SOURCE: The St. Petersburg Times
DATE: Issue #1040 (6), Tuesday, February 1, 2005
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TITLE: S&P Ups Grade for Investors
PUBLISHER: Staff Writer
TEXT: Standard & Poor's raised Russia's sovereign rating to investment grade on Monday, becoming the last of the three big credit agencies to reward the country for financial prudence as high oil prices swell government coffers.
 
S&P raised Russia's long-term foreign currency credit rating from BB+ to BBB-, the lowest investment grade. That gives the country a prestigious triple investment rating for the first time ever after upgrades by Fitch Ratings in November and Moody's Investors Service in October 2003.
 The widely expected upgrade will help the country and its companies borrow more cheaply, as more fund managers are allowed to lend to investment grade countries.
 But S&P warned that despite the very favorable fiscal position, political uncertainty has risen and reforms have stalled. The agency said a worsening of the political climate could dent investor perceptions, lead to accelerating capital flight and hurt growth.
 "The upgrade reflects recent, crucial improvements in the government's debt level and external liquidity," said Helena Hessel, a Standard & Poor's credit analyst. "These improvements are so significant that they now outweigh the serious and growing political risk that continues to be a key ratings constraint on Russia."
 Domestic and international investors have been rattled by the messy dismemberment of Yukos, confusion about the government's plans and concerns that some officials may be seeking to redistribute wealth. But S&P said that "continued political, institutional, and structural weaknesses" were offset by the country's impressive financial position.
 The government's benchmark eurobond, maturing in 2030, rose to a near record Monday, with a yield of 6.28 percent, as did stocks and the ruble. 
 The economy is growing for a seventh straight year, driven by a consumer boom and high prices for Russia's biggest commodity exports, with foreign currency and gold reserves exceeding foreign debt and a swiftly growing stabilization fund.
 That is a massive turnaround from 1998, when the government defaulted on domestic debt and devalued the ruble, sending shock waves through world markets. 
 Nominal gross domestic product is expected to grow to 18.72 trillion rubles ($624 billion) this year, according to government estimates, while foreign currency and gold reserves rose to a record $124.6 billion last month.
 Foreign debt totaled $112.9 billion as of Oct. 1, the latest published Finance Ministry estimate, with $35.2 billion in eurobonds and $44.4 billion owed to the Paris Club of creditors. Russian officials are negotiating with the Paris Club to pay off some debt ahead of schedule, possibly from the swiftly growing stabilization fund.
 "The most important thing is macroeconomic stability and the government's prudent management of external debts," Kristalina Georgiyeva, the World Bank's director for Russia, told reporters. "The market believes that Yukos was a separate, individual case, but people will be watching very carefully to see what is going on."
 While Russia sports some of the best macroeconomic indicators in emerging markets, growth is slowing, the government overshot its own inflation forecast last year and President Vladimir Putin's popularity has fallen after the clumsily implemented reform of the benefits system.
 S&P, which has been the most bearish of all the rating agencies, said that reforms have slowed, a warning that echoes comments by some of the country's top economists and ministers. 
 "Little effective reform was accomplished in 2004: Attempts to reform the judiciary and public administration have been ineffective, the restructuring of the electricity sector has stalled, and the reform of Gazprom has been delayed," S&P said in a statement.
 "A further significant worsening of the domestic political scene, together with unsustainable economic policy decisions, would dent investor confidence and lead to rising private sector capital flight. This would weaken Russia's potential economic growth and its strong liquidity position, which could negatively affect sovereign creditworthiness over time."
 Georgiyeva said that the general direction of policy was key.
 "Investors look at the direction things are going and worry less about the speed, though of course it would be good if things were faster."
 Speculation about the upgrade has been fierce, with stocks rising Friday in anticipation.
 "A lot of people expected that Russia's rating would be raised this year because of the very strong macroeconomic indicators. The only thing that gave doubt to those expectations was the perception of political risks and the fears raised by the Yukos affair," said Julia Tsepliayeva, head of research at ING in Moscow. 
 "This long-awaited upgrade suggests that the overall picture is not so gloomy after all, and that the investment attractiveness of Russia could be improved in a relatively short period of time. This should encourage the liberal wing of the government."

TITLE: Thousands Join Protests Against Welfare Reform
PUBLISHER: Staff Writer
TEXT: Protests against the federal government ending in-kind benefits for pensioners continued at the weekend in St. Petersburg, but this time with the approval of City Hall, unlike those two weeks ago when unauthorized protests led to clashes with police.
 
"From 4,000 to 6,000 people participated in the rally this weekend," said Mikhail Obozov, head of Walking Without Putin, a new student group that took part. "We plan to continue protests in mid-February, this time with students [whose are also losing benefits]."
 The rally on Saturday resulted in a minor incident in which a Channel 5 journalist was beaten up by protesters, Fontanka.ru reported. Reporter Kirill Peshchalnikov lost a tooth after he was attacked by protesters while walking around the crowd during a break in a broadcast.
 Hundreds of protesters assembled by Yabloko, Communists and National Bolsheviks appeared Saturday in different parts of St. Petersburg holding posters slamming the Kremlin-loyal United Russia faction and displaying portraits of former Yukos head Mikhail Khodorkovsky, who is in a Moscow jail on allegedly politically motivated charges.
 On Monday, a city court dropped all charges against Vladimir Soloveichik, co-head of local movement Citizens' Initiative, who had been accused by the police of initiating disorder last month, specifically by organizing pensioners to block Suvorovsky Prospekt.
 "It is quite revealing that the government tried to find a scapegoat," Obozov said Monday. "Last time the police arrested an old lady and than beat her up because she defended young people who participated in the meeting. The charges against Solovechik were part of such actions."
 Eight members of left-wing parties including Soloveichik were detained in St. Petersburg and its suburb of Gatchina on Jan. 18 after participating in city pensioners' protests against the axing of the entitlements. The activists were detained after crowds of people blocked major city streets, including Nevsky, Moskovsky and Suvorovsky prospekts. Suvorovsky Prospekt leads to City Hall, where protesters clashed with the police.
 "The case was obviously falsified," Soloveichik said in a telephone interview. "Representatives of the 18th police department, which fights organized crime and which initiated the case originally, did not even show up in the court room because would not be able to say anything if they swore to tell the truth." 
 "This shows that protesters cannot be prosecuted legally, so all that is left for the authorities is to falsify such cases," he said.
 Soloveichik's wife Tatyana was beaten up and robbed Thursday night, her husband said, suggesting the assault could have linked to his activities.
 He said he had received constant threats from the police over the years of his activity as a leader of Citizens' Initiative.
 "My wife was on her way from work when she noticed a man about 1.8 meters tall following her," he said. "He was following her for quite a while and then attacked her by hitting in her chest, grabbed her bag with her money and documents in it and run away."
 She lost 6,500 rubles ($232) in cash and documents necessary to get financial assistance for their child, Soloveichik said. 
 "The man had an athletic build, which makes me guess that he might linked to some special services," he said. "This doesn't look as if it happened by chance just a few days before the court hearing was scheduled on Monday," he said.
 "I have been threatened constantly by the police while organizing rallies, by Andrei Chenopyatov, [head of Police Department No. 18] in particular," Soloveichik said.
 Chernopyatov denied Soloveichik's allegation.
 "There were no threats made," Chernopyatov said in a telephone interview Friday. "There will be no comments." 
 Soloveichik's wife filed a report about the assault to police department No. 61 shortly after she was attacked, her husband said.

TITLE: Abbas, Putin 
 Discuss Peace
PUBLISHER: The Associated Press
TEXT: MOSCOW - Palestinian leader Mahmoud Abbas met with senior Russian officials Monday in a bid to win Moscow's support in upcoming peace talks with Israel, and President Vladimir Putin expressed hope that the new leader would be able to jump-start solutions to Palestinians' intractable problems. 
 
"We strongly hope that you, Mr. Chairman, will be able to take steps toward improving the situation in respect to Israel as well as the socio-economic situation in Palestine," Putin told Abbas at the start of a Kremlin meeting. "We are ready to work actively as before together with the international community to help solve all these problems."
 Earlier Monday, Abbas told Foreign Minister Sergei Lavrov that he had done everything to make Moscow his first foreign destination outside the Middle East region following his election earlier this month.

TITLE: Deputy Missing in Finnish Gulf
PUBLISHER: Staff Writer
TEXT: State Duma deputy and city businessman Kirill Ragozin is missing presumed drowned Monday in the Gulf of Finland after his snowmobile went through thin ice on Saturday afternoon. 
 
The Leningrad Oblast emergency service was searching for his body.
 "Unfortunately, we haven't found it," Yulia Rakita, spokeswoman for the service, said Monday. "Recovering it is complicated by the strong wind and current."
 The first rescue attempts for the 37-year-old United Russia deputy were made Saturday night after fishermen, who saw the accident, informed police about the tragedy. Divers unsuccessfully searched the spot where Ragozin went in, Rakita said.
 The board of directors of the city holding Veda, which produces strong alcohol, confirmed Monday that Ragozin had died tragically, Interfax said. Ragozin was one of the founders of the holding.
 However, the press service for the United Russia party in the State Duma said Monday they could not confirm or deny Ragozin's death until his body was found. 
 Rakita said that Ragozin and a friend, another businessman, had been riding their snowmobiles near Podborovye village in the Vyborg district of the Leningrad Oblast.
 Ragozin's friend had driven onto a soft spot in the ice and ended up in the water. Ragozin saw his friend in the water and drove to help him. However, Ragozin's snowmobile also fell through the ice and there were then two men in the freezing water trying to get out.
 A nearby fisherman rushed to their aid. He managed to pull out Ragozin's friend using his ice axe. He then tried to save Ragozin, who was fighting for his life, and had shed his helmet, gloves and boots.
 "However, by that time Ragozin was already so weak that he was unable to hold on to the ice axe and he went under," Rakita said.
 Other fishermen called the police and rescue services. 
 Rakita said both Ragozin's friend and the fisherman who tried to save Ragozin were hospitalized. The fisherman was in intensive care with frostbite after his efforts, which were carried out in temperatures of minus 10-15 degrees Celsius.
 Ragozin and his friend were unlucky not to know the soft spot in the Gulf of Finland, where the ice is thin, and doesn't get thicker than 5 to 10 centimeters, she said.
 The soft spot covers only about 10 to 15 square meters and is located above the strong underwater currents, which probably carried away Ragozin's body. The divers found both snowmobiles at a depth of five to seven meters.
 Ragozin was elected a deputy to the Duma in 2003 and was a member of its industry, construction and science technology committee.
 Since 2001, Ragozin had been president of Veda Sistema, the managing company of the Veda holding, which produces vodka brands including, Matritsa, Vals-Boston, and Russky Razmer and also has a glass-packing factory. 
 Rakita said there was "very little chance" that Ragozin's body would be found soon. Most probably it would appear sometime in spring when the ice is gone from the gulf. Rescue workers said Monday night they intended to continue their search.

TITLE: Chernobyl Workers Resume Eating
PUBLISHER: Staff Writer
TEXT: A group of men who helped clean up after the 1986 Chernobyl power plant disaster gave up their hunger strike after 16 days on Saturday after receiving assurances that many of their demands, mainly for higher compensation for their damaged health, would be met. 
 
The hunger strike, conducted in the St. Petersburg suburb of Sestroretsk, was abandoned after the workers got a permission to participate in Supreme Court hearings on their demands that are scheduled for this month, said Sergei Kulish, the group's leader.
 There are 5,000 former Chernobyl workers living in St. Petersburg, including about 1,500 who have health complications as a result of their exposure to unhealthy levels of radiation.
 "We have quit the hunger strike for several reasons," Kulish said Monday in a telephone interview. "First of all, last week we got a promise from a State Duma deputy in the Rodina faction that they would send inquiries to the Prosecutor General's Office and the government on our problem and would propose an official resolution in the Duma, which, I think, they have already done."
 "Also, we met City Hall representatives last week who signed a protocol about our demands, including such important things as expanding a local hospital department, which serves our colleagues, and increase the number of drug stores that distribute the medicines we need," he added.
 He expects to join the Supreme Court working group that was set up Jan. 18 to work on the problem of compensations.
 The strike was the second by the group, who first stopped eating in December, then resumed after being given assurances regarding their demands.
 Kulish said his own compensation is typical for former Chernobyl workers. In 1997, he received 2,000 rubles a month from the state, which was then equivalent to about $330. Today he receives 2,500 rubles a month, but with inflation and the 1998 financial crisis, this is the equivalent of only $88.60. The average compensation the workers receive ranges from 1,000 to 3,000 rubles, depending on how much time a worker spent at Chernobyl.
 "Our demand is to boost the level of compensation in line with consumer price inflation since 1997, which is different in each administrative region, but for St. Petersburg, for instance, has raised prices about eight times," he said.
 The health of the hunger strikers is reasonable, Kulish said. Three of 11 Chernobyl workers remained in a Sestroretsk hospital on Monday with heart complications. Two others, including Kulish were sent home for treatment.

TITLE: City Runner Back on Track After Attack
PUBLISHER: The St. Petersburg Times
TEXT: One of Russia's leading marathon runners Mikhail Minukhin, 31, of St. Petersburg, who had his spleen removed after being stabbed in a robbery in October, has started recovery training.
 
Minukhin said Monday it would take him at least 1 1/2 years to recover his physical form.
 "Doctors said I should not run marathons anymore because it would be too hard on my body," he said in a telephone interview. "But we'll see how it goes."
 Minukhin holds several national long-distance titles, including a gold medal for 12 kilometers won in 2004.
 On Oct. 29, Minukhin, who lives in a communal apartment on the Petrograd Side, was at home, when he heard an intruder enter the room of his female neighbor. The man started to beat her up.
 Minukhin went to defend the woman and peacefully took the attacker to the building exit. However, the intruder took out a knife and stabbed him eight times into his spleen, lungs, neck.
 The attacker was detained and will appear in court this month.
 Minukhin's troubles have raised considerable sympathy in in Bonn, Germany, where the runner won three marathons in the last three years, and set two records at those marathons.

TITLE: IN BRIEF
TEXT: Film wins BBC prize 
 </b>

ST. PETERSBURG (SPT) - "The Return" ("Vozvrashcheniye") has been named winner of the BBC Four World Cinema Award, BBC news reported on its web site on Friday. 
 Directed by Andrey Zvyagintsev, "The Return" previously won the 2003 Golden Lion award at the Venice Film Festival. The prize was presented at an awards ceremony held in London on Thursday, it was reported on bbc.co.uk. 
 The winner was chosen by a panel which included "X Files" actress Gillian Anderson and critic Roger Clarke.
 Other nominees included "The Motorcycle Diaries," "Zatoichi" and "Hero." 
 Tragedy struck the production of "The Return" when one of its young stars, 15-year-old Vladimir Girin, drowned in a lake where some of the film's scenes were filmed. 
 
 
<b>SKA Win at Last
 </b>

ST. PETERSBURG (SPT) - SKA St. Petersburg snapped a 9-game losing streak with a pair of wins over northern neighbors Severstal Cherepovets. Last week SKA upset Severstal 4-1 in Cherepovets and managed to edge them 4-3 Saturday in the Ice Palace. Severstal, currently in 9th place is now fighting for a spot in the playoffs. 
 SKA's relentless losing streak all but mathematically eliminated them from the playoffs. With team leaders Valery Zelepukin and Alexander Golts out sick, SKA started their English-speaking line of Michael Nylander, Mike Watt, and David Nemirovsky and made some other line changes.
 
 
<b>Arrests in Pumane Case
 </b>

MOSCOW (SPT) - Two suspects have been arrested on suspicion of conspiring with Alexander Pumane to carry out an attack on a Moscow businessman in September, Interfax reported Friday - raising doubt that Pumane had planned a terrorist attack as police claimed.
 Pumane, who lived in Tsarskoye Selo near St. Petersburg, was detained Sept. 18 near Patriarch's Ponds with two land mines and 200 grams of TNT in his car. He died several hours later in the hospital after reportedly being interrogated by about 150 law enforcement officers. Doctors said he suffered severe brain injuries.
 Prosecutors suspect at least two police officers of severely beating him.

TITLE: $300M Water Deal Inked by Sumitomo
PUBLISHER: Staff Writer
TEXT: Japanese holding company Sumitomo signed a deal with water-supply monopoly Vodokanal that will result in a more than doubling of the city's water-treatment capacity levels.
 
The multi-billion dollar Japanese holding will form a 50-50 joint venture company with Vodokanal by fall this year. The venture will be responsible for building a new water-treatment plant and carrying out renovations of the existing pipeline system, head of Vodokanal Felix Karmazinov said Thursday at a news conference.
 &quot;Once complete, the entire treatment complex will be able to process over 1,700 cubic meters of water [at once],&quot; Yuri Altunin, area manager of Sumitomo's St. Petersburg city branch said Monday in a telephone interview. 
 The most expensive part of the project, at quadruple the cost of a treatment plant, will be four water-supply networks that Sumitomo will also construct according to the agreement with Vodokanal, Altunin said.
 The new system will be made ready by 2009, Karmazinov said. 
 Renovation of city's water supply facilities would considerably ease the current difficulties with delivering clean water. At the moment, demand far exceeds the supply that Vodokanal's 700-cubic meter capacity treatment plant can provide. 
 Although project specifics - including its financing - are not expected to be finalized before the end of the year, Vice-Governor Yury Molchanov estimated the investment would exceed $300 million, Interfax reported.
 Most of the financing is expected to come from independent Japanese investors. Sumitomo will participate in investing, Altunin said without disclosing further details due to a confidentiality agreement with Vodokonal.
 &quot;The project can payoff in about 15 years, as it involves large-scale infrastructure works. We are taking a risk, but those who don't take risks don't drink champagne,&quot; Altunin said, adding that the city will, however, provide substantial guarantees for the project in the form of a target program.
 &quot;We are working on the project details with the city government,&quot; Altunin said. 
 Besides the water utilities project, Sumitomo is considering plans to supply electrical equipment for the city's public transport and building waste utilization outlets, as well as reviewing a number of other sectors. 
 Sumitomo became the first of the Japanese investors that met with city Governor Valentina Matviyenko during the latter's October visit to Japan to begin carrying out projects discussed last year.
 Other interested Japanese companies included giant holdings Marubeni and Mitsui. Specialists say the possibility of getting low-interest loans played a major role in attracting Japanese investors to the city. 
 One of the potentially most lucrative Japanese investments that has long been in the works is a Russian Toyota plant. The automobile manufacturer has not yet picked a location in Russia, although Toyota representatives made their fourth visit to the city last week. The company has been reviewing a number of locations across the country, with two of the contenders being St. Petersburg and the Leningrad Oblast. 
 &quot;Companies like Toyota never enter the market alone. They have a satellite company chain that comes with them,&quot; said Hiroshi Yamamoto, the director of the city's Japan Center in an earlier interview with The St. Petersburg Times. &quot;New plants also mean real investment in a region's economy, and not only a trade boost.&quot; 
 The final decision on Toyota is expected by mid-February, a source close to the Toyota team told The St. Petersburg Times.

TITLE: Fradkov Asks Spies for Economic Aid
PUBLISHER: Staff Writer
TEXT: MOSCOW - Prime Minister Mikhail Fradkov on Friday urged senior intelligence officials to do their best to improve the country's investment climate, promising them more money to get the job done. 
 
&quot;We continue to require up-to-date information from the FSB that allows us to form a quality legal foundation and to make decisions on leveling the playing field for competition, developing businesses and creating an attractive investment climate,&quot; Fradkov said at a meeting with Federal Security Service chiefs, Interfax reported.
 But Fradkov discouraged the FSB from favoring certain companies, saying that some intelligence officers do so to give their private businesses an edge. 
 &quot;We are going to fight this just like we fight corruption,&quot; he said.
 Fradkov did not elaborate on how corruption would be rooted out in the special services, which themselves are tasked with fighting it.
 The prime minister also said that the FSB's budget will be 25 percent bigger this year than in 2004, but called on officers to spend the money wisely.
 The FSB budget is classified, and it was unclear whether Fradkov was referring to a 26 percent increase made in the 2005 federal budget, which has already been approved, or an additional increase.
 In the wake of the Beslan hostage-taking and a series of other terrorist attacks last year, the FSB was allocated an extra 26 percent.
 Fradkov said that some parts of the FSB budget have grown so much that the agency is already having trouble spending all the money. 
 &quot;The authorities and citizens have the right to expect returns from what the country is investing&quot; in the FSB, he said.
 Fradkov also said the FSB also needs to be more vigilant in safeguarding state secrets and boosting its coordination with other federal agencies.
 Sergei Markov, a Kremlin-connected political analyst, said Fradkov's appeal for a greater economic role for the FSB was not necessarily negative.
 &quot;There is nothing scary in this notion apart from the fact that it further increases the role of security agencies. And their participation in everything is already excessive,&quot; Markov said Sunday.
 At least in theory, the FSB could help fight hostile takeovers and fake bankruptcies, he said, &quot;since the justice system is corrupt and there are too many legal loopholes.&quot;
 Markov, however, remained skeptical over the future success of a more economically active FSB, as no state body in Russia is corruption-proof.
 The FSB's predecessor, the KGB, had long been involved in the economy. Special agents were planted at enterprises of any significance - from diamond cutting factories to symphony orchestras - to collect information on employees and fight theft. 
 The KGB also helped economic development through industrial espionage abroad. KGB informers reportedly also provided Soviet leaders with independent data on the nation's wealth, as official figures were often distorted.

TITLE: Senators Back Off TNK-BPTax Claim
PUBLISHER: The St. Petersburg Times
TEXT: DAVOS, Switzerland - Nearly half of the 45 Russian senators that signed a letter to the Federal Tax Service asking for a probe into tax payments by Russian-British oil major TNK-BP have withdrawn their signatures, the tax service said Friday.
 
Vedomosti reported Friday that 45 members of the Federation Council had sent tax authorities a formal request to check whether TNK-BP had underpaid by 22 billion rubles ($783 million) in taxes in 2000-2003.
 &quot;We received the letter from 45 senators. Today, 20 of them withdrew their signatures,&quot; Federal Tax Service spokeswoman Yelena Tolgskaya said by telephone.
 The senators alleged in the letter that TNK had economized on its taxes by using onshore tax havens prior to its historic tie-up with British oil giant BP. 
 BP agreed to buy 50 percent in TNK in 2003 from Russian industry conglomerates Access/Renova and Alfa Group. Under the deal, the Russian partner, which still controls 50 percent of the firm, should pay any unpaid taxes for periods prior to 2003. 
 Vedomosti said the senators acknowledged that TNK's tax minimization activities were legal under the legislation then in force. Once-mighty Yukos is being dismantled by the state for using similar schemes.
 TNK-BP said it was confident it had done nothing wrong.
 &quot;The world is watching TNK-BP very closely,&quot; TNK-BP CEO Robert Dudley said on the sidelines of the World Economic Forum in Davos, Switzerland. 
 &quot;We are the biggest investor in Russia and [the government] obviously understands this,&quot; Dudley said. &quot;I am sure this is not a repeat of Yukos.&quot;
 Analysts shared Dudley's optimism.
 &quot;TNK cannot be checked by the tax authorities for year 2000 because of the statute of limitations,&quot; United Financial Group wrote in a note to clients.
 UFG said TNK had already received the results of an audit for 2001 amounting to just $87 million and is currently negotiating the amount with tax authorities. &quot;This means that the tax authorities may only perform a tax audit for 2002-2003,&quot; it wrote.
 TNK-BP's Moscow office said it had not seen the letter nor received any official requests or claims from the Federal Tax Service. 
 &quot;It is the right of senators to write letters, but we have not received any official requests or claims from the Federal Tax Service, so this has not affected TNK-BP,&quot; company spokes-woman Marina Dracheva said.
 &quot;We are ready to provide any documents requested,&quot; she said.

TITLE: IN BRIEF
TEXT: Kappa Has Russia Deal
 </b>

MOSCOW (Bloomberg) - BasicNet SpA, an Italian sportswear company, will let Moscow-based SLL Kappa Rus distribute its goods in Russia and other former Soviet states, following similar agreements to expand sales in France, Canada and the U.S.
 BasicNet's Kappa and Robe di Kappa branded clothes will be distributed by SLL Kappa Rus in the 12 countries for six years, the Turin, Italy-based company said in a statement released by the Italian Exchange today. The Russian partner guaranteed sales of at least $29.5 million for BasicNet.
 "This accord is an example of the company's business-development strategy,'' BasicNet Chief Executive Franco Spalla said in the statement.
 SLL Kappa Rus will increase brand awareness through initiatives such as sponsoring sports events. Shares of the Italian clothing company jumped as much as 3.6 percent to 50.5 cents and were trading at 50.2 cents as of 12:39 p.m. in Milan, giving BasicNet a market value of 30.7 million euros ($40 million).

TITLE: IN BRIEF
TEXT: Gold Reserves Up 2%
 </b>

MOSCOW (Bloomberg) - Russia's gold production rose 2 percent last year to 180.52 metric tons, Interfax reported, citing the Gold Producer's Union.
 Mine production rose 0.5 percent to 158.83 tons, Interfax reported.
 Secondary production, including recovery from scrap, jumped 65 percent to 11.28 tons, and incidental production fell 13 percent to 10.41 tons, the newswire reported.
 
 
<b>Renova in SA Project
 </b>

MOSCOW (Bloomberg) - Renova, the holding controlled by Russian billionaire Viktor Vekselberg, signed an agreement with a South African company to develop a manganese project in South Africa, the Federal Agency for Use of Natural Resources said.
 The ministry gave no information on the location of the mine in South Africa in an e-mailed press release and only identified the local company as Pytsa Ya Setshaba Holding.
 In July, the company said that it opened a branch in South Africa, Renova Investments (Pty) Ltd., to invest in mining projects, Interfax reported.
 Renova controls Sual Group, Russia's second-biggest aluminum producer, and owns a stake in BP's Russian venture, TNK-BP.
 
 
<b>Gates Shorts Dollar
 </b>

DAVOS, Switzerland (Bloomberg) - Bill Gates, whose net worth of $46.6 billion makes him the world's richest person, is betting against the U.S. dollar.
 "I'm short the dollar," Gates, chairman of Microsoft, told U.S. talk show host Charlie Rose in an interview late at the World Economic Forum in Davos, Switzerland. "The ole dollar, it's gonna go down."
 The dollar fell 21 percent against a basket of six major currencies from the start of 2002 to the end of last year. The trade deficit swelled to a record $609.3 billion last year and total U.S. government debt rose 8.7 percent to $7.62 trillion in the past 12 months.
 "It is a bit scary," Gates said. 
 
 
<b>Gazprom Up for Review
 </b>

MOSCOW (Bloomberg) - Gazprom, the world's biggest producer of natural gas, will have its investment program reviewed by the government on Feb. 10, after its board last week postponed a decision on the plans, Economic Development and Trade Minister German Gref said Friday.
 Gazprom's board, which includes Gref, postponed a decision on this year's investment and borrowing plans pending further discussion with the government, which is merging Gazprom and Rosneft.
 The company's current plan is to invest 212.6 billion rubles ($7.6 billion) this year, spending 65 percent of it to maintain and build gas pipelines. Gazprom expects to borrow 110 billion rubles this year.

TITLE: Primakov Slams Gref; Urges Policy Changes
PUBLISHER: Staff Writer
TEXT: MOSCOW - Former Prime Minister Yevgeny Primakov on Friday slammed German Gref's medium-term plan as ideologically flawed, saying the Economic Development and Trade minister ignored &quot;the crimes and mistakes of the 1990s.&quot;
 
Russia's elder statesman assailed the government after Gref presented members of the Federation Council with his medium-term plans for the next three years.
 Primakov hammered the minister for a lack of &quot;quality growth,&quot; using Gref's own figures to show that more investment was going to commodity extractors than to manufacturers. 
 Primakov asked Gref why his plan did not address &quot;the crimes and mistakes of the 1990s,&quot; and said that welfare reform amounts to a new type of shock therapy for millions of socially vulnerable citizens.
 Gref, the country's chief reformer, looked stunned, sighed and clutched the podium. He skirted the question by saying he did not know which crimes Primakov was referring to.
 The scolding illustrates an open conflict in the government: How to handle the legacy of the 1990s, when a small group of tycoons gained control over prized sectors of the economy while millions of their compatriots were thrust into poverty.
 With the economy losing steam, top government officials are in disagreement over how to restore investor confidence after the destruction of oil major Yukos - a product of the 1990s privatizations - and the widespread protests over the monetization of social welfare benefits.
 Earlier this month, Unified Energy Systems CEO Anatoly Chubais used a debate on Gref's plan to lambaste the government for creating the worst business climate in 15 years.
 Gref, for his part, urged greater reforms of the country's bureaucracy. He said the development of small and medium-sized businesses was essential, and warned that monopolies were stifling growth. 
 &quot;The existing structure of the economy can't objectively give growth rates higher than 5-6 percent a year,&quot; Gref told the senators. &quot;The key factors in the slowdown of growth rates are the slowing of reforms and, secondly, the low level of confidence between business and the authorities. We need to act right now.&quot;
 On Friday, State Statistics Service chief Vladimir Sokolin said economic growth had slowed to between 6.5 and 6.7 percent in 2004, down from an earlier estimate of 6.9 percent by the Economic Development and Trade Ministry. GDP growth was 7.3 percent in 2003.
 Gref's medium-term economic plan has attracted a wide debate, with Prime Minister Mikhail Fradkov calling it &quot;half-baked&quot; last month.
 At Friday's presentation, Federation Council Speaker Sergei Mironov voiced his dissatisfaction with the report, saying it ignored the man on the street and did not cohere to President Vladimir Putin's project of doubling GDP.
 The problem with the plan is &quot;ideological,&quot; in that it assumes an unbroken continuity with the 1990s, rather than making a clean break with the past, Primakov told reporters after his exchange with Gref.
 &quot;It seems to me that we need to speak about a principally new phase that will correct the mistakes - the very big mistakes of the 1990s,&quot; he said. &quot;The biggest mistake of the 1990s was when we prevented free competition, and this was accompanied by the growth of oligarchic structures.&quot;
 Primakov also said the monetization of benefits amounted to a new type of shock therapy, a reference to price liberalizations in the early 1990s that wiped out the savings of millions of people.
 Primakov, a former foreign minister and ex-chief of the Foreign Intelligence Service, now heads the Russian Chamber of Commerce and Industry.

TITLE: Plans to Clip Tax Police
PUBLISHER: Staff Writer
TEXT: MOSCOW - President Vladimir Putin is backing a government proposal to curb aggressive tax probes in an attempt to soothe investor concern, Vedomosti reported Thursday.
 
Deputy Prime Minister Alexander Zhukov and Finance Minister Alexei Kudrin have drawn up amendments to the Tax Code that significantly limit the powers of tax authorities in their dealings with companies, the paper said.
 The proposals - which include limiting the duration of tax audits and avoiding repeat checks on companies - have won Putin's approval, the paper said, citing unidentified government sources.
 Economic growth slowed to an estimated 6.9 percent last year, down from 7.3 percent in 2003. Growth in investment slowed to 10.9 percent, from 12.5 percent in 2003.
 Analysts consistently cite the legal assault on oil major Yukos, which faces a towering bill of more than $20 billion in back taxes, as a major blow to investor confidence in Russia.
 At first, many observers considered Yukos a one-off affair that could be traced back to Kremlin retribution for the political ambitions of Yukos founder Mikhail Khodorkovsky. However, the Yukos case has been followed by back tax claims on No. 2 mobile operator VimpelCom in December and on Japan Tobacco International this month.
 Last week Chubais suggested that one-third of businesses in Russia have received back tax claims.
 The changes suggested by Kudrin and Zhukov will be discussed by the Cabinet in February and could come into effect next year, Vedomosti reported.
 The tax authorities received the news coolly. &quot;I have seen the document. ... There is nothing revolutionary in these proposals,&quot; said Yelena Tolgskaya, spokeswoman for the Federal Tax Service. &quot;Some of the provisions in the Tax Code need to be clarified and we agree to that. It does not give us heartburn.&quot; 
 Investors were more enthusiastic in their reaction. &quot;The tax authorities in Russia have been acting with near impunity in recent times, and regulating their activities and providing business with rules is a very positive step,&quot; Aton wrote in a note to investors Thursday.
 It is reassuring that the president is throwing his support behind the pro-business voices in the government, said Igor Yurgens, the former vice president of the Russian Union of Industrialists and Entrepreneurs and now the first vice president of Renaissance Capital. 
 &quot;This way we get a mighty ally in the fight with tax authorities,&quot; he said. &quot;Let the tree grow and bear more fruit rather than chop sprigs off a bush.&quot;
 The initiatives are long overdue, said Sergei Borisov, president of OPORA, the umbrella organization for small and medium-sized enterprises. &quot;It's sad that [such initiatives] are served up under the sauce of improving the country's international investment attractiveness,&quot; he said. &quot;It would be more important to act in the interests of domestic businessmen who have for many years been under the yoke of permanent tax checks.&quot; 
 A spokeswoman for VimpelCom declined comment on the proposals before they are adopted.

TITLE: Money's Like Water - It Flows Where There's Profit
TEXT: Recently in Russia there has emerged the almost daily problem of domestic and foreign companies being landed with tax claims from legislative and other government bodies. There was, for example, recently the case of the Interior Ministry starting up a case against one of the largest tobacco manufacturers in Russia - JTI Marketing and Sales, a subsidiary of Japan Tobacco International (JTI).
 </i>
The case against the company followed as a result of tax payment checks for 2000. After close inspections, the taxation authorities demanded that JTI provide a further $70 million for the 2000 fiscal year. This is the largest back tax claim against a tobacco producer in Russia. 
 The reason for the authorities' actions stems largely from the company's practice of using offshore funds and other lucrative tax-saving financial instruments. In the eyes of the tax authorities, it was not fair for the company to seek out schemes that would &quot;veer profit away from taxation,&quot; even if those schemes were perfectly legal.
 Russian law states that part of the profits must be paid as tax. If that understanding is not followed, a company is liable to attack from taxation authorities. One cannot disagree with this, yet on the other hand the use of registered offshore funds is a perfectly legal action. Taxpayers cannot be vilified by authorities simply because within their business structures there are companies that are registered on territories that offer favorable tax duties.
 It seems then that for a government it is the fact of the &quot;veering away&quot; from the tax obligations and not the legality of the methods used that is important.
 The current trend in Russia occurs on the world stage too. Banks that provide companies with lucrative financial instruments are being put under more and more pressure. In the U.S. there is a trend for people with Russian bank accounts to close them while on American territory.
 Still further, the U.S. government has enforced a measure that forbids American companies with offshore offices to participate in tenders organized by the Department of Homeland Security. The idea is to prevent companies with offshore registration from landing contracts that involve the nation's interior security. The authors of the amendment said that Congress should not support the tax games of American companies that wish to use the advantages of their country without fairly paying taxes.
 It is the aim of any business to make a profit, and the higher it is the more successful the business is regarded. So it follows that business will develop in places and in sectors which are favorable - within legal limits. The legal system, in its turn, can set different conditions for different industry sectors, determining a situation that would prove beneficial for a country's economy.
 The usage of offshore companies is not a criminal act. It is a case of a company taking advantage of certain benefits within available conditions that the law and accepted regulations allow. Only when the company crosses that line, goes beyond what is accepted and lawful should the government intervene.
 Therefore, for business to develop normally, legislature must clearly define the expected relationship between state and taxpayer. If there are special zones with favorable tax breaks taxpayers should not find themselves in danger of attack from the authorities for exploiting them.
 The logical conclusion would then be: business activities of Russian enterprises registered in this or another country should not be limited - it is the illegal structures and their shady schemes that deserve focus. And that will assist in creating an attractive investor climate in the country.
 
 <i>
Konstantin Zevlov is head of registrations at O.S.V. consultancy group.
 </i>

TITLE: Slowdown Is Not the Product of Politics
TEXT: The Russian economy slowed considerably in the second half of 2004. Although this in itself was not a surprise, the deceleration was stronger than had generally been anticipated. According to the latest official data, year-on-year real GDP growth slowed to 6.4 percent in the third quarter of 2004 from 7.4 percent in the first half of the year. 
 
State Statistics Service data for 2004 as a whole is as yet unavailable. Estimates differ of the magnitude of the slowdown in the second half of 2004 and in the year as whole. According to real GDP estimates compiled by Moscow Narodny Bank based on their surveys of confidence in the manufacturing and services sectors, growth declined to 4.5 percent in the fourth quarter of 2004, the weakest result since late 2002. The estimated year-on-year growth rate in December of 3.9 percent was the lowest since April 1999.
 Other estimates point to a gentler slowdown and, in some cases, to renewed vigor toward the end of the year after the trough in September-October. The State Statistics Service's estimate of growth in output of the economy's five basic sectors showed year-on-year growth of 6.6 percent for January-November. 
 Growth in November picked up strongly to 6.8 percent after sinking to 2.8 percent in September, although this was partly due to a higher number of working days than in the same period in 2003. According to Economic Development and Trade Ministry estimates, real GDP growth accelerated to 7.1 percent in November from 5 percent in October and 4.3 percent in September. January-November growth was estimated at 6.9 percent.
 More significant than the precise extent of the second-half or full-year growth slowdown has been the degree of underperformance relative to what could have been expected on the basis of very high average oil prices. The second important issue is what current trends may portend for future performance.
 Empirical estimates show that almost the entire year-to-year variation in real GDP growth between 1992 and 2003 can be explained by movements in four variables: oil prices, the real effective exchange rate or REER, an index of political risk - a proxy for other elements of the business climate as well - and the inflation rate.
 Applying this model to 2004 data for international oil prices, REER and inflation, the predicted real GDP growth rate at 2003 levels of political risk is 8.4 percent, compared with an estimated actual rate of 6.7 percent. Had the REER in 2004 remained unchanged vs. 2003, the predicted growth rises to 9.2 percent. In other words, the considerable average real effective appreciation of the ruble in 2004 knocked nearly a percentage point off potential growth. 
 The other implication is that political risk and associated factors that led to the deterioration of the overall business climate cost the economy 1.7 percentage points in growth in 2004, or the difference between the 8.4 percent projection and 6.7 percent estimated actual rate. This is not a dramatic amount, but neither is it negligible, as it amounts to an estimated $10 billion in lost production. 
 Furthermore, if the negative trends seen in 2004 persist - in the context of an eventual drop in average oil prices and ongoing real effective appreciation of the ruble - the effect on GDP could become more significant.
 A number of factors appear to be behind the underperformance of the Russian economy in 2004. In addition to the uncertainty caused by recent policy trends and the impact of real ruble appreciation, the banking &quot;mini-crisis&quot; of mid-2004 caused some damage. 
 Other developments also affected confidence, including new social legislation and the continued risk of terrorism. However, capital flight actually abated in 2004. Based on the balance of payments residual method, it is estimated to have declined to $11.5 billion in 2004 from an average of $15 billion in 2002-03.
 Higher taxes on windfall oil profits, which are still far below rates in some other oil-producing countries, do not seem to have had much impact. Nor did pipeline constraints play a role. Despite the Yukos affair and an easing of oil production growth in the final quarter of the year, Russia's oil sector performed well in 2004; other companies made up for Yukos production shortfalls. Crude oil output in January-November averaged 8.9 million barrels per day, a year-on-year increase of 8.9 percent. Contrary to widespread fears, no transport bottlenecks emerged. Indeed, pipeline monopoly Transneft reported that it actually had excess capacity in 2004. 
 Many observers blame the campaign against Yukos and stalled reforms for the slowdown. The longer-term consequences of Yukos remain uncertain, and the attempt to challenge the December auction of Yukos' main asset in Western courts could yet pose a serious hindrance for business. For the moment, however, the consequences are often greatly exaggerated, even if one assumes that there was some negative impact on the growth of fixed investment. 
 This conclusion is based on the oil-production data, capital flight figures and the uptick in foreign capital inflows into Russia, as well as a flurry of foreign direct investment deals, although Central Bank estimates for 2004 show that actual foreign direct investment inflows, at $6.6 billion, fell below some expectations. Skepticism also applies to the supposed negative impact of lagging reforms on growth, in particular stalled utilities reforms.
 For sustainable long-term growth, Russia undoubtedly needs more efficient and transparent institutions. It also needs structural economic reforms in some areas. However, many observers have made inflated assumptions about the returns on structural reforms, especially in the short term. Institutional change operates with very long lags and has little or no positive impact in the short term.
 The fact is that Russian growth will slow irrespective of reforms - given the country's high energy dependency and the likelihood of lower international oil prices in coming years. Russia is also beset by negative trends such as poor demographics and infrastructure and declining skills and health. 
 There has been a lot of commotion in the Russian press about the inability to fulfil President Vladimir Putin's goal of doubling real GDP within a decade, which requires average growth of at least 7 percent per year. In fact, if Russia managed to sustain growth in per-capita GDP of 4-5 percent per year for a prolonged period, that would be no mean achievement by historical standards, especially for a resource-dependent economy.
 
 <i>Laza Kekic is director for Central and Eastern Europe at the Economist Intelligence Unit. </i>

TITLE: City Plans Relocation of Industry
PUBLISHER: Staff Writer
TEXT: City authorities will allocate 500 hectares for industrial development on the outskirts of St. Petersburg by 2015, according to new city construction guidelines. 
 
In an effort to remove industrial plants from land that could otherwise support residential housing, the city's new general plan for construction and development promised a further 1,000 hectares for industry by 2025.
 The plan, which outlines development guidelines for St. Petersburg up until 2025, is expected to have final city approval by July 1, City Hall's committee for planning and architecture that is in charge of the project said last month.
 
 <strong>
INDUSTRY OPPOSITION
 </strong>&quot;The position of the [owners] of industrial plants is stable enough - the majority do not want to move from the city. But the decision has already been made: the relocation will take place as written down in the [general] plan,&quot; Irina Bondarenko, spokesperson of the committee for planning and architecture, said Wednesday in a telephone interview.
 
A Jan. 18 governmental meeting specified that factories located on river embankments will in the near future be the first to be moved from within the city perimeter.
 Industrial plants affected are those on Petrovsky Island, the northern bank of the Bolshaya Nevka, the territory between the Bolshaya Neva and Kantermirovsky Bridge, and the Vyborgskaya, Petrogradskaya and Pirogovskaya embankments.
 Also on the list are plants along the banks of the Rivers Karpovka and Zhdanovka, the zone close to Obvodny Canal, territories around Izmailovsky Prospekt and Moskovskaya freight rail station.
 
 <strong>
COST INCENTIVE
 </strong>As a form of incentive, prices for land in the new out-of-city industrial zones will drop as low as to $100,000 per hectare, City Hall officials promised at the January meeting.
 
Land within industrial zones will become the cheapest in the area, city officials said, altering the current balance which has industrial zone space equal in price to land allocated for residential construction: about $30-35 per square meter.
 &quot;We are not going to earn money by selling the land; we want to continue the development of industry,&quot; vice-governor Mikhail Oseyevsky said Tuesday to Rosbalt news agency.
 &quot;Although the list of factories which are ready to move from the city center is not big, we are preparing the land. First, the city is focusing on new investors and construction of new plants, such as those by Electrolux and Bosh-Siemens,&quot; Oseyevsky said.
 The areas of Shushary, Neudorf, Metallostroi and Konnaya Lakhta will provide space for a total of 48 industrial zones to accommodate the city's relocated manufacturers, the committee for economic development said at the January meeting.
 The committee predicted an annual industrial growth of 7 percent to 12 percent and an 8 percent to 10 percent rise in investment per year. At such a tempo, the local gross domestic product would climb to 15.5 percent, making the additional industrial areas vital for industry, the committee said. 
 
 <strong>
BUSINESS REACTION
 </strong>Despite the attractive nature of the plan, Leonid Aronov, deputy head of the St. Petersburg Association for Industries and Business, sees its aims as difficult to achieve considering the conditions in which national industries work.
 
&quot;In the short run there could be cases of investors taking areas previously occupied by industries [for elite residential construction]; but there are certain long term problems,&quot; Aronov said Wednesday in a telephone interview.
 Industrial sites are likely to have suffered from pollution and exposure to production and, in some cases, even chemical waste, Aronov said pointing to the example of the building complex located near Birzhevoi Bridge, behind Yubileiny sports hall.
 &quot;That territory used to be occupied by chemical plant Prikladnaya Khimiya. It was scheduled to be handed over to an investor for a residential construction project quite a while ago, but there has still been no progress,&quot; he said.
 A further issue would be the amount of investment needed for the building of new premises for the relocated factories, the cleaning up of investor-acquired territory and financing construction on it, Aronov said.
 &quot;The area is great, but the spending? There are lots of empty plots in the city that still can be used,&quot; he said.
 This view was not shared by Natalia Dyatlova, a real estate expert at Ernst &amp; Young consultantcy, who judged the general plan's proposals as practical, cooperative and reaching out to business.
 &quot;The land in the city center is quite valuable, so I don't think there will be any problems with investments,&quot; Dyatlova said Wednesday in a telephone interview. &quot;This is quite a realistic plan.&quot;
 Pointing to the city's 2005 legislation that dropped the price for land plots in St. Petersburg threefold - by reducing the coefficient at which property value is estimated from 30 times the land tax to nine - Dyatlova suggested the city government was acting positively.
 &quot;The city is interested in attracting investors and has already undertaken steps to stimulate development [of investments] in this area,&quot; Dyatlova said.

TITLE: 'Khrushchyovki' Housing Gets $13Bln Make-Over
PUBLISHER: Staff Writer
TEXT: A German firm is set to invest 10 billion euros ($13 billion) into the rejuvenation of Moskovsky district housing by replacing decaying <i>khrushchyovki</i> apartment blocks with modern 16-story houses, Interfax reported.
 
The multi-billion euro project that spanning 10 years will be run by Peter Dussmann, a subsidiary of the German corporation The Dussmann Group. 
 The firm promises new apartments for current residents of khrushchyovki for free, while other interested tenants will have to pay full property costs.
 &quot;We are planning to deconstruct the existing khrushchyovki blocks in this district together with a construction company and build multi-story housing to resettle residents in the same area,&quot; Alexander Volodkov, general director of Peter Dussmann, told Interfax late last month.
 Although stressing to The St. Petersburg Times that the project was still in the early stages of development, Volodkov said in a telephone interview that a prominent construction company will work together with Dussmann on the project. He declined to name the company.
 Khrushchyovki blocks were mainly five-story panel apartment buildings built at the end of 1950s through to the beginning of the 1970s all across the Soviet Union. 
 They got their nickname from former Soviet leader Nikita Khrushchev, who ordered the construction of the first of these type of apartment blocks. 
 The 1950s khrushchyovki housing project was designed to cope with the housing shortages of that time and to resettle people increasing exasperated with their communal flats, the kommunalki, which accommodated several families at once.
 <i>Khrushchyovki</i> buildings consisted of very small one-, two- and three-room apartments with tiny and inconvenient kitchens and bathrooms. The buildings' first engineers believed that the khrushchyovki would serve for at least 100 years. Without any capital repairs, many of those buildings have already reached decrepit conditions.
 Dussmann's partner company will first build a new apartment building, relocate current residents of khrushchyovki block there, then demolish the Soviet building, Volodkov said. The pattern will continue for the rest of the housing in the Moskovsky district.
 As well as house construction, Peter Dussman has been heavily involved in tenders for provision of communal services to residential apartments.
 After a Jan. 21 meeting with St. Petersburg vice-governor Oleg Virolainen, Volodkov said that by April 1 Peter Dussman will start operating their communal services at about 100 apartment buildings in the Admiralteisky district.
 Furthermore, the company has signed protocols of intentions with the Kolpinsky, Frunzensky and Primorsky districts to participate in communal services tenders in these areas as well.

TITLE: IN BRIEF
TEXT: LSR Invests $6 million
 </b>

ST. PETERSBURG (SPT) - Development group LSR will invest $6 million over three years into a low-level housing project that will provide 7,000 square meters of residential space in the Sestroretsk area, business daily Delovoi Petersburg reported late last month.
 LSR's subsiduary companies Osobnyak and Vozrozhdeniya Peterburga received a 68,700 square meter land plot from the city at the price of $37 per square meter. Infrastructure development for the area has been left to the care of the companies.
 
 
<b>McExpansion Plans
 </b>

MOSCOW (Bloomberg) - McDonald's, the world's largest restaurant company, plans to open 105 outlets in Russia within three years to tap rising demand for its food.
 About 25 restaurants will be added this year, President Michael Roberts said today in an interview after a press conference in Moscow. Some 35 restaurants will open in 2006 and another 45 will start trading the following year, Roberts said.

TITLE: In Ukraine, Western Media Mirrored Kremlin
TEXT: The Western media were on the right side on Ukraine, while Russia was on the wrong side. But the reporting was almost as unsound in the West as it was in Russia. Even a cursory glance revealed that something was amiss. The media were strangely unanimous in their views. They took leave of &quot;report mode&quot; and went into &quot;campaign mode.&quot; They used a good guys-bad guys approach. And - most importantly - they treated the main &quot;bad guy&quot; in Ukraine as Russia, not the Leonid Kuchma-Viktor Yanukovych regime. While Viktor Yushchenko was campaigning against Yanukovych, the Western media were campaigning against the Kremlin. They presented the elections as a choice between Russia and the West.
 Without a doubt, this was more interesting for Western audiences. Who wants to read about the internal complexities in Ukraine? How much more exciting to read about a battle over whether Ukraine is going to be part of the West or the Russian Empire! It was an approach that mirrored the Kremlin's. 
 In this crucial matter of how to frame the issue, the Western media sided with Yanukovych. Their meta-message undermined Yushchenko, even as their explicit message applauded him. Yushchenko did not want an East-West conflict for two good reasons: He did not want the country he would lead to be divided, and he did not want to lose the election. Eastern Ukraine has more people than Western Ukraine. The more pro-Russian candidate traditionally wins in Ukrainian elections, which was how Kuchma beat Leonid Kravchuk in the first place.
 For this very reason, the Yanukovych campaign pushed for polarization into two camps, East and West. It promised unlimited integration with Russia. It had Kuchma excise the goal of integration with the European Union and NATO from a national strategy document. Yushchenko refused to oblige Yanukovych; he tried to keep the focus on democratic and market reform inside Ukraine. 
 But the Western media did oblige Yanukovych and joined him in presenting the election as a Russia vs. West struggle. If Ukrainians had believed the Western media, they would likely have voted for Yanukovych.
 But they didn't. The two-camp approach proved counterproductive for Yanukovych because Yushchenko refused to take him up on it. Instead, Yushchenko spoke as a moderate who would maintain close ties with both East and West, even while moving along a westward vector. He did not threaten to split his country, and the people responded favorably to him.
 The Western governments, too, denied that theirs was a geopolitical battle aimed against Russia. It seems they were sincere in this, but it was hard for them to sound convincing when the Western media were keeping up a loud anti-Russian drumbeat. They tried to contrast themselves favorably to Russia, which openly backed Yanukovych and put crude pressures on Ukraine to elect him, and they denied they were supporting Yushchenko, just democracy and free elections. But in fact they were supporting both democracy and Yushchenko, if only passively. 
 The West supported Yushchenko as a friend of democracy and of mutually beneficial ties. The West also opposed Yanukovych out of fear of a possible gradual restoration of the Russian Empire, beginning with the imposition of an authoritarian regime dependent on Russia. For Yanukovych, the sky was the limit in terms of reintegration with Russia. Thus two camps formed, which were differentiated internally and more asymmetrical than the mirror image presented by outside observers. 
 It was Russia's choice, not the West's, that Russia defined support for Yushchenko and Ukrainian integration into the West as a priori anti-Russian. It accordingly tied itself to the Kuchma regime, not so much as a positive partner for Russia - in fact, Kuchma was an inevitably limited partner, protective of his own fiefdom, as all authoritarians are - but more as an insurmountable obstacle to Ukraine's potential acceptance in the West. 
 All this would have been hard enough to explain and keep clear, even if the Western government spokespeople had been able to formulate all the necessary distinctions. It was nearly impossible to explain the situation convincingly, when added to these complexities came the burden of the two-camp crudities incessantly propagated by the Western media and the Russian government, which melted all relevant distinctions and wore down the ordinary person's mental resistance to simplification. Many Russians took the media as expressing the real views of the West - all the more so as it corresponded to what their government was telling them.
 Not only the Western media, but also NGOs spoke with the two-camp geopolitical reductionism of Yanukovych. This introduces another complicating factor: The independent NGOs, funded with careful arms-length procedures by Western governments in order to support free elections and development of civil society, took sides in a much cruder geopolitical spirit than did the governments themselves. This is something that Russian analysts like Sergei Markov have blamed on the prominence of Eastern Europeans among NGOs, leading him to the interesting conclusion that Russia should have no problem with Western governmental involvement in Ukraine, only with NGO involvement. All in all, however, it seems the biases of the NGOs did very little to change the political coloration.
 Yushchenko's victory was a remarkable accomplishment in that complexity triumphed over simplification. And it did so in an intense, bitter electoral campaign. The Ukrainian people showed greater maturity in choosing complexity than did the Western media, which joined Yanukovych and the Kremlin in choosing oversimplification and the collapsing of logical barriers between categories. The reason for this was likely Ukrainians' awareness of realities on the ground in central Ukraine and grim determination not to let themselves be deceived or cheated. The Western media exhibited a more mercenary interest in whatever would grab the attention of a lazy, distant audience.
 The Western media misrepresented the West's real position in Ukraine. This, to be sure, is their right. They are not the government; they usually have an adversarial relation to governments. Nevertheless, in this case, the media behaved as unofficial spokespersons for the Western cause. They bungled the role. They didn't lose the election for Yushchenko, but they did more than their ordinary share to help convince Russia that it was faced with a West that was out to do it harm in Ukraine. And this could prove so damaging in its consequences as to outweigh the gains within Ukraine.
 We have &quot;won&quot; Ukraine and gone a long way toward &quot;losing&quot; Russia. This was not a natural, unavoidable consequence of Yushchenko's success. It was an outcome constructed by the devotees of two-camp thinking on both sides.
 
 <i>Ira Straus is U.S. coordinator of the Committee on Eastern Europe and Russia in NATO, an independent non-governmental international association that advances consideration of NATO expansion and transformation. He contributed this comment to The St. Petersburg Times. </i>

TITLE: Replacement of Benefits Spurs Healthy Protests, Responses
TEXT: The scandal about free rides for pensioners is nearing its end so this is a good opportunity for an initial summary. Initial because, I hope, the conflict over the replacement of in-kind benefits is not yet decided.
 
The almost universal production of discounted monthly passes for public transportation seems to satisfy everyone; the protests are dying down and the price that the authorities are ready to pay appears completely sufficient for the majority of administrative regions. The Law No. 122 has not been repealed, which means that the reform of the in-kind benefits has been implemented.
 Why did officials make the friendly decision to introduce discount passes on the spot? In my view, there are two reasons: firstly, this was at the insistence of the federal government - fully compensating beneficiaries for their transport expenses could set off inflation. Secondly, it was simply cheap.
 In addition, two regions in the Northwest - the Novgorod and Kaliningrad regions - did not replace in-kind benefits with cash. Those regions' governors said that their regional budgets could not afford to make the transition. At first glance this seems absurd - the purpose of the replacement was to lower the burden on the budget. The reason being: a non-transparent system of covering the losses of the state-owned transport enterprises from the budgets must be much more expensive than an honest, transparent, market-based system of paying for services with cash by the actual user. So if that does not work out in one region or another, it means that the authorities are simply not paying the transport enterprises and hence, as a result, transport fleets are falling into disrepair. The Mercedes that the director of a transport enterprise drives is in any case bought with money stolen from the state (this is the standard subsidy in Russia) but for public transport vehicles - there isn't enough money. That means buses in the Novgorod and Kaliningrad regions will run ever more rarely, their state of repair declining all the while.
 Thank God that in St. Petersburg the administration has not gone so foolishly far. And apart from deciding to compensate transport costs affected by discount passes - to the tune of 370 rubles ($13.20) each - it will still be possible to introduce market forces to the reform of the city transport sector. City Hall counts on saving almost 3.5 billion rubles (as opposed to paying the full 5.3 billion rubles of paying for the unsubsidized 600-ruble passes), since the administration calculates that only about half the city's pensioners actually use public transport anyway.
 Whether that calculation will turn out to be correct remains to be seen. In any case the quality of transport in the city will be better than in the Kaliningrad or Novgorod regions. This is not only because St. Petersburg is more wealthy (although it is), but because City Hall has taken a more civilized approach and not canceled the reform for the sake of irrational populism. As a result the replacement of in-kind benefits will be implemented and reform of the transport sector has not been abandoned. 
 I want to point out one more positive aspect of the whole story. Many critics blame the authorities for the pensioners' protests. Having &quot;switched off&quot; all opposition last summer during consideration of law. No. 122 and constructed the &quot; power vertical&quot; in such a way that the only choice for the regional governments was to approve the replacement of benefits with cash, the Kremlin created the conditions for the pensioner revolt. That is true. But is it really so bad? What's so bad about those protests? I see them as an extremely positive development - one should thank the Kremlin that it found a way of waking up public from its drowsiness, even if those who woke up were pensioners.
 The main bane of our country's existence is the absence of a civil society; this is the source of all the country's ills. Russians do not want to get involved in community organizations and would rather leave everything up to the good will of a tsar. But there are no good tsars, if only because the boyars are always hungry and therefore sometimes evil. Despite unbelievably high ratings for President Vladimir Putin, a significant part of his electorate are so unhappy with the policies conducted by his government, that they are ready to take to the streets. Isn't that some kind of wonder?
 To date it is only pensioners who are protesting and the protests are only about losing free rides. In the meantime the public is beginning to receive the bills for January for communal housing services at new rates, and many have not yet tried to get free medicine at drugstores and clinics or to get free travel to sanatoriums. The dacha season is coming when St. Petersburg beneficiaries will want to travel on suburban trains and local bus services for free. You see what I'm getting at? And then there are the students - they have also suffered from the reform. In short, plenty of reasons remain for the public to protest. And if our nation, having learned from the recent victories of the pensioners, decides to follow suit, then, to use the words of television presenter Vladimir Pozner, &quot;maybe an entirely different kind of life will begin.&quot;
 
 <i>Vladimir Gryaznevich is a political analyst with Expert Severo-Zapad magazine. His comment was first broadcast on Ekho Moskvy in St. Petersburg on Friday. </i>

TITLE: Iraq Finishes First Phase of Ballot Count
PUBLISHER: The Associated Press
TEXT: BAGHDAD, Iraq - Iraq's interimleader called on his countrymen to set aside their differences Monday while jubilant Iraqis sifted through ballots, tallying the results of a vote that millions hoped would usher in democracy and lead to the departure of 150,000 American troops. 
 
But there were fears that not everyone would accept Sunday's results. Sunni participation was considerably lower than other groups, a U.S. official said on condition of anonymity. That raised fears that Sunni radicals who drive Iraq's insurgency could grow ever more alienated. 
 Exact figures were not available, but few voters visited polls in Sunni areas - and four stations didn't open - during Sunday's election. 
 Despite fears of growing violence, the nation was calm Monday as vehicles again wove their way down Baghdad's streets after an election day ban on most traffic. Still, the city's main bridges were blocked, indicating some security was still in place. On Sunday, a string of insurgent attacks and eight suicide bombings killed 44 people. 
 The election will almost certainly bring to power the country's long-suppressed Shiite Muslims, who make up 60 percent of Iraq's population, boosting the group's influence and worrying neighboring countries with Sunni majorities. 
 Final results of Sunday's election aren't expected for days, but the country is already focusing on goals almost as challenging as the election itself: forming a new governing coalition, then writing a constitution and winning trust. 
 The electoral commission said it believed, based on anecdotal information, that turnout overall among the estimated 14 million eligible Iraqi voters appeared higher than the 57 percent, or roughly 8 million, that had been predicted before the vote. But it would be some time before any precise turnout figure was confirmed, they said. 
 Not even the country's frequent power outages could stop the electoral process, the first free vote in a half-century. In the Shiite holy city of Najaf, election workers began their task crouched on the ground, counting ballots by the glow of oil lamps. 
 It was still unclear if the successful vote would deal a significant blow to the insurgents, or lead to a short-term rise in violence. The militants might need time to regroup after the spate of attacks they launched in the weeks before the vote. 
 The election was hailed as a success around the globe, with U.S. President George W. Bush declaring: &quot;The world is hearing the voice of freedom from the center of the Middle East.&quot; Australian Foreign Minister Alexander Downer said Iraqis showed &quot;the courage to stand up to [violence] and we should support them.&quot; 
 In Europe, both opponents and supporters of the Iraq war came together to praise the election, and the European Union's foreign policy chief said the milestone would pay off with more aid. 
 But some cautioned that it was too early to declare the election a total success. New Zealand Foreign Minister Phil Goff said a low Sunni turnout could still impact the new government's ability to bring the frail nation under its control. 
 The 275-member National Assembly, elected for an 11-month term, will draft a permanent constitution, and if the document is approved, Iraqis will vote for a permanent government in December. If the document is rejected, Iraqis will repeat the whole process again. 
 Iraq's Interior Minister, Falah al-Naqib, said Monday that insurgents used a handicapped child for one of Sunday's suicide bombings. He added that a total of 38 attacks were carried out against polling stations across the country.

TITLE: Army Reform Splits Austrian Government
PUBLISHER: The Associated Press
TEXT: VIENNA, Austria - Pushing Austria's government to the brink of collapse, the conservative Freedom Party angrily accused its coalition partner Sunday of breaking up the alliance by pushing through reforms aimed at moving the country toward an all-volunteer army.
 
Uwe Scheuch, the Freedom Party's general secretary, issued a statement lashing out at the center-right People's Party and accusing its leadership of being &quot;intoxicated by power.&quot; He also said the party &quot;busted&quot; the coalition with &quot;single-handed&quot; reform attempts. 
 The two parties have shared power in an uneasy alliance since 2000. Tensions soared last week after Defense Minister Guenther Platter, a member of Chancellor Wolfgang Schuessel's People's Party, formally proposed shortening obligatory military service from eight months to six and halving the federal army's ranks from 110,000 soldiers to 55,000.
 The shortening of mandatory service is a step toward Austria's eventual goal to shift to an all-volunteer military. 
 Platter insisted that security at Austria's border posts with the Czech Republic, Hungary, Slovakia and Slovenia would not be compromised under the plan, part of a sweeping reform begun in 2002 to cut costs and modernize the Alpine country's military. 
 But the right-wing Freedom Party, which has staked out a tough position on immigration, reacted with fury, accusing Platter of playing &quot;a dangerous game with the security&quot; of the country. The party contends the military reforms would lead to lax border security and allow more people to illegally enter the country from Eastern Europe.

TITLE: Jewish Settlers Protest Against Plan to Pull Out From Gaza
PUBLISHER: The Associated Press
TEXT: JERUSALEM, Israel - Tens of thousands of Jewish settlers and their supporters protested outside parliament against Israeli plans to withdraw from the Gaza Strip and parts of the West Bank, saying Prime Minister Ariel Sharon does not have a mandate to dismantle settlements and must hold a national referendum. 
 
During Sunday night's rally, one of the largest in Jerusalem's history, demonstrators pledged to go to Gaza to try to disrupt the evacuation of settlements, set for this summer. However, the protest was unlikely to deter Sharon who stabilized his coalition, despite efforts of opponents to topple him. 
 &quot;Ariel Sharon, you have no mandate to expel Jews,&quot; said Effie Eitam, a pro-settler lawmaker, to a crowd estimated at about 130,000.
 The settler protest came as a de-facto truce was taking hold and Israel was preparing to hand security control of West Bank towns to the Palestinians. 
 Palestinian police commanders said they were told to prepare to take control of four West Bank cities - Ramallah, Qalqiliya, Tulkarem and Jericho - on Wednesday. However, Israeli officials said no steps would be taken ahead of a meeting of the Israeli Security Cabinet on Thursday. 
 Israeli Defense Minister Shaul Mofaz was to meet Tuesday with Palestinian negotiator Mohammed Dahlan, their second session in three days, to finalize the West Bank handover. 
 Palestinian security officials said they were told by their Israeli counterparts that in addition to leaving West Bank towns, troops would take down some roadblocks, rolling back security measures imposed after violence erupted in September 2000. Israeli forces reoccupied West Bank towns in April 2002, after a series of particularly bloody suicide bombings, but have pulled back to the outskirts of population centers in most areas since then. 
 Palestinian leader Mahmoud Abbas has won a commitment from militant groups to stop attacks, and Israel has scaled back its military operations in return - but no formal cease-fire declarations have ensued. 
 In another significant move, an Israeli official said Sunday that Israel would grant an amnesty to West Bank fugitives, ending its relentless search for dozens of militants suspected of carrying out or planning attacks. 
 In four years of conflict, dozens have been killed in Israeli raids and many more arrested.

TITLE: IN BRIEF
TEXT: Car Explosion 
 </b>

DUSHANBE, Tajikistan (AP) - A car loaded with explosives blew up in the Tajik capital Dushanbe on Monday morning, killing the driver and wounding three other people, the emergency situations minister said. 
 There was no immediate indication of who was responsible. Interior Minister Humdin Sharipov launched an investigation into whether the blast was a terrorist act. 
 
 
<b>Peace Talks to Reopen
 </b>

ABUJA, Nigeria (AP) - Sudan's government and Darfur rebels said Monday they'll reopen long-stalled peace talks within weeks in Nigeria, aimed at calming the western Sudan region where tens of thousands have died in a nearly two-year crisis. 
 The most recent peace conference began Dec. 11 in Abuja, but rebels boycotted face-to-face meetings with government delegates two days later, alleging a new government offensive. The talks broke down entirely within weeks.
 
 
<b>Bomb Hits Resort
 </b>

MADRID, Spain (AP) - A bomb exploded Sunday in a Mediterranean resort hotel in southeast Spain after a telephone warning from the Basque separatist group ETA, injuring one person, the Interior Ministry said. 
 The bomb was contained in a backpack and detonated in a courtyard of the Hotel Port Denier at about 3:15 p.m. Denia is a beach town in the Spanish province of Alicante and is popular with tourists. 
 
 
<b>'99 Inferno Investigated
 </b>

BONNEVILLE, France (AFP) - A major trial aimed at establishing responsibility for the 1999 inferno in the Mont-Blanc tunnel linking France and Italy that killed 39 people was set to begin in eastern France. 
 The trial is expected to last three months, and will examine the chain of events - and several mistakes - that occurred in the tragedy on March 24, 1999.

TITLE: Chelsea
 Lost $166M
 In Season
PUBLISHER: Combined Reports
TEXT: LONDON - Chelsea made record English soccer losses of Pound88 million ($166 million) in 2003-04, their first season under the ownership of Russian billionaire Roman Abramovich, the Premier League club said Sunday. 
 
The pre-tax figures for the year to June 30, 2004 surpass Leeds United's previous record loss of Pound49.5 million in 2003. 
 Chelsea spokesman Simon Greenberg confirmed the losses for the club's parent company Chelsea Village, saying the accounts would be filed to British company registration center Companies House on Monday. 
 Compared with Abramovich's vast fortune the loss is unlikely to worry Chelsea, who are 10 points clear at the top of the Premier League and on course to win four major titles after beating Birmingham City 2-0 on Sunday and advancing to the round of 16 in the FA Cup. 
 Chelsea manager Jose Mourinho, who guided Portugal's FC Porto to a Champions League title last season, rested eight of the players that beat Manchester United 2-1 Wednesday in the League Cup semifinals. 
 &quot;Two years ago we were seen as streets paved with gold. That is over. Chelsea is now being run properly. The club is being run as a business,&quot; chief executive Peter Kenyon told the BBC. 
 Abramovich, the main shareholder in oil firm Sibneft, wiped out Pound80 million worth of debt after buying Chelsea for Pound60 million in July 2003. He has since spent around Pound200 million on players. 
 The Russian's investment has paid off with Chelsea well clear at the top of the Premier League and safely through to the lucrative Champions League knockout stages under the guidance of Mourinho. 
 Mourinho replaced Claudio Ranieri last year after the Italian was sacked despite leading the team to second in the Premier League and to the Champions League semi-finals. 
 Abramovich spent Pound175 million pounds on new players in his first season, with the annual payroll more than doubling to Pound115 million. 
 Kenyon, recruited from Manchester United after Abramovich's arrival, said the club were looking to become financially self-sufficient and that they have a five-year plan to reduce their dependency on the Russian. 
 Abramovich took Chelsea private after buying former chairman Ken Bates's controlling interest in Chelsea Village. 
 Bates bought Chelsea in 1982 for Pound1 and took the club back into the top flight, investing in players and the Stamford Bridge stadium. 
 The club went heavily into debt, however, and Abramovich's arrival came at a crucial time, with analysts warning that Chelsea could have become the &quot;new Leeds.&quot;
 <i>(Reuters, AP) </i>