Ruminations on Russia

Sistema Telecom includes MTS and UT Comstar.  Vedomosti reports that the branding has not gone down universally well (Russian only).

I would suggest that this is another case of mis-management or power management at Sistema over MTS and Comstar.  Power does not equal competence.

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Technorati Tags: management, Russia

A number of these type of headlines recently; Russian Talents Shine in IT Contests:

Moscow State University student Pyotr Mitrichev, 21, took the gold this month at a major programming competition in the United States. His prize was the latest in a string of victories by Russian programmers.

Googling Pyotr Mitrichev suggests that this is not his first go at this sort of thing.

However, quality of programming is a necessary but not sufficient condition for building entrepreneurial businesses that  can compete in global markets.

I am glad that VVP emphasized IP issues again.  As I have written a number of times the issue is not in the law as it is written, though it could do with some cleaning up.  The issue is implementation; either in the courts or in the perehods (underpasses) or at Gorbushka.  This only requires Government competence.

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Technorati Tags: Innovation, Russia, Technology

Two of the best i.e. returns significantly greater than the index, investors I have ever worked with in the tradeable market were 'flow of funds“ investors.  Which is why this paragraph from the Economist caught my interest:

Moreover, Mr Miller observes that the big slosh of liquidity circulating around the world is beginning to drain away. Interest rates have been steadily rising, and sectors that had experienced large price gains, such as housing and Middle Eastern equity markets, have cooled to a greater or lesser degree. Today, Mr Miller says, the common thread among the most popular asset classes, including commodities, emerging markets and smaller stocks, is a lack of liquidity. In a world where central banks are draining liquidity, Mr Miller argues, ”relatively illiquid assets are likely to begin to lose their allure. Liquidity will become more valuable.“

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Technorati Tags: Commodities, Emerging Markets, investing

The New Yorker's (small hint as to my politics) David Remnick (who knows a little about Russia) writes amusingly about Turkmenbashi - the leader of all Turkmen's.  (Or was that David Remnick's New Yorker?) And there is plenty to be amusing about.

My first investing success came from a company whose principal asset was, and is, based in Turkmenistan.  (oh the hours camped outside minister's offices, plof and my first introduction to Armenian Brandy - see Churchill was a genius.) I bumped in to the CEO (F. O' Blarneystone) on a flight to Moscow recently and asked if life had got worse.  His take was that for most it was a lot better.  Which when you are starting from close to zero is not hard - a mathematician would suggest that it is infinitely better.

When you compare this with the horror stories that the author of this FT story tells about Kazakhstan (better offline than on) maybe not all that bad.  Dick “Duck Hunter” Cheney, who according to my del.icio.us feed on Russia, said some bad things about Russia, but not about Kazakhstan, seems to think that Turkmens and Russians are bad and Kazakhs and (boil me) Uzbeks are OK.

Can we please have some intelligence for a global foreign policy?

It is a beautiful country - I love the mountains rising to the Iranian border and the beauty of the “Persians.”

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Technorati Tags: Energy, Gas, Turkmenistan, Russia

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Technorati Tags: Energy, Oil, Transneft, Rosneft

Jerome a Paris, one of the most knowledgeable writers on Russian/FSU gas issues and Peak Oil writes this story The Day of the Oslo Warning.

Read and smile and then worry.

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Technorati Tags: Energy, Gas, Oil, Oslo

Lifted straight from Konstantin's Russia Blog.  Good point well made.  Does the current Energy Spat fit the bill?

Demonizing Russia:
I couldn't help but post this comment made by Patrick Armstrong, analyst for the Canadian government, from Untimely Thoughts (Peter Lavelle's project).

There's always a standing bill of indictment against Russia, although the details continually change. In 2001 the Washington Post warned that Russia would default on debt repayments; the Kursk sinking prompted reflections on the “callous disregard for human life” of Russia's leadership (Knight 2000); in 1997 Kissinger was complaining about Russia's “refusal” to demarcate its borders; no Russian leader had ever left power voluntarily and neither would Yeltsin, warned Stephen Cohen in 1994. Most charges prove ephemeral or false - nuclear tests in Nova Zemlya, the Security Council as the “new Politburo”, war over the Black Sea Fleet - but others come up again and again. Some charges have validity. The war in Chechnya was certainly very brutal. Putin has centralized power and tightened control over the media. But, when these charges appear on the bill of indictment, they appear without context. The Russian army is brutal in Chechnya not necessarily because it wants to be, but because bad armies are brutal. And, despite “fabricated rumors of a Chechen-al Qaeda nexus” (Washington Times, 2002), we know better. Nor do we hear as much about “unresolved” (Guardian, 2000) apartment bombings when there have been so many jihadist bombings of nightclubs, railway stations, tourist resorts and mosques. Putin is centralising because he (and, be it clear, most Russians) agree that the 1990s were frighteningly chaotic. A centralised media is not desirable but neither was the media of the oligarch wars. Too many governors were the pawns of local hoods. Putin does have reasons, good or bad, for what he does: saying “tight-lipped 47-year-old KGB staffer” (Guardian, 2000) or “Andropov redux” (Gaffney, 2000) is not an explanation. When Brzezinski last year stormed that Moscow refused to repudiate the Hitler-Stalin pact, it wasn't just “nostalgic efforts by Vladimir Putin to restore Moscow's control”: no country will assume responsibility for historical malfeasance when it knows the next step will be reparations claims.

While charging Putin with bringing back the “Soviet anthem” (Wall Street Journal, 2000), the fact that all the other state symbols were lifted straight from the Tsars was not mentioned. This is not argument, it is advocacy. The essence of the charge sheet style is that the conclusion determines the evidence. Take the everlasting assertion that Russia is naturally imperialist: this is the oldest of the charges - experts “knew” that Gorbachev would never leave Germany - and as time moves on, the accusation remains. The format is the same: Russia's so-called nostalgia for empire is asserted (Jonathon Eyal in 1993, Pipes in 1994 and 1998, George Tenet in 1997, Paul Goble 2000) and examples are filled in as needed: “democratic Georgia” today, the Baltics yesterday, Germany the day before. As the troops leave one country, another place is found to prove the point. The “energy weapon” is deployed against contumacious neighbors like Ukraine (but be careful not to mention that Gazprom is raising the price for “friends” like Armenia and Belarus, too). The charge predates Putin ЁC in 1993 The Economist decided that Georgia's independence had been already snuffed out and the energy wars have been going on since 1991.

Rarely, however, is it pointed out that Russia's neighbors are more independent each year and that Russian troops are leaving them too. Or that while Ukraine needs Russian energy, Russia needs Ukrainian pipelines to move its gas to those who actually pay for it. The boot here is actually on both feet. “Imperialist Russia”, it is clear, is a premise, not a conclusion. The repetitive bills of indictment have a cumulative effect - people forget the alarums that never came to pass but remember the underlying message that Russia is a menace. Why try to take an objective look at the whole of Russian reality when “traditional Russian imperialism” (Kissinger, 1997) is all you need to know? A great deal of opinion in the USA and the West has been shaped by the continual drum roll of warnings, accusations and indictments. Eventually the message gets stuck in: Russia is an enemy.

Putin hires a Western PR company to help improving Russia's image in the world. Absolutely hopeless. I think it's better to forget about “image problems” and go our own way. Собака лает - караван идет.

[composed and posted with ecto]

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Technorati Tags: Russia

Lifted straight from Konstantin's Russia Blog.  Good point well made.  Does the current Energy Spat fit the bill?

Demonizing Russia:
I couldn't help but post this comment made by Patrick Armstrong, analyst for the Canadian government, from Untimely Thoughts (Peter Lavelle's project).

There's always a standing bill of indictment against Russia, although the details continually change. In 2001 the Washington Post warned that Russia would default on debt repayments; the Kursk sinking prompted reflections on the “callous disregard for human life” of Russia's leadership (Knight 2000); in 1997 Kissinger was complaining about Russia's “refusal” to demarcate its borders; no Russian leader had ever left power voluntarily and neither would Yeltsin, warned Stephen Cohen in 1994. Most charges prove ephemeral or false - nuclear tests in Nova Zemlya, the Security Council as the “new Politburo”, war over the Black Sea Fleet - but others come up again and again. Some charges have validity. The war in Chechnya was certainly very brutal. Putin has centralized power and tightened control over the media. But, when these charges appear on the bill of indictment, they appear without context. The Russian army is brutal in Chechnya not necessarily because it wants to be, but because bad armies are brutal. And, despite “fabricated rumors of a Chechen-al Qaeda nexus” (Washington Times, 2002), we know better. Nor do we hear as much about “unresolved” (Guardian, 2000) apartment bombings when there have been so many jihadist bombings of nightclubs, railway stations, tourist resorts and mosques. Putin is centralising because he (and, be it clear, most Russians) agree that the 1990s were frighteningly chaotic. A centralised media is not desirable but neither was the media of the oligarch wars. Too many governors were the pawns of local hoods. Putin does have reasons, good or bad, for what he does: saying “tight-lipped 47-year-old KGB staffer” (Guardian, 2000) or “Andropov redux” (Gaffney, 2000) is not an explanation. When Brzezinski last year stormed that Moscow refused to repudiate the Hitler-Stalin pact, it wasn't just “nostalgic efforts by Vladimir Putin to restore Moscow's control”: no country will assume responsibility for historical malfeasance when it knows the next step will be reparations claims.

While charging Putin with bringing back the “Soviet anthem” (Wall Street Journal, 2000), the fact that all the other state symbols were lifted straight from the Tsars was not mentioned. This is not argument, it is advocacy. The essence of the charge sheet style is that the conclusion determines the evidence. Take the everlasting assertion that Russia is naturally imperialist: this is the oldest of the charges - experts “knew” that Gorbachev would never leave Germany - and as time moves on, the accusation remains. The format is the same: Russia's so-called nostalgia for empire is asserted (Jonathon Eyal in 1993, Pipes in 1994 and 1998, George Tenet in 1997, Paul Goble 2000) and examples are filled in as needed: “democratic Georgia” today, the Baltics yesterday, Germany the day before. As the troops leave one country, another place is found to prove the point. The “energy weapon” is deployed against contumacious neighbors like Ukraine (but be careful not to mention that Gazprom is raising the price for “friends” like Armenia and Belarus, too). The charge predates Putin ЁC in 1993 The Economist decided that Georgia's independence had been already snuffed out and the energy wars have been going on since 1991.

Rarely, however, is it pointed out that Russia's neighbors are more independent each year and that Russian troops are leaving them too. Or that while Ukraine needs Russian energy, Russia needs Ukrainian pipelines to move its gas to those who actually pay for it. The boot here is actually on both feet. “Imperialist Russia”, it is clear, is a premise, not a conclusion. The repetitive bills of indictment have a cumulative effect - people forget the alarums that never came to pass but remember the underlying message that Russia is a menace. Why try to take an objective look at the whole of Russian reality when “traditional Russian imperialism” (Kissinger, 1997) is all you need to know? A great deal of opinion in the USA and the West has been shaped by the continual drum roll of warnings, accusations and indictments. Eventually the message gets stuck in: Russia is an enemy.

Putin hires a Western PR company to help improving Russia's image in the world. Absolutely hopeless. I think it's better to forget about “image problems” and go our own way. Собака лает - караван идет.

[composed and posted with ecto]

The Russia Blog writes well and logically but has a nasty habit of using somewhat specious arguments (definitions 2 & 3) to make arguments with which I otherwise agree.  I take particular exception to the paragraph quoted below the picture of VVP.

Popular and largest; Echo Moskvy (EM) is popular and RenTV is the largest - these, unfortunately for their owners, are not measures of audience reach or market share.

Recent numbers for leading top 10 Russian radio stations by audience share by market (i.e. city) and for the whole of Russia sees EM creep in at the bottom of the Moscow list and does not feature on the whole Russia list.

RenTV may well have the largest coverage, though I doubt that its technical reach is greater than Channels 1 & 2.  As for all Russia audience share -  5th.  Which in the current Russian market is nowhere - break even at best.

Finally, the report accepts that the government controls all broadcast media in Russia almost as a given.  We have written on this topic in-depth recently at Russia Blog, showing that some of the most popular state-owned media outlets like Echo Moscow Radio have frequently criticized the Kremlin, especially about the war in Chechnya.  The information we presented also undercuts the report's claim that, “TV stations, now all controlled by the Kremlin or government associates, are also subject to very strict censorship.”  The largest TV network in Russia, REN-TV, is privately owned and consists of 406 commercial TV-stations in Russia and the CIS, reaching an audience of 113 million people (the CIA World Factbook pegs Russia’s population this year at 142 million).

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ecto

]

Technorati Tags: puppy, Russia

A counterweight to MSM rubbish

Gazprom alarm 'absolute nonsense' - Bernotat:
The head of German utility heavyweight E.ON, Wulf Bernotat, has described the recent furor over Gazprom's apparent threat to divert supplies away from Europe as 'absolute nonsense' in an interview.

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Technorati Tags: Energy, Gas, GAZP, Russia

I've added a subscribe via email function for those of you who don't like, are barred from using aggregators or just like Outlook.

Courtesy of Feedburner.

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Technorati Tags: blog, Feedburner

The two authors from this piece from the Energy Tribune are ex-Yukos executives, so you can hardly expect a glowing review of Russian energy policy.

They make some interesting points;

Russian oil well efficiency runs at 50% of global averages - 14% vs 25%
Export net backs after tax are $6 vs domestic $22
Domestic demand is flat to negative due to efficiency savings - need more research here
Opex rising very very fast! No surprises here

In short, plenty of oil in the ground and they claim plenty of capacity in the pipeline (500,000 bbl/day).  But tax disincentives for export and a state take that is not encouraging capex investment.

And then to the part I don't understand.  They claim that there is plenty of spare capacity in the Transneft pipelines but that due to mismanagement and inefficiencies (same thing surely) that the fastest rising cost element is transportation.

First is the cost of oil transport. Due to the limitations and inefficiencies of the Transneft export system, almost all of the incremental exports since 2001 have been by “combined routes” rather than the Transneft system. The “combined routes” are mostly rail but also include tank cars, barges, pipeline spurs, etc. The cost of the “combine routes” scheme has risen rapidly and is expected to continue to rise at an even faster pace. There is no efficient transport infrastructure for further incremental production. Building a new efficient infrastructure would require a massive investment by the Russian oil companies when cash flows are already under heavy pressure from increasing cost and the current tax regime.

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Technorati Tags: Energy, Oil, Russia

Vassily Sidorov's departure is old news; the lesson has not been widely disseminated.

Sources suggest that MTS management could not manage their way out of a damp paper bag.  Vassily Sidorov of MTS paid the price for getting lost.  It will take a lot more than changing the man at the top to change MTS' direction.  It's management have grown up in a vertical (and heavily politicized) management structure.  Every decision required the CEO's input; whether he was qualified to comment or not.

Changing the environment is as important as adjusting to an ex-growth (in a Russian sense) business.  I doubt that Sidorov's replacement is a change of style;

Further increase in the value of the company is possible through efficiency and reorganization. Sistema will probably hire another manager at MTS for that, a strict administrator.“ A source said of Melamed that ”with him, everyone goes to the bathroom according to schedule and strictly according to instructions.“

It will be interesting to see if the vertical, control-oriented style of ”Russian“ management will work in low(er) growth markets.  My take is that it won't.  Vertical never works and slows decision making to a crawl.  If the British Army has worked it out then how far behind will major Russian businesses be?

po smotrem

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Technorati Tags: management, Russia, Telecom

The caveat emptor issue;

Last week's papers were full of Rosneft and GAZP stories.  Most, including a large portion of Soros' op ed  in the FT, were gash.  Rosneft's IPO has nothing to do with energy security - whether F&C participates in the IPO will have little to do Russia's energy policy.  I also have little issue with investors buying in to a company whose largest producing asset was procured from somewhere else.  After all investors swallowed their concerns once before over a company called Yuganskneftegas - anyone remember a guy called Kenneth Dart?  Investors believe that ethics is a county to the east of London (it's a bad British joke) - at least while the stock is appreciating.  As the leader from the UK's Sunday Times points out greed will overcome fear.  The Russian government knows and understands greed and the cynicism that is required to hold your nose and invest other peoples money.

The real issue is what is an investor buying?  I posted on this previously and nothing that has happened or will happen in the near future will change my mind.  The only impact buyers of Rosneft shares (I can't bring myself to calling them investors) can have on Rosneft's management will be selling or lending the stock to be shorted.  Which will coincide with a drop in the price of oil (and gas) and will not be immediately attributable to management.  So buy if it makes financial sense - just have some shame when the beast turns round and bites you.

I think that this post from Seeking Alpha pretty much sums up how non-Russia related investors view Rosneft.  They may be wrong but don't argue against flow of funds.

Russian Oil: Yukos and Rosneft (YUKOY):

Roger Nusbaum submits: In a big picture sense, oil from Russia is important because there is a lot of it in the ground and in the next few years it looks as though there will be more of that oil being processed and put onto the market for consumption.

That is the simple part. The rest is where it gets progressively more complicated.

Regardless of your opinion about the entire Yukos/Khodorkovsky affair, I have never heard any dispute that Khodorkovsky was told, as were all the oligarchs, to stay out of politics and he did not. I am in no way opining as to whether he should or should not have made comments or anything else and it is possible that what I say is not in dispute is in fact in dispute. I am just trying to relay the facts as I understand them, and I may have facts about Khodorkovsky incorrect but I have seen and read enough coverage that I think I this right.

The fallout of the Khodorkovsky affair was that Yukos was shut down and the assets were later put up for auction. Again, there was politics and controversy surrounding the manner in which this occurred and I don’t want to turn this post into a debate of the politics of it.

The emerging company from all of this with the old Yukos assets is Rosneft. Rosneft is going to have an IPO and July is a possible date for the listing, which is likely to be on the London Stock Exchange. I would like to learn more than what little I know now, but I am interested in the company.

Some of the numbers, if true, are compelling. Earnings in 2005 were $3.9 billion vs $0.8 billion 2004. Revenue was $23.9 billion vs $5.3 billion in 2004. In 2005 the company reduced its debt by $1.7 billion down to $10.9 billion.

I would not get too excited about the growth built into those numbers because the old Yukos’ operations were severely hampered in 2004 and so the company did not do a lot that year.

Some other fun facts about Rosneft include, among Russian companies, it is 2nd in gas production, 8th in oil production, 7th in reserves, and first for oil refining capacity. With the IPO, the company plans to sell 1/3 of the company for about $20 billion. As the company is now state owned, I presume the 2/3rds not sold will be held by the government and possibly sold later.

A lot of people assign a risk to Russian shares because of the Yukos affair. While I certainly cannot say it won’t happen again I think it makes sense to believe that the Russian government does not want it to happen again. A second company being dismantled would probably cause a huge flight of foreign capital, much worse than Yukos. The country, I believe, wants to be a capitalist country with foreign investment.

It’s fair to say they are still learning about capitalism, but anything they do that jeopardizes foreign investment into the country is counter to their own interests. And it is worth pointing out that there are plenty of Russian companies traded on foreign exchanges in the US and in Europe.

Russia wants to be more important in the world economy — not less. Between now and the listing date there will be a lot more to read about Rosneft before making any kind of decision.

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Technorati Tags: Energy, Gas, Rosneft, Russia

Returning from the UK on a much delayed BA flight, busy transferring printing ink from the FT to my fingers I discover that “Ruminations” has been quoted by the FT in its regular Monday coverage of the blogosphere.  The quotation came from Russian Energy Policy 2.0.  It would appear that the section does not appear online.

The first realization is that I might want to make greater use of a grammar checker....

Being outed is genuinely not a good thing.

Sunday's newspapers were full of Rosneft and Clara Furse's letter to Putin on behalf of Bill Browder (as a lobbying effort it was a mistake.)  I have no desire to lift my head above the parapet, again, and turned down a request for comment to the FT recently on that basis.  This blog makes me no money, gains me no friends, influences no one and adds nothing to my personal wealth.  It would interfere with my day job, if I had one.......

This blog came about because of my interest in the medium and its role in the future of media and the technology industry.  Over time I have found that it is a very useful way to clarify my thinking and poke fun at Russia and the misconceptions about it.  My regular (i.e. return) readership is very small; I either knew you personally already, which is why you are reading this, or have a virtual relationship with you as a result of my meanderings.

My next “big thing” will once again cause my head to be lifted above the parapet.  My initial reaction was to close Ruminations down, but I'll keep it bubbling along - because life is too short.

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Technorati Tags: blog, Russia

I'm glad he did the right thing.  Free trade is like pregnancy - it can't be partial.

For those who questioned the British Government's desire to block GAZP you may note that it took somewhere between 3 months and 2 weeks to come to this decision.  Compare that with the time it took to liberalize trading in GAZP shares.

Blair rules out blocking Gazprom Centrica bid:
Tony Blair has ruled out any possibility that UK ministers might actively seek to block a future bid by Russia's Gazprom for Centrica, the gas supplier.

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An attempt to spread the good word from the guys at the Oil Drum (a must read resource on oil and gas in general.  In this case everyone should read their response to the political grandstanding by US politicians.  The press release is  here.

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Technorati Tags: Energy, Gas, Oil

The Eurasia Monitor provides a US-centric view of the issues I covered in my Part 2.0 post yesterday EUROPE CALLS GAZPROM'S BLUFF AND PONDERS ITS THREAT.

Some good points mixed with the usual references to the 2008 Issue.  The good is that Russia exports 45% of its gas to Europe.

The bad is that Russia needs Europe more than Europe needs Russia.  An energy supply issue that recent events would tend to disprove.

The questionable relates the speculation regarding VVP's future after 2008.  Assuming that he does not stay as President or Prime Minister or something else (a safe -ish assumption) the big gossip is that he intends to take on GAZP.  Quite how the current supply spats feature in this scenario is not made clear.

Meanwhile the oil boys are feeling left out and called their own press conference to announce that Europe had enough oil - don't be misled by the headline.  Transneft pipes oil not gas: Transneft warns of cut in Europe’s gas supplies

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Technorati Tags: Energy, Gas, Oil, Russia

It looks as though that the brief cup of coffee and lunch overran its allotted time.  So instead of a mid-afternoon blogfest this post is competing with a terrible Steve Martin film (aren't they all?) from Moscow to Heathrow courtesy of British Airways.

This is Russian Energy policy 2 because I am not yet ready for a bout of Rosneft caveat emptor cynicism.  Instead I am trying to find a place for a comment from Thomas Friedman's The World is Flat (no link because BA is Internet-less, though apparently Google is a good place to search and there is this company called Amazon that specializes in allowing you to order online and will deliver it to you in anywhere between a week and never.)  Despite winning the Goldman Sachs / FT Business Book of the Year it took 452 pages to find a truly original thought.  As a blogger smarter than I put it (clearly paraphrasing) - sometime around 2010 we should wait for the Friedman book telling us that the iPod is revolutionizing the music download world.  (note to self - get to the point) So this is the Centrica and GAZP post.

And his point was that there have never been wars between two countries that are part of a global supply chain.  A slight update on his previous books; there have never been wars between two countries which have McDonald's - presumably because everyone is suffering from indigestion.  Whilst Dell's just-in-time, albeit slightly longer than promised, supply chain may have a lot going for it, peace in our time was not a deliberate policy.

You can decide whether there is any merit in Dell as a global peace keeper.  The other side of the coin is that natural resource-based economies (pace Australia) tend not to be integral parts of the global services and lowest cost production supply chain.    Try Saudi Arabia and Kuwait for starters.  Because services can be moved quickly and outsourced production tends to have redundancy built in they are commodities - whereas natural resources are Commodities (some confusion here surely - ed?)

Before the argument becomes entirely circuitous as I try to argue that services are commodities and Commodities aren't commodities (at this point in the cycle) I'll try to get to the point about Russia.  When a large enough portion of a countries exports are service-based or lowest-cost-production commodities which can (relatively) easily be moved somewhere else in the globe its foreign policy is required to show that it is reliable partner.  If however, you believe (see Russia's Energy Policy Part 3 - if I ever get there)  that the world is dependent on your oil/gas/LNG/general largesse then you have no (immediate?) requirement to be a “friendly” part of the global supply chain.

The point that Friedman was making was specifically aimed at the Saudia Arabia's and Venezuela's of this world.  What I cannot decide is whether Russia's foreign policy is inside or outside the Friedman global supply chain - and indeed whether it matters.  If your point of view was exclusively guided by the FT and WSJ the answer would be that Russia was not acting like a good member of the interconnected world.  A more evidential based response would be that Russia tends to talk like the playground bully (Gazprom issues threat to EU gas supply) and act in a considerably more logical fashion - I think.

Nonetheless being the largest owner of a resource which is proving harder to discover  and more expensive to produce otherwise known as a Commodity, Russia's foreign policy does not have to be driven by its desire to see itself as part of a flat world.  And if that is the case will Russia see itself as integrated when it owns Centrica and Ruhrgas? Or are they Sword of Damocles investments?

I have argued during the Ukraine issue previously, and continue to believe, that Russia has every right to use its gas as an arm of its foreign policy.  As the FT has it:

“Russia is intent on using its existing and potential position as a major energy supplier to the global economy to get increased influence at the top table of global politics,”

and there is nothing wrong with that.  The nastier side is that

“Russia's use of its energy resources is unpredictable. The dominance of state monopoly in the gas sector means that reserves from the ground do not reach the market place and that gas can be used as a political weapon.”

Europe would rather that Russia signed up to long-term contracts and access to it's pipelines and hopes that by offering access to its retail markets Russia will play ball.  Russia sees no reason to do so because its guess is that Europe has nowhere else to go for 10-15 years.

Europe wants to diversify both the sources and routes of its energy supplies. It is pushing Russia to ratify the energy charter treaty, which provides for liberalising access to pipelines and stops countries from unilaterally suspending gas supplies in a pricing dispute. It has signalled it would let Russian companies operate in European retail markets in return..........

Russia understands the energy co-operation with Europe differently.

Having witnessed the destruction of Yukos in favour of Rosneft and with the knowledge that GAZP acts in favour of its managers, its government minders, the State and somewhere down the bottom of the list its shareholders and customers there are

legitimate concerns about allowing the purchase of assets by the state-owned entities of authoritarian regimes, particularly those with a track record of abusing private property rights. But the problem also has a tactical dimension. It might be better to tie Gazprom in to supplying the UK by allowing it to buy Centrica’s assets, which are largely customer contracts and hardly strategic. This argument might be even stronger if, in return, access could be gained to help develop Russia’s gas fields.

One further note of caution in this discussion; Friedman's flat world foreign policy may actually mean being a good member of the US foreign policy establishment which allows India to develop nuclear weapons; whilst Iran is at risk of being overrun by Rumsfeld's shock and awe tactics.

[composed and posted with ecto]

Technorati Tags: Energy, Gas, Russia

I have been promising myself to write a mega post on Russian Energy Policy.  I keep getting put off by the complexity of the subject, the diversity of views and by the different threads that make up Russian energy.  To get around the issue I have decided to break the subject down in to a number of different posts.

The first is the easiest to write (which is why I am writing it first) and is a continuation of the caveat emptor series on the Rosneft IPO.

The second is a series of thoughts on the legitimacy of GAZP, a Government controlled vehicle which is explicitly an arm of Russia foreign policy, bidding for Centrica.  Cynics (which includes me) might question who controls whom which makes the question more relevant.  Inherent in the central question is the legitimacy of using GAZP's commercial activity as a foreign policy lever.

The third of the three posts is more nebulous and the subject somewhat harder to tie down.  In essence it questions whether Russian policy is based on reality, or a fiction that is fed from professional managers to 5th Directorate thugs.  The risk is that I will head off in to Peak Oil discussions where I am not competent to comment - not that it has stopped me in the past.

So with that as my essay plan for this afternoon its time to do what all good students do when faced with a long essay to write.  Make a cup of coffee, some lunch and read a bunch of unrelated information.

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Technorati Tags: Gas, Oil, Energy, Rosneft, Russia

The FT has a lengthy piece today on the Alfa vs Reiman dispute. (Subscription required)


To be fair to the FT they paint it as a dispute between Alfa and the ever so slightly forgetful and not very good lawyer, Jeffrey Galmond. You can get more juice from following the Bermuda papers (all online) as this FT piece sits on the fence a little.

Like many of us they ask why Alfa feels that it can get away with an assault on Leonid D who is supposed to be one of Putin's inner circle. Well-connected friends tell me that Alfa's friends in the Kremlin are as powerful as Leonid D's and share a past working relationship with VVP.

Whatever the truth this appears to be entering its final set (?).

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Technorati Tags: Corruption, Reiman vs Alfa, Russia

The Russian IT Blog notes that:

MSN Opens in Russia:
More of grMSN Opens in Russia
eat signs of healthy growth in Russian Internet Sector: finally, Microsoft decides to open an MSN Division here, in Russia. It was announced that a local manager - Vsevolod Leonov, is appointed to lead the freshly built entity. Hi is responsible for strategic developments of MSN in Russia, including marketing activities.

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Technorati Tags: Advertising, GOOG, MSN, Russia

More from the why am I reading about non-Russia stuff on Ruminations on Russia.

Om Malik makes the same conclusions as we are noting anecdotally here and in Belarus as well.  Speed sells.  At the right price obviously.  Customers seem to have a set amount of cash for the Internet, $20-ish) and will upgrade to higher speeds as prices are reduced.

For BellSouth, Faster Is Better:
For second consecutive quarter BellSouth defied the industry trend of bargain DSL connections, adding more premium DSL subscribers than ever before. The company added 263,000 new DSL lines, of which a whopping 80% opted for the two highest speed (3 Mbps and 6 Mbps) offerings. As a result the DSL margins improved, theorize the analysts from UBS. At the end of the first quarter 2006, they had about 3.1 million broadband subscribers. Cynthia has the full lowdown on the earnings.
It is increasingly obvious that the Bells should stop fooling around with television and instead focus on selling bandwidth… a lot of it, for a premium price and make their numbers accordingly. It is a trend that is spreading across the world, and it should be the best defense against the cable companies. The problem is that instead of getting faster pipes rolled out, the phone companies are mucking around with television stuff, which is harder and more expensive, giving cable companies a chance to pick-up voice customers.

This will have a more significant impact on networks which are inherently speed constrained (ADSL, wireless and to a lesser extent HFC (hybrid fiber coax).  Whereas the bigger and stupider the pipe the easier it is to provide speed, in both directions.

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Technorati Tags: Broadband, Cable, Russia

It's been a while since I have posted - it's not that I have been busy - I haven't.  I do have one hell of a Russian gas post up my sleeve.  Unfortunately the more I learn the more I need to learn so its taking a while.  In the meantime I have been lite on dishing out unfair comment.  So whilst the gas post bubbles away here are some more technology thoughts;

Skype Acquires Sonorit and Camino Networks (Business Wire)  On the face of it not a hugely Russia-related comment so stick with it and I'll explain.  Skype, now gently failing under the aegis of e-Bay, was founded/developed/dreamed up in Estonia.  Estonia definitely prefers the F part of the FSU and Niklaas has more in common with the Swedes to the north than the Slavs to the East.

Sonorit and Camino are personal spin-offs from GIPS. That is a couple of developers from GIPS walked out and started Sonorit and Camino - which are in fact the same company just separated at birth.  GIPS is one of those companies which plays a substantial role in our on-line life but avoids ever entering our consciousness. It is in fact the engine that provides better than PSTN voice quality on Skype, GTalk and Yahoo!  Impressive for a company nominally listed on the Norwegian Borse.

And its link to Russia is.........

There is a Russian equivalent to both GIPS and Sonorit/Camino which gos by the name of SpiritDSP. With half a marketing brain it would today be an industry leader instead of being left behind in the battle to run voice on non-telephone telephones.

Shame

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Technorati Tags: Russia, Skype, Technology, VoIP

Is this the Lex Column's equivalent of the Economist's $5/bbl oil or a prescient warning of froth.  Although I worry in a very frothy Russia that its increasingly difficult to distinguish the head from the alcohol (if the analogy has not become too twisted..)

Lex: Commodities:
Record high prices combined with a strong bullish consensus are the hallmarks of a speculative bubble and should give commodities investors pause for thought. It may be too early to place bearish bets, but fund demand and political turmoil cannot indefinitely obscure the cyclical nature of commodity markets.

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Technorati Tags: Gas, Oil, Commodities, Russia

We are expecting an announcement any day that Google has overcome its localization issues in Russia and will take on the current leading three (Yandex, Rambler and Mail.ru.)  Assuming that they can overcome their own management disfunctionality they should blow them out of the water.  Russia's Internet development has gone nowhere over the past few years - maybe as a result of financial pressure.

Google acquires Dulance, opens R&D in Russia:

Google has announced that it is going to open a research and development centre in Moscow this year. Sergei Burkov, a former CEO of Dulance, an Internet search company, will run the centre. According to sources, Google has acquired Dulance.

Also in Vedomosti:

Google ищет таланты - Компания открывает в Москве центр разработок:
Крупнейшая в мире интернет-компания Google откроет в Москве центр разработок. Его возглавит Сергей Бурков, ранее успевший создать три инновационные IT-компании в США. Эксперты считают, что московский офис займется разработками для глобального рынка, а не локализацией продуктов Google для России.

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Technorati Tags: Internet, Russia

April 1 passed mostly unnoticed, except for the hacking cough and miserable headache.  April 3rd however has been a fucking disaster:

Firstly TiddlyWiki v.2.0.7 stopped working on Firefox 1.5.0.1 which is hardly a surprise because the small Dutch boy had long ago taken his finger out of the memory-leak dyke, she of the comfortable shoes.  I virtually live in my TiddlyWiki which is an invention from heaven by Jeremy.  No worries it's still OK in Safari.
Then in creating an online portfolio of Russian E&P companies I discovered that the live feed is only supported in Safari - OK no worries.  I mean if you 12 apps open a 13th is not going to matter.

And then the straw that broke the camel's back - or the bug that caused the cough; Ecto the oh so cool blogging tool stopped posting to my Blogger account.  As an ex-M$ft user I tried the log-off/restart approach - failed.  And then went on a trail of the /dev sites.  It's a GOOG thing.  Adriaan is also the brain(S)(?) bbehind the oh so cool Endo aggregator

Not that you will know until they have fixed the bug as I am still writing c/o of Ecto - it's a habit thing - and I will have to wait for the bug to be fixed before ex-Chancellor Schroeder and Minister Reiman can be further eviscerated.

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Technorati Tags: Endo, Ecto, GOOG, Twiki

The ever reliable Royal Gazette, clearly the first stop on my mornings reading, has some additional tidbits to tide you over in the penultimate set of L.D. vs Alfa.

Once again the ever unreliable Jeff Galmond seems to be setting up his boss for a fall.  The news from the sunshine is that IPOC might have been a little unclear in its accounting policies (not ever expecting accountants to account).

It would appear that journalists in the middle of the ocean have little to do so they actually provide details (in lieu of facts).  Here are some for your mid-week entertainment;

For example, the Ernst & Young report shows IPOC claimed its company Lapal Ltd. had been loaned $550,000 by a Connecticut-based company called Castle Ventures Ltd. But in its submission, the alleged lender claimed to know nothing about it.
A letter from Castle Ventures' attorneys stated: “. . . there have been no business dealings between Castle Ventures or (company owners) the Hedges and Lapal Limited. There are no records of any loan transactions between Castle Ventures and Lapal Limited. Further, Castle Ventures is not in the business of providing loans.”
Another IPOC group company, Albany Invest Ltd., claimed it had been paid $803,901 in two separate payments by UK company Advanta Corporation Ltd. But court papers showed that Advanta had never even traded at the time of the alleged transaction.
Yet another anomaly is the $250,000 that the accountants' report said was paid to IPOC company Lapal Ltd. by Netmax for consultancy services.
Netmax proved not to be a company at all, but instead a brand for a completely different firm, Cybernet Systems Corporation.
Cybernet's written response to the alleged transaction included: “Netmax is a product line owned by Cybernet Systems Corporation.
”As such, we are in a position to confirm that Netmax did not enter into any such agreement with Lapal Limited, nor did it pay any monies to Lapal, whether the sum of $250,000 or any other amount. In fact, Netmax has had no dealings with Lapal or IPOC International Growth Fund Limited.“
Odder still, Lapal claimed it had been paid $2.04 million by Lemex Company for ”consulting services: structuring a transaction involving a merger of two banks“.
The courts documents show evidence that Lemex is a Hungarian kitchen outfitter. Also included were printed-off web pages from the web site of the Lemex Industrial Group, which is a US supplier of lathes designed for the aeronautics industry.

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Technorati Tags: Reiman vs Alfa, Russia, Telecom

From my favourite irreverent financial website - Long or Short Capital.

Quotes Entirely Relevant to Investing:

That some should be rich shows that others may become rich, and hence is just encouragement to industry and enterprise. Let not him who is houseless pull down the house of another; but let him labor diligently and build one for himself, thus by example assuring that his own shall be safe from violence when built.
-Abraham Lincoln

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Technorati Tags: Russia

More, and worse, from our favorite collector of brown paper bags.  Seems that he was unaware that his government, whilst he was Chancellor, agreed to provide political and economic risk insurance to a $1bn German bank loan to the Pipeline.

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Technorati Tags: Corruption, Gas, Russia