SOURCE: The St. Petersburg Times DATE: Issue #1094 (60), Tuesday, August 9, 2005 ************************************************************************** TITLE: Oxygen, Water Tight as Rescuers Raced Time AUTHOR: By Vladimir Isachenkov PUBLISHER: The Associated Press TEXT: PETROPAVLOVSK-KAMCHATSKY, Far East — The sailors rescued after being trapped for three days in a mini-submarine revealed Monday how they struggled with dwindling water and oxygen supplies while waiting anxiously in the darkness and cold. The seven men had only six hours of oxygen left when they finally reached the surface of the Pacific on Sunday, said Commander Ian Riches, the British naval officer who directed the effort to use a remote-controlled Scorpio underwater vehicle to free the submarine snagged by fishing nets and cables. Strolling in the sunshine outside a military clinic, dressed in blue hospital uniforms, the submariners offered the first glimpse of the conditions inside the cramped 13-meter submarine 180 meters under water off Russia’s remote Pacific coast. “The main thing was the lack of water. There was also a problem with oxygen, not critical but the body felt it was not enough,” crew member Alexander Uibin said in footage broadcast on Rossiya television. Interfax quoted a medical official in Kamchatka as saying the crew had only three or four gulps of water a day. The official, who was not identified by name, said the submariners had written farewell letters to their families several hours after their vessel became stranded Thursday, according to the report. “We understood we were trapped. We just had to wait for a decision. When they said that they’ve put everything into action, we lay flat and began to wait,” said Gennady Volonin, a representative of the company that made the AS-28 mini-submarine who was on board with six submariners. The men wore thermal suits to protect themselves against temperatures of about 5 degrees Celsius. They were told to lie flat and breathe as lightly as possible during the rescue effort, officials said. To conserve electricity, lights were turned off and contact with the surface was kept to a minimum. The Scorpio, sent in response to Russia’s urgent call for help, arrived Saturday and spent six hours the next day cutting away the fishing net cables that had snarled the Russian vessel and its propeller. After breaking free, a few anxious minutes followed before the vessel floated up to the surface, and the seven men climbed out. “The team are over the moon that we have got these guys out alive,” said Riches as he arrived ashore at Petropavlovsk-Kamchatsky in the early hours of Monday. Russian authorities thanked the British and praised the international rescue effort that included the United States, having appealed for help in a significant gesture to its former Cold War enemies. But Moscow newspapers still criticized the navy for waiting more than a day before revealing the submarine accident, accusing it of failing to learn the lessons of the 2000 Kursk submarine disaster and not investing necessary funds in upgrading rescue capabilities. Kommersant reported that the news only leaked out after a submariner’s wife made an anonymous call to a radio station in Kamchatka on Friday morning — nearly 24 hours after the mini-sub radioed an emergency signal. Later that day, Russia asked Japan, Britain and the United States for help. When the Kursk nuclear submarine sank in August 2000, Russian authorities held off asking for outside assistance until hope was nearly exhausted. All 118 crew members died. “As with the Kursk, the navy command tried to cover up information about the accident, trying to deal with it themselves,” the Gazeta daily wrote. “Only when the situation got critical did the navy top brass appeal to foreign countries for help.” President Vladimir Putin was criticized at the time of the Kursk sinking for reluctance to seek international help and for remaining on vacation as the disaster unfolded. As of Monday, he had made no public comment on the mini-sub drama. Defense Minister Sergei Ivanov defended the navy’s rescue capabilities, saying Russia has a robotic vehicle similar to the Scorpio deployed at the Northern Fleet. He said disassembling it for transport to an airport and then flying it across the sprawling country would have taken longer than it took for the British vessel to arrive. But the Pacific Fleet commander, Admiral Viktor Fyodorov was quoted by Interfax on Monday as saying that despite boasting a powerful submarine fleet, the navy did not have the proper resources to mount underwater rescue operations. Putin ordered the defense minister to launch an investigation and Kommersant reported Monday, citing military sources, that navy chief Admiral Vladimir Kuroyedov faced dismissal after this latest embarrassment for the fleet. TITLE: Ineptness Dismays Old Hands AUTHOR: By Vladimir Isachenkov PUBLISHER: The Associated Press TEXT: PETROPAVLOVSK-KAMCHATSKY, Far East — As the navy scrambled to save seven men trapped for three days in a mini-submarine under the Pacific ocean, Alexander Pirogov watched bitterly from a dilapidated apartment on the edge of town. “Everything has been destroyed. They can’t save anyone,” the retired submarine officer said of the Russian fleet. Unlike the 2000 sinking of the nuclear submarine Kursk, when all 118 aboard died, Russia’s latest undersea drama ended happily Sunday with the red-and-white AS-28 mini-submarine bobbing to the surface of the gray sea. Its seven passengers emerged from the hatch alive and in fairly good condition, though a bit cold. The key element in the successful rescue operation was a sophisticated robotic vehicle flown urgently to this remote peninsula from Britain, 12 time zones away. It cut away the obstructions snaring the sub, allowing it to surface. At Russia’s request, the United States also flew in remote-controlled underwater vehicles for the rescue, but they arrived after the British equipment and were not used. The need for foreign help underlined the troubles of a navy that once was formidable but has fallen prey to money shortages and, Pirogov suggested, to bad decisions. But Defense Minister Sergei Ivanov said Monday funding problems could not be used as an excuse. “Stop whining about money,” he said, addressing critics in general. “We have money now, we just need to learn how to use it efficiently.” Russia has an underwater robotic vehicle similar to the remote-controlled Super Scorpio that Britain used in the rescue, Ivanov said. But it is deployed with the Northern Fleet and disassembling it for rail transport to an airport would have been a longer process than it took for Britain to send its apparatus. He said improving the navy’s rescue capabilities “is one of our priorities and I will demand they are maintained at the highest level.” President Vladimir Putin ordered Ivanov to launch an investigation. The navy has scrapped a large number of Soviet-built ships because of desperate funding shortages that followed the 1991 Soviet collapse, and sea rescue vessels were among the first victims. “The nation must have its own sea rescue capability,” Pirogov said. The AS-28 mini-submarine that became ensnared is itself designed for undersea rescues, as well as other duties. The navy has another AS-28 that it initially said would be brought into the rescue operation, but then admitted that it was not fit for action. No further details were given. “Our rescue forces practically don’t exist,” Alexander Pokrovsky, a former submariner turned popular novelist and screenplay writer, told The Associated Press by telephone. “I would like to warn submarine crews that they take serious risks when they go down.” The successful rescue mission came after three tense days that started Thursday when the submarine got stranded in 180 meters of water about 16 kilometers off Kamchatka’s east coast. Six sailors and a representative of the company that made the sub were on board. The men put on thermal suits to protect themselves against temperatures of about 5 degrees Celsius and were told to lie flat and breathe as lightly as possible during the rescue effort in order to conserve oxygen. To save electricity, lights were turned off and contact with the surface was kept to a minimum “It was cold, cold, very cold. I can’t even describe it,” one crew member said after they reached the shore. The Russian navy initially tried to raise the mini-submarine to the surface using nets, but their efforts failed. The British Super Scorpio, sent in response to Russia’s urgent call for help, arrived Saturday and spent six hours the next day cutting away the fishing net cables that had snarled the Russian vessel and its propeller. Similarly, in the Kursk rescue effort, Russian mini-submarines tried in vain for several days to hook up with the Kursk’s exit hatch while a team of foreign divers did the job within hours. They found no survivors. Russian navy officials claimed that all Kursk crew who had survived the initial explosions died within hours. However, some reports claimed they probably remained alive for several days. “Thank God, they asked for foreign help this time and it was quick to come,” Pokrovsky said. Putin was criticized at the time of the Kursk sinking for reluctance to seek international help and for remaining on vacation as the disaster unfolded. The president has been silent through the present crisis as well, although his spokesman Alexei Gromov said Putin was grateful to all those involved in the rescue operation. TITLE: City Hall Wants Licensing After Tourist Dies AUTHOR: By Irina Titova PUBLISHER: Staff Writer TEXT: City Hall demanded all vehicles carrying tourists be licencensed after a 69-year-old German woman died and 19 German and Dutch tourists were injured in a collision near St. Petersburg last week. Officials on Friday held an urgent meeting in response to the incident and urged reform of the system of licensing for passenger transport operators. According to a preliminary investigation, the driver of the tourist bus was to blame for the accident because he didn’t give way to a truck that was driving along the main road. Meanwhile, the transport company the driver worked for did not have the necessary license, city-owned Channel Five reported. “Tourism firms should work with the transport companies they use,” said Sergei Markov, deputy head of the city’s external relations committee was quoted as saying. “Those companies should have essential licenses and tourism firms should check them.” Experts at the meeting said that transport companies receive ordinary licenses to carry passengers but tourists should be categorized as special passengers, like children, and therefore get more security. The meeting also discussed the traffic black spot where the incident took place Thursday. The turnoff from Pulkovskoye Shosse to the suburb of Pushkin is known for very frequent car accidents and being unsafe. The corner has been a problem for years, but no traffic light has been installed. In the last year at least three serious car accidents took place on the corner. Ironically, on Thursday when the acting deputy head of St. Petersburg road police Viktor Puchugin was breifing journalists about the crash involving the German tourists, a Volkswagen passenger car collided with a truck behind him. “What do you want? It’s Death Valley,” Kommersant quoted him saying. Meanwhile, city tourist operators all say that Pushkin is one of the most popular destinations for tourists who go there to see the famed Amber Room and Catherine Palace. Therefore they all say that more controls are needed at the corner. However, Viktor Nilov, deputy head of St. Petersburg road police, said the site of the crossing is on an incline and a turn in the main road to Gatchina, means placing more controls on it could cause the additional traffic accidents, especially in winter when the incline might get slippery. Experts say the only resolution would be to build an overpass. Tatyana Demeneva, PR manager of Northwest department of the Russian Tourism Industry Union, or RST, said it was wrong to put all the blame for Thursday’s collision on the absence of a license. “If the driver was experienced and his license had just expired, it would be absurd to put all the blame on the lack of a license. Most probably it was a tragic coincidence,” Demeneva said. RST has never registered car accidents involving tourists. However, St. Petersburg does lack a favorable traffic infrastructure for tourists, such as special parking lots for tourist buses. “Tourist buses urgently need special guarded parking lots in the center of the city, from which tourists can safely walk to museums and not be at risk of being run over by a car, and where their belongings could be safely left,” Demeneva said. RST’s requests for such parking lots have been heeded and the first special tourist parking lots are appearing in St. Petersburg, she said. Some cities in Europe and the U.S. even have separate traffic lanes for passenger and tourism vehicles, she added. “Unfortunately, we can’t offer such luxury for tourists because of the city’s tough traffic jams but something should be done,” she said. Thursday’s accident is unlikely to cause tourist numbers to fall because it was “an obvious tragic accident”. Today people may be more afraid to go to Egypt, where terrorists explode bombs, or Turkey where shootings take place on the grounds of hotels, but people still go for a vacation there, she said. Meanwhile, all the German tourists in Thursday’s accident had checked out of their hospitals by Saturday. Only the bus driver and a guide remained in a serious condition. St. Petersburg’s Transport Prosecutors Office opened a criminal case of violation of traffic rules and careless driving leading to death, Interfax reported. TITLE: Icebreaker in City Yard Burns Again PUBLISHER: The St. Petersburg Times TEXT: A nuclear-powered icebreaker 50 Let Pobedy, or 50th anniversary of Victory, under construction at St. Petersburg shipbuilder Baltiisky Zavod caught fire Friday. There was no danger of a radiation leak because the fuel for the reactor has not yet been installed. “The vessel is still under construction, and therefore there was no nuclear fuel on it,” said Igor Savelyev, head of the plant’s PR department. “Nuclear-powered ships get fueled only just before they begin to work,” Savelyev said. The fire was small and damaged about 40 meters of cable. The reason for the fire was not clear yet, Savelyev said. The ice-breaker had already been on fire in November 2004 when a room of 9 square meters burnt down. At that time one worker on board the ship inhaled fumes from the fire and was hospitalized. Savelyev said little fires on ships under construction are not unusual in any country because “such construction works are often accompanied with fire sources.” “In such conditions the main thing is to stop the fire on time, before it becomes uncontrolled. Therefore our plant even has its own fire station.” The keel of the icebreaker was laid in 1989 and it was put into the water at the end of 1993. But due to the lack of financing, construction was suspended. Partial financing was renewed in the late 1990s. A contract for completing the ship was signed by Baltiisky Zavod and the government in Feb. 2003. It will join seven other nuclear icebreakers run by the Federal Nuclear Power Agency in Murmansk. TITLE: British Robot Driver Elated PUBLISHER: The Associated Press TEXT: PETROPAVLOVSK-KAMCHATSKY, Far East — The British Royal Navy officer who led the rescue operation using a remote-controlled vehicle said it had been a difficult task and expressed his elation at the success. Commander Ian Riches said the Super Scorpio, flown from Britain, spent more than six hours cutting away fishing net cables that had snarled the 13.2-meter mini-submarine and its propeller. “The submarine was caught very firm into the fishing nets and had driven into them so that they were very tight and they actually looked and behaved like steel wires, so it was very very difficult to cut through with cutting implements,” Riches told The Associated Press. TITLE: Leading Latvian Writer Dies PUBLISHER: The Associated Press TEXT: RIGA, Latvia — Vizma Belsevica, one of Latvia’s most famous poets and writers, died on Saturday at the age of 74 after a long illness, a spokeswoman for the country’s president, Vaira Vike-Freiberga, said Sunday. Belsevica suffered from a long, undisclosed illness that kept her wheelchair-bound for the last few years, said Vike-Freiberga’s spokeswoman, Aiva Rosenberga. Her poetry and fiction has been translated into many languages and published in the U.S., Britain, Russia and the Nordic countries, and her best-known work outside of Latvia is probably the semi-autobiographical novel “Bille,” about a young girl growing up in pre-World War II Latvia. Belsevica will be remembered by her countrymen for her refusal to write anything in support of the Soviet regime that ran the country for nearly five decades. “She was known for her spirit of liberty because she refused to write propaganda,” said Rosenberga. “She was a personality who meant a lot to the president and many Latvians because she wasn’t allowed to publish many of her works in Latvia but they always found their way to the Latvian exile community.” She is survived by her husband, Zigurds, a son and two grandchildren. TITLE: New Violence For Hazing Case Sailors AUTHOR: By Galina Stolyarova PUBLISHER: Staff Writer TEXT: Seven St. Petersburg navy recruits, who won a court case against hazing in Kronshdat less than two months ago, were involved in another brutal accident this month, within a week after their relocation to Baltiisk in the Kaliningrad region. St. Petersburg lawyer Yelena Filonova, who represented the sailors during the previous case said Monday the latest incident, which resulted in several of the sailors being hospitalized with heavy bruises, appears to be a vendetta for putting the Navy to shame by voicing complaints against hazing. But Baltic Fleet authorities tell a different story, linking the fight to what they call an overreaction to one of the victims’ skinhead past. Anatoly Lobsky, head of the Baltic Fleet press service and an aide to the fleet’s commander, said Monday that one of the St. Petersburg sailors is a former drug-addict and skinhead and has a large tattoo of a swastika on his back. “Witnesses said he was walking with his shirt off, exposing this outrageous fascist symbol and behaving in a provocative way,” Lobsky said in a telephone interview. “We believe his behavior resulted in an inappropriate response from some of his fellows, and this is how the fight started. It then escalated with more conscripts getting involved, but, of course, an investigation will establish the full picture,” he said. Lobsky added that the Baltiisk garrison prosecutor’s office is investigating and a criminal case has been opened. Eight sailors were been placed in the garrison’s hospital after the fight but Lobsky said this was only to complete medical examinations after the fight and take care of the boys’ chronic health conditions. “One of them has a heart problem, and another one a stomach problem,” Lobsky said. “Only one conscript has to stay at the hospital because of the severe bruises he received.” However, Filonova said the violence wasn’t spontaneous but a planned attack. She also pointed out that the seven sailors were sent to the Kaliningrad region without being given an explanation as to why they were being sent away from their families. “The fight couldn’t have started without blessing from above,” Filonova said, adding that after winning the case in Kronshtadt, the sailors were branded as snitches by many of their fellows. “They complained they were despised by the other sailors for criticizing their navy unit and unveiling the truth about hazing. The abuse was seen as an internal matter, and the boys who defected in protest were declared traitors and snitches,” she said. Filonova learned about the new beatings from a short text message she received on her mobile phone last week. “The text sounded really desperate, it was literally an SOS message,” she said. “It said directly ‘please come and save us.’” In April, 12 marines deserted from their military unit in Lomonosov and contacted the Kronshtadt garrison prosecutor’s office complaining about bullying and persistent physical abuse. During the following investigation forensic experts found bruises and further evidence of beatings on the bodies of seven sailors. In June, in a unique case of soldiers being punished for hazing, the military court of the Kronshtadt garrison pronounced two navy conscripts guilty of beating other recruits and sentenced them to jail. Ivan Arsakov, 20, received 3 1/2 years in jail while Viktor Fyodorov, 21, got a one-year suspended sentence. Arsakov was also sentenced to pay 19,372 rubles ($680) in compensation for physical and mental harm to his victims, and Fyodorov paid another 6,000 rubles. Filonova said relatives of the sailors will prepare an application asking for them to be released from the navy, where they still have to serve between six months and a year. TITLE: Moscow Attack Riles Poles, Ties With Russia Worsening PUBLISHER: The Associated Press TEXT: WARSAW, Poland — Poland’s Foreign Ministry was preparing Monday to ask Russia for an explanation over the beating of a Polish Embassy employee in Moscow in the latest diplomatic incident between the two countries, an official said. The Polish embassy employee remained hospitalized after two men attacked him just 60 meters from the embassy Sunday. Poland was considering the manner in which to demand an explanation from Moscow, an embassy official said, requesting anonymity because no formal decision on the matter had been made. A week ago, still-unidentified attackers beat up three sons of Russian diplomats in Warsaw and stole their mobile phones. Russian President Vladimir Putin’s government demanded an apology, claiming anti-Russian attitudes had inspired the attack. The Polish Foreign Ministry expressed “deep regret” over the assault, but said it owed no apology for what it said was a crime with no political intent. Friction has also been high recently between Poland and Belarus’ Moscow-backed government of President Alexander Lukashenko, which has been angered by Polish demands for reforms in Belarus amid a crackdown against the country’s sizable Polish minority and has expelled several Polish officials. Poland has responded in kind by expelling three Belarusian diplomats and recalling its ambassador, while urging the European Union to take a stronger stand on Belarus. On Monday, four Polish members of the European Parliament headed on an unofficial visit to the western Belarusian city of Grodno to meet with ethnic Poles. The visit comes a week after the deputy speaker of the Polish parliament, Donald Tusk, met in Grodno with leaders of the Union of Poles. Minsk authorities reacted then by arresting many of those who spoke with Tusk. They also said they would no longer allow Polish lawmakers into the country and it was not clear whether those visiting Monday would be stopped. TITLE: Altai Leader Dies in Crash PUBLISHER: The St. Petersburg Times TEXT: MOSCOW — The Kremlin envoy for Siberia has taken personal charge of the investigation into the death of Mikhail Yevdokimov, a comedian who was elected governor of the Siberian region of Altai last year, his office said Monday. A special team of investigators including top police and prosecution officials has flown to the region, envoy Anatoly Kvashnin’s office said in a statement posted on its Web site. Yevdokimov was killed Sunday in a traffic accident when the car in which he was riding smashed into a tree as its driver tried to avoid another vehicle, police and emergency situation officials said. The driver and a bodyguard also died and Yevdokimov’s wife was seriously injured. The accident took place near the town of Biisk, about 3,000 kilometers southeast of Moscow. Officials dismissed any suggestion of foul play. “It’s a traffic accident and nothing more than that,” the late governor’s spokesman Nikolai Pimenov told Ekho Moskvy radio. TITLE: Oligarch to Back Soccer Plans AUTHOR: By Uilleam Blacker PUBLISHER: Special to The St. Petersburg Times TEXT: City Hall has announced an $18.7 million plan to overhaul the city’s soccer infrastructure, with multi-billionaire Roman Abramovich heading a list of private investors. The plan, to be implemented between 2006 and 2009, includes the construction of 64 new fields, complete with all-weather surfaces, modern equipment and 100 new soccer coaches. The announcement said that about one third of the money needed for the improvements will be provided from the city budget ($6.3 million). The remainder will be provided by Abramovich and other private sources, Russian Football Union chairman Valery Mutko said. Abramovich, the 36-year-old head of Sibneft oil company and Chukotka governor was recently named Britain’s richest resident by the Sunday Times. He is well known for his involvement in football after buying English champion Chelsea in 2003. His company also sponsors UEFA Cup champion CSKA Moscow. Abramovich, criticized by Moscow mayor Yury Luzhkov in 2004 for his personal investment in Chelsea and not in a Russian club, has recently started to show a commitment to grass-roots Russian football. “He is a Russian, after all,” chairman of the St. Petersburg Committee for Physical Culture and Sport, Vladimir Shitarev, was quoted as saying at a press conference Friday by the newspaper Nevsky Sport. “It would be wrong for him to spend money only on Chelsea.” This is not Abramovich’s first project aimed at rejuvenating Russian soccer at the grassroots. It was announced last month that he is also backing both a new training complex in the Black Sea resort of Sochi and a modern soccer academy in the Altai city of Barnaul. TITLE: IN BRIEF TEXT: Putin Daughters Enroll ST. PETERSBURG (SPT) — President Vladimir Putin’s two daughters have both been admitted to St. Petersburg State University, where their father once studied, national newspapers reported last week. Katya, 19, will study Japanese history in the Oriental Studies department, while Masha, 20, will study in the department of biology and soil science, the reports said. Jet ‘Breaches’ Airspace HELSINKI (Reuters) — A Russian warplane breached Finland’s airspace late Friday, the Finnish Defense Ministry said Saturday, just a few months after similar violations caused a diplomatic spat between the two countries. The ministry said in a statement that a Tu-134 military transport plane penetrated 1 kilometer into Finnish airspace in the Porvoo area, less than 100 kilometers from Helsinki. It said Finnish border guards were investigating the incident. Russian Air Force spokesman Alexander Drobyshevsky told Interfax that Air Force planes had not been flying in the area Friday. TITLE: Alcan Will Wrap Up Russian Cigarettes AUTHOR: By Yekaterina Dranitsyna PUBLISHER: Staff Writer TEXT: One of the world leaders in packaging Alcan Inc. has signed a $30 million investment agreement with the St. Petersburg government, the committee for economic development, industrial policy and trade reported Friday. Vice-governor Mikhail Oseyevsky said the plant will be launched next year creating 120 new working places. On Jan. 11, Alcan announced in a press release that it will invest $55 million in the Russian package market to “strengthen its presence in fast developing markets.” The company announced construction of one package plant in Moscow to serve confectionary and the milk industry and one in St. Petersburg to provide tobacco packaging. Tobacco is still among the fastest growing market niches in Russia. Finmarket information agency reported recently that John Tailor, managing director of British American Tobacco Russia, estimates the Russian market to be worth $5 billion a year. In 10 years tobacco consumption will rise to $13 billion to $15 billion a year, because increasing profits induce people to switch to more expensive brands, Finmarket quoted Tailor as saying. St. Petersburg’s committee for economic development, industrial policy and trade closely supervises and will assist the Alcan project due to the significance of this investment to the city. Analysts said the packaging plant is of great importance to local producers. “St. Petersburg is a promising spot for tobacco business companies. Just as it is called the Russian beer capital, the city is also the tobacco capital,” said Andrei Shamshurin, an analyst at Ernst & Young St. Petersburg. Package suppliers tend to locate near consumers, and the main tobacco companies are fully represented in St. Petersburg being in need of a quality local supplier, an expert said. There are several tobacco plants in and around the city that may become Alcan consumers. They include Philip Morris Izhora, Japan Tobacco International Petro and BAT. However, tobacco producers were cautious on commenting. Philip Morris, the most probable consumer of Alcan’s products, refused to provide details of any cooperation plan. The other industry players were also guarded. “We have agreements with international package suppliers who created production facilities in Russia. They satisfy most of our needs for package materials,” said Irina Galeyeva, head of public relations at JTI Petro. She didn’t say whether the company is going to switch to a neighboring supplier, suggesting that the business strategy is set by European JTI head-quarters. Nevertheless, experts were optimistic. “The venture should be profitable due to the lack of high quality Russian cigarette package producers. “Alcan will face competition — the major one being Amcor of Australia based in Novgorod — but demand and necessity for import substitution will outweight it,” Shamshurin said. Moscow, St. Petersburg and the Kuban region are the three main tobacco centers in Russia. Alcan will also compete with AR-Carton and MeadWest Vaco located in South Russia and Moscow respectively. Alcan will most likely concentrate on the Northwest region and Moscow, Shamshurin said. However, it could be possible that Alcan would also supply South Russia. Alcan would probably want to recoup its investment in three to four years, he added. Alcan Inc. is a world leader in aluminum and derived products. Packaging group brought $6.1 billion (24 percent of the revenue) to Alcan in 2004. Company net income was $258 million. Alcan has tobacco packaging plants in Canada, Germany, Kazakhstan, Malaysia, Netherlands, Turkey, the United Kingdom and the U.S. TITLE: Russian Post to Buy 900 New Carriages AUTHOR: By Yekaterina Dranitsyna PUBLISHER: Staff Writer TEXT: The state-owned postal service Pochta Rossii has ordered more than 900 new railway carriages from St. Petersburg carriage maker Vagonmash as part of a 90-billion ruble ($3.2 billion) investment program. The money will go into transport vehicles, office reconstruction and modernization. Vagonmash has not produced any postal carriages for Pochta Rossii since 1986 and the fleet has fallen from 1,319 to 1,079 since then. This year Pochta Rossii will get 10 new carriages with the rest being produced until 2014, state company managers said Friday at a news conference. The estimated cost of each carriage is between 9 million and 10 million rubles ($320,000 to $350,000), but Pochta Rossii hopes to get them cheaper because of the size of its order. “The most notable features of the new carriages are increased tonnage, modernized forklifts and a lower requirement for service staff,” said Sergei Vinnik, general director of Vagonmash. Two people instead of six will handle the new 22-ton carriages, which are equipped with a telephone, Internet connection and television. Containers can be loaded into the carriages. “Technological innovation will allow the carriages to be coupled to high-speed passenger trains,” said Igor Syrtsov, general director of Pochta Rossii. Previously only freight trains could pull post carriages and that slowed down delivery times, Syrtsov said. He declined to estimate the precise time savings provided by new carriages. Syrtsov said the railway is the main provider of Pochta Rossii’s parcel and mail delivery service. However, its competitors use faster delivery methods. “Clients who want to get their mail delivered on time go to reliable private companies,” said Yulia Kupriyanova, secretary of Independent Postal Services. Independent Postal Services delivers parcels and mail by planes within one to two days in Russia and 10 to 12 days to the most remote destinations all over the word, she said. The government set a goal for Pochta Rossii by 2010 to reach Canadian level of service – three-day mail delivery to any point of the country, Syrtsov said. Express delivery companies welcomed the Russian post investment project. “DHL competes in the business to business segment for local and global companies, whereas the Post has a different target audience,” said Roland Thomas, Head of Commercial DHL CIS. “Russian Post is focused on building up its domestic capabilities. This is a good thing for its customers and is certainly a considerable challenge. A massive investment in infrastructure will be needed over several years to achieve the improvements in service levels and range of services that are needed,” he said. Pochta Rossii delivered over 1.3 billions letters and parcels in 2004. The volume grew seven percent this year. Syrtsov expects significant increases in coming years. Pochta Rossii started construction of new automatic sorting centers with 100 million euros loan financing that will speed up mail processing, Syrtsov said. State-owned company also plans the reconstruction of 40,000 post offices and the buying of 17,000 new cars. Besides loans Pochta Rossii also uses its own money and leasing schemes. TITLE: Time-Conscious Consumers Discover E-Commerce AUTHOR: By Yekaterina Dranitsyna PUBLISHER: Staff Writer TEXT: As Russians become more technology conscious and the number of Internet users steadily increases, IT companies and banks are offering convenient and quick ways to pay for goods and services. They say everyone can benefit from IT-based cooperation. The only problem is to convince skeptics and promote new services to conservatives. While 60 percent of regular utility payments in Europe and 80 percent in the United States are conducted via Internet and banking systems, not to mention Internet shops, in Russia Internet payment services have only recently gained relative popularity. The volume of electronic payments doubles every year as the number of card owners increases. A total 3.6 million bankcards are registered in St. Petersburg, though not all of them can be used for Internet transactions. In the first quarter of 2005 the value of card transactions reached 54 billion rubles ($1.9 billion), but only 6 percent were conducted through terminal devices, said Vadim Konoplyov, general director of Sapsan, an online payment provider. Already there Mobile operators were the first to offer forms of electronic payment, starting with pioneer IT payment systems as early as 1996, Konoplyov said. The latest to enter this area were conservative municipal services. The range of goods and services available online varies from flowers and books to electronics, from ticket booking to communal services. You can easily find online ticket booking agencies such as kassir.ru, mariinsky.ru, and bileter.ru, transport ticket agencies like e-ticket.ru. Books, music, DVD, flowers and tickets are the most popular items, online payment provider ASSIST said. Russia is far behind Europe and the United States with such giants of online commerce as eBay. In Russia most Internet shops provide courier deliveries only in Moscow, and rarely in St. Petersburg with other regions covered only by postal services. Universal web sites are even rarer. The Sapsan24 project was launched two years ago. The company invested several thousand dollars hoping to turn a profit after two to four years. The idea was to present the maximum number of goods and services on one portal available for St. Petersburg citizens. The system has been on trial since April. By 2006 it will be in full commercial operation. Sapsan develops four areas: municipal payments, St. Petersburg telephone (including local and international telephone, Internet, information services) and mobile operator bills and insurance policies. The company works with all St. Petersburg mobile operators with the exception of Vimpelcom (Beeline) and eight insurance companies. It started with third-party auto insurance and increased the range of polices to 26, including automobile, medical, property and life insurance. Sapsan is completing the negotiations with core suppliers such as the St. Petersburg telephone and collective housing service computing center. They have also had several applications from other city housing services to join the project. Yugra bank uses I-banking through Sapsan for mobile operator payments. Managers said they are negotiating with four other banks and will spread Sapsan’s system to other retailers. Konoplyov said similar projects operate in Moscow, Chelyabinsk and Novosibirsk. Kommunalka.ru was launched by ASSIST in 2004 offering online housing services payments. ASSIST appeared in 1998 as a project of St. Petersburg software designer Reksoft to provide Ozon.ru online bookshop payments. Later it became an independent project. ASSIST runs a number of other services, including mobile service payments, railroad and air ticket booking, and follows a strategy of offering the maximum range of services. ASSIST has signed an agreement with airline Transaero and is in negotiations with Krasair and Ural airlines. It works with Alfa-Bank, Baltiisky bank, Rosbank, Impeks-Bank and Web-Invest bank. Mutual interests Konoplyov named Cyber Plat and e-port as the main electronic payment systems and Sapsan competitors. Cyber Plat reported a profit last year of $500 million. Since 1998 the company has had revenues of $1 billion, Konoplyov said. Denis Kurnakov, technical director of ASSIST, said his company’s turnover is 1 million euros ($1.2 million) per month with 15 percent monthly growth. Industry players focus on different core services. Cyber Plat works closely with mobile retail chains. St. Petersburg housing services and regular payments are the most interesting segment for Sapsan. The St. Petersburg telephone network has 2 million subscribers. A total of 300,000 of them are interested in Internet payments, according to SPT statistics, said Alexei Kultyshov, marketing and PR director of Sapsan. St. Petersburg heating company and electricity distributor Petroelektrosbyt use Sberbank branches, post offices and its own outlets to collect payments. “This system is heavily overloaded,” Konoplyov said. The service is time-consuming and suffers from working with monopolies. In addition, Sberbank has a 3 percent commission, he added. The undeveloped payment system hinders provider business growth. Online payments are believed to be able to resolve the problems without having to increase charges to clients. Mobile operators estimate Sapsan’s revenue percentage at between 1 and 2 percent. In turn, they benefit from sub-dealer networks, process automation and savings on accounting and staff. Commercial service providers usually charge 1 percent, Kultyshyov said. He declined to release any figures on the insurance business, saying only that the Russian Insurers Union doesn’t pay commissions of more than 10 percent. Sapsan’s web site reports that e-shops must pay Sapsan $200 to be included in its system. Sapsan charges between 2 and 5 percent of turnover, and banks charge between 10 and 20 cents for each transaction. Getting used to it Industry players say consumers are insufficiently stimulated to use bank cards online. “This pattern is rooted in the habit of using cash in the undeveloped market. Cards are introduced through payroll schemes, so the idea of paying with a card doesn’t become popular. Wages cards are used only to get cash. Low profit levels don’t stimulate card buying either,” ASSIST’s Kurnakov said. “Unfortunately, many retailers force consumers to pay in cash. Tourist agencies may demand an additional fee to cover their bank’s charges for processing a card payment, so clients take out cash and then pay for the ticket,” Kurnakov said. Kultyshyov also suggested St. Petersburg Telephone could use bonuses to promote virtual payments. “One of the new and actively developed projects is co-branding — joining ASSIST cards with retailer cards so that clients get safe payments and discounts,” Kurnakov said. ASSIST payments are conducted through VISA, EuroCard, MasterCard, JCB, DinersClub, WebMoney, Yandex.Money, E-port, KreditPilot and Rapida. Recently ASSIST invented V-POS — virtual POS — terminals for off-line shops working with bank cards and providing all ASSIST services. V-POS turnover grows 15 percent every month, Kurnakov said. Cash counts for 90 to 96 percent of payments, Konoplyov said. Two payment spots operating in the Midel and City business centers give Sapsan several thousands of transactions every month. Sapsan will provide off-line cash payments through Post-terminals, self-service kiosks, cash machines as well as web-payments (Yandex.Money, web-money, e-port). The company plans to introduce Visa and Mastercard payments. Banks are also promoting online payments. “Alfa-Bank provides Internet-acquiring since 2000. We work with ASSIST and RunetBusinessSystems as service providers,” said Valentin Timiryazev, Alfa-Bank processing center director. Alfa-Bank has agreements with 147 Internet-shops. Apart from Visa and MasterCard, Alfa-Bank also issued a special Internet card MasterCard Virtual “to separate Internet payments from other expenses.” “Citibank Online system allows our customers to make any funds transfers through Internet. For UBP (Utility Bills Processing) we have an agreement with Rapida system. In conjunction with its high-tech system platform we can simplify transaction processing from the bank’s point of view,” said Adrian Cristiani, vice president, retail banking business manager of Citibank. “Now the market for such payments is relatively small but it is growing rapidly and we expect the appearance of new players on the market in the future,” Cristiani said. TITLE: Portrait of the Average Mobile User Shows a Young, Well-Off Educated Man AUTHOR: By Denis Kuskov PUBLISHER: Special to The St. Petersburg Times TEXT: The number of mobile telephone connections in Russia’s two capitals already exceeds the size of the population in Moscow and St. Petersburg and the number of new subscriptions shows no sign of drying up with the monthly tallies still impressive. Of course, many subscribers sign up serially, jumping from one operator to another although there are new subscribers. This is because the number of subscriptions does not necessarily reflect real people, but rather the number of SIM cards. According to St. Petersburg analytic agency Sotaweek.ru, the real number of subscribers is about 80 percent of the number of subscriptions. The agency has created a profile of who the subscribers are and what their predilections are. A recent survey by the ROMIR polling agency found that 51 percent of mobile-phone users are male and 49 percent female. Exactly half of all mobile users in Russia are aged between 18 and 34. Every fourth subscriber is aged between 35 and 45. Every fifth subscriber is aged between 45 and 59, with only 6 percent of users aged 60 and over. Seventy-one percent of cell-phone users have intermediate education or intermediate specialized education. Twenty-six percent have a diploma or higher education. The proportion of users with only primary or incomplete intermediate education is no more than 3 percent. In the course of the survey it was also established that 53 percent of mobile-phone users consider their income to be high. Thirty-seven percent of respondents describe themselves as having average income with 10 percent saying their incomes are low. Twenty-six percent of subscribers live in the Central federal region, with 19 percent living in the Volga region, 12 percent in the Siberian region, 10 percent in the Ural region and 9 percent in the Northwest region. Subscribers in the Far East account for 5 percent of all mobile users. In June 2004, the profile of the Russian mobile user was somewhat different. For example, users were slightly younger last year. Subscribers aged up to 35 years accounted for 56 percent of users. Twenty-one percent of subscribers were aged 35 to 44. Seventeen percent were 45 to 59 and no more than 4 percent were pensioners. In June last year, the incomes of mobile users was different — only 36 percent considered themselves to have high wages with 42 percent describing their income as average and 22 percent saying their wages were low. In the same period, the geographical distribution of mobile users has changed. While the general picture was the same, the Siberian region accounted for 12 percent and the Far East for 5 percent. The Central region, which last year accounted for 29 percent of users, lost ground in April, falling to 26 percent. The Volga region also fell from 22 percent to 19 percent, the Northwest region from 11 percent to 9 percent. At the same time the share of subscribers in the Urals and Southern regions rose by three or four percentage points. All the above is also true of mobile= phone purchases. According to Svetlana Yakova, general director of Telephone.ru, “the number of well-off subscribers has risen and they are demanding when it comes to buying a new handset.” “If previously most sales were budget models priced up to $100, now the majority of sales fall into the $200 to $300 range, which as a matter of course have features such as digital cameras, Internet access, MMS and GPRS functions,” she added. “The latter features reflect a new trend. The number of mobile users in Russia is not simply growing, but their quality is also rising. Subscribers are becoming more mature and more demanding.” TITLE: Wealthy Bankers Turn Property Investors AUTHOR: By Andrei Musatov and Anna Shcherbakova PUBLISHER: Vedomosti TEXT: Bankers Vladimir Kogan and David Traktovenko, who sold majority shares in Promstroibank (PSB) to Vneshtorgbank (VTB) earlier this year, seem to have found a new way of investing their money — town-building. Ranked as St. Petersburg’s No.1 and No. 2 richest men by Finans magazine, Kogan and Traktovenko have increased their wealth by allowing VTB to acquire a 76-percent stake in St. Petersburg-based PSB. The money from the deal, estimated at $45 million including money from one other PSB shareholder who also sold his share, could now be used to invest in a massive real estate project on the outskirts of the city. Kogan and Traktovenko are the owners of Baltros, a construction company that announced last week plans to build 1.4 million square meters of residential housing — almost a small town in itself. Experts assess the project as a $1 billion to $1.4 billion venture. News of the project to build Slavyanka residential district surfaced two weeks ago when St. Petersburg’s authorities ratified plans to use land near Pushkin, south of the city, for the development. Baltros was set up almost a year ago specifically for the construction and deveopment of Slavyanka. The company bought 280 hectares of agricultural land in April 2004 from the Detskoselskoye collective farm. The money paid to the collective was not revealed. By 2007, Baltros plans to invest $150 million into infrastructure for the land, and by 2011 to have 1.4 million square meters of housing built there. Baltros’ owners were revealed by its general director Sergei Podobed. He said that 20 percent of the firm belongs to him, while the remaining 80 percent belongs to five individuals that are part of St. Petersburg Banking House, a financial group set up in 1997 in order to control PSB’s assets. The biggest players at Banking House are its president Kogan and vice-president Traktovenko. According to the memorandum that accompanied the bank’s recent eurobond flotation, before the sale to VTB, the two bankers controlled 23 percent of PSB. The financial group’s press service did not comment on Podobed’s assertion. One of Banking House’s top managers, however, said that the Slavyanka project was being personally run by Traktovenko. The top manager could not say what relationship Baltros had to Banking House. Traktovenko and Kogan could not be reached for comment. Podobed did not reveal how much the Slavyanka deal was worth. The president of the St. Petersburg’s Guild of Managers and Developers, Alexander Grishin, estimated the construction of the residential project at $1 billion to $1.4 billion, and the purchase of the 280 hectares between $3 million and $6 million. Peter Kodin, head of RMS-Otsenka, produced a higher valuation: $6 million to $14 million for the land and $920 million for the whole project. The company that belonged to Podobed, Baltros-Invest, has existed since the end of the ’90s, specializing in documentation for land plots, an expert on the property market said. The expert named the company as “steady and professional, but not of a size to be able to pay out several million for a plot of land and spend $150 million on setting up infrastructure.” If the co-owner of Baltros is, in fact, Banking House, the situation changes, another expert said. VTB can hold as much as 76 percent of PSB’s shares, which are worth up to $700 million. A large chunk of that sum will be received by Kogan and Traktovenko personally. The investment activity of Banking House, due to the VTB sale, has increased, notes Andrei Belyavsky, director of St. Petersburg-based Arsagera fund managing firm. He said that an investment into property would be attractive for the two bankers. It is possible that the project will be funded with money that partly comes from the PSB sale, said another banker in the city, who asked to remain anonymous. The banker valued a controlling stake in PSB as worth $500 million. Up to now, Banking House has not been involved in real estate, although it had a few projects in this sector as part of its portfolio. The financial group remodeled a class-A, 14,000 square meter office and retail center on Nevsky Prospekt. Last year, the group set up a firm to specialize in investments into property, handing the company 400,000 square meters of commercial space to manage. TITLE: Poll: Russians Remain Wary Of Loans, Mortgages PUBLISHER: The St. Petersburg Times TEXT: MOSCOW — Despite an urgent need among many Russians for improved housing conditions, half of the country’s population says it would not turn to a bank for a mortgage, an opinion survey found. Only 31 percent of respondents said they would be willing to take out housing credit, while 47 percent would not turn to a bank for a loan, according to a June poll of 1,500 respondents by the Public Opinion Foundation. Seventeen percent of the people said they did not even know what a mortgage was. One reason that Russians hesitate to take out a mortgage is a widespread belief that relying on credit is fiscally unsound, according to the poll. Sixty-six percent said they believed they had no opportunity to make use of banking services, and only 20 percent thought they qualified for a loan. Respondents also cited their unwillingness to live on credit or “overpay” for loans because of steep interest rates. Only 9 percent of survey participants said they would mortgage their existing apartment for a loan. Yelena Golovina, an analyst with the Association of Russian Banks, said that meager paychecks coupled with high interest rates kept Russians away from mortgages. More than half of the population receives less than 5,000 rubles ($176) per month, she said. TITLE: EU Likely to Ban Live Bird Imports From Russia PUBLISHER: The Associated Press TEXT: BRUSSELS, Belgium — European Union countries are likely to ban live bird imports from Russia and Kazakhstan later this week to avoid the spread of a deadly strain of avian influenza, the European Commission said Monday. The EU head office asked the EU’s 25 national governments to make sure a ban on all imports of feathers and live birds from the two countries is implemented on Friday after outbreaks of the H5N1 bird flu strain were identified in Siberia. The virus can cross the species barrier and infect humans although no human cases have been reported in Russia. Russia’s first recorded outbreak of bird flu has killed more than 2,700 fowl in western Siberia, spreading to a handful of regions east of the Ural Mountains, which divide the European and Asian parts of the country. The virus has swept through poultry populations in Asia since 2003, killing tens of millions of birds and at least 60 people, most of them in Vietnam and Thailand. A man hospitalized in the Central Asian country of Kazakhstan last month with suspected bird flu was later found to have pneumonia, officials said. But hundreds of birds have died of the disease in that country and thousands more have been destroyed to try to block its spread. In July, Russia’s chief epidemiologist said that authorities believe the virus was brought to Siberia by wild ducks that fly north from Southeast Asia in the spring and stop at lakes in the area. The EU already has a similar ban on live bird imports and feathers from nine Asian countries — Thailand, Cambodia, Indonesia, Laos, China, Vietnam, North Korea, Pakistan and Malaysia. TITLE: IN BRIEF TEXT: Gazprom Grows in U.S. LONDON (Bloomberg) — Gazprom has agreed to buy liquefied gas from U.K.- based gas producer BG Group to make its first delivery to the U.S., as Gazprom tries to expand in North America. “With this first LNG cargo delivery into the United States, Gazprom has taken the first step towards becoming a leading LNG supply, shipping, and marketing company,” the company said Monday. Gazprom will deliver the liquefied natural gas, or LNG, to Shell Western, Gazprom’s U.K. unit said in a statement. The cargo will be delivered next month to Cove Point, Maryland. Gazprom, which supplies about a quarter of gas consumed in Europe, plans to build up its business in the U.S. Gazprom so far sells no gas in the U.S. Moscow Power Plan MOSCOW (Bloomberg) — Moscow Mayor Yury Luzhkov has ordered the creation of a new company to jointly manage the city’s power grid with national utility Unified Energy System, Interfax reported, citing an unidentified City Hall official. Luzhkov signed an order to create the venture, the Moscow Electricity Network Management Co., with 150,000 rubles ($5,280) of charter capital, the newswire said Monday. Each partner will own half of the venture, Interfax said. The parties agreed July 1 to set up the company to include city-owned grid infrastructure and the heat and power distribution companies spun off in April from Mosenergo, said Mosenergo Deputy Chief Executive Dmitry Vasilyev on July 26. Mosenergo is the dominant heat and power supplier to the capital. Unified Energy is the state-controlled national power utility led by controversial privatization tsar Anatoly Chubais. Kryvorizhstal After $2Bln MOSCOW (Bloomberg) —Ukraine wants at least 10 billion hryvnia ($2 billion) from the resale of Kryvorizhstal, its largest steelmaker, business daily Vedomosti reported, citing the country’s Privatization Commission. Ukraine will auction 93 percent of the steelmaker after courts annulled last year’s sale for $800 million to Investment Metallurgical Union. The union which is co-owned by Viktor Pinchuk, the son-in-law of former President Leonid Kuchma, Vedomosti said. The $2 billion starting price may be changed; a final decision will be announced Aug. 10, First Deputy Prime Minister Anatoly Kinakh said, the daily reported. Bulgaria Ships More Gas SOFIA (Bloomberg) — State-controlled gas-pipeline company Bulgargaz increased the amount of Russian natural gas it shipped in the first half by 9.17 billion cubic meters, the newspaper Pari reported, citing Bulgargaz Chief Executive Kiril Gegov. The increase represents a 25 percent increase, compared with a year ago. The gas was shipped to neighboring Turkey, Greece and Macedonia. Russian gas transits will continue to increase, according to the newspaper, citing Gegov. Bulgargaz is the monopoly owner of Bulgaria’s high-pressure gas pipeline network. Russia is the region’s sole gas supplier. TITLE: A Real Leader Does Not Remain Silent TEXT: Vladimir Putin’s silence during last weekend’s rescue operation to save the seven men on the mini-submarine Priz revealed the hidden weakness of an administration obsessed with projecting strength. All day Friday and Saturday, as naval officials gave uncertain and conflicting accounts of conditions inside the vessel and of efforts to free it, and suspicions grew that, as with the Kursk, it was already too late, there was no word from Putin. His decision to remain silent during the crisis appears to indicate a fear of being associated with potential tragedy. This has been his style since the first test of his presidency, the sinking of the Kursk submarine in August 2000. Despite the criticism he received then, he demonstrated it again with his silence during the seizure of the school in Beslan last year. He has been exceptionally quick to speak out in other situations, however, such as when the three teenage sons of Russian diplomats were beaten and robbed in Warsaw a week ago. In keeping his distance during crises, Putin has set an example for his ministers. In Beslan, Federal Security Service director Nikolai Patrushev was sent down from Moscow to oversee the operation, but that was the last the public heard of him. After the disastrous conclusion it was as if he had never been there. This weekend, it was Defense Minister Sergei Ivanov who was dispatched to Kamchatka to oversee the operation. He arrived, coincidentally or not, just before the U.S. and British rescue teams sailed into the militarily sensitive waters. But until success had been assured, he too refrained from any public role. The Kremlin seems to understand what television viewers everywhere feel: that if a president, or a defense minister, is on the screen talking about a dangerous situation, he has taken responsibility for how it turns out. What the Kremlin seems not to understand is that taking responsibility in times of crisis is the clearest sign of confident leadership. Real leadership is not the studious avoidance of blame. Real leadership is the acceptance of responsibility at precisely the moments when a panicked population needs reassurance — and when seven men trapped 190 meters under the ocean need unequivocal, unhesitating action from the highest level down. Kremlin-connected spin doctor Gleb Pavlovsky has attributed Putin’s enduring popularity to the fact that he has always been seen as being above the social crises and terrorist attacks of recent years. But escaping responsibility is not a recipe for popularity. It’s a recipe for irrelevance. TITLE: Exodus to the Left AUTHOR: By Boris Kagarlitsky TEXT: The new party sprang from the Party of Democratic Socialism, which was most successful in eastern Germany and won some surprising electoral victories in the early 1990s. Several months ago, no one would have gone on record saying that the Leftists would get enough votes nationwide to make it into the Bundestag. But now, the Leftist Party has a chance of becoming the third-largest party in Germany and the most important political force in eastern Germany, edging out not only the Social Democrats but the potential victors in the coming elections, the Christian Democrats, as well. The party’s huge jump in popularity reflects changes in the political atmosphere in Germany that have long been brewing beneath the surface. In the mid-1990s, the demoralized leaders of the social-democratic movement in Western Europe finally gave up and put themselves at the mercy of the conservatives. Following the banal old adage “if you can’t beat ‘em, join ‘em,” the leaders of left-wing parliamentary parties one after another turned into supporters of private enterprise and the free market. Basically, they decided that while keeping their old social-democratic label and core voters, they should take up the political and economic agenda of the right and become more or less identical to neo-liberal parties. From the elite’s point of view, a party of this sort would even have certain advantages over classical conservatives. It would mean the same people who should be defending the social safety net were dismantling it. This upset voters who had long been loyal to the left, but this did not worry the leaders of the parties in Europe’s parliaments. They reasoned that leftist voters had nowhere else to go, since they would never go right. Moreover, trade unions remained under the strict control of the party bureaucracy. However, it turns out that the social-democratic electorate’s patience has come to an end. Activists have abandoned Chancellor Gerhard Schroeder’s party en masse. The exodus was led by former minister and Social Democratic Party chair, Oskar Lafontaine. The disgruntled SPD members created a movement with the clunky name of Wahlalternative Arbeit und Soziale Gerechtigkeit, or WASG, often called the Labor and Social Justice Party in English. As the situation unfolded, Schroder decided to cut his losses and hold early elections. He hoped the WASG would not have time in the remaining two or three months to get organized. He hoped that the westerners who formed the party’s core would never be able to come to an agreement with the easterners from the Party of Democratic Socialism, the successor to the communist Socialist Unity Party, or SED, which ruled East Germany until 1989. Schroder hoped in vain. The westerners and easterners merged as fast as they could. The PDS took on a new name, Linkspartei, and opened its party lists to WASG candidates. East met west. The large-scale departure of union activists from Schroeder’s party reflects the growing political gap between the Social Democrats, who have snuggled up to neo-liberalism, and the organized labor movement. This means that the projects of leaders like Schroeder and British Prime Minister Tony Blair no longer have any point. While the Leftist Party has gotten a boost from the crisis in social democracy, it has nonetheless managed to create plenty of problems for itself. The PDS’s performance in regional governments in eastern Germany has confused many of its supporters, as regional socialist ministers seem to be little different from their capitalist colleagues. However, at the moment, voters seem more than happy to forgive the leftists for their faults as a way of punishing the SPD. The party’s overhaul has spawned new hopes. Even many supporters who left the PDS are now returning to the fold. Theoretically, the situation may not prove half bad for the Social Democrats. The voters they lose will not look further to the right, after all. Consequently, the Christian Democrats will not be able to get enough votes, even if taken together with the liberals, to form a coalition on their own. They will be forced to turn to the Social Democrats who remain in government to work together. Nothing is preventing this coalition from forming. Significant ideological differences have long ceased to exist between the Social Democrats and the right. However, participation in this kind of coalition may spell political disaster for the Social Democrats in the future. The SPD will once again be forced to answer for the policies this government will likely pursue, policies that will undermine the social safety net. And the role of opposition force will go to the Leftists. Boris Kagarlitsky is director of the Institute for Globalization Studies. TITLE: Like the Censors of Old AUTHOR: By Masha Gessen TEXT: Back in the dark old days of the Soviet Union, foreign journalists in Moscow led pretty ridiculous lives. They lived in hotels and, later, in special closed compounds. They were required to use interpreters, drivers and office staff supplied by the Soviets — and, generally speaking, employed by the KGB. They had to ask for permission to venture outside Moscow. Before 1961, all foreign journalists were required to file their reports from a particular room in the Central Telegraph building on what was then called Gorky Street. The reports were read by the censor, who sometimes held them up for days and sometimes returned them with multiple deletions — or marked “not cleared.” The censor made few decisions by himself or herself. During the Stalinist era, all questions were phoned directly in to Stalin’s secretariat, which issued instructions. Obviously, most journalists were constantly looking for ways to circumvent this system. Some slipped idiomatic expressions or literary allusions into their copy in the hopes that the censor would miss the subtleties — and it often worked. Radio reporters filing by phone from a special booth in the Central Telegraph would try to speak fast so the censor would not notice when they diverged from the approved copy. Some journalists sent their copy through diplomatic mail so it could be published under a pseudonym. When they got caught cheating the system, reporters would get expelled. At one point in the late 1940s, expulsions became so frequent that there was only one foreign correspondent in Moscow: the great Harrison Salisbury of The New York Times. Several others were writing for foreign media, too, but all of them were married to Soviet citizens so their presumed loyalty was to the Soviet state. Eventually, other newspapers and radio companies got new people accredited, and the pool widened. Expulsions continued after the lifting of censorship, well into perestroika. A UPI reporter was expelled for interviewing a hospital doctor soon after the Chernobyl disaster. Briton Edward Lucas claims to have been the last reporter kicked out of the Soviet Union — he was asked to leave the Baltics in 1991, though he later returned to Russia as an Economist correspondent. Expulsions of journalists resumed after the second war in Chechnya began. But until recently there was always a formal reason for expelling journalists, banning them from re-entering Russia or revoking their accreditation. An exception is a bizarre incident in May when a Latvian TV crew was detained in the Pskov region and kicked out of the country with no explanation. But the current brouhaha over ABC’s airing of an interview with Chechen warlord Shamil Basayev takes the practice of punishing journalists to a whole new level. After the interview aired, the Foreign Ministry summoned the U.S. envoy for a dressing down, then issued a note of protest. Then the defense minister said ABC would lose all access to information about the military. Then the Foreign Ministry said that no one from ABC would have their accreditation renewed. Even in Soviet times, repressive measures were always taken against individual journalists, not against entire media companies. An interesting wrinkle in the scandal is that the interview was recorded by Radio Liberty journalist Andrei Babitsky, a Russian citizen living in Prague who can’t be expelled. So some of the most senior officials in the country, feeling helpless to do anything about Babitsky, start flailing and doing what comes naturally. They appeal to the higher-ups — as though they thought Ted Koppel could make no editorial decision without consulting ABC executives, who, in turn, could make no move without Washington. Of course, this is not how the real world works — but it’s a valuable insight into the way the Russian ministers’ lives are organized. Like the censors of old, they call in all questions to the Kremlin. Masha Gessen is a contributing editor at Bolshoi Gorod. TITLE: Tax Code to Enter The Next Evolution AUTHOR: By Artyom Vasyutin and Pavel Andreyev TEXT: The tax law is heading closer to clarity, finally beginning to answer some questions businesses have puzzled over for quite some time. Several changes and amendments to the tax legislation were adopted on June 6. Among notable major improvements is a section on profits tax. The amendments can be divided into three major blocks: Taxation of transactions with securities, general tax accounting questions and tax treatment of some expenses and operations. Like a good sci-fi thriller, however, the changes have one convoluted twist to them: the enforcement of the changes is subject to different dates. In some cases, the changes to the law are enforced retrospectively. To prepare for the company’s future, business leaders will now have to cast their minds back to the past. BACK TO THE FUTURE Several changes refer to actions that arose from Jan. 1. The changes concern mainly matters of technical character, but should not be underestimated by companies intending to undergo reorganization. According to the law, the transfer of property and property rights from reorganized companies is not considered as taxable income for their successor. For further deduction of the costs for such property and property rights, their value should be determined as equal to the residual value under the tax accounting registers of the transferring parties. It should be noted that the same approach on valuation is taken with regard to property received as a contribution in kind. Thus, the longstanding issue has been resolved at the level of the Tax Code. The new amendments to the tax accounting rules will also be appreciated by companies, which use complex systems of cost accounting. The law will now allow companies to harmonize policies and procedures applied under statutory accounting with tax accounting. In other words, the taxpayer is entitled to make the choice of the list of direct expenses, as well as control the procedure of allocation between work-in-progress and goods produced. Some clarifications on bad debt provisions and a deduction in customs duties and charges are also effective as of Jan. 1. NEW YEAR’S PRESENTS The most important changes will, nonetheless, be enforced as of Jan. 1, 2006. They concern new rules for the confirmation of expenditure incurred in a foreign country that could be supported by primary documents drawn up according to the respective foreign rules. What’s more, some expenses can now be proved via “indirect” documents. Needless to say, this should lead to easier ways of justifying and proving expenses. A new treatment of capital expenditure will allow immediate deduction of up to 10 percent off the historical value and additional costs of fixed assets upon the investments made thereto. The law has also provided detailed instructions on the taxation of depreciable leasehold improvements. Expenditures incurred by a lessee with the approval from the lessor (regarding non-separable leasehold improvements) may now be considered as depreciable property for the lessee. The long awaited amendment concerns companies that provide their customers with bonuses or discounts, which are tied to fulfilling provisions of business contracts, as in reaching a certain number of purchase orders. Starting next year such rebates will be treated as allowable expenses for the seller. At the same time, it should be noted that this new approach is likely to contradict the current practice wherein discounts are generally considered to be corrections to the sales (revenue). It would be too rash to say all these changes are entirely for the benefit of the taxpayers. For instance, the new regulation on thin capitalization rules extends the criteria for recognizing a debt as “controlled.” Currently it is considered as such only if a foreign legal entity owns more than 20 percent of the Russian debtor’s charter capital. From 2006 it will also include loans from Russian companies affiliated to a foreign shareholder. In addition, the “thin capitalization” rule will cover cases where the affiliated party and, or, a foreign company appear to be guarantors of the loan for a Russian borrowing company. Moreover withholding taxation of “extra” interest will be made on the basis of accruals rather than cash, as is currently the case. Other important changes relate to taxation of leasing operations, tax treatment of technological losses, research and development expenses, advertising expenditures, defining norms of natural losses among others. FAST FORWARD TO 2007 Another major change will take effect from Jan. 1, 2007 and will apply to rules of tax losses carry-forward. They will be allowed a full deduction of one year, with no limitations. In the interim, starting from 1 Jan. 2006, such amounts will be increased by up to 50 percent of taxable profit from the current 30 percent mark. While overall, the changes are welcome by the business community, they once more prove the extent of the Russian tax system’s immaturity. The constant modifications and existence of a huge number of still unresolved issues will undoubtedly lead to further amendments, and, one would hope, improvements. Artyom Vasyutin is a tax manager and Pavel Andreyev a tax consultant at Deloitte Saint-Petersburg. They contributed this comment to The St. Petersburg Times. TITLE: Change: The Ideal Scenario AUTHOR: By Konstantin Sonin TEXT: Until the end of July, it seemed that various state agencies were to blame for all of Alfa Group’s problems: either the tax men were slapping Alfa with a bill for another billion in back taxes, or the prosecutors were hinting at a possible investigation, or “well-wishers” were planting compromising material about the company (though this could well have been someone’s personal initiative). But then suddenly Alfa Bank’s chief strategist, Chris Weafer, came out with some remarkable statements in a July 8 report on the investment climate in Russia, such as the following: “The ideal scenario for investors is some mechanism that sees President [Vladimir] Putin remain in office (after all, one of the characteristics of previously successful emerging economies is the longevity in office of a strong leader) ... .” This from one of Russia’s leading investment analysts? Economists and political scientists know perfectly well that a clear-cut correlation has been observed in the 20th century between a country’s rapid, stable economic growth and its frequent change of leadership. Bruce Bueno de Mesquita, a leading academic political scientist as well as a successful political consultant, has written an entire book on the subject. Although this correlation does not mean that economic growth necessarily depends on the regular change of leaders, it highlights a number of well-documented trends. For example, in many countries whose leader has clearly remained in power for too long, per capita GDP has stagnated, often for decades. On the other hand, nondemocratic countries such as Mexico, Brazil and China that have performed well economically also have a mechanism in place to ensure that new leaders periodically replace the old. In South Korea and Chile, the rate of economic growth increased after these countries introduced similar mechanisms. Perhaps the most relevant examples where Russia is concerned are the Philippines under Ferdinand Marcos, Indonesia under President Suharto and Rafael Trujillo’s Dominican Republic. All three countries enjoyed rapid economic growth during the dictators’ first eight to 10 years on the job before lapsing into lengthy economic stagnation after their leaders decided to stick around for the long haul. In his statement, Weafer deftly equates political stability with the continued leadership of Putin. But since when do normal elections lead to political instability? The recent events in Ukraine, Georgia and Kyrgyzstan demonstrate how instability can result from the attempt to manipulate election results. And no matter how a third term for Putin were arranged, the result would be a major constitutional crisis. It’s hard to see how this could produce stability. Moreover, comparisons with the experience of other countries in no way guarantee the success of such a scenario in Russia. It is not my intention to accuse Weafer of incompetence. We’re dealing with a very Russian conflict of interests. During the Internet boom, Wall Street analysts sympathized with “friendly” companies. Our analysts are compelled to sympathize with “friendly” politicians. Whom should we blame for this? Probably Marcos and Trujillo, along with Mobutu Sese Seko in Zaire, the Duvaliers in Haiti, Kim Jong-il in North Korea and Haile Selassie in Ethiopia, for holding on to power too long, running their countries into the ground and ruining the statistics. Then again, they’re probably not terribly happy about that, either. Konstantin Sonin, professor at the New Economic School/CEFIR, wrote this column for Vedomosti. TITLE: Chelsea Beat Arsenal In Champions’ Warm-Up PUBLISHER: The Associated Press TEXT: CARDIFF, Wales — Premier League champion Chelsea beat Arsenal 2-1 in the Community Shield on Sunday with a goal in each half by Didier Drogba. “I don’t think this match will have any consequence for the future,” Chelsea manager Jose Mourinho said. “It’s over and we’ve won the trophy.” The Community Shield, played between England’s champion and the FA Cup winner, is the traditional season opener for English soccer’s top clubs. The league season starts next weekend. Drogba scored in the seventh minute at the Millennium Stadium when he chested a long pass and hooked a left-footed shot past Arsenal defender Philippe Senderos and goalkeeper Jens Lehmann. “I’ve had one month’s holiday and I’m fresh now,” Drogba said. Drogba scored again in the 57th minute. He evaded Senderos, went past Lehmann, pushed Lauren away, then turned to shoot into the back of the net. Cesc Fabregas had a goal for Arsenal in the 65th when he poked home the ball from inside the box. “I think it was a good game, good preparation for the Premiership,” Arsenal coach Arsene Wenger said. “We were competitive and physically we sustained a good level over the 90 minutes. o In the 19th round of the Russian season, FC Zenit St. Petersburg are in second place in the Premier League with 36 points to champions Lokomotiv Moscow with 44 points. Lokomotiv suffered their first league defeat of the season with a 3-1 loss at Rubin Kazan and saw their lead at the top cut to eight points after Zenit beat Tomsk 1-0. An Ansar Ayopov penalty, a long range effort from Alejandro Dominguez and a deflected shot by Vladimir Bayramov gave Rubin a 3-0 lead before Igor Lebedenko salvaged some pride for the leaders. City rivals CSKA stayed third after a 2-2 draw at Krylya Sovietov Samara, with Ghanaian striker Baba Adamu scoring his first goal for the club. (Reuters)