SOURCE: The St. Petersburg Times
DATE: Issue #1137 (3), Tuesday, January 17, 2006
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TITLE: Merkel in Moscow to Rekindle Partnership
AUTHOR: By David McHugh
PUBLISHER: The Associated Press
TEXT: BERLIN — Angela Merkel headed to Russia on Monday for her first visit as Germany’s chancellor, aiming to underscore a “strategic partnership” with an important energy supplier while still meeting with representatives of human rights groups. 
High on the agenda in her talks with President Vladimir Putin were European efforts to find a common approach with Russia to Iran after Tehran’s decision to resume uranium enrichment activities, a major theme of Merkel’s meeting in Washington last week with U.S. President George W. Bush. 
Last week, Iran removed some UN seals from its main uranium enrichment facility in Natanz, central Iran, and resumed research on nuclear fuel — including small-scale enrichment — after a 2 1/2 year freeze. 
Russia’s attitude is important for efforts by Germany, France and Britain, backed by the United States, to persuade Iran to permanently give up efforts to produce enriched uranium, which can be used for fuel or weapons depending on the level of enrichment. 
The three European governments have called for the International Atomic Energy Agency to bring Iran before the United Nations Security Council. 
Those efforts will need the support of Russia, which sits on the IAEA board and remains one of the veto-wielding permanent members of the Security Council. 
But German officials briefing reporters on condition of anonymity said Merkel would not focus narrowly on Iran or on Russian-German natural gas deals such as the Baltic Sea pipeline project sealed by her predecessor Gerhard Schroeder before she took office Nov. 22. 
Instead, she wants to widen relations with Russian to include a “broad spectrum” of issues, risking topics the Kremlin is likely to be less enthusiastic about, such as human rights and a new law restricting non-governmental organizations that awaits Putin’s signature, they said. 
Merkel was scheduled to spend just under six hours in Moscow, with talks with Putin to be followed by a meeting with representatives of Russian religious, social and business groups. Among those invited were leaders of human rights organizations such as the Moscow Helsinki Group, which alleges that Russia has become less democratic under Putin. 
Opposition German politician Claudia Roth of the Greens demanded Sunday that Merkel take a tough line with Putin on human rights.
Roth also demanded that Merkel stake out a tough position on what she called Russia’s “dirty war” against rebels in the southern Chechnya region and backsliding on democracy. “I expected clear, critical words from Mrs. Merkel,” Roth said. 
Merkel has described Russian language as one of her favorite subjects in school, and during her campaign she vowed to maintain Germany’s strategic partnership with Moscow. 
But many think the 51-year-old former scientist will take a more sober view of Russia, in part as a result of her upbringing behind the Iron Curtain in communist East Germany. 
That would contrast with the camaraderie displayed by Schroeder and Putin, which resulted in the Baltic pipeline that is intended to feed Germany’s growing appetite for natural gas to heat homes and run factories. 
Russia supplies roughly a third of Germany’s natural gas from giant gas fields in the Arctic, and the importance of the gas relationship was underscored when Schroeder took a job with the pipeline consortium after leaving office. 
Schroeder’s critics at home said he failed to push for more democratic change in Russia. 
And the close Schroeder-Putin relationship led to criticism from countries such as Poland that escaped Moscow’s domination at the end of the Cold War and feared their interests were being slighted by their two larger neighbors. 
Merkel said she talked to Putin about the “irritation” caused by legislation passed by Russia’s parliament last month that would severely limit nongovernmental organizations. She also was to meet with human rights groups. 
“I emphasized that we will very closely follow that the law is implemented in such a way that NGOs would be able to continue their work,” Merkel said. 
Putin, who has not signed the bill into law, said Monday that the Russian parliament had modified the legislation in line with the Council of Europe’s advice but stressed it was necessary to exclude “nontransparent funding of domestic political activities.” 
He added that “we will see to it that after the law on non-governmental organizations comes into force ... no harm will be done to NGOs functioning in accordance with their stated goals.” 
Merkel said that she and Putin failed to immediately find common ground on some issues, such as the conflict in Chechnya, but emphasized her desire to develop stronger ties with Russia. 
“I’m confident that we can expand our cooperation and partnership, broaden its foundation and make it more intensive,” she said.

TITLE: Putin: Iran May Still Make Deal
AUTHOR: By Vladimir Isachenkov
PUBLISHER: The Associated Press
TEXT: MOSCOW — Russian President Vladimir Putin said Monday that Iran has not excluded the possibility of conducting its uranium enrichment in Russia, raising hope for a proposal that could be a way out of escalating tensions over Iran’s nuclear program. 
The Russian proposal, backed by the Europeans and the United States, is aimed at getting Iran to move uranium enrichment completely out of its territory to ensure that its nuclear program cannot produce weapons. Enrichment can produce either fuel for a nuclear reactor or the material needed for a warhead. 
“One of the main problems is the enrichment of uranium,” Putin said after a meeting with German Chancellor Angela Merkel. “We have heard various opinions from our Iranian partners on that issue. One of them has come from the foreign ministry — our partners told us they did not exclude the implementation of our proposal.” 
“In any case, it’s necessary to work carefully and avoid any sharp, erroneous moves,” he said. 
Iran last week removed UN seals on its uranium enrichment facilities, defying international pressure not to resume some nuclear activities, which can be used to develop fuel for reactors or material for atomic weapons. 
Amid growing international concern that Iran is trying to develop nuclear weapons, Moscow last year proposed that uranium for Iran be enriched in Russia. That would ensure oversight so that the uranium would be enriched only to the level needed for use in reactors at Iran’s Russian-built Bushehr nuclear power plant rather than to the higher level needed for a nuclear warhead. 
Western countries have threatened to take Iran before the UN Security Council, which could impose sanctions, over the dispute but would need support from veto-wielding members Russia and China. 
Russian Foreign Minister Sergey Lavrov said last week that the Kremlin did not exclude supporting such a move, although it had previously said it saw no need to do so.

TITLE: Jailed Ex-Tycoon is Spammers’ Latest Bait
AUTHOR: By Alex Nicholson
PUBLISHER: The Associated Press
TEXT: MOSCOW — Russia has more in common with Nigeria these days than just oil. 
Following up on the politically charged jailing of oil tycoon Mikhail Khodorkovsky, a wave of scam e-mails in the style of Nigeria’s notorious spammers have been popping up in inboxes from Moscow to Kentucky. 
But instead of impassioned pleas by dead African dictators’ aides to move millions of dollars overseas, the appeals appear to come from the inner circle of the man who was once Russia’s richest. 
“Dear friend, I got your reliable contact from my husband’s business diary ...” begins one letter from “Leila Khodorkovsky,” claiming to be the billionaire’s wife — whose actual name is Inna. The letter requests assistance investing $45 million of the tycoon’s money and promises compensation. 
Another is signed by “Larissa Sosnitskaya,” who describes herself as a personal treasurer to Khodorkovsky, seeking a beneficiary for a similar sum that she intends to use “to relocate to the American continent and never to be connected to any of Mikhail Khodorkovsky conglomerates.” 
While their details — and often grammar — are muddled, the Khodorkovsky-themed spam highlights the notoriety of his case and his eight-year sentence on tax and fraud charges, which critics called Kremlin revenge for his sponsoring of opposition parties. 
Worth some $15 billion before his arrest at gunpoint on a Siberian airfield in 2003 — and currently an inmate of a bleak prison colony on Russia’s border with China — Khodorkovsky was an obvious choice for the authors of the Nigerian-style spam, experts say. 
“This is a well-developed business — they choose what is up-to-date,” said Yevgeny Altovsky, who coordinates a UNESCO-backed anti-spamming program in Moscow. 
“The main thing is it has to involve some kind of rich person,” he said. “If a major court case against Bill Gates were to start tomorrow I’m sure he would appear in these messages.” 
Yukos spokeswoman Claire Davidson declined to comment on why spammers might have selected Khodorkovsky and the company he founded as subject matter. 
“They aren’t being issued from within the company,” she said, referring to one letter in circulation allegedly signed by Bruce Misamore, Yukos’ former chief financial officer. 
While versions of the letter from Khodorkovsky’s managers have been sent in Russian, Altovsky said Russian Internet users are wise to such scams and were unlikely to be fooled. 
Indeed, the Russian market for spam differs widely from the more aggressive U.S. fare of online casinos, porn sites and erectile dysfunction drugs, and is used primarily by small and medium businesses as a means to advertise. Nonetheless, the Russian practice causes some $30 million a year in damages from traffic costs, Altovsky said. 
Nigeria — globally recognized as a base for criminals exploiting the reach of the Internet — said in October that it is considering making spamming a criminal offense that could land senders of unsolicited e-mails in jail for three years. 
Africa’s most populous country is known for its “advance fee” scammers — criminals scouting for victims by sending millions of unsolicited e-mails with false proposals around the world. 
Among the most common are e-mails proposing to share portions of dead African dictators’ ill-gotten estates in exchange for an advance payment to help move the money overseas. The scammers keep the “fees” while victims receive nothing. 
Khodorkovsky’s case was accompanied by a sweeping back tax investigation at his Yukos oil company that eventually saw its main production unit sold in a disputed auction and ending up in state hands. Yukos managers have since fled Russia as their colleagues were jailed and arrested in the continuing probe.

TITLE: Nine Killed in Vladivostok Blaze
AUTHOR: By Yevgeniya Butenina
PUBLISHER: The Associated Press
TEXT: VLADIVOSTOK — A fire broke out in an office building in the Russian Pacific coast city of Vladivostok on Monday, killing nine people and injuring at least 15 others as trapped victims jumped from windows or plunged to their deaths trying to escape from the smoke and flames. 
Officials said that some stairwells in the building were blocked by gates, hampering rescue efforts, and witnesses said some of the victims — mostly young women — jumped or fell after desperately holding onto windowsills or other objects on the exterior of the nine-story building. 
The fire killed nine people — six who died at the scene, including one whose body was found hours after the blaze — and three who died in the hospital, said Yulia Kozitskaya, a spokeswoman for the regional branch of the Emergency Situations Ministry. She said 15 others remained hospitalized. 
NTV television showed footage of several people sitting in open windows, their feet hanging in the air, as flames and smoke raged behind them. The station reported that all those who died at the scene had plunged from the building, and that at least 15 people had jumped or fallen. 
One onlooker, Ivan Petrov, told NTV he saw three young women jump or fall. “They waited until the very last moment,” he said. 
“One woman was hanging beneath a window. She hung on and hung on ... and then she let go,” he said. 
The chief regional prosecutor, Alexander Anikin, said that “some of the stairwells were barred” by gates that apparently prevented victims from escaping from the upper floors of the building. 
“The evacuation was hindered,” he said. 
Criminal cases were opened on suspicion of fire safety violations and lethal negligence, Anikin said. 
“There was no means of rescuing people — no ropes, no emergency exits,” Alexander Babykin, an onlooker identified as a rescue worker, told NTV. “All this was ignored.” 
Firefighters had trouble bringing equipment close to the building because a commercial parking lot set up outside the structure was in violation of fire safety regulations, RIA-Novosti reported, citing an unnamed emergency official in the region 9,300 kilometers east of Moscow. 
According to Kozitskaya, the fire broke out on the seventh floor, which Russian media and witnesses said was occupied by offices of the state-run bank Sberbank, and that the floors above were also affected. 
Russia’s rate of fire deaths is roughly 10 times the rate in the United States, in part because of the lax enforcement of regulations. 
President Vladimir Putin said last month that fire-safety oversight bodies must do a better job. 
Investigators were looking into the cause of the blaze, which broke out shortly after noon. An Emergency Situations Ministry spokesman said hours later that it had been contained, and televised footage indicated it was extinguished.

TITLE: Canada Suspects Fascist Link
PUBLISHER: The Associated Press
TEXT: MONTREAL — A Jewish organization that monitors anti-Semitic activities in Canada said Friday that it suspected a Russian group was behind a rash of swastikas that were spray-painted in a Jewish neighborhood of Montreal. 
B’nai Brith Canada said the swastikas were found at locations near a Jewish school and community center. Two of the sites were spray-painted with the Internet address of a Russian national socialist web site, www.nso-korpus.info, which includes a photo of Adolf Hitler and quotes excerpts from his autobiography, Mein Kampf. 
Although police have no suspects and there have been no eyewitnesses, the language of the site leads B’nai Brith to suspect a Russian group.

TITLE: Capital Flight Reversed in ’05
PUBLISHER: The Associated Press
TEXT: MOSCOW — More money entered Russia than left it last year for the first time in the country’s post-Soviet history, Deputy Prime Minister Alexander Zhukov said Monday. 
After a year of record foreign borrowing by Russian companies, Zhukov told a Kremlin meeting that the net inflow of $300 million reported in Central Bank data was “evidence of a positive change in the investment climate in Russia.” 
In 2004, when a politically charged tax probe against the Yukos oil company was reaching its climax, capital flight jumped from $1.9 billion in 2003 to $8 billion. In previous years Russia has reported capital flight as high as $25 billion. 
But 2005 saw many investors put behind them the fears over property rights that the Yukos case raised. 
Observers say the probe against Yukos — which saw its biggest unit end up in state hands after it was auctioned off in December 2004 to pay part of a back tax bill — was driven by the state’s desire to recapture influence in the oil sector as well as punishment for the perceived political aspirations of its jailed founder Mikhail Khodorkovsky. 
At the televised Cabinet meeting during which Zhukov spoke, President Vladimir Putin noted that the health of the stock market, which has continued to rise since the start of the year, was a “good growth indicator.”

TITLE: More Suspects Arrested Over Hate Crime
PUBLISHER: The St. Petersburg Times
TEXT: Two more suspects have been charged in connection with the murder of 20-year-old Timur Kacharava, an outspoken anti-fascist, rock musician and philosophy student, who was stabbed to death in November. 
Kacharava was stabbed to death outside the Bukvoyed bookstore on Ligovsky Prospekt opposite the Moskovsky Railway Station at around 7 p.m. on Nov. 13, when about ten teenagers armed with knives attacked him and his friend Maxim Zgibai, also a student and fellow anti-fascist. Kacharava received five wounds in the throat  and died before the ambulance arrived at the scene.
Yelena Ordynskaya, a senior aide to the city prosecutor, told reporters on Monday the suspects were charged with attempted murder and murder committed by a group of people.
Five suspects, all under 18 years of age, have already been charged with Kacharava’s murder. One of the suspects has admitted stabbing the student, while the other four admitted taking part in the attack but said they did not use knives. According to city prosecutor Sergei Zaitsev, fascist paraphernalia was found during police searches of the suspects’ apartments. “It is yet to be seen whether these teenagers belong to an organized extremist gang but the findings show they have a strong interest in neo-fascist ideology,” Zaitsev said at a news conference in December.
The identity of several more attackers has been established but these suspects remain at large, Zaitsev said.
The investigation has been prolonged until March, the Agency For Journalistic Investigations reported on Monday.

TITLE: Greenpeace Lodges Appeal Against Plant
AUTHOR: By Galina Stolyarova
PUBLISHER: Staff Writer
TEXT: Ecologists from the local branch of the international environmental organization Greenpeace sent an appeal to the city prosecutor’s office asking for the suspension of the construction of solid waste processing facilities at the Southwest Water-Treatment Plant. The organization argues that the technology used at the plant would severely damage the environment by contributing to air pollution.
“Burning down silt means discharging 24 different pollutants into the atmosphere, including benzapirene as well as dangerous dioxins and furanes which cause cancer,” said Igor Babanin, an expert with Greenpeace. 
The plant was inaugurated in September 2005 by President Vladimir Putin, Finnish President Tarja Halonen and Swedish President Goran Persson. The plant’s waste-burning facility is scheduled to start operating in 2007.
Construction of the Southwest Water-Treatment Plant began in 1987 but wasn’t resumed until the mid-1990s due to a lack of financing. The project was rescued by the European Commission, which provided a $30million grant for the completion of the plant.
The construction, involving around $36 million in foreign investment, is maintained by Vodokanal, the city’s water and sewage monopoly. 
Boris Vasiliev, deputy director of Vodokanal’s water supply system development department, said in a statement released on Monday that the new waste-burning facility will be able to treat about 300 cubic meters of solid waste. The waste is currently kept at local storage facilities.
Vera Izmailova, head of Vodokanal’s press-office, rejected Greenpeace’s  criticisms.
“Local smokers do much more harm to the environment than our plant does,” Izmailova said. “As for the technology, there is no better alternative to burning silt. What else can we do? Local storage facilities can’t handle all the sewage.”
Vodokanal’s Vasilievv said that after treatment, the amount of solid waste will be reduced by about 90 percent and will thus require less storage space.
Greenpeace maintains that construction of the waste-burning facility was begun without a professional environmental examination.
“There was no environmental examination, which is against the law,” said Dmitry Artamonov, head of local branch of Greenpeace. 
“There was a public hearing on this subject in December, and their recommendations should have been considered prior to the construction, which is now in full swing. If Vodokanal violates the law during the construction, there is nothing to stop them doing so during the operation of the plant. ” 
Izmailova said the project has been through all the necessary tests and examinations, fulfilling all the requirements to get underway. 
“Of course, such an important international project couldn’t have started without an appropriate examination,” she said. “There are some minor differences in Russian legislation and the EU legislation, and Greenpeace is trying to use that to launch an attack on us and get themselves some publicity.”
Greenpeace’s crusade against Vodokanal may well prove fruitless as their appeal is yet to be accepted by the prosecutor’s office, which only accepted it for review on Monday.
Every year, with the arrival of summer, over one third of the beaches in and around St. Petersburg are declared contaminated and unsuitable for use by the St. Petersburg Center for Epidemic Control. The popular beach by the Peter and Paul fortress has been on the blacklist for many years.
The water pollution is partially caused by the pumping of untreated industrial waste as well as human waste into the Neva River.
According to Mikhail Probirsky, deputy head of Vodokanal, before the launch of the Southwest plant, 25 percent of the sewage and industrial waste released into the Neva River was untreated due to the shortage of water-treatment facilities in the city.
“It may sound like a lot but, before 1978, the city had no water-treatment facilities at all,” Probirsky said.
According to Vodokanal’s estimates, with the completion of the new Southwest Water-Treatment Plant, the city is now able to filter out 85 percent of the waste.

TITLE: Ford Sales Reflect Richer Taste
AUTHOR: By Yekaterina Dranitsyna
PUBLISHER: Staff Writer
TEXT: Sales of Ford cars in Russia increased from 39,241 in 2004 to 60,564 in 2005, the company said Friday in a statement. Some analysts have termed the growth remarkable, while others suggest that overall demand was not adequately reflected by the company’s hitherto limited production facilities.
As foreign carmakers increase sales to come in line with demand for expensive and high-quality cars, analysts are eager to see if such a growth in sales will continue after local production reaches its planned output.
“Having switched to the production of the new Focus in May 2005 its immediate popularity proved once again that Russian buyers are interested in modern, quality and comfortable cars and new technical solutions,” president of Ford in Russia Henrik Nenzen said in a statement.
According to UFG, Ford is now the second foreign carmaker after Hyundai in terms of sales, while Ford Focus became the most popular foreign car, outstripping last year’s leader Mitsubishi.
“Ford is well-placed in the Russian car market. If it wasn’t for changing the line of model, sales figures could have been even better,” said Yelena Sakhnova, automotive industry analyst at UFG.
Another notorious issue Ford faced last year – a workers’ strike – had an insignificant effect on sales figures, Sakhnova said.
Ford official dealers sold 39,774 Ford Focus cars in 2005.
“More than 22,000 clients ordered Focus to be delivered this year. After increasing the annual production of our Russian plant up to 60,000 cars from Jan. 1 we expect to deliver the Focus to customers without delay,” he said.
However another expert said that present sales growth exceeded the industry average because “so far sales have not adequately reflected demand for Ford cars as a result of limited production facilities at the Ford plant in Russia.”
“It would be interesting to see how the company sales grow in coming years,” Sakhnova said.
Ford invested $30 million into expanding the production facilities of the Vsevolozhsk plant opened in 2002. 
According to PricewaterhouseCoopers, in the next three years the number of cars sold in Russia will exceed two million, compared to 1.596 millions in 2004.
“Consumer interest is growing in more expensive and higher-quality cars, with imported brands the primary beneficiaries. This reflects the growth in disposable incomes, the aggressive sales strategies of international brands, the increasing prices of Russian vehicles and the gradual development of credit for the purchase of cars,” Stanley Root, partner at PwC, said in an automotive industry report released in 2005.
Cars costing between $8,000 to $20,000 would be the fastest growing market segment, he said. The development of the car retail sector and the emergence of Western quality chains, offering modern showrooms and a full range of services, also contributed to focusing customers on quality of service, Root said.

TITLE: Bond Market Growth To Lack Reliable Borrowers
AUTHOR: By Kristina Sinicina
PUBLISHER: Special to The St. Petersburg Times
TEXT: 2005 was proclaimed by security market specialists as a very successful year for corporate bonds, with investors digesting a huge number of issues by both national and regional companies. Nevertheless they warn that an annual 80 percent growth in the volume of bonds in circulation on the securities market will inevitably lead to a gradual reduction in the quantity of reliable borrowers able to enter this market. 
“In 2006 we expect market volume to grow no less than 1.5 times,” said Petr Minin, banking and corporate bonds analyst at AVK Analytics. He added that the profitability of secondary market bonds — those traded after the date of issue — would not see a considerable change.
“We believe that bond quotations are very close to their maximum at present and this year investors will receive their basic income from coupon payments. Next year it will be more difficult to receive dual profitability,” he said.
The leading analyst at Umarket, Kirill Ageyev, also forecast few changes in the secondary market because “a continuation in the growth of liquidity would increase demand in the primary market, which is becoming more attractive owing to an opportunity to receive the premium.”
Ageyev suggests that corporate bonds will make a sound investment. 
“These are company bonds which actively develop, involve market resources and offer higher profitability than large companies. And the risk of investing in such bonds is considered much lower than shares,” he said.
According to Minin, the most promising borrowers will be in high-growth sectors, particularly those focused on internal demand, such as banks, retail, construction and telecommunications. 
“A separate issue concerns the largest state companies and banks. The government can prevent their moves onto external debt markets and stimulate internal loans with a view to controlling inflation,” he said. 
Minin believes that in this case the government’s share in borrowing ‘at home’ can grow. Other potential borrowers include organizations that work in the sphere of housing and communal services, where stable income is combined with the necessity to realise significant investments.
In the opinion of Ageyev, the consumer and construction sectors are set to become an important source of primary issues. And if companies from the consumer sector have already actively spent on primary issues, constructors should still make their presence felt. Ageyev is certain that the law passed recently on share issues will serve as additional stimulus. 
“The companies of this sector will be compelled to search for new, more civilized ways to attract resources,” he added.
External factors will have a big influence on the Russian bond market according to the chief analyst at Cit Finance Bank, Vladimir Malinovsky. 
“Their influence is twofold. On the one hand quotations of bonds will react to the changes on western markets, on the other the increased share of non-resident investors will allow them to exert a strong influence on the cost of Russian debt management tools,” Malinovsky said. 
The first signs are already visible because the majority of market analysts are guided by Western markets, and issuers try to grab the attention of foreign buyers. 
“It is also worth heeding price fluctuations in oil, the situation on the currency market and the level of bank liquidity in Russia, which is influenced by the central bank’s monetary policy,” said Malinovsky. 
According to Ageyev, however, the influence of foreign markets is only minimal, which ensures that the volume of liquidity remains a force that defines the movement of ruble bonds.
“It will have a negative influence on the profitability of both the state and corporate sector. Conservative investors will prefer the financial sector where the unconditional leader will remain Sberbank,” he said. 
Malinovsky suggested that investors should increase their share of long-term loans, relying on the price growth at the beginning of the year, and later improvising.

TITLE: Kudrin Served Summons in States
AUTHOR: By Valeria Korchagina and Catherine Belton
PUBLISHER: Staff Writer
TEXT: WASHINGTON — Finance Minister Alexei Kudrin was served with a lawsuit by U.S.-based shareholders of Yukos while on a brief visit to Washington on Thursday, lawyers for the plaintiffs said Friday.
Kudrin, who was on a trip related to organizing next month’s meeting of Group of Eight finance ministers in Moscow, denied he was served with the papers, despite the delivery summons being officially filed on Saturday with a U.S. District Court. Falsifying the delivery of a court summons is a criminal offense in the United States. 
“God is my witness, I did not see anyone apart from the U.S. officials with whom I was holding a number of working meetings, as well as officials from the [Russian] Embassy, who were escorting me,” Kudrin said, RIA-Novosti reported Friday.
The summons is part of a lawsuit by 12 holders of Yukos’ American Depositary Receipts against the Russian government, four state energy companies and a host of high-ranking government officials. The suit accuses them of securities fraud in the de facto renationalization of Yukos and was filed in the United States in October 2005. 
Russia has said it will focus on energy security during its presidency of the G8 this year.
While in Washington, Kudrin met with representatives of the World Bank and the U.S. Treasury.
The Kremlin currently faces a difficult task to smooth over the political fallout from this month’s gas dispute with Ukraine. While brief, the Jan. 1-3 reduction of gas supplies to Europe through Ukraine alarmed Russia’s G8 partners, prompting some to voice doubts about whether Russia’s leadership is politically mature enough to head the powerful organization.
“That kind of behavior is going to continue to draw comment about the distance between Russia’s behavior on something like this and what would be expected by a leader of the G8,” U.S. Secretary of State Condoleezza Rice said earlier this month.
At a time of record-high prices for oil and gas, coupled with continuing instability in the Middle East, secure energy supplies have been a primary concern for the United States and a number of other leading countries. While Russia is seen as a crucial oil and gas exporter, its recent fallout with Ukraine over gas supplies is unlikely to boost Russia’s reputation as a reliable supplier.
After Washington, Kudrin was due to stop over in Britain and in Davos, Switzerland, where the World Economic Forum’s annual meeting will be held Jan. 25-29. 
Kudrin is the second Russian minister to be served with the Yukos shareholders’ U.S. lawsuit. In late October, Industry and Energy Minister Viktor Khristenko was served with the lawsuit while on an official visit to Washington. Khristenko too at first denied being served with the papers, but some weeks later confirmed that he had received them.
“We had much the same story with Mr. Khristenko. The truth is that Mr. Kudrin was served yesterday outside the Treasury service,” the lawyer representing the plaintiffs, Thomas Johnson Jr. of the Washington-based law firm Covington & Burling, said Friday.
Kudrin was approached by a private process server, David Felter, at approximately 2:11 p.m. Thursday “on Alexander Hamilton Place in Washington, D.C., near the entrance to the southern steps of the U.S. Department of Treasury building,” court documents provided by Covington & Burling said.
“Kudrin was entering the Treasury Department building. Our processor — who does this for a living, we pay him a fee to do this, and if he lies in the paper he files to the court he can go to jail — offered the papers to Mr. Kudrin,” Johnson said, citing Felter’s version of events. 
“Mr. Kudrin did not want to take them. They were dropped at his feet. ... [The server] told [Kudrin] what they were. A member of staff picked up the papers, looked at them and then dropped them back on the pavement. That’s what happened, and it’s a perfectly legal service in the United States,” Johnson said.
The lawsuit states that the 12 plaintiffs, who include former U.S. National Security Adviser Richard Allen, lost a total of $3 million due to the drop in market value of the 115,000 American Depositary Receipts in Yukos they had purchased over a three-year period.
Yukos shares have folded since late 2003, when the state began a legal onslaught against the oil major that included the criminal prosecution of then-CEO Mikhail Khodorkovsky and a number of other company executives.

TITLE: Aeroflot Begins Charging For Alcohol in Economy
AUTHOR: By Yevgenia Ivanova
PUBLISHER: Staff Writer
TEXT: MOSCOW — Aeroflot, Russia’s biggest airline carrier, has stopped supplying free alcohol to its economy class passengers, a company press release reported Monday.
Such a move is designed to allow the development of onboard catering, as well as the freezing of tariffs in a situation of “budget limitations,” which resulted from a sharp increase in the cost of fuel, the press release said.
The decision was taken after research showed that the “majority of economy class customers prefer ticket prices to remain unchanged and food to be improved and more diversified,” the press release reads. 
The opinion of experts is divided on the matter. 
A market insider who wished to remain anonymous said it was surprising to learn of Aeroflot’s move as “many passengers will complain that they are scared of flying and it is virtually a necessity for them to get a drink while flying”. 
“I don’t think they [Aeroflot] will gain substantial benefits from introducing such a measure, but their image will suffer, the Russian mentality, in particular, will resent such an initiative,” said the expert.
Boris Rybak, head of Infomost aerospace consultancy, said that there is a general tendency to alter catering among airlines all over the world.
Operational costs of air carriers have been steadily increasing over the last couple of years for different reasons, but mostly because of a substantial rise in fuel prices,” said Rybak.
A reduction and simplification of onboard catering is one of the general ways of insuring a carrier against increases in the price of fuel, said Rybak.
“On European routes the large national carriers are all trying to cut costs and that includes the cost of food,” said Rybak.
Pulkovo, the St. Petersburg-based carrier,  does not intend to join Aeroflot by economizing on onboard catering.
 “We don’t plan any cutbacks in our food and drink menu. Free alcohol options, including beer, will be offered as before,” Marina Peshekhonova, Pulkovo’s spokeswoman said Monday.

TITLE: ‘Overvalued’ Gazprom Results in RTS Record
AUTHOR: By Yuriy Humber
PUBLISHER: Staff Writer
TEXT: MOSCOW — Record volumes of shares were traded on the Russian Trading System on Friday, as Gazprom stock was available in dollars for the first time in Russia.
By Friday’s close, shares worth over $135 million had changed hands on the dollar-denominated RTS, far exceeding last year’s peak daily trading volume of $44 million. Gazprom stock accounted for almost half of the trade on the RTS on Friday, with the gas giant alone generating $62.1 million in turnover as 7.2 million shares were traded.
“The appearance of Gazprom on the RTS Classic Market is an expansion of trading opportunities for investors,” said Ilya Yefimchuk, head of research at the RTS. The Classic Market is the RTS’s main segment.
Gazprom stock rose to around $8.50 Friday, raising its market capitalization to over $200 billion, making it the world’s seventh-largest company.
The company’s debut on the RTS was felt on the RTS-affiliated St. Petersburg bourse, where trade in Gazprom shares was previously possible. After a huge $912 million peak in turnover in St. Petersburg on Thursday, just $491 million worth of shares were traded on Friday. 
“The main interest in Gazprom still comes from foreign investors, and they prefer to buy in dollars,” said Vsevolod Malev, head of equities and sales at CIT Finance, Russia’s biggest brokerage by trading volume. Selling Gazprom through the RTS has eased a number of operational issues and made it easier to cater to foreign clients. 
“Now, it’s like driving a Bentley instead of a Zhiguli,” said Peter Kizenko, head of trading at Brunswick UBS. 
Gazprom’s debut Friday on the RTS marked the end of a strong first week for Russian stock markets in 2006, with both the RTS and ruble-denominated MICEX enjoying their best New Year’s opening week since 2001.
In its first four sessions, the benchmark RTS Index, which includes Russia’s top 50 companies measured by market capitalization, jumped by 4.1 percent. The index hit an all-time high of 1,255 points Thursday, before falling slightly to 1,239 by the week’s end. 
The MICEX index gained a similar 4.7 percent in its opening week, reaching 1,114 on Friday. 
This past week’s performance came on top of substantial gains last year, when both indexes notched up gains of over 80 percent. “The easing of restrictions on Gazprom share trading has had a phenomenal effect,” Kizenko said. 
The tempo is expected to continue, with Gazprom soon to join the MICEX, which enjoys roughly 20 times the trading volumes of the RTS. Gazprom will list on the MICEX before the end of January, said MICEX vice president Gennady Margolit on Friday. 
“The MICEX will be the bigger push. Everyone’s waiting for that,” said Sergei Orlov, a Gazprom trader with UralSib.
Gazprom shares are expected to be included in the RTS Index from March 15. Gazprom will have a maximum weight of 15 percent, the same as LUKoil and Surgutneftegaz, raising the share of oil and gas companies in the index to 60 percent from 50 percent currently, Yefimchuk said. 
“Technically, we think Gazprom’s share price is now overvalued and are expecting a correction. But we will probably see it rise for the first half of 2006 to top $10 a share,” CIT’s Malev said.

TITLE: Banks Still Lagging Behind West
AUTHOR: By Yekaterina Dranitsyna
PUBLISHER: Staff Writer
TEXT: A new report characterizes the Russian banking sector as ‘dynamic’ but indicates that development is still not up to international standards.
According to “Banks of the CIS” report, released January 10 by the Interfax-TsEA agency, in Russia bank assets and savings increase by 30 percent to 40 percent a year in nominal terms and by 15 percent to 25 percent in real terms. The volume of consumer loans almost doubles every year.
As of mid 2005 77 percent out of 1,600 banks registered in 10 CIS countries were located in Russia. 
Nevertheless the report states that the “Russian banking system is characterized by a high level of fragmentation and considerable concentration of operations.” 
The ten largest Russian banks account for over 53 percent of the national banking system, while on its own Sberbank accounts for over 28 percent. Over 45 percent of the banking system is state-owned. 
At the same time the report indicated that the ratio of banks’ assets to GDP stood at 43 percent. 
“One of the main problems is the insufficient capitalization of the banking sector, the large number of nonviable and ‘pocket’ banks,” the report said.
The president of the Association of Banks in the Northwest, Vladimir Dzhikovich, agreed that despite dynamic growth the Russian banking system suffers from a lack of capital, which means it is unable to rival foreign banks or serve serious corporate clients.
Dzhikovich observed that the current economic environment is positive for the banking system, with those banks that survived a number of difficult periods now operating with stability and good results. However, a high concentration of banking capital is a negative sign — Moscow has accumulated 80 percent of the capital but 
accounts for only 10 percent of GDP, Dzhikovich said.
“Financial resources in the regions are more expensive than at the center and there is no evidence that capital is set to decentralize. The ties between business and the state are too strong and the state tends to concentrate a maximum of financial resources in funds and controlled banks,” he continued.
Oleg Youshenkov, partner at Global Financial Services, Ernst & Young, said that the large number of ‘tiny’ banks often serve only one affiliated corporate client and their inadequate capital “brings instability to the banking sector as the future of those banks is unclear.”
He added that increased competition leads to a decline in interest margins and trading gains that puts additional pressure on smaller banks.
“Only large banks with good risk management will be able to successfully compete under these circumstances. In this way the concentration of majority operations in several large banks, including large state banks, will bring more stability to the banking sector,” Youshenkov said, predicting mergers and a decrease in the number of banks operating in Russia.
“Provided the larger banks have the right sort of shareholder backing, controlled environments, corporate governance and oversight, then I would not view the consolidation of banking operations into a relatively small number of large banks as a threat,” said Richard Gregson, PricewaterhouseCoopers partner, Financial Services.
Igor Yegorov, director of St. Petersburg office of US Russia Center for Entrepreneurship, also defined the concentration of bank assets as a normal process “though excessive concentration has negative effects which are well recognized — slow reaction to change, rather low levels of service and difficulties in management.”
“The banking industry risks becoming an oligopoly and ending up with excessive tariffs and falling quality,” he said.
Yegorov identified other risks to the sector, such as “foreign banks, which conquer our corporate and individual markets with fine-tuned lending technologies, cheaper and wider resources and the reputation of greater reliability,” he said.
Last year the government once again banned opening direct branches of foreign banks in the country. Nevertheless 38 banks with 100 percent foreign capital operated in Russia by mid 2005.
Yegorov said that a decrease in real estate prices could provoke a crisis in the liquidity of those Russian banks that excessively credited construction companies.
Dzhikovich indicated booming consumer lending as a source of risk.
Gregson, for his part, saw risks to the banking sector in under-capitalization, the squeezing of interest margins, concentration of assets into non-core banking assets, concentration on related party operations, exposures relating to aggressive tax planning schemes, lack of transparency and corporate governance.
“There is still significant scope to develop retail banking cultures in many of the banks that profess to provide retail operations. The range of banking products on offer is still some way behind what is offered in other banking markets,” Gregson added.

TITLE: Turkmens May Seek New Deal
AUTHOR: By Catherine Belton
PUBLISHER: Staff Writer
TEXT: MOSCOW — Even as Gazprom CEO Alexei Miller was meeting Germany’s economy minister on Friday to reassure him of reliable gas supplies to Europe, signs were growing that the company’s controversial deal with Ukraine could unravel. Turkmenistan, the supplier of most of Ukraine’s gas imports under the deal, appeared to be indicating Friday that it wanted better terms.
A spokesman for the Turkmen Embassy in Moscow denied a report in Friday’s Vedomosti that Turkmen President Sapurmurat Niyazov wanted to raise its sales price to Gazprom from $65 to $85 per 1,000 cubic meters — a hike that could scupper Russia’s deal with Ukraine. But the spokesman, who spoke on condition of anonymity, confirmed that Niyazov wanted to discuss how his country could take a greater share from the profits on selling its gas to Europe, where prices reach as high as $280. 
Niyazov and President Vladimir Putin will discuss this when they meet Jan. 22-23, the spokesman said. Officials at state-owned Turkmenneftegaz and the country’s oil and gas ministry refused to comment Friday. 
In apparent recognition of Turkmenistan’s increasingly important role in European gas supplies, a U.S. State Department official was in Ashgabat on Friday for talks with Niyazov. “We also discussed the important role that Turkmenistan can play in strengthening energy security, having entered the commercial competition on the European energy market,” Deputy Assistant Secretary of State Matthew Bryza said during his visit, Interfax reported.
Gazprom’s spokesman Sergei Kupriyanov said Friday that it had yet to agree exact terms with the two other Central Asian suppliers, Kazakhstan and Uzbekistan, but expected to do so “in a matter of days.” Gazprom has received no indication from Turkmenistan that it wanted new terms, he said. 
A separate deal with Turkmenistan, under which Gazprom bought up extra Turkmen gas in the first quarter of this year, essentially prevented Ukraine getting other supplies from Turkmenistan — and gave Russia the upper hand in its price fight with Ukraine.

TITLE: Local Linguist Conquers World of International Finance
AUTHOR: By Yelena Andreyeva
PUBLISHER: Special to The St. Petersburg Times
TEXT: Meeting with Russian native German Aliev, everything suggests a top manager on the international stage — the holder of British and Canadian citizenships and with a background dominated by extensive work and study in the West, Aliev gives the impression of being a real renaissance man. 
However, having worked for eleven years abroad, in 2003, Aliev came back to Russia where he was appointed deputy CEO at Rosbank, taking charge of investment banking and strategy.
Born in Leningrad in 1970, he soon moved with his family to Moscow, where his father Rafik Aliev, Ph.D in History, was appointed as President Mikhail Gorbachev’s adviser on Japan’s foreign policy issues. Although as a child Aliev dreamed of becoming an aviator, he joined about eighteen other hobby groups, among which were several foreign language classes,
“I started learning Japanese when I was 10 years old. And it was three years later when I already assisted my father in proof reading his research articles in Japanese,” he said. 
Having always lived at a fast pace, in 1985 Aliev skipped two grades and graduated from secondary school. At the age of fifteen he entered the Institute of Asian and African Studies at Moscow State University where he studied the Japanese language and economics as a major. Three years later he left for Japan to study economics and oriental studies at Tokai University under the auspices of a cultural exchange programme between the Soviet Union and Japan. It was on his flight from Tokyo to Moscow that he met his first wife. 
“Twenty eight days afterwards we got married and I moved to Canada where she lived,” he said.
Settling in a new country Aliev at first struggled to find success, even working for a time as a vacuum cleaner salesman. 
“However, besides all the obstacles, I wanted to prove to myself that I could overcome difficulties and earn lots of cash.” 
Two years later, having acquired a Bachelor of Science degree at the University of Arizona, Aliev was recruited by the Finance Department of Gulf Oil (Canada) Ltd, where he worked as an associate from 1992 through 1995. 
It was while in New York visiting an old school friend who then worked on Wall Street that he realized what he really wanted to do. 
“He had a really cool job but I understood that I could hardly get the same without an MBA degree and relevant work experience,” he said. 
Then Aliev moved to Moscow where he got a position of a Fixed Income Sales Associate at Renaissance Capital. Within a year Aliev joined Merrill Lynch in London as a director of global equity derivatives. In order to improve his professional skills, he graduated from the London Business School with a Masters in Finance, then moved on to become a director of equity capital markets, taking charge of Merrill’s equity-linked capital markets activities in the emerging regions of South Africa, Israel, Eastern Europe and Russia. 
“This offer was hard to refuse – it paid ten times more than Renaissance. And at that time I was one of the first managing directors to come from the CIS,” he said.
Wishing to focus more on Western European countries, Aliev moved to Dresdner Kleinwort Wasserstein to work as a director of equity capital markets from March 2001 through April 2003. It was then that he met with Mikhail Prokhorov, General Director of MMC Norilsk Nickel, and Vladimir Potanin, Chairman of the Interros holding company and co-owner of Norilsk Nickel. 
“It was in Courchevel (a ski resort in the French Alps) where I go to ski every winter that, in 2003, I got an introduction to Rosbank and then subsequently an offer of employment,” Aliev said.
By now, having looked over his career and compared the business environment in Russia to abroad, Aliev said that, “in Russia at present business opportunities in investment banking are second to none, especially for specialists who have the strength to speak the local language.” 
“The Western market is a priori more mature with incredibly sophisticated financial products, while the main problem in Russia is that growth is so fast that people are diverted from improving products,” he said. 
“In general, people abroad work better. In Russia workers will often take a day off even if they feel only a little bad. During nine years in London, neither I nor any of my colleagues ever took a day off due to illness.”
According to Aliev, the high oil prices have in one way or another caused an unprecedented but delusive growth in prosperity for ordinary Russians, though the upper class is getting rich much faster than the others. A lack of strong social management, corruption, social segmentation, along with the threat of a fall in oil prices – all these could lead Russia to a situation of civil unrest.
Among the people who can help prevent such consequences are successful businessmen who, according to Aliev, should be purposeful, have business acumen, a real thirst for knowledge, much worldliness and not be afraid to take risks. 
“Nothing is ever guaranteed in business. The higher the risk, the higher the reward but you usually can’t win it all — you win some, you lose some. The main point is that the risks should be calculated,” he said. 
For Aliev, Rafael Berber, managing director at Merrill Lynch, and Boris Jordan, an investment banker who founded Renaissance Capital, are among the people who have played a significant role in his business development. They have served as examples of entrepreneurs “who are always eager to open new horizons and achieve the ambitious goals they set.”
Aliev said that an MBA degree is a must for specialists working in banking and successful broker companies, though according to him there are only twenty business schools worth going to in the world and not one of them is in Russia. 
“I would not advise anyone to get an MBA degree in Russia,” he said.
Despite the exceptionally good conditions in Russia for people involved in investment banking, Aliev said he will not stay in Moscow for longer than three years, wanting instead to return to his “home city,” London. Meanwhile, besides spending time with his family and adding to his exclusive collection of wines, Aliev enjoys going to Oxford where his childhood dream may come true and he can take it easy flying his very own airplane “Piper.”

TITLE: Kremlin Cooks Up Its Own Gas War
AUTHOR: By Anders Aslund
TEXT: In the bad old days of the 1990s, a handful of Russian and Ukrainian gas oligarchs regularly whipped up national sentiment about the misbehavior of the other nation. The Russians complained about the Ukrainians not paying for the gas, and the Ukrainians lamented the outrageous prices charged by the Russians. In fact, these gas oligarchs in brotherly fashion shared a few billion dollars each year.
In 2000 and 2001, both Ukraine and Russia undertook substantial reforms to limit this leakage of excess profits to gas oligarchs. However, for the transit through Russia of Turkmen gas to Ukraine, trading companies were established, first Eural Tran Gas, and from summer 2004 Rosukrenergo. The core group behind these two companies appears to have been the same. Rosukrenergo was perceived as a joint venture between the Kremlin and the then management of Naftogaz Ukrainy.
After the Orange Revolution, both Russia and Ukraine started making noises about the gas trade between their countries. As market prices rose, Russia demanded higher gas prices, and Ukraine called for cleaner trade relations. Both demands made sense, and certain moves have been made in that direction. Internationally, the political aspects have come to dominate, but the Kremlinological ingredients are even more intriguing.
The official presentation of the Russian-Ukrainian gas agreement that was concluded on Jan. 4 stands in sharp contrast to the actual agreement as it was published on Jan. 6 by Yulia Tymoshenko. The published treaty is hardly the whole truth, but its salient features are interesting.
This is not a five-year agreement but a half-year agreement. The key paragraph says that in 2006 Rosukrenergo will sell gas to Ukraine at the price of $95 per 1,000 cubic meters during the first half of 2006. For the second half of 2006, the gas price is not regulated. The agreement only specifies the sale of 34 billion cubic meters to Ukraine in 2006, while Ukraine will need some 21 bcm more (a total gas need of 75 bcm of which 20 bcm is domestically produced). Naftohaz and Prime Minister Yuriy Yekhanurov have stated that Ukraine will buy the rest from Turkmenistan for $50 per mcm during the first half and $60 per mcm during the second half. The transit fee of this gas through Russia might remain an open issue. This means that Ukraine will benefit from far lower prices than any country but Belarus for half a year, and then the negotiations will start anew.
No other binding price specification for gas is given. The only statement is that Rosukrenergo will buy up to 17 bcm of Russian gas at the price $230 per 1,000 cubic meters and export (to the West) 15 bcm. Thus, it appears as if the Russian gas is to be exported by Rosukrenergo to the West and that Ukraine will hardly import any Russian gas, only Central Asian gas. Gazprom has been deprived of the Ukrainian market, and it has also lost some of the European market.
The real key feature of this trilateral agreement between Gazprom, Rosukrenergo and Naftogaz Ukrainy is that Gazprom’s export arm Gazexport is giving up lots of commercial interest to Rosukrenergo. Gazexport is to provide Rosukrenergo this year with: 41 bcm of Turkmen gas, up to 7 bcm of Uzbek gas and up to 8 bcm of Kazakh gas; that is a total of 56 bcm. Turkmenistan produces enough gas to supply Ukraine with an additional 20 bcm or so. Rosukrenergo shall be the sole seller of Gazprom-owned gas to Ukraine, but no Russian monopoly of sales of Central Asian gas to Ukraine is declared.
Oddly, the transit fee through Ukraine is fixed in dollar terms till the end of 2010, which is the only long-term commitment. Gazprom’s CEO Alexei Miller has made clear that it will be paid in cash, which means the abolition of shady barter deals. Importantly, Russia has not gained any control over the Ukrainian pipeline system, which was a major Russian objective.
The conclusions of this reading are rather curious. Very little has been resolved, only the price of 60 percent of Ukraine’s gas import during the first half of 2006 and the transit fee through Ukraine. The main substance of the agreement is that relatively transparent and decent Gazprom has given up substantial commercial interests to the shady intermediary Rosukrenergo. 
But who stands behind Rosukrenergo? Tymoshenko, who might know, claims that Rosukrenergo has been taken over entirely by Russian interests, which would make sense. Why should Kuchma’s old hands be allowed to enjoy these gains? In hindsight, the main fight appears to have been between Gazprom’s public management and Rosukrenergo’s unknown owners. According to plausible rumors, Rosukrenergo is controlled by the Igor Sechin circle in the Kremlin, which thus won over its persistent competitors in the Putin circle, Dmitri Medvedev and Alexei Miller.  
Ukraine rather appears an onlooker, and it has been given gas for half a year at a better price than anybody but Belarus for minimal concessions – the fixed transit fee for five years. 
Tymoshenko is claiming that this agreement is criminal because it replaces the agreement of summer 2004, which set the price of Ukrainian purchase of gas at $50 per 1,000 cubic meters and tied it to the transit tariff. Formally, she has a good point, but it is difficult to believe that such an absurdly beneficial agreement for Ukraine would be honored, even if it is supposed to be subject to international arbitration in Stockholm.
The ouster of the Ukrainian government does not mean that the agreement was bad for Ukraine but that a group of party factions in Ukraine has found it a good excuse to oust the government, and thus weaken it, before the elections. One of the most important outcomes of this vote might be that Tymoshenko managed to line up with Viktor Yanukovich, Viktor Medvedchuk and the Communists. A change of political alliances in Ukraine might be under way.

Anders Aslund is a Senior Fellow at the Institute for International Economics.

TITLE: New Legislation Could Let Russian Fleet Return Home
AUTHOR: By Valerie Mikhai
TEXT: It has already become a Russian tradition that new laws are introduced just before New Year’s Eve. Last year was no exception to the rule and we received as a gift a federal law on the Amendments and Additions to certain legislative acts relating to the creation of the Russian International Ship Register published on the 23rd of December 2005 and coming into force from the date of its official publication (for the changes to the Sea Navigation Code) or one month after this date (for the changes to the Tax Code and the law on customs tariffs). With this move, an important stage in the creation of the Russian International Ship Register, which has been under way for almost 6 years, has been reached.
The introduction of the bill is quite important. The Explanatory note to the Law which summarizes the expert analysis over the last 10 years provides that the merchant navy under the Russian flag has been declining dramatically (from an overall deadweight of 9.5 million tons in 1994 to 2.6 million in 2004), foreign currency earnings from international sea shipping are also falling, leading to a subsequent reduction of taxes allocated to different budgets and in work places for crew and supporting staff onshore. 
Despite the fact that the Russian Government is adhering to a policy aimed at tax reduction, one of the reasons for the crisis amongst Russian shipping companies is the high portion of tax (including customs duties, customs fees, etc.) included in prices for shipping operations conducted by ships registered under the Russian flag. For example, domestic shipping companies wishing to register in Russia ships purchased abroad must pay customs duties and VAT which may reach 24.5percent of the ship’s price. This situation does not allow Russian ships to compete on equal terms with foreign shipping companies on the world freight market. Russian owners have been forced by circumstances to sail their ships under “flags of convenience” (such as Cyprus, Liberia, Malta, etc.). Expert analysis referred to above shows that out of the 211 ships which were built for Russian ship-owners over the last 12 years only 20 operate under the Russian flag. 
When contemplating shipbuilding financing, Russian ship owners face one more problem. Due to the weakness and still relatively undeveloped Russian banking system, domestic banks prefer granting loans only for short periods and at high rates of interest. At the same time foreign banks may provide loans on much more advantageous terms but require the registration of ships on international registers. Bringing Russian ships back to Russia on a new basis will facilitate the use of foreign bank loans for shipbuilding and, consequently, may generate work for domestic shipyards.
Another issue is that currently thousands of Russian sailors are working on ships under a foreign flag and remain legally insecure, as was witnessed earlier this last year in the case of Russian sailors in Nigeria. If ships under Russian ownership return to sailing under the Russian flag, issues of this kind may be avoided as Russian sailors will remain under Russian jurisdiction.
There is no doubt that government support is required if a favorable investment climate in shipping is to be created and if ships are to return to sailing under the Russian flag.  Due to the shortage of budgetary funds, the Government has decided to stimulate the renewal of the Russian fleet using indirect methods, one of which is the creation of the International Ship Register. 
The newly created Russian International Ship Register, providing a certain amount of preferential status to the ships included on it, aims to significantly change the current situation and to resolve the issue.
Despite the apparent complexity of the law, it represents amendments and additions to just three legislative acts: the Sea Navigation Code, the Tax Code and the law on customs tariffs.
In accordance with the law, the ships registered in the Russian International Ship Register should be those used for international transportation of freight, passengers and their luggage, and also for the provision of other related services. Ships hired for use in international transportation should be also included in the register.  Thus the fundamental principle of the register (and this is similar to international registers created by other seafaring nations) is the imposition of a ban on the transportation of freight (passengers, luggage) between national ports.   
Registration of ships on the Russian International Ship Register should be carried out by the captains of commercial seaports, a list of which will be confirmed by the Government of the Russian Federation. A ship may be registered on the Russian International Ship Register for a specified period of time with the right of consequent prolongation of terms or may be registered for an unspecified period.  Registration is subject to annual confirmation.
The law allows ships registered on the Russian International Ship Register to be insured either by a Russian or foreign insurer depending on the ship owner’s preference.
Apart from the general provisions described above, the law establishes a special tax regime with regard to ships included on the Russian International Ship Register. Several amendments have been brought into various Chapters of the Tax Code, which release owners of ships included in the register from their liability to pay profit tax, transport and property taxes. All these taxes are replaced by state duties which should be paid at initial registration and upon further annual confirmation and are dependent on the gross tonnage of the vessel.  
But the main incentive for owners of ships currently registered under foreign flags will be the abolition of customs duties and VAT on imports of ships to Russia and also of VAT on the building of new ships. The law provides that ships imported to Russia and which are to be registered in the Russian International Ship Register, are exempt from VAT and customs duties. For newly built ships, which are intended to be registered in the Russian International Ship Register, a zero VAT rate will be applied provided that the set of documents established by the Tax Code is submitted to the Tax authorities. The application of a zero VAT rate will allow Russian shipyards to offset input VAT and will not lead to an increase in the ship price. However, it should be noted that if a ship is excluded from the Register within 10 years of its registration (except for its exclusion due to wreck, disappearance, etc.) then VAT should be restored to the budget.   
However, the ship owner is still liable for unified social tax and personal income tax on the salary paid to the crew. 
According to experts, the law creates favorable economic conditions for the renewal of the Russian fleet and for the development of the shipbuilding industry as a whole. Its adoption, according to the Explanatory note to the Law, will allow the fleet under the Russian flag to increase by 750 ships with a total deadweight of 17 million tons, and approximately 184 million tons (2.3 billion of freight charges) of Russian foreign trade goods will be additionally transported by ships sailing under the Russian flag. 

Valerie Mikhai is Tax Manager at Deloitte, St. Petersburg.

TITLE: Merkel Is Here to Talk Business
AUTHOR: By Alexander Rahr
TEXT: German Chancellor Angela Merkel has a two-pronged strategy to put Germany back in the game: rebuild relations with the United States and restore consensus within the European Union. 
As she sees it, Gerhard SchrÚder removed Germany from the trans-Atlantic context by opposing the United States over Iraq. By going over the heads of the new EU member states to form an alliance with Russia, he split the EU.
Merkel will reject an axis with France as long as Jacques Chirac, whom she sees as too anti-American, is in power, and she will seek to make Germany a partner of the United States equal to Britain. Such a return to the trans-Atlantic playing field, she believes, would strengthen Germany’s position as a leading member of the EU. 
The United States has already built strategic ties with the new EU members (over the head of the old members, who opposed the Iraq war), and it may be too late for Germany to reclaim its previous role at the side of the United States. New EU members don’t necessarily want a strong Germany back; they are focused on the United States. In some cases, the strategic focus is more on Washington than on Brussels. For example, the United States and new EU members support GUAM, the alliance formed by Georgia, Ukraine, Azerbaijan and Moldova. For old EU members, the alliance is too anti-Russian.
If Merkel wants consensus in the European Union, she will have to take into account some of Eastern Europe’s more critical views on Russia. New EU members often push for containment of Russia, a policy rejected by old members, who are for engagement. The old EU members have been receiving Russian debt repayments in large sums recently. They will soon get natural gas directly through the North European gas pipeline being built under the Baltic Sea, which will make Germany the chief distributor of Russian gas in Europe. Given old Europe’s well-established partnership ties with Russia, Merkel will find it difficult to take up the new members’ positions on Russia. 
So what does Merkel have to offer President Vladimir Putin when she meets him on Monday? She cannot push the energy alliance the way SchrÚder did. She has promised to give greater weight to Eastern Europe’s views when dealing with Russia. Why did she go?
She was pushed by the business interests of German economic circles, just as SchrÚder was pushed in the beginning when he was reluctant to cooperate with Boris Yeltsin’s corrupt Russia.
And a new theme has unexpectedly appeared: Iran. Merkel, who discussed Iran’s nuclear program with U.S. President George W. Bush on Friday, may try to bring Russia back into the Western fold on this issue. With Russia on board, U.S. and German pressure on Iran would be taken more seriously. For Russia, it is a chance to win strategic recognition in the West again. Russia was part of the anti-terror alliance with the United States during the Afghanistan campaign, but dropped out, together with SchrÚder’s Germany, when attention turned to Iraq. Merkel might have diplomatic success in reviving this alliance. 
But Merkel would have to offer Russia something in return. During the Iraq crisis, the United States made the crucial mistake of demanding solidarity from Russia without offering anything in return. Russia hoped to be engaged in the oil business in Iraq after Saddam Hussein’s fall. Washington made no promises.
Germany, meanwhile, seems ready to return to nuclear energy. The Green Party is out, and society feels that nuclear energy may be safer than being dependent on foreign gas. This offers oppportunities for cooperation between Germany and Russia in Europe. Russia supports Iran’s nuclear program not because it wants to harm the West but because it wants to keep the market. Germany could open the EU nuclear energy market to cooperation with Russia. 
Merkel may get Putin’s agreement to put Iran’s nuclear program — as the European Union and the United States would like — on the agenda of the UN Security Council. In any case, German business circles will applaud her trip.

Alexander Rahr is program director at the German Council on Foreign Relations and the author of a biography of Vladimir Putin.

TITLE: Investment in Development Drops
AUTHOR: By Vladimir Gryaznevich
TEXT: An analysis of the budgets for the North-West regions in 2006 reveals that the local authorities are investing less in the development of their regions than last year. What’s happening?
The opportunities that the regions have to invest in their economies have been drastically reduced in recent years. This is a result of the fact that the budget and financing policies of the federal government are almost Soviet nowadays — the vast bulk of the taxes gathered up by the regions are seized by the federal center, and each layer of authority as you go down the pecking has progressively less money and independence.
This policy has been described by the governor of the Pskov Oblast, Mikhail Kuznetsov, thus: “The structure of the allocation of revenues at the various budget levels is, at present, organized in such a way that development can be carried out at a rate of 90 percent on the federal level, 9 percent at the level of a subject of the federation, and 1 percent on the level of municipalities. That proportionality roughly reflects the distribution of the resources.” In those conditions, in the opinion of Kuznetsov, federation subjects are only able to support what’s already there and small, one-off development projects. That means that troubled regions don’t even have a chance to get off their knees, and the majority of them need all their resources to take care of their day-to-day needs. Any thought of development is out of the question.
In the opinion of many regional governors, the federal government should now get involved in the development of the regions. “The Federation is responsible for the development of its territories, whereas the oblast administration is responsible for day-to-day management. I think that’s normal,” maintains Kuznetsov. In theory, the federal government should create opportunities for the regions to develop through subsidization from the federal budget “for the leveling off of budget provision.” In reality, however, those subsidies are miserly. 
Thus, for example, through the federal “Housing” program, in its “Reformation and modernization of communal infrastructure” section, which covers boilers, piping, plumbing and the like, 3 billion rubles ($106 million) have been allocated for the whole of Russia in 2006. That comes in spite of the fact that in St. Petersburg alone 1.5 billion rubles are needed for these goals (as set out in the city’s budget). On top of that, another 2 billion rubles are needed to get plots of land ready for industrial use, and the federal budget doesn’t cover this at all. In many regions, there isn’t even enough money to maintain what we’ve already got, with funds being insufficient to cover natural wear and tear. 
The situation is further complicated by the fact that the federal government appears to have decided to achieve its goal of doubling gross domestic product exclusively through the export of oil and gas, and the emphasis for budget policy has been placed on the social sphere (as can be seen in the “national projects” and in the federal budget for 2006). The governors will have to answer for the failure of this policy to the Kremlin (the Kremlin selects them), but no one will be able to pin the governors down on or question them over the state of their own economies — the development of roads, engineering infrastructure, communications, the investment climate, productivity growth and so on. As a result, the infrastructure of the regions is neglected, almost spurned, and although its modernization is needed to guarantee economic development, it is getting progressively worse and falling ever further out of date. 
St. Petersburg is the only region in the north-west where the infrastructure is developing at a more or less acceptable pace. An increase in investment is a clear target of the city’s budget. Targeted investment programs in the 2006 account for 30 billion rubles (or 18 percent of the budget’s entire expenditure). It’s up 32 percent in comparison with the 2005 budget, although the expenditure section of the budget is only up 19 percent in total. But, as Vladimir Blank, the chairman of the Economics Committee admits, it’s still too little: “The development budget we have is still insufficient, and we have to aim for a situation where a minimum of a third of the budget is spent on development.” 
Against this background, the situation in the other regions of the North-West, particularly those that are subsidized by the federal center, is catastrophic. Without serious financial aid from the federal budget, the underlying problems can’t be solved. But as the Russian government doesn’t seem to be overly interested in these problems, the threat of a major infrastructure crisis, very possibly in the housing sector, is becoming increasingly likely.

Vladimir Gryaznevich is a political analyst with Expert Severo-Zapad magazine. His comment was first broadcast on Ekho Moskvy in St. Petersburg on Friday.

TITLE: A Democracy From Dickens
AUTHOR: By Alexei Bayer
TEXT: In retrospect, it is mind-boggling how much manpower, money and energy was spent in the Soviet Union on censoring the media and silencing internal critics. Everyone who tried to provide alternative information was relentlessly hounded. 
But since the collapse of the Soviet Union, tales of corruption, incompetence and crime in high places have been ubiquitous. While television channels have been reined in by President Vladimir Putin’s government, many newspapers and web sites have not been deterred in their investigative zeal and regularly castigate officials at all levels.
Take Alexander Ivanov, the son of the defense minister, who struck and killed a pedestrian in a crosswalk. Irregularities in the ensuing police investigation, designed to get the younger Ivanov off the hook, have been amply documented in the Russian media. 
Misdeeds by government officials and their progeny were routinely hushed up in Soviet times, and crimes against individuals and property were committed by the Bolshevik regime from the day it came to power. But no sane editor would have allowed such to be mentioned in the official media.
Did the Soviet government overdo its concern with its public image? Could it not have let dissidents write all kinds of damning articles, while Leonid Brezhnev or Yury Andropov blithely governed the country just as their successors do now?
Actually no. The Soviet Union may have been a repressive Evil Empire, but its legitimacy still rested on a form of social contract between the government and its citizens. The Party ruled because it provided equality, social justice and happiness, at least on paper. Casting doubt on this or revealing cracks in the official facade was more than a question of freedom of speech; it constituted a direct threat to the social contract and therefore had to be mercilessly stamped out. 
Post-Soviet Russia is a democracy, meaning that its legitimacy is theoretically derived from the will of the people expressed in free and fair elections. However, unlike a monarchy, where the divine right of kings is postulated once and for all, true democracy is based on a network of elected bodies through which popular will is constantly expressed and adjusted, creating a set of checks and balances.
Russia’s democracy, on the other hand, recalls the scene in Charles Dickens’ novel “Nicholas Nickleby” when a deputation of disgruntled constituents visits their member of parliament, Gregsbury, and demands his resignation. Gregsbury coolly sends them packing, not even deigning to respond to their accusations. Russia wants to have a kind of democracy in which a vote for president becomes a carte blanche for his entire term. The president then rules like a monarch, undermining civil society and dismantling democratic institutions as he wishes. Like Dickens’ Gregsbury, the government feels it can ignore damaging revelations about its policies and allegations of corruption among its high officials.
The problem with this hybrid monarchical democracy is that its legitimacy is weak. Putin’s power vertical can be only as strong as its underlying social contract. Right now, it resembles nothing so much as a wooden pole driven deep into shifting sands.

Alexei Bayer, a former Muscovite, is a New York-based economist.

TITLE: Halonen Faces Runoff Election
PUBLISHER: The Associated Press
TEXT: HELSINKI — Finland’s left-leaning president — the Nordic country’s first female head of state — failed to win enough votes to secure re-election Sunday, forcing a runoff against a conservative challenger. 
President Tarja Halonen won 46 percent, according to final results, well ahead of her main challenger but short of the 50 percent needed to avoid a runoff in the country that prides itself on egalitarian values and was the first in Europe to give women the vote a century ago.
“It’s a pity ... but it’s no use to complain,” said Halonen, who is seeking a second six-year term. 
The second-place finisher, Sauli Niinisto, won 24 percent of the vote.
Halonen, a former trade union lawyer, was elected president in 2000. She was a Social Democratic lawmaker for more than two decades and served as foreign minister for five years.
She bears a resemblance to the redheaded U.S. late-night talk show host Conan O’Brien, who has been promoting her re-election bid on his show as part of a running joke about their supposed physical similarities.
In one show, O’Brien presented a mock ad for Halonen in which he and two Finns discussed the election while ice fishing. When they talk about Prime Minister Matti Vanhanen, a rival candidate who finished third Sunday with just under 19 percent, a dead fish shoots out of the hole in the ice, prompting a joke about how the mention of his name makes fish commit suicide.
“Fish recognize a bad leader,” O’Brien says in broken Finnish, to laughter from his studio crowd.
The other five candidates representing small parties each had less than 4 percent of the vote Sunday. The Finnish head of state has few powers and is not involved in daily politics. There was wide agreement in the campaign on foreign policy, the main domain of the president, whose powers are limited to working in close cooperation with the prime minister and government.
Both Halonen and Niinisto said they approved of Finland’s 1995 membership of the EU, its good ties with Russia and close cooperation with NATO.

TITLE: Sharon’s Eyes Move As Political Life Goes On
AUTHOR: By Jeffrey Heller
PUBLISHER: Reuters
TEXT: JERUSALEM — Israeli Prime Minister Ariel Sharon opened his eyes twice on Monday after family members played a tape of his grandson’s voice, aides said, raising hopes the 77-year-old stroke victim may be emerging from a coma. 
But a spokeswoman for Hadassah hospital, where Sharon has been treated since suffering a brain hemorrhage on Jan. 4, said relatives had observed “eyelid movements” whose medical significance was unclear.
“[Sharon’s son] Gilad brought in a cassette with the voice of Rotem, his eldest grandson, speaking to him, and he opened his eyes twice, each time for two or three minutes,” one aide said.
“They believe it was so short because he is still fuzzy from anesthesia yesterday,” the aide said, referring to the tracheotomy, the insertion of a tube into Sharon’s windpipe to help him breathe, that surgeons performed on Sunday.
“But the doctors didn’t see it, so it is hard to determine whether it is serious or whether they are just getting their hopes up.”
Doctors have been unsuccessful so far in rousing Sharon since reducing, and then on Saturday stopping, sedatives used to induce a coma aimed at stopping his brain from swelling.
In another sign Israel is moving quickly to fill the political vacuum left by Sharon, his new Kadima party named interim Prime Minister Ehud Olmert as acting chairman to lead it into a March 28 general election.
Olmert, 60, has stepped firmly into the former general’s shoes as the old soldier fades away from the political scene he had dominated as prime minister since 2001.
At a meeting of the faction, Olmert announced replacements from within the centrist party for cabinet ministers from the right-wing Likud who quit over the weekend in the run-up to the national ballot.
In the most high-profile appointment, Justice Minister Tzipi Livni, widely seen in Israel as a rising star, will become foreign minister pending cabinet approval later in the week. She replaces Silvan Shalom of the Likud.

TITLE: Mongolians Call For Reform
PUBLISHER: The Associated Press
TEXT: ULAN BATOR, Mongolia — About 2,000 people gathered in the main square of Mongolia’s capital on Monday, demanding their president resign. 
The Mongolian United Movement, an alliance of three civic movements that have been calling for political reform in this vast nation, organized the protest.
“Dawn has broken in Mongolia. We are getting poorer everyday and corrupt officials are getting richer. Now is the time to take action,” a leaflet distributed by the rally organizers said.
The crowd cheered when protest leaders called for the resignation of President Nambaryn Enkhbayar, calling him “the father of corruption.”
The country has been thrown into political turmoil since the Mongolian People’s Revolutionary Party, the largest political party, withdrew from the ruling coalition last week.
The MPRP pulled out because it said the administration of Prime Minister Tsakhilganiin Elbegdorj, a former pro-democracy activist, failed to do enough to fight corruption and worsening poverty.

TITLE: Chile Elects First Female President
PUBLISHER: Reuters
TEXT: SANTIAGO, Chile — Socialist Michelle Bachelet, a separated mother and former political exile, won elections on Sunday to become the first female president in socially conservative Chile with a victory that underscores the left’s growing hold on Latin America. 
With almost all votes counted, Bachelet, from Chile’s ruling center-left coalition, had 53 percent versus 47 percent for opposition candidate Sebastian Pinera, the government Electoral Service said.
“Who would have thought 20, 10, five years ago, that Chile would elect a woman president? ... Thank you for inviting me to lead this voyage,” Bachelet told thousands of jubilant supporters outside her electoral headquarters in downtown Santiago.
Pinera, one of Chile’s wealthiest men and a moderate conservative who led a rightist alliance that has been in the opposition for 16 years, congratulated Bachelet in a concession speech.
Bachelet, 54, a medical doctor who was imprisoned and tortured during the 1973-1990 Augusto Pinochet dictatorship before living in exile in the former East Germany and Australia, will be the fourth consecutive president from the center-left alliance that has run Chile since 1990.
The former defense minister is only the second woman elected to head a South American nation, and the first who is not the widow of a former president. She is set to be sworn in on March 11.
Bachelet, an agnostic with three children from two relationships, benefited from a shift to secular values in Chile.

TITLE: IN BRIEF
TEXT: Sirleaf Sworn In
MONROVIA, Liberia (AP) — Ellen Johnson Sirleaf was sworn in Monday as war-battered Liberia’s new president, carving her name into history as Africa’s first elected female head of state. 
Wearing an African headdress, Sirleaf took the oath of office in a ceremony attended by thousands of Liberians and scores of foreign dignitaries, including U.S. First Lady Laura Bush and Secretary of State Condoleezza Rice.
Sirleaf takes charge of a nation struggling for peace after a quarter century of coups and war. She has promised to unite Liberia and secure the trust of skeptical foreign donors whose aid is desperately needed to rebuild the nation.

Doherty Does it Again
LONDON (AFP) — Notorious rock star Pete Doherty, famed for his on-off affair with supermodel Kate Moss, has been arrested for drugs possession, less than a week after he appeared in court over similar offences. 
The 26-year-old Babyshambles front man was detained while driving through Hackney, east London, early on Saturday on suspicion of possessing banned drugs, the Metropolitan Police said Monday.
Police had in fact been trying to flag down another car behind him, but Doherty also stopped and “behaved in a manner that caught officers’ attention”, leading to his arrest.
He was released on bail until Feb. 2 pending analysis of the seized substances, a police spokeswoman said.

Snowfall Kills Boy
TOKYO (AP) — A 6-year-old boy was killed and another child seriously injured after being hit by snow that fell from the roof of their kindergarten in northeastern Japan, police said Monday, as reports put the death toll from extreme weather at 100. 
The boy died in hospital late Monday after about 20 inches of snow slid off the roof of the 2-story public kindergarten in Fukui prefecture without warning, striking him and two other playmates, said local police official Tetsuya Yamauchi.
A 5-year-old boy was seriously injured, while another child suffered a minor shoulder injury, said Yamauchi.

Emir of Kuwait Dies
KUWAIT CITY — Sheik Jaber Al Ahmed Al Sabah, the emir of Kuwait and one of the United States’ closest Mideast allies, was buried in an unmarked grave Sunday in a ceremony attended by thousands of weeping citizens who mourned the death of an admired ruler. 
The crown prince, Sheik Saad Al Abdullah Al Sabah — in his mid-70s and ailing himself — assumed the throne. But he was expected to leave control of day-to-day government affairs to the veteran prime minister, and no major policy shifts were expected.
Sheik Jaber, who was restored to power by American forces after Saddam Hussein invaded the tiny, oil-rich country in 1990, was 79 when he died after 27 years in power. 

Tipsy Ref Sent Off
STOCKHOLM (Reuters) — An assistant referee was sent off from a Swedish third division ice hockey game over the weekend after the players began to suspect he was drunk. 
During the contest between Sveg IK and Halsingegardens AIK one of the two assistant referees started behaving increasingly erratically and, smelling alcohol on his breath, the players became suspicious.
“The longer the match went on, the more he started to fall over and hold on to the boards, dropping his whistle and making contradictory signals,” Sveg trainer Hakan Nilsson told Reuters on Monday.
“Some of the signs don’t even exist in hockey. They looked more like he was doing the doggy paddle.”

Saddam Judge Resigns
BAGHDAD (Reuters) — The chief judge in the trial of Saddam Hussein is standing by his resignation and efforts by Iraqi officials to dissuade him were not expected to reach a conclusion on Monday, a spokesman for the court said. 
“It won’t be settled today,” said the spokesman, who in keeping with tribunal practice, declined to give his name.
He also declined to name the senior High Tribunal judge who was dispatched to Judge Rizgar Amin’s Kurdish home city of Sulaimaniya to negotiate with him after the Iraqi government in cabinet rejected the resignation he submitted last week.

TITLE: Dementyeva Among Seeds Ousted in Oz
AUTHOR: By Julian Linden
PUBLISHER: Reuters
TEXT: MELBOURNE — Venus Williams tumbled out of the Australian Open first round on Monday, a shock victim of little-known Bulgarian Tszvetana Pironkova. 
The 18-year-old from Provdiv stunned Wimbledon champion Williams 2-6 6-0 9-7, condemning her to her earliest grand slam exit since being bundled out of the 2001 French Open in the opening round. 
“I just couldn’t pull my game together. I don’t know what happened,” a dejected Williams said at a news conference. 
“I was in good form but I just somehow fell off.” 
Tenth seed Williams was one of five seeded women to lose on an action-packed opening day at Melbourne Park. 
Ninth seed Yelena Dementyeva, a former French and U.S. Open finalist, lost 7-5 6-2 to Germany’s Julia Schruff. Tatiana Golovin, seeded 24, was beaten by Mara Santangelo 6-4 4-6 6-4. 
Asia’s highest ranked player, 26th seed Ai Sugiyama, fell to Conchita Martinez Granados 6-4 6-3 and 28th seed Anabel Medina Garrigues lost to Zuzana Ondraskova 6-3 6-4. 
The only seeded man to lose was big-serving American Taylor Dent, the 27th seed, beaten 7-6 6-3 7-6 by Guillermo Garcia-Lopez. 
Argentina’s Masters Cup champion David Nalbandian, one of just four men to beat Roger Federer last year, survived a tough scrap with Thai qualifier Danai Udomchoke to win 6-2 6-2 1-6 6-7 6-1 while his Davis Cup team mate, eighth seed Gaston Gaudio, had a much easier time against Razvan Sabau, strolling into the second round when the injured Romanian pulled out in the second set. 
“It’s not the best way to start but it’s good always to win, the score doesn’t matter,” Nalbandian said. 
World No. 1 Lindsay Davenport had a short first day, crushing Australian wildcard Casey Dellacqua 6-2 6-1 in less than an hour, while Maria Sharapova and Justine Henin-Hardenne also made light work of their opponents. 
“I feel like I’m ready for the challenges,” said Davenport, Australian Open in 2000 and runner-up to Serena Williams 12 months ago. 
Sharapova showed few signs of the shoulder injury that threatened to wreck her campaign as she breezed to a 6-2 6-1 first-round win over Sandra Kloesel while 2004 Australian Open champion Henin-Hardenne beat Marta Domachowska 6-2 6-1. 
“That’s one of the first times I played a match without feeling anything,” Sharapova said. 
“I don’t expect it to be that like for the whole tournament so I’m very happy I got through that one without any pain.” Pironkova, playing in her first  Grand Slam match, showed no sign of nerves or being intimated by the power of Venus Williams, frustrating her opponent by tenaciously running down every shot she played. 
“I have known [about] Venus for a long time from the TV when I was a little kid,” Pironkova said. “I always loved her game. 
“But when I go on court I am a professional player, so I should not think about that she was kind of my idol before.”

TITLE: Russian Soccer To Go Dutch
PUBLISHER: Reuters
TEXT: MOSCOW — Guus Hiddink or fellow Dutchman Dick Advocaat will take over Russia’s national team following the World Cup finals, local media reported on the weekend. 
Several Russian newspapers identified the two as the prime contenders for the job after the country’s soccer chief Vitaly Mutko had made it clear he wants a foreign manager. 
“I had talks with three top foreign coaches and two of them have agreed to coach Russia,” Mutko said, adding that he would make up his mind by the end of the month. 
“The problem is that most top coaches have contracts at least until the World Cup, so we may have to wait a bit to make an official announcement.” 
Mutko said the future Russia coach would be paid between $2 million and $5 million a year. 
Russian daily Sovietsky Sport made Hiddink a firm favorite with a 70 percent chance of becoming Russia’s next national team manager, giving the remaining 30 percent to Advocaat. 
When asked by Reuters on Saturday if the two Dutchmen were the only candidates, Mutko just smiled, saying: “No comment.” 
Both Hiddink, who led the Netherlands (1998) and South Korea (2002) to the World Cup semi-finals, and Advocaat, who guided the Dutch to the semis at Euro 2004, are presently under contracts. 
Hiddink, 59, is coaching Dutch champions PSV Eindhoven and will lead Australia at the World Cup while Advocaat will coach South Korea in the finals in Germany. 
The Russians have been without a coach since November when Yury Syomin quit after the team failed to qualify for the World Cup. Russia finished third in European Group Three behind Portugal and Slovakia following a 0-0 draw against the Slovaks in Bratislava in their final qualifier in October.  
n Russian President Vladimir Putin, meeting with FIFA president Sepp Blatter in Moscow on Sunday, accused the European Union of “imperial” aggression in soccer. 
“As a FIFA chief I have a big problem. The EU tries to have too much influence on how football is run in EU countries and they are trying to extend that influence to the rest of Europe,” Russian news agency Itar-Tass quoted Blatter as saying during his visit to the Kremlin. 
Last month, the European Commission, prompted by British sports minister Richard Caborn, launched an inquiry into European soccer, focussing on the regulation of agents, club financing, home-grown players and the continued investment into grass roots football and stadiums. 
The sports ministers of major European football nations such as Spain, France, Germany and Italy, were also involved in discussion on how to reform the game. 
Caborn said at the time that his initiative had the support of Blatter and his UEFA counterpart Lennart Johansson. 
But on Sunday Blatter said: “We can’t allow 25 EU countries to dictate their rules to 207 nations worldwide.” 
Putin agreed: “It’s imperialism in football.”

TITLE: Coach Hits Back at Race Claims After Spitting Spat
PUBLISHER: Reuters
TEXT: MADRID — Athletic Bilbao coach Javier Clemente said on Monday that his comments about Samuel Eto’o after the Barcelona striker spat at one of his players were not intended to be racist. 
“At first I didn’t know that it was Eto’o who did it,” the former Spain coach told the Cadena Ser radio station. 
“He’s a great bloke but I expect he will regret what he did. 
“I don’t make any distinction between the behaviour of black and white people. If it had been [Barca defender Carles] Puyol who had done it I would have said exactly the same thing. 
“It’s more sporting to punch an opponent than to spit at him.” 
Clemente criticised the Cameroon international’s behaviour after television pictures showed Eto’o spitting at defender Unai Exposito in the closing minutes of Barcelona’s 2-1 victory over Bilbao at the Nou Camp. 
“Spitting is ugly behaviour,” Clemente told a post-match news conference. 
“I thought it was something that people who had just come down out of the trees did.” 
But the former Spain coach was anxious to clarify his remarks in his interview with Cadena Ser. 
“Bad behaviour has to be eliminated from the pitch. We are all sensitive about racism and we don’t give a good example by behaving like that. 
“When I talked about people who had just come down from the trees I mean everyone whether they be white, black or yellow... Sometimes I should be up in the tree too when I give a bad example.” 
Eto’o also played down the incident and insisted that he had not intended to spit at Exposito. 
“I’ve had the chance to speak to their boss [Clemente] and he has said some very nice things to me,” he told TV3’s “Gol a Gol” program. 
“I hope we will talk again and I hope he will rectify what he said. These things happen in football and people say them in the heat of the moment. If I spat at an opponent I apologize for that too.”