SOURCE: The St. Petersburg Times
DATE: Issue #1141 (7), Tuesday, January 31, 2006
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TITLE: Halonen Reelected As Finnish President
AUTHOR: By Tarmo Virki and Rex Merrifield
PUBLISHER: Reuters
TEXT: HELSINKI — Finland’s Tarja Halonen won reelection on Sunday as voters rewarded their first woman president for her down-to-earth touch and promises to preserve the welfare state.
Left-leaning Halonen won a narrow victory over moderate rightist Sauli Niinisto, who kissed her hand as he conceded defeat.
“Good people, thank you, together we have succeeded,” Halonen told a victory party, draped in a long red scarf and holding a bunch of red roses.
Official results showed that backing by the Social Democratic Party and leftist and labor groups helped her win a second and final six-year term with 51.8 percent of the vote, way down from the overwhelming lead she had held in opinion polls for most of the campaign.
“Thank you for taking forward the message that for Finns the best country is the one where no one is left behind, which is democratic and socially fair,” she said to cheers from supporters, some waving red flags in a storm of confetti.
Red-haired Halonen, a 62-year-old former labor lawyer, campaigned on a platform of equality and promotion of the welfare state, under the slogan “the president for all the people.”
Social Democrats have held the presidency since 1982 in Finland, the first country to grant women the right to stand for political office a century ago.
Defeated Niinisto, who is seen as favoring joining NATO, told his National Coalition Party supporters they had broken the taboo on issues like possible membership of the Western military alliance, a hot topic in the presidential campaign.
“I am very happy that there are issues openly on the table now,” Niinisto said to wild cheers at a party in a Helsinki night-club. “We have opened political debate in Finland, as wide as possible.”
A former finance minister, the 57-year-old will now go back to his job as a vice president of the European Investment Bank in Luxembourg.
Most presidential powers were cut when Halonen took office in 2000, although the head of state still decides foreign policy in co-operation with the government and is commander-in-chief of the defence force.
Relations with the European Union, which Finland joined in 1995, are largely handled by the prime minister.
Halonen was a single parent when she was elected president and retains her motherly image among many voters, despite flashes of impatience in television debates.
“She’s a great person and a very good politician,” said Heli-Mai Lehtinen, a 30-year-old Helsinki teacher. “It’s quite a surprise to me her lead was so small, because her policies and personality clearly make her better.”
Niinisto, a keen roller-blader who has dated a former Miss Finland, campaigned for economic and social reforms to create jobs and ensure continued prosperity in a country with Europe’s most rapidly ageing population.
Niinisto’s strong showing is seen as positive for the National Coalition Party’s prospects in parliamentary elections in 2007, as well as for increased co-operation with the Centre Party, which backed him in the second round against Halonen.
“This certainly gives more confidence and more impetus to the conservatives for the real elections, which take place next year,” said Tuomo Martikainen, a professor of political science from Helsinki University.
Kirsi Siivola, a 24-year-old technology student, voted for Halonen last time, but switched. “I think she has become a bit too self-important, and she needed a bit of a punch.”

TITLE: Court Threatens Rights Group With Closure
AUTHOR: By Anatoly Medetsky
PUBLISHER: Staff Writer
TEXT: MOSCOW — The government agency that registers nongovernmental organizations said Friday that it asked a court to shut down an umbrella human rights center supported by two prominent NGOs, the Moscow Helsinki Group and the Union of Soldiers’ Mothers Committees, over minor legal infractions.
The Justice Ministry’s Federal Registration Service also said it successfully sued to close 300 NGOs last year and that more than 400 similar cases were pending.
NGOs said the lawsuits were part of a plan by authorities to clamp down on civil society, which they said also included the recent passage of a law restricting NGOs and a spy scandal purportedly involving British diplomats who authorized grants for NGOs.
The registration agency last month accused the Russian Human Rights Research Center, which brings together 12 NGOs including the Moscow Helsinki Group and the Union of Soldiers’ Mothers Committees, of not having informed the authorities of its existence since 1999, Galina Fokina, deputy head of the service’s department for nongovernmental and religious organizations, said Friday. 
If the agency wins the case scheduled for Feb. 27 in Moscow’s Basmanny District Court, the center will lose its status as a legal entity and will not be allowed to maintain a bank account, she said. Without a bank account, an NGO cannot accept outside funding.
Lyubov Vinogradova, the center’s director, said it sent the notices for the past two years and was reviewing its files to check if such notices were sent in previous years. But she said she was sure that the legal action against her center was a sign of growing pressure on NGOs.
“We feel ... that the attitude toward us has changed,” she said. “All kinds of problems are blamed on us.”
The registration service last year filed lawsuits seeking to shut 825 NGOs as legal entities, Fokina said Friday. 
Moscow’s Basmanny District Court revoked the registration of 300 NGOs last year, Alexei Zhafyarov, head of the service’s NGOs and religious organizations department, said by telephone Friday. 
The NGOs were not represented in court, he said, without naming the NGOs concerned.
Ninety-nine other NGOs had corrected their violations and kept their bank accounts, Zhafyarov said. More than 400 cases are to be heard later this year, he said.
The service demanded the NGO closures on the grounds that they broke laws enacted from 1995 to 2002, Fokina said. From 1995 to 1999, the laws required NGOs to reregister, and from 2002 NGOs were required to file annual reports and inform the authorities that they were still operating, she said.
Human rights groups are also battling last week’s accusation by President Vladimir Putin and the Federal Security Service that several of them received funding from British spies.
The groups said in a joint statement Friday that the accusations, first broadcast on Rossia state television Jan. 22, were reminiscent of smear campaigns during the time of Stalin’s purges.
“It is deplorable that journalists and state officials are discussing the financing of NGOs by British intelligence as a proven fact. Frequent repetition does not make a lie the truth,” said the statement, which was signed by 85 activists from dozens of rights organizations across the country, including some singled out in the television program. “This provocation has reminded many people of the system of denunciation and slander in the notorious years of mass repression in the Soviet Union.” 
The FSB said last week it had uncovered British spies, one of whom had signed off on British government grants to Russian NGOs.
The statement said NGOs would take legal action to defend their reputation. 
Lyudmila Alexeyeva, head of the Moscow Helsinki Group which was specifically accused of taking money from British spies, told Ekho Moskvy radio on Friday: “There are very well-known and highly qualified lawyers who are prepared to conduct legal proceedings if we decide to go to court.”
The spy scandal broke 12 days after Putin signed a law imposing tough restrictions on Russian NGOs, mostly concerning foreign funding.

TITLE: Who Is Faking Russia’s Great Paintings?
AUTHOR: By Peter Finn
TEXT: The Washington Post 
MOSCOW — Valery Uszhin, a wealthy car dealer, wanted an art collection. “About two years ago, I felt that I had money,” he said. “I decided to buy paintings, Russian art.”
Uszhin began to collect at quite a clip, a new canvas every couple of weeks. Then in March last year he paid a St. Petersburg art dealer $145,000 for a painting listed as “Summer Day,” by Alexander Kiselev, a 19th-century master of Russian landscapes. By the time he hung it in his Moscow apartment, the walls were covered with a seemingly sterling collection — 30 pieces of 19th-century art bought for a total of close to $5 million.
But within months there was a sobering development: Art experts using scientific analysis determined that the work that Uszhin thought was “Summer Day” was in fact a heavily altered 1883 painting by the Danish artist Janus la Cour, “A Forest Road Leading to a Peasant’s House.” The investigators established that 14 months before Uszhin bought it, someone else had paid $2,000 for it at an auction in Copenhagen.
The revamped la Cour, now stored in a police basement, is at the center of one of the most lucrative and technically sophisticated international art scams to surface in recent years. Fueled by the country’s burgeoning wealth and the desire for prestigious assets with patriotic cachet, Russia’s upper class has driven the market for Russian art to unprecedented heights. 
The frenzy has also attracted some very skilled and knowledgeable crooks.
Vladimir Petrov, a curator at the state-run Tretyakov Gallery in Moscow, says he believes forgers have snapped up at least 120 paintings by minor 19th-century West European landscape artists at auction houses in Denmark, Germany, Switzerland, Sweden, Finland and the Netherlands, paying $1,000 to $20,000 apiece for them. After retouching, the works have been resold here for between $125,000 and $1 million as the work of major Russian artists of the same period.
“Pieces that had a lot in common with Russian painters were chosen,” said Petrov, who acknowledges having validated 20 fakes before his suspicions were aroused by the sheer volume of previously unrecorded art flooding into the marketplace. “It seems like there are several groups with highly skilled professionals working on this. They were experts in Russian art. They added a few Russian details or removed a few Western details or sometimes just changed the signature. They were so close in everything. Remarkable.”
The la Cour painting, for instance, depicts a stand of trees along a dirt road. Thick undergrowth dotted with blue flowers and dandelions extends from the trees to the edge of the road. In the near distance, beneath a cloudy sky, is a single-story farmhouse.
When it reached Uszhin, much of the original painting remained identifiable. But to Russify the scene, the trees had been made leafier. The farmhouse was wiped out, disappearing behind new foliage and new sky.
The road was shortened and narrowed. In the foreground, a tiny pool of water was added and some Russian-style houses appeared in the distance. Kiselev’s signature was forged in the lower left-hand corner.
“We certainly consider Janus la Cour to be part of Danish culture, and as such it is deeply problematic that somebody destroys his paintings — regardless of the modest price in this incident,” said Sebastian Hauge Lerche, the director of Bruun Rasmussen Auctioneers in Copenhagen, which sold the la Cour.
In this way, forgers have also come up with supposed works by other sought-after artists such as Ivan Shishkin, Vasily Polenov, Feodor Vasiliyev and Vladimir Orlovsky. Half of Uszhin’s collection proved to be the work of little-known West Europeans.
Using auction catalogues, Petrov, an expert on 19th-century Russian art, has compiled a binder of before and after images of paintings as sold in Western Europe and what they became in Moscow. The stooped 56-year-old is investigating another 100 paintings sold in Russia.
Moscow boasted a thriving art scene in the 19th century. Many of the artists’ patrons were merchants seeking representations of an idealized Russia, like many buyers, both here and abroad, in today’s boom market.
Auction houses such as Christie’s and Sotheby’s are seeing turnover as their London sales double from one year to the next. They sold about $60 million worth of Russian art in 2005. Prices for work by artists such as Kiselev have increased 40-fold in the last 10 years, according to dealers.
“New Russians want to collect Russian art and are willing to spend big money,” said Igor Tarnogradsky, a Moscow art dealer and collector.
The scam has been facilitated by the fact that it is common in Russia for previously unknown but genuine works to suddenly appear on the market. Because of the upheavals of the Russian Revolution and World War II, many paintings were hidden away for generations, taken into exile or confiscated by government authorities, according to dealers.
Oleg Tairov, who owns a gallery at the Central House of Artists, said he purchased a trove of 19th-century Russian art from a former KGB colonel and can only imagine how it was acquired. “Property was redistributed and things were stolen from private collections,” said Tairov, who is on the board of the International Confederation of Antique and Art Dealers. “The main problem in the Russian market is provenance.”
Uszhin’s first purchase, for $150,000 in early 2004, was represented to him as a work by Orlovsky titled “Lily-Pond.”
Uszhin bought the painting from Tatyana and Igor Preobrazhensky, a couple who owned a gallery in St. Petersburg, with offices in Moscow. “She came to my house to put the first painting on the wall, and I said, ‘You will get me a collection,’” Uszhin said in an interview at a Hyundai dealership in Moscow.
Uszhin did not buy without expert advice. An appraisal by a leading art institution confirmed “Lily-Pond” and other paintings he acquired as genuine.
Last spring, Uszhin said, one of his friends, an art buff who was particularly suspicious of the number of Kiselevs he had managed to buy, suggested he get a second opinion on their authorship. Experts at the Tretyakov raised serious doubts about five paintings he brought in.
A barrage of tests at the private institute Art Consulting, including a chemical analysis of the layers of paint, revealed that the signatures were false and some of the paintings had been changed. Among the fakes Uszhin had bought was that first acquisition, “Lily-Pond.”
The Preobrazhenskys were arrested in October and remain in a pretrial detention center. The couple, the only people arrested in connection with this kind of faking, have denied that they knowingly sold altered art, their attorney told Russian reporters, suggesting that his clients were deceived by the dealers who sold them the art. It remains unclear who originally bought the art in Western Europe and had it changed.
“The investigation is under way, and we’re still collecting evidence,” said Gennady Melnik, a spokesman for the Interior Ministry’s investigation department. “That’s all I can say right now.”
Because of the scam’s complexity and the scale of the profits generated, Petrov believes multiple players were involved. He said the scam was certainly not confined to a couple of dealers like the Preobrazhenskys, who may well, like him, have been taken in by the quality of the fakes.
Indeed, in May 2004 Sotheby’s was nearly fooled by a fraudulent Russian painting, withdrawing from auction at the last minute a work that had been attributed to Shishkin and valued at $1,250,000. Called “Landscape with Brook,” it had come with a certificate from the Tretyakov gallery confirming it as a genuine Shishkin. Before the auction a Sotheby’s commentary contrasted the painting “to the freer style of [Shishkin’s] more mature work.”
In fact, the painting was by the 19th-century Dutch painter Marinus Koekkoek and had sold a year earlier in Stockholm for $62,000. By the time it reached London, features that would have identified it as Western, including four human figures, had been removed.
According to Petrov, the forgers frequent European auction houses looking for paintings created at about the same time and in the same style as the work of sought-after Russian artists. The forgers often re-wet the paint to make additions and adjustments, including signatures. Adults and cows have been taken out. Children and geese have been put in. The forgers revarnish the work and sometimes add what is known in the trade as craquelure, hairline surface cracking that indicates aging.
A standard examination, including a visual assessment of style and an ultraviolet examination of elements such as the signature, would often miss deceptions. Moreover, the canvas and much, if not all, of the paint is genuinely 19th-century.
“The level of forgery is so high that even our experts, who are very skilled, were unable to see that the paintings were fake,” said Anna Kiseleva, head of the expert department at Grabar. 
Buyers have become more cautious in recent months, according to dealers such as Tairov, who worries that Petrov’s hunt for fakes has become so relentless he is casting doubt on legitimate work.
Petrov now travels with two bodyguards. “I have received threats,” he said, dragging on one of the unfiltered cigarettes he smokes constantly.
Most of the people who bought fake art have not come forward. “They are very rich and prominent people and they don’t want the publicity,” said the dealer Tarnogradsky, who has a client who is trying to get another dealer to refund the price of a forgery he bought.
At Tarnogradsky’s shop, Petrov stood by as two assistants hauled up a large, framed canvas from his basement. A client had bought it as a Polenov for $450,000 when in fact it was painted by the German artist Max Roman and sold in Vienna for $8,500. In 2003, Petrov certified it as an original.
An inconvenient Roman aqueduct in the original has been painted over, but otherwise the landscape passed for central or northern Russia. The fraud was discovered when the owner tried to sell the painting last year, and a more thorough appraisal found it was a fake.
“My client told me to throw it away,” Tarnogradsky said, “but I kept it as an example.”

TITLE: Court Orders Cellist to Pay
AUTHOR: By Galina Stolyarova
PUBLISHER: Staff Writer
TEXT: Russian cellist Mstislav Rostropovich and his wife, opera singer Galina Vishnevskaya, have been ordered to pay 100,000 rubles ($3,500) in damages to neighbors living beneath a St. Petersburg apartment they own that once belonged to composer Dmitry Shostakovich.
The Dzershinsky district court last Thursday ruled that renovations that the musical couple undertook in an apartment at 9 Ulitsa Marata damaged the property below belonging to Yury Shchegolev and Irina Kameneva. The musicians own No. 7 and plaintiffs live in No. 5 downstairs at the address in central St. Petersburg.
The apartment owned by Rostropovich and Vishnevskaya belonged to the celebrated Soviet-era composer Shostakovich between 1914 and 1934. 
Rostropovich was in London last week to conduct a performance of Shostakovich’s First Violin Concerto by the London Symphony Orchestra. 
Despite winning the case and being awarded monetary compensation, Rostropovich’s neighbors said they were not satisfied with the verdict. Lawyer Alexei Pavlov, representing Rostropovich and Vishnevskaya, said the plaintiffs have already sent an appeal to the St. Petersburg City Court. 
The plaintiffs originally asked for $10,000 in compensation, Schegolev told reporters, claiming that Rostropovich’s repairs had damaged a supporting beam that will cost more than $3,500 to repair.
Rostropovich and Vishnevskaya bought the apartment in June 2002 with the goal of creating a Shostakovich museum. 
The couple, who visit St. Petersburg only occasionally and permanently reside in France, began massive repairs shortly after they acquired the property. The case against Rostropovich and Vishnevskaya has been before the court since 2003.
“It is difficult to say when the new hearing may be scheduled as the current verdict hasn’t yet been processed by the Dzerzhinsky court,” Pavlov said in a telephone interview on Monday. “In the meantime, [Rostropovich and Vishnevskaya] are considering an appeal as well, although it hasn’t been decided.”
The musicians had been planning to open the museum by the fall of 2006 to coincide with the centenary year of Shostakovic’s birth. 
Pavlov said the court case hasn’t discouraged the pair. “They are determined to get everything ready by the end of the summer,” Pavlov said.
Shostakovich, one of the most distinguished Russian composers of the 20th Century, would have turned 100 years old on Sept. 25, 2006. His centenary is being widely celebrated in Russia, and the opening of the new museum is meant to be one of the key events in the festivities.
Rostropovich knew Shostakovich and last week the Independent newspaper described the composer as Rostropovich’s “spiritual godfather.”

TITLE: Four Ministers With Incomes of Over $1M
AUTHOR: By Stephen Boykewich
PUBLISHER: Staff Writer
TEXT: Transportation Minister Igor Levitin earned the most of any government minister in 2004 — nearly $5 million — according to a list of the Cabinet’s income declarations published by Vedomosti on Thursday.
Levitin’s declared income was 238 times more than that of the lowest-earning Cabinet member, Regional Development Minister Vladimir Yakovlev, who made $21,000.
Official income and property declarations obtained by the newspaper show a breathtaking range, with a huge gap between winners such as Levitin, Natural Resources Minister Yury Trutnev ($3.9 million), and Health and Social Development Minister Mikhail Zurabov ($1.5 million) and the bottom three — Defense Minister Sergei Ivanov, Emergency Situations Minister Sergei Shoigu and Yakovlev — who earned a modest combined $74,000.
Just as drastic were the differences in property ownership. In spite of his lowly income of $26,000, Shoigu owned 12,717 square meters of land, including a banya, pool and tennis courts.
Another leading landowner was IT and Communications Minister Leonid Reiman, with nearly 10,000 square meters, four fully owned private apartments and a fifth half-owned apartment. Reiman also enjoyed a ministerial perk: a sixth, state-owned apartment.
Prime Minister Mikhail Fradkov placed seventh on the earnings list with declared income of $62,000 for the year.
And in an irony relished by the Russian media, Finance Minister Alexei Kudrin and Economic Development and Trade Minister German Gref were lower down the list, with $47,000 and $41,000 respectively.
Ministerial aides attributed the staggering incomes of Levitin and Trutnev to stock they were required to sell before they took up their posts, Vedomosti reported. Levitin served as deputy general director of Severstal-Trans, the transport arm of steel giant Severstal, before being tapped as transportation minister. Of Trutnev’s $3.9 million income in 2004, $3.5 million was from the sale of stock in EKS International Trading, an import-export business he founded in 1990, said an unidentified official in his ministry.
Government ministers are allowed to receive income from interest on savings and bonds, but must surrender stakes in private businesses before entering the Cabinet.
The average ministerial income of $51,000 — while 14 times the national average of $3,600, according to Economic Development and Trade Ministry statistics — is a fraction of government salaries in Western countries. U.S. Cabinet members earn an average of $171,900, while the British equivalent stands at £134,000 ($239,000).
Low ministerial salaries became a subject of public debate in 2004, when President Vladimir Putin slashed the number of ministries from 30 to 15 and announced pay hikes for senior members of the so-called power ministries — including the Defense, Interior, Justice and Emergency Situations portfolios — to $41,000. Putin said the move was key to attract better-qualified personnel and reduce corruption.
But higher salaries alone will do little to reduce corruption without clear rules of the game, Transparency International’s director for Russia, Yelena Panfilova, said Thursday.
“On the one hand, ministers’ salaries should be competitive with those in the management sector to prevent temptation,” Panfilova said. “But raising salaries in and of itself, simply to compete with foreign countries or for whatever other reason, makes no sense unless there are very clear requirements, very clear rules about what sources of income ministers are allowed to profit from. At the moment, the rules are very unclear.”
Panfilova said she welcomed the publication of the ministers’ incomes, but noted, “Profits from corruption are never declared.”
“If we as a society want to receive the services we deserve for the taxes we pay, we should demand that members of government not only, of course, avoid corruption, but that they do not use their posts for any external financial benefit,” Panfilova said.
The chairman of the National Anti-Corruption Committee, Kirill Kabanov, was even harsher about the income declarations, calling them “a kind of sham.”
“These numbers don’t correspond to reality because we know that the size of the corruption market is over $100 billion, and that’s money that is mainly in the pockets of bureaucrats — and highly placed ones,” Kabanov said.

TITLE: Conscript May Undergo Surgery
PUBLISHER: The Associated Press
TEXT: MOSCOW — The state will pay for an operation to restore the sexual organs of a Russian conscript who had his legs and genitals amputated as a result of a brutal bullying incident, a doctor at a specialist clinic said Sunday. 
Prosecutors say Andrei Sychev, an 18-year-old private at the Chelyabinsk Tank Academy in the Ural Mountains region, was beaten and tortured on New Year’s Eve, causing severe injuries and a gangrenous infection that led to the amputations. 
“We have a severely traumatized patient who is in emergency care and after he returns to normal we will propose him an operation to restore his genitals,” said Prof. Mikhail Sokolshchik of the National Microsurgery Center. 
“The state will pay for the operation, it won’t cost the patient anything,” he told Russia’s NTV channel. 
Russian prosecutors have opened criminal cases against 12 servicemen over the abuse, the Interfax news agency quoted Deputy Military Prosecutor-General Alexander Savenkov as saying Sunday. 
Three of the servicemen, including a sergeant reportedly suspected of playing the main role in the abuse, are in custody, the prosecutor said. 
Defense Minister Sergei Ivanov, who was unaware of the incident until this week, ordered an investigation Friday into why military officials failed to report it immediately and fired the head of the tank academy, who was charged with abuse of office for allegedly concealing the crime. 
Sychev was not hospitalized until several days after the beating, when he was already in critical condition. 
Several other soldiers were beaten in the same incident, but they sustained lighter injuries. 
Public anger has mounted over this case of particularly violent abuse and it has damaged the reputation of Ivanov, seen as a potential successor to President Vladimir Putin in 2008 elections. 
Rights groups accuse military officials of condoning vicious bullying as a means to maintain discipline. 
All Russian men between the ages of 18 and 27 are required to serve at least two years in the armed forces, though many avoid the draft through exceptions or bribery.

TITLE: New Traffic Rules May Be Put Off a Year
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — The government is set to delay the implementation of new traffic rules until the start of 2007, Prime Minister Mikhail Fradkov said Friday.
The controversial new rules require that tail lights on cars be yellow or orange, not red, and that all children up to the age of 12 must sit in special child seats.
Drivers of cars with red lights, including the majority of Japanese and U.S. imports, could lose their licenses for up to a year.
Fradkov said the new rule would only apply to cars bought after Jan. 1, 2007.
The rule on special seats for children up to 12 appears inexplicable, given that it is almost impossible to buy child seats for children older or bigger than infants.
“We will give the whole of 2006 for the ordering and purchase of child seats,” Fradkov said, Interfax reported.

TITLE: Tele2’s ‘Smart Shopper’ Strategy
AUTHOR: By Yevgenia Ivanova
PUBLISHER: Staff Writer
TEXT: Despite speculation in the media that Swedish mobile operator Tele2 damaged its image by offering the cheapest services in Russia, the company, which presented its new management team Wednesday, insists the cut-price philosophy continues to be its competitive advantage.
In its efforts to grow, Tele2 plans to target so-called “Smart Shoppers,” customers who “do not want to pay extra if they can economize,” said Fredrik Wrahme, vice-president for marketing at Tele2 Russia.
Tele2 has been successfully implementing this strategy in Sweden, where it “changed the attitudes of Swedes towards mobile communications,“ the company’s press release stated.
“According to research, those users for whom price is an important factor when choosing a mobile operator amount to 30 to 40 percent of all mobile phone users. Its large numbers make this target group interesting to providers,” Mikhail Podushko, strategic development director at Comcon, a St. Petersburg based market research center said in an emailed statement Monday.
Tariff is a decisive factor for two categories of customers — middle age people (older than 45) and young people, who make up 25 percent of this group, said Podushko 
“But the young are quite a mobile group, the representatives of which react very quickly to different promotional efforts. They are less passive than all other customer groups, so they ‘easily’ switch over to a different brand,” he said.
Tele2 has experience of attracting existing users and converting them to Tele2, said Carl-Magnus Stenberg, the president of Tele2 Russia speaking over at the press-conference Wednesday.
However, telecom market insiders say that Tele2 plans would be realized only if the marketing strategy is supported with sound investments.
“The development [of Tele2] would be impossible without large investments into expanding the network,” Denis Kuskov, director of telecom think-tank “Week of Cell Technologies” said in an interview Wednesday.
“It costs around $100,000 to build a single base station,” Kuskov added.
Tele2 managers traditionally refuse to disclose the company’s investemnt figures, but confirmed plans to invest in increasing network coverage and improving the quality of communication.
“In terms of investments, Russia is a top priority for us [except for Sweeden] …and St. Petersburg and the Leningrad Oblast are the most promising regions in our Russian operations,” said Stenberg.
“I can guarantee that the company will get the resources to provide our existing and future customers with the quality that they require,” Stenberg added. 
Acording to Wrahme, their customers require ‘sufficient’ quality.
“We do not invest into what you do not need,” he said.
The quality of communication provided by Tele2 has been strongly criticised by the local media fom the moment the company arrived in Russia. 
In April 2005 the “Week of Cell Technologies” carried out a major survey of the quality and coverage of city providers and Tele2 scored very badly on both counts; their coverage extended only as far as the edge of the city, Kuskov said.
Tele2 says they will focus on the city, since, according to them, 90 percent of all outgoing mobile phone calls are made from that area.
“We will never provide perfect coverage in every little corner, otherwise you would have to pay more,” said Peo Gaasvik, the head of development at Tele2 Russia.
Nevertheless, Kuskov said, that according to his company’s estimates, Tele2 can reach 10-12 percent of all new subcribers in St. Petersburg within the next six months. But this will happen only “if Tele2 invests enough into network expansion and manages to attract mobile communication dealers, who saw a drop in the dealer premium in 2005 which therefore made for difficult relations with the providers,” Kuskov said.  
Tele2 is the fourth largest mobile operator in Russia, behind Mobile TeleSystems, Vimpelcom and Megafon.

TITLE: Aircraft Engine Maker To Open its State Wings
AUTHOR: By Yekaterina Dranitsyna
PUBLISHER: Staff Writer
TEXT: Russia’s largest producer of aircraft engines will file for registration as a joint-stock company by March, Alexander Vatagin, chief executive of Klimov, said last week at a press briefing. 
By the end of 2006 the St. Petersburg-based company will become an open joint-stock company though it will remain 100 state owned.
Having completed the move, Klimov then plans to enter a newly created engine construction holding, which will include the Krasny Oktyabr plant, based in St. Petersburg, and the TKB Soyuz and Chernyshov plants, located in Moscow.
Klimov’s CEO said the company would double its net profit by the end of 2006 earning $1.37 million while revenue should reach $56.9 million.
According to previously released statistics, net profit in 2005 was between $711,000 and $888,900 as opposed to a $1 million net loss in 2004, Vatagin said. Revenue reached $41.8 million last year, as opposed to $40 million in 2004.
“Figures for 2006 are based on contracts already signed. Nevertheless we expect to enlarge our portfolio of orders and increase total revenue to $106.7 million and net profit to $3.24 million,” Vatagin said.
Klimov will benefit from a decision by the ministry of defense to give Russian manufacturers exclusive rights from 2006 in the production of military helicopter parts.
Reacting to Ukraine’s stated policy aim of joining NATO, the ministry of defense revoked engine orders from Ukrainian plant Motor Sich, Vatagin said.
In 2006-2008 military engines will be produced only at the Klimov plant and from 2009 at the Chernyshov plant as well, he said.
At the moment 95 percent of Russian small and medium-sized helicopters are equipped with Klimov engines. The plant exports to 80 countries.
Seeing the restructuring of its business as a rational step, experts doubted if private investors would benefit from the plant’s privatization.
“I think that there are two important reasons why one would transform a state unitary firm into a joint-stock company,” said Alexander Bragin, head of Consumer Industrial Products group at Deloitte in Moscow.
“A joint-stock company, despite still being state-owned, has more incentive for development. And such a company could attract additional investment from minority shareholders at a later stage,” he said.
Bragin said that the idea of a new horizontally integrated engine-construction holding could potentially benefit from more efficient management and enlarged assets, as well as economize with the exchange of knowledge, research and technology.
However Yelena Shashkina, analyst for industrial construction at AVK-Analitika, said that a public offering of Klimov shares or of the new holding’s shares is unlikely.
“At first the new holding will remain state owned since it almost totally depends on state orders and state policy in promoting its production abroad,” Shashkina said.
Current tendency to restore state control over strategic companies supports this scenario, she added.
“Afterwards, if civil aircraft production increases, shares could be offered to private shareholders, most likely to company managers,” Shashkina said.
An IPO could take place no earlier than 2008-2009. However “the chances of it happening are small because the main stakeholder will regard it as irrational step. The state is not interested in attracting financial resources, increasing the capitalization of the military holding or making its business transparent,” Shashkina said.
The attractiveness of assets to private shareholders is also in doubt, Shashkina said. Such a specific field of business and the company’s size both count against large profits or easy management. A large part of its production could not be exported, so the plant depends on internal military demand, which up until now has not been stable, Shashkina said.
“Private shareholders could not influence the company, unless production related to civil aviation increases,” she said.
However, the head of analytical department at Veles Capital investment company Mikhail Zak said that the “chances that shares of the new holding will be offered to investors are very high.”
“The company will need financial resources for long-term development. It will be partly financed by the federal budget and partly by taking loans and selling shares,” he said.
Since the number of similar assets on the Russian fund market is small, shares of the new holding will be popular among investors, Zak said.

TITLE: Liberal Supporter Put On Federal Wanted List
AUTHOR: By Valeria Korchagina
PUBLISHER: Staff Writer
TEXT: Igor Linshits, head of the Concern Neftyanoi business group and a prominent supporter of liberal politicians, was put on a federal wanted list on charges of illegal banking activities and money laundering, the Prosecutor General’s Office said Friday.
The announcement came nearly two months after prosecutors and OMON special forces raided a Neftyanoi affiliate, Neftyanoi Bank, in an investigation into suspected money laundering. The raid was seen by some as a warning to backers of the liberal opposition, including former Prime Minister Mikhail Kasyanov, who last year declared his intention to run for the presidency in 2008.
Linshits appeared to be out of prosecutors’ reach. He left Russia for an unidentified European country, Kommersant reported Saturday. Officials at Neftyanoi declined to comment Friday.
The Prosecutor General’s Office refused to provide details of the charges, but a source in the office told Interfax on Friday that Linshits had been charged with earning 57 billion rubles ($2 billion) through illegal banking activities and laundering 610 million rubles ($22 million). No time frame for the alleged offenses was given.
Founded in 1993, Concern Neftyanoi includes Russia’s 76th-largest bank, Neftyanoi, and various petrochemicals, construction and media interests.
Yeltsin-era powerbroker Boris Nemtsov, a former deputy prime minister and a co-leader of the Union of Right Forces party, or SPS, resigned as a director of Neftyanoi Bank after last month’s raid.
At the time of the raid Nemtsov, along with a number of political observers, said the search could be a warning from the authorities to businesses not to side with the opposition.
Nemtsov resigned his post at the bank a few days after the raid in an apparent attempt to reduce the political risks for Neftyanoi. 
When contacted by telephone Sunday, Nemtsov refused to comment on the charges against Linshits. He also declined to comment when contacted by Kommersant. 
Nemtsov’s reluctance to speak out could have been prompted by a desire to protect Linshits and Neftyanoi’s business, liberal politician Irina Khakamada said.
“You have to remember what happened to Yukos. Any public attempt to resist provokes an even tougher reaction, any comment can harm the company,” she said, Kommersant reported.
The news of the charges against Linshits came a day after Nemtsov was appointed to head an SPS committee tasked with uniting the liberal opposition.
Despite repeated attempts to form a united front against the Kremlin, the country’s liberal parties have yet to agree on a common program or pick a leader acceptable to the various parties and factions.
Some recent progress, however, was made when liberal parties agreed to field a united list of candidates for December’s Moscow City Duma elections.

TITLE: Young Business Leaders Discuss Future in Davos
AUTHOR: By Lynn Berry
PUBLISHER: Staff Writer
TEXT: DAVOS, Switzerland — The World Economic Forum is a strange place, where members of an elite but eclectic global club meet for five days in a Swiss ski resort to hold structured discussions on high-minded topics and, of course, to schmooze.
These discussions, sometimes over lunch or dinner, bring together people who might otherwise never meet. And sometimes they encourage people with low public profiles but high-impact jobs to express their ideas. The results are often surprising, which presumably is the point of the whole expensive exercise. 
But for people from our part of the world, two events this weekend in Davos stood out.
On Friday, Viktor Pinchuk, a Ukrainian billionaire on the losing side of the Orange Revolution, put on a private lunch with such an assortment of guests and speakers that you wondered how he got them all into the same room. 
With George Soros, Strobe Talbott and Pinchuk’s wife, who is former President Leonid Kuchma’s daughter, seated at the head table and some of Russia’s biggest businessmen at the table all the way in the back, Pinchuk introduced the main speaker, former Polish President Aleksander Kwasniewski, and noted the important role he had played in “our Orange Revolution.” Two Cabinet ministers from the ousted government joined the current economy minister and TNK-BP CEO Robert Dudley in making short remarks.
Then on Saturday morning, some of Russia’s most successful young business leaders engaged in a lively discussion on Russia’s future, at times taking opposing views. 
The discussion on Saturday centered around three scenarios for Russia developed by the forum and presented by Angela Stent, a professor at Georgetown University who until recently was on the U.S. National Intelligence Council; Lilia Shevtsova, an expert on Kremlin politics from the Carnegie Moscow Center; and Olga Dergunova, chairman of Microsoft in Russia.
It fell to Dergunova to present the rosiest scenario, in which oil prices decline and in the ensuing turmoil an exceptionally wise president is democratically elected and implements a series of bold reforms. 
Alexander Izosimov, CEO of VimpelCom, stood up to take issue with the premise that high oil prices are holding Russia back. He made the case that high oil prices bring a sense of stability, reduce the risk of borrowing money and thus allow other sectors that require significant outlays of capital, such as telecommunications, to grow. 
“Look at the amount of money being borrowed in the West,” Izosimov said, expanding on his remarks after the conclusion of the session, which like most sessions at Davos is off the record unless the speaker explicitly agrees to be quoted. “The accessibility of international money would not happen if Russia were not perceived as stable.”
He was joined by Alexei Mordashov, head of Severstal, who said that in addition to creating stability, high oil prices generated demand and allowed for increases in public sector wages.
Dergunova shot back that their arguments were based on the notion that oil revenue was being distributed through society — and indeed, the figures show a widening disparity between rich and poor in Russia. 
This recalled a discussion the day before at a session on how countries should spend their oil revenues and the conclusion that rising prices carry very real dangers for petro-states such as Russia.
At the session, Ngozi Okonjo-Iweala, the finance minister of Nigeria, described an effort to fight her country’s notorious corruption by publishing information in the newspapers on how the oil revenues are distributed. H.E. Sheikha Lubna Al Qasimi, the economy and planning minister of the United Arab Emirates, made the point that the oil industry does not produce jobs; it is what is done with the revenues that matters.
The arguments of these two accomplished, Western-educated women seemed to have given Dergunova food for thought. She said the problem in the Russian oil industry was that the surplus revenues were “badly managed, poorly distributed and there was no transparency.
“Revenue distribution creates room for corruption when there is no civil control,” she said. 
Economic Development and Trade Minister German Gref also participated in the Friday morning session on oil revenues, where he was asked to explain the gas dispute with Ukraine. He reiterated Gazprom’s position that the demand for Ukraine to pay a higher price for gas was not based on politics and that the company had a responsibility to its shareholders to sell to all its customers at market prices. “I’ll repeat that it relates not only to Ukraine, but in Ukraine, because of political developments, it was overpoliticized,” Gref said.
The gas dispute was also a main topic of discussion at the lunch hosted by Pinchuk. Arseniy Yatsenyuk, the economy minister, reiterated that questions over the ownership of Rosukrenergo were the main stumbling block to the signing of a gas deal initialed on Jan. 4. The deal has a signing deadline of Feb. 1.
He said that under Ukrainian anti-monopoly legislation, before the joint venture could be registered, Rosukrenergo had to disclose information on its shareholders. Asked whether the Ukrainian government knew who owned Rosukrenergo, he said, 
“The minister of economy doesn’t know.”
He denied the Russian claim, repeated here by Gref, that Rosukrenergo was brought into the deal at the insistence of the Ukrainian side. “The Ukrainians say it was the Russians, the Russians say it was the Ukrainians.”

TITLE: State Plan to Rescue Russian Car Industry
AUTHOR: By Anna Smolchenko
PUBLISHER: Staff Writer
TEXT: MOSCOW — The country’s largest carmaker, AvtoVAZ, could form the cornerstone of a new, sprawling state automotive conglomerate currently being worked on by government ministries, according to a preliminary proposal signed last month by President Vladimir Putin.
Drawn up by Federal Industry Agency head Boris Alyoshin, who sits on the board of AvtoVAZ, the proposal calls for the formation of a single corporation comprising car, truck and bus production, according to a copy of the proposal obtained by The St. Petersburg Times. 
The document also says the state should consider a $5 billion rescue plan for the automotive industry to help fight off foreign competition, confirming a figure cited in a media report in December. 
The Industry and Energy Ministry said Friday that it, along with the Finance Ministry and the Economic Development and Trade Ministry, was fine-tuning Alyoshin’s plan. It added that their review was to be returned to Putin by Feb. 20. The Federal Industry Agency is part of the Industry and Energy Ministry. 
The government document comes to light as speculation mounts over growing state interest in a number of companies, with state arms dealer Rosoboronexport emerging as a possible vehicle for government-led acquisitions.
On Dec. 22, just two days after the word “soglasen,” or agreed, was written, apparently by Putin, on Alyoshin’s plan, two officials from Rosoboronexport were given senior posts on the board of AvtoVAZ. 
This past week, Rosoboronexport confirmed it was interested in the country’s largest truckmaker, KamAZ. Recent reports have also said the arms dealer was looking at metals giant VSMPO-Avisma.
“Essentially, only one Russian company — AvtoVAZ, probably teaming up with other domestic makers — can potentially compete with large foreign concerns,” Alyoshin wrote in an accompanying letter. Russia’s car market could be worth as much as $30 billion by 2010, he said. AvtoVAZ was unavailable for comment Friday.
Cited in a Vedomosti report on Friday, Alyoshin said the automotive holding could include AvtoVAZ, KamAZ and GAZ, part of billionaire Oleg Deripaska’s empire.
AvtoVAZ, KamAZ and GAZ “occupy different niches and mutually complement each other,” the paper quoted Alyoshin as saying. 
Alyoshin was unavailable for comment Friday. Federal Industry Agency spokeswoman Natalya Sidoruk downplayed the plan but confirmed that the idea of a mammoth automotive holding was making the rounds. 
Brokerage UFG expressed skepticism about the plan. 
“Alyoshin has a reputation for suggesting consolidation programs, including a proposal to establish the United Aircraft Construction Co. back in 2001 that has still not been implemented,” it said.
Another possible member of the giant automotive club could be UAZ, said an unnamed source at AvtoVAZ cited in Friday’s Vedomosti report.
Severstal-Avto, which controls UAZ, declined to comment. 
Pavel Yerasov, a spokesman for Russkiye Mashiny, or Russian Machines, the part of Deripaska’s empire that controls GAZ, said nobody had discussed such plans with his company. 
Industry and Energy Ministry spokesman Pavel Kuznetsov declined to comment on the necessity of the conglomerate and said it was still unclear what exactly the presidential stamp of approval meant. 
“It remains a big philosophical question what the president agreed to,” said Kuznetsov.

TITLE: Norilsk Joins Forces With Mining Giant
AUTHOR: By Yuriy Humber
PUBLISHER: Staff Writer
TEXT: MOSCOW — British-Australian mining giant Rio Tinto on Friday emphasized its strategic interest in Russia, saying it is ready to pour hundreds of millions of dollars into its newly formed joint venture with Norilsk Nickel.
The joint venture, in which Norilsk will hold a majority 51 percent, is being set up to explore and develop nonferrous and precious metal deposits in greenfield sites in southeastern and eastern Siberia.
“I see this as being very much a long-term relationship with Norilsk,” Rio Tinto head Leigh Clifford said at a news briefing on Friday.
Analysts compared Rio Tinto’s tie-up to Norilsk to BP’s entry into the Russian oil industry with TNK.
The first details of the new company emerged late Thursday, when the contract between the companies was signed in the presence of Natural Resources Minister Yury Trutnev.
Both Rio Tinto and Norilsk declined to say how much they plan to invest in the joint venture, or how any future profits might be divided. The deal does not involve any exchange of assets, they said.
The entry of foreign capital into Russian metals and mining projects has been politically sensitive for several years now, as the Kremlin warned domestic producers against seeking the sale of significant parts of their assets abroad. 
The fact that Trutnev was present at the signing has now led analysts to predict that the joint venture might be primed for grander projects than greenfield exploration and could win exploration licenses for some of Russia’s biggest deposits in forthcoming tenders.
Maria Kalvarskaya, a metals analyst with CIT Finance brokerage, named tenders for the license to develop the Udokan copper field, with reserves of 20 million tons, and the 1,000-ton Sukhoi Log, Eurasia’s largest gold deposit, as the most likely projects the new joint venture would be allowed to win.
“It looks like Norilsk Nickel is being primed to win those tenders. [It has a] political blessing,” Kalvarskaya said. Both tenders will take place in the first half of this year. 
The political influence seems to shift Russia’s second-largest copper producer, UGMK, until last year the favorite for the Udokan field, out of the running, said Timothy McCutcheon, a metals analyst with Aton. UGMK is now in direct competition with Kazakhmys in the search for other copper deposits in the CIS, he added.
“The government has given its blessing for a large global mining company to come in and invest in one of the biggest domestic metals firms. This is very significant for the sector, and we’re going to see other multinationals coming in,” McCutcheon said.

TITLE: Vulnerabilities in City’s Infrastructure Exposed
AUTHOR: By Yekaterina Dranitsyna
PUBLISHER: Staff Writer
TEXT: No home was left unaffected by the threat of water, heating or electricity cuts as January’s deep freeze increased pressure on communal service companies and exposed vulnerabilities in the city’s communal infrastructure.
Residents faced 20 times as many power failures than usual during the recent cold spell, Interfax reported last week, citing official statistics. The emergency services received about 1,000 calls every day.
From Jan. 17 to Jan. 24, 2,855 failures occurred with 5,788 houses at some point being left without electricity, and 1,135 houses without heating. Fontanka.ru reported that almost no city district was left untouched by the failures, some of which knocked out whole districts.
“With many newly-built homes equipped with electric ovens and subject to energy-saving cuts in central heating, the temperature in some apartments could fall down to four degrees above zero,” Fontanka.ru reported. 
“I live in one of the 40 houses in Krasnogvardeisky district that were left for four days without heating. People were calling on their neighbors with candles and joked that if the water was also cut off then that would just complete the picture,” said Roman Zakharov, city resident and editor-in-chief of “Protocol and Etiquette” monthly magazine. The temperature in his apartment fell to 12 degrees, Zakharov said.
Of added concern to citizens was that the company in charge of communal service repairs often proved of little use in restoring supply.
Vyacheslav, a resident of a house in Bolshaya Konyushennaya ulitsa, reported that his apartment was left without water for several days. He called the communal services to request a plumber only for the latter not to turn up. Instead Vyacheslav received a call from the woman who had registered his complaint.
“She was drunk. She asked if I was waiting for a plumber then declared that he would not come. When asked why she said he had just died and other service employees were paying their respects. She was very drunk and seemed very satisfied with herself,” he recollected.
The next day Vyacheslav tried to order another plumber. This time a woman asked him if he had heard a TV warning broadcast by city authorities. It told residents not to switch off the cold water tap so as to prevent the water freezing.
Vyacheslav replied that he did not have a TV set. The woman said that that “does not count in his favor.”
Vyacheslav was not alone in his suffering.
On Jan. 12 residents of 8 Ulitsa Poltavskaya appealed to the State Housing Stock Inspector, as well as both city and district authorities, to complain about the absence of water.
“We’ve had no water for about one month and, as the communal services put it, since the building consists of only six flats nobody will seriously consider our problem,” resident Lilia Azizova said.
The cold water supply was switched off on Dec. 27 because of an accident, Azizova said. The block’s management company N9 offered to fix the problem by Dec. 31 but that did not happen.
On Dec. 30 the communal service company N3 informed residents that repair works would be resumed only after the New Year holidays (on Jan. 11).  It explained that a vital tap was located on the territory of the Industry and Construction Bank, which prohibited repairs during the holidays because of security concerns.
However, on Jan. 12 still no cold water was forthcoming. The communal service companies in charge gave contradictory explanations and did not tell residents when the problem would be solved.
Roman Zakharov recollected other failures in communal infrastructure. 
“Last year it took one month for some residents of the Petrogradsky district to prove to both the communal service company and the Vodokanal water monopolist that their property was not being supplied with water. Both companies regarded the situation as some kind of mystery and said the problem could not have been down to them.”
“Only following the publication of the story in a local newspaper was water supply restored to the block,” Zakharov said.
The absence of coordination between the two companies was a result of communal sector reform.
“The City Housing Stock Agency is no longer responsible for communal service companies since formally the latter are private firms, even though owned by the city,” Zakharov said.
“This situation is exploited by city authorities. In the case of violations in the standards of communal service they just redirect citizens to the courts. City authorities no longer have the power to solve the problem through their own rulings,” he said.
The quality of communal services remains low. According to statistics, during the first nine months of 2005 Rospotrebnadzor registered 1,148 violations in housing stock and maintenance of residential territory, Interfax reported.
About 4,300 people called Rospotrebnadzor, most of them complaining about property maintenance, and the appearance of rats and ticks in residential zones.
Among other violations Rospotrebnadzor officers identified 22 locations where residential garbage is illegally dumped. According to Interfax the communal services often take too long to clear away garbage and repair its containers.
Rospotrebnadzor filed 645 lawsuits for crimes against administrative rules.

TITLE: City’s Property Market ‘Reactivated’
AUTHOR: By Andrei Musatov
PUBLISHER: Vedomosti
TEXT: In 2005, as the result of a sharp fall in demand, prices for completed housing in St. Petersburg remained steady from January to August, though an increase in activity among buyers pushed the sector up from August to December, with a rise in prices of about 5 percent.
According to Legion Real Estate, last year saw about 80,000 transactions take place in the completed housing market in St. Petersburg. According to Petersburg Real Estate, one square meter in a city apartment costs about $1,200, while Bekar Real Estate put the same surface area at $1,090. According to Bekar’s analysts, two categories of housing were particularly popular during 2005 — apartments in older buildings where capital repairs have been carried out and apartments in modern brick buildings. 
The general director of Legion Real Estate, Maxim Chernov, believes that the reactivation of activity among buyers was a positive trend last year. Sergei Drozdov, general director of Petersburg Real Estate agreed, pointing to the rise in both demand and prices as the main event of the year. 
According to Petersburg Real Estate, the sector experienced stagnation from August 2004 to June 2005. During that period, the average value of a square meter at first remained steady at $1,220, before dropping to $1,190. During the first four months of 2005, buyer activity dropped a third compared to the same period in 2004, with the total number of transactions falling from 22,000 to 15,400. Panel-built buildings accounted for about 36 percent of total supply in the market, while 12 percent comprised pre-Revolutionary buildings, with or without major renovations, and 16 percent comprised new brick buildings. Thirteen percent of the transactions involved Khruschev and Brezhnev era buildings. 
“The end of growth in the value of apartments was caused by the market overheating in terms of prices, and as a result potential buyers put off their plans for buying property,” said Leonid Sandalov, director of the Bekar real estate agency. “But when potential buyers realized that prices weren’t about to start falling, they started buying again.”
The general director of the Benois agency, Dmitri Shegelsky, said that the growth in activity among buyers at the beginning of the summer of 2005 was partly due to problems being encountered in the newly-built market sector. 
“In the spring a new law came into force, ‘On share participation in construction…,’  which complicated the operations of developers,” Shegelsky said. “Before that, there were rumors that some of the city’s construction companies were experiencing financial problems. Together, those factors turned buyers away from the newly-built sector to the secondary sector.” 
According to Drozdov, following the increase in demand, sellers began to push up prices — between August and December of 2005 the average cost per square meter rose 5 percent, reaching $1,260. Sandalov said that the increase in prices rose from 0.4 percent to 2 percent per month. 
Drozdov said that in 2005 there was a focus among buyers on cheap one-room apartments, which are usually very much in demand in growing markets. 
Shegelsky agreed, saying that one-room apartments priced under $50,000 were the most popular offers on the market — they accounted for 45 percent of the total number of transactions. The trend meant that such apartments were taking only five weeks to sell, on average, rather than seven, as had previously been the case, with their value rising by 10 percent. 
Transactions involving apartments with a value of $50,000 to $80,000 accounted for 30 percent of the total number of sales, and the small rise in prices that was observed in certain sectors usually involved properties with highly desirable locations.

TITLE: Entrepreneur Eyes Ownership of Landmark
AUTHOR: By Andrei Musatov and Alexei Marachev
PUBLISHER: Vedomosti
TEXT: The president of the Adamant holding Igor Leitis could become the owner of St. Petersburg’s landmark trading complex Passazh. The entrepreneur has already acquired over 16 percent of the shares of TPF Passazh, which rents the building on Nevsky Prospekt from the City Administration. Experts believe that this purchase is preparation for the privatization of the building, which is coming later in the year.
The Passazh supermarket, built in 1848, has been rented by TPF Passazh since 1989. It comprises 13,000 square meters in a building with a total area of 16,000 square meters. The controlling stake in TPF Passazh belongs to its general director, Valery Zelensky.
Founded in 1992, the Adamant holding owns real estate (11 trading centers) with a total area of 380,000 square meters, as well as the Domovoi and Adamant retail chains. The founders of Adamant are Igor Leitis, Mikhail Bazhenov and Yevgeny Gurevich. The holding has an annual turnover of around $240 million.
In October 2005 Leitis bought a 12.08 percent stake from the management of Passazh, then in January increased his stake to 16.32 percent, FSFR Vestnik reported. At the same time, the trading complex received a new co-owner, Tatyana Golduyeva, who currently owns 19.49 percent of the company’s stock. Valery Zelensky, Passazh’s general director, continues to own 57.8 percent of the shares. 
A source at TPF Passazh who asked to remain anonymous said that the appearance of new co-owners is not an attempt at a hostile takeover. 
“The process of redistributing the shares in Passazh hasn’t been completed yet, but when it is, a change in the ownership of the controlling stake isn’t planned,” the source said. 
“This is a case of a partner being attracted through the sale of a portion of the shares.”
Experts in the sector questioned said that they had not heard of Tatyana Golduyeva. The source at Passazh said that Golduyeva is not an employee but “a friend of the company.” 
While analysts consulted said that they could not give estimates as to the value of the deal, they said that the transaction had been carried out with the ultimate aim of acquiring the building. The administration planned to auction off the building last year. In view of the long-term rental agreement in force at the building, the director of the Petersburg Property Fund Andrei Stepanenko said that the most likely buyers would be the tenants themselves. 
The manager and co-owner of Adamant could be tempted by the building itself, said the president of the Avers group of companies, Mikhail Zeldin. The executive director of Petersburg Structure, Igor Vodopyanov, believes that the presence of Adamant as a stakeholder in Passazh could influence the outcome of the auction during the building’s privatization. 
“With major tenants, there will probably be far fewer people interested in buying the building,” said Vodopyanov. 
According to the Petersburg Property Fund, the auction of Passazh is planned for this year, although the date is yet to be decided. The director of RMS-Otsenka Pyotr Kodin valued the building at $32 million to $48 million. 
The general director of Bekar Commercial Real Estate, Igor Gorsky, said that the main attraction of Passazh was its location on Nevsky Prospekt, opposite Gostiny Dvor and close to the metro.

TITLE: Court Finds Royalties Excessive
AUTHOR: By Marat Altynbaev
TEXT: On 6 October 2005 the Federal Arbitrage Court of North West District set a significant precedent in the arguments between taxpayers and authorities in the field of royalties under license agreements.
In short, the defendant (sublicensee), one of the major Russian beverage producers, was using a trademark under a sub-license agreement with another Russian entity (sublicensor). The sublicensor, in its turn, had obtained the right to use the trademark by virtue of a respective license agreement with a Swiss holding, which owned the rights to the trademark. The royalty rate throughout 2002 ranged from 1.6-1.8 percent of earnings in February to 24-25 percent in June and were VAT-deductible, as provided by Russian tax legislation.
The tax authorities, which later brought the case to court, have decided that such a royalty rate was excessive and thus the transaction as such was disadvantageous for the sublicensee; the overall purpose behind the license agreement being to obtain deductions in VAT. As support to their position authorities used the opinion of experts from the economics section of the Russian Academy of Science; according to their conclusion the average market royalty rate in the beverage industry was 2-5 percent at that time.
Another situation that came to the attention of the authorities and, moreover, legally substantiated their inquiry into the market’s justification of the royalty rate, was the fact that all companies in the described licensing relationships (licensor, licensee/sublicensor and sublicensee) were actually interdependent. In particular, the CEO of the sublicensee was at the same time the founder of the Swiss holding (primary licensor), while his father was the CEO of the sublicensor. As mentioned before, in accordance with the Russian Tax Code, one of the occasions when tax authorities are entitled to examine the price of the transaction is when the deal involves the transfer of pricing between interdependent parties.
As a result, the sublicensee was denied the right to claim tax deductions under the transaction; consequently, the tax was recalculated and increased significantly. According to tax legislation such recalculation is permissible in the event that transaction price differs by 20 percent or more from the average market price.
While in this particular case the tax authorities clearly proved their point, the fact that they have started investigating the substantiation of the royalty rate is a cause for concern for a variety of businesses using licensing schemes. 
First, the ability of the tax authorities to look into the royalty rate (moreover, to judge on its excessiveness) will undoubtedly trigger numerous arguments about how to determine the market price. Secondly, it is evident that the authorities will be more inclined to investigate all aspects of a trademark (or patent) transaction, including relations between the parties in cases when they suspect transfer pricing. Due to the fact that the usage of licenses and sub-licenses has become a common practice in Russia, other questions will arise as law-enforcement practice evolves.
In summary, the changing tax control environment requires businesses to be more prudent in building contractual relationships involving their intellectual property and cross-border payments, as well as to take into account current practices; otherwise tax liability is imminent.

Marat Altynbaev is Associate at DLA Piper Rudnick Gray Cary in St. Petersburg.

TITLE: Ill-Equipped to Discuss Security
AUTHOR: By Vladimir Milov
TEXT: Financial Times
The main topic of Russia’s current presidency of the Group of Eight leading industrial nations is supposed to be energy security. At the end of last year President Vladimir Putin called for a better investment climate, improved corporate governance and innovative technologies as tools to address international energy security challenges and claimed that Russia deserved a status of “fashion leader” in a new global energy architecture. 
Russia’s official rhetoric is a sharp contrast with reality. Recently, its energy policies have all been about increasing state control over the energy sector, sacrificing investment, growth and efficiency. 
Production growth last year in the oil sector fell to just over 2 per cent compared with an average of 8.5 per cent a year in 2000-2003. The earlier impressive increases were led by private sector companies, which served as benchmarks of growth and efficiency for the whole country. But, by raising oil export taxes, banning the construction of private oil pipelines and restoring control over some of the oil companies (Yuganskneftegaz and Sibneft), the growth era was brought to an end.
Destruction of Yukos, the largest private oil company, contributed to the decline in growth as well: in 2004-2005, Yukos lost around 270,000 barrels a day of oil production.
In the gas sector, production growth by Gazprom, the Soviet-created mono-poly, was below 1 per cent in 2005. Market restructuring of Gazprom was blocked by Mr Putin in 2003. Now production at the largest mature gas fields is sharply declining and Gazprom’s inefficiency does not allow the company to invest enough in development of the new gas fields in the Yamal peninsula. These are no closer to introduction than 15 years ago.
Russia holds the largest gas reserves in the world but they are stranded and the market cannot expect significant new volumes of gas from Russia in the next eight to 10 years.
Russia has also announced a closing of doors for foreign investors in the oil and gas sector through new legislation. This is a particularly heavy blow not only for international energy security but for Russia itself. Oil and gas production is moving to new greenfield and remote areas such as eastern Siberia and offshore, with extremely long-term, capital-consuming and risky projects. 
The weak Russian financial system and state energy companies, pressurised by the burden of debt generated during the recent asset acquisitions, are not ready to finance such projects — but foreigners will not be allowed to.
The era of quick recovery and success of the Russian oil sector, led by private initiative and openness, is over. It has been replaced by a new era of state domination, non-transparency, high risks and stagnation.
The recent gas conflict between Russia and Ukraine demonstrated what a poor source of “energy security” Russia can be. We had been subsidising Ulkraine with cheap gas for years but Russia made up its mind to increase gas prices more than fourfold overnight only after the election of the new democratic leader, President Victor Yushchenko. During the whole crisis, no Russian representative approached other European importers of Russian gas to at least advise European partners what to do if Ukraine was cut off and the bulk of Russian gas supplies to western and central Europe was putat risk. 
“This is not our responsibility,” Russian officials said on television, -disengaging from the protection of European consumers. Political games in the post-Soviet space seem to matter more.
Using the muscle of energy supply to exert more political influence and put European energy-importing nations at risk — is that an example of the “global architecture” the Kremlin wishes to build? Can we expect a serious world energy security discussion under this environment?
As a Russian, I would welcome it if my country used the G8 presidency to contribute to the improvement of global energy security, encouraging more transparent and assured international energy markets. 
But you cannot build a global energy security architecture on the basis of non-transparent state-dominated monopolies, destruction of successful private businesses, closing doors to international investment and using energy as a tool of neo-imperial politics.
Russia still has a long way to go to be able to discuss the real global energy security issues with the world’s largest industrial democracies.

The writer is president of the Institute of Energy Policy in Moscow and Russia’s former deputy energy minister.

TITLE: IN BRIEF
TEXT: Gazprom Profits
MOSCOW (Bloomberg) — Gazprom, the world’s largest producer of natural gas, said nine-month profit climbed 66 percent as fuel prices rose.
Net income advanced to 232.1 billion rubles ($8.2 billion) from 139.4 billion rubles in the same period last year, the Moscow-based company said Monday in an e-mailed statement.
The results were calculated according to International Financial Reporting Standards. Revenue rose 32 percent to 902.2 billion rubles, the company said.

DuPont Venture
WILMINGTON, U.S. (Bloomberg) — DuPont, the third-largest U.S. chemical maker, said it created a joint venture with Russkie Kraski Corp. to supply automotive coatings in Russia and the former Soviet republics in Eastern Europe.
The venture, DuPont Russian Coatings LLC, will draw on technologies licensed by both partners and will supply local and international car markers in Russia, Belarus and Ukraine, Wilmington, Delaware-based DuPont said Monday in a statement distributed by PRNewswire.
Shares of DuPont rose 14 cents to $39.97 at 10:19 a.m. in New York Stock Exchange composite trading. Before Monday, they were down 15 percent from a year earlier.

TNK-BP Closure
KIEV (Bloomberg) — BP Plc’s Russian venture, TNK-BP, may close down Ukraine’s largest oil refinery next month on losses. 
The company’s Ukrainian unit will decide Tuesday whether to shut Linos oil refinery, Irina Kovalchuk, a spokeswoman at TNK-BP Ukraine, said Monday. In an interview last month, Alexander Gorodetsky, president of TNK-BP Ukraine, told the local newspaper Delo the company might shut the refinery in January or February, Kovalchuk said. The interview was published Monday.
“The situation has changed since the interview was given,” she said by phone from the Ukrainian capital of Kiev. “The decision may be made tomorrow.”

Higher Growth
MOSCOW (Bloomberg) — The Russian economy probably grew 6.4 percent in 2005, higher than initially forecast by the government, Economy Minister German Gref said, Interfax news agency reported.
Growth slowed from 7.2 percent in 2004. The government’s initial forecast was for 5.9 percent growth, Gref said at a meeting with President Vladimir Putin and the government. 
A slowdown in industrial output growth last year was due to a decline in expansion by mining companies and low manufacturing output, Gref said, according to the report.

Tax Concern
MOSCOW (Bloomberg) — Surgutneftegaz, Russia’s fourth-biggest oil producer, expects output growth to slow to 5 percent this year amid concern energy taxes are crimping investment.
Surgut may produce as much as 67.1 million tons (1.35 million barrels a day) in 2006, the Surgut, western Siberia-based company said Monday in an e-mailed statement. 
The company raised crude-oil output by 7.1 percent last year to 63.9 million tons.
The company plans to boost natural-gas output by 5.6 percent this year to 15.2 billion cubic meters from 14.4 billion cubic meters in 2005.

VAT Cut 
MOSCOW (Bloomberg) — Russia’s government plans to cut the 18 percent value-added tax rate to 13 percent by 2009, under a three-year development program approved by Prime Minister Mikhail Fradkov.
The tax cut is part of proposals that aim to add half a percentage point to annual economic growth, according to a copy of the program posted on the government’s web site Monday after Fradkov signed off on the plans on Jan. 19.

Eni Complaint 
ROME (Bloomberg) — Eni SpA, Italy’s largest gas company, said it was getting less natural gas than requested from Russia for a 13th consecutive day amid freezing temperatures in eastern Europe. Deliveries are expected to return to normal Tuesday.
Eni got 1.4 percent less gas than it asked for from Gazprom, the world’s biggest natural-gas supplier, in the 24-hour period that ended at 6 a.m. Monday, the Rome-based company said in an e-mailed statement. Eni didn’t get 1 million cubic meters out of the 74 million requested, or 0.3 percent of daily demand in Italy, Europe’s third-biggest gas market.

Share Delay
MOSCOW (Bloomberg) — Morgan Stanley Capital International delayed including locally traded shares of Gazprom, the world’s largest natural-gas company, in its Russian index until the end of May “at the earliest’’ until problems converting depositary receipts and local shares are cleared up.
“MSCI has come to the conclusion that, given the practical obstacles still in place, it would be premature to consider including the local shares of Gazprom in the MSCI Russia index at this stage,’’ the company said in a statement on Jan. 27.

Transneft Profit
MOSCOW (Bloomberg) — Transneft, Russia’s state-owned oil pipeline monopoly, said profit climbed 27 percent last year according to preliminary figures, Interfax reported, citing Deputy Chief Executive Sergei Grigoryev.
Consolidated net income increased to 55.7 billion rubles ($1.9 billion) from 43.9 billion rubles in 2004, based on international financial reporting standards, the news agency reported. Revenue rose 34 percent to 191.3 billion rubles.

Mikhailovsky Boost 
MOSCOW (Bloomberg) — Mikhailovsky GOK, Russia’s second- largest miner of iron ore, plans to increase production 10.5 percent this year to 9.4 million metric tons, from 8.5 million tons last year, Interfax reported, citing Metalloinvest, the holding company that controls Mikhailovsky, is owned by Russian billionaire Alisher Usmanov, who is seeking to build a 100 million-ton iron ore group to rival larger competitors such as Rio Tinto Group and BHP Billiton.

Windfall Investment
MOSCOW (Bloomberg) — The Russian government is completing work on measures that will let it invest some of its windfall oil revenue in foreign assets to protect against inflation, Finance Minister Alexei Kudrin said.
“We have worked out the mechanism” for such investments “and it’s now being prepared” for final approval by the government, Kudrin said in an interview broadcast on television channel NTV on Monday. 
“The Finance Ministry and the central bank were working on this mechanism for the whole of 2005.”
Russia’s stabilization fund, in which it has kept windfall revenue from oil sales since 2004, rose to 1.46 trillion rubles ($52 billion) as of Jan. 1, more than the 1.2 trillion rubles previous estimated, Kudrin said. He didn’t elaborate on the securities and currencies in which Russia may invest. 

Abramovich Sells 
ST. PETERSBURG (Bloomberg) — Russian billionaire Roman Abramovich sold his 18th-century St. Petersburg palace to Sibneft, the oil company that Gazprom bought from him last year for $13.1 billion, Vedomosti reported, citing Sibneft and city officials. 
Details of the transaction weren’t disclosed. Local retailers estimated the property to be worth more than $18 million at current rates, the newspaper said. Abramovich spent $12.5 million refurbishing the property, which is located near the State Hermitage Museum on the English Embankment along the River Neva, Vedomosti reported.
Vedomosti cited unidentified city officials as saying Sibneft, which is moving its headquarters to St. Petersburg, plans to make the palace its main office. 

Aricom Stake
LONDON (Bloomberg) — Aricom,  a U.K. company that mines in Russia, said it agreed to buy a 49 percent stake in the Bolshoi Sejm titanium and iron deposit. The company has entered into an agreement to buy the shareholding from Ural Mining, London-based Aricom said Monday in a Regulatory News Service statement. Bolshoi Sejm contains an estimated 58 million metric tons of titanium dioxide, a mineral used to make pigments.

TITLE: In Central Asia, New Players, Same Game
AUTHOR: By Nicholas Schmidle
TEXT: Two hours north of Dushanbe, the capital of Tajikistan, an Iranian construction firm is boring a hole in the side of the Fan Mountains. It’s not for stashing weapons or nuclear material. It’s for a five-kilometer tunnel that, when finished in 2007, will become the only road open year-round between this country’s two main cities. And it will mean that motorists will no longer have to make the terrifying trip between Dushanbe and Khujand across the 11,000-foot Anzob Pass.
I took a taxi over the pass last fall. The driver praised the Iranians for their charitable work. “They are doing something great for Tajikistan,” he said.
But for Iran, the Anzob tunnel project is hardly an act of pure magnanimity. It’s an effort to get an edge on the competition. In a repeat of the “Great Game” that played out in Central Asia over the mid-to-late 19th century, foreign powers including Iran, Russia, China and the United States are converging on Tajikistan — and the rest of Central Asia — to compete for influence. There is a lot to gain: access to vast, untapped oil and natural gas reserves, rights to the use of key military bases, and the imaginations of the nearly 50 million people who live in this part of the Muslim world. The whole place is up for grabs.
Who’s winning this latest iteration of the Great Game? Some analysts are content to tally and compare newly signed pipeline deals and security agreements to come up with an answer. But I wanted to find out which country is capturing the attention of ordinary citizens in Central Asia. So I spent six weeks last fall traveling through Uzbekistan, Kyrgyzstan and Tajikistan, reporting from the level of the Central Asian street. And from this angle, the United States is losing.
For the players in today’s version of the Great Game, Central Asia — the region that comprises Kazakhstan, Turkmenistan, Uzbekistan, Kyrgyzstan and Tajikistan — is like California at the dawn of the Gold Rush: a reservoir of unbounded potential and unrealized wealth. The Chinese seek new markets to dump their goods in and energy sources to fuel their economy; the Russians, who consider Central Asia part of their backyard, want to preserve the status quo while continuing to expand their multinational electricity grid; and the Iranians hope that big-money investments in the region, coupled with a successful nuclear fuel cycle, will elevate their status in the Muslim world. 
The United States has an eye on long runways (recent visits by U.S. Secretary of State Condoleezza Rice and Secretary of Defense Donald Rumsfeld were motivated by concerns over access to American military bases), energy prospects and a region seemingly ripe for democratic change.
All this commotion harks back to the contest that took place in Central Asia almost 200 years ago, the chief political result of which was that Central Asia was swept into the Russian Empire. After the Bolshevik Revolution in 1917, the communists chopped the territory up into separate Soviet socialist republics. For more than 70 years, no one disputed the communists’ hold on Central Asia. But when the Soviet Union collapsed in 1991, foreign businesses jumped at the opportunity to invest in the oil and natural gas fields around the Caspian Sea. Western corporations and governments feted the despotic leaders of these new nations like modern-day emirs. The Great Game resumed.
In the past couple of years, however, domestic developments have shaken the traditional centers of power in Central Asia and changed the nature of the Great Game. Power has begun shifting out of executive offices and into the streets. Following the “color revolutions” in Georgia and Ukraine, thousands of Kyrgyz took to the streets last spring after fraudulent parliamentary elections and overthrew former President Askar Akayev. In May, as many as 10,000 Uzbeks in the city of Andijan demonstrated against the government of President Islam Karimov. The Uzbek military later reportedly shot hundreds of protesters, refused to allow an international investigation and, on July 29, evicted the Pentagon from an air base it had been using in southern Uzbekistan.
Street protests are suddenly having global ramifications. And the more emboldened people in Central Asia become, the more it will be their hearts and minds, not those of aging dictators, that will be at stake for the global powers trying to influence the next generation.
When I arrived late one September night at Manas International Airport in Bishkek, the capital of Kyrgyzstan, the first sight to greet me was a row of hulking American KC-135s, C-17s and C-130s on the tarmac. Even through the fog of jetlag, it was a reminder to me — and everyone else flying in and out of Bishkek — that the United States is a truly global empire.
But the fate of empires is tied to more than military might, and the 21st-century version of the Great Game relies on capturing the popular imagination. In the first three years after Washington began deploying forces in Kyrgyzstan in December 2001, however, the number of Kyrgyz “favorably inclined” toward the United States fell from 65 percent to 47 percent, according to the polling firm InterMedia. Sitting on the runway on my first night in Central Asia, I wondered what effect the presence of the U.S. air base was having on popular opinion, and whether it might explain the Kyrgyz’s increasingly negative attitudes toward the United States.
These musings, I soon found out, were premature. Instead of there being too much of the United States in Central Asia, there may just be too little. Over the following weeks, I saw scarcely another speck of America in the region. While the Pentagon is well-represented, American values and ideas aren’t. Newsstands and bookstores are dominated by Russian-language publications. As I sat in a hotel room in Dushanbe flipping through satellite television one night, I passed a plethora of Iranian and Russian news channels (equally notorious for their sharply anti-American news spin). I saw no American ones. Even Hollywood films were hard to come by. In Osh, Kyrgyzstan, I asked a talk-show host, Ganijan Khalmatov, why support for the United States had fallen. Khalmatov shrugged at what, to him, seemed an obvious question, and replied that there’s not enough about America on television. “If something is on TV, people automatically believe it,” he said.
The United States’ limited public role in Central Asia goes beyond the media and entertainment industries. In high-profile international investments, the United States lags behind Iran, China and Russia, whose combined annual gross domestic product is about three-quarters that of the United States. Washington has no equivalent effort to the Anzob tunnel project, which will not only ease domestic transport in Tajikistan, but will also connect local merchants and goods to markets as far away as Russia and Pakistan. This lack of public presence best explains why, according to InterMedia data, the number of Tajiks “favorably inclined” toward the United States fell from 58 percent in 2001 to 31 percent in 2004. For citizens like my taxi driver, Iranian projects show Tehran’s rapport with the ordinary man, while Washington’s apparent tight-fistedness reflects a flimsy commitment to helping people in Central Asia — and ultimately, to winning the Great Game.
Central Asia could yet buck the trend of anti-Americanism that has swept the wider Muslim world. The loyalties and allegiances of most people there are still for sale. But the United States’ ability to win over hearts and minds is in jeopardy. Ten years from now, a local friend of mine thought, “everyone else might be here, but the Americans won’t still be interested. They just don’t have the patience.” Yet patience could well be the name of the Game.

Nicholas Schmidle is a freelance writer based in Washington.This comment first appeared in The Washington Post.

TITLE: Advice From the Former Advisor
AUTHOR: By Vladimir Gryaznevich
TEXT: A brilliant article in last Monday’s issue of Kommersant, written by President Vladimir Putin’s former economic advisor, Andrei Illarionov, has been making waves among local analysts and Russia-watchers. Illarionov resigned as economic advisor to the president toward the end of last year, stating that “The country’s economic model is formed as a corporate model with the participation of state corporations, which are state in title and status but, first and foremost, are governed by personal interests. I didn’t take a job with that sort of state, didn’t sign a contract with it and didn’t make an oath of allegiance to it.” 
We’ve already looked at the harmful essence of that corporate model, but Illarionov gives a detailed description of it in his article, as well as pointing out the negative economic and political consequences for our country. I won’t rehash the argument that his article makes. Suffice to say that I think it gives the most precise diagnosis of the current condition of the social and economic order in present day Russia, recalling Abdurakhman Avtorkhanov’s classic survey of the Stalinist regime. I will, however, take this opportunity to add a few further observations. 
Illarionov writes that “ownership of the Russian state has passed into the hands of a corporation that is not controlled by its nominal owners — the citizens of Russia.” The main aim of the activities of this corporation is “the reallocation of resources to an ‘in-crowd’.” According to one highly-placed source whose sincerity I have no reason to question, deep within the federal government numerous projects are forever being put forward with the sole purpose of filling the pockets of concrete individuals, or, to use Illarionov’s terminology, members of the Corporation. Not all of these projects are implemented, but many do somehow manage to get off the ground. 
These aims, according to my source, are largely or entirely served by almost all the decisions currently being taken on the creation of major new state companies or the increasing of the capitalization of firms of this kind that already exist. The “de-privatization” of the Russian economy that is currently taking place is not, in fact, being carried out to serve any ideological purpose — it is clearly based on the personal interests of concrete individuals.
Among the Russian ruling elite, there are no naÕve souls who continue to believe that this model of state economics can be effective. There are, however, more than enough individuals who believe that they didn’t get their fair — or not so fair — share when the spoils were divided up during the Yeltsin era. Now they have their chance and are actively working toward that end. And they’re not stopping at state resources — they’re also making inroads into private business, using administrative resources as their tools. 
Numerous sources have reported that in Moscow and Petersburg there is a growing tendency whereby former and even current members of the security services are allowed to get their hands on small and medium-sized businesses.
At the same time, the scale and scope of corruption is developing at an alarming rate. All this, as can be seen in a vast array of direct and indirect evidence, is feeding the hostility that private business feels for the authorities and their representatives. 
This hostility often develops into hatred, and as our state is not yet totalitarian, and fear of the state is not yet total, the hatred among private enterprise may soon overcome its fears. It is at that point that the Kremlin’s carefully planned special operation, which we could loosely dub “the Heir,” could come unstuck. And that scenario will become increasingly likely if the feuding between the members of this new “corporation” is allowed to continue unabated.

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: Emotional Federer Wins 7th Grand Slam
PUBLISHER: Reuters
TEXT: MELBOURNE, Australia — World No. 1 Roger Federer overcame an early scare to beat Marcos Baghdatis 5-7 7-5 6-0  6-2 on Sunday, winning the Australian Open for the second time and capturing his seventh Grand Slam title. 
Amelie Mauresmo won her first Grand Slam title when Justine Henin-Hardenne retired from the Australian Open women’s singles final due to illness on Saturday.
Federer reeled off 11 straight games to end the unseeded Cypriot’s magical odyssey and reach another landmark on his own relentless march to tennis immortality. 
Federer became the first man to win three consecutive Grand Slams since American Pete Sampras 12 years ago and the third man to win his first seven Grand Slam finals.  
Only the claycourt French Open continues to elude him as it did Sampras. 
Federer, a model of on-court composure, clawed his way back from losing the first set and trailing 2-0 in the second. 
Baghdatis had captured the imagination of tennis fans the world over with his fairytale run to the championship match, but the ever-smiling Cypriot was unable to keep pace with Federer once the top seed raised his game. 
“It’s like a dream and I’ve just woken up at the end,” Baghdatis said. 
The 20-year-old made a confident start in his first Grand Slam final, breaking Federer’s serve in the fifth game, then again in the 11th game after handing back the initial break. 
He skipped to a 2-0 lead in the second set as an unusually error-prone Federer struggled to find his rhythm.  
Once he did, however, the match was as good as over. 
Federer got back on level terms as mistakes started to creep into his opponent’s game, winning the second set off an unforced error, and he stormed through the third set in 24 minutes. 
An early break in the fourth set gave Federer a 3-0 lead and although Baghdatis held serve to end an 11-game losing streak, his body was showing signs of caving in before his spirit. 
The former junior world number one, now ranked 54th in the world, had beaten three top-10 players in Andy Roddick, Ivan Ljubicic and David Nalbandian to reach the final. 
But the effort had taken its toll and he started to cramp up midway through the fourth set. 
He received treatment to his left calf muscle and although he continued, Federer comfortably held his remaining service games and then broke once more to close out victory in two hours 46 minutes.
Third seed Mauresmo, the 1999 Melbourne runner-up, won the first set 6-1 after dominating the early exchanges and led 2-0 in the second when Henin-Hardenne pulled out. 
“It would have been probably different if the match went to the end but the joy is here,” Mauresmo told a news conference. 
“I’ve been waiting so long for this and really worked hard for this, it’s a really great achievement. I’m probably the proudest woman now,” the Frenchwoman said after lifting the trophy in her 32nd Grand Slam tournament. 
Mauresmo raced into a 5-0 lead after breaking eighth seed Henin-Hardenne in the second and fourth games, the second one coming after an uncharacteristic backhand error by the Belgian. 
Mauresmo served out the set after 33 minutes on Rod Laver Arena, Henin-Hardenne netting a forehand service return on the final point as Mauresmo finally put paid to her reputation as a big-match choker. 
She grabbed another service break in the opening game of the second set but former world number one Henin-Hardenne was clearly struggling and could go no further, retiring after 52 minutes at 0-30 on her serve. 
Henin-Hardenne said she had suffered an upset stomach after doubling the dose of anti-inflammatory tablets she had been taking for a shoulder problem, adding that she had no regrets. “It’s my decision, my choice. I decided to walk on the court because I’m professional, I want to try,” said Henin-Hardenne, who won $457,500 as the losing finalist. 
Henin-Hardenne said she realized many people would think she should have carried on. 
“Everyone has the right to think that but it’s my health,” said a tearful Henin-Hardenne, who was unable to defend her 2004 Australian Open title last year because of a knee injury. 
“I have to think about myself right now. It’s me that was feeling bad,” she said. 
Mauresmo said she had bought a special bottle of wine, reported to be a 1937 Chateau d’Yquem Sauternes, several years ago to open when she won her first Grand Slam. 
“Now I’m going to have to open it. We will have, I’m sure, more than one,” she said.

TITLE: Track Stars Fall to Russian Newcomers
AUTHOR: By Krystyna Rudzki
PUBLISHER: The Associated Press
TEXT: GLASGOW, Scotland — Young Russians upstaged some established stars Saturday at the Glasgow indoor athletics meet. 
Olympic gold medalists Tonique Williams-Darling, Veronica Campbell and Maria Mutola were all beaten at the meet, which served as preparation for the indoor world championships in Moscow from March 10-12, and the Commonwealth Games in Melbourne, Australia, from March 15-26. 
Williams-Darling, the reigning world and Olympic champion at 400 meters, was nearly three seconds behind Olga Zaitseva over the two-lap indoor version. Campbell, the Olympic 200 champion, was beaten in the 60 sprint by Yulia Tabakova. 
And Mutola’s goal of winning her sixth world indoor title and third straight Commonwealth gold failed when she hurt her right calf after finishing second in the 800 to Yulia Chizhenko. 
The three Russians all won three days ago at the Russian Winter meet in Moscow, the start of the 2006 indoor season. 
Other winners at Kelvin Hall included world champion Kajsa Bergqvist in the high jump, Russia’s Tatyana Kotova in the long jump and Britain’s Jason Gardener in the 60 meters. 
Bergqvist won with a jump of 2.01 meters and failed in three attempts at 2.04. Kotova jumped 6.75 in her win, and Gardener clocked 6.59 seconds in his. 
The 21-year-old Zaitseva pulled ahead after the first lap to easily win the 400. She finished in 50.62, three days after running 50.15 to win in Moscow, with Williams-Darling second in 53.48. 
“I do not want to put a ‘bad feeling’ onto my season so I’ll just say that I am looking forward to the next big race,” said Zaitseva, who won the European under-23 400 title last year. 
Tabakova won the 60 in 7.11 after two false starts. 
“I am running very well at the moment,” Tabakova said.