SOURCE: The St. Petersburg Times
DATE: Issue #1060 (26), Tuesday, April 12, 2005
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TITLE: Governor Woos Investors to St. Petersburg
TEXT: LONDON - Investors eyes were focused on St. Petersburg on Monday when Governor Valentina Matviyenko opened a session of the Russian Economic Forum in London.
And for the first time part of the forum, the biggest international investment forum focusing on Russia, was devoted to the Northern Capital.
The governor referred to the city's traditions as modernization begun by its founder, Peter the Great. "St. Petersburg is a European gateway to Russia," she said. "St. Petersburg is becoming the leader of Russian modernization and leader of innovative ideas. St. Petersburg is ready for the emerging economies."
Developing a modern economy is one of her administration's main priorities, she said.
"We do everything we can to develop and involve new businesses and improve the investment climate," Matviyenko said. "We have simplified the hurdles, simplified the decision-making processes and opened tender processes according to international rules.
"Britain is one of our greatest partners," she added. "Over 100 U.K. companies are now in the region."
Hailing the food industry, machine-building, shipbuilding and transportation as growth sectors of the city economy, she said this was not only due to foreign investors, but also Russian ones, including Transneft, Gazprom and Lukoil, which have opened offices in the city.
When asked why all the good developments had not yet resulted in a breakthrough in foreign investment in St. Petersburg, Matviyenko said she needed to preserve a good image of the city.
"I am not idealizing the situation," she continued. "Of course, we have some problems, but that's true of every metropolis.
"Most important is that we are aware of the problems. In two to three years , St. Petersburg will be a leader in bridging Russia and Europe," Matviyenko said, leaving the conference before the Spotlight on St. Petersburg session.
In the absence of the governor, the session was less spirited than it might have been.
The rest of the conference was marked by unusually sharp criticism and even hinting at a possible revolution as Russia's business elite said the government must kick-start reforms and reach out to foreign investors if it hopes to maintain stability and strong economic growth.
Many of the 2,000 Russian and foreign business leaders at the annual London conference called the remarks a wake-up call for Russia's dozing reform policy. But some pointed to the absence of senior government officials as a troubling sign that the alarm bells might not be ringing loudly enough in the halls of government.
Forum speakers hailed the strong growth of the economy, and the most senior state official in attendance, presidential economic adviser Andrei Illarionov, noted that industries including oil, metals and forestry are more robust now than they were at their previous peaks before the Soviet collapse in 1991. But he and other speakers stressed that future growth would not come easy.
"It is high time today to not only speak about the successes but also to speak about the truth," said Mikhail Kasyanov, the former prime minister who has hinted that he might run for president in 2008.
"I don't think that the best way to restore confidence is to draw a rosy picture but to tell it as it is," he said.
In a hard-hitting speech, Kasyanov took aim at growing inflation and the government's unpopular monetization of state benefits. "This lopsided attempt that brought people out into the street ended any hope of successful social reforms," he said.
Kasyanov also criticized the judicial system and the tax regime. "Asymmetric actions of tax officials are forcing businesses into the grey," he said.
He warned that a forecast budget deficit for next year could mean Russia will forfeit its current investment grade status, and said the government must not "continue reclining on the cushion of oil prices."
Alfa Bank president Peter Aven conceded that living standards have steadily improved over the past 14 years but said that was not enough. With a colorful slide presentation, Aven showed how living standards had increased in Russia in the years before the 1917 Revolution, in Greece before its 1967 Revolution and in Iran before its 1979 revolution.
He complained that the government has dragged its feet at passing any meaningful reforms over the past year. "We are essentially at the same place that we were a year ago," he said.
"Without making any forecasts, popular support [for reforms] may disappear," Aven said. "The government must make reforms in the shortest amount of time."
He lambasted the government over the social reform, which came into force Jan. 1, and said that federal money spent on the reform now accounted for 25 percent of all cash in circulation.
Aven cautioned that foreign direct investment was just 16 percent of gross domestic product - and that much of the investment is actually Russian money being re-injected into the economy. "Many of the foreign investors investing through Cyprus are, I believe, sitting in this room," he said as the packed hall rippled with laughter.
Charles Ryan, chairman and CEO of United Financial Group, said Russia will need 15 percent investment growth to achieve its goal of 7 percent annual economic growth in the coming years. "Growth going forward is going to be tough," he said.
Ryan also said Russia should soften its immigration policy to take into consideration that 350,000 new migrants are needed to boost economic growth by two-thirds of one percentage point.
London Mayor Ken Livingstone also made a case for immigration, saying he welcomed Russians and people from other countries to live, work in London or just go sightseeing.
"Russians are welcome in this city both as individuals and for the spending that they bring," he said.
Livingstone said Russian tourists for the first time last year spent as much as U.S. tourists - previously the biggest spenders - and accounted for 8 percent of all tourist spending.
Several conference participants grumbled that senior government officials - especially liberal reformers such as Economic Development and Trade Minister German Gref and Finance Minster Alexei Kudrin - had not attended the forum.
"The Russian government made a major political mistake in deciding not to attend," said one participant, an influential member of the business community who asked for anonymity to speak more frankly. "They're making Russian business look like the political opposition, when all business wants is the right economic policies. Some people here think Kasyanov's speech was clearly political and not appropriate."
TITLE: Dussmann
Faulted By
Watchdog
PUBLISHER: Staff Writer
TEXT: While German and Russian businesspeople are waxing about the joys of doing business in Hanover, in St. Petersburg German communal servicing company Piter-Dussmann has run foul of the Federal Anti-Monopoly Service.
The service said it intends to prosecute Dussmann because no tender was held before it was permitted to run a pilot residential services project in the city.
"We're investigating the activity of Piter-Dussmann in the Admiralteisky district," Oleg Kolomeichenko, head of St. Petersburg branch of the service, said on April 3.
"We don't know the position of City Hall yet," he added. "Maybe they will say that they had good reasons [to give the company the right to service buildings]."
An investigation into the awarding of the contract to Dussmann could begin this month, anti-monopoly service representatives said.
On March 1, Piter-Dussmann started operating in 46 apartment blocks in Admiralteisky district. This month it was granted a contract to service another 20 apartment blocks, as part of a City Hall experiment to introduce private firms to raise the standards of housing services.
There is dire need for improved services, and Dussmann, which has extensive experience in its home country, intended to reduce staff and invest in equipment to set the standard in the sector. No budget funds are involved in the contract, with Dussmann to operate purely on the communal housing payments paid by householders.
Dussmann also has big plans to invest in city housing and infrastructure.
Meanwhile, German Chancellor Gerhard Schroeder and President Vladimir Putin have been urging even closer business ties between their two countries at the Hanover Messe trade fair (see story, page 4).
The anti-monopoly service appeared on the scene arguing that Dussmann had entered the business without competition from other operators, including the state-owned Zhilkomservis, which has had a monopoly on providing communal housing services to date.
"No laws have been broken," Alexander Volodkov, head of Piter-Dussmann, said Monday in a telephone interview. "We signed agreements with local groups of housing owners, which have a right to choose any servicing company they want."
"If FAS has initiated any cases in relation to our company I would have received a notification from them, but I did not and only have read about it in the media," he added.
But FAS representatives insist that while setting up the housing communities Piter-Dussmann is trying to raise prices for servicing to levels set for private dwellings, which are higher than for municipal housing.
"In our opinion an economic incentive is needed to set up housing condominiums," FAS head Igor Artemyev said Wednesday at a briefing. "In other words we need a starting point, when residential buildings that set up condominiums pay less for services than those provided by natural monopolists [the state-run services that have operated to date]."
Piter-Dussmann has invested about $260,000 in communal servicing since March 1 and is planning to spend about $2 million in total this year, scheduling to install meters that will be used to calculate heating fees in buildings in the Admiralteisky district and to replace sewage systems in some of the streets in the area, Volodkov said.
Under a City Hall order that was issued at the end of last year, Piter-Dussmann has set up communities of housing owners in Admiralteisky District to take over 155,000 square meters of old housing, or 146 residential buildings, where 36,000 city residents have their permanent residence.
The project is scheduled to last until 2014 with plans to get more buildings in the Frunzensky and Kalininsky districts, according to Dussmann management.
"I have a feeling [the situation] is inspired by those who are against our activity," Volodkov said. "We are working and you can already see the difference. If they want a tender, then Zhilkomservis can be invited to participate in it, no problem, but it is up to the condominiums to choose who they want to work with."
Several buildings in the area have refused to work with Piter-Dussmann, but the company has provided the housing committees with information about its service and hopes to get them on side soon, Volodkov said.
Zhilkomservis officials said they are quite happy that Piter-Dussmann is about to take over most of the buildings in one of the city districts, but said they could also perform to the standards of the German company.
"Within the next few months Dussmann will get 104 buildings in total, according to an agreement signed earlier with the municipal housing agency," said Yury Butenko, head of Housing Committee No. 1, which is responsible for servicing residential housing in the area where Piter-Dussman started its operation. "We will get 15 buildings or so."
The German company has signed a deal with Housing Committee No. 1 to provide assistance in emergencies, Butenko said.
"We have equipment and the ability to work in some cases even better than Dussmann and we will do so in the buildings for which we will be given responsibility," he said.
Within the next few months the Admiralteisky district will organize a tender involving Zhilkomservis and Piter-Dussmann to distribute rights to service the rest of the residential property in the area, according to the new Housing Code that came into force on March 1.
City Hall could not be reached for comment Monday.
At the end of December last year City Hall reorganized municipal housing agencies into several joint-stock companies under Zhilkomservis. According to City Hall officials the re-structuring is intended to create a competitive market within the municipal communal sector to improve the cost-effectiveness and quality of services.
"We are creating them artificially to set up competition with other companies," Oleg Virolainen, vice governor responsible for construction and the housing sector, said in December.
TITLE: Khodorkovsky Says He Did Nothing Wrong
PUBLISHER: The Associated Press
TEXT: MOSCOW - In a dramatic finale to Russia's biggest trial in decades, jailed tycoon Mikhail Khodorkovsky ridiculed the charges against him as "fantasies of a pulp fiction writer" aimed to cover up an asset grab by state officials out to shatter the oil empire he built and seize its parts for themselves. The court set April 27 as the date for a verdict.
The trial has gripped Russia and unsettled foreign investors. Khodorkovsky, who was arrested nearly 18 months ago and has watched the demise of his company Yukos from behind bars, faces up to 10 years in prison if found guilty of fraud, tax evasion and other charges - as is widely expected.
"A year ago the total, planned destruction of Yukos began," Khodorkovsky said in his final statement from a small cage in a Moscow courtroom jammed with journalists, relatives and observers. "It was organized by certain influential individuals with the intention of taking over the most flourishing oil company in Russia."
"There is no documentation or witness statements that would prove I have committed illegal actions," Khodorkovsky said in a calm, clear voice.
After his 40-minute address, visitors packed into the Meschansky district courtroom for the end of the 10-month trial broke into wild applause.
Yukos, which once pumped a fifth of Russia's crude, saw its biggest unit auctioned late last year to pay part of a disputed $28 billion back tax bill. The unit was eventually acquired by the state-owned oil company Rosneft.
Many observers trace the roots of the criminal case against Khodorkovsky and Yukos' parallel back tax bill to his funding of opposition parties before parliamentary elections in 2003, calling them Kremlin-sanctioned retribution for his growing clout. President Vladimir Putin has repeatedly said the cases are just probes into a corrupt business empire.
Khodorkovsky laid no blame on Putin himself in his closing speech, saying instead that the president was "openly misled" by bureaucrats as to his "fictitious" political ambitions. He stressed that he was not asking for leniency, but some analysts said the speech was a carefully judged pitch for a lighter sentence.
"Khodorkovsky doesn't want to spend his life in prison, and naturally he is going for a compromise ... but it's unlikely this will help him," said Vyacheslav Nikonov, a Kremlin-connected analyst with the Politika think tank. "It's too late."
Judge Irina Kolesnikova said the court would issue a verdict April 27.
Kremlin critics have cast the politically charged trial as a show with a predetermined outcome, and Khodorkovsky's own lawyers have said they expect a guilty verdict.
"I've said from the first day that he would be found guilty ... we can only pray for a miracle," the head of Khodorkovsky's U.S. legal team, Robert Amsterdam, said outside the courthouse.
Prosecutors have called for the maximum sentence - 10 years - for both Khodorkovsky and his business partner, Platon Lebedev.
Their trial and the dismantling of Yukos has shaken investor confidence in Russia, accelerating capital flight last year and stifling a growing stock market. Yukos estimates that U.S. minority shareholders lost about $6 billion as tax authorities piled on bills that for some years exceeded the company's revenues.
While Western investors may have watched Khodorkovsky's troubles with horror, many ordinary Russians welcomed the arrest of a man who for millions is an emblem of the tycoons seen to have snapped up the jewels of Soviet industry in back-room deals while the masses struggle to get by.
Khodorkovsky described himself as a humble billionaire who didn't fit the reviled robber-baron stereotype, saying he created a thriving, transparent company and gave generously to charity.
"I don't own a yacht or mansions ... not even a football club," Khodorkovsky said in clear reference to the Kremlin-loyal tycoon who is now Russia's wealthiest man: Roman Abramovich, owner of the Sibneft oil company and Britain's Chelsea soccer club.
TITLE: Court to Mull Mitki Studio Privatization
PUBLISHER: Staff Writer
TEXT: The courts must decide if the privatization of part of an attic that the Mitki artists use was legal, says the St. Petersburg property committee, or KUGI.
"If the privatization was illegal, nobody can force Mitki out of their studio," Alexei Chichkanov, first deputy KUGI chairman, said Monday at a news conference.
Governor Valentina Matviyenko has taken personal control of the case, he added.
"Mitki's creation is the cultural property of St. Petersburg," he said.
Mitki, which has about 15 members, who wear blue-and-white striped sailors' shirts and portray figures clad in sailors' shirts their work, has been going since the early 1980s.
The spaces that were murkily privatized last year have since been sold and Mitki face eviction from the attic at 16 Ulitsa Pravdy, which they were allocated in 1996. Leading city cultural figures have appealed for them to be allowed to stay.
The attic is one of about 2,000 artistic studios in the city that are owned by City Hall, but rented to artists at discounted rates. Last year the property committee started an initiative to phase in market rate rentals or to sell the studios, which it later renounced.
The alleged new owners of the space in Mitki's studio have never shown up in person.
However, even before a Monday court hearing of the case to evict Mitki, muscle-bound men broke into the studio and tried to force Mitki out by force last Wednesday.
About 10 intruders, who said they were representatives of the new owners, broke doors and threw art works around. However, the intruders left after the police and journalists arrived at the scene.
Mitki's lawyer Andrei Tyndic said the privatization of part of the attic was done dubiously.
The privatized parts of the studio, which have a total area of 212 square meters, had been classified residential space in the past, but should not have been because it was uninhabitable with no water, heating or sewerage, he said.
In October 2004, two orphans were registered in the "apartment," which was part of a 193-square-meter area leased by the artists.
Later the orphans, who have never visited or lived at the address, privatized the space.
One sold it to a new ownerand the other gave it away to new owners, Tyndic said.
Yury Romanyukin, head of law firm Gessen, which has been advising Mitki, said Monday it looked as if "someone was trying to turn city property into private property."
Meanwhile, Chichkunov said that KUGI was planning to continue the lease agreement with Mitki for the next 10 years.
If the disputed space is confirmed to be uninhabitable, the court should order that it is classified as such, he said.
Mitki leader Dmitry Shagin said the court will hold a hearing on the legality of Mitki's lease on May 24.
Shagin said at a preliminary hearing on Monday that the court said the new owners and people who sold the accommodation to them should appear in court. They did not show up Monday.
TITLE: Former KGB
Boss Killed
PUBLISHER: The Associated Press
TEXT: MOSCOW - Police were investigating multiple theories Monday in the assassination of a former top intelligence official and his wife, who were gunned down by unknown assailants in Moscow.
Anatoly Trofimov, a 65-year-old former deputy chief of the Federal Security Service under President Boris Yeltsin, was shot in his sports utility vehicle around 7:30 p.m. Sunday on a street in the northern part of the Russian capital. He died at the scene.
His 28-year-old wife died Monday morning, after being hospitalized in a critical condition, Interfax reported. Their daughter, who was also in the car, was reportedly unharmed. There were conflicting reports as to her age.
The car was fired on by assailants armed with automatic weapons, from a small car, news reports said. NTV cited witnesses as seeing a masked man in a leather jacket and black hair run up to Trofimov and fire several times.
State-run Rossiya television, citing unnamed regional law enforcement officials, said the attack was a contract killing related to Trofimov's business dealings. However, Alexander Litvinenko, a former top official in the Federal Security Service, or FSB, said on Ekho Moskvy radio that the killing was political.
"I don't believe that ... Trofimov was killed for commercial activities," Litvinenko said according to a transcript posted on Ekho Moskvyi's web site. "In today's Russia not one businessman under any circumstances would raise their hand against a general of the FSB."
Trofimov "was against the war in Chechnya, although he never, of course, spoke openly on this question. He was also against naming Putin to the post of FSB head," Litvinenko said.
TITLE: IN BRIEF
TEXT: Chinese Attacked
ST. PETERSBURG (SPT) - Two Chinese citizens were attacked in the St. Petersburg metro on Sunday night.
The Chinese citizens, who were staying in St. Petersburg on business visas, were hospitalized after two people attacked them in a metro wagon between Chyornaya Rechka and Petrogradskaya metro stations.
The attackers fled.
Two weeks ago three students from China, Angola and Bangladesh were attacked in separate attacks.
Official in Bribe Case
ST. PETERSBURG (SPT) - St. Petersburg prosecutors have charged the head of the Sosnovskoye municipal council with receiving a bribe, Interfax reported Monday.
Police detained Oleg Vavilov on March 28 when he allegedly accepted a $17,000 bribe. Police detained him after a citizen appealed to police with information that Vavilov demanded the money for the agreement on construction plans for a medical clinic, the report said.
Decry Nazis, Balts Told
PSKOV (SPT) - Pskov war veterans have appealed to the presidents of Estonia and Latvia to publicly condemn fascism, Interfax reported Friday.
The veterans expressed particular indignation at the actions of Estonian authorities on the rehabilitation of those who collaborated with the Nazi regime and those who served as SS soldiers during World War II, said Ivan Vasilyev, head of the Pskov region's Veterans' Council.
The veterans considered the unveiling of a monument to SS members "not only as a challenge to our Fatherland but also to all international society," he said.
The Estonian government demolished the monument soon after it was erected last year.
The veterans demanded that Estonian President Arnold Ruutel ban the activities of Neo-Nazi youth organizations, parades by SS veterans, and stop the alleged persecution of veterans of World War II.
More Heroic Cities
MOSCOW (SPT) - The State Duma has passed in the first reading a bill awarding a number of Russian cities with the honorable title of City of Military Fame, Interfax reported Friday.
On May 8, 1965, a decree of the Supreme Soviet founded the title of Hero City, which was granted to seven Russian cities: Moscow, Leningrad (now St. Petersburg), Volgograd, Novorossiisk, Tula, Murmansk and Smolensk.
The Duma deputies offered to give an honorable title of City of Military Fame to towns including Rzhev in the Tver region, Yelnya in the Smolensk region, Oryol and Vyazma.
Tsereteli's Monuments
ST. PETERSBURG (SPT) - A 6-meter high sculpture of Peter the Great will be given to St. Petersburg, Interfax quoted controversial sculptor Zurab Tsereteli as saying Friday.
"I can present the city with the sculpture on the condition that it doesn't end up in someone's yard or at home," Tsereteli said.
The sculpture is in front of the city's Manezh Exhibition Hall, where Tsereteli held an exhibition.
Meanwhile, Tsereteli's sculptures of Stalin, Roosevelt and Churchill may be unveiled in Volgograd instead of in Crimea.
Tsereteli said Crimea would be the best place for the sculpture but some people objected to the monument.
TITLE: Russians Misplace Wrath for the Rich
PUBLISHER: Staff Writer
TEXT: MOSCOW - Russia's billionaires have largely managed to stay out of the limelight, leaving others to deal with popular resentment over their wealth.
A poll published last week showed that most Russians still held the super-rich in low esteem, even though they often misdirected their bitterness at the wrong people.
Asked to identify Russia's richest man, only a third of Russians correctly identified oil baron and soccer club owner Roman Abramovich, according to a nationwide poll released by the VTsIOM polling agency. Forbes magazine placed Abramovich in the country's No. 1 slot, with an estimated fortune of $13.3 billion.
Twenty-seven percent of respondents said the country's richest man was Boris Berezovsky, the self-exiled tycoon residing in London, while another 25 percent identified Anatoly Chubais, the architect of the post-Soviet privatizations that left the country's wealth concentrated in the hands of a small number of businessmen. Neither man even appears on this year's Forbes list, which found Russia to have 27 billionaires, second only to the United States, with 341 billionaires.
Most of Russia's super-rich appear to have escaped the public eye, with other poll respondents wrongly naming famous - but not famously rich - personalities such as ageing pop diva Alla Pugachyova, politician Vladimir Zhirinovsky, former President Boris Yeltsin and Moscow socialite Ksenia Sobchak as the country's richest individual.
Twelve percent of respondents identified jailed former Yukos CEO Mikhail Khodorkovsky as the wealthiest oligarch of the land, although in fact he dropped from No. 1 in 2004 to No. 12 this year, according to Forbes.
Russia's relatively large number of super-rich is hardly reason for pride, the VTsIOM poll disclosed, with almost 40 percent of respondents saying they felt "shame" for living in a country with so many billionaires. Seven percent said the fact made them proud, and only 15 percent said they would not mind being billionaires themselves.
The responses showed a clear split according to age. While 28 percent of Russians aged 18 to 24 said they would like to be among the super-rich, a mere 4 percent older than 60 expressed that wish. Thirty-one percent of Russians in that age group said they under no circumstances would like to see their children on the Forbes list.
The survey compiled the responses of 1,600 people living in 40 regions.
The poll results reflected a disappointment with President Vladimir Putin's government to deliver on pledges of fair wealth distribution, said Chris Weafer, chief strategist at Alfa Bank.
"Over the past four, five years of steady economic growth the president built up expectations. ... Now inflation is growing, the income gap is increasing ... and [people] see a continuous growth of billionaires every year. That would annoy a lot of people," Weafer said.
Still, the 39 percent of Russians who felt ashamed for the nation's billionaires are not directly critical of the president, Weafer said.
"It's not a huge number, not 60 percent, expressing disappointment rather than outright anger," Weafer said.
Boris Titov, head of the Delovaya Rossia business association, agreed.
"It is a big breakthrough - there used to be more people averse to the rich. We are stepping onto the path of civilized countries, where people recognize that wealth is a result of hard labor and, if acquired honestly, worthy of respect," Titov said. "It also depends on how they behave. If they don't put themselves above society and help it along, attitudes toward them will change."
Alexander Lebedev, Russia's sixteenth-richest man according to Forbes, said the super-rich had only themselves to blame for the widespread resentment.
"If a person buys airplanes, yachts and football clubs abroad, who is going to like this?" said Lebedev, a State Duma deputy and majority owner of the National Reserve Corp.
"Some somehow spend it only on personal consumption, but others somehow try to make the residents of this country the beneficiaries of this."
Staff Writer Catherine Belton contributed to this report.
TITLE: Schroeder Urges Closer Business Ties
PUBLISHER: Combined Reports
TEXT: HANOVER, Germany - President Vladimir Putin arrived for a two-day visit in Germany on Sunday to open a trade fair in the home city of Chancellor Gerhard Schroeder, one of his closest European allies, who called for stronger business ties between the two countries.
Schroeder has developed a close relationship with Putin, favoring pressing him discreetly over his control over Russian business and politics, as opposed to the United States' blunter approach.
Germany would like to strengthen its economic ties with Russia further, Schroeder told reporters.
"And with that the signal will be sent that Germany and Russia are bound in a strategic partnership," he said. "The same goes for Europe."
The two leaders opened the five-day Hanover Messe trade fair - which includes 6,090 exhibitors from 65 countries - on Sunday evening. Russia is the trade fair's "partner country," and has 287 exhibitors registered.
Chechnya's Kremlin-backed President Alu Alkhanov also arrived in Hanover on Sunday, raising the ire of some German protesters opposed to Chechnya's human rights record.
Schroeder called for more cooperation with Russia in areas such as high technology, as the countries look to build on their close relations in the energy sector. "I'm firmly convinced that German-Russian economic relations should extend well beyond the energy sector," he said, according to the text of a speech delivered at the opening of the trade fair.
"In concrete terms, that means more cooperation in sectors of the future, like high technology," he said. "Our aim is to promote practical technical cooperation between companies."
He said German companies should become more closely involved in the Russian energy sector.
"They should go beyond pure supplier relations to be set up on a broader basis, for example through investment by German firms in natural gas extraction or through the construction of a gas pipeline through the Baltic," he said.
Schroeder also said German industrial group Siemens and a Russian investment consortium would be signing a deal Monday on the construction of high-speed trains. Siemens signed an initial agreement on the 1.5 billion euro ($1.92 billion) deal to build 60 trains for state-owned Russian Railways in December.
Industry and Energy Minister Viktor Khristenko said in Hanover that by 2010, 70 percent of the trains should be equipped by Russian suppliers.
"Siemens is a trusted partner. Now comes the next step," he said.
(AP, Reuters)
TITLE: Eastern Ukrainians Start Street Protests in Kiev
PUBLISHER: The Associated Press
TEXT: KIEV, Ukraine - Dozens of people from eastern Ukraine erected tents and banners near the parliament building Sunday, trying to rally anti-government sentiment and support for a regional leader arrested last week on allegations he was plotting assassinations. The detention of Donetsk council chairman Borys Kolesnikov has touched a nerve in eastern Ukraine, where threat of an east-west division of the country came to the fore during last year's tumultuous presidential election.
Kolesnikov is a strong supporter of Viktor Yanukovych, who lost the presidential election battle to Viktor Yushchenko after hundreds of thousands of opposition supporters flooded Kiev and built a tent city to protest a fraudulent first-round of balloting. Since losing, Yanukovych has vowed stiff opposition to Yushchenko's government.
Speaking in Donetsk Sunday, Yanukovych warned of transportation blockades and strikes if the authorities did not "launch a dialogue" with the opposition or if they "continue repressions against our allies," the Interfax news agency quoted him as saying.
About 40 people mainly from the Donetsk region erected 13 tents in a city park just opposite the Cabinet building, near the parliament, to protest Wednesday's arrest of Kolesnikov. The tent camp was surrounded with blue ribbon - Yanukovych's campaign color - along with flags of his Party of the Regions and posters reading "No political repressions!" and "Yushchenko, Keep your Words!"
A Kiev court on Friday ruled that Kolesnikov should remain in police custody while prosecutors investigate allegations that he was plotting three assassination attempts. Authorities did not say who they alleged he was targeting.
Protests against his arrest have been limited, but they underscore continuing tension between the mainly Russian-speaking east and Ukrainian-speaking west, where Yushchenko's support is concentrated.
During last year's election, Kolesnikov and other leaders from eastern Ukraine proposed loosening federal control on eastern regions. The heavily industrialized east, which lies on the Russian border, is suspicious of Yushchenko's aim of integrating Ukraine into Western Europe.
Kolesnikov's supporters contend he was arrested for his support of Yanukovych and his calls for the eastern region to secede.
TITLE: Water-Heater Plant Starts Production
PUBLISHER: Special to The St. Petersburg Times
TEXT: A Russian subsidiary of an Italian water-heater manufacturer launched its production facility in the Leningrad Oblast on Monday.
The company aims to capture a major stake in Russia's growing market for medium range heaters, which has so far been dominated by cheaper domestic models and foreign imports.
Merloni TermoSanitari Rus (MTS Rus) - a 100 percent subsidiary of Europe's third-largest heating equipment manufacturer Merloni TermoSanitari - opened its new production facility in Vsevolozhsk, not far from the oblast's Ford factory.
"The company has invested 30 million euros ($39 million) into building the factory in Vsevolozhsk," Gabriele Montezi, the technical director of MTS Rus, said Monday via the telephone. "We are planning to add another 15 million euros ($19 million) in the next few years in order to expand further, improve the facility and purchase equipment."
The plant will manufacture heaters ranging from 30-liter to 150-liter water heaters for home and industrial use, the company said in a press statement Monday.
MTS Rus has enjoyed a gradual expansion in Russia since its products became available on an import basis in 1996. The company set up an assembly production line on rented premise in Vsevolozhsk a few years ago.
The assembly line's production volume rose threefold in 2004 compared to the 2003 figure, Interfax reported. By June 2003, MTS Rus began construction of the manufacturing facility, which opened Monday.
"The factory will make 17 models of water-heaters under the Ariston brand. Production capacity at present is 500,000 units a year with potential to double to 1 million units," Montezi said.
According to the company's estimations, its main competitor apart from the domestic companies, is also an Italian manufacturer, the Lorenzo Group, which operates the Thermex brand of waterheaters. However, the Lorenzo Group does not have a production facility in Russia and has to rely on exports, Montezi said.
MTS Rus believes that it can offer a cheaper alternative to Lorenzo, while maintaining a high level of quality.
"Our target for the customer sector are people with medium-level incomes," Montezi said. "The bottom price for a 10 liter unit will be about $100."
Alexander Chistyakov, director of the St. Petersburg office of German water-heater company Stiebel Eltron, estimated that MTS would compete mainly with the domestic manufactures. Eltron models aimed for a more top quality market, reflected in their starting price of $320, three times higher than the basic model to be offered by MTS.
The sales manager of a city water heater store, who asked not to be named, said that MTS may find the domestic heaters' market share quite difficult to displace.
"In a way, domestic heaters are like the Russian Lada cars: they are preferred by those people who cannot afford foreign-made cars," he said.
TITLE: BCG Urges Re-Brand Of St. Petersburg Image
PUBLISHER: Staff Writer
TEXT: Re-branding the city's image will be key to attracting foreign tourists and increasing St. Petersburg's tourism industry's profits to an annual $250 million, Boston Consulting Group said last week.
The consultancy, employed by the City Hall to carry out an investigation into how St. Petersburg can bolster its tourist trade and gain a place in the top five most-visited cities in Europe, listed a number of areas that needed immediate focus.
Changing the city's image, the consultancy said, could take place without addressing first the basic issues of infrastructure and safety, and tackling those two alone would cost St. Petersburg about $1.5 billion over the next five years.
Boston Consultancy Group's leader of the project, Kenneth Payne, said research carried out in Europe showed that the most common associations people had with St. Petersburg were not only "beauty" and "grandeur," but also "gloom," "darkness" and "cold". The idea of re-branding would centers on fighting the negative stereotypes, Payne said.
The consultancy proposed the development of two branded slogans for St. Petersburg: one - Pushkin's "The Genius of Pure Beauty" - to reduce the city's associations with gloom; the other would suggest an ambiance of "visitor-friendly warmth" to melt away mental links with the cold in Russia.
The city authorities last year paid $500,000 to the consultancy to come up with a five-year tourism development concept for St. Petersburg.
The concept will be carried out by a city marketing agency, the establishment and maintenance of which will cost St. Petersburg a further 240 million rubles ($8.6 million) annually.
Industry experts and the consultancy group, however, are united in declaring that before any talk of image re-branding and promotions, St. Petersburg must directly address its infrastructure and safety issues.
"If the city's infrastructure is not okay, or if tourists are afraid to come to the city, no brand change will help tourism," said Kari Halonen, marketing manager of Helsinki's City Tourist and Convention Bureau.
"Creating a safe and hassle-free environment is the most important aspect in growing a city's tourism industry," he said Monday.
The lack in accommodation and convenient infrastructure, as well as rising crime rates have become well-known city realities. Bringing these up to par with Paris and London - cities that St. Petersburg attempts to compete with - will cost $1.5 billion over the next five to six years, Boston Consultancy said.
Governor Valentina Matviyenko said last week that the city was ready to invest the money necessary for the improvement, but it needed to spend funds on specific goals, not general ideas.
Meanwhile hoteliers say the city should be better prepared to attract private funds.
"The city should at least provide [tax] breaks for investment if they want private companies to chip in," Gregory Chernov, general director of Hotel Corporation, said Monday. "They want to climb the tree and not rip their pants - it doesn't work like that," he said.
Staff writer Galina Stolyarova contributed to this report.
TITLE: Fuel-Price Hikes Spur Worries of Inflation
PUBLISHER: Special to The St. Petersburg Times
TEXT: Looming rises in fuel prices could hike the costs of all goods and services in the country and cause an inflation blowout, oil industry leaders warn.
"In the months ahead the price for fuel will rise from 10 percent to 20 percent," Oleg Ashikhmin, vice-president of Russian Oil Club, said last week at the International Fuel & Energy Forum in St. Petersburg.
Ashikhmin said that the rise in world oil prices, Russia's growing taxes on crude extraction and 8 percent oil excise growth will almost certainly lift the price of oil to near-global levels.
The knock-on effect, Ashikhmin said, will be a parallel to last year when a similar surge in oil prices meant a 40 percent hike in the cost of automobile fuel.
"[last year] was a far more turbulent and destructive year for value in the oil sector than we had anticipated," United Financial Group (UFG) said in a report on the Russian oil market last week.
Smaller fuel traders see the problem of price hikes as mainly related to the structure of the oil market.
"There is no such thing as a free oil products market in Russia - that is the problem," an analyst from independent crude trader PTK said, asking not to be named.
"VICs [Vertically Integrated Companies] are monopolies owning everything from the oil fields at one end to gas stations at the other," the trader said. "They push the independent fuel traders out, leaving themselves a free hand to set the prices for the entire country."
Ironically, smaller traders advocate more government intervention to regulate the market and reduce the influence of oil giants. But the oil club's Ashikhmin said that may not solve the problem in the long term.
"The oil producers sell oil and oil products through their own trading companies and do not need a free market," Ashikhmin said.
"The federal government may try to regulate the fuel prices artificially until the summer, but what will happen after that?"
Despite new oil export duties ($102 a ton) put into effect by the government since April 1, oil majors have diverted the larger part of their crude outside the country. The steady growth of the world oil price made oil exporting much more lucrative than sending oil to Russian refineries to make car fuel for the home customer.
Russian oil exports rose by 13 percent in the first three months of 2005, Minpromenergo reported this month. Meanwhile, oil deliveries to Russian refineries dropped by 4.6 percent in the first months of the year.
The effect could be a serious fuel shortage in Russia and a resultant hike in prices of all oil-dependent products.
Ashikhmin says a dialogue between the oil industry and the Federal Anti-Monopoly Service is expected to take place this week when the head of the service, Igor Artemyev, arrives in St. Petersburg.
TITLE: IN BRIEF
TEXT: All Can Buy Svyaz
MOSCOW (Bloomberg) - Svyazinvest, Russia's national telephone monopoly, will be sold to the highest bidder with foreigners allowed to participate in the auction, Communications Minister Leonid Reiman said Monday.
Foreign investment in Russia's telecommunications industry doubled to $1.5 billion last year and that trend looks set to continue, Reiman said at a trade fair in Hanover, Germany.
Arbitrator Menatep
MOSCOW (Bloomberg) - Russia's government responded to an international damages claim from Group Menatep Ltd., which controls OAO Yukos Oil Co., by appointing Judge Stephen Schwebel as an arbitrator, Menatep said.
Menatep is seeking $33.1 billion from the government as compensation for damages after the authorities confiscated and sold Yukos's largest oil asset, Menatep said Monday in an e-mailed statement.
"The fact that the Russian Federation has chosen an international law firm to represent it in these matters and has appointed an arbitrator within the prescribed timeframe shows that it is taking these arbitrations extremely seriously," Emmanuel Gaillard, a lawyer from Shearman & Sterling LLP who is acting for the claimants, said in the Menatep statement.
Transneft Raises $8 Bln
LONDON (Bloomberg) - Transneft, Russia's oil pipeline monopoly, has offers for $8 billion in loans to finance a line to the Pacific Ocean, more than enough to construct the first stretch of the link, the company's chief executive said.
Transneft plans to build the first stretch to the settlement of Skovorodino within about 60 kilometers of the Chinese border in Siberia, a project that will cost about $6 billion. The pipeline will initially ship 600,000 barrels of oil a day.
IEA: Oil Prices Hurt
LONDON (Bloomberg) - Oil prices are already above the level that hurts economic growth, and governments of consuming nations should take steps to help reduce demand, the head of the International Energy Agency said.
"We are above this price - it does not trigger a recession but it triggers less growth, which is just as bad,'' IEA Executive Director Claude Mandil said in an interview in London, where he is attending a conference on Russian business.
"When you have a very strong price signal, markets should react by lowering demand. I think from time to time governments should help."
Mandil said that the Organization of Petroleum Exporting Countries does not have much spare production capacity left.
DB, VEB Cooperate
FRANKFURT (Bloomberg) - Deutsche Bank, Germany's biggest bank, and Vneshekonombank will work together to help provide financing for Russian importers.
Deutsche Bank will provide and arrange financing through state-run Vneshekonombank, Russia's second-biggest lender, the Frankfurt-based bank said Monday in a faxed statement.
TITLE: TNK-BP Faces Back Tax Claims
PUBLISHER: The Associated Press
TEXT: MOSCOW - The Russian-British joint oil venture TNK-BP said Monday that tax authorities had levied a tax claim of $792 million against it for 2001.
While analysts said they didn't expect a repeat of the politically charged tax case that lead to the sale of the Yukos oil company's biggest production unit, the statement coincided with the first day of an important international showcase for Russia's economy and came just weeks after President Vladimir Putin promised to curb rampant tax probes.
"This is a very bad surprise," Dow Jones Newswires quoted TNK-BP Executive Director Viktor Vekselberg as saying as he attended the Russian Economic Forum in London. "We'll try to defend our position in court if necessary."
The claim comes in addition to a 4 billion ruble ($144 million) bill for 2001 in connection with profit and value-added tax payments.
TNK-BP spokesman Peter Henshaw said the company, which is 50 percent owned by British oil company BP PLC, disagreed with the claim and was trying to re-negotiate it.
"We received the claim late last week," Henshaw told Dow Jones Newswires. "This didn't come out of the blue. We've been working with the tax authorities on 2001 since December."
Earlier this year, members of Russia's upper house of parliament asked tax authorities to investigate TNK-BP, alleging that TNK had economized on its taxes by using onshore tax havens between 2000 and 2003 before its merger with BP.
The $7 billion merger between TNK, which is controlled by tycoon Mikhail Fridman's Alfa Group, and BP's Russian oil assets went ahead to great fanfare in 2003 with Putin's blessing. The deal was one of the largest ever by a Western company in post-communist Russia.
While the news could embarrass Russian officials in London to tout Russia's investment case, it was unlikely to escalate into a campaign similar to the one authorities have pursued against Yukos, said Chris Weafer, chief strategist at Moscow's Alfa Bank.
"That was a one-off with readily understood objectives," Weafer said in an investment note Monday. "This is a badly handled event but not a surprise."
Observers say the criminal trial of Yukos founder Mikhail Khodorkovsky and the parallel $28 billion back tax claims against Yukos were organized by the Kremlin to recapture domination in the strategically important oil sector and to punish Khodorkovsky's perceived political ambitions. Khodorkovsky is due to be sentenced April 27, and prosecutors have asked that he receive the maximum 10 years.
While no companies have received bills that could match Yukos', the affair marked an increase in the number of tax probes launched by authorities. Most prominently Japan Tobacco's Russian wing is currently fighting a $79 million claim, while No. 2 mobile operator Vimpelcom was slapped with a $157 million claim in December that was later slashed to $17 million.
Putin told businessmen last month that steps would be taken to rein in overzealous tax inspectors by limiting their scope to conduct back tax probes.
TITLE: Shipyards End Strife, Plan to Share Contracts
PUBLISHER: Staff Writer
TEXT: MOSCOW - The country's two largest shipbuilders are joining forces, putting aside years of bitter rivalry in an effort to consolidate in a shrinking market.
St. Petersburg-based Baltiisky Zavod, the maker of battleships for more than a century, will pass over defense contracts to crosstown rival Severnaya Verf and focus exclusively on building civilian vessels, the companies said Monday.
The agreement comes as the industry, weighed down by leftover capacity from Soviet times, is fending off foreign competition. Even Russian shipowners prefer to build abroad, where bank loans are more affordable than at home.
Baltiisky and Severnaya signed the deal, valid for five years, on Friday, the companies said.
"We decided not to poison each other's blood when we can profit from cooperation," Anton Laptev, spokesman for IST Group, which controls Baltiisky, said by telephone.
Last year Baltiisky completed a $1 billion contract for the delivery of three frigates to the Indian Navy and is booked full with civilian contracts until 2008, Laptev said.
Nevertheless, Baltiisky's expertise and capacity could come in handy if Russia wins a tender for three more frigates for India, said Alexander Gnusarev chairman of Obyedinennaya Promyshlennaya Korporatsiya, or OPK, Severnaya's majority shareholder.
Severnaya will also bid for a contract to develop and produce a new frigate for the Russian Navy later this month, Gnusarev said. "Baltiisky Zavod has experience in this field and may offer a technical support," he said.
Friday's agreement puts an end to years of rivalry, which two years ago turned into a bitter tug-of-war for a $1.4 billion contract for two destroyers commissioned by the Chinese Navy. The conflict eased only after Mezhprombank, OPK's owner, bought up Severnaya Verf and entered negotiations.
At the time the merger of the two shipyards even came under discussion, Gnusarev said, though now the subject is off the agenda.
Gnusarev said Baltiisky may go as far as exiting the shipbuilding business altogether once it fulfills its current contracts.
"There has been talk of overcapacity since 1998. If the owners of Baltiisky Zavod make this decision it will be correct from the investment point of view," Gnusarev said.
Laptev refused to comment.
In the meantime, Severnaya is due to complete the two destroyers for China next year as planned, Gnusarev said.
The company is also building three corvettes for the Russian Navy, he added.
"It is sad to see Baltiisky leave the sphere of building battleships," said Konstantin Makienko, deputy head of the Center for Analysis of Strategies and Technologies.
"But it may well make sense from the economic point of view. There is only one possible export contract pending with India, and domestic money is slow in coming."
TITLE: Turkey Top Destination as Tourists Ignore Calamity
PUBLISHER: Staff Writer
TEXT: MOSCOW - Unfazed by natural disasters and acts of terrorism, the domestic tourism industry saw its third straight year of growth in 2004, as 16 percent more Russians ventured abroad for their vacations.
More than 6.5 million Russian tourists traveled abroad last year, with Turkey - the destination of every fifth Russian vacationer - remaining the No. 1 destination, according to statistics released by the Federal Border Service last week.
"A summer banking crisis in Russia, explosions in Egyptian and Turkish hotels, the bombing of Russian aircraft, the tragedy in Beslan and finally the tsunami in Asia - no tourist market in the world would have survived that, but Russia's did," Irina Tyurina, spokeswoman for the Russian Tourism Union, said.
While Russians were undeterred in their globetrotting, however, the number of foreign tourists coming to Russia last year dropped almost 10 percent, from 3.1 million in 2003 to 2.8 million in 2004, according to the border service.
While a good number of incoming "tourists" are in fact shuttle traders from countries like China and Poland, domestic agencies have seen a surge in Russians traveling abroad.
The Maldives as a destination jumped fivefold last year to 12,914 Russian tourists, Tyurina said.
Perennial favorite Turkey led the way, followed by China (941,000 tourists) and Egypt (586,000 tourists).
Russians now make up the third largest tourist contingent in Egypt after Italians and Germans. And while Russian shuttle traders still account for the bulk of Chinese tourist visas, Tyurina said, they too are gradually being replaced by bona fide Russian vacationers.
Travel to Egypt grew 30 percent last year, as did destinations in Europe, including Italy and the Czech Republic. Spain, whose numbers were falling, gained 13.5 percent in 2004.
"If there is anything stable in this country it is Russians going abroad for vacations," Tyurina said.
After a slump in 2001 following the Sept. 11 terrorist attacks in the United States, outgoing tourism has been steadily rising, growing 22 percent in 2002 and 14 percent in 2003.
Tour agencies have responded by offering more all-inclusive packages and opening up new destinations. Two Russian companies will begin offering "elite" charter tours to Sardinia in April, and domestic airlines are looking to increase their frequencies to vacation spots. With its eye on resorts in Spain, Tunisia and Croatia, Transaero is set to become the first Russian passenger carrier to fly Boeing 747s.
"With the fleet that we have now we can meet only 60 percent of the demand, our charter numbers grew 31 percent last year," said Transaero spokesman Sergei Bykhal.
In the reverse direction, however, the number of foreign tourists coming to Russia is dropping. The number of travelers from neighbors Poland and Ukraine fell almost threefold last year. Moscow began requiring visas from Poles after Warsaw imposed travel restrictions on Russians prior to joining the European Union last year. In 2003, Kiev started to demand its citizens use passports - and not just internal IDs - to travel to Russia.
Poland and Ukraine, along with countries such as Mongolia and Turkey, should be struck from the list of countries providing tourists, said Leonid Isakovich, general director of Akademservis, a company majoring in incoming tourism.
"These are not tourists, I have never seen a tourist from Mongolia," Isakovich said. The majority of travelers from these countries travel to Russia to conduct shuttle trade, he said.
Most tourists came from the United States, Japan and western Europe last year, according to official statistics. Yet even those figures are misleading, given that many businessmen travel as tourists since tourist visas are the easiest to obtain, said Tyurina.
"The real number of foreign tourists has been stable for the past few years at roughly 1 million to 1.2 million," said Isakovich.
"Current sales of Russian packages have registered a 20 percent year-on-year fall," said Tyurina.
Poor infrastructure has compounded fears about security, analysts said.
At present, Russian hotels can accommodate no more than 1.5 million tourists per year.
TITLE: 'We Could Offer a Babushka Content Deal'
PUBLISHER: Staff Writer
TEXT: Why did Rustar Holding separate its business into the INFON and Agregator divisions? Almost all other content providers work with business and with retail customers under a unified label.
We found that our business partners [media outlets, web sites, companies looking to run a promotion] saw INFON as a competitor in some ways. During initial talks we realized it was uncomfortable for our partners; they wanted to meet with a business that was directed towards them. So we separated into retail and wholesale arms. It's not such a problem anymore. People understand that we are the same company, so we will stop positioning ourselves as Agregator and turn the project into what it always was - a product available to B2B partners.
Plus we know that the market is varied, it demands segmentation. We will launch a few new brands aside from INFON.
When do you plan to launch the new brands and how many?
About three, in the summer, by fall at least. We have just finished working on one, and are starting to design the concept of the next.
Who are your business partners?
There are about 200 companies that we deal with regularly. Of the major ones, the popular TV show "Narodny Artist" (the Russian version of Pop Idol) has worked with us for two years now. Then there's the web site Mamba, analytical agency Sotaweek, and chat site Flirt.ru. We create about 40 percent of all the SMS-related services broadcast on MTV Russia, work with Damsky Kanal [Ladies' Channel, a Moscow-based cable channel], NBN, DTV and TV 3.
Recently we started to receive more contracts from the mobile operators. MTS have commissioned some services; MegaFon did a couple of orders last year.
Analysts estimate the content provider market to be shared largely between 10 to 12 firms who occupy a 65 percent share. That's a lot of players to contend with.
It depends on how you look at it. If you take in all the services of a mobile telephone apart from calls and SMS personal messages, then that figure could be true. If you include things like weather forecast reports, birthday greetings, anecdotes, voting promotions, all the SMS services: interactive chat, pictures, ring tones, java games, and finally all the MMS services, then you could count something like 10 major market players, but their share would be considerably higher. The largest part of the content provider market, however, at about 60 percent, comes from the SMS sector. It is also the most profitable sector by far and it is the only arena on which the top five firms (INFON, i-Free, Inform-Mobile, Nikita, and Jippi) operate. They control 90 percent of the SMS market.
How much is this sector worth?
Well, last year the overall mobile phone extra services market took in $300 million. So, 60 percent of that - $180 million. In 2005 we expect the overall market to rise to $600 million, and the SMS sector to increase its share to 70 percent.
What factors will stimulate the market increase? Is it due to content providers, the public, or the mobile operators?
The operators don't really do anything, they didn't last year, they won't this year. Some positive tendencies have occurred nonetheless. Beeline [trade mark of VimpelCom] have virtually put their feet up since creating their BeOnline extra services package two years ago. Their dealings with content providers tick along, without any change. There are some technical problems that the operator needs to tackle to improve the quality of their network, but they are dealing with it. And we help them in this. MTS are a decentralized company, but in terms of technical questions they are centralized. We are promised that from this month, we will have access to all MTS branches at once. The access system will be unified.
And you won't need to have a contract with each branch of MTS separately?
We already have contracts with all MTS branches. What a unified system means is that all the network connections points that we currently go through will disappear and there will be just one connection point for the whole of MTS. If they keep their promise, it will be a great easing of the technical burden. In terms of business dealings, on the other hand, nothing has changed. We used to farm the profits 50:50 with MTS; we do still. This spring MTS promised that our profit share will rise.
By how much?
The profit share would rise for large companies up to 75 percent, and remain at 50 percent for small companies. Beeline pays everyone 70 percent of the profit, by the way. So, we are waiting for the fulfillment of this promise from MTS. Although, they made the same promise last year.
What about your relations with MegaFon?
They are the most decentralized operator of all. With each of the eight MegaFon branches we have a separate contract, a separate technical service agreement, and a separate profit share arrangement. That's not a good thing. Again, MegaFon are looking to address the situation. In May we will replace the eight contracts with one central one. By June there will be a unified profit share scheme too, although it remains at 50:50.
If a 50:50 profit share agreement is unfair to content providers, what should it be?
Of course, the mobile operators have established the network, and set up the base, they collect the money. All of that is respected. It's a big job. If we look to Europe, though, a mobile operator keeps about 20 percent of the profit from content provider generated services. Maximum - 25 percent. Companies in our sector cannot survive with only 50 percent share of the profit. Let's not forget we are also dealing with the authors [of ringtones, pictures and games]. We send a percentage of the profit to them and the copyright holding companies.
How much does a new Britney Spears song cost you to put out?
From 10 to 15 percent of the end price. If it costs $1 to download that melody, 50 cents goes to the mobile operator, 10 cents to 15 cents to the composer or melody rights owner, and the rest is ours. From that we have to cover our advertising costs.
What kind of figure can you give for the sales volume?
Well, it's in the millions. Let's say, more than $1 million but less than $10 million.
Do you feel that mobile network operators should contribute something to the advertisements?
In some form, yes. Again, take the European experience. Each mobile phone operator collects only its own extra services package. The operator does not do anything to create those services, they only provide them with a client base and advertising. The services themselves arrive from content providers. Operators first hold tenders, pick the best companies to run the extra services on their network. They might take the ringtones from one content provider, java games from another, and so on. Then, they amass them as one single package, say Vodaphone Life, and advertise it as such. All that the content provider has to do is create the services; it does not carry the advertising costs. Naturally, the profit margin differs. Network operators get something like 70 percent in this case. However, with the costs of ads zero for the content provider, it makes it a decent earn. Plus, the content provider can offer exactly the same services, or even better ones, under its own label. The content provider can then sell the same services to subscribers of any mobile operator. So, it competes on two fronts.
Meanwhile the mobile operators do not object?
Not at all. They have their package set up and being constantly developed, on which they earn 70 percent. And they still get their 25 percent when the content provider launches services under its own brand. In addition, Western mobile operators give the content providers a much more liberal hand.
Do you think the Russian mobile phone market players lack trust?
A dialogue is lacking, that's true. At every step in the mobile market, companies want to save on costs, especially on advertising costs. Now, in Europe, the result of more trust means a content provider, which knows its clientele's taste and purchase frequency, can go to a network provider and say: I have a new Britney Spears tune. Here is a list of all people who bought the last Spears hit through us last time. I'll pay you, say $50,000, to send an SMS to all those users to promote the product. The ad costs get minimized and there is a much higher chance of success. The SMS will be sent to an already distilled target audience.
What stops Russian mobile operators from running similar schemes?
For one, content providers in Russia have been slow to offer such deals to operators. But we will - soon. Secondly, mobile operators think such promotions sound like spam. Again, a lack of trust.
Can you convince them otherwise?
We might have to collect the database of mobile phone user preferences ourselves, without help from networks. There are ways - street leaflets, through out web site. However, just one mail out to all subscribers could solve the situation. From a million people, maybe 25,000 will reply to a particular promotional offer. There you go - that's one list compiled in a day.
Is there much of a dialogue between content providers and mobile handset makers, like Motorola, and Alcatel who also work in St. Petersburg? One of the biggest selling point for Nokia phones in the U.K. used to be Snake II java game in-built with all their phones.
There isn't much, although that is a shame. Occasionally, they turn to us when they want partnership on an advertising campaign.
The main problem with working out games or ringtones to come as standard with a mobile handset, is that the manufacturing process is too fractured. They make handsets here, advertise there. It would require a more organized approach, more far-sighted on behalf of the handset manufacturers. What's more, a content feature would not figure as one of the main advertising points for a handset. Handset sales associate more closely with popular culture brands or with technical advantages.
Will anything change for content providers when virtual operators, as mobile retail chain Euroset plan to be, enter the mobile network market?
For us, little will change at least in the next two years. Virtual operators will need to fight really hard to be successful. I'm not sure the Russian mobile market has reached enough of a saturation for the virtual operators to go looking for free niches. One virtual operator that I bet will make it, in St. Petersburg at least, is [budget supermarket chain] Pyatyorochka. They have millions of customers, a very specific public - low budget, older age groups. Pyatyorochka could offer its public low cost handsets, budget tariffs... and all the grandmas will buy it. What will it do for us... well, I guess we will try to offer some kind of package for that audience too...
A babushka mobile content package?
Yes, that's it - a babushka package with discounts and information about shopping and transport. But this is a question for the future, not the next two years.
We have had ringtones and pictures for a long time now. Can the consumer expect anything else from content providers?
Nothing will come along that will suddenly knock those from their dominant position. The number of media related projects is growing, video might come to mobile phones soon. Meanwhile, pictures have developed, from monochrome to color, to 3-D in the future; ringtones have come to be full songs, not only bits. In the future we will be trading in full-format music. Also, there are video ringtones, and a new feature that's called ring-back tone.
A ring-back tone?
It's the opposite of a ringtone. When you call someone, instead of hearing the ringing beeps, you'll be listening to music, jokes, the radio. The person who you are calling will have chosen what you listen to while you wait for them to answer the phone. Again, everything can be personalized and individualized. Jokes for one person, music for another, and so on. This is already a big craze in Asia. It'll take millions of dollars of investment, but that will pay off in a couple of months, we estimate.
When can we expect ring-back tones?
I think a couple of operators will launch it by the end of the year. Some tests and technical equipment is being set up for it already. The great thing about this feature is that it needs minimum advertising. It's going to be word of mouth all the way. Everyone that calls you will know about it, it'll be kind of like a virus.
TITLE: Putting Tax Incentives
Into Context
TEXT: Discussions within the St. Petersburg business community about investment incentives have often focused on the attractiveness of St. Petersburg in terms of the tax incentives that the city grants to investors. However, it should be understood that these tax incentives can only be considered one factor in many that investors must consider before they risk their money.
Russia, which has traditionally been associated with high tax rates and a non-transparent tax system, has made significant progress towards changing its tax system and decreasing the tax burden for businesses. For example, the general profits tax rate was reduced from 35 percent to 24 percent and certain turnover taxes were abolished.
However, federal centralization has resulted in the abolition of several investment incentives and the introduction of certain restrictions on granting others. The amount spent on capital expenditures may no longer be excluded from the profits tax base as regards the profits tax payable to the St. Petersburg budget. Investments in excess of 1 million rubles ($36,000) in fixed assets are no longer exempt from property tax. Producers of excisable goods are no longer entitled to a 50 percent reduction in profits and property taxes payable to St. Petersburg budget. All of these concessions were primarily intended to reduce an investor's tax burden in St. Petersburg and were very widely used.
The restrictions now imposed by federal legislation (for example in the form of reduction of the profits tax rate by 4 percent only) mean that an investor's tax burden will not differ so significantly from region to region. Nevertheless, the St. Petersburg authorities are attempting to maintain and seeking to increase the city's attractiveness in terms of taxation.
The recently approved St. Petersburg investment legislation stipulates, broadly speaking, a reduction of the profits tax and property tax rates for large investors that meet certain criteria. These concessions do, of course, reduce an investor's tax burden in the region, but not to as great an extent as those that previously existed.
Therefore, although tax incentives granted by the regional authorities are still available, the relative importance of federal tax and local non-tax factors has increased significantly and should be more carefully considered by investors nowadays.
One such factor is the availability of land. Establishing a large commercial presence in any Russian region often requires land plots to be provided by the regional authorities. Therefore the policy of the respective region in this sphere plays an important role in the success of the proposed investment.
Ensuring the connection of the provided land plot to the infrastructure for public utilities such as gas, water, electricity and drainage has always been a major concern for investors. For example, in many districts of St. Petersburg the infrastructure lags behind the requirements of a developing economy, utilities networks are fast becoming obsolete and recent investment therein has clearly been inadequate. Significant expenditure on upgrading or installing infrastructure often falls on the investor's shoulders and the support of the relevant utility monopolist to ensure an adequate supply is essential.
Other factors to be considered by investors include the established policy and quotas with respect to hiring foreign employees in the region, the attitude of the licensing authorities towards new investors and the attitude of the courts when settling disputes between investors and the authorities.
Overall, having the basic rights and access to such essentials as land, utilities and planning permissions, and having a solid practical basis that these rights will be uninterrupted during the investment project's lifetime, are the most important aspects to be agreed with a regional authority. It is crucial that the regional authority supports the investor during the whole period of implementation of his project, has a favorable attitude towards him in practice and can remove bureaucratic obstacles. Although regional tax incentives are certainly valuable rights to negotiate, it can be argued that nowadays they are less important than other support mechanisms from the regional authority and indeed that they can be regarded as comparatively minor variations of the overall Russian tax system.
Peter Arnett is a partner in KPMG St. Petersburg where Nina Goulis is a tax consultant. The opinions expressed above are those of the authors and do not necessarily reflect the views of KPMG.
TITLE: Putin Is No Frederick the Great
PUBLISHER: Staff Writer
TEXT: MOSCOW - When Frederick II decreed an independent judiciary in Prussia, he was promptly sued by a farmer over a land disagreement. Frederick lost the case and had to pay up.
Yevgeny Yasin, an economist and former finance minister, related the story at a recent American Chamber of Commerce conference in Moscow and said: "The previous German ambassador here, Ernst-Joerg von Studnitz, told me, 'You Russians think we call Frederick II 'the Great' because he built up the Prussian army. ... Actually, we consider him 'the Great' because he established the precedent of judicial independence."
By this standard, President Vladimir Putin is as far from earning the moniker as ever. The forced sell-off of Yukos subsidiary Yuganskneftegaz has widely been seen as pivotal proof that "the state is prepared to overrule the judicial process [and] won't even play by its own rules," said Al Breach, an economist with Brunswick UBS who once was among the more optimistic Russia commentators.
Indeed, the Kremlin has shown an intensified penchant for meddling both at home and abroad with its consolidation of presidential power after the Beslan school attack, its ultimately disastrous interference in Ukraine's presidential election, its backing of the state's renewed domination of "strategic" industries and its attempts to call both fiscal and monetary policies. Commentators widely failed to predict such a turnaround a year ago.
"A Russia that falls back onto a statist economic model will fall further behind a rapidly developing world - and its own immediate neighbors," U.S. Ambassador Alexander Vershbow warned in a speech last month.
Some foreign business leaders, however, remain optimistic. Putin's steps to increase his powers may be positive for business, said Andrew Somers, president of the American Chamber of Commerce in Russia.
"Almost all the American companies here continue to do extremely well," said Andrew Somers, president of the American Chamber of Commerce in Russia. "I'm having meetings with CEOs of American companies that are definitely coming onto the market next year."
The crystallization of the state's role in the economy has been made even starker by the government's failure to deliver on most of the reforms it has promised. In March 2004, Russia watchers were hoping that Putin would use his political muscle to crack down on corruption, restructure the bureaucracy and push through austere reforms opposed by vested monopolist interests. After all, Putin had fired the Cabinet three weeks before his March 14 re-election in what he had called an attempt to get on with the reforms faster.
But it was not to be.
"A year later, almost nothing has happened," said Chris Weafer, chief strategist at Alfa Bank.
Even the most optimistic analysts struggle to list reforms that were successfully implemented over the past year. Only two readily pop into mind - the enactment of mortgage legislation and the cancellation of social benefits in favor of cash payments - and the social reform created widespread unrest because the government failed to sell the plan to those who would be affected.
Meanwhile, the initially trumpeted administrative reform has only managed to add an extra layer of bureaucracy.
The most-awaited reforms - a stimulation of inward investment and a crackdown on corruption - have not moved anywhere. Corruption is believed to cost business $50 billion per year in delays, administrative expenses and outright bribes - some 10 percent of the country's annual gross domestic product, Weafer said. Moreover, while taxpayers are winning most cases against tax authorities, nebulous laws mean that many courts continue to sell their rulings to the highest bidder.
"Contracts are very, very hard to enforce in Russia," said a British lawyer who advises Western firms slighted by their Russian partners. "If the Russian side wants to f-- you up, they absolutely can."
The Kremlin has even ham-handedly tried to beat the laws of economics. In April, it set tough targets for the nominally independent Central Bank on stemming ruble appreciation and inflation - contradictory goals, considering the bank's limited tools. In the end, tight monetary policy attracted strong capital inflows and forced the Central Bank to abandon its weaker-ruble policy even as it lost control over inflation.
Once-pugnacious Kremlin reformers have gone on the defensive.
"Liberals who have drafted the reform agenda say that rather than push for more reforms, they are struggling to preserve the ones they have managed to implement," Breach said.
Continued backtracking has also undermined a lot of trust in the president. Although a well-placed phrase from Putin could once rally markets, shares barely reacted on the benchmark RTS index after the president offered last month to put a moratorium of three years on reviews of privatizations and to curtail the discretionary powers of the tax authorities. Last year, the authorities collected an estimated 470 billion rubles ($16.8 billion) in back taxes, compared with less than 150 million rubles in 2003, according to the World Bank.
"There is not much benefit of the doubt left," said Alexei Moisseyev, an economist with Renaissance Capital. "They have promised all the best things before, reneged, and now they are starting to promise those very same things again."
Opinion is divided on whether the lethargy over reforms demonstrates an ideological shift by Putin toward statism or is just the result of continued infighting within Prime Minister Mikhail Fradkov's Cabinet.
"The main reason for the deceleration of structural reforms ... has been the disorganization of the new [Cabinet] team," said Christopher Granville, chief strategist at United Financial Group.
Weafer said he believed the reforms simply ran into the wall of bureaucracy. "People in the government say Putin has become so frustrated with either the incompetency, the idiocy or the laziness of government officials that he basically believed the broad reform program ... would be a wasted effort," he said.
Weafer said he saw a sea change toward "giantism" in the state's economic strategy. Dropping its former goal of buoying small and medium-sized businesses and the underinvested manufacturing sector, "now we see the Kremlin selecting a smaller number of strategic industries: where either there is existing growth like oil, metals, minerals; where Russia has competitive advantage like aviation or the defense industry; or key infrastructure industries like banking and telecoms," he said.
Moreover, the state has muscled its way into becoming a chief player in all the major industries except mining, making it both regulator and major competitor, Weafer said.
The fundamental reversal of government policy over the past year has had mixed effects on the economy. Real incomes and wages rose faster than GDP, and the number of people living below the subsistence level has decreased. But fixed capital investment slowed, according to the World Bank. Capital outflows have intensified. Lack of structural reforms and increased political uncertainty have held back investment in non-oil sectors, while underinvestment has constrained capacity and helped to almost double producer inflation last year to a staggering 28.8 percent. Standard & Poor's declared in February that Russia "is becoming a classic victim of 'Dutch Disease.'"
The effects of power consolidation and lack of reforms will be felt more keenly in the medium term than right away - especially if the Kremlin does not transfer power smoothly in 2008. "One should invest now for the next year or so, but be mindful of 2008 coming up because there could be a very nasty political fight brewing," Breach said.
TITLE: The Imploding Dissent Space
TEXT: Like many people, I went last week to hear Genrikh Padva, a famous attorney who is defending Mikhail Khodorkovsky, give his closing arguments, which went on for the better part of three days.
Like a lot of people, I couldn't get in at first. The best-publicized trial of the decade is consigned to a courtroom big enough to accommodate perhaps a dozen visitors - about three times this number actually squeeze in.
At first think, it seemed illogical that the Russian authorities would place the best-publicized trial of the decade, one that is designed to be and runs as a show trial, in a tiny courtroom. But then you realize that forcing people into confined spaces, and placing the walls too close for comfort, is the best way this country knows of controlling people through humiliation.
Inside the courtroom, the journalists and visitors sit scrunched up, struggling to take notes without elbowing their neighbors. Khodorkovsky sits inside a cage so small that when he stretches his legs, he has to stick his feet out through the bars.
As I waited I watched the marshals and secret service agents angrily reading excerpts from a piece on the trial printed in my magazine. I hoped they didn't know who I was.
My memory of the Soviet Union is a series of small stuffy spaces, both physical and intellectual. Never enough room to talk, work or simply be alone. There is a wonderful expression in Russian: "the sense of space collapsing in" (oshchushcheniye skhlopyvayushegosya prostranstva). The phrase seems to be regaining its value.
Masha Gessen is deputy editor of Bolshoi Gorod.
TITLE: The World Needs a Strong Russia
TEXT: It goes without saying that the economic dimension of the U.S.-Russian relationship has tremendous potential for mutual gain. What needs to be said is something more obvious: Russia's economic future depends upon Russia's own choices. After six years of brisk economic growth, Russia stands at a crossroads: It can either revert to a statist economic model and fall behind its peers, or adopt an outward-looking, market-oriented economy and be positioned to integrate and prosper in the global economic system.
We hope that Russia chooses the path of integration. However, integration is more than a matter of joining major international economic organizations. It means that businessmen in Tomsk and Tulsa are able to compete for business on an equal footing. It also means a supplier in San Diego is just as likely to win an order from a wholesaler in St. Petersburg as is a merchant in Saratov, if the Californian can offer the best product, price and service. In other words, integration creates an economic environment that allows entrepreneurial skill to flourish, which leads to better products, better prices, better service and more jobs.
This is the future that all friends of Russia - and, we believe, the Russian people themselves - want to create. America wants to see a strong, democratic Russia, not only because such a Russia would be a more reliable international partner and a model for other states in the region, but also because such a Russia would be able to support increased economic ties between our two nations. Basic economics tells us that both the San Diego supplier and the St. Petersburg wholesaler gain by doing business together, so our governments ought to be in the "business" of maximizing these exchanges.
In short, increased bilateral economic activity is a win-win proposition for the American and Russian people, not a zero-sum game as some portray it. However, in order to realize such a future, Russia needs to make progress on unfinished structural initiatives: streamlining the government bureaucracy, natural monopoly reform, building the rule of law and rooting out corruption. While the work required to accomplish these tasks is not glamorous or always popular, without it the country will never realize its full potential.
Bemoaning such fundamental problems will not make them go away. I would like to mention two areas in which we believe deeper engagement with Russia can lead to positive results: World Trade Organization accession and the energy sector. At their February meeting in Bratislava, President Vladimir Putin and U.S. President George W. Bush singled out both as areas of special interest.
The United States supports Russia's bid to join the WTO. Our negotiators are currently working to conclude a commercially fair, mutually beneficial package that would facilitate Russia's entry into the global body. To reach agreement, Russia must make some hard decisions. It will need to curb strong protectionist forces, especially in the agricultural, aircraft and financial services sectors. Moreover, Russia needs to do far more to protect intellectual property rights, or IPR - in particular, cracking down on the rampant piracy of CDs, DVDs and computer software. Russia has enacted stricter IPR legislation, but it still has a long way to go toward enforcing such laws. Strong IPR protection is a key pillar of any modern economy and is crucial if Russia wants to unlock the productive capabilities of its most valuable natural resource, its people.
I am convinced that by adopting WTO rules, Russia will rationalize its laws and regulatory standards - in turn, providing investors with greater certainty, predictability and transparency. Russia has passed a majority of the legislation necessary for accession, but key pieces of legislation on issues such as subsidies and customs valuation have not yet gone to the State Duma. Progress on WTO accession remains subject to Russia's decisions and depends, to a large extent, on the time frame it sets for accession. As Bush reiterated in Bratislava, the United States is committed to working with Russia. Both our presidents voiced their desire to conclude our bilateral negotiations this year.
The energy sector is another example of a potential win-win situation. U.S. companies can bring the capital, technology and experience needed to tap many of Russia's oil and gas fields, especially those involving challenges never before encountered by Russia's own industry. Russia's companies stand to gain as revenues increase, while the government's coffers would further swell with tax receipts. However, while there have been many discussions of possible deals in this sector, we have seen far fewer agreements concluded than we had hoped for. Developing the full potential of our energy relationship will require Russia to make some long-overdue decisions concerning constructing pipelines, developing Russia's liquefied natural gas, or LNG, capability, and establishing a more stable and transparent investment environment.
Recently, we have seen positive signs on this front: U.S. company ConocoPhillips concluded a strategic alliance with LUKoil; Gazprom is in serious discussions with foreign partners regarding LNG projects; the Russian government has decided to expand the pipeline infrastructure; and a new law on subsoil will likely be in place soon (although we believe some of the language in the current draft regarding foreign companies detracts from what is otherwise a quite market-friendly initiative). Unfortunately, the uncertainty created by the dismantling of Yukos, as well as the move toward greater state control in the energy sector, undercuts these positives. While each country has the right to decide how best to manage its natural resources, Russia must realize a restrictive regime can have a high cost. In this case, the cost is a reduction in foreign and - even more worrisome - domestic investment.
I use the WTO and the energy sector as examples not only because we view movement on these issues as indicators of Russia's commitment to fostering closer economic ties, but also because if Russia can make progress on these issues, then the country will be that much closer to attaining the economic success of its G8 partners. Progress means setting up a rules-based system that creates the incentive for private companies to do business without fear of government capriciousness. Progress would be reflected in the fact that Russia would no longer bring in only a small fraction of the foreign direct investment that economies of similar size do. While Russian policymakers may debate about the optimal level of state involvement in the economy, there should be no debate about the fact that the arbitrary application of the law is the surest route to economic ruin. In this vein, it will indeed be positive news if, following Putin's recent comments, Russia passes legislation shortening the statute of limitations on privatization reviews from 10 years to three and legislation circumscribing the tax authorities.
Let me say again that it is in the U.S. interest that Russia becomes a strong economic power, fully integrated into the global economy. Both the U.S. and the Russian economies will benefit from that outcome, as will the broader U.S.-Russian relationship. We will continue our work to achieve that goal and, we hope, realize the enormous untapped potential in our economic relations in the years ahead.
Alexander Vershbow is the U.S. ambassador to Russia. He contributed this comment to The St. Petersburg Times.
TITLE: Never Mind the Speed of Reforms, Look at Their Quality
TEXT: Governor Valentina Matviyenko's address to the Legislative Assembly at the end of last month did not only deal with what has been happening in St. Petersburg, but also reflected on her personality. The address was above all curious as a kind of political-psychological document, that contributed to the material form of Matviyenko as a reformer. It transmitted the relationship between the governor and her mission, and reflected her management style.
Matviyenko is clearly worried by the reforms in St. Petersburg. Did she see herself as a reformer when she agreed to become governor? I don't know. More likely it was like it was for Mikhail Gorbachev or Boris Yeltsin - it happened spontaneously out of a wish to improve things as they say, life made me do it. And Matviyenko puts her energy, will and optimism into reforms. It's possible that at first she was told she had to do this, but in 18 months she has grown to believe in and truly love them. Matviyenko is convinced of the necessity for transformation and tries to get the Petersburg bureaucrats to act. ("I don't see any spark in your eye. I'd better throw some dynamite power on you!" she said at one of the Smolny meetings.)
In her address the governor thinks on a large scale and believes that under her leadership the right steps will be taken for cardinal changes. St. Petersburg is the "European capital of Russia," it is destined "to become the leader of modernization in Russia," and she hopes to turn the city "into one with a European standard of living with a European economy and standard of civil development." Citing her experience in 2004, Matviyenko demonstrated her steel certainty: "Only an innovative style of city government will allow us to leap several steps ahead on the path of modernization, therefore our tactics are to make a breakthrough and not to shuffle forward on a principle of step by step."
However, the governor's position on a triumphal procession of reforms raises serious fears regarding their quality. Alas, in many situations it can be said that ideologically correct beginnings in the area of the city economy and management have been made, but in practice they are unsystematic, superficial and declarative.
Why create the illusion that by 2004 "a new quality of economic growth was achieved?" What new quality can be mentioned when it is obvious that the necessary conditions - an attractive investment climate and business infrastructure are lacking? In our view it is too early to talk about a "decisive change to the investment landscape." According to official data the amount of foreign investment rose for the first time for three years, and by a whole 41 percent. But the bureaucrats are unable to explain which projects or even sectors should be thanked for generating this growth. The city statistics committee does not publish any data on foreign investment or its structure, all it has had to say is that Russian investment fell 16 percent last year. Expert magazine rates St. Petersburg 52nd among the country's administrative regions in terms of quality of investment legislation. This is the reality, but almost all those responsible for the investment process at City Hall deny that there is any urgency to improve investment laws.
Matviyenko is right to say that "development is impossible if there is endless 'feeding' from the budget; capital investment must increase and the infrastructure must be developed. However, her first concern seems to be for the social infrastructure. But for the economy to have a new quality it is the business infrastructure that needs reform, the utility network, roads and construction sites. Regarding the connecting of utilities to construction sites - their absence is one of the main barriers to investment - laughably small sums are being spent and there is an absence of regulations on the price of land, and that is one of the main methods of removing enterprises from the center of the city to industrial zones.
The governor has announced that the establishment of transparent, predictable and fair rules for business has been achieved. But at the same time the land plots put out for auction are done so with the thinking that they will be bought by a "strategic partner." Furthermore, the reform of the transport sector has got rid of the middle and small carriers, and reorganization of the state-owned enterprises is occurring very slowly. Half of the blame lies with the reform of state orders. Real competition and savings have been achieved mainly for big purchases that were controlled by the governor and the heads of her economic group; but at the level of committees and the state enterprises there is no competition. The conclusion of all this is that it is impossible to speak of a breakthrough in St. Petersburg.
Matviyenko confuses the speed of her own life with the speed of changes in a city, which is famous for its conservative traditions. The city progresses only step by step, especially when you take into account some of the steps backward.
A typical Russian transformer, Matviyenko spreads her ideas of reform irrationally, without keeping accounts. She just loves them. That is already a lot in Russia. But it is not enough to conduct real reform - those that are well-thought out and consequential. What should be done I will discuss next week.
Vladimir Gryaznevich is a political analyst with Expert Severo-Zapad magazine. This comment was broadcast on Ekho Moskvy in St. Petersburg on Friday.
TITLE: The Big Fix
TEXT: Let's face the facts. The game is over and we - the "reality-based community," the believers in genuine democracy and law, the heirs of Jefferson and Madison, Emerson and Thoreau, the toilers and dreamers, all those who seek to rise above the beast within and shape the brutal chaos of existence into something higher, richer and imbued with meaning - have lost. The better world we thought had been won out of the blood and horror of history - a realm of enlightenment that often found its best embodiment in the ideals and aspirations of the American Republic - is gone. It's been swallowed by darkness, by ravening greed, by bestial spirits and by willful primitives who now possess overwhelming instruments of power and dominion.
A gang of such spirits seized control of the U.S. government by illicit means in 2000 and maintained that control through rampant electoral corruption in 2004. The re-election of President George W. Bush last November was a deliberately shambolic process that saw massive lockouts of opposition voters; unverifiable returns compiled by easily hackable machines operated by avowed corporate partisans of the ruling party; and vast discrepancies between exit polls and final results - gaps much larger than those that led elections in Ukraine and Georgia to be condemned as manipulated frauds. Indeed, a panel of statisticians said last week that the odds of such a discrepancy occurring naturally were 959,000 to 1, the Akron Beacon-Journal reported.
The copious documentation of the Bush fraud keeps growing. Last month, experts using actual machines and returns from the 2004 election showed Congress how a lone hacker could skew a precinct's results by 100,000 votes without leaving a trace. More than 40 million votes in 30 states were cast on such computer systems, BlackBoxVoting noted.
Late last year, Congress heard sworn testimony from Florida programmer Clint Curtis, who created vote-rigging software in 2000 at the request of Tom Feeny, a Bush Family factotum. Feeny wanted Curtis (a fellow Republican) and his employer, Yang Enterprises, to produce untraceable programs that could "control the vote" as needed, investigator Brad Friedman reported. Feeny also told Curtis of Bush plans to "suppress the black vote" with "exclusion lists." This is exactly what happened. BBC investigator Greg Palast has shown that tens of thousands of legitimate African-American voters were deliberately "purged" from the rolls by a private Republican-controlled corporation hired by Florida Governor Jeb Bush. Afterwards, Feeny - who had been Jeb's running mate in his first gubernatorial campaign - was rewarded for his dutiful service with a plum congressional seat.
In 2002, Raymond Lemme, a Florida state government inspector, took up Curtis' charges, which included other corruption allegations involving Feeny, Yang Enterprises and a Yang employee charged with peddling military technology to the Chinese. In June 2003, Lemme told Curtis he had "tracked the corruption all the way to the top" and that "the story would break in a few weeks." On July 1, 2003, Lemme was found dead in a Georgia hotel room, just across the Florida border.
Local police ruled that Lemme, a happily married man eagerly planning his daughter's wedding, had suddenly decided to slash his wrists. At first they said there were no photos of the death scene; but then the pictures turned up on the Internet and were confirmed as authentic by the embarrassed police. The photos clearly contradicted the original suicide report on several points - presenting evidence, for example, that Lemme had been beaten before his death. The investigation was reopened after Curtis' Congressional testimony - and then abruptly shut down after local police spoke to a never-identified "someone" in the Florida state government.
Needless to say, nothing has been done to clarify the murk surrounding Lemme's convenient death. Nor has there been any action toward rectifying the highly profitable degradation of the American electoral process - beyond the appointment of yet another "blue-ribbon panel" of Establishment worthies to oversee "election reform." The seriousness of this endeavor can be seen in the man appointed to co-chair the effort: James Baker, the notorious Bush family fixer (and Saudi bagman) who spearheaded the sabotage of the 2000 vote in Florida. Baker's presence on the panel ensures that nothing will be done to lessen the ruling clique's chokehold on power.
So let's have no illusions about where we are. Gangsters are in charge, and nothing and no one will be allowed to challenge their dominion. They are waging aggressive war to cement their position and that of their allies: the energy barons, the arms merchants, the construction and services cartels, the investment bankers. These power blocs now command monstrous resources and unfathomable profits; they can buy out, buy off or bury any force that opposes them. Meanwhile, they use the loot of the stolen Republic - its blood and treasure - as fuel for their ever-expanding war machine: Bush now has a "secret watch-list" of 25 more countries ripe for military intervention, the Financial Times reported.
With more war crimes afoot, last month Bush issued an official "National Defense Strategy" that openly declares "judicial processes" as one of the enemies confronting the United States, actually equating them with terrorism, The Associated Press reported. Law is "a strategy of the weak," says the Bush Doctrine, in a chilling echo of Hitlerian machtpolitik: Might makes right. The judicial process must not be allowed to "constrain or shape" American behavior in any way, the gangsters declared.
Think of it: Law is now the enemy. Democracy, as we've seen above, is the enemy. This, the demented code of criminals and tyrants, has become the ruling doctrine of the United States - replacing the Constitution, replacing the noble struggle for liberty and enlightenment with the howl of the beast, with a freak show of avarice and death.
For annotational references, see Opinion at www.sptimesrussia.com
TITLE: India and China Form 'Strategic Partnership'
PUBLISHER: The Associated Press
TEXT: NEW DELHI - India and China, the world's two most populous countries, agreed on Monday to create a "strategic partnership" in an effort to end their longstanding border dispute and boost trade and economic cooperation.
The agreement signaled a significant shift in relations between the two Asian giants after decades of mutual distrust and suspicion.
"India and China can together reshape the world order," Indian Prime Minister Manmohan Singh said after a welcome ceremony for his Chinese counterpart, Premier Wen Jiabao, at India's presidential palace.
Together the two nations account for one-third of the world's population.
The statement announcing the partnership was signed by both premiers and said the agreement would promote diplomatic relations, economic ties and contribute to the two nations "jointly addressing global challenges and threats."
India-China relations have "acquired a global and strategic character," it said.
"The leaders of the two countries have therefore agreed to establish an India-China strategic and cooperative partnership for peace and prosperity," the statement said.
The two countries also signed a raft of agreements for cooperation in such diverse areas as civil aviation, finance, education, science and technology, tourism and cultural exchanges.
"This is an important visit. We are working to promote friendly ties of cooperation between our two countries," Wen told reporters earlier Monday.
The two countries outlined a set of broad parameters to demarcate their disputed boundary through a "fair, reasonable and mutually acceptable solution, through equal and friendly consultations," the joint statement said.
India and China share a mountainous, 2,500-mile border, parts of which are not demarcated. The two sides went to war over the disagreement in 1962.
Meanwhile, both sides have in recent years forged closer economic ties, hoping improved trade relations will also help resolve political differences.
On Monday, the two leaders agreed to boost bilateral trade to $20 billion by 2008. Last year, trade totaled $13.6 billion, with India recording a trade surplus of $1.75 billion, according to India's trade ministry.
China is keen to develop a free trade area between the two countries. Their combined population is 2 billion, which would make it the largest free trade area in the world. During their talks, Wen and Singh agreed to set up a panel of experts to study the feasibility and benefits that would accrue from establishing such a trade area.
On Sunday, Wen visited the southern city of Bangalore, India's technology hub, and said the two nations should put aside their rivalry and instead pool their resources.
He said India and China can together lead the world in information technology, heralding a new "Asian century."
Wen was expected to bring up the issue of Tibet and the role of the Tibetan spiritual leader, the Dalai Lama, who lives in exile in India, but it was not immediately clear if it was discussed.
India allowed the Dalai Lama to set up a government in exile in the northern Himalayan town of Dharmsala after he fled Tibet in 1959 following an aborted uprising against Chinese rule in the territory.
TITLE: IN BRIEF
TEXT: Catch of the Day
TIRANA (Reuters) - Albania's most wanted man fought off special police and eluded capture for years only to blow himself up while fishing with dynamite, police and newspapers said Friday.