Ruminations on Russia

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

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.

• Read more articles  by  Kurt Wulff
• Read more on the symbols OGZPY.PK,  RDS.A
• Subscribe to email alerts about OGZPY.PK, RDS.A and Energy Stocks Read more on the themes Natural Gas,  Long Ideas,  Oil Price

Technorati Tags: GAZP, Russia

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.

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

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

looks like a duck, quacks like a duck

and its Gazprom - then its not a monopoly.

Technorati Tags: Gas, GAZP, Russia

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

The Oil Drum | Using NATO to fight peak gas

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

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

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

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.

Cuts to the heart of the matter;

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]

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

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

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

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."

"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

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

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.

“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

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.”

[composed and posted with ecto]

Technorati Tags: Energy, Gas, GAZP, Russia

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

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.”

[composed and posted with ecto]

Technorati Tags: moscow, Russia

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

Russian oil fund chief shot dead:

This turned in to the parentheses post.  But its too late to re-write and there are more important things to do.

I have it on reasonably good authority that our the victim had not been shy about handing it out .  In a (failed deal) when asked if he had any “skeletons in the closet” he (apocryphally) replied that he would never keep them there.

Notwithstanding, in the days between Putin's appointment and his election (oh those innocent days of winter 2000) whilst traveling in St. Petersburg I was somewhat shocked to come across a number of billboards; not overly professional (oh why does that seem so true today) but the message was clear;

“We must and have to control the people” (if you agree that the“narod” are the “people”)

“The director general of a Russian oil consultancy company has been killed in an apparent contract killing in Moscow, officials say.

Zelimkhan Magomedov, 50, was shot twice in the head, prosecutors told Itar-Tass news agency.

Ms Magomedov was the head of the National Oil Institute Fund, which seeks to develop small and medium-sized oil and gas producers.

The killing was described as a ”contract hit“ by officials.

”A criminal case has been opened over the contract hit,“ a representative of the city prosecutor's office told Tass.

Ms Magomedov's murder is the latest in a series of apparent professional killings in Moscow.

Last month, campaigning Russian journalist Anna Politkovskaya was shot dead in the city, while in September, Andrei Kozlov, the deputy chairman of Russia's central bank, was killed by gunmen.

The recent murders are reminiscent of a wave of assassinations which swept through the city in the 1990s, targeting businessmen and bankers.”

[composed and posted with ecto]

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Technorati Tags: Corruption, death, Putin, Russia

As well he might, but a five-fold increase in five years.

Has no one told him the people are revolting.  Well not exactly but the “I”-word (inflation) is getting louder and louder.

[composed and posted with ecto]

Technorati Tags: Gas, inflation, Russia

The gas news is getting louder and louder;

• Yesterday, and most uselessly, in the FT, Arkady Ostrovsky rehashed Kakha' visa-less UBS report and Vladimir Milov's criticisms.
• Alfa Bank (no link love) in a research report suggested that over the next few years the regulated price of gas will rise by 20% per annum on average.  Albeit they seem to have missed the fact that UES already buys a substantial amount of its gas in the “open” market.
• This morning rumours bubble (again) that Gazprom is about to buy up to 50% of Novatek - confirming Milov's comments that they are better “on Wall Street” than with the drill bit.
• Vedoms yesterday reported that Gref and Kudrin are fighting a rearguard action to stop regulated price rises with fears of inflation on the horizon. I've been here before.
• Today Pun hosts a Government meeting on energy.  I feel a Kanutian moment coming on; keep inflation down and raise tariffs, find more gas, preferably by January.

There is, of course, a fairly simple solution to all of this.  Demerge GAZP from UGSS and allow everyone access to the same export contracts and force all gas producers to sell a fixed portion of production for heating.  Unfortunately super-profits for individuals would disappear even if the lights stayed on and the radiators warm.

I think that UES and GAZP's PR departments are being more active than Gref's and Kudrin's.  Control of inflation is very important.  Somewhere before I have commented that the Kremlin is most afraid of the people.  This will win out in the immediate future over tariffs and Gazprom's desire to make more money even if they don't want to spend it on gas.

[composed and posted with ecto]

Technorati Tags: Energy, Gas, GAZP, Novatek, Russia

Ukrainian-based (?) blogger Foreign Notes is chronicling the rapid return of Ukraine to its previously corrupt state after a brief moment in the weak early morning sunlight of being only mostly corrupt.

There has been much (well some anyway) conversation recently of those heady days in Russia of Putin's first presidency before the Yukos affair.  Again there was a brief moment when we were naive enough to believe that the rule of law was going to prevail.  And then Khordokhovsky went to jail and Yukos was bankrupted.  Every petty Chinovnik and plenty who weren't realized that if the Kremlin could abuse the law in their favour so could everyone else.  All those businesses which had turned white(ish) and were telling the (insert name of favourite corrupt government department) to take a hike when they came with the begging bowl realized it was a futile game and went back to paying bribes.

I think the nostalgia is for earlier less cynical days when we all had hope that Russia would........well not be like Russia today.

And a happy fascist holiday Holiday of National Unity to you all.

VAT fiddles..:
Bits from an article it today's 'Delo' business daily entitled:

“Economy returning to the shadows”

The number of business enterprises in Ukraine who paid their taxes honestly in 2006 has dropped dramatically compared to the previous year.

The Institute of economic research and political consultations calculates that Ukrainian companies paid almost 80% of what was due last year, but this year the figure is around 55%.

According to the State Tax Administration, Ukrainian financial-industrial groupings [FIGs] are taking advantage of the links between their numermous enterprises to set up fictitious deals and avoid payment of taxes.

The FIG's who 'minimize' their financial responsibilities to the greatest extent, according to deputy head of the STA Mykola Romaniv, are 'Privat', 'Industrial Union of Donbas' [IUD], and 'Interpipe', [owned by Kolomoyskiy, Taruta/Hayduk, and Pinchuk resp.]

Akhmetov's System Capital Management, [SCM] was not mentioned on the list of transgressors. [What a surprise..]

Romaniv said that in order to minimize their VAT payments, the FIGs use 'pseudo-exporting' operations to obtain refunds [Well, well, well..]

“The mentality of Ukrainians is such that does not accept taxes which can be recompensed from the budget. If there is even a minimal possibility of return of tax from the budget, then there will certainly be abuses. To administer this nightmare in the present form is quite impossible, ” considers Dmitriy Svyatash, member of the VR committee on questions of finances and bank activity. [It's all the fault of Ukrainians' mentality then.]

Meanwhile other companies are complaining that they they are not receiving the VAT repayments to which they are entitled.

Newly appointed NSDC secretary Vitaliy Hayduk [see above] has recently been asked by the President to sort out the problem of VAT fiddles - obviously the right man for this vital task.

See also VAT-man Azarov

[composed and posted with ecto]

Technorati Tags: Russia