SOURCE: The St. Petersburg Times
DATE: Issue #1092 (58), Tuesday, August 2, 2005
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TITLE: Basayev’s ‘Nightline’ Interview Irks Russia
AUTHOR: By Nabi Abdullaev and Andrew McChesney
PUBLISHER: Staff Writer
TEXT: MOSCOW — The Foreign Ministry summoned the U.S. Embassy’s top official and politicians expressed outrage after a U.S. television network broadcast an interview with Chechen warlord Shamil Basayev, who has a $10 million bounty on his head and has claimed responsibility for the Beslan school hostage-taking and other terrorist attacks.
Basayev acknowledged in the interview that he was a terrorist and repeated his earlier statements that he might order more Beslan-style attacks. But he softened his rhetoric by noticeably avoiding loaded words such as “jihad” and “infidels.”
The taped interview was broadcast on ABC television’s “Nightline” late Thursday night and was conducted by Andrei Babitsky, a Radio Free Europe/Radio Liberty journalist who has complained about Russian harassment over previous reports about Chechnya.
Moscow is very sensitive to domestic and foreign media giving a voice to Chechen rebels, whom it equates with international terrorists, and Defense Minister Sergei Ivanov said Sunday that he was barring military personnel from contact with ABC.
The Foreign Ministry on Friday summoned the U.S. Embassy’s deputy chief of mission, Daniel Russell, to convey “our views over the broadcast of an interview with a terrorist,” ministry spokesman Boris Malakhov said. 
“The network has shown outrageous neglect of the standards of responsible journalism and general human values,” he said in a statement on the ministry’s web site.
The embassy confirmed that Russell had been summoned but declined further comment. Russell is the top U.S. official in Russia after Ambassador Alexander Vershbow left in mid-July. The next ambassador has yet to be confirmed by the U.S. Senate.
ABC, which is owned by The Walt Disney Company, stood by its decision to air the interview on Sunday. “ABC News will continue to report fully on news from Russia and that important region,” it said in an e-mailed statement.
ABC also said it had offered the Russian government an opportunity to participate in “Nightline” or a future broadcast and the offer was declined.
Host Ted Koppel said on “Nightline” that viewers had the right to hear the viewpoint of any newsmaker. “Then we can reject or accept it, condemn it or embrace it,” he said, according to a transcript of the program. “No one should have the authority to make that decision for us. Not our own government, and certainly not somebody else’s.”
What Basayev Said
In the interview, Basayev reiterated his previous statements that each Russian had to feel the impact of the war in Chechnya before it could stop. “I see no other way to stop the genocide of the Chechen people, and I’ll pull no punches to stop this genocide,” he said.
He refused to accept blame for the deaths at Beslan last September. More than 300 people died, half of them children, during an operation to free the hostages. “Responsibility is with the whole Russian nation,” Basayev said. “In Chechnya and anywhere else, I use methods that are reasonable and acceptable. Neither I nor my mujahedeen have killed children. Not here, not there.”
Asked if a Beslan-type attack could occur again, Basayev said: “Of course. ... As long as the genocide of the Chechen nation continues, as long as this mess continues, anything can happen.
“OK. So, I’m a terrorist. But what would you call them?” he said of the federal authorities. “If they are keepers of constitutional order, if they are anti-terrorists, then I spit on all these agreements and nice words.”
In addition to Beslan, Basayev has claimed responsibility for the raid on Moscow’s Dubrovka theater in 2002 that killed 129 hostages, several Moscow suicide bombings in 2003 that killed 58 and the bombings of two passenger planes in 2004 that killed 90. He also led a raid on a maternity hospital in the southern Russian town of Budyonnovsk in 1995 that killed about 120.
Basayev leads a radical Muslim wing of the anti-Russian insurgency, and he usually uses words such as “jihad” and “infidels” in interviews published on rebel web sites to bolster his vision that the rebels are fighting for Islamic values.
But in Thursday’s interview, Basayev avoided inflammatory language and instead repeatedly spoke of the colonial nature of the conflict and of the rebels’ fight for independence.
Boris Makarenko, a political analyst with the Center for Political Technologies, said Basayev clearly knew his audience. “Basayev is anyone but a fool. He clearly understands that after 9/11 in the United States, loaded terms like jihad will not help him win the sympathies of an American audience,” Makarenko said.
“Nightline” closed with a statement from the Russian Embassy in Washington, which had urged ABC not to air the interview. “At issue is providing a forum to one of al-Qaida’s zealots responsible for slaughtering innocent victims during many major terrorist attacks that he masterminded and personally perpetrated,” said the statement, which was read on the air.
Federation Council Deputy Speaker Alexander Torshin, who is heading a parliamentary investigation into the Beslan attack, condemned the broadcast as “an unfriendly act toward Russia” and promised to order Babitsky to disclose all details about his interview, Interfax reported.
Federal forces are combing Chechnya for Basayev, who has remained elusive despite the $10 million bounty announced by the Federal Security Service after Beslan.

Babitsky’s Side
Babitsky, speaking by telephone from his office at RFE/Radio Liberty’s headquarters in Prague, where he has lived for the past four years, said he interviewed Basayev in Chechnya on June 23. He refused to disclose other details about the interview, citing instructions he had received from his superiors. RFE/Radio Liberty receives funding from the U.S. government.
On “Nightline,” Babitsky said he drove his own car from Prague to Ukraine and then took a taxi to Ingushetia and on to Chechnya. He said he had hoped to interview a rebel leader named Doku Umarov and had unexpectedly been ushered into a car where Basayev was seated. Babitsky, who spent two days and nights with Basayev, said many of Basayev’s fighters were ill and that tuberculosis was widespread. He said the fighters slept on barren ground.
Babitsky said he had not told Russian authorities about the meeting because they “would definitely charge me with collaborating with a terrorist.”
State Duma First Deputy Speaker Lyubov Sliska said Friday that Babitsky should be arrested for collaborating with a terrorist, Interfax reported.
ABC said it received the interview after Babitsky called and offered it to the network. 
Babitsky has previously incurred Moscow’s wrath by seeking out the rebels’ viewpoint for his reports. He was kidnapped under murky circumstances in Chechnya in January 2000 and then swapped for federal soldiers held captive by Chechen fighters in a videotaped exchange clearly staged to discredit him. He was freed in neighboring Dagestan in February 2000, only to be arrested on charges of carrying a forged passport.
More recently, Babitsky was prevented from flying to Beslan to cover the school crisis. He was detained at Moscow’s Vnukovo Airport after airport security said they thought he might have explosives in his suitcase. When he was released, several young men started hassling him, and airport security detained him on suspicion of hooliganism.
Babitsky and his colleagues have blamed the Federal Security Service for his problems.

Ivanov Lashes Out
Ivanov said Sunday that the Defense Ministry now considered ABC persona non grata. “Today, I have given the order to the head of the press service that not one serviceman of the Defense Ministry should have contact with the American television channel ABC,” Ivanov said on Rossia television. “We will continue to act openly with the press, but this channel will not be invited to the Defense Ministry and no interviews will ever be given to it.”
The Foreign Ministry, however, said there were no plans to revoke ABC’s accreditation to work in Russia, RIA-Novosti reported.
ABC has a Moscow bureau chief who also serves as the network’s sole correspondent in Russia. 
On Friday, Anatoly Safonov, President Vladimir Putin’s special anti-terrorism representative, called the ABC broadcast a direct violation of several United Nations’ resolutions aimed at curbing the spread of terrorism. “This is a signal that notorious double standards and double approaches continue to exist in different areas,” Safonov said, Interfax reported. “Definitely, these kinds of moments hinder cooperation and give new impulse to the activities of terrorists.”
Dmitry Kozak, Putin’s envoy to the Southern Federal District, which includes Chechnya, said on NTV television that people who resorted to terrorism should be denied access to the media. 
In Grozny, pro-Moscow Chechen President Alu Alkhanov said he was “stunned.” “I suppose that those who offered a forum to Basayev did not understand what kind of threat this man and other terrorists like him pose all over the world,” he said, Interfax reported.
Mikhail Margelov, the chairman of the Federation Council’s International Affairs Committee, said U.S. President George W. Bush should not be blamed for the broadcast. “I can say with confidence that no one should judge the position of President Bush’s administration based on this interview,” he told RIA-Novosti. “After the terrorist attack in Beslan, Deputy Secretary of State Richard Armitage said that the inhuman Basayev was not worthy of existence, and I think this exact position is close to that of the U.S. leadership.”

U.S. Replies
U.S. State Department spokesman Sean McCormack told reporters in Washington that the U.S. government had played no role in the broadcast and that ABC had a constitutional right to show the interview.
McCormack noted that the United States had designated Basayev a terrorist and a threat to U.S. interests in 2003.
Pressed by a reporter, McCormack said there was no inconsistency in the U.S. government’s approach to the Basayev interview and its past criticism of Arabic television channel Al-Jazeera for, among other things, airing taped interviews with Osama bin Laden and other terrorists, according to a transcript of the news conference on the State Department web site.
McCormack said Al-Jazeera had in the past broadcast misleading information about U.S. policy and played tapes that might have included signals from bin Laden and other terrorists to terrorist cells. Still, he said, the U.S. government has always left issues of news judgment to television networks. He also said he knew of no concerns about a signal in the Basayev interview.
The New York-based Committee to Protect Journalists criticized the Russian protest. “It reflects the Kremlin’s lack of understanding that free speech means tolerating the broadcast of views it finds uncomfortable or even reprehensible,” CPJ executive director Ann Cooper said in an e-mailed statement. “It also exposes the Kremlin’s failure to comprehend that — in sharp contrast with Russia — U.S. television operates independently of government.”
In March, Moscow criticized the independent Swedish news agency TT for broadcasting a similar interview with Basayev, and a month earlier it asked British authorities to prevent the independent television station Channel 4 from broadcasting another Basayev interview. The British Foreign Office said at the time that it could not interfere with the station’s editorial policies.

TITLE: Shipping Mishaps Hint At Deep Problems
AUTHOR: By Galina Stolyarova
PUBLISHER: Staff Writer
TEXT: Navy Day celebrations Sunday were marred by three separate accidents to ships including damage to the “Neukrotimy,” the would-be flagship of a Navy Day flotilla, a minor oil spillage from a tanker and a cargo ship hitting a bridge over the River Neva.
A special commission has been formed to investigate the incident with the “Neukrotimy,” RIA-Novosti news agency reported a press officer with the Baltic Fleet as saying Monday. 
During preparations for Navy Day, an explosive device went off near the patrol ship, which was demonstrating mine disposal. A three-meter crack was found in the ship’s hull, and the ship’s engine compartment was flooded. 
“Neukrotimy” — the “Indomitable” — was intended to be the parade’s flagship but is now being repaired at the Northern Shipyard, RIA Novosti reported. The prosecutor’s office of the Leningradsky military district has launched a criminal investigation.
The accidents served to highlight the deteriorating state of Russian shipping on what should have been a moment of pride in St. Petersburg, home of the Russian navy and a major Baltic Sea port.
The Baltic Sea environment was to be at the heart of talks Monday and Tuesday between President Vladimir Putin and Finnish president Tarja Halonen in Helsinki, Russian media reported.
All countries around the Baltic Sea, except Russia, signed a petition to the International Maritime Organization to grant the Baltic Sea the official status of a “particularly sensitive sea area,” or PSSA, so that they can join forces in tackling environmental threats in the region.
Russia’s reluctance to sign the petition reportedly stems from fears the regulation will hamper economic development.
The most recent shipping accident occurred at 6.40 a.m. on Monday when the cargo ship “Nevsky 22” crashed into the left wing of Tuchkov Bridge connecting Vasilievsky Island with the Petrograd Side. The ship’s cabin was damaged and has been moored near to the crash site for repairs. The damage to the bridge was minimal, according to duty engineers from Mostotrest, a state organization monitoring St. Petersburg’s more than 300 bridges.
On Saturday at 4.00 a.m., the oil tanker “Irkutsk”, en route from Yaroslavl, hit the pier of Troitsky Bridge linking the Palace embankment with Petrovskaya embankment. The collision resulted in the spillage of one ton of fuel oil into the Neva. Two clean-up boats are collecting the oil but the spillage was said to not have seriously affected the river.
Local environmentalists, however, drew attention to the spillage in the context of frequent oil traffic accidents involving Russian ships in the Baltic Sea region.
“Although this particular spill isn’t dangerous, in principle, the situation with oil tankers going along the Neva is extremely alarming,” said Dmitry Artamonov, head of the local headquarters of Greenpeace. “At night time, high-tonnage tankers regularly pass along the Neva, and if any of them happens to hit a bridge, St. Petersburg’s modest fleet of clean-up boats won’t be able to cope with the consequences of the massive spillage it would cause.”
Russia uses outdated ships, in some cases single-hulled ships that are banned in the EU and have been replaced by double-hulled vessels for safety reasons, Artamonov said.
“If a single-hulled vessel gets a hole during an accident, the oil goes straight to the water, while a double hull significantly reduces that risk,” Artamonov said. “But the older a double-hulled vessel, the more fragile it becomes, which also increases risk of spillage. For instance, an oil tanker involved in an accident on Lake Ladoga in May, was a double-hulled vessel.”
Over the past decade, environmentalists in Russia as well as the neighboring Baltic and Nordic states, have expressed concern about the rapid increase in Russian oil traffic in the Baltic Sea region and the country’s use of outdated tankers.
About 2,500 oil tankers travel along the Neva each year. 
According to the most recent available statistics from the St. Petersburg Committee For Environmental Protection, 38 oil spill accidents were registered in the area in 2003, as compared to 51 such cases in 2002, and 32 accidents in 2001. 
The 2004 report is not yet available. 
The committee’s experts say the risk of a spillage involving a high tonnage vessel doesn’t exceed one case in 40,000, or one accident in five years, calculated to current traffic levels. But accidents are not predictable, and ecologists suggest relying on tight precautions rather that on soothing statistics.
Artamonov said the construction of the Leningrad Oblast’s new oil terminals has led to increasing oil traffic which leaves the Baltic Sea area exposed to growing risks of spillage accidents. 
The spillage from the “Irkutsk’ on Saturday makes a compelling example of what can easily happen, he said.
The third shipping accident of the weekend occurred when the patrol ship “Neukrotimy” sprang a leak after the vessel’s hull was ruptured, causing it to list severely. The ship was withdrawn from Sunday’s Navy Day sail-past.

TITLE: Russia Google-Eyed at the Possibilities For New IT Parks
AUTHOR: By Yuriy Humber
PUBLISHER: Staff Writer
TEXT: A new breed of information technology parks will be aimed at global companies and guarantee positions for more than 1,000 employees, a top government of¸cial said Friday.
“The point is to have a different kind of company [in the IT parks],” Dmitry Milovantsev, Deputy Minister for Information Technologies, said after a meeting on the creation of the country’s ¸rst state-sponsored IT park, to be built in St. Petersburg.
The deputy minister said the world’s largest online search engine company Google is interested in setting up a research center with 3,000 staff on a site by St. Petersburg’s State University of Telecommunications, which will act as a base for the IT park.
“We spoke with Google representatives just yesterday, and they seemed very keen on the idea,” Milovantsev said.
When contacted late Friday, Google confirmed they were researching the Russian market, but would not reveal details of possible projects.
“We are very interested in Russia and are working to learn more about this important market. We will continue evaluating our search technology and products … as well as exploring business opportunities in Russia,” a Google spokesman said Monday via e-mail.
“[However], we have no specific plans or announcements to share with you today,” the spokesman said.
Since President Vladimir Putin’s call for action in catching up with global IT outsourcing leader India, the government has worked at top speed to push through a draft law on special research and industrial zones that could boost Russia’s competitiveness by easing tax and customs regulations for firms operating on zone territory.
The law, passed by the State Duma in its second and third reading last month, will serve as the platform legislature for state-backed IT parks.
Who will be allowed in as residents and how the parks will help Russia’s small and medium-sized IT firms has remained a mystery for the industry.
Intel spokesman Yevgeny Zakablukovsky said Jul. 6 that he saw the legislature as attractive for new investors, but largely ineffective for the development of IT industry players already present in Russia.
The industry’s fears could have some justification. The deputy minister was dismissive when asked how St. Petersburg’s IT park would help domestic companies.
“The firms you are talking about have what, 150 staff, 300 staff? … Even if they have 1,000 [staff] — what is that [on the global scale] when a company the size of Google or India’s NIIT Technologies can set up a center employing thousands of people,” Milovantsev said.
At present, the size of Russia’s IT industry lags far behind that of India, which controls up to 50 percent of the world’s outsourcing market. India’s largest software outsourcer, Tata Consultancy Services, employs 48,711 staff and aims to increase that by 12,000 people by the end of the fiscal year, IDG News Service reported last month.
In Russia, only three domestic and a handful of foreign IT firms employ more than 1,000 staff. Sergei Moiseyev, marketing director for Sunmicrosystems says that in three to four years the number of such firms could grow significantly.
“Our research and development center in St. Petersburg already has about 300 staff, yet we started with 100 people last September,” Moiseyev said Monday. Judging by a year’s experience, “we can say that the number of people working [at the center] could double or even triple in the next four years,” he said.
Fast-growing companies like Sunmicrosystems are exactly the material St. Petersburg authorities say they want in the IT parks. St. Petersburg’s vice-governor Mikhail Oseyevsky, part of the working group in charge of the city’s IT park project, said that the local authorities intend to attract “companies like Intel, Sunmicrosystems and Motorola,” which could also help with the park’s financing.
The project will need an estimated $1 billion in investments, said Alexander Gogol, dean at the University of Telecommunications. While the financial obligations will be split between the federal and regional authorities, with 10 percent coming from World Bank, Oseyevsky said he hoped the IT park’s residents will provide some contributions.
“The most important thing is not to create a product, but to sell it,” Oseyevsky said. Meanwhile, Milovantsev said the government will “make an offer [large IT companies] cannot refuse” to draw them to the IT projects, which after St, Petersburg will be organized in the Moscow region, Novosibirsk, and Nizhny Novgorod.
Oseyevsky said that St. Petersburg’s IT park will begin construction next year, to be ready for a 2008 or 2009 opening.
Meanwhile, industry analysts said the IT Ministry’s ambitions seemed to be running away into big numbers, avoiding the reality of the situation their initiatives were supposed to improve.
“If Google builds a research center, do we even have 3,000 spare professional IT staff in St. Petersburg?” said Victor Naumov, Head of Intellectual Property and Information Technology Protection Group at DLA Piper.
“The city has the cultural and geographical proximity to Europe to make it a good base ... but who will need Russia in 2008, if we miss out on the global industry’s opportunities now?” he said.
“The whole Russian IT industry needs government help to boost the IT industry where it is now, not wait for the parks,” Naumov said.

<i>Staff Writer Maria Levitov contributed to this report.</i>

TITLE: Human Rights Groups: Police Ignore Extremists
AUTHOR: By Vladimir Kovalev
PUBLISHER: Staff Writer
TEXT: The City Prosecutor’s Office is siding with extremist groups that promote racial hatred in St. Petersburg and has ignored warnings about their activities from local anti-fascist organizations, a group of human rights advocates said Thursday.
The advocates have tried to prevent the publication of a number of extremist newspapers and books that openly call for violence against non-Russian ethnic groups but have been met by deaf ears at the Prosecutor’s Office, the activists said.
“The St. Petersburg Prosecutor’s Office is simply covering up Nazi organizations. The police don’t react in a proper way,” Ruslan Linkov, head of the St. Petersburg branch of the Democratic Russia party, said at a briefing held in St. Petersburg on Thursday.
“It could happen that soon the authorities will not be met by an ‘Orange Revolution,’ which is what scares them, but a ‘Brown’ one, with a wave of fascism crushing Russian society,” Linkov said.
Extremist books are sold openly in the city center, including in Dom Knigi, located on Nevsky Prospekt, the city’s main street, Linkov said. “I went to the store together with the police, pointed at certain books and they bought them to conduct an investigation. I haven’t heard anything from them for months,” he said.
Earlier this year the City Prosecutor’s Office declined to initiate a criminal case against a number of extremist papers publishing in the city. At the same time the prosecutor’s office issued an official warning to the newspaper’s editors recognizing the fact that the papers are spreading racial hatred.
The weak reaction of the Prosecutor’s Office to extremist literature and newspapers can be explained by the influence of a pro-extremist wing within the law enforcement system at both local and federal levels, Linkov said.
One problem stems from prosecutors’ increasing affiliation with the Russian Orthodox church, despite the constitutional separation of church and state, said Yury Shmitd, a St. Petersburg-based lawyer.
“Earlier in this year the prosecutor general [Vladimir] Ustinov said that it would have made sense to organize praying rooms in regional prosecutor’s offices across the country in order to increase the moral level of employees. What are they going to pray for there? Maybe they’re going to atone for their sins,” Shmidt said at the briefing.
The City Prosecutor’s Office representatives slammed the remarks made by the human rights advocates.
“This is an absolute bucket of rubbish,” said Yelena Ordynskaya, the spokeswoman for the City Prosecutor’s office in a telephone interview on Friday.
“What evidence do they have? Can they find any other arguments besides this? What is this? Do they name any particular people that these groups contain? There are only groups of investigators, each responsible for a particular field of work and no other groups in the City Prosecutor’s Office,” she said.
“As for a praying room, we don’t have one in the St. Petersburg Prosecutor’s Office,” Ordynskaya said.
Opposition movements operating in St. Petersburg said the work of the Prosecutor’s Office is selective with the clear aim of burnishing the authorities’ image rather than prosecute real crimes, representatives of Yabloko party said at the briefing.
“Just try to imagine if literature or publications were on sale on each corner in St. Petersburg with bad words about President Vladimir Putin? How long would they stay on sale?” said Boris Vishnevsky, a member of the St. Petersburg Legislative Assembly.

TITLE: Mongolian Held For Attack on Ambassador
AUTHOR: By Irina Titova
PUBLISHER: Staff Writer
TEXT: St. Petersburg police detained a Mongolian citizen suspected of an attack on British Ambassador Tony Brenton and his wife in June.
Police said its criminal department received information that the detained man, who engaged in attacks against other people in the center of St. Petersburg, was also involved in the attack against the ambassador, Interfax said Monday.
The man, 36, lived in the city’s Krasnogvardeisky district without registration, police said.
Consul General to St. Petersburg George Edgar said he could not yet comment on the development.
“However, we hope police will work energetically to find people responsible for the incident,” Edgar said in a telephone interview  Monday.
Brenton was robbed of his wallet, and his wife was slightly injured in the mugging in central St. Petersburg on June 26.
Brenton and his wife Susan Brenton were walking along the city’s main street, Nevsky Prospekt, at about 6:15 p.m. when they were surrounded by five young people aged 15 to 16, earlier reports indicate.
The assailants took Brenton’s wallet, which contained a credit card and 3,000 rubles ($105) in cash.  His wife suffered a sprained arm when she tried to stop the robbery.
The British Consulate in St. Petersburg alerted police about the robbery on July 18, Interfax said.  
After that police opened a criminal investigation under article 161 of the Russian Criminal Code (robbery).  
Police also said that it would be “difficult to find the culprits because the ambassador did not immediately inform the police and the incident only became know after several weeks”, Interfax reported last month. However, Edgar said that the city police were informed about the attack shortly after the incident, though the official report from the Foreign Affairs Ministry arrived to the city police much later.
“I think, there was confusion because the information came to police through different channels,” Edgar said.
According to the Consulate, at least 20 British citizens, including Brenton, have reported being victims of crimes to the consulate this year.
In April, the consulate released a leaflet warning tourists about pickpockets and street gangs advising how to avoid them.
Mugging and other street crimes against foreigners are frequent in St. Petersburg.
The Spanish Consulate has recently expressed concern about the number of recent attacks against Spanish citizens in St. Petersburg. Last week at least two Spanish citizens were attacked.
A Spanish tourist was hit on his head and his jewelry stolen last Thursday by an unknown assailant. The tourist was hospitalized with head trauma and a concussion.
Another Spanish citizen was recently robbed near the State Hermitage Museum when his bag was cut. Cash, credit cards and documents were stolen.
Honorable Consul of Spain to St. Petersburg Luis Alberto Rodriges Blanco said in order to make the city more secure “ the authorities should organize more police patrols in the streets.”
“Every year St. Petersburg noticeably gets more tourists, including more Spanish tourists, and the city needs more police in the streets to prevent street crimes,” Blanco said on Monday.

TITLE: Navy Day Spirit Remains Upbeat
AUTHOR: By Shasta Kearns Moore
PUBLISHER: Special to The St. Petersburg Times
TEXT: Colorful fireworks met gray skies Sunday as St. Petersburgers flooded the streets to celebrate Navy Day.
The main festivities kicked off around midday on a stage set up near the Naval Museum on Vasilyevsky Island. The political and navy elite took the opportunity to extol the long and proud history of the Russian navy, while the sailors themselves drank to its honor throughout the streets of St. Petersburg.
Though Sunday was the official annual Navy Day, celebrations were held all weekend long. Starting on Saturday, ships docked on the Neva since Thursday began playing war games, causing amusing explosions and significant amounts of smoke for the crowds gathered on both sides of the river. Kronshtadt, Russia’s first naval base built in 1704 outside of St. Petersburg hosted several activities throughout the weekend.
On Sunday, thousands enjoyed rock concerts around town and lined up to see the inside of modern warships that were open in the afternoon for public viewing.
The Italian sailing ship “Amerigo Vespucci,” a beautiful 1930 replica of an 18th-century vessel, sailed in for the occasion and hosted a crew of fantasy characters during the festival’s main attraction: a pyrotechnics show off the English embankment.
The Russian Navy was founded in 1696, under boat-loving Tsar Peter the Great who built St. Petersburg specifically as a base for his new fleet. Today, St. Petersburg boasts five major shipyards and is where some of the largest Russian naval vessels, surface and submarine, are constructed.
The Russian Navy can be credited with the world’s first submarine and the first diesel-electric ship.  
The latest available figures count among the Navy’s arsenal nine submarines, twenty-three principal surface combatants and approximately sixty-five smaller vessels.

TITLE: Dockers Meet For Strike Talks
PUBLISHER: The St. Petersburg Times
TEXT: St. Petersburg Sea Port dockers plan to hold meetings between Aug. 12-15 where they may decide to go on strike indefinitely.
The dockers are considering the action because they say their collective labor agreement for 2005-2008 makes labor conditions worse than the previous agreements, Interfax reported on Friday, citing the dockers’ trade union.
The trade union said that the St. Petersburg Sea Port was providing almost no negotiations with the dockers to agree on the terms of the labor contracts.
Dockers held a warning strike last Monday, Tuesday and Wednesday to demand an improvement in their working conditions. The strike lasted one hour each day with no overtime worked.  
New collective contracts offered to the dockers by three companies that use the St. Petersburg Sea Port sparked the action. Dockers said those companies intend to significantly decrease the level of dockers’ social protection compared with former contracts.
They said the contracts’ changes concerned the level of salary and its indexation, Fontanka.ru news service said.
St. Petersburg Sea Port is a big transport hub in north-west Russia.  In 2003 it processed 14.62 million tons of cargo.

TITLE: Governor Accepts Apology
PUBLISHER: The St. Petersburg Times
TEXT: Governor Valentina Matviyenko has accepted apologies from Leningrad Oblast Governor Valery Serdyukov expressed in relation to remarks made by his deputy Grigory Dvas in relation to City Hall investment policy last month, the municipal television Channel 5 reported on Monday. 
Dvas put in doubt the investment policy of City Hall by saying that it would be “very attractive for the prosecutor’s office.”
“[City Hall] said that the city would invest $100 million in the development of infrastructure for [a] Toyota factory. From this factory the city would an annual $3 million. What budgetary effectiveness can we discuss here?” Dvas said. 
The remarks were made by the vice governor in relation to the Shushary industrial zone, a project to build a Toyota car plant in particular. But City Hall, in its latest comments, has said the the zone would not only be used for the Toyota plant, but also by other car assembly plants expected to come to St. Petersburg in the future. 
Late last week Sedyukov said the remarks were incorrect, which resulted in a positive reaction from the St. Petersburg governor. 
“We support each other and there can’t be any discussion about competition between us. Even otherwise, we complement one another in the are of mutual interests,” Interfax cited the governor as saying. “I believe that Valery Pavlovich [Serdyukov] is a wise politician to have estimated in an absolutely correct way the tactless remarks made by his colleague. I believe that he has put an end to it,” she said.

TITLE: IN BRIEF
TEXT: Bribe Doctor Caught 
ST. PETERSBURG (SPT) — The chief trauma doctor of the Leningrad Military District was detained on suspicion of receiving a bribe, Interfax reported on Monday quoting the city police. 
Alexander Nekayev, a medical unit colonel, allegedly asked a serviceman to pay him a $2,000 bribe for a medical form that would allow him to leave the military service on health grounds, Interfax cited the police as saying.
The serviceman approached the economic crimes department to report the request and the suspect was caught red-handed at the moment when the money was due to have been paid over. 

Afghan War Memorial
ST. PETERSBURG (SPT) — Veterans of the Soviet war in Afghanistan have announced their intention to gain official status for a memorial to fellow veterans of that war in the Sirafimovskoye cemetery in St. Petersburg, Interfax reported on Friday. 
During the war in Afghanistan, 144 soldiers from St. Petersburg were killed and every second serviceman came back disabled in some way, Interfax cited Vladimir Kusharyov, head of Afganvet organization as saying. 
There are more than 5,000 veterans of the Afghan War living in north-west Russia. 

New Pushkin Church 
ST. PETERSBURG (SPT) — An orthodox church could be built on a site currently occupied by a statue of Vladimir Lenin on Sobornaya Square in the satellite town of Pushkin, Intefax reported on Monday quoting representatives of a committee to organize celebrations for the 300th anniversary of the town. 
“A new place has been found for the Lenin statue, on the corner of Konyushennaya and Malaya street by the house of Silvin, where Bolsheviks met in 1895 for their meetings,” Interfax cited Alexander Zaitsev, head of the organizational committee as saying. 
The Church of Catherine that originally stood on the site in memory of martyr Ioan Tsarskoselsky was destroyed by Soviet authorities in 1930. 

Heroin Stash Seized
ST. PETERSBURG (SPT) — Nearly 4 kilos of heroin were confiscated from a citizen of Tajikistan at Pulkovo airport on Monday, Interfax reported quoting the city’s airport customs service. 
The 3.7 kilo stash of heroin was hidden in a suitcase with a false bottom that belonged to the 33-year-old person arriving on a flight from Dushanbe, the report said.
Police are looking for a number of other suspects who were supposed to have received the drugs to sell later. 

Man Dies in Sub Blast
SEVERODVINSK (STP) — A worker has died as a result of an accident occurred at a shipping repair plant in the city of Severodvinsk in northern Russia, during the break up of a nuclear submarine on Monday, Interfax reported.
Victor Frolov, chief engineer of the plant died in an explosion, the cause of which is currently under investigation, according to the report. Another worker was taken to a hospital with serious injuries.
The “Viktor” submarine was delivered to Severdvinsk in the summer for breaking up, which will be financed by the Canadian government. 
According to local prosecutors the explosion came as result of a fire. Law enforcement representatives have said that radiation levels at the plant remained unchanged. 
“The submarine was under repair with no reactor on board. The block where the reactor was located was earlier cut off from the submarine and sent to the Kola Peninsula,” Interfax cited a source at the factory as saying. 
The Russian defense ministry has also issued a statement saying that there were no nuclear facilities on board the submarine at the time of the explosion. 

Starovoitova Charges
ST. PETERSBURG (SPT) — St. Petersburg’s Prosecutor’s Office has handed over to the city court another case in relation to two suspects charged with preparing to assassinate State Duma deputy Galina Starovoitova, Intefax reported on Monday quoting the FSB. 
“The criminal case in relation to Pavel Stekhnovsky and Vyacheslav Lelyavin was handed over to the court after the detainees completed reading through all the accusation part of the case,” Interfax cited FSB sources as saying. 
Stekhnovsky was handed over to the Russian prosecutors from Belgium in 2004 after had hid from law enforcement for several years. He is charged with handing over a weapon that was later used in the 1998 assassination.

TITLE: Auto Insurance Loosing Profit, Providers
AUTHOR: By Yekaterina Dranitsyna
PUBLISHER: Staff Writer
TEXT: Insurance company profits from third-party auto insurance are falling, which is leading many firms to quit providing this service altogether, industry players said last week at a ABNews-organized roundtable.
The increasing volume of pay-outs makes third party liability an unprofitable business, insurers said.
In 2004 Rosgosstrakh North-West paid out 41 percent of the money it collected from third-part liability in compensation claims. In the first half of this year, the figure has already been beaten, suggesting that the compensation to incoming payments ratio may double by the end of 2005.
Yevgeny Gurevich, marketing director at Russky Mir insurance firm, said that besides payments to auto accident victims, insurers pay a 20 percent tax on contract registration and a 3.5 percent fee to the Russian Insurers Union. That results in the insurers paying out up to 60 percent of revenues in the Northwest.
“In the Urals and Siberia, the pay-back figure is close to 100 percent. Some companies pay out more than they collect,” Gurevich said. In addition, with third-party liability tariffs set in rubles inflation annually diminishes insurers’ profits, he said.
While large companies can compensate losses with profitable regions, small ones face trouble. The most unprofitable regions for third-party liability is the Black Sea region, the Far East and the Caucasus, said Oleg Kiselyov, deputy director of Rosgosstrakh North West.
“In the developed European markets profits with third-party liability are possible even when the payment ratio is around 85 percent, but in the current Russian regulatory and legal environment it is possible only when payment ratio is far below 80 percent,” said Sergei Zavriyev, senior manager of PricewaterhouseCoopers Russia. 
Zavriyev added that “the profit margin of an insurance company depends not only on the payment ratio but also on the efficiency of the insurer and volume of investments in operations and business expansion.”
The law does not limit what share third-party liability can represent in an insurer’s portfolio. Rosgosstrakh North-West diverts more than 53 percent of its business on this service, while the market average is 35 percent, Kiselyov said.
Amendments to the law on compulsory third-party liability, known in Russian as OSAGO, were published in the daily Rossiiskaya Gazeta last Thursday. The changes oblige the Russian Insurance Union to cover liabilities not only for bankrupt companies but also for those with revoked licenses in both life and health damage cases, as well as third-party property damage.
Insurers say that the only way to remain profitable in this current environment will be to wage a serious fight against fraud, which accounts for 20 percent of all third-party liability payments, Kiselyov said. The firms are placing their hopes on the creation of a unified database of motor accidents and insurer-funded security commissars.
“In Moscow the security forces work better and incident certificates are easy to obtain,” making it less important for companies to employ staff to attend each motor accident, Kiselyov said.
A law on the use of commissars will be approved by City Hall by fall. However, such legislature may bankrupt rather than help insurers, because it allows more room for fraud, said Victor Petrov, head of interregional development department at the roadside assistance firm LAT.
In Russia a car accident statement issued by road police is necessary to settle an insurance claim. Zavriyev said that European practice assumes that “if as a result of a car accident there is no bodily injury and the accident participants do not disagree on the accident circumstances, police involvement is not required to execute documents for insurance compensation.”
Petrov said that such freedom from authoritative control could lead to fraudulent claims. “We know cases when compensation for a car was received two or three times. The implementation of a European-type protocol is untimely,” he said.
Rosgosstrakh North West said that it sued 10 people for fraud last year.
Since the law on third-party liability entered in force in July 2003 there have been notable protest actions in many regions. Drivers claimed its tariffs were unjustifiably high; the base tariff is 1,980 rubles ($70). The latest protests were in Moscow and Vladivostok last weekend.
In July, the Center for Public Opinion (VTsIOM) published a report saying that only 20 percent of Russians use third-party liability. Most of those surveyed by VTsiOM said they were satisfied with the law, but 22 percent were opposed to it. 
Despite the setbacks, analysts say auto insurance is undergoing a natural introduction. “It’s a normal development. Some insurers sustain losses resulting mainly from poor operational efficiency, but in general third-party liability rates are economically sound,” Zavriyev said.

TITLE: Clinics to Launch Association Defending Industry’s Stability
AUTHOR: By Yuriy Humber
PUBLISHER: Staff Writer
TEXT: The city’s top private clinics will launch a St. Petersburg medical association by the end of this year to defend the industry against “shady, half-legal medical offices,” uncooperative insurance firms, and staff pinching.
Eight clinics have already “agreed on the general need and direction of this situation,” said Tamaz Mchelidze, president of dentistry and cosmetology chain Medi, with details to be settled in a process that has already totaled four industry meetings over two weeks.
In the case of late-paying insurance companies, some clinics say they would not rule out extreme action like going to the Arbitration Court to settle disputes, transferring to a system of pre-payment for medical services provided to clients of those insurers, or even blocking them altogether.
“Stability [on the medical market] can only be ensured through transparent rules that respect the law. A first step towards [this stability] will be the creation of a self-regulating industry association,” Mchelidze said.
The initiative to create an association as an industry monitoring body and a lobby group began with a Jul. 14 meeting of 16 of the city’s top private clinics that hold up to 80 percent of the private healthcare market.
While the problem of late payments from some — not all — insurers was a “universally backed,” said Alexander Abdin, head doctor at Euromed, the idea was not to boycott “difficult” insurance companies, but “to show the insurance industry that the topic is an important one for the clinics.”
Since mid-July, the idea of a regulatory association has turned into a mini-row with a few insurance firms, although the private clinics insist that it was not the only bone of contention in the medical profession, nor the root reason for the moves towards unification.
“If [late payments from insurers] is the only cause, it makes no sense to unite into an association,” said Yefim Danilovich, head of the American Medical Clinic. “We are more interested in [solving the issue of] staff pinching, of industry price regulations.”
Abdin adds that the association could keep a database of troublesome patients and untrustworthy, disloyal staff. It could even conduct ratings of the city’s private hospitals, he said.
“The corporate force is being gathered to instill trust into our profession,” Mchelidze. About eight clinics, plus several members of an existing Medical Ward association, will invest their own capital to ensure order and transparency in the city’s private healthcare industry, he said.

TITLE: Accor Opens $30M 4-Star Hotel in Center of City
AUTHOR: By Yekaterina Dranitsyna
PUBLISHER: Staff Writer
TEXT: Europe’s largest hotel operator Accor opened its third hotel in Russia, the 4-star Novotel, on the corner of Nevsky Prospekt and Mayakovskaya Ulitsa on Friday.
Accor will manage the hotel while the property will be 100 percent owned by West Bridge Hotel group, which invested more than $30 million in the project.
“Perhaps, the hotel can even rank as too luxurious for the Accor [brand]. We didn’t economize on the interior,” said Konstantin Storozhev, chairman of West Bridge Hotel, adding that he expects an eight-year return on investments.
The nine-storied Novotel St. Petersburg Center has 233 identical 25-square meter rooms designed in Accor’s latest “Novation” interior style.
The hotelier chain said business clients form 65 percent of its customers, and hence the hotel has directed $1 million of investment to fit their needs. Novotel St. Petersburg Center offers seven meeting rooms, from 25 sq. m. to 100 sq. m. in size, modern equipment and IT infrastructure.
Edgard Pauly, general manager of Novotel, said he expects the average hotel occupancy to be about 60 percent to 70 percent. “In the local market we compete with Radisson SAS, Corinthia and Angleterre in the 4-star category, and Grand Hotel Europe, the Astoria, and [St. Petersburg Baltic] Renaissance and the Kempinski in the 5-star category,” he said.
Accor declined to reveal its further plans for St. Petersburg, but said it is considering several joint hotel and business center projects with West Bridge Hotel. In Moscow, the joint venture have recently completed an A-class business center project.
“If favorable cooperation with city authorities remain, we’ll develop several projects here,” Storozhev confirmed.
In previous press statements, Accor said it planned to open two Ibis hotels and one Sofitel in St. Petersburg.
The new Novotel St. Petersburg and two-Moscow based Novotels give Accor 1,002 hotel rooms in Russia. 
Accor runs 412 hotels in 61 countries. The group’s turnover hit 7.5 billion euros ($9.1 billion) last year.

TITLE: Expensive Optics Keep Eyes Wide Open
AUTHOR: By Angelina Borovikova
PUBLISHER: Special to The St. Petersburg Times
TEXT: Though street stalls with glitzy, no-brand ware still occupy their place in the sun, Russian consumers shopping for glasses are increasingly choosing specialized optics salons, attracted as much by quality as by fashion.
Michail Podushko, strategic development director at Comcon market research center, said the maturity on the optics market, with clients demanding high-quality, recognizable labels, is following a natural trend.
“It happens to all markets sooner or later. Who ever expected brands to appear on grain, sugar, or caramel products? But it has become a reality. The same process is gradually taking place on the optics market,” he said. 
Optical retail chain Cutty Sark has been one of the first to exploit Russians’ increasing sensitivity to brand-name goods. When opening its tenth outlet in the city last month, the chain opted for a premier class, “boutique”-style salon that would stock 19 multinational brands and even offer glasses and lenses that utilize hi-tech, biotechnology and the art of jewelry.
Among premium brands range collections from Alain Mikli, Lafont, Stark, Art in Vision, as well as Porshe and Bugatti. Cutty Sark claims to be the first to introduce Stark and Art In Vision in St. Petersburg, along with Carrera and Dior Haute Couture contact lenses, the latter changing eye color.
Anatoly Belkin, deputy managing director at Cutty Sark, says the decision to open such a specialized outlet was made precisely because brands have become more significant for St. Petersburg consumers whose wellbeing is growing.
Comcon’s statistics show that the average income per family member in the city has increased by about 50 per cent since 2003, from 4,500 rubles two years ago to 6,800 rubles by the beginning of 2005.
With growing consumerism, comes the need to “develop” individuality. One of the salon’s exclusive offers is a “design your own glasses” service. Art in Vision glasses allow clients to choose the frame, the lenses, even pins and beads. Sergei Ovsyannikov, marketing manager at Cutty Sark says, however, that while such innovations provoke interest, customers seem wary of the multi-choice offer.
Cutty Sark invested $350,000 in the salon, an investment it expects to repay in 15 years, Belkin said. So far, the shop attracts up to 25 visitors a day, with about six making a purchase. The company targets 15 purchases a day in the future, Ovsyannikov said.
Although promoted as an exclusive boutique, the shop’s management say the majority of customers are those who live or work nearby. Women seem to be much more interested than men.
With prices ranging from 1,300 rubles to 50,000 rubles, Ovsyannikov says the shop is intended mostly for a middle to upper-class audience. He sees the clientele is mainly late ’30s to early ’40s, as people “ready to spend a lot of money on themselves.”
“As for the image-conscious youth, they must be sunbathing somewhere, as no sign of them has been noticed yet, but they will definitely come”, Ovsyannikov said.
Social analysts agree with the shop’s marketing plan, saying that younger people have more interest in specialized goods, such as brand-name glasses — despite making up only 25 percent of all those who wear glasses in St. Petersburg.
“Most over-45s are conservative, not prone to keeping up with fashion and consequently reluctant to change frames often. Even if they do, they choose the cheaper variants. Those under 45 change their glasses more regularly,” Podushko said.
Ekaterina Smyk, 23, a student, who bought contact lenses at the new shop, says she doesn’t follow any trends in optics fashion. She said she rated the suitability of a product as more important.
“A reasonable sum of money to spend on a frame without lenses would be about 2,000 rubles. Well, maybe more, but in this case it’s a kind of present for yourself. Lenses are a different thing — whatever they cost, I only care about how good it is for the eyes,” she said.
Cutty Sark say the high-end optics market is virtually unexplored in St. Petersburg, and for now leaves the company with a growing, yet almost competition-free market. Ironically, how long that will last depends on the boutique’s success.
“Good things are taken up very quickly, so it won’t be a surprise if something similar will soon turn up on the market”, Ovsyannikov said.

TITLE: Court to Pick Which Vodka Can Claim Real Russian Heritage
AUTHOR: By Anna Smolchenko
PUBLISHER: Staff Writer
TEXT: MOSCOW — A vodka row over which brand is the real deal has got as far as the courts.
The heirs of Pyotr Smirnov are taking their prolonged battle against global drinks giant Diageo, manufacturer of premium vodka brand Smirnoff, to court. 
The Trading House of the Descendants of Pyotr Smirnov has filed a suit at the Moscow Arbitration Court to stop Diageo from selling Smirnoff vodka in Russia, said Andrei Kravets, general director of the Trading House, on Friday.
The Smirnov family, the heirs of Russia’s 19th-century vodka distiller, aim to overturn the 1997 decision by Rospatent, the state patent authority, to license the Smirnoff brand. The Smirnov label, currently controlled by Mikhail Fridman’s Alfa Group, had been registered three years earlier, in 1994. 
“From our point of view, Rospatent ... maliciously violated the law,” Kravets said.
The previous attempt, in 2002, by Smirnov trademark holders to challenge Rospatent’s decision was unsuccessful. A court hearing is now scheduled for March 2006, Kravets said. Rospatent could not be reached for comment on Friday.
According to the Smirnov family, the similar names and bottle labels of the two drinks confuse the customer. Diageo is deceiving Russian consumers by selling vodka that is not genuinely Russian, Kravets said.
“We consider Diageo to be a pirate, just like those pirates who make counterfeit discs,” he said. 
Diageo said through its Moscow-based adviser Peter Necarsulmer, however, that the two vodka brands were priced differently and targeted different consumer groups. 
“Both products are well-known and can be easily distinguished by consumers,” said Necarsulmer, who is also the president of the Coalition for Intellectual Property Rights. “There’s enough room [for both labels] to compete,” he said.
Analysts said that the two labels were very similar and could sometimes puzzle consumers. “People do often confuse these brands,” said Pavel Sezyunin, an analyst with market research company Business Analytica. 
Pyotr Smirnov founded a vodka distillery in Moscow in the 1860s but fled the country after the Russian revolution of 1917. Smirnov’s son Vladimir ended up in Paris, adopted a French version of his family name — Smirnoff — and later set up a vodka business in the United States.
Meanwhile in Russia, the old Smirnov distillery was converted into a state garage and was only revived in the 1990s as a registered Russian brand, Reuters reported.
Diageo controls such world-famous brands as Johnnie Walker, Guinness and Baileys. However, in Russia, which accounts for 80 percent of global vodka consumption, Smirnoff makes up less than 1 percent of the local market, in contrast to the 24 million cases it sells worldwide a year.
Smirnov is hoping to reach a share of 1 percent of Russia’s vodka market by the end of the year.

TITLE: Fast Forwarding Boss Keeps Cultural Barriers Intact
AUTHOR: By Yuriy Humber
PUBLISHER: Staff Writer
TEXT: As a schoolboy, Sergei Shidlovsky, founder and president of freight forwarding firm Transsphere, was often warned of the dangers of chewing gum by his teachers.
“Chewing gum is the embodiment of capitalism, and you are sure to turn into a cow if you chew it,” Shidlovsky said. “Even then I didn’t believe it,” a time 25 years ago when Shidlovsky says that owning a Pink Floyd record could lead to a jail sentence.
“But I didn’t chew gum either.”
With business becoming increasingly global, it is oddities of culture, quirks of lifestyles and education that become real competitive advantages, Shidlovsky says. To do business and be successful, both sides need to understand each other beyond a verbal level.
“It’s tough to negotiate with a Russian. Only a Russian should do it,” Shidlovsky said. “As the old joke goes: What’s good for a Russian is death to a German.”
Although Shidlovsky’s company does business all over Europe, nearly all of the dialogue with European clients and partners the Russian division of Transsphere delegates to its Finnish arm, OY Transsphere Ltd.
“With a European, another European should do the talking: they have a common knowledge base and can agree perfectly well among themselves,” Shidlovsky said.
In opposition to the multinational corporation model, where in each country the company aims to offer the same brand and services, Shidlovsky propagates each firm restrict its operations within familiar, national, territory. For international deals, the firm could work in partnership with another such firm from a corresponding country.
“Why would we compete with those firms [outside of Russia] who can do the work [outside of Russia] better than we? Let’s instead sit down and agree to cooperate and all make money,” Shidlovsky said.
Since founding the company 10 years ago, Shidlovsky has actively sought Transsphere’s inclusion in a number of Eurasian transport associations. The company has amassed contacts, gained foreign partners, and now acts as the head representative for the East European region of the Associated World Logistics Network.
“A major multinational, with brands like Schenker, DHL, or Fritz, uses only its own equipment and working methods wherever it sets up. I’m not denying it can attain success, sure it can, but I don’t agree with that method. It will always bump into national characteristics.
“A Chinese will work for 22 hours a day, but a German will not. Or rather, he would, but the kind of money you’d have to pay — it would not make business sense,” he said.
The business of transport logistics was not an obvious career path for Shidlovsky, a qualified mechanical engineer. Soon after graduating from the Leningrad Polytechnic in 1992, he realized the limitations, financial and employment-wise, that his profession faced at the end of the perestroika era.
“As a student I think I showed much potential, but then … there was no need for engineers. And I could not see a way of making a decent living on the money that our lovely government was prepared to pay engineers,” Shidlovsky said.
Friends working in an up-and-coming computer business invited Shidlovsky, who spoke good English, to help them make international contacts.
“The position was called something like a manager for logistics, not that anyone back then really understood what logistics meant,” Shidlovsky said. Although he stayed with the firm for two or three years, the sphere of sales felt unnatural and restricting. “I couldn’t be a salesman. I couldn’t tell a person why they had to buy this pencil from me and not from another firm,” he said.
What did attract Shidlovsky was providing a solution to complex business transportation or storage problems.
“I have an analytical mind. As I considered which direction to aim for, what might be interesting, profitable, have few competitors … [I hit upon] transport logistics. Sure 10 or 12 years ago there was transportation, but no such service as logistics existed in Russia,” he said.
Persuading a Finnish contact, Esa Heikkinen, to back his business idea, Shidlovsky rounded up former fellow students, likeminded in their abstention from mechanical engineering, and then officially registered Transsphere as a company in 1996.
“My first impression of Mr. Shidlovsky was surprisingly good; a man who at the same time was [and is] humble, carrying such a strong will,” Keikkinen said by e-mail.
“He seemed to know the Russian market situation exactly. And with me, who you can call a freight forwarding and logistics veteran, giving a fast cross section of [the business], we understood the possibilities of the very special, at the time virgin, Russian market,” he said.
With Heikkinen’s then 20 years of experience in the logistics industry, and Shidlovsky’s local knowledge, the two soon discovered an attractive market niche: small firms with a “one pallet from Finland” problem. The firms’ separate orders just needed to be grouped together on one truck or ship.
“Finding willing clients may have been easy, but attracting them was not,” Shidlovsky said. A host of large European firms were working in Russia at the time, such as the Finnish Niinivirta and Pynnonen, and the Swedish Nurminen, companies that already owned whole truck fleets.
“But none of them operate in Russia now,” Shidlovsky says, taking a longer draw on his cigarette and holding a smile on his face.
In working purely as a business integrator, bringing together firms with the cargo, finding the transportation companies, filling out the customs documents, Shidlovsky’s young company took off with minimum start-up costs.
The experience of Heikkinen helped secure a small credit agreement with Finnair — meaning payments for the transportation could come in after the freight was delivered, an important factor for many domestic firms and one not often catered for by the foreign logistics companies.
Meanwhile, the aforementioned European companies folded, because they could not quite adapt to the Russian mentality, Shidlovsky said.
Big business has brought about international deals and an exchange of products. But has it brought different countries any closer together?
“I like Soviet films, they are kind,” Shidlovsky said. He denies that this is because of any kind of patriotism.
“It’s just what I grew up with …. As a child, an adolescent, I didn’t see that other [Western] culture,” he said. “I like it less, simply because I don’t know it.”

TITLE: Changes in VAT Tax Establish New Game Rules
AUTHOR: By Yelena Zaitseva and Natalya Nikolaeva
TEXT: Two new federal laws amending the value added tax Chapter of the Tax Code were recently signed by the president. Like changes made to the profits tax legislation this June, the VAT amendments are aimed at eliminating certain gaps in the legislation, synchronizing the profits tax and the VAT legislation, as well as establishing certain new rules. 
As of 2006, one of the most important adjustments affecting all those paying VAT is an obligatory transition from cash to accrual as the basis for calculation of both output and input VAT. It is certainly a favorable change for companies currently operating under accrual method as it allows a firm to claim a refund on input VAT from the budget even if the relevant invoices have not yet been paid to the suppliers.
In regard to companies that currently use the cash method, the transition to an accrual method may require bringing in additional funds. This will be needed to settle VAT liability on the part of output VAT on payments not yet received from clients. 
Luckily, the law has a transition period. Companies that currently use the cash method are granted the right to declare output VAT related to accounts receivable as of January 1, 2006 until December  31, 2008, and therefore defer the tax payment.
A special rule is introduced to claim input VAT on construction and installation works carried out for the company’s own benefit, as well as on capital construction works performed by third parties. Companies are granted the right to claim input VAT refunds just when the relevant goods (work or services) are recorded by the suppliers, rather then when the object of construction is put into operation. The amendments allow “to unfreeze” the capitalized input VAT. It relates to unfinished capital constriction objects and allows refund claims prior to the end of construction.
Good news for the companies involved in exports is the appearance of a VAT exemption on advances received from foreign customers. On the basis of the current version of the Tax Code the tax authorities consider the funds received before the date when the export is confirmed to be advances on exports and hence subject to VAT. The new rule solves the problem simply by excluding receipt of export advances from VAT-able operations. The change allows export companies to save operating funds as well as simplify the procedure of a refund on exports.
Since the moment the VAT Chapter was first introduced, there have been a lot of disputes with the tax authorities regarding obligations of companies to recover input VAT on certain transactions. The Tax Code did not have any provisions regulating the recovery of input VAT, however the tax authorities used to take an aggressive position and claim that in certain cases VAT had to be recovered by the taxpayers.
The change made to the Tax Code is not in favor of the taxpayers, since it supports the previously expressed position of the tax authorities. According to the new rule, provided a company makes an in-kind contribution to the Charter Capital, the company is obliged to recover input VAT in proportion to the book value of the transferred property. The good part of the amendment is that having received the assets as Charter Capital contribution, an investee will be able to claim from the budget the relevant amount of input VAT recovered by the Investor.
The tax also has to be recovered when companies are shifting to a simplified or imputed income system of taxation.
Although the VAT recovery amendment cannot be considered as favorable for the taxpayers, the long-awaited amendment at least dots the Is and crosses the Ts in this dispute with the tax authorities.
The other law that introduces VAT amendments concentrates on the reorganization processes. The law actually aims at harmonizing the VAT and profits tax rules for reorganizing companies. The new rules make the life of companies going through reorganization procedures easier as according to the law the legal successor is granted the right to claim from the budget input VAT accrued but not claimed by the reorganized firm. 
Another hot issue covered by the new law relates to the determination of place of sale of property rights for VAT purposes and the follow-up claim for input tax. Currently, exclusive and non-exclusive rights are treated differently (i.e. transfer of exclusive rights is taxed in Russia if the purchaser is registered in Russia, while transfer of non-exclusive rights is taxed in Russia if the provider is present in the country).
Amendments logically set companies that sell different types of property rights as equal, and propose that the transfer of both exclusive and non-exclusive rights is taxed in Russia if the purchaser of rights is registered on Russian territory.
The law also resolves the problem of claims for input VAT charged on intellectual property. As of today, the Tax Code states that only input VAT charged on goods, works and services may be claimed from the budget. Therefore, formal purchasers of intellectual property cannot recover the VAT. The legislator amended the wording of the VAT Chapter of the Tax Code adding input VAT charged on property rights to the definition of input VAT claimable from the budget.

By Yelena Zaitseva a senior associate and Natalya Nikolaeva an associate at DLA Piper St. Petersburg. They contributed this comment to The St. Petersburg Times.

TITLE: Prosperity and Political Predictability
AUTHOR: By Christopher Weafer
PUBLISHER: Special to The St. Petersburg Times
TEXT: For long-term portfolio and strategic investors looking at Russia today, political stability and economic predictability are much more important issues than, say, the price of oil. If the price of a barrel of crude were to fall tomorrow, it would not be the loss of budget revenue as such that might undermine the investment attractiveness of the country, but rather a poorly thought-out and executed economic response. That response, like the economic and industrial policies we see today, will be exclusively taken at the most senior level of government, and that is why political stability matters even though we are still 2 1/2 years away from the next major elections.
Over the past five years, the Kremlin was primarily focused on restoring its former position at the top of the power pyramid. That process proved very distracting both inside the government and for the business community. Promised economic and administrative reforms were mainly shelved, and the opportunity created by the oil and gas export revenue windfall to rebalance the economy and spread the wealth has been largely wasted. Luckily, and for reasons entirely outside of Russia’s control, the historically high price of oil and gas bailed out the economy in that period.
There is absolutely no doubt that unshackled democracy and, at most, selective state intervention in the economy are the essential elements that sustain long-term growth and wealth expansion in any country. The history of emerging and transition economies, in which I have been an active participant for 25 years, shows that the most important underlying factor allowing for establishment of the institutions and policies that will sustain long-term growth is a lack of serious political upheaval during the critical transition phase. As we have seen in Russia over the past five years, political change can be very detrimental for economic and social reforms, especially when the basic institutions and legislative framework required to support these reforms are still fragile or nonexistent. 
Of course, that does not mean that the democratic process should be ridden over roughshod, or that the only other option is for Putin to stay for a third term or for a member of the Kremlin inner circle to succeed him. This is but one of several possible scenarios. There are several others. The critical conclusion, however, is that whatever political transition occurs in 2007-2008, it must avoid the sort of distracting Kremlin infighting and poor relations between state and business that would surely have killed off Russia as an attractive investment location over the past five years, had it not been for the very fortunate trend in global oil. 
Despite the substantial macro and fiscal strength that Russia enjoys today, it is still essentially an early stage emerging economy. The government has yet to find a way to use its natural resource-based advantage to create the more diversified industrial and wealth base.
In the history of emerging economies, this is not a unique problem, and even several of the much discussed “Russia-specific” issues — a skewed natural resource dependency, a substantial wealth gap in the economy and a long recent history of central planning — have precedents in other countries. 
Some commentators like to talk about Indonesia as an example of the path down which the Kremlin is leading Russia. Southeast Asia, including Indonesia, is the region that I covered as a markets analyst most recently before coming to Russia seven years ago. Yes, there are a great many similarities between Russia’s recent history and that of Indonesia in the mid-1960s. President Suharto and his government of predominantly military personnel inherited an economic and political mess from the regime of President Sukarno, who was the transition president following that country’s independence from the Dutch. 
The stability that came with Suharto’s regime allowed gross domestic product per capita to grow by six times in the first 10 years of his regime’s rule and to double again in the second decade. A doubling of per capita GDP within 10 years is one of the key declared goals of President Vladimir Putin’s government. Of course, history also shows us that Suharto’s regime, having achieved so much economic reform and growth in its first 20 years, increasingly became corrupt and interventionist, and growth in Indonesia stalled badly in the 1990s. Ironically, it was the daughter of the first President Sukarno who finally displaced Suharto after almost 30 years in office. 
If instead we were to use the examples of countries such as Malaysia or Chile, we would again find examples of successful economic transition supported by two decades of relative political stability that did not then mutate into political and economic corruption. Chile and Malaysia both successfully leveraged off initial growth stimuli to achieve balanced economies, diversified growth drivers and greater wealth distribution. Both countries today also enjoy strong democratic institutions that have evolved from the dominant political structures in place during their transition phase.
Russia is an emerging economy at a very critical transition period. It has different problems from those seen in other emerging economies, and yet it also has many of the same problems. The key difference is the speed at which change is taking place — not that it is following a different path. What took 10 years in a typical Southeast Asian or Latin American economy is taking no more than four in Russia. That is unlikely to change, and that is why political stability — whatever its source — is so important for the economy, as well as for business and portfolio investors. 
If there is one lesson that Russia should take from the example provided by countries like Indonesia, it is not that rapid political change is good for an early stage transition economy, but rather that the structures that will eventually allow for regular smooth political transitions should be built and nurtured along with the economic structures. 

Christopher Weafer is a chief strategist at Alfa Bank.

TITLE: U.K. Bomb Suspect Held in Rome
AUTHOR: By Beth Gardiner
PUBLISHER: The Associated Press
TEXT: LONDON — Police in Britain and Italy questioned 21 suspects as they sought to piece together the networks behind the London bombings Monday, probing for possible links between the two sets of attacks and for connections to any accomplices overseas. 
Investigators arrested seven people Sunday at a four-story brick apartment building in Brighton, on England’s southern coast, and also searched another home in the city. They gave few details about what role the six men and seven women were suspected of playing in the failed July 21 attacks on the capital’s transit system.
So far, 18 people are in custody in Britain and three in Italy.
Police say the four suicide bombers who carried out the July 7 attacks, which killed 52 victims, are all dead. And they believe they have arrested all the failed July 21 bombers, whose explosives detonated only partially and took no lives.
Now they are searching for those who may have recruited and directed the attackers and built the explosives, anxious to catch them before they — or other would-be bombers they command — strike again.
Investigators are also searching for links between the two terror cells, one made up mostly of Pakistani Britons and the other mainly of east African immigrants to London. The groups struck exactly two weeks apart, each attacking three London Underground trains and a red double-decker bus.
A spokeswoman for London’s Metropolitan Police said investigators believed there were more people at large who played some role in the attacks.
“It’s extremely likely there will be other people involved in harboring [suspects], financing and making the devices,” she said, speaking on condition of anonymity, because the department does not allow her to give her name.
In Italy, authorities were pursuing contacts linked to Osman Hussain, 27, who was arrested in Rome on Friday and is suspected of trying to bomb the Shepherd’s Bush subway station in west London. Police have discovered that Hussain called Saudi Arabia hours before his arrest, the Sunday Telegraph newspaper reported. The Sunday Times said another bombing suspect — Ethiopian-born Briton Muktar Said Ibrahim, 27 — took a monthlong trip to Saudi Arabia in 2003, telling friends he was to undergo training there.
Britain was facing questions about how Hussain slipped out of the country five days after the attempted attacks, despite a massive police manhunt. Italy’s Interior Minister Giuseppe Pisanu says Hussain, also known as Hamdi Issac, left London’s Waterloo station by train for mainland Europe on July 26.
The Home Office said British immigration officials generally do not check the passports of people leaving the country. However, police asked that checks be made at many departure points, including Waterloo, after the attacks, a Home Office spokesman said on condition of anonymity.
The Sunday Times said only French officials had checked Hussain’s passport as he left Britain, but the Home Office spokesman said British immigration officials had been checking all international departures at Waterloo the day he left.
Italian news reports said Hussain’s real name was Hamdi Issac and that he was from Ethiopia, not Somalia. He falsely listed his country of origin as Somalia when he applied for asylum and citizenship in Britain, the reports said.
Hussain was arrested Friday in Rome at the apartment of his brother Remzi Issac, who also was detained. 
On Sunday, Italian police detained a second brother of Hussain, Fati Issac, for questioning, the Italian news agency ANSA said. Fati Issac was accused of destroying or hiding documents sought by investigators but is not alleged to have plotted terror, ANSA said 
Britain has requested Hussain’s extradition, which his court-appointed lawyer, Antonietta Sonnessa, said he is likely to fight. 
She said Hussain acknowledges his involvement in the failed attack but claims the planted bombs were intended not to kill anyone but only to draw attention. Italian news reports had said the bombers were angry about the Iraq war. 
“He has justified his actions as a form of protest against the fact that civilians are suffering in wars at the present time,” she told Britain’s ITV News.

TITLE: King Fahd Dies at 84
AUTHOR: By Abdullah Al-Shihri
PUBLISHER: The Associated Press
TEXT: RIYADH, Saudi Arabia — Saudi Arabia’s King Fahd, who moved his country closer to the United States but ruled the world’s largest oil producing nation in name only since suffering a stroke in 1995, died early Monday, the Saudi royal court said. He was said to be 84. 
Crown Prince Abdullah, the king’s 81-year-old half brother and the country’s de factor ruler, was appointed the new monarch.
“With all sorrow and sadness, the royal court in the name of his highness Crown Prince Abdullah bin Abdul Aziz and all members of the family announces the death of the custodian of the two holy mosques, King Fahd bin Abdul Aziz,” according to a statement read on state-run Saudi TV by the country’s information minister.
President Bush was alerted within minutes of Fahd’s death, the official said on condition of anonymity. The king’s funeral was to be held Tuesday evening, he said.
Saudi TV, which said the king was 84 years of age, broke into regular broadcasting to announce Fahd’s death. Quranic verse recitals followed the announcement by the minister, Iyad bin Amin Madani, whose voice wavered with emotion as he read the statement.
The Saudi statement said the new King Abdullah announced that his half brother and the Saudi defense minister, Prince Sultan bin Abdul Aziz, 77, would be the nation’s next crown prince.
During his rule, the portly, goateed Fahd, who rose to the throne in 1982, inadvertently helped fuel the rise of Islamic extremism by making multiple concessions to hard-liners, hoping to boost his Islamic credentials. But then he also brought the kingdom closer to the United States and agreed to a step that enraged many conservatives: the basing of U.S. troops on Saudi soil after the 1990 Iraqi invasion of Kuwait.
In his last years, Fahd was more of a figurehead than the actual ruler. He was sidelined as the close relationship he nurtured with the United States deteriorated after the Sept. 11 attacks. Fifteen of the 19 hijackers were Saudis, and many in the U.S. administration blamed kingdom’s strict Wahabi school of Islam for fueling terrorism.
Abdullah oversaw the crackdown on Islamic militants after followers of Saudi-born Osama bin Laden launched a wave of attacks, beginning with the May 2003 bombings of Western residential compounds in Riyadh. Abdullah also pushed a campaign against extremist teaching and preaching and introduced the kingdom’s first elections ever — municipal polls held in early 2005.
Abdullah — who before coming to power had not been happy with Saudi Arabia’s close alliance with and military dependence on the United States and Washington’s perceived bias toward Israel — rebuilt the kingdom’s ties with the U.S. He visited President Bush twice at Bush’s ranch in Crawford, Texas, most recently in April 2005.
Fahd, the son of the founder of modern Saudi Arabia, King Abdul-Aziz, got an elementary school education with a heavy emphasis on religion at a school set up by Abdul-Aziz for his 42 sons. 
He loved the good life and traveled often, enjoying years of high living. But when he was in his late 20s, he was summoned and told that to maintain his place in the succession he had to shape up. 
In 1953, he became the nation’s first education minister, laying the foundation for a nationwide school system that grew from 30,000 students to over 3.2 million students today enrolled in seven universities, 83 colleges and over 18,000 schools throughout the country. 
In 1962, he became interior minister and then crown prince in 1975 when King Faisal was slain by a deranged nephew. Fahd was de factor ruler during the seven-year reign of his brother Khaled, a devout and apolitical man, and took the throne formally at Khaled’s death in 1982. 
The monarch always appeared in the traditional flowing white robe and “mishlah” — the camel-colored cape adorned with spun gold. He was a night-owl who slept during the day and often opened weekly ministerial meetings near midnight. His short working hours and centralized style — he insisted on approving even minor details — left a constant bottleneck of paperwork. 
Details about Fahd’s private life are little known, but he is believed to have had three wives and eight sons. His eldest son, Faisal, died in 1999 of a heart attack. 

Associated Press writer John Solomon contributed to this report from Washington.

TITLE: Raikkonen Back in Contention After Win
AUTHOR: By Salvatore Zanca
PUBLISHER: The Associated Press
TEXT: BUDAPEST, Hungary — There hadn’t been a quicker car in Formula One the previous three races — or a more frustrating one — than Kimi Raikkonen’s.
But two blown engines and a hydraulic failure left the Finn with nothing to show for it and probably cost him a shot at the points title.
Raikkonen and his mercurial McLaren racer finally avoided misfortune Sunday, using the pits  to perfection and racing away from Michael  Schumacher at the Hungarian Grand Prix for his  fourth victory of the season.
On a hot day in the Hungarian hills where track temperatures approached 113 degrees, Raikkonen finished 35.5 seconds ahead of Schumacher, a pole-sitter for the first time this  season. Ralf Schumacher was third, 36.1 seconds back.
“It was really the pit stops that decided it,’’ Schumacher said.
The turning point came after the second pit stop. Separated by less than a second, Schumacher pitted on lap 36 and Raikkonen a lap later.
Raikkonen opted to add only a little fuel, and the strategy worked. He came out of the pits just ahead of Schumacher and started padding the lead by nearly two seconds a lap.
“It was a combination of things,’’ Schumacher said. “At this stage, he was at least a second quicker. Then I had some traffic.’’
By lap 38, Raikkonen was seven seconds ahead of Schumacher. By lap 40, the lead was more than 12 seconds.
Meanwhile, leader Juan Pablo Montoya slowed and stopped on the 41st lap with a broken driveshaft. That gave Raikkonen the lead, nearly 15 seconds over Schumacher.
They both pitted again, and by lap 57, Raikkonen had a 32.6-second lead and cruised to the victory.
“Luckily we chose different tactics and the team did a great job. We changed it — it was the best time to stop the second time,’’ Raikkonen said.
Raikkonen’s sixth career F1 victory gave him 61 points this season, still a distant second to leader Fernando Alonso.
Alonso finished out of the points but still holds a commanding lead with 87 points and six races left on the schedule. He was forced into the pits with a damaged nose after the first lap and finished 11th.
Raikkonen can certainly empathize with the Spaniard’s day. He had to change his engine before both the French and British GPs, costing him 10 spots on the starting grid each time, then stalled on the track while leading last week’s race in Germany.
“For sure it looks better now than the last race,’’ Raikkonen said. “It seems we throw away 10 points and then (Alonso) gives it back. It goes backwards and forwards.’’
Raikkonen also led the San Marino GP and European GP before his car broke down.
“It seems to be always that when we have a bad race… we seem to win the next race,’’ he said.
Michael Schumacher had his brother to worry about on the final laps. Ralf came within 0.6 seconds with four laps to go, but could not find a way to pass. He finished third, his first podium of the season. Behind them, Jarno Trulli came in fourth and Jenson Button fifth, ahead of Nick Heidfeld and Mark Webber. Takuma Sato finished eighth.
Alonso finished 11th more than a lap behind. Two years ago in Hungary, he lapped Michael Schumacher on his way to becoming the youngest winner in Formula One history.
Alonso’s Renault team went scoreless, but it still leads the constructor’s standings 117-105 over McLaren.
“This was just not our weekend,’’ said Renault’s Giancarlo Fisichella, who placed ninth.
The next race is the Turkish GP in Istanbul on Aug. 21, the first Formula One race in that country.

TITLE: With 60th Career Title Agassi Defies Age, Injury
AUTHOR: By Ken Peters
PUBLISHER: The Associated Press
TEXT: LOS ANGELES (AP) — Sprinting from beyond the baseline, Andre Agassi stretched forward as he neared the net and banged a forehand down the line for a winner.
He certainly didn’t look like a 35-year-old with a back problem.
Playing for the first time since he aggravated a sciatic nerve injury at Roland Garros in May, Agassi won his first title in almost a year with a 6-4, 7-5 victory over Gilles Muller in Sunday’s Mercedes-Benz Cup final.
Agassi was very happy — and relieved. His back  injury, the pain obvious in his opening round  loss at the French Open, worried him.
“I’d never felt that before and it’s a scary thing  when you’re looking for a doctor to tell you, “You’re not playing any more.’ It’s a helpless feeling,’’ Agassi said. “It was very possible, and still is, that it gets to a point when I can’t do it.’’
On the way to his fourth Los Angeles championship, Agassi looked limber and quick.
“It feels amazing. These moments don’t happen very often any more and I’m taking it in,’’ said Agassi, who has 60 career titles. “It’s great to let my game fly and to be eager to scamper after shots you’re not even sure you’re going to get.’’
Muller, a 22-year-old from Luxembourg who defeated Agassi last year in their only previous meeting, was impressed by the player he calls one of his childhood heroes.
“He takes the ball early and makes you run. When he’s in shape, he’s one of the best players in the world,’’ Muller said.
A rangy 6-foot-5 left-hander, Muller beat Agassi 6-4, 7-5 in Washington last summer before losing the final to Lleyton Hewitt.
Although the Los Angeles field was depleted by upsets and withdrawals, Agassi’s win in the title match capped an impressive run.
Patient against Muller, Agassi came back from 40-love in the 11th game of the second set to finally get a service break, only the second of the match.
Muller then essentially fell apart, hitting a forehand long, knocking consecutive shots into the net, then double-faulting before hitting a forehand wide to lose the game.
“When he was serving at 5-all, 40-love, I heard some guy yell from the audience, `Come on, you can still break,’’’ Agassi said with a grin. “I thought, `No, I doubt it.’ But then I actually hit a decent return and I went, `Tuh-duh-duh, you never know.’’’
Agassi went on to hold serve to win the match, finishing it with a powerful forehand that Muller had no chance of reaching. Agassi beamed and thrust his arms into the air, then bowed and blew kisses to the cheering crowd.
The top-seeded Agassi is ranked No. 6, while Muller is No. 75, the first player from Luxembourg to break into the top 100.