful services quite a lot recently, easier to exceed weight restrictions, and have to say that once on the plane their service is pretty good. The problem is that for a flight to/from the UK it means passing through Heathrow Terminal 2 - though it would be easier to commit suicide first - and Sheremeytevo, which includes a 1-2 hour inspection of the flourishing retail parks lining the side of Leningradsky Prospect (except at 5.00 a.m. when it takes exactly 22 minutes from the centre).

A very simple hint to the airlines. Worry less about the onboard experience and a whole bunch more on the getting on to and away from the plane. For example in Heathrow it now seems to catch the ground handlers by surprise every time an airplane arrives.

Anyway on a price performance basis Aeroflot is blowing BA away - not that either of them care - the planes are full and they are making money hand over fist.

The Right Step

2007-07-23T19:52:00.000+04:00

There was remarkably little about the Litvinenko/Lugovoi affair in the
British press at the weekend (back admiring cc#1's gurgling). Lavrov, as
reported in Monday's FT, set the tone: we expect relations to return to
normal soon. Which I am sure was not the line being peddled in MK and the
Daily Mail/The Sun.

However, in a couple of longer pieces there has been some discussion of how
best to do business in Russia. Inevitably the 'good business partner'
solution is prevalent.

It has been my universal experience that this is an oxymoron. Whilst there
are plenty of not bad JV's, albeit not in my direct experience, when the
going gets tough it's usually because the local partner cannot solve the
problem. At which point it's cheaper toblearn how to bribe yourself rather
than via a consultant. Even if it's harder to find the correct entry under
IAS.

Total and Shtockman

2007-07-16T15:55:00.001+04:00

For those who care - a politer version of my own analysis from Ben's bne. It looks as though I have some of the details of the contract wrong - but then as there really is not one to talk of we are all guessing.

Furthermore, Jonathan Stern of the Oxford Institute of Energy Studies and the writer of "The Future of Russian Gas and Gazprom", one of the most informed commentators on GAZP, and trusted by them, says that Total thinks that it has signed up for is a study based on some principals. As I wrote earlier, a political not a professional deal.

The final comment with which I agree entirely is from the author's final paragraph:

"And it could be an expensive model for the Russian company -- and ultimately the state."

In short, Shtockman will push the developers of it to the limit, what is needed is a coalition of the willing, not a cobbled together political deal which will come to pass for political, not business reasons.

BUSINESS NEW EUROPE - bne Page:
Total finds itself in the deep end with Shtokman deal

Derek Brower in London
2007-07-16

Oil major Total signed an agreement with Russian gas monopoly Gazprom on Thursday, July 12 to take a stake in the Shtokman gas field, in the Barents Sea. But the deal, which will should see the French company take 25% of the company that will develop the field, one of the world's largest, leaves many questions unanswered.

According to Gazprom, the two companies will establish a special-purpose company to manage engineering, financing, construction and exploitation of installations at the first phase of Shtokman field development. The company will be the owner of this infrastructure for 25 years, starting from the moment the field comes on stream.

When the first phase of the field's exploitation phase is complete, Total will return the stake in Sevmorneftegaz, the development company, to Gazprom. The Russian company says that in the meantime other firms will be able to take up to 24% of that company, leaving 51% in Gazprom's hands. 100% of the licence, as well as all the rights for marketing of the commodities, will be retained by Gazprom.

The company says the field will produce 23.7bn cubic metres a year (cm/y) of gas, with piped deliveries -- probably to the Nord Stream pipeline that will run under the Baltic Sea from Russia to Germany -- coming on stream in 2013 and liquefied natural gas (LNG) deliveries beginning a year later.

So much for the initial details. The rest remains hazy. The first question is why Total, and not as expected the Norwegian companies Hydro and Statoil (which are in the process of merging), was Gazprom's choice to partner it on Shtokman. Unlike the Norwegian firms, Total has no experience of bringing on stream an LNG project in the harsh Arctic environment. Furthermore, its recent record in Iran, where an LNG plant that Total is developing is running into severe cost overruns, is not good.

Sarkozy suffers Shtokman syndrome?

The likeliest explanation is political. Presidents Nicolas Sarkozy of France and Vladimir Putin of Russia are understood to have agreed the deal by telephone last week. Sarkozy has promised his European partners that he will take a tougher line with Russia than that of his predecessor, Jacques Chirac. The Shtokman deal, suggest analysts, is a pre-emptive strike by the Kremlin to stop that happening. Sarkozy could find his rhetoric on Russia mysteriously softening in the wake of Total's deal.

The next question is what, exactly, Total will get from the deal. The company's chief executive, Christophe de Margerie, told journalists after the signing ceremony that Total would be able to book reserves from the field. But given that the asset will remain entirely in Gazprom's hands, Total's shareholders will wonder about the legality of that. Gazprom's statement clearly states that Total's stake relates to infrastructure, not gas.

More likely is that Total will act as a glorified service contractor, providing capital and investment for a fee. Gazprom has indicated that it considers such a model to be the preferred mode of partnership with Western oil majors. But sources told bne that the French company has resisted such a notion up to now.

Meanwhile, given Total's inexperience in the Arctic, the likeliest contenders for the remaining 24% of Sevmorneftegaz remain the Norwegian firms. They will watch with interest as the details of Total's contract emerge. Jonathan Stern, of Oxford's Institute for Energy Studies, told bne that all Total had signed up for at present was a study into a potential partnership -- a far cry from the deal that much of the media presented last week.

The other question is the destination of Shtokman's gas. Gazprom's decision last year was that the field would not, as planned, be used for LNG, but to fill Nord Stream. That suggested that the company was worried about finding the gas to fill its prized export project to Europe. The re-commitment to LNG fits with the company's eagerness to develop a position in that market, but it still leaves the issue of filling Nord Stream, which has planned total capacity of some 55bn cm/y.

Then there are the questions of cost and timing. Stern suggests the 2013-14 targets will be difficult to meet. And Gazprom's cost estimate of $15bn could be conservative. And who will pay? With a share of the asset, Gazprom's international partners would be expected to cough up their proportion of the investment. Whether they can be expected to do so if they don't own any of the gas is another detail that remains to be revealed.

Gazprom seems to be inching to a new model of partnership with the majors: a form of service contract that nakedly shows the balance of power between Gazprom and the once-mighty oil majors. Shtokman will test the new model's viability. It isn't the kind of arrangement oil majors like. And it could be an expensive model for the Russian company -- and ultimately the state.

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Total Shock - Total Wins Shtockman

2007-07-16T12:51:00.001+04:00

Anywhere you care to look somebody is reporting that GAZP has brought Total in to Shtockman. Some mild legal back flips allows GAZP to maintain the fiction that it owns 100% of the license whilst Total is allowed to book reserves. GAZP is not lying, they have 100% of the legal ownership but less than 100% of the legal right to the economic effect. Though whether Total has 25% of the economic benefit is also, as yet unclear - as is most of the agreement.

And for very good reason. The whole thing was cooked up by the potential future chairman of GAZP, in his current guise, and the President of France over a quick phone call. The big idea being that Angela Merkel does not like the future Chairman, Gordon is a Scottish son of the manse, and does not like anyone (and in any case would rather kick up a storm of Lugovoi), Belusconi is currently politically unemployed and the terrible Polish twins and just plain nasty. So Sarkozy is Russia's new best friend, along with Hugo Chavez, and divide and rule says give favours to friends when they are friends.

All of which is fine and dandy, except that there was a reason why the technical people at GAZP were looking for a partner. Shtockman is a long, long way from land and even further from people who will actually pay for gas. So it's expensive and technically difficult. Which is why the Norweigans were in negotiations. Total brings nothing to the party except cash - and GAZP is not short of cash (ask all the people who steal from it). So yet again the Fifth Directorate Thugs have cooked up a political deal which makes them feel as if they are kings of the universe with absolutely no understanding of what it will actually take to make the real event happen.

Anyone willing to bet on production starting in 2018 - that's a whole 5 years after the official start date?

Here's a link if you are interested.

Total Wins Share in Shtokman - Kommersant Moscow:

The Russia Blog

2007-07-16T12:17:00.000+04:00

The Russia Blog, see link below, is some form of propaganda tool designed to paint a contrasting picture of Russia from the propaganda written by the western MSM. As such, I have no particular problem with it. However, where it falls apart in its role as purveyor of good news where little exists is that it knows as much about business as my now dead grandfather. The business stuff peddled by Charles Ganske is plain laughable, which is OK because he has been hired to pump out stories not to understand them, more entertaining is the crap peddled by Kuznetsov from FINAM. As convincing a sell signal on FINAM as you would ever need. I knew more about investing at kindergarten.

Which brings me slowly to the point of this post. I have been trying to discover the logic of bringing Total in to Shtockman (so naiive; logic and the Russian government in the same sentence) so amongst other trusted sources I went to The Russia Blog to see if it would peddle me an insight. Instead, is this heap of intellectual dog shit . I cannot even bring myself to copy all of it below. (More on Total / GAZP in another post.)

Two of the more egregious sentences are quoted below, but its pretty difficult differentiating between the rubbish:

Last week France's Total S.A. agreed to a 25% stake in a major Russian oil and gas project, while the state-owned firm OAO Rosneft forged a new partnership with Royal Dutch Shell.

In an attempt to head off any future supply crunch, the Russian government is now allowing Gazprom to raise rates across the board, while encouraging the development of coal and nuclear power plants to diversify fuel sources for the power grid.

I attempted to comment on the post but I was told that it did not exist. So below is my comment in full and without editing:

If you have even the slightest pretense at intellectual honesty you will re-write this entry somewhat along the following lines;
1. BP, Shell and Total sign long-term meaningless agreements to develop russian reserves after having had to sell down their holdings in major opportunities after pressure was exerted for them to do just that - the new owner being allowed to continue to do what the previous owner was not allowed to.
2. Oil production at post-soviet peak, but declines now forecast by everyone as the easy post-soviet workovers are now done and no one has invested in exploration for almost 2 decades.
3. Total, a company with no arctic experience brought in to Shtockman to....increase arctic experience.
4.Gazprom, despite having a monopoly on export cannot meet current domestic demand, ask Luzhkov, and is getting Russian local prices up to export netback whilst keeping its export and pipeline monopoly. To hide the fact that it has not invested in upstream for 2 decades is buying in to coal and electricity, it being easier to engineer a purchase in the kremlin that find gas in the arctic - see total.

we all know that you write propaganda, sometimes its ok, this however flies in the face of all established facts. the trouble with hiring liberal arts students to write is that they know nothing about business and cannot be bothered to research it and don't understand it when they do.

Early Morning Roadkill

2007-07-06T08:16:00.000+04:00

I love a good road accident before 07.30 in the morning. On my way to
Sheremeytevo for an early flight to London. Traffic lights fail at
Belorusskaya: GAI leave because that would involve them doing some work, so
we are left to our own devices getting on to Leningradsky from Belorusskaya.

For those less familiar with the road layout at Belorusskaya, the traffic
lights which stop the traffic on Leningardsky also stops the traffic on
Tverskaya. A fact which escaped the blue-lighted driver who got the into
town traffic to stop and then caught a driver heading out of town a good
blow on the side causing a 720 degree barrel roll. He did though land the
right way up and as he was wearing a seatbelt looked pretty much alive, if
a little shocked.

Cabbages and Inflation

2007-07-05T16:15:00.001+04:00

I scribble from time-to-time on inflation, and here, and indeed here (I am sure that I have written more, but that's all I could find with the limited time I was willing to spend), but never before have I blamed inflation on cabbages and carrots, useless wankers - yes, carrots and cabbages no.

If you were to take the predominant theme of my conversations over this week it is all inflation-based; oilfield services, Moscow and Podmoskovaya real estate (rental and acquisition), semi-skilled labour costs (see useless wankers), secretarial costs (and what the ugly coefficient is*). Whilst some might suggest that I should get out more a very rapid deceleration of my bicycle (to zero) on Sunday means getting out is painful and so inflation takes central place.

If cabbages and carrots, sale of Yukos assets are the central cause of inflation then I would suggest that practioners of the dismal science get out more and witness what is going on around them. Any suggestion that real inflation (you know the one that you and I pay) would be less than 12% this year is laughable.

* No way you could talk to headhunters about price differentials for beauty in anywhere else other than Russia - without getting fired that is.

Cabbage Cripples Central Bank’s Plans - Kommersant Moscow:
Cabbage Cripples Central Bank’s Plans
// Inflation in June is three times higher than a year ago
The unprecedented growth of prices on cabbage and carrot forced Russia’s Central Bank (CB) head Sergei Ignatiev to admit on Wednesday the tactic defeat in the struggle against inflation. Consumer prices index made up 1 percent in June 2007. In the annual estimation, it exceeded 8.5 percent, beating the CB’s and the government’s planned indexes of 7.5-8 percent. Analysts no longer believe in the deflation expected by the CB in August.
Inflation is speeding up again. It reached 1 percent in June 2007. Last time, summer inflation was so high in 2001, while in June 2006 consumer prices growth made up 0.3 percent, which is over three times less than now. In the first half of 2007, consumer prices grew by 5.7 percent. From June 2006 to June 2007, inflation reached 8.5 percent, exceeding the Central Ban’s and the government’s planned upper limit of 8 percent, for the first time in several months. The Federal Statistics Service publishes the data on Thursday. Yet, Central Bank head Sergei Ignatiev spoke to the State Duma on Wednesday, announcing the data on inflation, and using expressions “unexpectedly”, “unfortunately”, “I cannot explain yet”, while presenting “The main directions of the monetary policy for 2008”.

Ignatiev said the inflation speed-up is mainly due to the growth of prices on fruit and vegetables. The prices grew by 12.2 percent in a month, by 38.6 percent since the year’s beginning, and by 16.2 percent since June 2006. The reason why vegetables affected the inflation index so much is their large share (40.2 percent) in the consumer goods basket, according to which the Statistics Service estimates the index. It reflects much better the consumption pattern of low-income citizens. Consequently, the inflation indexes are becoming more politically important several months before the elections. Prices on cabbage and carrot grew most, while prices on bread and sugar grew least of all.

Economists also say the situation with cabbage price is unexpected. Yaroslav Lissovolik of Deutsche UFG and Rory Macfarquhar of Goldman Sachs said the main reason of vegetable prices growth is the ban on using foreign labor, which came into force on April 1, 2007. However, Macfarquhar calls it an “isolated shock”, while Lissovolik is not sure this decision will not lead to a long-term speed-up in food prices growth.

The second reason of inflation growth, also mentioned by Ignatiev in the Duma, and to be discussed by all investment banks on Thursday, is the extremely high speed of money stock growth. It is close to 60 percent in annual estimation.

The Central Bank hopes that the money stock growth will slow down to 37-39 percent in the second half of 2007. Lissovolik does not believe in this prognosis, but confirms the trend: “Money stock growth was due to the influx of capital, caused by the sale of YUKOS assets and the IPOs of VTB and Sberbank. No large events like that are expected in the year’s second half.” Ignatiev gave a preliminary estimation on Wednesday: the private capital net flow made up $67 billion in the first semester of 2007, while the level of $70 billion is expected for the entire 2007 (after the prognosis had been reconsidered several times). It is possible only if the capital outflows by the year’s end.

Anton Struchenevsky of Troika Dialog named the same reasons, and said the “monetary factor played the main role” in the inflation upsurge. However, he believes the CB is counteracting inflation in a wrong way: “Strengthening the currency is a grave macroeconomic mistake. It only provokes the influx of capital. Monetary stock increases, inflation grows, creating a vicious circle.”

Yet, some economists are inclined to look for the reasons outside the monetary sphere. Dmitry Belousov of the Macroeconomic Analysis and Short-Term Prognosis Center acknowledges that “the situation is very strange”. However, he thinks “there are no reasons for inflation growth in the monetary sphere”. He said the price shock is “partially due to good weather and the arrival of newly grown vegetables to the market, partially – to the market reform, and partially – to the growth of vegetable prices in the world”.

Experts have different opinions on whether inflation will keep growing, and on how the Russian authorities will act if the deflation expected in July-August fails to take place. Goldman Sachs altered on Wednesday the inflation prognosis for 2007 from 8 percent to 8.3 percent. The bank’s report says that “Ignatiev’s intonation has changed”: now there is no confidence in his words that the 8-percent level will be reached. Deutsche UFG has not yet altered its 8.3-percent prognosis. However, Lissovolik said “it might be raised”. Troika Dialog is more optimistic, expecting a 7.5-8-percent inflation. Experts are not sure the CB’s hopes for August deflation are feasible.

The CB’s main tool for counteracting inflation is strengthening the ruble. The CB has already strengthened the ruble against the two-currency basket ($0.55+€0.45) twice in 2007, by 0.5 percent each time. Lissovolik expects it will strengthen the ruble by 1.5 percent more before the year’s end. Macfarquhar, referring to Ignatiev’s speech, said the ruble strengthening helps the inflation decrease with a six-month lag. “It has become more likely that the ruble will keep being strengthened further, especially if the inflation pressure is longer-term and more stable than it follows from Sergei Ignatiev’s statements,” the expert said.

So, the fate of Russia’s nationa currency directly depends on the further behavior of fruit and vegetables, and on the success of Russian IPOs before the end of 2007.

Technorati Tags: inflation, Russia

Over-paid, Useless Wankers

2007-07-04T19:18:00.001+04:00

Ben's online bne gets better and better. This article is way too polite, useless, overpaid wankers with no idea what their job is or how to do it.

BUSINESS NEW EUROPE
BANKER'S BLOG: Russian investment bankers - poached or boiled?
bne
July 4, 2007

Word went down from JP Morgan's head office: get into Russia. But what to do? Buy an existing player? Tried that, but the most attractive candidate, Troika Dialog, is under Kremlin pressure (so the rumour goes) to remain Russian. Who else? Aton Capital, Brunswick and UFG have already been sold. Jennings is making too much money with his newly re-branded Renaissance Group. And no one else is available or sufficiently interesting. What to do?

Then: A smooth-talking banker from a bit-Russian brokerage comes a-knocking, offering up his team at a hefty premium, but still at a fraction of the cost of acquiring another bank. So it was an easy trade for JP Morgan to take out most of MDM Bank's equities team a few weeks ago in what is unlikely to be the last large-scale poaching this hiring season.

The poached people will likely enjoy a premium payday. If it's any indication, equity analysts boasting 1-1/2 years of experience, covering a small handful of second tiers, garnered contracts for upwards of $250K: Nice work if you can get it. A multiple of at least two times the (already ridiculously high) going market rate at more senior levels was probably the premium assigned to lifting the team as one. Even in Moscow's overheated banking environment, that kind of cash for an untried and less-than-seasoned team sets a new standard, and is proof - as if more were needed - of the dire shortage of quality talent.

Technorati Tags: Russia

Most Russians against smoking in public places

2007-07-03T11:02:00.001+04:00

Somewhat dumfounded by this piece in RIA Novosti. Apparently the margin of error is 3.5% - personally I think it is closer to being completely wrong.

RIA Novosti

Most Russians against smoking in public places
MOSCOW, July 2 (RIA Novosti) - Most Russians, 72%, favor prohibiting smoking in public places, while 24% are against such restrictions, an opinion research center said Monday.

Every second respondent in a survey conducted by the All-Russian Center for Public Opinion Study proposed prohibiting smoking in universities, movies, shopping malls and other public places.

The poll also showed that 61% of Russians do not smoke, and that there are more male than female smokers - 56% to 12%.

The poll was conducted June 16-17 and involved 1,599 people in 46 regions, territories and republics across Russia. The margin of error did not exceed 3.4%.

Technorati Tags: Russia

Goodbye, Tony Blair

2007-06-29T12:39:00.001+04:00

Nothing to do with Russia. But way more fun than struggling through a Friday.

Corruption - An Update

2007-06-29T11:34:00.000+04:00

The joy of corruption is that it is a double-edged sword; one side cuts you, the other others (as it were.)

Sometime between 20.30 last night and 11.00 this morning (opening time for any respectable Russian businessman) the Chinovnik holdout in our building had been convinced by the guys who bought the top floor, and are funding the remont, that he was in favour of the remont.

But the Investors (as we shall call them) were being a little shy about living up to the contractual promises they had made about the work they intend to do on the building in which I live. So a quick call later and the threat of calling out the "administrative resources" to prevent work starting Monday and all the documents will arrive in my office later today :-)

Which may, or may not, lead to a longer conversation about lines between acceptable and unacceptable business behaviour. To be honest I have been here too long to differentiate. Did I ever tell you the story about the factory, the famous investors and the judge - no. Buy me more than 8 beers and we will see where we get to.

I'll tell you Tuesday (maybe) what it is like having 5 tonnes of cement pored in to your foundations.

Technorati Tags: Corruption, Russia

Corruption

2007-06-27T15:34:00.001+04:00

Who knew that when Putin dragged Khordhokovsky out of his plane that it would have an impact on my apartment block in Moscow.

I've written about this before but here's a rehash. Just before MBK's fall from grace corruption was decreasing. When it became clear that the law was a tool to achieve an end then corruption reared its ugly head again, and is getting worse and worse and worse as we await a change of power at the top.

Which has what to do with my apartment? It starts with the initial poster-children of corruption; Beresovsky and his friend Patarkashvilli, the latter of whom bought the top floor of my apartment block just before he left Russia, never (so far anyway) to return. Which means that for the best part of 8 years nothing has happened to the roof which was already then in need of renovation. Finally it was bought (it gets complicated here so stick with me); all the owners in a building have a proportionate right to the attic (cherdak), as one of the larger apartments in the building our proportionate right is to 6% of the 400m2 that constitutes the cherdak or 24m2 (good for a broom cupboard). However, by assigning our rights to the buyers of the top floor they will undertake to repair the roof and the facade, the bill for which comes to a non-measly $2mn. Without boring you with the maths, assigning my rights is just about equal to paying for the repairs on the roof and facade. But then I did not want a 24m2 broom cupboard on the 7th floor.

If you are still with me, and still care, Russian law may or may not (no one's quite sure, but if you are about to invest $3mn+ err on the side of caution) require approval of 100% of the residents. And now, thanks to Mr. Putin we have a resident (a chinovnik if you must know) who won't pay his portion of the roof repairs ("I don't live on the top floor") and expects $20k in cash to agree.

I think he may have an unfortunate accident in his podezd coming his way.

Technorati Tags: Corruption, Russia

The Anglo Disease

2007-06-27T14:51:00.001+04:00

The much read, if not always agreed with, Jerome a Paris, writing in The Oil Drum has begun to develop a new theme; that Britain's (over)-reliance on capital markets is as to the 21st Century what gas was to Holland in the 1970's - which we otherwise know as the Dutch disease.

Polemics don't help his point but the essence is worth debating. It is also a remarkable article for the first time that the eminently respected Alan Greenspan has been called "Bubbles" (to the best of my knowledge).

I know its off topic but globalisation does that to you.

The Oil Drum | The Anglo Disease - an introduction:

The Anglo Disease - an introduction

Posted by Jerome a Paris on June 26, 2007 - 2:02am
Topic: Economics
Tags: bubble, finance, ideology

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I've been developing in a couple of recent diaries over at the European Tribune (The Anglo Disease - Financiers worried about end of great bull run and Anglo Disease (2) - Martin Wolf's take, with afew adding input of his own in Anglo-Disease Sidelights (1): UK = Tax Haven) a concept which I think can usefully describe our current economic system, that of the Anglo Disease, mirrorring the "Dutch disease", a term coined in the 70s to describe the economic effects of the rapid development of one sector (in that case, natural gas, today, the financial industry) on the rest of the economy.

This text is meant as an attempt to explain what this 'disease' might be, trying to be as pedagogic as possible. You are my guinea pigs, so all comments and questions are welcome - indeed, they are hoped for - so that this text can be improved upon and refined.

In the Netherlands, the discovery of the large Groningen gas field which brought about a boom in that resource sector, with a lot of - highly profitable - investment concentrating in that sector. The reason that something which sounds like good news is called a disease is that the investment in that profitable sector tends to cause a drop in investment in other industrial sectors, because it is so much more profitable; at the same time, there is a lot of extra revenue from the export of the resource, which generates new demand which cannot be fulfilled by domestic production and gives rise to increased imports. The fact that resource exports grow strongly also tends to cause the domestic currency to get stronger, thus further penalising other sectors of activity on international markets. The result is a weakening of the rest of the economy, and increased reliance on the resource sector.

This then becomes a problem when the new sector is based on finite resources, and eventually goes into decline. At that point, exports dry up, but the rest of the economy, having become uncompetitive and fallen behind, can no longer pick up the slack and has become too small to carry the economy over. Thus the overall economy suffers.

In effect, the displacement of existing activity by the new sector is, to some extent, irreversible, and thus, when the resource dries up, the overall economy is permanently weakened. It's also part of the "resource curse", which usually includes additional symptoms like corruption and weakening of democratic rules as a lot of money gets concentrated in relatively few hands (those that own and those that regulate the resource industry). In the worst cases, it can include militarisation of society (weapons being an easy way to spend a lot of foreign currency and being occasionally useful against those that might want to take your sweet spot overseeing the cash cow).

:: ::

I think that the above is increasingly relevant to describe the economy of the UK and, to a lesser extent, that of the US, which are increasingly dominated by the financial services industry.

That prevalence of the financial world is no longer a matter of dispute. In fact, it is celebrated with increasingly euphoric words in most business publications and current affairs books. There is an air of hegelian (or marxist) inevitability about the triumph of markets and Anglo-Saxon capitalism, led by the powerhouses (banks, hedge funds and assorted accomplices) in the City of London and on Wall Street.

But just as Britain led the world into industrialisation, so now Britain is leading it out. Today you can still find a few British engineers and scientists making jet engines and pharmaceuticals—and doing rather well at it. But many more are cooking up algorithms for hedge funds and investment banks—where in many cases they add more value. The economy has boomed these past 15 years, as manufacturing has been left behind and London has become the world's leading international financial centre. Britain's deficit in manufactured goods is hitting record highs. But so are the capital inflows.

The Economist (editorial, this week)

The collapse of the trade balance, linked to the long term (relative) decline of the manufacturing sector is indeed one of the most noteworthy commonalities between the US and UK economies, along with the reliance on the sale of services, in particular financial services:

(from this text, which deserves a diary of its own)

Unfettered finance is fast reshaping the global economy (by Martin Wolf, senior editor, Financial Times, 19 June 2007)

It is capitalism, not communism, that generates what the communist Leon Trotsky once called “permanent revolution”. It is the only economic system of which that is true. Joseph Schumpeter called it “creative destruction”. Now, after the fall of its adversary, has come another revolutionary period. Capitalism is mutating once again.

Much of the institutional scenery of two decades ago – distinct national business elites, stable managerial control over companies and long-term relationships with financial institutions – is disappearing into economic history. We have, instead the triumph of the global over the local, of the speculator over the manager and of the financier over the producer. We are witnessing the transformation of mid-20th century managerial capitalism into global financial capitalism.

Above all, the financial sector, which was placed in chains after the Depression of the 1930s, is once again unbound. Many of the new developments emanated from the US. But they are ever more global. With them come not just new economic activities and new wealth but also a new social and political landscape.

The ability of the financial world to generate high returns on capital has fuelled the massive financial boom we've been in for most of our lives and which has so transformed our economic landscape. By demonstrating regular high returns possible, it has generalised the requirement for such returns in all economic activities, and thus the need for constant restructuring of businesses, for cost-cutting, offshoring and, often, for the wholesale dismantlement of whole sectors of activity that could not generate the required profitability.

Sectors like manufacturing have seen their share of economic activity shrink , as many activities were outsourced, offshored or eliminated altogether. The trade balance has gone south, and jobs have disappeared under relentless pressure for higher competitivity.

This might not be so bad if the jobs created in the service sector, and in finance in particular, were as numerous and high paying - and durable as those in the industry. All statistics on median wages suggest that this is not the case: median wages have been stagnant over the past couple of decades, with a stark increase in inequality. Increased wealth (as measured by GDP or average income) has been captured by a small number of people at the top, something strikingly similar to the remuneration structure of big investment banks and the rest of the financial industry.

The inequality might be acceptable if there was a prospect of reversing it as increasing prosperity is created (this is essentially the argument of Martin Wolf and other proponents of globalisation), but is in fact a structural and necessary feature of the system. Globalisation has spawned a whole ideology about efficient allocation of resources, optimisation of investment decisions, and the invisible, but natural, and morally neutral hand that allow markets to reveal the best price at any given moment for any item. It brings along a vicious hate for taxation, and sees government, and its core functions, redistribution and regulation, as something to be avoided and eliminated as much as possible, being fundamentally anti-efficient. It also brings the core idea that only things that have a price have a value, that everything can be measured in dollars, and that what isn't so measured has no worth nor legitimacy. It fosters a culture of individualism ("freedom") and consumerism ("success"). Social policies (which require distribution), common goods (which need to be defined and managed) and non-economic measures of well-being are spurned and actively fought. Growth is paramount.

While I think that this is more than enough to disqualify neoliberalism (as I have mande abundantly clear in many earlier diaries), there is actually worse. and that's where the concept of the 'Dutch disease' comes in.

:: ::

One of the core triggers of the Dutch disease is that the resource sector which has unbalanced the economy eventually shrinks as the underlying resource is depleted. In our case, the industry that causes activity-substitution (finance) can appear to be able to grow ad infinitum, without any limitation to actual resources. Just borrow more money to do bigger deals and enjoy the very real income taken along the way. Find another lender to refinance or another buyer to re-purchase, and you're home and dry. Or just do deals where the actual burden to repay is pushed back into the future (and you won't be around anymore if and when they falter). Thus the City and Wall Street can appear to generate more jobs than the industries they kill off destroy. In addition, with New York and (even moreso) London dominating finance worldwide and not just domestically, they can create jobs and capture wealth locally while imposing their requirements on companies and activities in other countries, thus creating little or no pain at home (see the graph below on how the UK as a whole can be defined as an offshore financial center, just like any Caribbean Island...)

So, while to some extent parasitic on other economies, it might at least make sense for the UK and the US - as nimbler, faster, smarter economies, they reap the benefits of globalisation and are understandably promoting their interests by defending globalisation. And hey, they are providing real services to investors around the world, who are "free to seek out the best returns around" and "voting with their feet/money."

But in fact, this is but a transitory phenomenon, underpinned by a single underlying factor: the long decline of inflation, and thus of interest rates, over the past 25 years.

We've been living in a long, massive bull market for bonds, born off the inflation of the 70s, and the grand ride which was made possible by the new financial tools offered by the IT revolution and by Reagan/Thatcher inspired deregulation is about to come to an end. The returns we've grown used to were just a long but temporary phase in a natural long term economic cycle, and, despite the final boost provided by 'Bubbles' Greenspan in the last few years, not something that can be sustained on a permanent basis. Put simply, it is not possible to generate 15% per annum returns on capital forever when the underlying economy is growing only by 3%.

As the interest rates go up again, and liquidity tightens again, the financial industry is going to run out of the underlying resource that sustained it - easy and plentiful access to money. As that constraint imposes its implacable discipline, and the financial industry finds out that it no longer has anything to offer to its clients (trading stuff, or trading imaginary products remotely backed by stuff, will no longer be so much more profitable than making stuff), it is going to shrink and withdraw. And the countries and cities that have bet on that industry for their prosperity will face the resource curse, as their core activity loses steam and alternative activities, having being neglected for so long, no longer exist or are too small or uncompetitive to make a difference, and cannot pick up the slack. This is what I propose should be called the Anglo Disease.

As this reversal has not yet taken place, and as this prediction threatens the livelihoods of many of my readers, I expect to be mocked and dismissed, but bear with me and help me work on the concept.

I hope to expand on the idea in further diaries, and I hope to get your feedback (including questions if you're not sure you understand what I wrote - maybe I am actually talking nonsense, for all my apparent trust in my assertions). The topic ties in neatly with the critique of neoliberalism I've been trying to write about in the past, to our unsustainable focus on growth as a sign of success, to worries about resource availability, and to the "inevitability" of the Western model - or rather of its financial brat, the Anglo-Saxon capitalist market economy, so there is a lot of matter to write about, and I hope you'll join in the fun.

Gazprom Does Not Have Gas For China

2007-06-27T11:40:00.001+04:00

Or for Russia but whisper that quietly....

My return to the office, leaving SWMBO and the increasingly cute cost centre #1 ("CC#1") in London has allowed me to review the thousands of rss feeds that have piled up in my feed reader. (Actually this is a fallacy SWMBO is CC#1 and CC#1 is therefore CC#2 but you can't write about your wife that way.)

Which is why I am now posting (again) on GAZP-China relations. A year ago the press was full of doom and gloom stories of Russian gas going east to China. Today the story below is that Russia would rather have the gas for its own regions - albeit that this is as much a story about squeezing Exxon to give up on Sakhalin 1 as it is about domestic gas shortages.

At the same time as GAZP is a. trying to reduce gas supplies to China, and China is trying to keep the gas price down, Eni and GAZP are signing a MOU to study a southern gas pipeline in to Europe - again bypassing New Europe.

All of which goes substantially unreported by the mainstream press.

Gazprom reportedly pulling out of China gas agreement

20th June 2007
By Clare Watson
Russia's state-owned gas monopoly Gazprom has told the Kremlin to cancel a contract to supply China with 80 billion cubic meters of gas a year, as it would leave Russia without sufficient gas for its own needs, the BBC has reported.

The gas would have been sourced from fields in Siberia and would have been exported from US company ExxonMobil's Sakahlin-1 development on Russia's Pacific coast, the BBC revealed.

The publication cited Alexander Ananenkov, Gazprom's deputy chief executive, as saying: "We consider it necessary for a directive to be issued and Sakhalin-1 gas to be sold to Gazprom so we could supply gas to Russia's regions and for the gas not to be exported as proposed by ExxonMobil."

Gazprom's demands have renewed fears that the country is wielding its rich oil and gas reserves as a political tool, while monopolizing the exploration and production projects being carried out on its territory. If the Kremlin agrees to cancel the agreement with China, the country would be denied access to Russian energy resources, the BBC said.

Although Mr Ananenkov is reported to have said that the state's four far eastern regions alone require more than 15 billion cubic meters of gas a year, China is also in desperate need of energy supplies because of its rapidly expanding economy.

According to Reuters, Gazprom said in June 2007 that the company has been in talks with ExxonMobil in the hope of acquiring all of the gas from its Sakahlin-1 project.

Technorati Tags: Gas, GAZP, China, Russia

Alfa vs Reiman an Overview

2007-06-25T09:47:00.001+04:00

And suddenly more on Alfa vs Reiman. A very good overview of the legal proceedings without too much rehashing of the really old stuff.

Law.com - Arbitrators Tackle Russian Corruption in Fight Over Cell Phone Operator:

Arbitrators Tackle Russian Corruption in Fight Over Cell Phone Operator

Michael D. Goldhaber
The American Lawyer
June 20, 2007
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Image: Photodisc Red

Both sides got dirty in the tussle over Russian cell phone operator OAO MegaFon. In Switzerland, industrial spies searched an arbitrator's garbage. In Bermuda, a retired British spy turned private eye persuaded a gullible KPMG International accountant to turn over confidential company information via a "dead drop" in the basket of his moped. And those are most likely the tactics of the (relatively) good guys.

The case pits Russian conglomerate Alfa Group Consortium and its allies against a Bermuda investment vehicle called IPOC International Growth Fund Limited. The prize: a stake in MegaFon worth up to $2.5 billion today. IPOC accuses Alfa of directing the dirty tricks in this case. But Swiss arbitrators and judges have found IPOC to be guilty of something much worse than dumpster diving. They have declared IPOC to be a vessel for Russia's minister of telecommunications, Leonid Reiman, to launder money stolen from the Russian people. Reiman, say the Swiss arbitrators and judges, abused his office by issuing a valuable cellular license to a company that he himself controlled, then parked the proceeds in IPOC.

The fiercely fought dispute takes arbitration into new territory. Long after the James Bond sideshow is forgotten, the MegaFon arbitration will be remembered as the first case where arbitrators broadly evaluated a party's criminality. Rather than merely contesting IPOC's interpretation of the contract, Alfa and its allies tried to defeat IPOC's claims by arguing that IPOC violated Swiss, British and Russian criminal laws with a money laundering scheme. Arbitrators often judge whether the underlying contract in a dispute was obtained by bribery -- but the Zurich tribunal in the MegaFon case went further. It ruled that IPOC could not reap the benefit of the disputed agreement because IPOC is a criminal organization and its money was tainted. "We haven't seen any precedent," says Swiss firm Homburger's Balz Gross, who represents an Alfa ally in the case. "It's the first award to uphold a money laundering defense."

In effect, the Zurich panel conducted a private judicial investigation into the crime of money laundering. To some lawyers this is admirable, and to others it is outrageous. "You're at the edge or beyond," says one IPOC lawyer, "of what a private adjudication system can do."

The case grew out of two option agreements that IPOC signed in 2001 with a holding company called LV Finance Group Limited. The agreements gave IPOC the right to buy from LV certain telecom assets that now form a quarter of MegaFon. By 2003, when IPOC decided to exercise its option, the value of the stake had risen considerably. According to IPOC, LV tried to extract a higher price from IPOC; when IPOC refused, LV ignored the agreement and sold the stake for a higher price in a series of deals that transferred control to an Alfa affiliate. The stage was set for a struggle between two Russian potentates: Mikhail Fridman, the oil tycoon who is chairman of Alfa, and Leonid Reiman, the telecom minister with blurry ties to IPOC.

Soon after the sale to Alfa, IPOC filed three arbitrations with the help of Winston & Strawn, two in Switzerland and one in Sweden. In Switzerland, IPOC aims to enforce its option agreements with LV. In Sweden it argues that Alfa violates MegaFon's shareholder agreement by owning a big stake in MegaFon's rival Vimpel-Communications. With a pithiness that would do credit to Tony Soprano, Reiman's lawyer expressed Reiman's position in a message that was secretly captured on videotape (and later presented into evidence in related litigation): "He doesn't want fucking Alfa in MegaFon. That's it."

Alfa and its allies turned to the best Western legal talent that money could buy. In Switzerland, LV hired the local firm Homburger and the London office of Weil, Gotshal & Manges. (Weil was recently replaced by London's SJ Berwin, after Weil's partner on the case withdrew for personal reasons and its senior associate on the matter switched firms.) In Sweden, the Alfa affiliate CT-Mobile retained Freshfields Bruckhaus Deringer.

While Alfa's law firms argued to the arbitrators that IPOC was laundering money -- and IPOC denied it -- other professionals did their work with cloak and dagger. While the subterfuge can't be squarely pinned on Alfa, it seems designed for Alfa's benefit. The fun began in May 2004, when the arbitrator Bernard Meyer-Hauser, chair of the Geneva panel, reported to the police that private investigators were going through his garbage and trying to access his personal bank account. The incident was traced to Kroll Inc., the investigative and security services firm. Although Alfa has retained Kroll for other needs, LV denied any connection to the dumpster dive. Indeed, LV argued that its opponent had hired Kroll in a setup to make LV look bad. LV asked the chair to recuse himself. Meyer-Hauser refused. LV then withdrew from the Geneva arbitration, choosing instead to focus on Zurich. The Geneva panel ruled in IPOC's favor in August 2004, finding that the smaller of the two option agreements was enforceable.

Meanwhile, more strange tricks came to light. Before the February 2006 trial in Stockholm, two mysterious individuals tried to get the arbitrators Yves Derains and Werner Melis involved in a conflicting case, and gave them inappropriate information on tactics in the MegaFon arbitration. The arbitrators did not take the bait, but IPOC views the affair as another ham-handed attempt by Alfa to suborn the judges.

Most sensationally, the private investigation firm Diligence Inc., of Washington, D.C., ran a sting operation infiltrating IPOC's auditor, KPMG, for much of 2005. A former British spy working for Diligence claimed to be still active and persuaded a KPMG accountant in Bermuda to turn over confidential IPOC materials, until the detective's cover was blown by an anonymous tip. Diligence was retained by the D.C. lobbyists Barbour Griffith & Rogers. Barbour Griffith refused to say which client it was acting for, but it works for an Alfa affiliate, Alfa Bank, on other matters, and Diligence billed the matter under an entry referring to "A Telecom," according to one IPOC complaint.

IPOC maintains that Alfa entities are responsible for all three episodes of espionage and has used documents obtained in Bermuda as evidence in the arbitrations. IPOC also alleges that Alfa has paid more than $11 million to witnesses, which IPOC characterizes as bribes for perjury. While Alfa and its allies deny any responsibility for the spying, they freely disclose million-dollar payments that, in their view, compensated witnesses for risking their personal safety and ruining their Russian business prospects. There's nothing illegal about such payments, say lawyers for IPOC's opponents -- and, they add, the witnesses have been deemed reliable by the Zurich arbitrators and the Swiss courts.

"Alfa's business practices might perhaps be described as muscular," says one lawyer for an Alfa affiliate, "but there's no comparison between that and massive state corruption." As it turned out, the most persuasive witness against IPOC would be produced by IPOC itself.

Momentum shifted dramatically in Alfa's favor in January 2006, when IPOC changed its story about its ownership. IPOC had long maintained that it was not owned by Reiman, the Russian minister, but by Reiman's lawyer, Jeffrey Galmond, a Danish-born independent practitioner in St. Petersburg. In an affidavit in a related proceeding, IPOC suddenly admitted that Galmond was not the owner. IPOC has never quite acknowledged that it is owned by Reiman -- Reiman vehemently denies it -- nor has it offered any plausible alternative. What seems to have compelled IPOC to change its story was newly disclosed correspondence from Galmond's law office in 2001-02 indicating that Reiman was the owner. IPOC's opponents say that it could no longer hide the obvious.

The new evidence produced dramatic results in the Swiss arbitrations. After a free-ranging inquiry that cost about $5 million, the Zurich tribunal ruled against IPOC. The panel found that "Proposed Witness No. 7" (Leonid Reiman) was IPOC's "sole beneficial owner." They also found that he had violated Russian and Swiss criminal law when, in 2000, he used his office as telecom minister to grant a cellular license to Telecom XXI, a company that he secretly controlled, then flipped the license for $40 million to Russia's OAO Mobile TeleSystems and funneled most of the proceeds into IPOC. The Zurich panel concluded that IPOC's option agreement with LV was illegal and therefore unenforceable. The Swiss national courts affirmed the anti-IPOC Zurich award in August 2006; last February they vacated the pro-IPOC Geneva award and remanded the case.

Elsewhere, the news for IPOC turned from bad to worse. In January, the Bermuda Monetary Authority initiated proceedings to "wind up" IPOC, signaling that Reiman's company may be too tainted even for an offshore financial haven. Bermuda seeks to seize IPOC's remaining assets, including an undisputed 8 percent stake in MegaFon. Finally, on April 30 in Stockholm, the third arbitration panel ruled against IPOC. The tribunal in Sweden chose to rest its decision on traditional contract grounds, finding the portion of the shareholder agreement relied on by IPOC to be invalid under Russian law. On the fraught question of money laundering, the Stockholm panel stayed above the fray.

Skeptics of the Zurich money laundering ruling note that the arbitral system has neither the tools nor the safeguards of a criminal justice system. "Arbitrators are not prosecutors," complains an IPOC lawyer. "They're guys like me sitting around a table in Zurich." Arbitrators lack criminal law expertise, have no investigative staff and have more limited power to enforce subpoenas. At the same time, the accused is deprived of the presumption of innocence and the right to a full appeal.

But objectively, there is much to like in arbitrators tackling criminal law. Arbitrators in high-stakes cases are often more talented and better financed than prosecutors or the judges that, in many jurisdictions, investigate cases themselves. Most crucially, arbitrators are independent; in many nations, prosecutors and investigating judges are not. Two Russian-controlled entities would not be settling their dispute in arbitration if they trusted the Russian justice system. Russia has yet to investigate Reiman, who is a friend of President Vladimir Putin. "Uncle Leonid," as he is sometimes called by associates, is wearing a Russian regulator's badge to this day.

Arbitration may not afford full protections to the investigated party, but neither does it possess the power of incarceration. Civil adjudication can also redress crimes, and where criminal law has failed, civil justice serves as a useful backstop. Surely arbitrators serve the public interest when they out a great secret crime. If the bad guy's enemies are not exactly good guys, that only thickens the plot.

Technorati Tags: Reiman vs Alfa, Russia

2007-06-22T18:16:00.000+04:00

To add insult to injury the sign on the right of the building says "Gosstroi Russia" or State Construction, Russia

Rozhetskin’s suit against Reiman: details

2007-06-22T17:40:00.000+04:00

Someone dropped me an (anonymous) comment asking how Mr. Reiman was getting on in his ongoing campaign of lying through every pore in his body. And I have to admit that I have been negligent in keeping you all up to date. Looks as though Mr. Friedman and his friends in the TNk part of TNK-BP have had bigger things on their minds and poor (figuratively of course) Leonid Rozhetskin has become the sideshow, or is that freak show, in lieu of the next steps - whatever they maybe.

Rozhetskin’s suit against Reiman: details:

Rozhetskin’s suit against Reiman: details

Telecom
April 25, 2007, Wed 09:23 AM Moscow

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Russian Information Technologies Minister Leonid Reiman seems to be having serious problems. Leonid Rozhetskin, MegaFon founder has accused him in threatening, money laundering, and attempts to manipulate the Russian legislation in order to get control over the operator. Mr. Rozhetskin asks for $500mln compensation. However, his “selective memory” puts in question the serious intention of his accusations.
An American citizen of Russian descent, Leonid Rozhetskin, has revised his suit against the Minister of Information Technologies Leonid Reiman. He filed the suit to the New-York South district court on the US Act against corruption in autumn last year. Mr. Rozhetskin demanded that Mr. Reiman should stop hunting the former and pay compensation as stated by the court. Later Mr. Rozhetskin himself estimated the damage caused to his business at $500mln.

In 2000 Leonid Rozhetskin founded the Moscow Sonic-Duo operator. He later exchanged the company’s controlling share for 25,1% of the Russian MegaFon operator. The man claims he had to face strong pressure on behalf of Mr. Reiman.

Mr. Rozhetskin said Mr. Reiman entrusted Jeffrey Galmond to deal with the share transfer process. Mr. Rozhetskin signed an agreement with Mr. Galmond to sell 77% of Sonic Duo shares to the IPOC fund “at a low price”. Mr. Rozhetskin claims when he asked Mr. Galmond who was behind IPOC, the latter replied: “It is Reiman’s structure”. Mr. Galmond now claims he is the IPOC owner and denies any Reiman connections to it. In December Mr. Rozhetskin allegedly singed an agreement under pressure to sell the remaining shares to IPOC. However, he later refused to fulfill the two agreements and left MegaFon in 2003. His shares went to Alfa Group.

Leonid Rozhetskin - the main troublemaker on the Russian telecom market
Leonid Rozhetskin - the main troublemaker on the Russian telecom market

Mr. Rozhetskin also explained the reason for adfressing the American court. He said Mr. Reiman uses American structures in his offshore networks. He allegedly owned the Luxemburg Complus Holdings through the US registered Alpine Strategic marketing. He had all the assets registered there in 1990s.

The Zurich Tribunal decision is the main argument in Mr. Rozhetskin’s suit against Mr. Reiman. Meanwhile, in his suit to the American court Mr. Rozhetskin didn’t mention the fact that the tribunal has declined his claims on Mr. Reiman’s threats recognizing hi as IPOC owner. The judges thought Mr. Rozhetskin had quite a “selective memory” if he remembers only some events that took place in winter 2001. besides they were surprised Mr. Rozhetskin, being an American citizen and a lawyer, didn’t inform his lawyers about Mr. Reiman’s threats.

As to Leonid Reiman, he said he was glad about Mr. Rozhetskin filing a suit to the new-York court, since the case will put an end to the slender which he came across the during the recent few years. IPOC also denies Mr. Rozhetskin’s accusations. “If Mr. Rozhetskin was forced to sell MegaFon shares, why was the agreement formed by his lawyers and they had the only sample, and we find it difficult to get a copy of it”, IPOC representatives say.

Technorati Tags: Corruption, Reiman vs Alfa, Russia

China Rejects Gazprom Gas Deal

2007-06-22T17:31:00.000+04:00

China is doing a great job of putting Europe's fears to rest over gas being shipped east. With domestic unregulated gas prices rapidly approaching $100/mcm China is demanding to buy gas at less than that price INCLUDING transportation costs. Don't worry the nasty bear will be warming you up and cooling you down for some time yet.

China Rejects Gazprom Gas Deal:

China Rejects Gazprom Gas Deal
Yet another round of talks on gas exports from Russia to China has fallen through after China’s CNPC refused last weekend to buy fuel from Gazprom at more than $100/1,000 cu. meters, a Kommersant source reports. Selling gas at $100 would be unprofitable for Gazprom which plans to sell it at $125 on the domestic market after 2011. Industry experts say that the first gas will be sent to China no earlier than in 2014.
Russian gas monopolist Gazprom and China’s CNPC discussed possible gas sales at the International Economic Forum in St. Petersburg last Sunday.

The two sides did not reach a final agreement as the Chinese oil and gas corporation tries to negotiate a lower price while hoping to buy fuel from Sakhalin-1, according to Gazprom foreign relations director Stanislav Tsygankov. Gazprom confirmed the schedule and amount of gas supplies from Eastern and Western Siberia, Mr. Tsyganvkov said. “But we won’t be building or producing until a purchase agreement is signed,” he underscored.

Russia is to send 48 billion of natural gas through two gas pipelines to China after 2011, under the 2006 intergovernmental agreement. Talks on gas price were supposed to finish in 2005 when the Chinese were pushing for $70 per 1,000 cu. meters. More talks in 2006 did not bring any results either. It appears that negotiations have not advanced much this year. A Kommersant source says CNPC now would not like to pay more than $100 for 1,000 cu. meters. Gas accounts for as little as 2.5 percent in the country’s energy balance. What is more, several large gas fields have recently been discovered in northern China, which makes an agreement with Gazprom less urgent.

Industry experts note that Gazprom will not be gaining any profit, selling gas at $100 while domestic prices are to reach $100 to $125 per 1,000 cu. meters of gas in 2011. “Gazprom’s shareholders would feel very negative about the deal to sell gas at $100 to China while you can sell it at more than $200 in Europe,” says Valery Nesterov, an analyst with Troika Dialog. Economists at MDM Bank expect gas exports to China to start no earlier than in 2014 or 2015.

Technorati Tags: Gas, GAZP, Russia

Cold Showers and Inflation

2007-06-07T12:00:00.001+04:00

Tim, of White Sun of the Desert fame provides the perfect intro to the inflation problem - i.e. I was trying to find an intro, and here it is.

We have a boiler rigged up in the apartment linked to the shower and bathroom sink, but after meddling with it last night all we got this morning was a minute of hot water before it turned icy cold. I’ve meddled some more this morning, opening and closing various valves and taps I found hiding in a recess behind the bathroom tiles, and I hope by this evening we will have enough hot water for a decent shower. If not, we’ll be in for some harsh summer mornings.

Also unfortunately, the boiler does not supply hot water to the kitchen sink, meaning I either have to wash up with cold water or boil kettles and pour them into the washing up bowl. Bear in mind that we (or rather, my employers) are paying $2,700 per month for this place, plus the electricity bill.

Once upon a time goods in Russia were cheap and shitty. Then 1998 came along and they got cheaper, in the places that are doing well now the service improved. Then the oil price hit $70/bbl and inflation really kicked in. The statistically minded amongst you will point me to the statistics which show that it is slowly coming under control - I will point to people like Tim who are paying a very full market price for no hot water - a situation which may last for three months.

In my own industry core services have increased 3x since 2000-ish but the productivity and service quality has stayed the same. Net net services which cost the same in cash are provided more slowly, less reliably and with less guarantee. This cannot last.

Take it to the simplest level. Go eat a meal in a top Moscow restaurant. Once you have finished negotiating with the bank manager for an overdraft objectively compare the quality of the food (raw ingredients and cooking) with a comparable restaurant in London or New York. The empirical evidence of a month in London and a month on the road in Europe and US would suggest that for the same price the quality of the food, but not the eye candy, was infinitely superior.

Technorati Tags: Russia

Gazprom CEO Taken to Hospital

2007-06-07T11:14:00.001+04:00

Reach for the bottle too often and it will eventually reach for you.

GAZP is probably the only company in the world with a policy for the CEO being zapoi-absent

Gazprom CEO Taken to Hospital
Gazprom CEO Alexey Miller has cancelled the trip to St. Petersburg Economic Forum. The reason is the health problems.
Miller’s hospitalization was confirmed by Gazprom briefer Sergey Kupriyanov. It was the scheduled hospitalization actually, but “some complications emerged in the course of the treatment.” Although Miller’s health is improving, Andrey Kruglov has been appointed an acting CEO till the end of this week, Kupriyanov specified.

Apart from addressing the Forum, Alexey Miller was to negotiate there with top-ranked officials of Qatar and top managers of Qatargas about a string of projects related to CIS.

Rosneft CEO Sergey Bogdanchikov won’t go to St. Petersburg either. But the absence of this official was well-expected, as Rosneft didn’t seal the sponsor agreement with arrangers.

The absence of Miller and Bogdanchikov notwithstanding, this business forum in St. Petersburg will be the most representative of the last few years, hitting several fold the 2007 summits in Davos and London in terms of attendance.

Technorati Tags: GAZP, Russia

Things I Forgotten I Missed About Moscow

2007-06-05T10:55:00.001+04:00

Standing in lifts with people who ate pickled garlic for breakfast.

Technorati Tags: Russia

Comparative Airports

2007-06-03T16:59:00.000+04:00

Heathrow Terminal 1 has been retro-designed to move the frustration coefficient as close to a maximum as is possible. It starts with bag drop, a misnomer. It takes longer to drop the bag than it used to check-in, compounded by waiting for a Cyrillic illterate check whether my visa is in date.

The next queue is for security and today was being organised (sic) by a recent arrival from the Indian sub-continent. Next queue: newspaper, chewing gum and water. And then we queued to take off.

Domodedovo, by contrast, had one 5 minute queue for passport control, a 5 minute wait for luggage and THOUSANDS of people moving very slowly and wearing short skirts.

As an aside, Britain's contribution to Russia since the 'collapse' is fat women wearing midriff-bearing tops. Please stop it, I'm tired and cranky.

Moscow, London

2007-06-03T15:21:00.000+04:00

Or in my case the other way around abandoning SWMBO and SWMBO2 in London on the Sunday after the Friday when Imperial Energy (IEC.L) was (mostly) reprieved from Mitvol's predations and TNK-BP was given two weeks to a. wait until the G8 summit is out of the way and/or b. for Alfa and Access to lower their price expectations for the TNK part of TNK-BP. Meanwhile Rusal announces that it is has been given Kremlin clearance to list on the main board of the LSE. To be fair that's not what it said but that's the truth. The spin meisters who placed the story in the Sunday Times would have you believe, oh gullible reader, that by listing its shares, as opposed to GDR's Rusal would be subject to greater corporate governance and disclosure rules. That is what is known as steaming heap of bullshit.

In case you doubt my skepticism, I urge you to read, by way of analogy, the story of Sports Direct which is still majority owned by its founder Mike Ashley. Post-IPO Mr. Ashley still owns 57% of the business and is running it as he did when it was private - except of course he took GBP920 million out of the business and its currently trading 33% below its floatation price - oh and its Chairman just resigned.

If you can explain to me how Rusal will be exempt from the rule which says that majority shareholders can run the business anyway they like, especially as the Chairman will be its largest shareholder - I'm listening. No seriously. I have no objections to investors investing to make money but lets lose the bullshit - Rusal will be run for the benefit of its owners. The other shareholders will own an option on capital appreciation - and absolutely nothing more.

And whilst I am it, more bullshit; Rusal is not raiding London investors, the Russian government is raiding TNK-BP and has raided Shell and any attempt to suggest that there is a link between the two is intellectually bankrupt. The LSE is a market where you can play if investors want to play with you. Rusal is the largest (?) aluminium producer in the world - investors want to play. Russia is a (very, very long list) where national energy policy is the fig-leaf masking personal enrichment. If investors want to rent a piece of Rusal, udachi, renting a piece of Russian natural resources is not really possible whilst the pre-election rapine pillage continues. I contend that VVP has lost control of his cohorts and now is a very good time to keep your head beneath the parapet in case what's yours ends up in someone else's pocket.

Technorati Tags: Corruption, Rusal, Russia

How Big Is My Penis in This?

2007-05-25T01:41:00.000+04:00

For fear of debating why Russia and Europe are going through a monumental spat and who benefits and why, at the moment it would appear that comparative penis size is the Russian blog meme du jour. As the ever acerbic Copy Dude (what did you do wrong to be de-CIS'ed?) puts it, this is the moral equivalent of Haze Homeful of Freshness Awards

copydude » A Fistful Of Winceyette:
A Fistful Of Winceyette

sleepwalkers

I am reminded that it’s time for the Fistful of Euros Satin Pyjamas Awards. When I worked in advertising, I used to promote the Haze Homeful Of Freshness Awards, which was a real mouthful too. But if you squirted your house daily with Haze, so that your eyes were red and streaming with CFCs when our mystery sniffer called, you could be the lucky winner.

It was always a golden rule of direct marketing that there should be consolation prizes. Obvious rationale: more prizes, more interest. So it was disappointing to see that only one blog per category will win the Satin Pyjama. There will be no scrapping over places for Winceyette or Polyester sleepwear.

Given the current acrimony over blog rankings, it’s rather brave of Fistful to introduce fresh controversy. Why are blogs grouped geographically rather than by genre? Specifically, how can the academic ‘European Tribune‘ hope to compete with ‘My Boyfriend’s A Twat‘ ?

Siberian Light chimes in with some more rankings. Mental masturbation. Particularly as this list includes the "never knowingly correct" Edward Lucas. Edward has at last found his metier and was today writing in the Daily Mail (the link is to his own blog where, without much success he tries hard to downplay the fact that an Economist journalist is writing in the Daily Mail and yet still claiming that he means it.) I assume that much of what he has written comes from the heart as the application of the head would have resulted in a different story.

Whilst the Ruminator was also bizarrely nominated for the Pajama awards, I have voted for English Russia as I would rather see pictures of cars in holes in the road than read my own drivel on energy security and other strange Russian goings on.

For those who know me, life is returning to normal - I'm blogging again - I wasn't going to bore you with nappy tales - but to be honest its more interesting and insightful than the Russian blogosphere.

Technorati Tags: blog, Russia

Energy Fiction

2007-05-10T17:34:00.000+04:00

Sitting in a cafe in London between meetings consuming coffee and an overly detailed read of the FT. Today's version seems to be full of energy related pieces, which by there very nature include Russia. The key piece of rubbish is entitled Politics and Easy Profits Signal Global Oil Crunch (no link love as I am writing this on my handheld.)

The piece is, in effect, the executive summary of a study by PFC Energy, an energy consultancy that has not done a good job of diversifying its client base from the majors. The sub-title of the study should probably be "nasty countries like Russia and Venezuela won't let us make a profit out of their oil." The essence is that increasing control of national resources by national companies (NOC) means that the world will be short of produced oil because they don't have your best interest at heart whereas BP, Shell and Exxon are your best friend. For evidence of big oil as your best friend please refer to Exxon Valdez, Prudhoe Bay and Texas refinery. The solution to this problem is to liberalize national resources, as Kazakhstan has done, and allow the majors replace their depleting reserves.

The concept of produced oil, as opposed to reserves, allows the oil industry to avoid peak oil discussions by putting the blame on not-our-friend governments and the NOC's. Peak oil reserves versus plateau production is a semantic game which seeks to get to the source reason for plateauing production levels. All you and I need to know is that the finding and production cost of every new barrel of oil is much greater than the last one.

Whilst I have a certain sympathy with PFC's view that the NOC's are enjoying the good times and not investing for the future the basic criticism of Russia is fairly hard to square with Q107 oil production up 6% versus 1Q06. On the gas front this is the argument I deploy when discussing the surplus of demand over supply for domestic gas and GAZP. However, as I will increasingly argue gas and oil are different sides of the same energy coin.

One of the other pieces of fiction peddled by PFC , inter alia, is that only the majors can manage the technical complexity of big complex projects. For further evidence see Sakhalin II and Shell and doubling of the cost base. This confuses technical complexity which is increasingly managed by service companies and project management. I will not deny that the NOC's will steal more (note the comparitor) but it does not make them worse.

There are other benefits to opening up your natural resources to the majors - no one mentions Giffen, bribery and Mobil. Nor for that matter the disappearance of the owner of the 10th largest bank in Kazakhstan (google gorst kazakhstan banks) though I am sure that Registan has it covered.

Seeding the Parade

2007-05-01T19:10:00.000+04:00

However shitty and miserable the weather is it does not rain before midday on 1 May. Parade over, like magic the first drops of the rain pattered on the windscreen of the taxi taking me to the delights of spring in London.

Energy Policy and Swiss Bank Accounts

2007-05-01T19:08:00.000+04:00

OK, I don't know that they are in Switzerland, but you get my drift.

It's quite likely that I owe Jerome an apology for mischaracterizing his review of the Economist article yesterday. If you have the patience to read to page 21 (of 22) of his article "Gazprom as a Predictable Partner. Another Reading of the Russian-Ukrainian and Russian-Belarussian Energy Crises." (which can be found somewhere at www.ifri.org) he unequivocally acknowledges Russia's most significant energy issue;

"The real long term worry is the inability of Russia to produce enough oil and gas for its own internal demand as well as for Europe's growing needs."

This may well be a divergence from his previously held views, it also goes further than mine. Russia does not lack reserves. For all the right economic and risk/reward reasons there has been precious little investment in exploration since the collapse of the Soviet Union, and for reasons of cash in the decade prior to its collapse. The low-hanging fruit has had (more) modern extraction techniques applied to them and they are reaching, have reached or are beyond plateau production. Every barrel of oil equivalent from now on requires real lon-term cash investment, not just cash flow expropriation. Fifth Directorate Thugs are not well-schooled in the long-term. Why should they be when emerging market investors (viz LSE) are so happy to uncritically reward short-termism (Sir Nigel Rudd, you are right) and there is so much cash floating around in lucrative transit trades (see below). So as I have written both here and elsewhere the issue is not reserves of either oil and gas but investment in them and, to expand on the headline, an investment climate that rewards long-termism in the natural resource sector.

One, of the many, difference between continental Europeans and the anglo-saxon world is the placing of conclusions at the end of worthy articles. The assumption being that you have both the time and the inclination to wait to the end to be told the conclusion. The more time-constrained anglo-saxons tend to conclude first and hope that you might just honour them with a cover-to-cover read. In true continental European style I am hiding the conclusion at the end of this post.

Western commentators on Russian energy politics frequently (always?) confuse personal wealth grabbing with national policy. National policy is a smoke screen for cash generation justifies by nationalism. Empirical evidence points to personal wealth creation usurping the original point of nationalizing. Jerome would point you to the more recent spats with Ukraine and Belarus which are about dividing the spoils and not about energy policy; 80-90% of all Russian gas headed of Europe transits Ukraine. The December 2005, and subsequent 2006, Ukraine/GAZP/Turkmen gas deals played magical games with numbers whereby GAZP pays nothing to transit gas through Ukraine provided that it sells gas at sub-netback parity rates i.e. RosUkrenergo pays European prices, minus the sum of transit fees on all gas transiting its territory. Except that the transit fees on all gas transiting Ukraine accrues to individuals and not to GAZP (Bill are you listening). In addition to which the replacement of Yeltsin-era Red Directors (Vyakharev et al) with Fifth Directorate Thugs means that the institutional memory has been lost and any form of industrial competence has been buried under a pile of personal wealth creation. As opposed to personal wealth creation competing with industrial competence.

And so, finally, to the point. If Russia's energy policy is not driven by policy but by personal wealth creation what does that mean for Russia and Europe's energy policy? Actually it's a little scary. If you can drag yourself back to the quotation at the top of the page someone is going to be short of gas, and maybe oil, in the medium term. Continental Europe has been building gas-fired power stations a plenty - they are cheaper and cleaner than their competitors, except of course nuclear which is either cleaner or very, very dirty. Russia is amongst the worlds most inefficient energy users - it starts with the apartment fortichka and goes downhill from there - and it's energy base in European Russia is predominantly gas-fired.

The gap between Gazprom and Central Asian production in 2010-15 and European and domestic demand is expected to be 100 billion cubic meters p.a. (about $100bn in revenue terms.) We are assured that GAZP relies on the European market today (which it does). But if domestic prices achieve netback parity in 2011 (current assumptions) why go through the hassle of exporting gas when it can be sold in Russia's borders. Because there is little rent on domestic sales - that's why. Always assuming the same guys are in charge of course.

So Europe should be concerned. So should Russia - because no one actually knows whose Swiss bank account will need to be filled in 2011.

Gazprom and European Energy Security

2007-04-30T15:03:00.000+04:00

After a period of relative silence debate has flared again (sic) on Europe's dependence on Russian gas and whether Gazprom can produce enough gas to feed both Europe and domestic Russian demand.

The Economist started the process with a long-article on Europe's uncoordinated Russia policy, relationship(s) with Russia and demand for and supply of Russian gas. Jerome responded on The Oil Drum, albeit belatedly, attacking the Europe-under-threat-from-Russia line which the Economist and FT continue to peddle, but which the facts consistently fail to support.

As I said in my comment (copied below in full) to Jerome's post I am not qualified to comment on the benefits, or otherwise, of the liberalization of Europe's distribution networks. I might be being a little optimistic but I detect a subtle change in emphasis in the Economist article - which might just make it a more useful "newspaper." On re-reading Jerome's article I note that his executive summary of his debate is more cognizant of the supply/demand issues than his subsequent critique of the Economist article.

But the most interesting thing, in fact, is that both in our papers, and during the debate, we ended up agreeing on many, if not most, things, the most important of which being:

* European energy policy is inexistant and what passes for policy (the liberalisation of markets) is indeed considered insane by all;
* Russian behavior is driven to a large extent by the personal strategies and interests of a few individuals at the very top. There is no overarching geopolitical plan, but a lot of political infighting and short term asset-grabbing strategies. That may be even more worrying in itself than purposeful strategies to use the "energy weapon", but the motivations are different. It is true however that the global energy situation allows Russia to be a lot more assertive, or even brutal, on the international stage, and there's little that can be done about that;
* there is indeed a lot of uncertainty of what medium and long term production of gas in Russia will be - because of the decline of its existing "workhorses" (the huge fields that current provide most of its production) and the lack of incentives for Gazprom and/or its managers to invest in upstram assets. There are more or less optimistic views on this, but the question definitely exists for all - and brings us back to the lack of European strategy in the face of uncertainty.

Meanwhile this article from Ben Aris' increasingly good Business New Europe focuses more on the demand/supply conundrum which will impact both Europe and Russia over the next decade.

I will make no comment whatsoever on the gas cartel story - it's a piece of political theatre which is being kept alive for reasons that are entirely beyond me.

Jerome,

Your analysis of inter-national energy politics strikes me as being reasonable. Whether liberalization of the European energy transport system is better or worse for Europe than national champions I am not competent to comment on. Your analysis of Gazprom commitment to timely investment in upstream operations is clouded by your views of the big 4 as a political tool.

There is strong evidence already today that there is a significant shortage of gas available to the domestic market. During the very short cold snap this winter businesses around Moscow were basically told to shut-up shop to prevent a brown out. Three energo's in the Volga region (Samara, Saratov and Volgograd) cannot acquire additional gas at any price. They, like the better-advertised demand for gas from the Mayor of Moscow, state that they are willing to pay prices in excess of $100/mcm. Not yet netback parity but getting close to it. That Gazprom refuses to supply them at these prices should provide some comfort to worried Economist readers (and even more concerned FT readers). The price issue is important because it tends to negate the story that GAZP will only produce gas which it can sell at market prices. Albeit that the politics of domestic gas provision requires a supercomputer to process all the competing claims. My focus is on two; inflation and inefficient energy use.

This has policy implications for either Russia or the European Union, or both. We would tend to agree that in the medium-term Europe will benefit ahead of Russian domestic demand. There is strong evidence that Gazprom can, at the margin, increase gas supplies (winter of 2005-06) but with demand for electricity growing at in excess of 4%p.a. in Russia and with European Russia (the bit that’s really growing) being almost exclusively powered by gas-fired generating units – something has to give. Note, that using BTU-equivalents an electricity producer in European Russia using coal would pay an equivalent of $180/mcm to produce the same kWH. The Russian government’s response has been to apply pressure to non-GAZP producers to stop flaring associated gas and a statement (straight from the absurd) that independent gas producers will produce 60% of domestic gas demand by 2015, some price liberalization – immediately followed by the countermanding threat to increase extraction taxes to RUR700/mcm.

Knowing why GAZP behaves this way, personal enrichment as priority A, everything else as priority Z, does not alter the fact that there is an unmet demand for gas. Also, and you have written about this previously, a lack of competent management at the highest level, which means that upstream plans are being missed on a quarterly basis. Pipeline capacity (both absolute and access to) from the two main gas producing areas, Nadym and Surgut, is a much greater issue than the development of reserves themselves and there seems to be little evidence of more than holding maintenance.

For an eminently sensible primer on the demand supply issue I would suggest this article from Business New Europe, which tends to promote the view of those actually doing business in Russia as opposed to pontificating from London and Washington.

Technorati Tags: Gas, GAZP, Russia

Back Blogging Again

2007-04-27T10:54:00.000+04:00

It is with some joy that I can announce that I am posting again - hopefully with some regularity. It pretty much depends on SWMBO and her movements.

The month of May will include few observations from Russia, but a number on Russia.

In the Regions

2007-04-27T10:53:00.000+04:00

There is a slightly masochistic joy to traveling to and out of Moscow. Moscow is no more Russia than London and New York are the UK and US respectively. This particular trip has me in Saratov a rather charming city on the Volga which, as the locals say, was unfortunately not invaded by the Germans in the Great Patriotic War. The centre is being rebuilt slowly but, like the centre of London, suffers from a surfeit of small roads which were designed for horses and carts and not for Lexus 4x4's.

Having spent the past two weeks in business class bouncing around Europe and the US it was a bit of a sharp return to reality to shoehorn myself in an economy class middle seat of a YAK-42 for a 80 minute flight. Given that I am not of excessive height and my knees are firmly wedged in to the back of the seat in front I would hate to be anything over dwarf size.

The trip though poses some observations;

The funny combination of numbers and a letter on the boarding card indicates your seat number. The stewardess has already explained that it is not "free/svobodnaya" seating so how is it that it takes 10 minutes of rubric cube movements to get everyone in to an appropriate seat?
The curtains in the hotel room are there to perform a purpose, which is not to look pretty. Such purpose is entirely undermined by making them out of see-through pink nylon.
Each room in the hotel has its own outside line - which allows some of the more enterprising amongst the female population to make direct contact. If there is no way of easily removing the cord from the phone or the wall - I will rip it out so that I can sleep.
What materials are the walls made from such that anyone in the surrounding 4 floors who did accept the invitation proffered in point 3 above manages to channel their energy through the walls of my room?

Though as the sun is shining today (see point 2 above) the city looks good. It will come as no surprise to Russia-followers to discover that an enormous Metro has opened close to the airport and that at 10.30 on a Thursday morning the car park was half-full. The city centre itself is a building site and the global brands have been here long enough that their signs need a good post-winter clean.

I feel a subbotnik coming on.

Technorati Tags: Russia

2007-04-23T22:23:00.000+04:00

Yeltsin

Even as I scribble this rubbish, leader writers the world over are penning (which is so much better than keyboarding) sympathetic obituaries of the man who stood on top of the tank to defy the coup, then used them to blow the White House apart, before failing to get out of the airplane because he was too inebriated.

This founder of democracy was so universally loved that his popularity hit a miserly single digit level in early 1997, thus causing him to strike a faustian pact with, inter alia, Khordokhovsky and the ultra-liberal democrat Anatoly "tons of cash" Chubais. With the economy effectively hocked for absolutely nothing July 3rd 1997 turned in to a nightmare only for SWMBO (it was (and still is) her birthday) whilst the rest of us had another 13 months to ruin our livers' and regret our failure to sell out earlier. If you can remember post-election Moscow in 1997, you weren't here.

Stability was the same policy being announced two months in a row, which beat the number of consecutive months which government employees were paid. Fun it was, nascent democracy it was not. And worst of all it laid the groundwork for the Fifth Directorate Thugs to return.

The embalmers are happy though; he has already thoroughly pickled himself.

Hell Is

2007-04-03T12:14:00.000+04:00

The Aeroflot / Alitalia merger where;

The onboard food is Russian
The baggage handling is Italian
Passport control is Russian
Timeliness is Italian
The airport design is Russian (well eastern German actually)
The stewards (or whatever they call themselves today) are Russian
And the prices are Italian
The rail/air link at Sheremeyteveo is built by Italians according to a Russian timetable with money from Berlusconi

Technorati Tags: Russia

Reiman vs Alfa - Waxman Relents

2007-03-28T22:28:00.000+04:00

For the PR-niks who subscribe to Ruminations to determine whether your antics are being reported on - hi.

Anyway, tucked in to the bottom of page 3 of Monday's physical version of the FT is a tiny headline - Waxman retreats on Diligence probe (no link love).

Do you think that someone pointed out that his support of IPOC probably flew in the face of a ton of established legal case history?

For those of you who lack my fascination with the Reiman vs Alfa battle (world population minus 1). Henry Waxman is "the Democratic chair of the US House of Representatives' top investigative committee." Diligence is a UK-based/led "investigative agency" whose Chairman (given that Chairing a company is quite difficult and not possible in English) is Michael Howard, one of the swathe of useless Conservative Party leaders of recent history, and Home Minister under John Major who would have given Genghis Khan a run for his money as a right wing nut. So reasonable potential for diplomatic consequences.

It would appear that Diligence was retained by/on behalf of etc, Alfa to prove what had been a matter of market knowledge for sometime. It would appear that Diligence's methods were only slightly more ethical than those employed by the board of HP (pretexting - which is not what happens before you send a sms.) Which caused someone to get someone on Waxman's staff to get all uppity and subpoena John "Genghis" Howard, or one of his flunkies anyway. You would have had to have been me to even know, or cared, that this happened in the first place. You would probably have to be me for a wry grin to cross your face after the subpoena was withdrawn.

I used to use a tennis analogy to follow the ups and downs of this saga. Well try this one for size - this match is now Tim Henman (Reiman) vs Roger Federer (Alfa) in the quarter final of Wimbledon - only one winner.

Technorati Tags: Reiman vs Alfa, Russia

The new Silicon Valley: Siberia

2007-03-28T22:03:00.000+04:00

Fortune Magazine published an article entitled about Academgorodok, Novosibirsk entitled The new Silicon Valley. It is the most delicious-ed article with Russia as a tag, outdoing even English Russia, and its very wrong.

Once upon a time I would have gone to great lengths to explain why, but having read new Silicon Valley articles about, Cambridge, Mass, Cambridge UK, Bangalore, New York (Silicon Alley), China, Moscow etc there is little reason to specifically rubbish Academgorodok. The author conspicuously fails to explain how Academgorodok will suddenly develop the attributes which makes Silicon Valley home to a unique successful risk-taking culture and Academgorodok to unfeasibly large mosquitos.

Technorati Tags: Russia

Kremlin Responible For Bob Woolmer's Death

2007-03-23T14:55:00.001+03:00

Given that VVP and his Fifth Directorate Thugs gets the blame for just about anyone who shuffles unnaturally of this mortal coil. It is clear that the unnatural death of Bob Woolmer, Pakistan's cricket coach, due to applied asphyxiation (strangling) is as a result of rumours that Bob had been outspoken about VVP's version of controlled democracy and witheringly sarcastic about his "rule of law." Clearly an enemy of the state.

I am waiting for Edward Lucas' explanation of the facts to appear in any number of UK-based papers shortly.

Technorati Tags: Russia

Rescuers save all 15 fishermen drifting on ice in NW Russia

2007-03-11T10:19:00.000+03:00

Delighted to report that the weather and local populations attempts to succumb to an early and watery death have returned to more normal pattern.

Rescuers save all 15 fishermen drifting on ice in NW Russia:

Rescuers have saved all the 15 fishermen who went drifting on three ice floes toward the Gulf of Finland in northwestern Russia Saturday morning, a rescue official said.

Earlier reports put the number of fishermen at 23. The exact number could not be established because the ice floe, which carried the fishermen to the open sea, had broken into several pieces.

"The operation is over, 15 people have been rescued from the ice floes drifting in the Gulf of Finland," rescuers said, adding that the fishermen's health was out of danger.

The source said the fishermen had been rescued by a helicopter because motorboats were not very effective in the rough seas.

Despite warnings from rescue services, catching fish from ice-holes remains a favorite pastime for Russian fishermen in winter. The latest incident occurred on the Volga in mid-January when rescuers saved more than 60 fishermen stranded on drifting ice.

Technorati Tags: Russia

2007-03-07T09:20:00.000+03:00

From the Daily Telegraph.

The best quotation:

"A man who thinks he has six children but cannot be sure, Sutyaging kept up a commentary on the adventures he anticipated if his skyscraper had been completed."

The Beginning of the End, But Not Yet Beginning

2007-02-28T09:17:00.000+03:00

Winter and spring that is. After a week of stunning winter, clear blue skies and good cold weather, I am reliably informed that winter is about to start ending by moving to that phase in which the sun does not shine, it snows/rains/hails and the nation's collective mood sinks a few degrees. Each journey beyond the front door is a slog through 15cm's of snow-like mud, or is that mud-like snow, gently defrosting dog-turds and a winter of re-emerging cigarette butts.

All of which is made worse by the forthcoming national domestic violence day, otherwise known as International Women's day.

Fortunately, as I rarely see the outside of my office most of this will pass me by and I have no intention of giving SWMBO cheap, tacky cellophane stuffed with flowers. The one benefit is that my secretary might actually pretend to do some work before next Wednesday so that I have a reason to give her a present.

And real spring, the green-ish one, is another 6 weeks away.

Good morning.

Technorati Tags: Russia, Weather

As A Dodo: Bush and Blair 2001-2007

2007-02-21T16:55:00.001+03:00

If, like me you are struggling with a balance sheet that won't balance because of a non-cash transaction which wasn't really non-cash, and I promise you I am not making this up, then here is some light entertainment.

As A Dodo: Bush and Blair 2001-2007:

Comedy fans are mourning the death of one of the world's funniest double acts, Bush and Blair, following today's shock announcement by British Prime Minister Tony Blair that he has decided to withdraw from his comic partnership with the USA's President George Bush and will no longer be joining him on the set of the latest in their series of hilarious "Road To" movies, "The Road To A New Vietnam".

It was in 2001 that Tony Blair decided to replace his former sidekick Bill "Slick Willie" Clinton after Clinton's comic persona as a loveable lothario - and catchphrase "I did not have sexual relations with that woman" - began to prove box-office death in America's post-millennial moral climate. Initially Blair had hoped to hook up with Clinton's old straight man, Al Gore, but was to opt instead for the guy behind the tongue-tied goof routine that stole American hearts and votes during the 2000 Presidential Election.

Almost immediately Bush and Blair began preparations for their hilariously titled - and now notorious - "Bringing Democracy" World Tour, Blair spending each day working on the wonderfully ludicrous "I'm a Pretty Straight Kinda Guy" routine that had won him the laughter of audiences across the United Kingdom, while Dubya perfected everything from his "Kenny Boy Lay? - Never Met Him In My Life" skit to the death-defying piece of physical comedy that was "Chewing A Pretzel".

With Bush and Blair's comic characters in place, Dubya playing a knuckle-dragging jock and Blair the smooth-talking poodle that insisted on following him everywhere he went, Bush's long-time manager Dick Cheney spotted the box-office potential in the sequence of scripts that would become the pair's "Road To" movies. Soon they were laughing on "The Road to Democracy", sweeping along the dusty "Road to Afghanistan Liberation" and crying on "The Road to Iraqi Freedom" (known in Britain under the title "The Road to Electoral Suicide").

It was during the filming of the last of these three movies that rumours of a split first began to surface. Crew members reported the sounds of heated arguments emerging from the pair's trailer and more and more often the once inseparable duo were seen to arrive and leave the set apart. The cause, some claim, was the latest script optioned for the pair by Mr Cheney, "The Road To Iran" (also known as "The Road to Armageddon"). Whatever the basis for the dispute, it was increasingly clear that relations between the two men had begun to sour. Indeed it came as little surprise when, on Tuesday night, Mr Blair announced that he would be pulling out of the duo's latest lraq tour, "The Big Troop Surge", to concentrate on other projects.

The comedy duo that was Bush and Blair will be remembered fondly by its fans, both of whom can be found in a secure wing of The Charge of the Light Brigade Hospital for the Militarily Insane.

Bush and Blair are now working on their solo projects: Tony Blair's "Legacy Tour" (fans should be aware that the tour has now been considerably shortened) and George Bush's "Who Gives A Crap? I Ain't Standing For Election Again" stand-up appearances in Washington's premier comedy venue, the White House.

On Democracy, Cans and Worms

2007-02-20T09:43:00.001+03:00

Andy at Siberian Light commented and cross-posted on yesterday's democracy-themed post. His question "how does Russia get from here (quasi-democracy) to there (democracy)" (the italics are added by me for elucidation.) He obliquely raises a another point; too much commentary on what has been and not enough (intelligent) commentary on where the country will be not just tomorrow but the day after that as well. Or at least beyond the Presidential election (sic).

From my narrow point of view the answer is relatively simple. It is not for us to impose our views on Russia based on what we would like our home countries to be like. Expats are amongst the most critical commentators on their home countries. I fundamentally believe in the fuck-up theory of history as opposed to the conspiracy theory. There are very few examples in political history of honourable people doing the right thing based purely on altruism. My own country, Britain (which begs the question what I think of N. Ireland), has developed its version of democracy as a result of changes forced on the Monarchy and House of Lords and Commons over time. It was not that long ago that Britain has its own rotten boroughs - the implication to the Duma being rotten is not implied, it's explicit. The changes were forced at periods of weakness of the ruling power of the time - from Magna Carta through to female emancipation.

So what does that mean for Russia? Whilst commodity prices remain high and local input prices relatively low I see little change to the Russian polity. I don't put much faith in a growing middle-class forcing changes until the economy is forcing changes without their help. No colourful revolutions here. We may see a little more balance-of-power post-Putin, whenever that may be. If I am being optimistic, a resumption of balance of power may mean an increase use of the courts as means of conflict resolution. I generally find being optimistic, uninformed wishful thinking.

Where I may be proved (hopefully) wrong is the absolute fear that Power evidences of the people. This may result in changes running ahead of popular desire for change. A continuation of the Fifth Directorate Thugs belief that they can manage the people. See comments on optimism above.

Maybe the best prediction I can make is that the country in which we live and comment on will change in ways that we will fail to predict.

Technorati Tags: democracy, Russia

Chickens Coming Home to Roost - Or to the Dacha

2007-02-19T16:27:00.001+03:00

Shikhovo, which is only a hop and a skip and way to close to need a jump, from the dacha is apparently one of the centres of the avian flu outbreak. All of which is probably pretty underwhelming except for the bits of the story which don't add up.

Apparently a resident of Shikhovo who also as it happens to own/run/work at the somewhat malodorous chicken farm the aforementioned hop and a skip away was in Moscow buying chickens. It was my impression that the role of a chicken farm was to; rear, grow and ultimately slaughter chickens. Maybe the Shikhovo guy was just fattening up chickens he bought in the Moscow bird market. What the hell do I know anyway.

The good news is that Russian-officaldom says no need to worry. Because they are always trustworthy and open with the public.

In case you are interested the weather was great out there this weekend and the skiing tip-top.

Technorati Tags: chicken, H1N5, Russia

Ruminations on Democracy, Russia and LaR

2007-02-19T16:13:00.001+03:00

In an attempt to lift the La Russophobe debate out of the mire.

For those of you not fully-conversant in the politics of the english-language Russian blogosphere. Andy at Siberian Light interviewed La Russophobe. Who is, as the title of her blog suggests, Russophobic, and also anonymous. The eXile has taken on the role of tracking her down, but as has already decided on the size of her ass - charming boys that they are.

She has many faults; not least of which is a pre-determined view of what has been posted. The one worth debating though is that of a George W. Bush-like fascination with democracy. Which, in GWB's case seems Florida-strange, but has little to do with this post.

Her interview on SiberianLight mentions democracy a number of times (the list is not exhaustive, and the last point includes democracy in the question only);

"the end of democracy"
"democracy in the blogosphere"
"I’d been told that Russia was a nation of democrats"
"La Russophobe is trying to save the minority from the majority in Russia"
"in a sham democracy and thereby poisons the well of Russian attitudes towards democracy"
"I think anyone who sees a proud KGB spy as a transitional figure on a journey to democracy is quite mad."
"11. Do you think Russia will ever embrace the style of representative democracy now favoured in (most of) the rest of Europe? Answer - Not unless it is led to the well by a revolutionary equal to Lenin and as steeped in the West as Lenin was and ten times more courageous. I’d be happy if Russia would just adopt the physician’s maxim for its government: “Do no harm.”"

But it is the fourth quotation which really describes LaR's view of democracy as being what she believes is best for the people of Russia. Which includes having MBK and VVP switching places. It may well be that MBK has had a Damascene conversion on his long and winding road to Chita. But right up to the moment of his incarceration his view of democracy, as evidenced by his actions as opposed to his words, was that it was OK as long as it could be bought. And he was buying it.

Democracy is undoubtedly a good thing, or as Churchill would have it, not as bad as everything else. As the US-led coalition in Iraq is finding out, democracy is not just about voting, it is about the law, and balance of power which forces respect for a minority position. Whilst it may be tempting to say that a leader with 70-80% approval rating better satisfies concepts of democracy than his U.S, French and British counterparts, it is important to separate populism from the building of democracy, given that there are and were a number of populist but not entirely democratic leaders around the world - Hitler, in the former category and Chavez in the latter. Russia, in common with Iraq, has a representative democracy which is totally undermined by a lack of the basic protections of democracy, minorities and indeed life itself.

However, to place the blame for failing to democracy on VVP and his Fifth Directorate Thugs is to take a snapshot of history without understanding the historical relevance. You will be pleased to know that I am not about to undertake a Figes-like review of Russian history. The last 14 years condensed in to three periods will do;

Collapse - financial, moral and of morale
The pre-crisis party years
The post-crisis revival - financial, moral and of morale

To tell a people that has suffered from the liberal economic and democratic experiment that it needs saving from itself invites the same reactions as post-collapse feminists encountered when spreading the good word. And in my opinion rightly so - on both counts. I have quoted Cobbett's "I defy you to agitate a man on a full stomach" to feel a little like a stuck record. Repetition however, does not demean the point. Democracy post-collapse has meant; valueless savings, rampant theft of state property or if you prefer, loans-for-shares, and complete collapse of anything that felt like being in control of your life. Whereas this lack-of-democracy thing has meant; stability, food and consumerism. Not unsurprisingly the narod have decided for now that they can live with their democratic freedoms being impinged. But as they never knew what democratic freedoms were (see bullet three for bizarre belief in what you are told) it is more than likely that they aren't missing them now. And won't, at least until the commodity cycle changes and they have no way of getting rid of this bunch of thieves.

Democracy is not the answer to Russia's problems, actually in today's environment it may add to them. Would Russia would be better if it were democratic is like asking if you prefer peace to war - the answer is axiomatic. However, democracy is not about voting and the right to vote. That is purely the symbol. Real democracy can only happen when rights and responsibilities are balanced. Russia is not there yet. It is poorer for not using this period of wealth to build the institutions, but a simplistic belief that Russia can copy US/UK participatory democracies and be better for it is too simplistic and short-term. As always, black and white arguments seem reasonable and make a point. I am sure that the narod would prefer that Schliefer et al and LaR did not make a point with their lives.

You can disagree with my point of view - but please make a reasoned argument or I will just disallow the comment.

Technorati Tags: democracy, Russia

A Wonder Greater Than Russia

2007-02-15T22:04:00.000+03:00

I have a bit of a thing about space and the theories of physics that describe our world's first few seconds. Which leads me to websites which have pictures like the one below. I almost feel calm after abusing moronic drivers on my way back from work.

Image from NASA and IAA, Spain

Oil Contango: Roll Yield Rewards

2007-02-14T23:07:00.000+03:00

This all gets a little geeky. Like the changes in temperature post from earlier today the graph showing WTI oil contracts moving from sustained backwardation in to sustained(?) contango all go to highlight that the world in which we are going to live is different from the world in which I got to be old and fat.

The actual post from Seeking Alpha is all about trading oil/product futures. Which is not overly helpful unless you have physical crude to deliver.

The infamous Eric Kraus of the Nikitsky Fund and the longest-term oil bull I know (unfortunately RSS-unfriendly) puts it well, and I paraphrase; in a tight market oil prices will tend to be volatile and warm, or otherwise weather, will have a noted impact. He joins Boone Pickens Jnr as a $100/bbl man.

Oil Contango: Roll Yield Rewards:

Forward shifts in crude oil. Source: thestreet.com.

The above figure shows how oil future forward curves, for any given month, have evolved for oil futures during 2004-05, from the typical oil backwardation to contango curves. As Howard Simons puts it:

Each ribbon in the chart represents a forward curve beginning with the front month and ending with the December 2005 contract. The near months are on the left of the ribbon; the far months are on the right of the ribbon. As time goes forward and as price rises, the switch from a backwardated structure -- front months over the back -- switches to a deeper and deeper carry and a bona fide contango.

Technorati Tags: Oil, peak+oil

It's Too Warm

2007-02-14T09:57:00.000+03:00

Disclosure, to keep LaR happy. I am personally interested in the weather, it impacts my daily schedule and on days like yesterday results in snow getting over the top of my shoes. I am also interested because global warming is amongst the greatest threat to our future. Furthermore I am interested because natural resource prices tend to spike when its very cold and very hot. That being said you actually have to read the article and understand what it says before you have the right to comment.

I couple of the diagrams failed to import - you'll just have to go to TOD to see them. Despite quasi-official attempts to say we are just in a period of natural warming its worth looking at the reconstructed temperature graph showing just how much warmer the world is today than the last period of global warming - the medieval period. But then they did not have a/c, airplanes or cars then - apparently.

Kudos to The Oil Drum (link below).

Last month I provided a weather up-date and it was not my intention to provide updates on a regular basis. But the latest NASA temperature anomaly data for January I feel are worthy of comment. Why is this relevant to The Oil Drum? Well amongst other things, mild winter weather in the northern hemisphere reduces demand for natural gas and heating oil. Furthermore, a continuation of current trends may see tracts of molten permafrost render oil exploration and production impossible throughout vast areas of Siberia, Canada and Alaska. Melting of Arctic Sea Ice, on the other hand, may open up new offshore provinces.

Figure 1. Surface temperature analysis map for January 2007 from the Goddard Institute for Space Studies. The datum period for comparison is 1951 to 1980.

There are 8 more maps and charts below the fold.
[break]

Figure 2. January 2007. Goddard Institute for Space Studies.

Figure 3. December 2006. Goddard Institute for Space Studies.

Figure 4. January 2006 Goddard Institute for Space Studies.

Comparison December 2006 to January 2007

The warm anomaly over Asia and Europe has expanded and intensified between December 06 and January 07 (comparing Figures 2 and 3). Note that the upper scale band for January is 4 to 11.6 degrees compared with 4 to 8 degrees in December. The North Pole is 4 to 11.6 degrees warmer compared with the datum period (Figure 1).
The Antarctic in December was cooler compared with the datum period but in January it too is now showing positive temperature anomalies.
There are a few cool spots in January, notably North Africa, Arabian peninsula, SW USA and Mexico, Australia and East Siberia. But these are dwarfed by the massive, large positive anomaly over Asia, Europe and the Arctic

Comparison January 2006 to January 2007

In January 06, Russia and Europe experienced anomalous cold weather that threatened gas supplies and sent gas prices soaring. This is in stark contrast to January 07 (comparing Figures 2 and 4). Temperatures over a vast area appear to be somewhere between 8 to 20 degrees warmer this year compared to last year.
North America was somewhat cooler this January compared to last year.

21st Century warming

Figure 5. 2000 to 2006, mean January anomalies. Goddard Institute for Space Studies.

Figure 6. 2000 to 2006, zonal mean January anomaly. Goddard Institute for Space Studies.

Figure 7. 2000 to 2006, zonal mean September anomaly. Goddard Institute for Space Studies.

It is worth taking a broader look at 21st century warming. Figure 5 shows the mean January anomalies from 2000 to 2006 compared with the datum period (1951 to 1980) and Figure 6 charts these mean temperature anomalies by latitude. It is clear that the anomalies dicussed above for December 2006 and January 2007 are part of a broader trend.
Note that January temperature rises are not evenly distributed. All latitudes north of 60 degrees south have experienced January warming, but the amount of warming increases as you go north. An average global increase in the period of a fraction of a degree masks the fact that high latitudes have warmed by over 2 degrees C during the northern hemisphere winter (Figure 6).
The late summer (September), northern hemisphere anomaly (Figure 7) shows warming across the whole planet of 1 to 2 degrees C. Late summer warming of 1 to 2 degrees in the arctic regions of Canada and Russia is unlikely to have a catastrophic effect on melting permafrost - yet. This will be the subject of a follow on post.

Food for thought

Figure 8 shows a temperature reconstruction for the past 2000 years. Note that the temperature range from the peak of the Medieval warm period to the trough of the Little Ice Age is around 1 degree C.
Figure 9 shows various temperature forecast scenarios for the next 100 years from the newly published IPCC summary report (pdf). Warming forecasts vary from 1.8 to 4.0 degrees C.

Figure 8. Temperature reconstructions for the past 2000 years from Wikipedia.

Figure 9. Temperature forecasts for 6 different scenarios considered by the IPCC (Summary report for Policymakers, Figure SPM-5: pdf).

At this point it was my intention to discuss what are in my opinion certain critical factors for the global warming debate that go beyond the physics of radiative forcing that was discussed by Stuart last year:

Orbital / Milankovitch cycles
Solar / sunspot cycles
Loss of Arctic sea ice / reduced albedo
Melting Arctic permafrost

However, I feel there is more than enough food for thought here already so I will postpone this discussion to my next post.

Technorati Tags: global warming, TOD, Weather

The Intelligentsia Emigrates to London

2007-02-08T23:16:00.000+03:00

I am apoplectic over this complete heap of shit which pretends to be a piece of journalism from the Economist Boyars of Belgravia. So ridiculously annoyed that you will have to dig the reasonable out of the useless.

A hint as to the title of this post;

"But the mood in moneyed London is still largely positive towards Russia. In thinking London it is increasingly negative. The battle continues."

Where is thinking London to be found? Clearly not in the Economist which predicted that the collapse of oil would lead to Russia's destruction, nor that Intelligentsia love-child Edward "a monkey would have out-performed my predictive prowess" Lucas predictive prowess regarding almost anything in Russia (and why am I writing this in the past tense) has left him a laughing stock, but still much quoted. Unless of course thinking is a synonym for morally superior failure to spot the obvious.

Oh to be a member of the "Thinking Classes." Would that make me like the the Soviet Union's Intelligentsia; outwardly indignant - soul sold down the river (or at least as far as Zvenigorod). Happy to read Turgenev and (small frisson of rebellion) Mir - petrified of exerting their moral authority.

Maybe, if I re-found my moral sight, I could be a member of London's intelligentsia where I would be worried about; which school my child went to, what car I drove and.. oh that's it. If you want to dispute my bored-beyond-belief recollection of banker/lawyer-land dinner parties over the last 5 years in London stand by for a real rant.

I could however, join the moneyed classes who spotted that Russia has a spot of oil, a bit of gas and a population willing to doll themselves up in frippery and finery. These are the same "morally myopic" (hyphened surely - ed?) moneyed classes who spent at least one night not worrying about west London schools and figured out that Russia is a desperately corrupt place (any bids for a Deputy Ministry at the Oil and Gas Minsitry under $5mn for a 1 year appointment not accepted) but that if democracy is the will of the people as opposed to what you (see Thinking Classes above) will the people to think Russians are at least as happy with their lot as you are with Blair/Brown/Cameron. There is corruption and there is Corruption - but if Loans-for-Peerages and sexed-up intelligence aren't CORRUPTION then we are in desperate need of a moral compass. And that's before we all agree to start in to morally-religous otherwise degenerate Bush-dom.

No pretension that making money helps develop a middle-class. The morally myopic make money, the middle-class makes Genghis Khan look only marginally more right wing than Scotland's own English Home Secretary (work your way through that Lothian question).

Here's a suggestion; think, don't write, for a calm collected moment about the Scooter Libby trial. Consider your profession to be on trial and take steps to write with balance and intelligence - or write about your own extinction as the much-derided amateur press do what you should be doing only better - and more cheaply.

Yours from nowhere near Tunbridge Wells.

Technorati Tags: Economist, Russia

Alfa vs Reiman - A Hint

2007-02-07T16:50:00.001+03:00

If you work for Galmond (sic) in his battle to drag his erstwhile financial stable mate through the world's courts and press and you monitor my blog via email leaving your out-of-office reply switched on rates as not very clever.

If you want to know why I write about this subject a. find my name out - not very difficult, b. google and work out what I was doing in 1999-2000 also not difficult c. investigate the transactions that did and almost happened during that time period related to your clients (named and otherwise) d. assume we had meetings and did due diligence. e. ask yourself why you are perpetuating a lie.

Technorati Tags: Reiman vs Alfa

Reiman vs Alfa - A Continuation

2007-02-06T23:23:00.000+03:00

It's been a while but the Royal Gazette yesterday dropped this little nugget in to my feed reader. The summary is that the Bermudan financial services is taking steps to close down Mr. Galmond's (sic) IPOC fund and, it would appear, a number of associated vehicles.

Naiive statement for February; how can a telecom minister carry on in his job when an uncontroversial paper like the Royal Gazette makes statements like:

In a written statement yesterday confirming the move, Ms Cox said that it was sometimes necessary to take legal action “to address seeming breaches of our laws and apparent regulatory infractions”.

Some matters relating to the case have been passed on to the Bermuda Police Service for investigation.

The legal action is the latest twist in the IPOC saga, which has sparked litigation in several countries amid claims that the Fund was a money-laundering vehicle.

It was alleged that it was effectively a holding company for around $1 billion in telecommunications assets transferred through a network of shell companies. The WSJ claimed the scandal went all the way up to the Russian IT and Communications Minister Leonid Reiman.

A Swiss tribunal in May last year, found that Mr. Reiman was the “sole beneficial owner” of the Fund. The tribunal stated that the close ally of President Vladimir Putin had amassed great personal wealth in the IPOC Fund by taking advantage of his role in public office.
Puisne Judge Ian Kawaley later upheld the ruling in a related case in the Bermuda Supreme Court.
It was alleged in Zurich that money skimmed during the privatisation of the Russian telecommunications industry during the early 1990s was laundered through the Bermuda-based fund.

IPOC has consistently claimed that Danish lawyer Jeffrey Galmond is the Fund’s owner. Mr. Galmond did not respond to our call yesterday.

KPMG Advisory Services was commissioned by the Ministry of Finance in 2004 to carry out an investigation of IPOC. The findings were passed on to Government in June last year.

Technorati Tags: Corruption, Reiman vs Alfa, Russia

Sakhalin Fishermen Adrift - With Alchohol

2007-02-05T22:32:00.000+03:00

I read them so you don't have to.

It seems that Russian fishermen are trying hard to keep the demographic profile plunging this year. The latest attempt to prove Darwin would have been just as likely to discover his theories of natural selection in Russia as the Galapgos sees "hundreds" of fishermen rescued, finally, from a lump of ice in the sea of Okhotsk. Not before many of them had consumed 50 grams or so of the national brew.

Apparently many of those rescued were in a state of "heavy alcoholic intoxication".

Russia anglers saved in ice drama

Technorati Tags: Darwin, Russia

Dyevs Deny Using Sex to Get Ahead

2007-02-01T21:00:00.000+03:00

Which is as much of a lie as VVP denying using energy as a political tool. And they should be as well (dyevs and VVP.) At the risk of sounding slightly dated; if you've got it, flaunt it. And the last time I looked the dyevs aren't shy about flaunting it. I also had not noticed the USA hiding its economic and political might under a bushel. Russia has energy, energy and maybe an education system - time to pull on the low-cut top, high-cut skirt and killer-stilettos. Shout it from the roof tops. We have energy, listen to us idle old-Europe if you want to stay warm, or cool.

I believe a certain ex-Pole by the name of Brezinski would call it Real Politik.

Putin shrugs off criticism that Russia deploys its vast energy resources as political weapon.:

Russian President Vladimir Putin rejected Western criticism that Russia has been using its vast energy resources as a political weapon. " We are always told that Russia is using its...economic resources to achieve its foreign policy aims. This is not the case", said Putin at a news conference Thursday. "Russia has been meeting all of its obligations in full, and will continue to do so in the future", however "…we're not obliged to subsidize the economies of other countries. Nobody does that, so why are they demanding it of us?", said the Russian President who noted that everything Russia does as part of own energy strategy, as well as its accords with transit countries are aimed to better meet the needs of major consumers of the Russian energy.

Technorati Tags: dyev, Energy, Putin, Russia

Growth, People and Creme Brulee

2007-02-01T12:00:00.000+03:00

Given the option of reviewing comments on Mem & Arts or scribbling some thoughts on staff - the blog wins.

By way of a long explanation:

Last night we were fortunate enough to get a freebie meal from one of Moscow's soon-to-be high-end restaurants courtesy of Eric, previously of Carre Blanc. If it has a name it passed me by. I'll link to it when it opens. The creme brulee would win the Moscow creme brulee competition - not that the competition is stiff.

Anyhow to the point (finally). The restaurant should have opened a year ago but complicated building works, including keeping the river Neglinka out of the basement, has kept it shuttered. Now they are mostly ready to launch but for the fact that they need to hire 20 kitchen and wait staff. Currently they are adding them at 1-a-day. Should be ready for a cash opening in 3 weeks time. Fortunately the owner won't miss the cash he is currently losing.

It is fairly unusual to use the restaurant business as a proxy for business in general. In this case it works. Businesses are looking for qualified and experienced marketing, finance etc etc etc staff. At a price which reflects their value to the business and on the off chance that they might stay in the business for more than 18 months. I would go as far as to say that they are not available.

As anyone with the barest understanding of supply and demand will know that high demand and low supply will theoretically drive prices up to bring more people in to the industry and suppress demand. Anecdotal evidence (from my credit card statement) would suggest that restaurants are not passing on cost increases to consumers, or I am drinking less. But costs are definitely on the rise. Staff costs are rising everywhere, in every business.

There is a gap between published inflation and real inflation.

On a tangential note; Cantinetta Antinori is Eric's favourite restaurant in Moscow. That's depressing - nice enough restaurant, good enough food. But that's about as far as it goes. Plenty of new restaurants - still no good food.

Technorati Tags: inflation, Russia

Actions and Words

2007-02-01T09:28:00.000+03:00

This reported by UFG, sorry that should be Deutsche UFG, via BNE (also my browser but I can't share that). This on the same day that it was reported via Kommersant that Itera intends to return its gas assets to GAZP, continuing noise on Kovytka. Not to mention the less-than-white Gutseriev and Russneft.

Maybe more importantly the definition of a strategic gas field was set at 50bcm (~300mn BOE). Which is close to saying that my sock draw contains a strategic number of the global sock population.

Somewhere, easy enough to fathom - the Kremlin, a bunch of people are fighting battles; the end game of which is not entirely clear. Please, please, please VVP can you put a lid on this.

UFG Research via BNE

6. Government sees increasing role of independent gas producers
Deutsche UFG, Russia
Wednesday, January 31, 2007

According to Kommersant, the Minister of Industry and Energy, Victor Khristenko, has said that by 2015-2020, independent gas producers will start to dominate the domestic gas market. We expect independents' share to grow from below 20% last year to 35% in 2015 and 45% in 2020. The changing structure of the domestic gas market is due to the fact that Gazprom's exports are increasing faster than its production, resulting in it losing its market share of domestic customers.

We note, however, that if Gazprom continues to acquire independent gas producers (previous examples include Northgas, Sibneftegaz, Sakhalin-2), its monopoly status will only strengthen. We expect further consolidation on the domestic gas market around three key independent gas producers/oil companies: Novatek, LUKoil and Rosneft. According to our estimates, they have a combined potential production capacity of 180 bcma, compared with Gazprom's 550 bcm last year.

Yesterday, Khristenko reiterated the key principles of the domestic gas market liberalisation, which will make this operating segment increasingly attractive.

Technorati Tags: Energy, Gas, GAZP, Russia

Guess the Date of this Headline

2007-01-30T08:24:00.000+03:00

I first started doing business in Russia in 1994, I had more hair, less belly and a chin then, I can't exactly remember when the first news story appeared touting a rail link between Sheremeytevo and Moscow but it was definitely BC (before the Crisis.) And it's back again. I am not sure if the wolf really is coming this time or it is just a red herring designed to make us think that Sheremeytevo might at some point stop feeling like the Black Hole of Calcutta (with apologies to Calcutta.) Or any other not entirely appropriate analogy.

As I am willing to pay large sums of cash to airlines which fly out of Domodedovo in preference to sitting for hours on Leningradski Prospect, and then standing for hours* for one, or more of; entering the airport security, customs, checking-in, passport control, a toilet which is not closed for cleaning (at least 40 minutes in every hour) I don't actually care. It was just a warm feeling of deja vu.

Rail Line Planned to Sheremetyevo:
Russian Railways will spend 2 billion rubles ($75 million) in 2007 to build a branch line to Sheremetyevo Airport.

* Note that I did not expect to queue. In the days when I flew in and out of Sheremeytevo regularly I used to bring my own line with me.

Technorati Tags: airports, Russia

The Not So New Paper on the Block

2007-01-26T17:10:00.000+03:00

I was reminded today that Business New Europe (BNE) is now up and running. It's the brain child of Ben Aris who writes more commonsense than the average journalist (damning with faint praise). It's a better round up of business related news than most of the news agencies. Being a new kid on the block you can read the website, get your news via email or have it delivered to your favourite feed-reader via RSS.

Go support Ben.

Updated to replace the "t" in now with the more traditional "w."

Technorati Tags: Russia

You Know You've Been in Russia Too Long..........

2007-01-25T09:23:00.001+03:00

Someone, somewhere linked to 42 "you know when you've been in Russia too long when." Here are some additions:

When you believe that you can get "the flu" from an air conditioner

Q: Russians tend to believe that illnesses can be caused by air currents, whether the source is an air conditioner, a draft or even a breeze on a warm day. Foreigners tend to disagree. Who is right?

Dr. Natalia Udaltsova, Centro Medico Italiano:
"Drafts and cold air currents have the same effect on people as cold drinks -- everything depends on the strength of each person's immune system. Overcooling and drastic changes in temperature can result in a cold or fever for people with a weakened immune system.
"Also, an air conditioner in a confined office space creates the effect of fresh air without any disinfectant functions. In other words, it is just driving the existing bacteria and microbes around in circles."

Dr. Irina Perrin, European Medical Center:
"Foreigners are correct in their belief. Everything depends on the patient's immune system."

Dr. Svetlana Zorina, Ne Bolit Medical Center:
"Cold air currents, including those from air conditioners, can cause muscle fever or myositis, especially if you enter a conditioned room after intense physical exercise or after being outdoors in hot weather."

When, on returning from whence you came, you leap in to a car and promptly drive around the queue to the traffic lights and push in at the front, thus creating an impromptu additional lane

More to come - undoubtedly.

Technorati Tags: Russia

2007: The Year of the Russian Language

2007-01-23T11:53:00.000+03:00

The First Post a strange English, as opposed to British, online newspaper, the purpose of which I have yet to fathom, has a piece on Putin's Kanutian desire to restore the Russian language:

The Year of the Russian Language

The problem is apparently that the near abroad prefer their own language and English to Russian and Russian (strange that), and native Russians (whoever they may be - but that's a different topic altogether) have a nasty habit of eating sala, drinking vodka, not having enough sex, too many abortions, dying early and generally being fewer at the end of the year than at the beginning. Not so much a dying language, as a population suffering from a collective heart attack.

If I can give VVP one hint to help the adoption of Russian, and I am not going to get in to the Latinisation of Cyrillic here, it would be the simplification of verbs of motion. I frequently physically fly back and forth to London but grammatically I go, don't come back or come back on a different route having confirmed that I was indeed about to board and return on a BA flight. As you can imagine this causes some concerns with drivers who are trying to arrange when to meet returning flights and with domestic help concerned that you may be about to walk out of Moscow forever. At least it has been some time since I caused concern that I had walked back from wherever I had been.

So VVP please help us poor non-sala eating Russian speakers out by allowing us to simply go and come back; an upgrade at Sheremeytevo wouldn't be amiss whilst you are at it.

Thanks

Technorati Tags: death, Russia

Turkmen Gas - Not Being Transported by Balloons

2007-01-21T12:34:00.000+03:00

MSM was concerned when the Turkmenbashi finally shuffled that there would be another tussle between Russia and the US for control of Turkmenistan's gas. Whilst that balance-of-power struggle may/is still be going on behind the scenes, Turkmenistan's gas is still routinely transiting Russia on its way to Ukraine for one blindingly obvious reason; it has nowhere else to go - hence the title of the post. Gas transportation relies on fixed infrastructure (pipelines). Marginally less important, Turkmenbashi's successor is Kremlin-friendly, or not unfriendly. It could have been nasty if the US had managed to install a friendly puppet; I am not quite sure how Russia would have squared its need for Turkmenistan's gas with its need to ensure that it keeps flowing north and nowhere else.

This is a reality born of fixed infrastructure and European energy demand. As much as Turkmenistan may want to have alternate routes to sell its gas; east to China, south through Afghanistan and Pakistan (clearly one of the world's more stable regions) or south west across the Caspian and over Central Asia's San Andreas fault, the only pipelines that work today (and even then at 60% of design capacity) pass through Kazakhstan and enter southern Russia. So as much as Cheney et al would like to ensure that Russia cannot control Turkmenistan's gas there is no other option today, and the only one even vaguely likely in the future will be a Kazakh pipe going to China. Which really does not help the US efforts at world domination at all.

Turkmenistan's gas is officially sold to Ukraine (each molecule is tagged as it crosses the border in to Russia to make sure that it ends up in Ukraine); more importantly it forms a significant part of Russia's gas supply balance. Broadly speaking there are three demands on Russia's gas in reverse order of profitability for GAZP; Russia, the near abroad (ex-FSU) and Europe. Re-ordering the list in terms of GAZP's obligations would result in Europe and Russia sharing first place and the FSU coming in a very distant third. Except, as we have come to learn, the export pipelines, before Schroeder's pipeline, still have to pass through Ukraine and Belarus who have a nasty habit of taking what they need before allowing the balance to make it to Europe. Thus, if history were to repeat itself, if Turkmenistan's gas does not come north there will not be enough gas for Ukraine, which will probably means there is not enough gas for Europe. Meanwhile, Russia will still have access to enough gas to fire its electricity generators, steel and aluminum plants creating an ever more economically powerful Russia.

The above graph, which is built on UBS data with some personal tinkering, shows expected gas supply from Russia, Central Asia and Independents (Novatek, LUKoil, TNK-BP etc) in BCM p.a. There is a large and increasing requirement for Turkmenistan, Kazakhstan and Independents to equalize the demand / supply equation. Hence the change to domestic Russian pricing at the end of last year. For each of the three supply components a worryingly large chunk of 2010-2015 supply falls in to "yet-to-be-discovered" or incredibly technical mega-projects whose real and official start dates may be as much as 5 years apart.

Hyper-expensive pipelines across opium-growing Afghanistan or linking with the gas version of the Baku-Ceyhan pipeline are never going to happen. For which Europe should be very pleased.

Here is the link which started me thinking; RIA Novosti - Opinion & analysis - Fight for Turkmen gas called off:

Technorati Tags: Energy, FSU, Gas, GAZP, Russia, Turkmenistan

Golubovich - The Prisoner's Dilemma

2007-01-19T15:33:00.000+03:00

Alexei Golubovich, from the days of the battles of Volgotanker, provides a perfect demonstration of the Prisoner's Dilemma. With a twist. In this game MBK, Golubovich's previous boss, is the prisoner. Mr. G wants to see his mum, the Prosecutor's office wants to see Mr. G.

Solution; sell the prisoner down the river - no dilemma.

YUKOS Ex-Executive Back in Russia to Testify against Khodorkovsky

Technorati Tags: Russia

Gazprom: World’s Greatest Energy Company?

2007-01-19T15:22:00.001+03:00

From Kurt Wulff via Seeking Alpha. Wulff is an independent US-based oil and gas analyst with a real focus on economics. His price btu comparisons are worth a thought.

Gazprom: World’s Greatest Energy Company?:

Kurt Wulff (McDep Associates) submits: Buy-recommended Gazprom (OGZPY.PK)’s sales of natural gas are as large as Saudi Arabia’s sales of crude oil in heating equivalent, and superior in environmental quality. Yet Gazprom’s selling price at about $2.50 a million btu is only about one-fourth of Saudi Arabia’s at some $60 a barrel, or $10 a million btu.

In view of that price chasm one can hardly fault Russian President Putin for attempting to secure market value for a precious resource. Yet, Russia, unlike Saudi Arabia, offers ordinary investors, as well as anyone who objects to a nearer-to-market price for clean energy, the opportunity to participate in the producer profit by owning shares of what may become the “World’s Greatest Energy Company.”

Meanwhile, results for the second quarter of 2006, reported according to international financial standards on December 21, confirm a modest one-third increase in natural gas price over the previous year. With continued progress there would be justification for upward revisions in estimated net present value, currently at $56 a share, that amount to a modest multiple of current cash flow from a low natural gas price.

Energy a Political Tool?

How can consumers justify paying Gazprom, the world’s largest natural gas producer, $2.50 a million btu for clean fuel while paying Saudi Arabia, the world’s largest oil producer, $10 a million btu for medium dirty fuel? Because the gap between realized price and market price for Russian natural gas is so wide that we have little sympathy with the argument that energy is being used as a political tool.

Instead, President Putin’s great contribution to his countrymen may be to recognize the value of Russia’s energy resources and to take actions to realize that value for Russians rather than to give it away cheap. We believe that consumers are also better off in the long run if energy sells at a market price that takes into account environmental characteristics.

The choice we make when we recommend Gazprom is driven by resource value and concentration on the cleanest fuel. Political risk is there, but it needs to be put in a balanced perspective.

The World’s Greatest Energy Company designation applies to Gazprom today only in the size of its clean fuel resources. The company is not there yet on a commodity market price basis, in operating efficiency, in transparency of financial results or in stock market value. The future price of freely traded Gazprom stock may be the most credible measure of the success of Russia in managing its clean energy asset for home and global benefit. In view of the great potential, investors can be patient.

Sakhalin II Project Agreement Reached

At the same time Gazprom announced second quarter earnings, buy-recommended Royal Dutch Shell (RDS.A) announced that it and its partners had reached agreement to sell a half interest in the Far Eastern oil and liquefied natural gas project, Sakhalin II, to Gazprom for $7.5 billion. The deal resolves a dispute with the Russian government over a doubling of the estimated cost of the project to $20 billion. It looks like the price covers a half share of the costs incurred so far and we presume Gazprom will pay its share of costs not yet incurred.

We don’t like seeing that Shell has to give up half of its upside. Yet the effect is not a lot different than when Norway some thirty years ago raised its incremental tax rate on oil to near 80% and required that the state oil company be a partner in new deals. The net result of today’s Sakhalin announcement for investors is the transfer of some possible future reward from publicly held Shell to half publicly held Gazprom.

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Technorati Tags: GAZP, Russia

Weather, in the wrong place at the wrong time

2007-01-19T14:15:00.000+03:00

As promised posting is slow. I am going to fire off a couple of quick posts a sort of personal break from the pain of editing a 140 page document.

As we await Hurricane Cyril over the weekend I thought that it would be instructive to post this comparative temperature map from The Oil Drum.

December 2006 was 8 degrees warmer than December 2005, and I have no recollection of December 2005 being particularly cold - that came mid-January.

What is worse, as we await a new moon, it is dark, dark, dark in Moscow, without the usual covering of snow which helps to lift the gloom.

As this unseasonal weather repeats itself all over western Europe it will be intresting to see what Gazprom's year-on-year sales to western Europe will be both during the winter when it is not cold and then during the summer when it very definitely will be air-conditioning warm again.

The comparative weather picture came from The Goddard Institute for Space Studies.

Coming Out Negative in the Balance

2007-01-19T09:48:00.000+03:00

Lord Skidelsky, wrote a somewhat balanced view in the Moscow Times (hurry the link will die tonight) on the Russia / Belarus spat earlier this year. Copydude has been all over this both politically and musically (follow the link). Skidelsky, somewhat more reasonably, than the blogosphere takes MSM to task for rolling out the same old list of misdemeanours without bothering to dig in to the background of the story.

The FT under Neil Buckley's leadership in Moscow has become a useless source for Russia insight and The Economist, with the honourable exception of Gideon Lichfield has maintained Edward Lucas' policy of being on the wrong side of the story so often as to be a great counter-indicator of reality, as Konstantin has catalogued.

Intelligent comment is very difficult to find. I am told that Le Monde is a good source, but my French is not up to it.

Coming Out Negative in the Balance:

"Let me return to the question of why Russia gets such bad press. First, many of the actions of the Russian state can and should be criticized -- as much by Russians as by those in the West. The country has no understanding of the meaning of the rule of law. It uses legal devices to obtain political objectives. This makes it look shifty and vindictive. Secondly, journalists are often just lazy. It is much easier to compile lists of misdemeanors and assert trends than to dig into the circumstances of particular cases."

Technorati Tags: belarus, blog, Russia

EBRD and Gazprom

2007-01-18T09:12:00.000+03:00

I am struggling to see why the EBRD should be financing Shell / Sakhalin II Consortium at all. I think that would fall in to the crowding out regular lender category.

EBRD's mandate is to help finance Russia's emerging economy, which implicitly means being a prudent lender or investor to businesses where there are no established means to finance them. A Shell-led consortium does not meet those conditions. If it cannot find projects to fund within its mandate then I would suggest that it return capital to its investors - otherwise known as governments, and they to their tax payers.

EBRD financing not critical for Sakhalin II - Gazprom:
MOSCOW, January 17 (RIA Novosti) - A senior Gazprom [RTS: GAZP] official said Wednesday that financing from the European Bank for Reconstruction and Development was not critical for the current phase of the Sakhalin II hydrocarbon project off Russia's Pacific coast.

Technorati Tags: GAZP, EBRD, Russia, Sakhalin2, Shell

If It Walks Like A Duck

2007-01-16T17:58:00.001+03:00

looks like a duck, quacks like a duck

and its Gazprom - then its not a monopoly.

Technorati Tags: Gas, GAZP, Russia

100 fishermen on drifting ice in giant Russian water reservoir

2007-01-15T13:41:00.001+03:00

I have something of a fascination for the many ways which Russians have found to place themselves in mortal danger. Those of us who are fortunate enough to live here get to watch, and indeed participate in, the entertainment that is potential suicide by motor transport. No shopping trip, even to the more expensive supermarkets, highlight at least to those of us brought up according to the western dietary traditions (fat bad, fibre good) of Russians daily flirtations with a reduced life expectancy.

And then there is this bizarre and miserable weather. It is apparently +2 outside as I write and it is definitely grey and miserable.

Which brings us in a rather round about way to an early occurrence of potential death by fishing and definitely one of my favourites; 100 fishermen on drifting ice in giant Russian water reservoir. And that's before taking in to account that well over 90% of those fishing were also consuming vodka in non-small doses. Usually you have to wait until March/April for this story, but as it seems that we are going to be winterless this year, after being summerless last year, the fishermen afloat stories came early this year.

Technorati Tags: death, Russia

2007-01-06T17:01:00.000+03:00

With many thanks to Snowsquare who has captured the slightly bizarre zebra crossing advert. My apartment is in the pereuloki between Stary Arbat and Prechistenka which means that I frequently cross both on car and foot the two of the only zebra crossings which are sometimes obeyed. I know what the traffic law says, but it is disobeyed so completely as to make it no longer a law, until the GAI are underperforming their quotas of de-cashification of Moscow drivers. Suffice it to say that neither drivers nor pedestrians have road sense; as a Brit I clearly remember the Green Cross Code lessons at school. No one crossing a zebra crossing in Moscow does.

2007-01-06T11:20:00.000+03:00

The Oil Drum | Using NATO to fight peak gas

An exceedingly good article on US/UK Gas Wars by Jerome a Paris in TOD. We have differences of opinion not least of which relate to Gazprom's ability to meet its own supply forecasts in the medium-term. Vladimir Milov has some good graphs showing Jonathan Stern's forecasts of decline of Russia's major gas fields. Attached is Vladimir's own graph which looks exactly like mine, except his is a picture and mine is an excel graph. Jerome is correct that there is plenty of gas in Russia but his demand forecasts are a little out of date. Notwithstanding his point is that the US/UK are trying to demonize Russia from a fallacious base. It's worth the read.

2006 Becomes 2007 - Some Ruminations

2007-01-06T09:43:00.000+03:00

You may have noticed that I have been away. Well I am back now (as if you care) and looking forward to an interesting 2007. Here's your Ruminator's take on 2007 with half an eye on what happened in 2006.

The three big themes of 2006 will continue in to 2007;

The Presidential election (sic)
Energy security, or Russia flexes its energy muscle; and
Continued domestic growth.

In reverse order, or in order of which they are more likely to be correct.

Russia Is Growing
Occasionally you will actually get to read a story about continuing Russian domestic growth, usually tucked into in the business section of a newspaper, when another multi-national in the consumer industry announces that its growth in profits and revenues has been driven by the Russian (CIS) economy, or indeed when another Russian IPO hits London. There will also be news of more banking and financial industry deals as Russia slowly develops its domestic financial sector.

If there is to be bad news, which you will be able to read on the front page, inflation will continue to be a worry for Messrs Kudrin and Gref. As the remainder of the Russian government will adopt its customary Kanutian approach to generally accepted economics, Gref's and Kudrin's focus will be especially important. Inflation should be contained, at least headline inflation, until Putin's appointee is safely ensconced on his, or her (yes there is a female option) throne. Which would be known in Rugby as a hospital pass. Currency inflation (or dollar deflation) may put a bit of a damper on some domestic industry but with revenues growing at least as sharply as costs, 2007 may be the year which real management begins to make an impact. With energy prices now definitely set to rise 2007 should also be the year that Russian industry starts to wean itself of cheap energy. Notwithstanding, growth will continue to be the rising tide that covers many sins. The Regions will join the party and the feel-good factor will still feel good. With many more people enjoying a full stomach, and those already full demanding higher quality goods and better services the chance of agitation for anything other than the status quo will be nil. Which is as it should be. Stability to an investor is like a fix for a junkie.

Amongst other things this will be good news for Russia's broadband sector which by the end of 2007 will begin to look like a poster child for new media, in Moscow at least. This will principally be good news for the Ruminator's bank account.

Oil and gas, energy security or the new playground of the new Cold War
This is an analytical minefield. Last year started with Ukraine blaming Russia for Ukraine's stealing of Europe's gas and ended with the death of the Turkmenbashi and the Belarus sandpit squabble. In between, the oil price breached $80/bbl and retreated to $60/bbl and Rosneft IPO-ed on LSE. The net result was mostly noticed in Moscow's restaurants and, of course in London's, real estate prices and the board rooms of Shell, BP, ExxonMobil, Total etc., and unfortunately etc. Somewhere along the way the G8 summit in St. Petersburg (home of the 5th Directorate Thugs) epitomized much of what will remain wrong with relationships between the US and UK, France and Germany and new Europe, on many sides and Russia, on the other. Thinking back without a crib sheet, the Bush / Blair conversation stands out as revealing the paucity of much of the UK/US foreign policy; Putin's barbs as the confidence that Russia had re-found through its supposed strength in oil and gas. Supposed, because as Claude Mandil at the IEA had been pointing out all year, Russia has failed to invest in its gas industry properly for sometime and would struggle to meet just about anyone's forecast demand scenarios. As the year progressed having failed to prove the case that Russia was an unreliable supplier the heat was turned on Russia for failing to produce enough gas to keep Europe warm in our increasing old age. With Vladimir Milov able to broadcast his complaints from just about any platform Russia itself sought to address the demand supply issue, and partially succeeded - balancing a number of legitimate concerns (demand stimulation and inflation) and one illegitimate one (maintaining VVP's good Tsar halo). And then the Turkmenbashi finally shuffled Brezhnev-like. When you are relying on Turkmenistan to produce an unrealistic amount of gas to fill the under-investment gap losing the guarantee of supply highlights the paucity of Russia's gas policy.

So what for 2007. Firstly the rhetoric cannot continue at this elevated level for long. A number of concurrent events should see the bluster cool and the temperatures head in the other direction; firstly Germany takes over the Presidency of the G8 and the EU. Whilst Merkel is no friend of Putin's neither is she a Cold War warrior or in need of a bogeyman to divert attention from her other foreign policy misadventures. In the US it looks as though Bush will be tied up trying to create his legacy (?) through some sort of solution in Iraq (already doomed to failure.) In the UK all attention will focus on Brown's ascension as Prime Minister some time in May (or June, July, August etc), although the UK's genuinely independent courts might yet scupper any Berezovsky extradition deal. Which will cause Russia's two shrillest critics (Poland is so shrill that only the dogs and Edward Lucas are listening) to leave Russia alone. For the first half of the year the failure of winter to be winter (its +3 in Moscow as I write this) should see oil prices drop towards $45/bbl, albeit that a huge number of knowledgeable commentators (T. Boone Pickens amongst them) would fundamentally disagree. Europe and the US worry about the El Nino fueled increase in temperatures, but global warming is no where near as scary if you can afford to pay for the petrol to worry about it in your 4x4. It won't be the heating season that drives up prices but the air conditioning season which will start early and finish later than usual. As an aside its time to worry about coral bleaching again.

The last forecast is tied up with the Presidential election and should be included below. But as it is all about oil and gas it will stay here. 2006 in Russia was mostly about positioning in advance of the 2008 Presidential appointment. In the oil & gas sector that meant personal financial positioning using national oil and gas policy as the driving force for all sorts of nasty shit. After the Rosneft IPO one clan was deemed to have fed at the trough enough and was told to get its house in order. Gazprom finished the year by eating at Shell's trough. I would be surprised if there is much more troughing to come. As always, SurgutNG acquisition stories will circulate but unless a deal is done by at the very latest end of June 2007 the Ruminator will confidently forecast no more deal doing until after the election/appointment. There is a huge amount of work to be done in both Gazprom and Rosneft to fulfill their roles as national champions. With oil prices definitely on the way down, gas prices should move in lock-step, albeit in less liquid markets, the challenge in 2007 will be larger than either company will be able to manage. Gazprom, in particular will have a challenging 2007 as it seeks to bring the next generation of super-fields in to production without much help from those with the expertise to do it either inside the company or internationally. After firing Ryzanov late last year Gazprom now contains no one who knows anything about gas E&P. If you want an early prediction for 2015 here its is; Shtockman will not be producing - feed that in to your gas supply models and go long fur coats - providing we still have a winter then.

The Presidential Election
We will know who will be elected President in 2008 either just before or just after the 2007 July/August break. Feeling optimistic I will plump for just before and will undoubtedly be wrong. As a result no big deals will be done after March 8th until we know what, how, who and why (actually we will never know why.) The Ruminator has no desire to stick his head above the parapet to make too many forecasts as to who. Putin will not stand again (this time around), Medvedev and Ivanov are the front runners, Kozak would be a nice to have, Matvienko might squeeze her way in to the mix - the conspiracy theorists certainly think so. The quasi-anarchy that characterised the end of 2006 (Kozlov, Politkovskaya, Litvinenko amongst others) has either ended or will end shortly. Sometime around the May holidays we will bemoan the lack of excitement in Russian poliitics - and thank goodness for that. Depending on how much intra-Kremlin wrangling was resolved over the holiday period there will be a domestic driven rally in 2007 which will announce, much like white smoke from the Vatican, that Putin's successor has been nominated and the market insider like the stability that should flow as a result.

In the meantime nothing will be done that might upset the narod. Inflation will be kept down (at the expense of local business if needs be), the shelves will be stocked with an ever increasing range of high quality goods and Russian made food which will remain mostly flavourless and inedible. Of all my predictions for 2007 none is more likely to be true.

Extreme nationalism, otherwise known as racism will continue to make Russia a less than welcoming place to anyone whose natural pigmentation was a result of anywhere south of Moscow. Moscow needs immigration to counteract Russian's unhealthy desire to eat Russian food (male life expectancy is a massive 58 years - up from 54 in 1998) and drink vodka. Nationalism has now taken hold and will be a very difficult virus to kill-off. Not sure who will build the buildings.

So there is my big picture for 2007. Along the way there will undoubtedly be some more bureaucratic madness, more Khordokhovsky trials and Berezovsky extradition attempts, more Russian floozies caught in cars in Monaco when they should be in bed with the mumps. Your Ruminator will be busy, very busy. In the first quarter work will keep him from blogging, in the second half of the year it will be personal life that will prevent me from blogging the bizarre and Russia's business environment.

Enjoy it, it will be another year to make money in Russia.

Technorati Tags: Russia

Reiman vs Alfa

2006-12-09T12:32:00.000+03:00

It's been a while since I have heard anything on the Reiman IPOC front but this little tidbit dropped in to the feed-reader this morning from the Royal Gazette.

Apparently IPOC is no longer a mutual fund regulated by Bermuda, which to be frank it was not in the first place. Not sure what this means or indeed the silence generally - is peace breaking out?

Technorati Tags: Reiman vs Alfa

Underground Whale in Moscow City

2006-12-04T21:56:00.001+03:00

English Russia which is never less than mildly amusing reports a whale in Moscow. If you have time also look at their pictures of the only correct way to deal with a Khruschevka.

Underground Whale in Moscow City:
Some people say something strange is happening deep beneath Moscow city streets.
Some even think there live a some sort of underground whale.
Those pictures and one video are about such rumour.
Also on those pictures can be seen what a warm winter this time is in Moscow city.
There is now snow at all and there are places where is green grass can be seen. That’s not typical at all.

And a video of this stream from underground:

via webpark.ru
Tags:&nbspmoscow city strange things

Technorati Tags: Russia

Litvinenko - Now Its Personal

2006-12-03T15:19:00.000+03:00

Saturday, day of rest etc was ruined and wasted and your Ruminator finished the day truly pissed off and not out enjoying himself.

It started on Friday evening. Having failed to get to the gym due to a power failure in the building I returned home to discover that I am a valued BA customer. Not so valued that they were willing to tell me directly that I had flown back and forth to the UK three times on planes that have, or had traces of Polonium 210 on them. To do that you need to know which BA flight leaves at around 09.00 and around 13.00 from London and similarly around 17.00 and 21.00 from Moscow and compare with your own schedule.

Note to BA; As a valued customer I don't particularly care that you have two airplanes grounded and one that has just been un-grounded (which is not the same as taking off). If I was daft enough to be a shareholder, I would care about planes that are stuck on the ground. As a person, I want to know that BA would go out of its way to let me know that I was on a plane that is deemed to be a sufficient health hazard that no other passengers were allowed to fly on it.

Having worked out that I was on a plane three times which is deemed not to be safe, I wanted to know what risks I was exposed to and what should be done to confirm that I was not sick. NHS direct (the UK's public health call centre) the first place the BA website directs you to knew nothing and acknowledged that they knew nothing despite being the first place to call. Next step was Moscow's own European Medical Centre, which was better prepared, if only to tell me to go to Hospital Number 6 to be tested. No explanation of the risks.

Fortunately my brother-in-law poisons people professionally; he's an hematologist oncologist with a speciality in bone marrow transplants. The good news is that I would have had to have been unbelievably unlucky to have suffered any ill-consequences as I did not eat any part of the plane or borrow anybody's drink. Polonium-210 is an alpha-emitter. In short it does have enough power to penetrate your skin and clothes are an even better barrier. You can't get ill from just being around it, or it you. It has to get in to you and directly attack vital organs.

Being the caring sharing type he did point out that I should just go out and enjoy life as there was nothing that could be done anyway. Advice I took to heart. Saturday was a slow start.

But as I would rather know than assume I found Hospital Number 6 knows a little about radiation poisoning as a result of the Chernobyl-related work that it did. It was even prepared for stupid foreigners who insisted on flying BA. Well as prepared as a Russian hospital can be.

I arrived at around 12.00. I left at 17.00. What is it about medical services worldwide which allow time to disappear in to a Dr. Who-like Tardis. It's at times like this that you realise how poor your grasp of the language is. Formal Russian-lessons and I parted ways at verbs of motion. So answering the question when I flew to and from the UK were somewhat complicated by the fact that the first time I left Moscow I apparently was not supposed to come back, which I promptly did of course, and then left again. And whilst I did return, it was not on a contaminated plane. One hour gone. Wait thirty minutes; piss in to jar. Wait one hour. Offer to speed the process with oodles of rubles. Have full body check; nice doctors. Told to wait. Do so (thank goodness for iPods). Wait in queue for blood test. Wait. Wait some more. Get told to go home. Death more likely imminent from traveling to and from the hospital than radiation.

In case I was unclear above, No. 6 is an oncology hospital. Generally not great places to spend an afternoon. As the brother-in-law pointed out I was more likely to be ill as a result of worrying about being ill than as a result of Polonium poisoning.

So no more Litvinenko stories here until they catch the man, behind the man who poisoned Mr. L.

2006-12-01T16:56:00.000+03:00

Having had my toothpaste thrown in the bin in the same week that a an ex-KGB/FSB employee, turned embarassing dissident who had fled from Russian justice but was jetting back and forth from Moscow spreading Polonium around this has a point.

Vladimir Vladimirovich

2006-11-30T16:17:00.000+03:00

Cuts to the heart of the matter;

Treating Your Customer Like Effluent

2006-11-28T16:03:00.000+03:00

No this is not a rant at service in Russian shops. Whilst it leaves much to be desired it is a massive improvement over the way that we are treated by the MPAA.

The old DVD player has finally given up the ghost so off we trotted to one of Moscow's white good stores. Given that I have no knowledge of what is a good and a bad DVD player the range seemed OK. We passed on the karaoke versions.

Shipped the blessed piece of metal coloured plastic home, plugged it in, connected it to the screen, popped in a DVD. And out it popped again. Turn on screen for a hint - “DVD not authorised for your region.”

Now this was a DVD which SWMBO had lavished vast mounts of cash on in Heathrow's departure lounge. Not one of your Gorbushka knock-off's. So we had legitimately bought a DVD in Region 2 (Europe) and brought it to Region 5 (the FSU - broadly) without any warning that it might well not work in the place to which we were flying. You can just imagine the signs around HMV in Heathrow;

“Due to anti-customer policies the DVD we are offering you to buy here will probably not work where you are going. As it is unlikely that you will be passing back through this airport again in the near future I am afraid that our money back guarantee is worthless. Enjoy this piece of moronically stupid entertainment featuring talentless actors earning enormous sums of money.”

Three hours later, an hour of which was spent with the mighty Google, and two syncing and unsyncing and re-syncing SWMBO's hijacked Treo, the newly-acquired DVD player had been fed with code which convinced it that it was everywhere simultaneously.

So now we can legitimately watch our legitimately acquired DVD's on any machine we care to, whenever we care to. There is a fairly good chance that we will also take a more liberal view of the benefits of the kiosk knock-offs.

Paying Tom Cruise an obscene amount of money to star in crap films does not give you the right to restrict how and where I watch what I have paid for.

Treat me like shit and I will reciprocate.

[composed and posted with ecto]

Saint Sasha, The Toenail Puller

2006-11-28T15:49:00.000+03:00

I've been a little confused by the Litvinenko stories that have taken over MSM in the UK. I don't care that much who killed him, but the story is being pushed very hard by someone. Why might tell us more about life in Russia today than the simple fact of his death. Or it might just indicate that London's climate is preferable to Chita's.

The core of the argument coming from the western-Russia blogs is that VVP's thugs were barely aware of Litvinenko and his strident criticism. Even well-informed Russians have barely heard of him. There is no chance of the narod, hearing or caring. He lived in London, not in Moscow and was incidental to Russia. If you are unaware, then you don't go to great length to find a rare radioactive material and stage a lengthy and painful death played out, finally, in the press.

If you turn on english language news you don't need me to tell you that VVP did it. There are however a number of alternate views. To give him his due copydude was the first of the Russian blogs was the first to offer up the Berezovsky connection with Saint Sasha, The Toenail Puller, which is a great headline. In quick time he followed it up with Limonov and Litvinenko, highlighting the British press' rather pathetic ability to buy a line from PR agencies. Given that copydude's previous posts (I know not all of them) have concentrated in rather different areas the strength of his convictions came through forcibly.

Sean's Russia Blog also weighs in with a meaty piece of analysis.

And its not just the blogosphere. Tom Parfitt writing in the Guardian warns that we should not rush to judgment.

Back to work, need to hire myself a PR Agency. Not that I am planning any murders; well not actively anyway.

Technorati Tags: death, Litvinenko, Putin, Russia

So What Are They Saying?

2006-11-28T15:05:00.000+03:00

The redoubtable Jerome a Paris has provided a remarkable example of how your potato is my tomato. In his piece he compares and contrasts Le Monde's coverage of the report with the FT's.

I am afraid that you need to click through to see his tables as I can't/don't know how to import them.

Technorati Tags: OECD, FT, Russia

Aliens To Invest In Banks

2006-11-27T19:23:00.000+03:00

The Duma, concerned over Russia's plummeting international image and the possible knock on impact on investment in the banking sector have, far-sightedly some would claim, prepared legislation allowing aliens to invest in banks.

As with many Russian laws it is slightly lacking in detail and does not differentiate between Martians and other aliens. Nor does it state whether aliens can only come from planets and former planets.

Anyway its nice to know that our duma deputies are hard at work (when they aren't crashing their ferraris.)

Portfolio Investors to Press Strategic Investors:
Russia’s State Duma passed in the first reading Friday the bill whereby it will be easier for aliens to get stakes in Russia’s banks. Market players say the money inflow from foreign portfolio investors will step up capitalization of Russia’s banks and, therefore, lower the threat of the loss of control over the bank system.

[composed and posted with ecto]

Technorati Tags: Russia

Europe has nothing to fear from Russia - VVP

2006-11-23T12:57:00.000+03:00

VVP wrote a comment in the FT on 21st November (paid for subscription required) Europe has nothing to fear from Russia.

I share his sentiment, as long as you define Europe as being west of the "near abroad."

There were a number of strange things about the article. Not least of which is that it was originally written in Russian and translated by a non-native english speaker. Which meant that it was full of long-winded meaningless statements which have no meaning in english. They are beloved of Russian writers, not that anyone can explain what they mean;

"Though it is not striving to join the EU, when I consider the future of our relations I do not see any areas that are not open to equal, strategic co-operation based on common objectives and values."

It was also strange in that the target audience was solely EU heads of state and their foreign policy governments. So much so that the FT wrote a translation of the article yesterday. In fact the piece was so abstruse that it did not even appear in the physical version of the FT delivered to me here in sunny Moscow.

Despite the FT's translation there remain passages which still remain beyond my understanding (not being the sharpest pencil in the pile). Wrap your collective brains around this paragraph;

"Russia is closely watching the EU’s evolution, not least because the pace of development of our relations and their future depend largely on changes in the EU. The Union could remain a predominantly intergovernmental association or acquire supranational functions. Russia wants its largest neighbour to be stable and predictable, and hopes that changes and expansion will not erode the EU’s uniform legal framework, primarily in the sphere of ensuring equal rights to all EU people irrespective of country of origin, nationality and religion."

It may help to translate it back in to Russia and then back in to english via a third language - Mongolian maybe.

And then of course there is the requirement to recognise that Russia has a different European past from the Europe it wishes to join economically.

"When speaking of common values, we should also respect the historical diversity of European civilisation. It would be useless and wrong to try to force artificial “standards” on each other."

Other than the english being truly horrible the translation is; let us develop our kleptocracy our way and we will laugh at your Chirac's, Spanish mayors and British paid for peerages.

Technorati Tags: Putin, Russia

Gas Decision Put Off until Next Month - Update

2006-11-23T12:36:00.000+03:00

My decision to stick my neck out has proven to be mostly correct; Gas Decision Put Off until Next Month. I could claim that I was completely correct however, the job of blogs like this is to try to explain the nuance that the MSM either cannot or will not.

The apparent decision not to progress with the deal which seems to have been worked out between GAZP, UES and Gref's MEDT Ministry is that the fundamental answers on energy balance between gas, coal and oil (mazut) going forward have not been worked out. It's a point which has some merit after the failure of the Energy 2020 policy. Adopted in mid/late 2003 it was already out of date by mid-2005. With the government forecasting a requirement for $60bn of annual investment in the gas industry (by GAZP) some clarity on the return on that investment is needed. Given the personal economic interests at stake it is hard to believe that some understanding has not been reached on future gas price liberalization.

UFG/Deutsche note in their morning comment that;

“the President requested the government to work out a consolidated position on whether to benchmark the domestic gas price in the long-term contracts against the international price.”

From other comments elsewhere there is a sense of basic economic misunderstanding from the Kremlin. VVP thinks that as much gas as possible should be exported west where it will earn $250/mcm. Yet the long-term price for gas in Europe, assuming $40-ish/bbl of oil is closer to $140/mcm. More importantly GAZP, UES and MEDT have been basing their forecasts on netback parity pricing (the price where it makes no difference whether you export gas or not.) I genuinely feel that this point has been missed somewhere out there.

Conspiracy theorists will wonder why VVP is so concerned that Russia should be shielded from international price movements. Is Russia seeking to corner the European energy market?

The main reason for the delay in the decision seems to me to have two interrelated causes. Firstly the good Tsar can't be seen to be hurting “his” people. Secondly with so much media coverage being provided by the main participants (who were clearly muzzled after yesterday's meeting) it will be difficult for the bad news to be buried. I reiterate my forecast that whatever decision will be, or has been, made will be made public in late-December.

Meanwhile, Mezhregiongaz held the first public trading session for gas. GAZP and Novatek both participated with the average price being around $60/mcm.

“The market was not very active today. It is probably because of the mild weather. The main buyers were utilities from near Moscow and farther down to the Urals”

Whilst it would be naiive to describe this as the open market it is at least an indication of real pricing. For specialist interests it is as yet unclear where the price is quoted. If delivered the real price increases are not as huge as they would seem upfront.

The contracts are for physical delivery.

[composed and posted with ecto]

Technorati Tags: Gas, GAZP, Putin, Russia, UES

Russian Banker Dead in Suspected Contract Killing

2006-11-22T20:16:00.001+03:00

The spelling of banker is correct. Dangerous business banking. Who would have thought that lending and borrowing money could be so hazardous to one's health; if a banker from Spetznatsroibank (sp?) actually borrowed or lent.

Russian banker dead in suspected contract killing

“MOSCOW, November 22 (RIA Novosti) - The killing of another Russian banker in Moscow, the third in a few months, is set to draw heightened attention to crime in the country's banking sector.

Prosecutors said Konstantin Meshcheryakov, co-owner of a small Moscow-based bank, Spetssetroibank, was shot dead late Tuesday outside his apartment building in northern Moscow. An unidentified gunman shot him in the back at point-blank range, and then in the head after the banker fell.

”Investigators are considering all possible motives, including those linked to the victim's professional activities,“ a spokesperson said.

Meshcheryakov is the third Russian banker to be killed in three months.

Alexander Plokhin, the director of a Moscow branch of Russia's state-owned foreign trade bank Vneshtorgbank was shot in the head on the staircase of his apartment building in mid-October.

Andrei Kozlov, first deputy chairman of the Central Bank of Russia who led the CBR's effort to close down dozens of banks for violations of banking legislation, particularly on money laundering, died in September after gunmen opened fire on him with semi-automatic weapons.

President Vladimir Putin earlier ordered officials to crack down on crime in the sector.

Contract killings in Russia were frequent in the 1990s as gangsters sought to take control of lucrative assets in various fields; however, the murder of the Central Bank's deputy head was the most high profile since that time.”

Technorati Tags: death, Russia

Russia's domestic gas price may double by 2010

2006-11-22T20:16:00.000+03:00

Another putative VVP energy meeting tomorrow (update its today now). Headlines started flying around pretty thick and fast. Most of which are meaningless with comment.

Russia's domestic gas price may double by 2010:
MOSCOW, November 21 (RIA Novosti) - Russia's wholesale gas price for domestic consumers could more than double in four years' time, a gas market regulator said Tuesday.

Which is about 50% slower than the market wants it to happen. Equally importantly GAZP is threatening to double transport tariffs over the same period. Which would be fair if it was not Gazprom benefitting.
Gas Output Up 2.5% y-o-y
But domestic gas consumption was up more;

“Domestic gas consumption rose 2.9% in first ten months to 313.8 bln cu m.”

Oil and gas condensate up 2.2% y-o-y

Just so the oil industry does not feel left out.

Russia Gas Output to rise to 860 bcm p.a. by 2015

Which is all well and good but forecasts at the beginning of the year had gas demand at 866 bcm by 2015. If there are readers with more time on their hands than me it would be interesting to know what tonnage of Russian coal, or fuel oil this would translate in to.

What I can tell you for free is that 6bcm is the equivalent of $720mn in revenue in 2015 (assuming the world still wants gas then.)

[composed and posted with ecto]

Technorati Tags: Energy, Gas, GAZP, Russia

Sticking My Neck Out

2006-11-21T10:28:00.000+03:00

The long-delayed government meeting on, inter alia, gas tariffs and energy policy is due to be held tomorrow.

A quick forecast which will may well come back to bite me early; the meeting will not be held tomorrow, if it is held tomorrow the results will not be made known until some point when we are all so drunk or otherwise celebrating that no one will really notice.

Expect an update tomorrow.

[composed and posted with ecto]

Technorati Tags: Gas, GAZP, Russia

Build It And They Will Come

2006-11-18T20:16:00.000+03:00

Moscow's traffic is becoming legendary. Yury Mikhailovich who has clearly never read a single traffic management article in his life has determined that the best way to deal with this is not to invest in more communal transport but to widen the roads.

All the theory says that if you build more roads the amount of traffic will increase until the weight of traffic reaches previous proportions and people start using the over-crowded metro again.

Apparently no one has thought of actually investing in traffic control management software and fining drivers for “blocking the box” nor for actually forcing cars to actually meet the regulated requirements. None of which makes as much money for YM and his lovely wife as building more roads.

I love the concept that something as complicated as Moscow's traffic management can be resolved in one week -

“The mayor gave the city's Transportation Department a week to set deadlines for the construction of such transit hubs.”

Luzhkov Weighs In on Traffic:

Moscow's mounting traffic problem took center stage at Tuesday's City Hall meeting, with Mayor Yury Luzhkov calling for widening roads leading out of the city.

The mayor's proposals are to be included in an updated plan for city development through 2025.

One way to reduce traffic, Luzhkov suggested, would be to deter people from outside the city from traveling into it. The mayor noted that many people travel to Moscow for shopping and entertainment they can't get in surrounding towns. Developing these areas would mitigate pressure on city roads.

The mayor called for an end to new office towers in the center of the city. And he said highways should be built above railway tracks.

City officials also discussed the creation of transit centers at key metro stations. The centers would make it easier for motorists and bus riders to transfer to the metro. The mayor gave the city's Transportation Department a week to set deadlines for the construction of such transit hubs.

Besides congestion, the new blueprint will focus on kindergartens and other “social” projects, said the city's chief architect, Alexander Kuzmin. More thermal and electricity facilities will be needed to meet the city's growing energy consumption, Kuzmin said.

[composed and posted with ecto]

Technorati Tags: moscow, Russia

Solving Moscow's Hotel Room Shortage

2006-11-18T20:03:00.000+03:00

Visitors, work or otherwise, coming to Moscow are a serious pain in the neck as finding a hotel room that does not cost several arms and legs is virtually impossible.

Snowquare.com reports below that the new Ritz-Carlton, replacing the Intourist is not going to change the world much. A superior room (I think that's a standard room to you and I, with a bed, shower and TV) will set you back a cool $940. Add a little NDS at 18% and that's $1,109 and 20 cents if you are still counting.

Clearly not a place for a short overnight stay.

Nice pictures though.

The new Intourist: Moscow's Ritz-Carlton hotel app...:
As the Hotel Rossiya goes down, Moscow's new Ritz-Carlton hotel on Tverskaya approaches completion.

The Ritz-Carlton (a brand of the Marriott group) is scheduled to open in March 2007. You can already book online: one night in a superior room costs RUB 23,000 (USD 940) and in a deluxe suite, a cool RUB 125,000 (USD 4,690).

The Ritz-Carlton takes the place of the legendary (for want of a better word) Hotel Intourist, which was demolished in 2002.

Seen from the same spot on Manezh Square, in the foreground, the National Hotel, with the Intourist in the background.

Photo: Wikipedia

and (on a less sunny day this weekend) with the Ritz-Carlton in the background.

Luxurious as the Ritz-Carlton - no doubt - will be, one can't help think of the building as a missed architectural opportunity, taking the form essentially of a concrete cube, coated in a veneer of bricks and mouldings inspired by the side facades of the next door Hotel National. So similar is the brick-work and detailing that if you paste photographs of the two buildings together, it's tough to see which is which.

(hint: the National's mouldings are more detailed, and the Ritz-Carlton's bricks look newer!)

[composed and posted with ecto]

Technorati Tags: Russia