SOURCE: The St. Petersburg Times
DATE: Issue #1179 (45), Tuesday, June 20, 2006
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TITLE: Protesters Prepare For Demos At G8 Summit
AUTHOR: By Galina Stolyarova
PUBLISHER: Staff Writer
TEXT: Flashmobs, demonstrations, tram excursions and not more than 2,000 participants comprise the bulk of what Russia’s antiglobalists are planning for the Second Russian Social Forum, a protest event timed to coincide with the forthcoming G8 meeting in St. Petersburg in July.
The forum’s organizers say they expect not more than 2,000 activists to take part in the “counter-summit,” a far cry from antiglobalist campaigns in North America or Western Europe, where thousands of protesters have taken to the streets in the past to show their discontent with what they describe as a “world where the rich are getting even richer, while the poor are dying in starvation.”
Despite the scale of past antiglobalist demonstrations, not many foreigners seem to be eager to travel to Russia this time around.
“For most potential participants, getting here is too expensive, takes too long and is too complicated; on top of that, Russia is considered to be insecure,” said Vladimir Soloveichik, a left-wing politician and one of the forum’s organizers. 
“No wonder they are so reluctant to come. All these concerns are sure to keep people at home. We are hoping to get about 700 locals with some 300 activists from other Russian towns — 200 or so delegated from the CIS states and between 300 and 400 participants from Western Europe.”
Over the course of the summit, antiglobalists will establish an impromptu camp by the Kirov Stadium on Krestovsky Island on the Petrograd Side. The agenda of the “counter-summit” reflects the program of the G8 summit itself: energy, global security, health care, human rights and the fight against poverty.
“The only difference will be the solutions offered,” Soloveichik explained.
The forum will serve as an umbrella for a wide range of Russia’s opposition movements.
“In our country, where social and civil rights are facing an oppression that is growing steadily stronger, Russia’s social, political, human rights and environmental groups are preparing a response to the G8 club,” reads the official statement of the forum, signed by Lev Ponomaryov, the leader of the Russian Movement for Human Rights, and by Boris Kagarlitsky, director of the Moscow-based Institute for Problems of Globalization, among others. “G8 unites the world’s most developed countries which have formally declared their commitment to humanitarian and democratic values; but it is these very countries that are ignoring human rights and fundamental freedoms, which sets a dangerous worldwide trend.”
Besides the alternative forum, the antiglobalists are planning a string of performances, flashmobs, meetings and even a special tram ride tailored to lead the visitors through “Disappearing St. Petersburg” — dilapidated historical sites or landmarks slated to be demolished to vacate space for commercial projects.
“We are not going to confine ourselves to the limits of Krestovsky Island, where City Hall has kindly allocated a reservation for us,” Mikhail Druzhininsky, one of the leaders of the Movement For Civil Initiatives, told Interfax on Friday. “I, for one, am going to unveil a new monument, dedicated to the new Russian VIPs.”
Yevgeny Kozlov, one of the leaders of the Committee for the Protection of People’s Social and Labor Rights, said a vicious stereotype of antiglobalists developed when their protests resulted in violent riots, especially during the G8 summit in Genoa in 2001.
“Extremist groups are parasites on the back of our movement; they declare themselves as antiglobalists and exploit our peaceful marches to start street fights and incite violence,” he said. “We have no other tools against them other than patiently explaining who we are and sticking to the programs we announce.”
Soloveichik said local police have been trying to intimidate the opposition as the summit approaches by inviting for informal talks and personal warnings those whom law enforcement agencies see as a potential threat to security.
“The officers handled these talks politely but, with a long and compelling history of police violence against opposition in this town, they didn’t really need to use direct threats,” he added.

TITLE: Putin May Be Backing Dark Horse in 2008
AUTHOR: By Oksana Yablokova
PUBLISHER: Staff Writer
TEXT: MOSCOW — President Vladimir Putin says his successor could be a little-known figure, suggesting insiders like First Deputy Prime Minister Dmitry Medvedev and Defense Minister Sergei Ivanov might not get the president’s support.
Speaking to reporters Friday in Shanghai, where he was attending the Shanghai Cooperation Organization summit, Putin for the first time suggested that a dark horse could wind up in the Kremlin after he leaves.
The next president could be “someone who is not very well known ... not necessarily one of two people,” news agencies quoted Putin as saying, a reference presumably to Medvedev and Ivanov. 
Putin said in May that he would name a preferred successor before 2008, when his term ends, explaining that he wanted to ensure stability and that, as a Russian citizen, he has a right to express his point of view.
But on Friday Putin shed little light on who that successor might be. The qualities he is looking for, he said, are “decency and honesty, professionalism and the ability to take responsibility for one’s decisions.”
“It would take just one instance of hiding behind someone else’s back, and the country would break into pieces,” Putin said.
Ivanov, who is also a deputy prime minister, and Medvedev, who also serves as Gazprom’s chairman and formerly was Putin’s chief of staff, have been leading carefully orchestrated campaigns to win Putin’s approval.
Conventional wisdom has it that whomever Putin taps will win, given the president’s overwhelming popularity and the state’s control of the media and its marginalization of opposition parties.
Medvedev and Ivanov were promoted last fall to deputy prime minister under Prime Minister Mikhail Fradkov. Since then, both have enjoyed generous television coverage on the state-controlled Channel One and Rossia stations.
Friday’s comments, said Alexei Makarkin of the Center for Political Technologies, show the president is mulling over his options. “This undoubtedly lessens their chances of being picked,” Makarkin said, referring to Medvedev and Ivanov.
Other potential successors include presidential chief of staff Sergei Sobyanin and Vladimir Yakunin, head of Russian Railways. 
Sobyanin and Yakunin typically keep a low profile, meaning they might be thought to fall under the category of “little-known.”
Andrei Ryabov, a political analyst with the Gorbachev Fund, said Putin was being deliberately vague to remind the political elite that he was still president and that he was not a lame duck.
“Only two days earlier,” Ryabov recalled, “Medvedev went on television with statements reminiscent of a presidential program, and then Putin comes with his remarks about a dark-horse successor.”
Nearly all analysts agree that Putin will not publicly name his choice until well into 2007 so as not to compromise his own power and prevent his would-be successor from being thrashed by political rivals.
The possibility, mentioned by some analysts, that Putin will simply let Medvedev and Ivanov battle it out for the presidency does not jibe with Putin’s personnel style, said Vyacheslav Nikonov, Politika Fund president, according to Interfax. 
Putin, a former KGB officer, is known for his secretive handling of personnel decisions. In March 2004, for instance, following the dramatic dismissal of Prime Minister Mikhail Kasyanov and his Cabinet, Putin turned to Fradkov, who at the time was Russia’s relatively unknown envoy to the European Union. 
Fradkov was also a former foreign trade official. He is not considered a presidential contender.
For now, Nikonov said, Putin will most likely promote his hand-picked successor to the post of prime minister in the fall of 2007.

TITLE: Fired Prosecutor General to Rejoin Government
AUTHOR: By Simon Saradzhyan
PUBLISHER: Staff Writer
TEXT: MOSCOW — Former Prosecutor General Vladimir Ustinov will soon rejoin the government, ending speculation that he was forced to resign over corruption in his office.
“There are no complaints about him,” President Vladimir Putin said of Ustinov, 52, who spent six years as the country’s top prosecutor. 
Putin’s comments came at a news conference late last week in Shanghai, where he was meeting with leaders from the Shanghai Cooperation Organization.
Putin said Ustinov, now on vacation, would be assigned a job that would be “in principle, equivalent” to his old post. The president also said he had already decided what that job would be but declined to disclose it.
It is doubtful Ustinov will remain as powerful as he once was, said Alexei Makarkin of the Center for Political Technologies. 
Ustinov resigned as prosecutor general on June 1. The next day, the Federation Council approved his resignation.
Government officials have indicated they plan to make the Kremlin’s anti-corruption effort a centerpiece of the 2007 parliamentary and 2008 presidential elections. 
Russian newspapers have been awash with speculation that the Kremlin forced Ustinov to step down because of allegations that his office had shielded furniture smugglers from prosecution.
Soon after Ustinov’s departure, prosecutors arrested Sergei Zuyev, the head of furniture retailers Tri Kita and Grand, and four others as part of a years-long saga involving millions of dollars in unpaid import duties.
Commenting on the Tri Kita case in Shanghai, Putin said he had asked Leningrad region prosecutors to head up the case because Moscow city investigators might have been influenced by local law enforcement and customs officials determined to derail the investigation.
Also fueling speculation that corruption had stymied the Tri Kita investigation — and expedited Ustinov’s fall from power — was the fact that Putin referred to the investigation at a recent meeting with lawmakers, Vladimir Vasilyev, chairman of the State Duma’s Security Committee, told Interfax on Friday.
Ustinov’s replacement at the Prosecutor General’s Office could be either one of the deputy prosecutor generals, Sergei Gerasimov and Vladimir Kolesnikov, speculated Issa Kostoyev, a Federation Council senator and former prosecutor.
It is widely thought that Putin will not tap acting Prosecutor General Yury Biryukov, who is older than other candidates. Biryukov was absent from Thursday’s G8 meeting of senior law enforcement officials in Moscow. Deputy Prosecutor General Alexander Zvyagintsev represented Russia at the meeting.
Also hurting Biryukov’s chances, and those of Kolesnikov, is that both were loyal Ustinov lieutenants, Makarkin suggested. Promoting either to the top job would boost the siloviki, a group of former security officials now serving in the Kremlin, other analysts said.
Putin’s reason for firing Ustinov, Makarkin said, was to curb the influence of the siloviki and restore a balance of power among his subordinates.

TITLE: Putin Calls for United Effort at Asian Summit
PUBLISHER: The Associated Press
TEXT: ALMATY, Kazakhstan — President Vladimir Putin and Chinese President Hu Jintao on Saturday called for a multilateral approach to problems in Asia at a security summit hosted by Kazakhstan.
“We cannot sit around given the threats and challenges that the countries of Asia are facing today,” Putin said at the one-day gathering of the Conference on Interactions and Confidence-Building Measures in Asia, or CICA. 
He cited terrorism, bird flu and AIDS as chief concerns.
Delegates repeatedly issued calls for peace at the summit of the 18-member group, which last met in 2002 and is intended to serve as a platform for dialogue on Asia’s drawn-out conflicts and other security issues.
Still, the meeting came amid reminders of long-running conflicts in the region: escalating violence in Sri Lanka, reported preparations by North Korea to test-fire a long-range missile that could reach as far as the U.S. mainland, and fighting with insurgents in Afghanistan.
“It is important to have a multilateral approach in the region,” Hu said.
The participants signed a declaration after the meeting pledging to step up joint efforts to fight terrorism, organized crime, separatism and drug-trafficking.
The declaration expressed support for UN reforms and the election of an Asian candidate as UN secretary-general.
Among the group’s members are longtime adversaries and negotiating partners such as India and Pakistan, and Israel and the Palestinian Authority.
Israeli Vice Prime Minister Shimon Peres said that Israel and the Palestinians were closer to peace than they had been in the past 50 years, but added that the pace of the two sides’ movement toward peace was “very slow.”
Afghan President Hamid Karzai pledged to strengthen border control to curb the drug flow out of his country.
Uzbek President Islam Karimov used the summit to criticize the West for its condemnation of his bloody suppression of the Andijan uprising last year, slamming “the universal use of double standards” in world politics.
Karimov also deplored unnamed countries for “ignorance” and disrespect for other cultures by “linking international terrorism to the sacred religion of Muslims, Islam.”
Other CICA members are the other Central Asian nations, Mongolia and Thailand. South Korea become the group’s new member on Saturday.
The leaders signed an agreement on creating a permanent secretariat to be based in Almaty.

TITLE: IN BRIEF
TEXT: Oil Slicks On Neva
ST.PETERSBURG (Interfax) — Oil slicks were detected on Neva River on Monday in the area surrounding the Sverdlovskaya Embankment, the city’s branch of Emergency Situations Ministry reported. 
“According to preliminary reports, the slicks, carried by the current, reached the city from the Srednenevsky shipbuilding factory, situated in the village of Pontonny, where an oil leakage has been taking place over the past few days,” the Ministry reported.
Temporary floating booms are now being installed on the Neva to the avoid further spread of oil.

Kite-Surfing Cup
ST. PETERSBURG (SPT) — The 3Com Kite Cup, Russia’s premiere kite-surfing tournament, begins in the city on Tuesday and will run through Sunday, according to the Kite-surfing and Windsurfing Federation.
The event is being held at the Dyuny (Dunes) resort to the north of the city. 
Kitesurfing, being “one of the most entertaining-to-watch, dynamic and fashionable sports around,” unites windsurfing, wakeboarding and kiting, the federation reported in its press release.

TITLE: Chechen Rebel Leader Sadulayev Shot Dead
AUTHOR: By Carl Schreck
PUBLISHER: Staff Writer
TEXT: MOSCOW — Chechen rebel leader Abdul-Khalim Sadulayev was killed by special forces over the weekend in an operation that Chechnya’s prime minister trumpeted as a fatal blow to the insurgency.
Sadulayev, however, is credited with persuading warlord Shamil Basayev not to carry out any major terrorist attacks since Beslan.
Chechen warlord Doku Umarov is to take over as rebel leader.
Details of Sadulayev’s death remained sketchy on Monday. 
Chechen Prime Minister Ramzan Kadyrov said he was shot dead Saturday in his hometown of Argun during a raid prompted by a tip from someone within Sadulayev’s inner circle. 
Kadyrov, posing and grinning for television cameras next to a battered, half-naked body that resembled Sadulayev, said the informant had tipped off police for drug money.
“One person sold us Sadulayev — their dearest friend whom they consider their own — for 1,500 rubles,” or about $50, Kadyrov said. 
“He needed to buy a gram of heroin. He sold out his leader for heroin.”
Kadyrov said that his paramilitary police had wanted to capture Sadulayev but were forced to kill him when he resisted arrest. 
State television showed the basement of the house where it said the rebel leader had been hiding. The television reported included footage of the wall of the building, which was riddled with bullets. 
The body was later moved to Kadyrov’s hometown of Tsentoroi and shown with items seized at the house. The confiscated items included grenades, a handheld radio and a belt carrying ammunition. 
Kadyrov said Sadulayev had traveled to Argun in order to organize a terrorist attack that was planned to coincide with the Group of Eight summit in St. Petersburg next month. He did not elaborate.
He added: “The terrorists had been virtually beheaded. They have sustained a severe blow, and they are never going to recover from it.”
The rebel web site Kavkaz Center said Sadulayev had been martyred “in an unequal battle between Russian invaders” and “traitors” in Argun.
One police officer and one Federal Security Service officer died in the operation, Federal Security Service director Nikolai Patrushev said.
Police combed Argun for two of Sadulayev’s bodyguards and other possible accomplices on Sunday, Interfax reported.
Sadulayev was the fourth Chechen rebel leader to be killed in 11 years. His predecessor, Aslan Maskhadov, died in a bunker during a raid of a Chechen village in March 2005.
Rebel envoy Akhmed Zakayev, who lives in London, where he has asylum, said on Ekho Moskvy radio that Umarov would replace Sadulayev as leader.
Chechen officials have accused Umarov of leading a June 2004 raid in Ingushetia that killed more than 90 people and of organizing a car bombing in Chechnya last month that killed 14.
In a June 2005 interview with Andrei Babitsky of Radio Liberty, Umarov denied involvement in terrorist attacks and criticized Basayev for ordering the Beslan raid.
Umarov made news last week when a video was posted on Kavkaz Center showing him and Basayev discussing the assassination of pro-Moscow Chechen leaders. 
Basayev — who has claimed responsibility for numerous terrorist attacks, including the 2004 Beslan school raid that killed 331, more than half of them children — told Umarov that he was willing to pay $50,000 to assassinate Kadyrov and that he had paid $50,000 to assassinate Kadyrov’s father, former Chechen President Akhmad Kadyrov, in 2004.
Sadulayev was a little-known Muslim cleric when he took over last year. He publicly denounced the targeting of civilians and said he and Basayev disagreed on whether hostage-takings were acceptable. 
He promoted a strategy of extending rebel activity across the North Caucasus, saying almost the entire region had become a front in the war.
Sadulayev also urged Basayev and other warlords to direct attacks on “legitimate targets,” including law enforcement officials, federal troops and local civil servants and their offices.
He appears to have convinced Basayev that giving up on civilian targets would help spread the insurgency across the North Caucasus, said Adam Dolnik, research fellow at the Institute of Defense and Strategic Studies in Singapore.
But with Sadulayev’s death, it is unclear whether Umarov will follow the same course.
“Much will depend on Umarov’s personal qualities,” said Andrei Soldatov, editor of the Agentura.ru web site, which studies terrorism and government responses to it. 
“Unfortunately, I fear he is a much different person” than Sadulayev.
The decision to call off attacks on civilians might have had less to do with Sadulayev’s political will and more to do with the fact that such attacks, after Beslan, lost any political justification they might have had, said Nikolai Silayev of the Center for Caucasus Studies at the Moscow State University of International Relations.
“The level of cruelty went beyond all imaginable limits, and terrorism against a civilian population was completely exhausted as a political tool,” Silayev said.
While Sadulayev’s death deals a blow to the rebels, it is unlikely to change anything, he added. 
“With a lack of objective information about their camp, it’s not even clear how coordinated their forces are,” he said.
Alexei Malashenko, a Caucasus analyst at the Carnegie Moscow Center, concurred, saying Sadulayev “liked talking more than taking action.”
Malashenko predicted that Kadyrov would use the death to try to strengthen his position in the republic. 
“He has posed next to the body and is trying to depict the death as a success by his own people,” Malashenko said. 
“But I think this was a combined effort. And I think Patrushev will be unpleasantly surprised to hear he had nothing to do with it.”

Staff Writer Simon Saradzhyan contributed to this report.

TITLE: Weakness Found In OECD Stats
AUTHOR: By Evgenia Ivanova
PUBLISHER: Staff Writer
TEXT: While moderate levels of economic expansion lie ahead for Euro area countries and Japan, the outlook for Russia is much weaker according to a report released June 8 by the Organization for Economic Development and Cooperation.
Although the Composite Leading Indicator, or CLI, a tool to provide early signals of turning points (peaks and troughs) in economic activity, increased by 1.1 point in April, the researchers say the overall picture is not at all positive.
As with every instrument of statistical analysis, the CLI has to be used carefully, experts warn.
According to Ronny Nilsson, an administrator for the OECD’s Statistics Directorate, a record of slight economic improvement in the country in the short term was a result of a strong rise in world oil prices together with an increase in the quantity of money available within the economy.
“However, the growth rate of the index shows a downward trend since October 2005, …so the main message in the CLI for Russia is a weaker outlook [for up to nine months] ahead,” Nilsson said Monday in an e-mailed statement. 
Russia’s experts found the OECD’s forecast a little surprising and said it should only be used sparingly. 
“Although the OECD is a well respected source of various economic data, such indexes have to be applied with caution and can be used only as an additional measure that characterizes a certain situation,” St. Petersburg-based economist Elena Semenikhina said in an interview Monday.
“An index calculated for a period of six to nine months simply can’t be a serious enough reflection of the overall economic situation in the country,” Semenikhina added. 
“As I understand it, they’ve just analyzed some economic factors for a period of six months and then built their forecast upon it. But this analysis is not sufficient for any confident forecast,” said another economist, Alexey Popov, who is also a deputy head of the finance department at a Moscow-based construction company, 
“I’ve got a different impression of the economic situation in Russia — we have had growth in the stock exchange, and the ruble has been growing stronger against the [US] dollar, so I am slightly surprised at their prediction.”
The research from the Paris-based organization has until now only highlighted the G7 major economies and provided an aggregate indicator for all OECD members (except Iceland).

TITLE: Russian First-Quarter Growth Slowest in Year
AUTHOR: By Svenja O’Donnell and James M. Gomez
PUBLISHER: Bloomberg
TEXT: MOSCOW — Russia’s economy grew at the slowest pace in a year in the first quarter as the ruble’s strength slowed exports, inflation choked investment and the government failed to encourage non-oil industries.
Gross domestic product rose an annual 5.5 percent from 7.9 percent in the final quarter of 2005, the Federal Service of State Statistics said in a statement on its Web site Friday. The ruble has gained 6.5 percent against the dollar this year.
Russia, the world’s biggest energy exporter, is struggling to curb inflation after missing its 10 percent target last year and in 2004 as fuel prices soared. It’s also trying to prevent a gain in the ruble from hurting manufacturers, after the currency this month rose to more than a six-year high.
“Given the strength of oil prices, Russia should have had the potential to achieve a higher rate of growth,’’ said Sonal Desai, an economist at Dresdner Kleinwort Wasserstein in Milan.
“These figures show there’s not enough investment, and they are a result of lack of reform.”
President Vladimir Putin has publicly supported state companies such as Rosneft over the past 18 months as they tripled their share of the nation’s oil output to 30 percent, partly through the government’s confiscation of Yukos Oil Co.’s biggest unit.  Energy exports made up about 68 percent of total exports in the first quarter.
The ruble, which rose to more than a six-year high against the dollar earlier this month, traded at 27.01 against the U.S. currency at 5:05 p.m. in Moscow, from 27.03 late yesterday. Against the euro, it was at 34.16, from 34.11. The central bank controls the ruble by buying and selling dollars.
“I think there is a tendency in the media to talk down Russia when actually the macro story is still very strong and compelling,” said Tim Ash, managing director at Bear Stearns International Ltd. in London, in an e-mailed comment.
Finance Minister Alexei Kudrin said on July 14 the resulting pick-up in inflation makes it costly for companies to invest in new plants and equipment. Exports were down 4.3 percent in April from the same month a year ago.
Consumer prices rose 0.5 percent in May, after gaining 0.4 percent in April, the statistics office said June 6.
Russia is struggling to curb inflation to 9 percent by the end of this year from 10.9 percent last year. The forecast was revised up from an earlier target of 8.5 percent for 2006. The government expects the economy to slow from the 6.8 percent average growth rate of the past five years. 
Investment is inadequate for keeping the economy growing at the rates desired by Putin, analysts Vladimir Pantyushin and Olesya Cherdantseva at Renaissance Capital brokerage in Moscow wrote in a report to clients on June 9.

TITLE: Russia, Paris Club Agree on Early Debt Repayment
PUBLISHER: Bloomberg
TEXT: MOSCOW — Russia and the Paris Club have reached an agreement in principle that the nation will be able to pay back early its $22 billion debt to the group of sovereign creditors, Russian Finance Ministry spokesman Andrei Saiko said.
“It’s not excluded that Russia will soon pay back in full its debt to the Paris Club,” Saiko said Sunday in a telephone interview in Moscow. “The sides are still working out the technical issues.”
Saiko declined to say whether Russia will have to pay some kind of premium to compensate lenders for the interest payments they would lose out on because of an early repayment. Germany will get $700 million as compensation for being paid ahead of schedule, Reuters reported Sunday, citing the German economy ministry.
Saiko declined to comment to Bloomberg about that report, as did a German economy ministry spokesman, who declined to be identified by name.

TITLE: Deposits To Fall Through Foreign Hands
PUBLISHER: Reuters
TEXT: MOSCOW —  A new Russian law could classify 70 oil, gas and minerals deposits as “strategic”, putting them out of reach of foreign ownership, Interfax news agency quoted Resources Minister Yuri Trutnev as saying on Monday. Under a much-delayed law on subsoil use, Russia plans to make it illegal for enterprises that are not majority Russian controlled to take ownership of large fields. 
Originally the law was expected to name six vast assets, including world-class gold and copper deposits as well as huge oil and gas fields. 
But Russia has moved to strengthen state control over its energy sector and President Vladimir Putin has said he wanted the law to be beefed up, with more fields deemed “strategic”.
Last week, Trutnev said he wanted to slash the threshold for energy deposits to be “strategic” to 70 million tonnes of oil or 50 billion cubic metres of gas, far below the original quotas of 150 million tonnes or 1 trillion cubic metres.
“We have proposed new criteria on the size of reserves for classifying a field as strategic. The new criteria substantially enlarge the list of oil and gas fields,” Trutnev told Interfax in an interview.
“Now, if these criteria are used, around 30 oil fields and 40 gas fields will be classified (as strategic).”
His ministry was also proposing cutting the threshold for gold from 700 tonnes to 50 tonnes and for copper to 500,000 tonnes from the previous 10 million tonnes, Trutnev said.
But he said that even with those criteria, the list would only contain one gold deposit — Sukhoi Log — which was always expected to be classified by the law. The lower limit on copper would mean three copper deposits would be “strategic”, he said.

TITLE: Gazprom in Japan’s Pipeline
PUBLISHER: Bloomberg
TEXT: TOKYO — Gazprom may invest in a 300 billion yen ($2.6 billion), 850-kilometer pipeline to transport natural gas from Sakhalin Island to northern Japan, the head of the Japanese project said.
Japan Pipeline Development Organization, based in the northern island of Hokkaido, is in talks with Gazprom, Russia’s natural gas monopoly, Chief Executive Hideo Ogawa said. The pipeline may link to Exxon Mobil’s Sakhalin-1 project or Royal Dutch Shell’s Sakhalin-2 venture, he said.
“We’re seeking Japanese investors for about half the funding,” he said. “For the other half we’re talking with Gazprom and several other U.S. and European companies.”
The proposal may revive a plan to market gas from Sakhalin in Japan, which stalled because of a lack of support from Japanese utilities around Tokyo, the biggest market. Japan Pipeline’s new project would tap demand in northern Japan.
Japan Pipeline initially will spend 70 billion yen building a 360-kilometer pipeline between the Russian port of Korsakov and the Hokkaido town of Wakkanai by 2011. The pipeline will extend to Aomori, on the northern tip of Japan’s main island of Honshu, by 2013. The company may also build a power plant with General Electric as part of the project, Ogawa said.

TITLE: IN BRIEF
TEXT: Airport Express
ST. PETERSBURG (SPT) — The Swedish company “People travel group” announced details of its first Russian project on Wednesday, a new shuttle service to and from Pulkovo airport. 
The new service “Airport Express” will depart from the metro stations Pushkinskaya and Technologichesky Institute and run nonstop to both Pulkovo terminals.  
A total of eight Scania buses, each with seating for 30 people, will serve the new route.
Singles for adults will be 70 rubles, children and disabled — 50 rubles. An adult return will cost 130 rubles.

TITLE: Schroeder Emphasis On Russian Stability
PUBLISHER: Agence France Presse
TEXT: MOSCOW — The European Union has no reliable alternative to Russia for energy imports, former German chancellor Gerhard Schroeder said in a speech that emphasized Russia’s role as a stable energy supplier. 
“There is no reliable alternative to Russia,” Schroeder, hired in March as a top executive for a Gazprom-led pipeline project, told a conference in Moscow Monday organised by the Renaissance Capital investment group.
Europe depends on Russia for around a quarter of its gas imports and a third of oil imports.
“There is no more stable region in the world than Russia to provide oil and gas,” said Schroeder, who served as chancellor between 1998 and 2005.
He added that potential foreign investors “should make an allowance for Russian pride” and said that “Russian companies should have the same opportunities in the European market as the EU have in Russia.”
“The energy partnership between Russia and Europe will benefit both sides,” he said.
The former German chancellor now heads the shareholders’ committee for a consortium made up of Russia’s state-controlled Gazprom and German energy giants BASF and E.ON that is building a gas pipeline under the Baltic Sea between Russia and Germany.
Russian President Vladimir Putin has called the energy sector the country’s “holy of holies” and said Russia should get compensation from Europe for allowing access for European companies to its energy reserves.
In Europe, a debate on diversifying energy imports away from Russia has gathered speed since some deliveries were disrupted in January when Russia briefly stopped supplying Ukraine during a price dispute.
But Schroeder on Friday said Russia’s reputation had not been damaged by the cut-off.
“A sovereign state has to pay market price for gas. At the time when Ukraine pays $50 per 1,000 cubic metres, we pay $240. The privilege for Ukraine was amazing,” he said.
Responding to criticism of the North-European Gas Pipeline, particularly from Poland and Baltic states who say they were never consulted on the Russian-German deal, Schroeder said the project “is not directed against anyone or to replace any route.”

TITLE: Duma Gas Export Bill Passed at First Reading
AUTHOR: By Dmitry Zhdannikov
PUBLISHER: Reuters
TEXT: MOSCOW — The State Duma gave a first reading Friday to a bill granting gas monopoly Gazprom the exclusive right to export gas, despite Moscow’s pledge to the European Union to gradually liberalize markets. 
The bill, which passed by a vote of 386-6 with eight abstentions, stipulates that gas must be considered a strategic material and therefore should be exported only by Gazprom or its export arm, Gazexport, to protect national interests. 
“Export regulations via a sole operator will ensure efficiency of export operations for the state and Russian gas producers,” reads an annex to the bill. 
Valery Yazev, head of the Duma’s Energy, Transportation and Communications Committee and an author of the legislation, said the bill was crucial to helping Russia avoid ratifying the Energy Charter, which could force the country to open up gas pipelines to competition. 
“There are fears that during Russia’s accession to the WTO we might be forced to ratify the Energy Charter,” Yazev said. Russia expects to join the World Trade Organization before the end of this year. 
“It is crystal-clear that Western countries are stepping up the pressure on Russia as they want access to our energy resources and gas transportation system to pump out all of our gas and help gas prices plunge in Europe,” Yazev said. 
The required second and third readings of the bill are scheduled for June 28. The bill would become law after being approved by the Federation Council and signed by President Vladimir Putin. 
The Kremlin, which is regaining control over strategic energy industries, has declined to comment on the bill, and it remains unclear whether Putin will support it. 
The EU has repeatedly called on Russia to open its gas market to boost competition and potentially bring down prices. 
The EU says liberalizing the Russian market would prevent major supply disruptions like those of early this year after Gazprom reduced flows to Europe during a pricing dispute with Ukraine. 
Moscow argues it has to defend its security and plans to restrict foreign firms’ access. 
It also accuses the EU of blocking Gazprom’s expansion abroad, in countries such as Britain. 
Finance Minister Alexei Kudrin said earlier this year that Russia might gradually open up its gas market to competition, but said later that he meant only competition between domestic suppliers, and not the export monopoly. 
The law says there will be only two exceptions to Gazprom’s monopoly — production sharing agreements on Sakhalin by ExxonMobil and Royal Dutch Shell — as their terms cannot be changed. 
Russian independent gas producers and oil firms have long lost any hope of exporting gas independently and say they only want Gazprom, which controls all trunk pipelines in Russia, to give them easier access to domestic users.

TITLE: Derivative Deals to Get Legal Support
AUTHOR: By Yuriy Humber
PUBLISHER: Staff Writer
TEXT: MOSCOW — The derivatives market received a boost Friday as a bill that will provide legal protection for trading in the financial instruments cleared its first hurdle in the State Duma. 
Legislators unanimously passed in the first reading a bill that gives courts’ support for derivative deals concluded on or off the stock market, said Anatoly Aksakov, deputy head of the Duma’s Credit Organizations and Financial Markets Committee.
Industry players said the bill would provide impetus to developing off-bourse trading and also boost domestic capital markets. “This is the first positive change we have seen for the derivatives market in the country,” said Ilya Yefimchuk, head of analytical agency Derivative Expert.
The derivatives market is the fastest-growing financial sector in Russia. While in 2005 derivatives trading volume was just $13 billion for the year, now there are about $1 billion worth of contracts concluded daily, Yefimchik said. 
At the moment, derivates contracts concluded for deliverable products — such as futures contracts for oil, grain and other commodities — are treated like sales contracts and already enjoy legal protection. However, futures contracts in which no delivery of a product is carried out, or so-called nondeliverable forwards, are classed as gambling, although they receive some protection when sold on the stock market. 
The worldwide market for nondeliverable forwards is worth $870 trillion. They are popular with banks and firms as a means of hedging against the risk of currency and commodity fluctuations. 
If the bill is signed into law, all off-bourse and on-bourse trading in both types of derivatives will be recognized as legitimate and will be provided with legal protection. The bill is expected to have its second reading in October.

TITLE: Protesters Try to Block Cherkessk Hydro Dams
AUTHOR: The Associated Press
TEXT: CHERKESSK — Scores of people blocked the main road out of Cherkessk to protest the construction of three hydroelectric dams that environmentalists consider a grave threat to the area’s fragile ecosystem.
The protest on the Cherkessk-Arkhiz highway began Thursday, and the road was still blocked Friday afternoon by people who say they are already feeling the effects of the first dam, which was opened in 1999 amid the sprawling valleys and snowcapped peaks of the northwest Caucasus.
The company overseeing the construction, Zelenchukskiye GES, said that the dam had already redirected 70 percent of the flow of the Bolshoi and Maly Zelenchuk rivers into the larger Kuban River — seven times the 10 percent that a 1991 government report warned would cause an environmental catastrophe in the Zelenchuk river valley, which is less than 150 kilometers away from Mount Elbrus, Europe’s highest mountain.
Zelenchukskiye GES is defending its dams, saying a local source of electricity would help the republic of Karachayevo-Cherkessia’s struggling economy.
But critics of the project claim that the economic benefits are minimal and far outweighed by the damage done to the environment.
“The electricity produced there isn’t even enough to cover 3 percent of the needs of Karachayevo-Cherkessia,” said Murat Khatukayev, deputy head of a government commission that examined the project in 1991. “The economic advisability in this case is less than zero, and the consequences are immeasurable and, most frightening of all, irreparable.” 
The drop in moisture resulting from the new dam is affecting the area’s nature preserve, which is home to several endangered species of plants and animals, including a rare variety of trout. Mohammed Nakolhov, the chief forestry protection officer for the preserve, said the drop in the water level of the Maly Zelenchuk was killing off endangered trees and damaging animals’ fertility.
The Zelenchuk rivers are also the only source of water for the some 50,000 people residing in towns and villages in the two valleys. The rivers now run shallow and muddy, and the water supply in the three municipalities has been restricted to two hours in the morning and part of the night.
Health agencies in the towns report that the incidence of infectious diseases — such as hepatitis and intestinal infections — has risen sharply. According to Aslan Damalayev, the chief public health official for the area, the rate of infectious disease has risen nearly fivefold since the first dam opened in 1999.

TITLE: State Wins Back Stolichnaya
PUBLISHER: Reuters
TEXT: AMSTERDAM — State brands manager Soyuzplodoimport won back the rights to the Stolichnaya vodka brand from a Netherlands-based spirits company in a Dutch court this week, according to documents released Friday. 
Stolichnaya was licensed by Spirits International of Rotterdam for years and earned “hundreds of millions of euros” for the company and its director, Yury Shefler, said Joris van Manen, Soyuzplodoimport’s lawyer. There was no listing for Spirits International or for Shefler. 
Neither could be immediately reached for comment. 
In a ruling, the District Court of Rotterdam said the Russian state company that originally owned Stolichnaya had not been validly privatized. Spirits International acquired Stolichnaya after several transactions following the collapse of the Soviet Union, when state assets were being sold. 
“The Russian state is still the owner of the vodka brand,” Van Manen said.

TITLE: Wheeling and Dealing with Northern Capital
AUTHOR: By Yekaterina Dranitsyna
PUBLISHER: Staff Writer
TEXT: St. Petersburg’s standing as one of the regions with the lowest investment risk in Russia was reemphasized by top city officials at the 10th St. Petersburg International Economic Forum, which ran June 13 through 15.
During the forum companies signed contracts amounting to around $1 billion, minister for economic development and trade German Gref said Wednesday summarizing the forum’s achievements.
Among the major contracts was an investment agreement with Nissan, signed June 13, for the construction of a $200 million car plant in the city. Another foreign carmaker, General Motors, started construction of its plant in the city on the same day.
Over the last two years foreign investment has increased by over 40 percent annually, St. Petersburg governor Valentina Matviyenko said at the opening of the forum.
“St. Petersburg is focussing on the development of scientific and high-tech production,” Matviyenko said, stressing the importance of the city’s scientific base and the opportunities provided by special economic zones.
Speaking Wednesday at a round table on St. Petersburg investment opportunities Vladimir Blank, chairman of the Committee for Economic Development, Industrial Policy and Trade, said that gross regional product increased by 8.4 percent last year, exceeding growth in Russia’s GDP. This year Blank expects city industrial growth to exceed the national average as well. By 2007 gross regional product will have doubled compared to its 2003 level, Blank said.
Profit from St. Petersburg’s budget is expected at $5.37 billion. By 2009 this will increase to $8.46 billion and for the first time cover budget deficit, Blank said.
This year city budget spending on infrastructure tripled compared to 2003 and reached $993 million. Next year investment into infrastructure will increase to $1.5 billion.
The city has also won a national tender to create a special economic zone, Blank recalled, a project that will run through 2006-2026 and provide favorable terms for entrepreneurs.
“On the territory of the special economic zone the development of software, communications, consumer electronics, automatic control systems, military and civil avionics, medical equipment, analysis devices will be run, as well as the production of pilot batches,” Blank said.
The benefits of residing in a special economic zone include a unified social tax of 14 instead of 26 percent, exemption from custom fees, land tax, property tax and transport tax and a profit tax of 20 instead of 24 percent.
Blank said that the investment climate in St. Petersburg was comparable with other leading Russian regions.
As concerns profit tax, only Leningrad Oblast has tax concessions of a similar level to St. Petersburg, while property tax in St. Petersburg proves less advantageous than the Krasnodarsky region or Leningrad Oblast.
Another favorable verdict was found in a report on the investment climate in St. Petersburg and Leningrad Oblast issued earlier this year by analysts from Energy Consulting.
Investment into St. Petersburg and Leningrad Oblast tripled over the last five years, with foreign companies accounting for most investment.
“Its location around Russia’s western border provides St. Petersburg and Leningrad Oblast with one of the largest turnovers of foreign trade among the Russian regions,” the report said.
St. Petersburg accounts for four percent of Russia’s foreign trade turnover, Leningrad Oblast — over three percent. Both have steadily increased these figures in recent years. In terms of imports, the city and oblast are among the top five regions in Russia. Compared to most other regions, the city’s export structure is reasonably diversified and not too focused on raw materials, the analysts said.
St. Petersburg is the fourth largest regional contributor to Russian GDP, accounting for 3.5 percent of the national total.
In terms of industrial production, the city lies behind Leningrad Oblast with production increasing by 4.2 percent last year compared to 6.8 percent in the region.
While services account for 59 percent of the city’s economy, in Leningrad Oblast it is industrial production that dominates, accounting for around 58 percent of output.
Technology represents about a third of total production and, stimulated by the special economic zones, could increase to 50 percent in the nearest future, according to Energy Consulting.
Among the city’s major advantages Blank indicated a high concentration of technical and engineering universities and relatively cheap labor.
Alexei Zelentsov, regional director at Kelly Services in the Northwest, agreed that relatively low wages are an advantage. However he pointed out that about 300,000 vacancies were registered by the State Service for Employment, and this far exceeds the number of unemployed (19,000 people).
Investment into production in the Northwest is made attractive by the large number of engineering and production specialists. About 20 technical universities provide 10,000 specialists annually.
From the recruitment point of view, the most dynamic industries in the city are production, banking and investment, construction and real estate, IT and telecom, retail, pharmaceutical and insurance business.
One of the most important developments, according to Zelentsov, is the significant increase in demand for qualified specialists in all industries and the increasing demand for young specialists.
The labor shortage is a result of the inflow of foreign investors and expansion of existing production facilities, as well the large-scale projects realized in the city, like the ring-road and dam, Zelentsov said.

TITLE: Foreigners Banking On Attractive Acquisitions
AUTHOR: By Yelena Andreyeva
PUBLISHER: Special to The St. Petersburg Times
TEXT: The exceptional potential for growth in the Russian banking sector is luring more and more foreign investors to the country. According to Merrill Lynch’s Russian banking overview released on May 23, the outlook for Russian banking is compelling and, in the quest for long-term value, it is high time for foreign firms to own a Russian bank.
According to the overview, Russia has unique prospects in the development of retail banking. Besides the major centers of Moscow and St. Petersburg that are already increasingly well served by banks, the regions also offer great potential. While “75 percent GDP originates outside Moscow, some 85 percent of bank financing is concentrated within the capital, making the imperative for regional expansion clear,” the overview says. 
“An alternative — and perhaps the real aim of every private bank in Russia bar one or two — is to sell out to foreigners at a fancy price. Now that Impex has sold for almost three times its book value, sellers of the bigger private banks are going to be arguing for four times or more,” the Economist said on May 18, 2006.
The Economist’s forecast was proved a few weeks later in June when Rosbank, the country’s ninth-biggest lender, sold a 10 percent stake to France’s Societe Generale for $317 million. According to Rosbank’s official statement, the French banking group has the option to increase its stake to 20 percent in due course. Having opted for the transaction with SocGen, Rosbank dropped its IPO plans and called off its scheduled London shares listing. However, taking into account that the deal values the bank at more than $3 billion, {a hefty premium other Russian banks, based on its four times book value, Rosbank had the best price possible under the circumstances minus the hassle of dealing with public markets, analysts said}. 
“The transaction with Societe Generale has increased not only Rosbank’s credibility, it has also been a vote of confidence to the whole banking system of Russia, a signal of the political and banking stability in Russia given by foreign investors,” said German Aliyev, the deputy chief executive at Rosbank.
Meanwhile, the Russian banking sector still lacks banks suitable for foreign investment. Although, in January 2006, the central bank recorded 1,199 licensed banks, the figures are misleading — most of Russia’s banks are tiny or “pocket institutions” with a few controlling shareholders and are not usually worth the trouble foreign investors have to go through during transaction arrangements. According to the Economist, due to the fact that under Russian law it is much more tax-efficient for companies to lend or borrow money via a bank than directly, any self-respecting business group wants a licensed bank as its corporate treasury.
Moreover, while the banks in Central and Eastern Europe are almost all foreign owned, one half of Russia’s banks are still controlled by the state. The savings bank, Sberbank, accounted for 26 percent of all the country’s assets and liabilities, including 54 percent of all retail deposits at the end of 2005. Thus, the state-controlled Vneshtorgbank and Gasprombank together with Sberbank accounted for about two-fifths of total assets. The four biggest privately owned Russian banks Alfa Bank, MDM, Rosbank and UralSib have 8 percent of the market between them. And the 42 foreign-owned banks including the leading Raiffeisen and Citibank, according to various assessments, have just 7-9 percent of the market. 
Analysts predict that Societe Generale, valued at more than 50 billion euros, will soon have the intention of expanding its role in the Russian banking industry and in Rosbankin particular. “Rosbank is, of course, an attractive target for foreign investors. It is quite possible that in several years SocGen will purchase a larger block of Rosbank’s stocks, up to a majority interest. It depends on the development strategy the two partners will pursue,” said Olga Belenkaya, analyst at investment company FINAM.
In addition, Rosbank’s transaction with SocGen can be a new impetus for the consolidation of Russia’s banking system, a process aiming to reduce the number of banks but raise their quality. “We have no doubt that we’ll see more and more foreign banks looking for acquisitions in Russia,” Merrill Lynch’s overview says. “The presence of international players in Russia will evolve alongside large local banks.”

TITLE: Bernanke May Know Too Much
AUTHOR: By Alexei Bayer
TEXT: For those of us who work on Wall Street or analyze financial markets, it has been a depressing month. It’s not only that stock prices have been decimated, with the Dow Jones Industrial Average falling to 10,700 and the technology-dominated NASDAQ Composite index plumbing its lowest depths since October. It is the alarming way in which investors have been selling into rallies.
Every day, it is a titanic struggle of bulls and bears. Trading may start on an upbeat note, but pessimism then takes over and by the end of the day the market loses 1 or 2 percent. The Tuesday session was typical: The Dow was up 50 points early, went in and out of positive territory four times and ended 86 points in the red.
Along with other emerging markets, the Moscow bourse is already deep in a technical bear stage, defined as a 20 percent decline in market indices. Russia’s dollar-based RTS index is down 500 points peak to trough, or over 25 percent. The index lost nearly 10 percent on Tuesday. Bears are nibbling on some major markets, as well. The Nikkei Average in Tokyo, for instance, is down 18 percent since early April.
The sell-off has not yet reached bottom. But if a global bear market does arrive, untried U.S. Federal Reserve Chairman Ben Bernanke may prove to be the wrong man for the job. His problem is that he is trying to use academic science to manage a system created by his predecessor, Alan Greenspan, one of history’s most successful creative impostors.
Unlike Bernanke, a distinguished Princeton economist with numerous professional accolades to his name, Greenspan earned his doctorate in 1977, more than a quarter-century after getting his master’s and while a principal at a Wall Street consulting firm. You can almost hear an intern banging out Greenspan’s dissertation on an IBM typewriter at the Townsend-Greenspan offices. At hundreds of news conferences, speeches and congressional testimonies, Greenspan perfected the art of talking without saying anything even vaguely intelligible. Brokerage firms had highly paid employees whose job it was to interpret Greenspan’s statements.
 To use a historical parallel, the situation at the Fed is very similar to what happened in Germany in 1890, when German Chancellor Otto von Bismarck was removed by Emperor Wilhelm II.
For three decades, Bismarck maintained a fragile balance in 19th-century Europe. He created a complicated system of alliances, playing his enemies and friends against each other and striking his victims when opportunity arose. This allowed him to build a huge, immensely powerful Germany in the middle of Europe, without provoking a major conflict. This formidable act worked as long as Bismarck himself did the tightrope walking. After his departure, an anti-German alliance hardened and a world war finally broke out.
Greenspan created a similarly precarious global financial system. It allowed the United States to prosper by harnessing the creative energies and ambitions of millions of Chinese, Indians, Eastern Europeans and others, and to keep consuming goods, services and natural resources produced around the world without giving much in return.
Under Greenspan, the United States flooded the world with dollars. America has been running an ever-widening trade gap, paying for its imports with pieces of paper. At present, the U.S. current account deficit is nearing $800 billion — approximately the size of Russia’s gross domestic product.
Greenspan’s Fed kept running an easy monetary policy while encouraging the administration of U.S. President George W. Bush to loosen fiscal policy as well, by slashing taxes. American banks and other financial institutions, most of which are regulated by the Fed, got a green light to lend to consumers at very low interest rates. For years, Greenspan ignored runaway increases in real estate prices, as well as double-digit inflation in various key services, such as health care and higher education.
When he retired earlier this year, after more than 18 years as Fed chairman, Greenspan left the federal government deeply in debt, to the tune of $8.4 trillion. The United States is also by far the largest international debtor. Finally, domestic consumers are also heavily in hock, having borrowed against the equity in their homes to subsidize consumption, even as house prices are starting to weaken. The dollar is precariously balanced, and has been propped up by foreign central banks, which have bought well over 1 trillion dollars for their reserves since the early 2000s.
On a positive note, however, the dollars that the United States has been dumping abroad have been invested productively, helping a slew of emerging nations everywhere to develop their economies. China has emerged as a major new economic superpower without causing an upheaval — an unprecedented event in global economic history.
China should probably build a monument to Greenspan. But Greenspan had reasons to be thankful to China, too, since the flood of cheap Chinese imports kept inflation under wraps, allowing the Fed to maintain U.S. interest rates at very low levels. Moreover, competition from low-paid Chinese labor also depressed American wages.
One thing Greenspan understood well is the importance of the stock market for the so-called real economy. Early in his tenure, he survived a baptism by fire, when Wall Street plunged in October 1987. He pulled out all the stops, flooding the U.S. financial system with liquidity. Investors eventually regained composure and the market crash didn’t trigger a broader recession.
A more serious test came when the Internet bubble burst in 2000. Greenspan eventually brought interest rates down to 1 percent, using the excuse of the Sept. 11, 2001, terrorist attacks to keep pumping dollars into world financial markets. Bernanke’s instincts go against such radical actions. He is a much more conventional economist. He is now bent on combating inflation, even though inflation has been remarkably moderate in light of record-breaking oil and non-oil commodity prices. A far greater problem is worldwide production overcapacity, a built-in overhang of supply of goods and services and ensuing deflation.
To fight inflation, Bernanke will need to curb consumer demand. This may mean a potentially serious blow to the overheated Chinese economy. Back in 1997, the Asian crisis barely reverberated in the United States and Europe, but the situation has changed. China has become a major international economic and financial player. If it sneezes, the rest of the world — and most notably the United States — will catch a severe cold.
In the past, the stock market has consistently been a sensitive barometer of future economic trends — a far better forecaster than academic economists. What falling stock prices are reflecting is a potentially devastating global effect of the Fed’s anti-inflation crusade. In the case of Russia in particular, stock investors fear a decline in global oil prices. Russia is unlikely to suffer another financial crisis this time, but its political stability could be undermined at sharply lower oil price levels.
There is another aspect of the Bernanke appointment. Sadly, it fits in well with Bush’s overall record. His administration took a large federal budget surplus and turned it into a record-breaking deficit in just a couple of years. It squandered the widespread post-Sept. 11 sympathy for the United States. It got the world’s greatest military force bogged down in a small, nasty desert country, so that it no longer presents a credible threat to true rogue nations, such as Iran and North Korea.
All that is lacking, it seems, is for a Bush appointee at the Fed to undermine America’s economic leadership.

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

TITLE: Time for Investments: Gauging the Climate
AUTHOR: By Andrey Zhigulev and Stepan Lubavsky
TEXT: Over the last few years considerable changes have been seen in the investment climate in Russia, not least in St. Petersburg and the Leningrad Oblast. St. Petersburg city officials reported that in 2005 the overall volume of foreign investments in the city alone exceeded $1.4 billion. So far the bulk of interest in the North-West region economy has been shown by investors from Finland and Sweden as well as from Cyprus and America. Whilst the automotive production sector has seen the most development to date, other sectors are also set to expand in the near future.
To a great extent this success has been achieved following the development of both federal and local legislation, a source of great encouragement to national and foreign investors. 
Recently the President signed amendments to the Russian Tax Code establishing a particular taxation regime for the development of tourism in special economic zones.  This type of economic zone was added to the list of current industrial and innovation zones and without doubt will be of considerable interest to our North-West region, which is experiencing significant growth in this area.  Taxpayer-residents of these zones are granted tax allowances for a period of five years in regard to property and land taxes.  Furthermore, like residents of industrial special economic zones, they will have the right to apply a depreciation coefficient for amortization acceleration, but which cannot exceed twice the basic norms established by the effective legislation.  It may be a significant advantage for the recreation business taking into account that buildings are its main asset and current amortization norms for them are small. 
Also taxpayer-residents of special economic zones for tourism development will be allowed to carry forward tax losses to other tax periods without any of the restrictions which still apply to other taxpayers. This advantage is comparatively insignificant in so far as since 2007 this rule will be applied for all taxpayers in Russia. It is also provided by the amendments to the Russian Tax Code that the local authorities may decrease the regional part of profit tax for the residents of special economic zones by 4 per cent (down to 13.5 percent) for the whole period of existence of the special zone (i.e. for twenty years).  
City Hall is also actively proving itself to be active in encouraging investment and, in response to numerous requests from taxpayers and representatives of the business community, is preparing draft amendments to the St. Petersburg Law on Tax Concessions aimed at helping clarify some provisions in this law. Among other things, these amendments clarify the definition of investment in fixed assets.  For the purposes of the respective law, investments in fixed assets should be limited to the putting into operation of fixed assets which were not exploited in St. Petersburg previously (including contributions of fixed assets to the charter capital for “strategic” investors - i.e. for companies whose volume of investments exceeds 3 billion rubles ($111 million)) and/or the putting into operation of fixed assets after reconstruction or modernization.  It should be noted that leased assets do not fall under the proposed definition. However, the latest version of amendments still keeps in force the provision of the law which requires these fixed assets to be used for production purposes only, thereby placing trade and service companies in a less favorable position.    
According to recent announcements made by St. Petersburg officials, legislators do not intend to stop improving the law and aim to prolong the tax benefits period for strategic investors from three up to five years with regard to both property and profit taxes. 
In competition with the Leningrad Oblast, St. Petersburg is establishing itself as the Russian Detroit. New investment agreements recently signed with world famous automobile producers confirm this intention.  Nevertheless we can expect that when Russia joins the WTO several legislative acts, including those applying to automobile producers, will be further developed in order to comply with WTO requirements.  On the one hand, the customs duties on the import of new cars, which are currently exceeding 25 percent of their customs value, may be reduced. On the other hand, the Governmental Resolution which currently exempts auto spares and components from import duties should be abolished, as it contravenes WTO norms. The latter should encourage automotive producers, including those operating in St.Petersburg and the Leningrad Oblast, to substitute imported parts with components produced in Russia (so called production localization), thus allowing producers to avoid customs duties. It is likely that the majority of automobile producers will try to attract their global suppliers to Russia or to develop relations with Russian producers. 
Not to be outdone by St. Petersburg, Leningrad Oblast, with its unique geographical location, is ideally positioned for the construction of new port terminals. The Gulf of Finland seems to be the most attractive place for export oriented goods; the terminals of the North-West region are responsible for 45 percent of maritime traffic, accounting for the largest share in Russia. This share will be increased significantly after the launch of the Ust-Luga terminal, currently under construction. This project is supported by the Federal Government and is one of the most ambitious investment projects to date in the North-West region. The federal budget has already granted several billion rubles for the development of the terminal. 
It should be noted that very often St. Petersburg and the Leningrad Oblast benefit mutually from regional investments. For example, recently a new investment project was announced for the Leningrad Oblast – construction of “Leningrad Nuclear Power Plant – 2”. The first Leningrad Nuclear Power Plant (NPP) was opened in 1981, but the constant increase in demand for energy in St. Petersburg over the few several years has meant that construction of new facilities has become more than critical. According to the investor (unsurprisingly the sole investor in the project is Rosenergoatom, the State Energy Company), the main goal of the project is development of energy production and prevention of potential energy supply failures in the future similar to those which occurred in Moscow in 2005. 
“Leningrad NPP-2” will be constructed on the site of the old NPP.  Construction will take an estimated 8 years with a total required volume of investment of 85 billion rubles ($3.15 billion).
However, it should be noted that very often investors face similar problems both in St. Petersburg and Leningrad Oblast, and the cadastral valuation of land may be considered one of them.  For years this has been a real problem for both new investors and existing payers of land tax. The absence of cadastral valuation caused significant problems for both investors acquiring land and for taxpayers when determining the respective tax base. 
Finally, at the end of 2005, this process was finalized and since the start of 2006 the value of almost 5500 land plots in St. Petersburg has been set; a similar situation exists in the Leningrad Oblast. Reliable cadastral valuation should help to make the process of land redemption by investors more transparent and pre-determined.
Further legislative development will ensure a favorable climate for new market players. But there are still plenty of gaps in the effective Russian legislation; investments shall have a significant influence upon the attraction of St. Petersburg, Leningrad Oblast and the whole of the North-West region.  At the moment local authorities seem to be retaining their enthusiasm for development and show no signs of slowing down their “legislative” speed in making the region attractive for investors.  

Andrey Zhigulev is a consultant and 
Stepan Lubavsky a senior consultant at Deloitte’s St. Petersburg office.

TITLE: Engine for GAZ
TEXT: YAROSLAV (Reuters) — Russian car producer GAZ has signed a deal to buy a French engine plant and a licence to manufacture engines of Sweden’s Volvo subsidiary Renault Trucks, the two firms said on Monday.
The deal with Volvo, the world’s second biggest truck maker, will allow GAZ to manufacture up to 20,000 Renault dCi 11 engines a year for use in various GAZ Group vehicles in the Russian market and in the former Soviet Union.
GAZ Group’s Chairman Peter Zolotaryov told reporters the project’s total cost was around 57 million euros ($72.18 million), including the purchase and transportation of equipment from France’s Lyon to Russia’s Yaroslavl and its modernisation.

Aluminium Contract
LONDON (Bloomberg) — Russian Aluminium is close to winning a 800 million-pound ($1.5 billion) state contract to build a hydropower plant and aluminum smelter in Siberia, the London-based Times reported Sunday, without saying where it got the information.
A meeting between Russian President Vladimir Putin and Oleg Deripaska, the billionaire owner of Russian Aluminium, helped secure the support of the Kremlin, the Times reported.
The deal is part of a new public-private partnership initiative aimed at rebuilding Russia’s infrastructure, the newspaper said.
The Siberian plant, worth a total of 2 billion pounds, will be jointly owned by Russian Aluminium and RAO Unified Energy System, the state-owned electricity monopoly, the newspaper said.

UBS License
ZURICH (Bloomberg) — UBS AG, Europe’s largest bank by assets, said it received a banking license from Russia’s central bank, enabling it to build its wealth management operations in the country. UBS plans to offer wealth management, asset management, ruble fixed-income and foreign exchange services, to supplement its existing equities and investment banking operations in the country, the Zurich-based bank said Monday in a faxed statement.
“This represents a substantial long-term commitment by UBS to the Russian market,” Kurt Schmid, the designated chief executive officer of UBS’s new Russian bank, said in the statement.
He said the engines would be sold at an average price of 8,500 euros and the two firms may sign a deal to jointly produce trucks in Russia.

Sberbank Plastic
MOSCOW (Bloomberg) —  Sberbank will issue credit cards this year for the first time, the president of Russia’s largest bank said Monday after the company’s annual general meeting.
Sberbank is “technically” ready to issue the cards right now and they should appear this year, Andrei Kazmin said. Russian President Vladimir this month urged Kamzin to lend more to ordinary Russians to help improve their living standards.
The Moscow-based bank’s net income grew 43 percent to 37.1 billion rubles ($1.37 billion) in the first five months of this year, Kamzin said. He did not say what accounting standards were used to calculate the figures.
The dividend will amount to 5.35 billion rubles for 2005, with each common share receiving 266 rubles and 5.9 rubles being paid for every preferred share, the Interfax news agency reported. 

Razgulay Revenue 
MOSCOW (Bloomberg) — Razgulay Group, a Russian grain and sugar producer that sold shares to the public in March, said revenue rose 9.5 percent last year as it sold more grain and beet sugar.
Revenue rose to 20 billion rubles ($741 million) in 2005, the Moscow-based company said in an e-mailed statement. Earnings before interest, depreciation and amortization advanced 2.2 percent to 2.25 billion rubles from 2.2 billion a year earlier. The preliminary figures didn’t provide net income or year-earlier sales figures.
Razgulay, which raised $144 million in a share offering, plans to sell 2 billion rubles in bonds in the second half of the year and is also planning the sale of Eurobonds to help finance expansion of its fields and production facilities, the company said in Monday’s statement.
“The group is considering plans to expand the production capacity of its sugar and grain holdings by signing mid- and long-term leases and by buying land,” Razgulay said Monday.
 
Crude Kazakhs 
ALMATY (Bloomberg) — Kazakhstan and Azerbaijan agreed to expand a BP-run pipeline that links the Caspian and Mediterranean Seas, allowing central Asia’s biggest oil producer to boost exports.
Kazakhstan’s President Nursultan Nazarbayev and Azerbaijan’s President Ilham Aliyev signed Monday in Almaty an agreement on shipping Kazakh oil across the Caspian Sea to Baku, the Azeri capital, where it can be fed into the pipeline, the Kazakh President said today in a statement on his web site.
BP and its partners on June 2 loaded the first tanker with oil from the $4 billion pipeline that links Baku with the Turkish port of Ceyhan. The proposed increase would cut Kazakhstan’s reliance on Russia and on the crowded Turkish straits to export more of its growing crude-oil output.

Yukos Fat Cats 
MOSCOW (Bloomberg) — Yukos Oil, the Russian oil company fighting off bankruptcy in a Moscow court, may pay its directors 33 percent more than it paid when the company was the country’s top crude producer, the newspaper Vedomosti reported.
Yukos shareholders on June 21 will vote whether to increase each director’s pay to $167,000 and cut the total number of board members to nine from 11, the Moscow-based newspaper said Monday, citing an unidentified company official.
The proposed compensation exceeds by a third the $125,000 that Yukos paid its directors before it was weighed down by a multi-billion dollar tax bill, Vedomosti said.

Expensive Rosneft 
LONDON (Bloomberg) — Rosneft, the Russian state-owned oil company planning to sell shares to the public, is worth $20 billion less than its proposed valuation, according to investors considering buying stock, the Independent on Sunday reported, without saying where it got the information.
Investors attending presentations by Morgan Stanley, JPMorgan Chase & Co., ABN Amro Holding NV and Dresdner Kleinwort Wasserstein, the four banks advising on the transaction, rejected the valuation range of between $80 billion and $90 billion, the paper reported.
F&C Asset Management will boycott the sale because of a lack of clarity about the effect of future litigation on Rosneft’s finances, the paper said, citing Karina Litvack, F&C’s head of corporate governance.
Some other investors said Rosneft should not be worth more than larger rival Lukoil, which pumps more oil and has larger proven reserves and is valued at $58 billion, the paper said.

VimpelCom Bill 
MOSCOW (Bloomberg) — VimpelCom, Russia’s second-largest mobile-phone operator, received a 1.9 billion-ruble ($70.3 million) bill for unpaid taxes and penalties, the company said in a U.S. Securities and Exchange Commission filing.
VimpelCom on June 6 received an act from a Russian tax inspectorate stating it owed 1.5 billion rubles in taxes and 405 million rubles in fines and penalties in respect to its 2003 and 2004 tax filings, the Moscow-based company said on Monday. The probe began in January this year.
“The act is a preliminary notice and is not a final tax claim or demand by the inspectorate,’’ VimpelCom wrote in the SEC filing. “We do not agree with the preliminary conclusions in this act. In accordance with the prescribed procedures under Russian law, we will provide our written responses and objections to this act.”
Rostelecom, Russia’s dominant long-distance telephone provider, said three days ago through a statement on its web site that it got a 3.5 billion-ruble claim for 2003. The company said it will go to court over the tax claim.

Rosneft Consolidation 
MOSCOW (Bloomberg) — Rosneft, Russia’s state-owned oil company, said shareholders of all but one of its 12 major subsidiaries approved a proposal to be consolidated into the parent company as it prepares for its public share sale.
Shareholders of Sakhalinmoreneftegaz will have to revote because an insufficient number of votes were cast at a June 2 extraordinary shareholders’ meeting, Rosneft said in an e-mailed statement Monday. Holders of preferred shares weren’t aware that they should have voted, said Nikolai Manvelov, a company spokesman.

TITLE: A Grin and Bear It Summit
AUTHOR: By Georgeta Pourchot
TEXT: The Russian agenda for the G8 summit next month is taking shape. From the Kremlin’s perspective, the St. Petersburg summit will be a public relations opportunity to restate known positions, propose a few new initiatives and do so looking like a great power again.
In areas where Russia and its G8 colleagues have agreed to disagree, there will be no major breakthrough. Russia’s role as a reliable global energy provider, the country’s right to determine its own version of democracy and market economy, the resolution of the Iran conundrum without military means and possibly without sanctions, and the call on NATO to stop its expansion in Central Asia will yield limited novelty and plenty of public attention. In areas where all G8 partners seem to agree, such as continued cooperation in the anti-terrorism campaign, there may be new agreements — or not. The likely novelties will be the promotion of President Vladimir Putin’s “uniform approach” to frozen conflicts based on the Montenegro model and proposals for cooperation in new areas.
Other than stepped-up rhetoric, it is unlikely that Western partners will have much influence over this agenda. That became clear at the Sochi summit, where Russia rejected the Energy Charter, the one mechanism that would have made Europe and Russia’s dependency mutual. In the energy sector, Russia retains the upper hand in decisions about how much, to whom and how it is going to deliver its natural resources. The agreement and subsequent start of construction of the North European Gas Pipeline marked the moment when Russia decided to use natural resources for political ends. The North European Gas Pipeline kills two birds with one stone: It makes the European Union even more dependent on Russian energy resources and East European countries less energy secure. It also shows former communist countries such as Poland that their anti-Russian rhetoric has a price.
With respect to democracy backsliding and media freedom, Putin will continue the rhetoric formulated years ago: There is nothing wrong with media freedom in Russia; it is the West that does not see that the media is free and democracy is alive and well in Russia. Speaking to representatives at a World Association of Newspapers conference in Moscow earlier this month, he argued that low popular trust in the media had nothing to do with the state’s monopoly of the news and a lot to do with journalists’ lack of professional responsibility. His position was echoed by Nikolai Svanidze, a presenter on Rossia state television who argued that “Russians are tired of all the facts in reports by nonstate media and want a soothing, Soviet approach to the news.” Russians have “grown tired of pluralism” and “don’t want either-or; they want to know exactly what’s going on and what to do about it.”
Russia’s right to determine its own market-economy rules, whether regarding energy or other forms of trade, is also likely to be restated. Putin’s strong views on economic management from above were reiterated in his state-of-the-nation address in May. He attributed the growth and importance of the energy sector to the state’s planning and management, not to market forces. It is unlikely that he will change his position; in fact, this philosophy explains the centralization of economic power witnessed under his leadership.
Regarding Iran, Putin makes no attempt to meet proponents of stronger tactics halfway. His message remains consistent and will be restated in St. Petersburg: No military action against Iran. Recent pronouncements indicate that he is also against sanctions, although some form of compromise may be reached in this area. On NATO expansion, Putin’s tone will likely be one of strong opposition, and stepped-up rhetoric should be expected. The prospect of Ukraine and Georgia joining NATO is a grave concern for the Kremlin, and the gravity with which this topic is approached in Russian policy circles will percolate at the St. Petersburg summit.
The likely novelty will be Russia’s position on the resolution of frozen conflicts, or as a presidential adviser calls them the “unrecognized states” of the Caucasus. Putin has recently advocated a uniform global approach based on the Montenegro model. At a meeting with senior executives of news agencies from G8 member countries, Putin said that if Montenegro could secede based on a national referendum, it would be difficult to explain to people in Georgia’s breakaway regions of Abkhazia and South Ossetia why they could not secede from Georgia. “When we hear that an approach is possible in one place [but] is unacceptable in another, it is difficult to understand and is even more difficult to explain to people.” 
Putin will likely use the St. Petersburg summit to call for stronger cooperation in the fields of modern energy technology, transport and communications, and aerospace production, areas of vital interest to his country’s growth agenda. He will not make concessions and will propose a leadership role for Russia in these areas.
Overall, the G8 summit will be another instance of the agree-to-disagree relationship between Russia and the rest of the group, while the few areas of agreement will be hyped through official media channels. If guests of the president decide to step up their rhetoric in condemnation of Russia’s missteps say, in the energy sector, Putin will resort to two aggressive defenses. First, he will argue that industrialized countries should not use double standards in their judgment of Russia. He used this defense in response to U.S. Vice President Dick Cheney’s Vilnius address, when Cheney strongly criticized Russia’s democratic record. “If America is so concerned with the pace and direction of democracy in the region, it should not have sent its vice president to visit with an openly undemocratic leader, Nursultan Nazarbayev of Kazakhstan, only because his country is sitting on reserves of oil and gas” is likely to be Putin’s defense. Second, Putin will defend his country’s right to choose the path to economic growth that it deems appropriate. He exercises this defense every time Russia’s Western partners condemn the nonmarket tactics of economic monopoly and state control. 
It is unlikely, though, that the Europeans or the United States will step up the rhetoric against Russia at the G8 summit, at least not in public. U.S. President George W. Bush made it clear that he did not subscribe to the practice of going to someone’s home to criticize them and that he preferred to talk to “Vladimir” in private. Overall, Russia is likely to host its first G8 summit amid broad international media attention, high security, anti-American popular demonstrations and official smiles that lack substance. The Kremlin will, however, have shown its public that Russia is back on the world stage as a great power and that the recognition of its status was worth the cost of hearing a few uncomfortable truths.

Georgeta Pourchot is senior associate at the Center for Strategic and International Studies in Washington.

TITLE: The War of the Putin Succession
AUTHOR: By Alexei Bayer
TEXT: President Vladimir Putin has repeatedly said that he plans to step down after serving his constitutional limit of two terms in office. For his Kremlin entourage, this has meant that the search for a successor has been on since at least the 2004 presidential election.
The successor problem is nothing new in modern Russian history. In the 70 years of its existence, the Soviet Union never managed to solve the problem of transferring power. None of the more than half-a-dozen Great Leaders starting with Lenin was able to anoint a successor and end his days in peace and quiet. The only way to leave the Kremlin was either in an oak box tastefully lined with red bunting or in disgrace after a palace coup.
This probably makes the Soviet Union unique among known polities, from primitive tribes to modern industrial democracies. Although few can match Rome’s 2,000-year record of apostolic succession, Britain and the United States have long enjoyed political continuity. Conversely, whenever succession breaks down, the entire system falls into crisis.
The monarchical principle was based on the God-given right to rule, but since the French and American revolutions the ballot box has gradually become the basis for political legitimacy. However, in all political systems the transfer of power reaffirms the social compact, to use Rousseau’s terminology, which transcends the individuals involved. In other words, law-based succession is a gauge of the legitimacy of a political system.
It is ironic that communism, which promulgated scientific principles of social organization, failed to create any kind of legitimacy on which political succession could be based. After Lenin’s death, his followers knew instinctively that succeeding him would be a problem. In an extraordinary act redolent of pagan ritual, they mummified Lenin’s body and placed it in a specially constructed mausoleum. Henceforth, each new Soviet leader would stand on top of the mausoleum during public functions — or, literally, atop Lenin’s body. He would claim to “purify” the Leninist dogma and attack his predecessors as distorters and deviationists.
This lack of continuity extended deep down the line of bureaucracy. In the Soviet Union, you could never merely be a technocrat doing your job. Each new leader brought in his loyalists, and the old guard was promptly retired, expelled and sometimes jailed. The fear of turmoil was the main reason why so many Soviet leaders had to die in office. Brezhnev, for instance, was ailing, exhausted and senile, but even he was not allowed to step down.
The only exception was Boris Yeltsin, Russia’s first post-communist president. He alone swept to power on a wave of popular support, rather than being chosen by a coterie of party apparatchiks. Although highly unpopular in the end, he had true legitimacy, and hence real strength. This permitted him to become the only Russian leader to leave office voluntarily, on his own terms.
Putin wants to become another. However, Yeltsin failed to build a free-standing, law-based power structure that his successor could use to legitimize his rule. Putin, although elected in a free and fair election, needed to reach back to the Soviet Union to create his own legitimacy. Like so many Soviet rulers, he felt obliged to malign his predecessor and declare a fresh start. Not surprisingly, bureaucrats at all levels of Putin’s Russia are once again hired based on allegiance, not competence. Lenin’s mummy remains in place, and his spirit still wanders the corridors of the Kremlin.
This suggests that there can be no real successor to Putin. His choice is stark and is no different from what every Party boss faced in the past. He will either go out feet first decades from now — or, if he insists on retiring, a group of determined courtiers will accomplish a controlled transition by suddenly and swiftly toppling him from the throne.

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

TITLE: Dangerous Mind
AUTHOR: By Chris Floyd
TEXT: After last week’s killing of terrorist chieftain Abu Musab al-Zarqawi (or someone just like him) in Iraq, remembrances of his most celebrated alleged victim surfaced briefly in the press: Nicholas Berg, the young American businessman whose horrific beheading was publicized in a video fortuitously released a few days after the first revelations of torture by U.S. soldiers at Abu Ghraib.
It was this video — which featured five surprisingly chubby terrorists, masked, one wearing a gold ring forbidden by extremist Islam, another reading in halting Arabic — that made Zarqawi the Pentagon poster boy for the insurgency. Pentagon documents unearthed by The Washington Post this April revealed that the elevation of Zarqawi’s profile was a deliberate, multimillion-dollar propaganda campaign aimed at the U.S. people to foment the lie that the insurgency was largely an al-Qaida terrorist operation, not a native rebellion against the occupation. As one Pentagon general put it: “The Zarqawi Psy-Op program is the most successful information campaign to date.” One can only hope that the timely beheading of Nicholas Berg was not part of this “information campaign.” 
 Of course, Zarqawi was a Bush tool from the beginning. Before the war, his two-bit terrorist group — operating in the Kurdish-held Iraqi north, where Saddam had no power — was targeted for destruction by U.S. forces. But the White House canceled the strike three times, the Atlantic reports, because it would have interfered with that earlier psy-ops attack on the U.S. people: selling the Iraq invasion. The war-peddlers needed Zarqawi to “prove” the nonexistent link between Saddam and al-Qaida. 
But despite the central role that Berg unwillingly played in the concoction of the Zarqawi legend, he was largely airbrushed from the lurid coverage of its grand finale. That’s because any new story on Berg would naturally center around his most outspoken survivor, his father Michael. And Michael Berg is a man with a dangerous message, a radical subversion of every value that the Bush administration is fighting to preserve. 
In many ways, of course, it’s an ancient danger, a destabilizing notion that has threatened the guardians of civilization for thousands of years. Its advocates have always been relegated to the lunatic fringe, ignored and forgotten, except in rare cases when their subversion has taken hold, usually among the lower orders. In each such case, however, the civilized world has, like a healthy body, acted swiftly to remove the carriers of disorder. Still, in every generation the bacillus emerges once again, and Michael Berg, no doubt weakened by his grief, has become seriously infected. 
It’s no wonder, then, that his media appearances last week were so brief and circumscribed. For there he was, the father of a victim murdered in the most gruesome fashion imaginable by the terrorist Zarqawi (or someone just like him), a survivor fully entitled to exult in the revenging fury and violent self-righteousness that are among the chief values of the Bush imperium — and all Berg could talk about was mercy and forgiveness. He would not even take pleasure in the death of Zarqawi, whom he called a “fellow human being.” Instead, he grieved for Zarqawi’s family and wished that the brutal killer could have been subjected to “restorative justice” — made to work in a hospital with children maimed by war, for example — setting him on a path where his human decency might have been restored.
Nor would Berg praise that guardian of civilization, President Bush, for finally ending the career of the terrorist he had used so cynically to justify aggressive war. Instead, Berg blamed Bush for unleashing mass death on the people of Iraq, and instigating the cycle of violence that had consumed his son — in murky circumstances. Just before his death, Nicholas Berg had been held by U.S. forces for 13 days without any charges or stated reason, missing his scheduled flight home; he was released only after his family filed a lawsuit charging illegal detention. Four days later, he disappeared again, into that dark maw where high politics and low murder feast on the same lies, the same flesh. 
But even for the authors of war, for the state terrorists who kill on an industrial scale, Berg called for restoration, not revenge: They should be removed from power and compelled to some compassionate labor that might redeem their corrupted humanity.
It goes without saying that Berg’s comments were instantly condemned throughout the vast engine of bile-driven groupthink known as the right-wing media. He was reviled as a traitor, a fool, a terrorist-lover, “less than human,” a monster whose son will slap his face in the afterlife. He was derided for his quixotic congressional campaign as the Green Party candidate for Delaware: What place do such weapons of the weak — mercy, forgiveness, nonviolence — have in the halls of power? For the mainstream, he was just a blip, a quirky diversion in the flood of triumphant stories on Zarqawi’s demise.
And to be sure, it is foolish to oppose the cherished values of our 21st-century civilization: violence, bluster, ignorance and fear. It’s foolish to take upon oneself the responsibility to break the cycle of violence at last, to say, “Let it end with me, if nowhere else; let it end now, no matter what the provocation; let something new, something more human, some restoration take root in this bloodstained ground.” 
But what if such folly is the only way for humankind to begin climbing out of the festering pit we have made of the world?

TITLE: St. Petersburg Mining Institute Rector Makes Plan for the Creation of Russia Inc.
AUTHOR: By Stephen Boykewich
PUBLISHER: Staff Writer
TEXT: Using natural resources for geopolitical gain may upset the West, but for the man who was helping shape President Vladimir Putin’s energy strategy years before he took office, it’s merely common sense.
“There was a time when salt was the most important resource in the world. Then it was metal of any kind, then later it became gold,” said Vladimir Litvinenko, rector of the St. Petersburg State Mining Institute, in a recent interview in his luxuriously appointed office.
“In the specific circumstances the world finds itself in today, the most important resources are hydrocarbons,” he said. “They’re the main instrument in our hands — particularly in Putin’s — and our strongest argument in geopolitics.”
As though to emphasize the point, a 2-meter-wide map on the wall of the office displayed every known mineral and hydrocarbon deposit in the country. Behind Litvinenko hung a hand-painted portrait of a young Putin, who consulted with the rector while writing his 1997 dissertation on state management of natural resources at the institute.
The 51-year-old rector, dressed in the institute’s gold-trimmed, military-style uniform, was by turns intense and expansive over the course of a 90-minute interview.
“When Vladimir Vladimirovich was working on his dissertation, he was also working on the creation of free economic zones in St. Petersburg” during his 1994-1996 tenure as the city’s deputy mayor, Litvinenko said. “He came to understand then that the success of these zones directly depended on how effectively mineral resources were managed in the region. His work at that time very clearly set the course for his current strategy.”

‘A Truly Russian Monster’
The state’s increasingly assertive control over so-called strategic sectors during Putin’s second term — the natural resources sector foremost among them, but also metals, automotive, aviation and other industries — has rattled foreign investors and governments alike.
While investors lament lost opportunities and charge that state control brings inefficiency and corruption, the European Union and United States say the Kremlin is wielding energy supplies as a political weapon — especially via state monopoly Gazprom.
Litvinenko said Russia was simply securing its national interests. “Gazprom is our monster, there’s no question. It does have its problems: There are questions as to why its market capitalization is so high given its relatively low turnover,” as well as problems of opaque and inefficient management, he said. “But it’s a truly Russian monster, and we need to do all we can to make sure it is a serious player on world markets.”
For opponents of Russia’s current course, Gazprom crystallizes the hazards of Russia’s transformation to a corporate state with Putin at the helm. Including subsidiaries, 38 percent of the company’s assets are outside the energy sector, including holdings in construction, banking, media, agriculture and other sectors.
The company employs over 300,000 people, and critics say that many of its noncore acquisitions have been politically motivated and are a drag on profits.
Gazprom also drew fire for cutting gas supplies to Ukraine during a price dispute in January, leading to supply shortfalls in Europe and doubts about Russia’s reliability as an energy supplier.
Still, a rush to buy Gazprom stock this year has made the company the world’s third-largest by market capitalization, at $250 billion. The monopoly continues to expand its reach by acquiring pipeline infrastructure and storage capacity in its European markets, and electricity generation facilities at home — precisely the path Litvinenko recommended several years ago.
“A dramatic change has taken place in the world in major energy companies’ strategy and understanding, and there is an analogous situation in Russia,” Litvinenko said. “Instead of simply extracting resources and selling them at the highest possible price,” he said, modern energy giants ought to invest in every link of the energy chain, from geological surveys to electricity generation.
Gazprom also controls the fate of long-frustrated U.S. hopes for a major energy deal with Russia. U.S. majors Chevron and ConocoPhilips are among five foreign companies short-listed as possible partners to develop the huge Shtokman gas field in the Barents Sea, which could be a key supplier of liquefied natural gas to the United States and Europe. 
Foreign companies have privately expressed frustration over a lack of clear criteria for Gazprom’s choice and repeated delays in the announcement, currently expected in August.
Litvinenko said they should be in no hurry. “Today, Russia can fill its domestic needs and export contracts entirely using its continental gas resources. That’s a fact,” he said.
“The Barents Sea is a special region for our interests,” Litvinenko said. “What do we need pressure from foreign companies for? We need to perfect the conception of the entire project, and only then should foreign partners be announced.”

The Inner Circle
There are numerous indications that Litvinenko’s opinions carry more weight than the average academic’s.
Aside from his personal friendship with Putin — and chairmanship of both his presidential campaigns in St. Petersburg — Litvinenko is a member of the government’s recently formed energy policy committee, which meets monthly to advise Prime Minister Mikhail Fradkov. Litvinenko also led a successful campaign last year to have a subsoil resources bill withdrawn from the State Duma for further revision.
Vladimir Milov, a former deputy energy minister who heads the independent Institute of Energy Policy, said there was one major reason not to overestimate Litvinenko’s role in Kremlin energy strategy.
“I doubt that what’s happening now can be called a strategy,” Milov said. “It’s difficult to say that an academic can have influence over asset transfers that benefit a small number of people in government and business and are leading to stagnating production and other problems developing the sector.”
Litvinenko’s recommendations that Gazprom buy downstream assets in Europe, Milov said, “were brought into force not because he recommended them, but because they were beneficial for a few people doing business in Putin’s inner circle.”
Gazprom CEO Alexei Miller worked with Putin in the St. Petersburg mayor’s office during the 1990s, as did Gazprom chairman and First Deputy Prime Minister Dmitry Medvedev and Rosneft chairman and presidential aide Igor Sechin. Sechin wrote a doctoral dissertation at Litvinenko’s institute a year after Putin did.
The predominance of the St. Petersburg circle in the current power elite has fueled on ongoing debate about the motives behind increasing state control of strategic sectors, but the trend itself is hard to miss.
“It’s the key part of the government’s planned industrial policy,” said Chris Weafer, chief strategist at Alfa Bank. “Instead of putting wealth into the broader economy, the government is putting together strategic industries. It is over these that they will exercise a significant amount of political control, putting in the financial and administrative resources needed to support or build on current growth.”
The three main categories of strategic industries, Weafer said, are high-profit natural resources; key infrastructure such as banks, pipelines, and electricity generation; and sectors of perceived strategic advantage, such as nuclear power, technology and aviation.
One rapidly growing state giant is secretive arms trader Rosoboronexport, headed by Sergei Chemezov, a longtime Putin ally. Last year, the firm took control of AvtoVAZ, the country’s largest carmaker. It is now reportedly in talks to acquire a stake in VSMPO-Avisma, the world’s largest titanium maker, and St. Petersburg’s two military shipyards.
News that Kremlin-friendly oligarch Roman Abramovich is seeking a major stake in steelmaker Evraz has led to speculation of Kremlin plans for a state steel giant with Abramovich at the helm.
The Chukotka governor has already demonstrated his loyalty to the state’s new strategy, selling his Sibneft oil company to Gazprom for $13 billion last September.

Blueprint for Russia Inc.
Litvinenko traces the roots of the state corporatist policy to Putin’s dissertation — as do Clifford Gaddy and Igor Danchenko, scholars at the Brookings Institution, a Washington think tank.
“In very general terms, according to Putin, effectiveness or strategy is set by the state — with him as CEO of Russia, Inc. — and efficiency is up to private companies and the market to figure out,” Danchenko said.
The scholars’ work set off a scandal in the Western media earlier this year when they discovered that 16 of the dissertation’s 218 pages coincided virtually word for word with a Russian translation of a U.S. economics textbook.
“The research [we] conducted was not about accusing Putin of plagiarism,” Danchenko said. “Our research focused on convergence, the subject with which the Soviet planners were preoccupied since the 1970s: How can we make our system more effective without turning it into the Western system?”
Danchenko said the roots of Putin’s strategy stretched back to fascist leader Benito Mussolini’s policy of state corporatism, which revived the Italian economy in the 1930s by forming 22 corporations that worked in close coordination with the state.
“From the point of view of theory, government control over key sectors is sensible and correct. The problem is that there’s no government,” said Mikhail Delyagin, a left-leaning economist at the Institute for Globalization Studies.
“Government is something that serves the interests of society. When people in government are working only for themselves and their own profit ... there is a strong suspicion that the motivation is not modernization, but corruption,” Delyagin said.
Milov expressed skepticism about the importance of Putin’s dissertation.
“I don’t rule out that Putin really thinks mineral resources are truly important for the country’s development, but you don’t need a doctorate to think that. Many people on the street will tell you the same thing,” Milov said. 
“I think Putin acts mostly according to his instincts. It’s entirely possible that while he was writing his dissertation, he came to this conviction. But the instinct is the primary thing. The dissertation is purely secondary.”
If so, Putin’s instincts were also on display in early 1999, when the then-chief of the Federal Security Service published an article in the Mining Institute’s journal arguing “the stable development of the Russian economy in the coming years needs to be based on the planned growth of its component parts, including above all mineral resources.”
Kremlin-connected analyst Sergei Markov said that much criticism was driven by “elementary jealousy.”
Domestic advocates of radical free-market reforms in the 1990s “bear the responsibility for terrible economic losses. They naturally want to justify themselves now,” Markov said.
Foreign critics, Markov said, “fear the revival of Russia not only as a great country, but as an economic power. Competition has become another reason for criticism.”
Litvinenko emphasized what he said was Russia’s immense potential.
“Given the amount of resource wealth we have per capita, Russia theoretically ought to be 17 times as rich as Europe, and seven or eight times as rich as the United States,” he said.
Russia has a long way to go in terms of increasing energy efficiency, improving its business climate and modernizing infrastructure before it can take full advantage of its wealth, Litvinenko said.
“But in principle, if these resources are developed effectively, there won’t be any limits,” he said.

TITLE: ‘Cars’ Drives in First at Box Office
PUBLISHER: The Associated Press
TEXT: LOS ANGELES — Animated autos retained the pole position as “Cars” came in No. 1 at the box office for a second weekend with $31.2 million, holding off the wrestling comedy “Nacho Libre” and another car tale, “The Fast and the Furious: Tokyo Drift.”
“Cars,” from Disney and Pixar, beat a rush of new movies, lifting its 10-day domestic total to $114.5 million, according to studio estimates Sunday.
Paramount’s “Nacho Libre,” starring Jack Black as a cook at a Mexican orphanage who takes up wrestling to buy better food for the kids, debuted in second place with $27.5 million. 
The third in the “Fast and the Furious” racing franchise, Universal’s “Tokyo Drift” opened at No. 3 with $24.1 million. The movie stars Lucas Black as a speed freak who gets caught up in Japan’s illegal racing scene. 
“Speed” co-stars Keanu Reeves and Sandra Bullock reunited for the Warner Bros. romantic drama “The Lake House,” which took in $13.7 million to place fourth. The time-bending tale casts Reeves and Bullock as pen pals corresponding with each other two years apart. 
The weekend’s other new wide release, 20th Century Fox’s “Garfield: A Tail of Two Kitties,” opened weakly with $7.2 million, coming in sixth. The live-action and animated sequel features the voice of Bill Murray as the comic-strip fat cat. 
“Garfield” had been competing for the same family audience as “Cars,” whose voice cast includes Owen Wilson and Paul Newman in a comedy about a race car that learns the value of slowing down. 
“I guess the family audience picked their favorite and decided that this is what it was going to be,” said Chuck Viane, head of distribution at Disney, which recently bought its animation partner Pixar, the maker of “Finding Nemo,” “The Incredibles” and the “Toy Story” movies.
The week’s two sequels came in well below their predecessors. “The Fast and the Furious,” with Vin Diesel and Paul Walker, opened with $40.1 million in 2001, and Walker’s 2003 followup “2 Fast 2 Furious” debuted with $50.5 million.
“Garfield: The Movie” took in $21.7 million over opening weekend in 2004.
In limited release, the IFC Films crossword-puzzle documentary “Wordplay” opened solidly with $34,959 at two New York City theaters. The film, featuring interviews with such crossword enthusiasts as former PresidentBill Clinton, comic Jon Stewart and the musical duo the Indigo Girls, expands to more theaters Friday.

TITLE: McCartney: Now He’s Sixty-four
PUBLISHER: Agence France Presse
TEXT: LONDON — Paul McCartney was just 24 when The Beatles first recorded their hit track “When I’m 64.” Forty years on, and the former Beatle is finally finding out the answers to the long list of questions contained in the song now that he has celebrated his birthday on Sunday. 
Born in Liverpool in 1942, James Paul McCartney was still a teenager when he wrote the song, one of The Beatles’ best-known, which was later included on the “Sergeant Pepper’s Lonely Hearts Club Band” in 1967.
Today he and drummer Ringo Starr are the only living Beatles. 
But McCartney’s birthday celebrations were likely to have been very different from the cosy but ordinary existence he imagined in the song, whose lyrics include the lines “we could rent a cottage on the Isle of Wight, if it’s not too dear” and “you can knit a sweater by the fireside, Sunday mornings go for a ride.”
McCartney’s first wife, Linda, died of cancer in 1998 at the age of 56 after 29 years of marriage. And a month ago, he announced the end of his marriage to his second wife, Heather Mills, 38.
The singer-songwriter has not spoken about the details of the separation, although British journalists have not been so discreet.
Mills’ lawyer recently announced that once the divorce is complete, his client plans to sue over allegations about her past life made in the tabloid press.
The Daily Mirror newspaper said McCartney had planned to celebrate his birthday at his home in Peasmarsh in Sussex, southern England, with his two elder daughters, Stella, the renowned fashion designer, and Mary, a photographer.
The famously down-to-earth musician was expected to take his usual place in front of the barbecue, accompanied by his son James, his adopted daughter Heather and his brother Mike.
Mills may have also been there — the tabloid reported that she hoped to be with her future ex-husband and their daughter, Bea, two, on fathers’ day, which Britain also celebrated on Sunday.
But McCartney, a major celebrity who has sold more than 400 million records and had more than 50 number ones, probably wouldn’t have any problem affording the rent on that cottage in the Isle of Wight. His personal fortune is estimated at $1.5 billion.
Nonetheless, while he may not yet be losing his hair, McCartney does bear some resemblance to the figure he describes in his famous song.
He has three grandchildren, although unlike those in the song they are not called Vera, Chuck and Dave. And he has always lived a relatively simple life, in which “doing the garden, digging the weeds” would not be entirely out of place. 
But the answer to the questions he asked of his imagined wife (“Will you still be sending me a valentine, birthday greetings, bottle of wine?”), in reality the answer is probably “no.”

TITLE: Chinese Pirates Cost Hollywood $2.7 Billion
PUBLISHER: Reuters
TEXT: SHANGHAI — Piracy in China cost film makers $2.7 billion last year, with domestic firms shouldering more than half those losses, according to a study commissioned by a trade group representing the major Hollywood studios.
China’s film industry lost about $1.5 billion in revenue to piracy last year, while the major U.S. studios lost $565 million, according to data released on Monday by the Motion Picture Association (MPA), whose members include the studio units of Time Warner, Walt Disney Co. and Viacom Inc..
The study was the first for China done by a third party, LEK Consulting, for the MPA, which previously did a similar annual study itself. The 2005 losses to U.S. studios were well above the MPA’s own previous estimate of $178 million lost to piracy in 2003. Some 93 percent of all movie sales in China were of pirated versions of films, according to the latest study.
“In terms of who’s losing the most here in China, it’s not the MPAs member companies. It’s the local industry,” said Mike Ellis, who heads the MPA’s Asia Pacific division. The study also found that the Internet is becoming a growing source of piracy in China, though pirated discs still accounted for the majority of lost sales last year.
According to the report, illegally downloaded films cost the industry $1.04 billion in China last year, while pirated video discs accounted for $1.63 billion in lost revenue. The MPA released its latest report along with another first-ever study on the impact of movie piracy on China’s economy, which was also commissioned by the MPA and done by the Chinese Academy of Social Sciences.

TITLE: IN BRIEF
TEXT: ‘Screech’ Sells Out
MILWAUKEE, Wisconsin — More than a bell is needed to save Dustin Diamond this time around. Diamond, best known as geeky Screech Powers on the 1989-1993 teen comedy series “Saved by the Bell,” is selling T-shirts with his photo on them to try to raise $250,000 so he doesn’t lose his gray two-story house under a foreclosure order. 
“If the public didn’t care, I as an entertainer wouldn’t have been a success,” he said.
Diamond, 29, is trying to sell nearly 30,000 shirts — at $15 or $20 (autographed) each — to supplement the income he makes as a standup comic so he doesn’t have to move from his Port Washington home, about 25 miles north of Milwaukee.
The T-shirt has a photo of Diamond holding a sign that says, “Save My House.” The back of the shirt reads, “I paid $15 to save Screeech’s house.” The third “e” was added to get around copyright laws, he said.

Aniston: ‘No Regrets’
LONDON (AFP) — Jennifer Aniston hopes that she can be friends again one day with her heartthrob ex-husband Brad Pitt, whom she says she will love forever, the Hollywood actress told a British Sunday newspaper.
The former star of the hit television comedy “Friends” said she harbored no bitterness about her high-profile break-up with Pitt, who ran off with sex siren actress Angelina Jolie. 
“I don’t regret any of that time and I’m not here to beat myself up about it,” she told the News of the World weekly, Britain’s biggest-selling newspaper.
“They were seven very intense years together and it was a beautiful, complicated relationship. I will love Brad for the rest of my life and I hope that some day we will be able to be friends again.”

Piglet’s Turkey Trouble? 
ANKARA, Turkey (AFP) — Turkey’s public broadcaster has denied reports that it has banned the popular Walt Disney cartoon “Winnie the Pooh” because one of the main characters in the show is a piglet.
Turkish Radio and Television (TRT) said late Saturday media reports that “Winnie the Pooh” and other cartoons featuring pigs had been barred “are untrue and aim to discredit the institution.”
In a statement carried by the Anatolia news agency, TRT said it had acquired the exclusive right to broadcast Walt Disney’s cartoons and movies in Turkey but added, “the Walt Disney materials have not been acquired yet... [and] therefore the cartoon ‘Winnie the Pooh’ does not exist in TRT records and archives.”
Islam regards pigs as unclean and prohibits the consumption of pork.
TRT is controlled by Prime Minister Recep Tayyip Erdogan’s Islamist-rooted government, which is under fire for seeking to raise the profile of Islam in mainly Muslim but strictly secular Turkey.

TITLE: Kalashnikov Fears From Chavez Foes
PUBLISHER: The Associated Press
TEXT: CARACAS, Venezuela — President Hugo Chavez’s plans to build the first Kalashnikov factory in South America are stirring fears Venezuela could start arming his leftist allies in the hemisphere with Russian assault rifles. 	
Chavez denies such ambitions, saying his government bought 100,000 Russian-made AK-103 assault rifles and a license from Moscow to make Kalashnikovs and ammunition to bolster its defenses against “the most powerful empire in history” — the United States.
Some political opponents and critics suspect Chavez, a former paratrooper, has other intentions, such as providing allies such as Bolivia with arms while forging an anti-Washington military alliance.
“Our president has always had a warlike mentality, but now it appears this mentality is turning into a mission that could easily extend to other parts of Latin America,” said William Ojeda, a presidential candidate who hopes to run against Chavez in the December election.
Chavez has said “Venezuelan blood would run” if the United States tried to invade Cuba or Bolivia, though he has not said his government would provide them with weapons.
The Bush administration also is concerned about Chavez’s intentions.
State Department spokesman Sean McCormack said Friday that Venezuela appeared to be in the midst of an “outsized military buildup for a country of that size and the nature of the threats” in the region.
“They’ve already purchased 100,000 AK-103 assault rifles from Russia. So I’m not quite sure what else they might need a factory for,” McCormack said. “It certainly raises serious questions about what their intentions are.
“The first 30,000 of those rifles have arrived in Venezuela, with the rest due by year’s end.
“If the president says he’ll send Venezuelans to defend other Latin American nations, nobody should doubt that he’s willing to send them weapons as part of his anti-imperialist vision,” Ojeda said.
Ojeda pointed out that Bolivia’s new socialist president, Evo Morales, referred to Chavez as his “commander” during a recent ceremony marking the 78th anniversary of the birth of Ernesto “Che” Guevara, the revolutionary who was captured and executed in Bolivia 39 years ago.
Chavez has provided a helicopter and pilots to Morales to ferry him around in the weeks ahead of a July vote for a constituent assembly that will rewrite the Bolivian constitution.
Chavez vehemently denies that Venezuela’s recent defense deals worth an estimated $2.7 billion constitute a military buildup or that he poses a threat to regional stability, as U.S. officials allege.
His military advisers argue that Venezuela needs new rifles to replace outdated weapons such as Belgian-made FAL assault rifles — and to have enough guns for up to 2 million reservists.
Gen. Alberto Muller, a Chavez adviser, said the Kalashnikov factory would be able to produce 20,000 to 30,000 rifles a year. Construction is expected to begin within four to five years, he said, but Chavez may want to build it sooner.
The Kalashnikov has been manufactured in more than a dozen countries, including Cuba, Egypt and Poland. Imitations are also widely produced. It is used by the armed forces of more than 50 countries as well as militant groups from Afghanistan to Somalia.

TITLE: Japan Warns North Korea Over Missile
PUBLISHER: Agence France Presse
TEXT: TOKYO — Japan said Monday it would take “stern measures” if North Korea launched a long-range missile, following a U.S. report that Pyongyang was close to going ahead with a new test. 	
U.S. officials concluded from satellite images that the communist state had finished fuelling a Taepodong-2 missile, suggesting it is set to go ahead with a test, The New York Times reported.
Pyongyang, which declared last year it had nuclear weapons and is boycotting U.S.-backed talks on the crisis, shocked the world in 1998 by firing a missile over Japan into the Pacific Ocean.
Japan’s top security officials met early Monday and renewed warnings that Tokyo was ready to impose sanctions on the impoverished dictatorship if it carried out a test.
“If North Korea test-launches a missile, naturally Japan and the United States will take stern measures,” said Chief Cabinet Secretary Shinzo Abe, the government spokesman, suggesting the possibility of economic sanctions.
He said the United States voiced concern to Pyongyang through its UN mission in New York on Saturday, and that Japan did likewise a day earlier via Beijing.
“There are no interests North Korea will achieve by launching a missile,” Abe said.
Japanese officials are exchanging information “around the clock” on a possible launch of the Taepodong-2, which has a range of 3,500 to 6,000 kilometers, said defense chief Fukushiro Nukaga.
North Korean media on Monday mentioned a missile launch but did not comment on it directly, according to Tokyo-based Radiopress which monitors media in the communist state.
The morning radio broadcast quoted Russian national radio as saying that the United States was accusing North Korea of preparing a test-launch and “delivering information and speculation which cannot prove to be true,” Radiopress said.
North Korea has shunned six-nation disarmament talks since November, demanding that the United States lift financial sanctions imposed on Pyongyang over alleged counterfeiting and money-laundering.
North Korea watchers have speculated that Pyongyang may be craving a return to the world stage while the United States is refusing to budge on sanctions and focusing instead on ending Iran’s nuclear drive. 
Choe Thae Bok, a ranking official of the North’s ruling Workers Party, accused Washington of being “hell-bent on provocations,” the official Korean Central News Agency said Sunday.

TITLE: U.S. Forces on Mission to Save Lost Comrades
PUBLISHER: The Associated Press
TEXT: BAGHDAD, Iraq — The U.S. military said Monday that seven American troops have been wounded, three insurgents have been killed and 34 detained during an intensive search for two missing American soldiers. 
Major General William Caldwell, a spokesman for U.S. forces in Iraq, said fighter jets, unmanned aerial vehicles and dive teams had been deployed to find the two men. The men went missing Friday during an attack on their checkpoint in the volatile Sunni area south of Baghdad that left one of their comrades dead. 
“We have surged intelligence, surveillance and reconnaissance platforms and employed planes, boats, helicopters and UAVs to ensure the most thorough search possible on the ground, in the air and in the water,” Caldwell said in a statement issued Monday.
He did not comment on reports that the two men had been seized by insurgents, saying only that they were listed as “duty status and whereabouts unknown.” He said seven other U.S. service members had been wounded in action during the search efforts that began Friday night.
Caldwell said more than 8,000 U.S. and Iraqi troops were participating in the search.
“While searching for our soldiers, we have engaged in a number of significant actions against the anti-Iraqi forces,” he said, adding that three insurgents had been killed and 34 taken into custody.

TITLE: Tennessee Guitar Festival Attracts Diverse Crowd
PUBLISHER: The Associated Press
TEXT: MANCHESTER, Tennessee — The camping and music festival on a 700-acre Tennessee farm still has its neo-hippies and free spirits, but Bonnaroo has grown into something more than a celebration of endless guitar solos.
Rather than be pigeonholed into the jam-band scene, Bonnaroo has diversified its lineup to include major artists in rap, blues, indie rock and this year, classic rockers like Tom Petty and Elvis Costello. 
“At first it was a jam band festival. But is it still?” said Mike Gordon of the former jam band Phish. 
“There still is a lot of jamming. I think it’s grown in respect. It’s not considered a niche festival anymore.”
Or perhaps it just proves that hippies will listen to anything — as long as it’s not heavy metal or punk.
Ashley Capps, owner of AC Entertainment in Knoxville, which co-organizes Bonnaroo with Superfly Productions, said the performances by Petty and the British band Radiohead were watershed moments for the festival.
“From the beginning, we were a music festival that was about the music,” Capps said. 
“We never saw ourselves being limited to one genre or another.”
David Taylor, 25, and Lucy Cornford, 24, said the only reason they came from London to attend Bonnaroo was to see a number of indie and underground rock bands like Bright Eyes, Clap Your Hands Say Yeah and Beck.
“We normally go to Glastonbury [Festival], but they didn’t have one this year and there were so many good bands we wanted to see at Bonnaroo,” Taylor said.
The festival accommodated 80,000 fans — many of whom spent the entire weekend camped out on the concert site. 
More than 100 performers played on 10 different stages this year.

TITLE: Closing Arguments in Saddam Trial
PUBLISHER: The Associated Press
TEXT: BAGHDAD, Iraq — The prosecution in the trial of Saddam Hussein began giving its closing arguments Monday, launching the final phase of the eight-month-old trial against the former leader and seven ex-members of his regime for crimes against humanity. 
The defense is scheduled to start its final arguments on July 10. The five-judge panel will then recess the court to consider its verdicts.
Saddam and his co-defendants could face execution by hanging if convicted on charges of crimes against humanity for a crackdown against Shiites in the town of Dujail in the 1980s. They are accused of arresting hundreds of people, including women and children, torturing some to death and killing 148 who were sentenced to death for a 1982 assassination attempt against Saddam.
“We ask the court to impose the heaviest possible penalty against these defendants,” one of the prosecutors said in his closing arguments.
The defendants “carried out a systematic, wide-scale attack” against the town of Dujail, said the lawyer, whose name has not been released to protect him from reprisals.
“They carried out broad imprisonments of men, women and children, who were exposed to physical and mental torture, including the use of electrical shocks,” he said.

TITLE: Miami One Victory From First NBA Title
PUBLISHER: The Associated Press
TEXT: MIAMI, Florida — Dwyane Wade scored 43 points, the last on a free throw with 1.9 seconds left in overtime after Dallas’ Josh Howard asked for an untimely timeout, and the Miami Heat won their third straight game in this homey and heated series, 101-100 over the Mavericks on Sunday for a 3-2 lead.
Wade’s latest virtuoso performance — he’s averaging 40.3 points in the past three games — sent the evenly matched teams to Dallas for Game 6 on Tuesday night. Game 7, if necessary, will be Thursday night.
When the Mavericks’ final shot — because of Howard’s error, all they could manage was a half-court heave by Devin Harris — went over the backboard, AmericanAirlines Arena, hosting its final game of the season, erupted in cheers and some chaos.
“We can smell it,” Wade said. “Dallas plays well at home but we are a confident bunch so we’ll see what happens.”
All the Mavericks were hot, especically Dirk Nowitzki, who first punted the ball into the stands and then kicked a stationary bike in a hallway before turning his anger on anything in his way.
After Nowitzki’s jumper with 9.1 seconds to go gave the Mavericks 100-99 lead, Wade took an inbounds pass, wove and dribbled his way seemingly all over South Florida — the Mavericks thought he pushed off and committed a backcourt violation — before he fouled on a drive to the basket by Nowitzki.
Wade made the first, and the officials awarded Dallas a timeout even though Johnson was arguing that he didn’t want one until Wade’s second attempt. 
“We gave the signal, ‘Second free throw, timeout.’ One of our players was saying timeout. I said, ‘Yeah, after the second one,’” Johnson said.
The timeout took away Dallas’ ability to inbounds the ball at half-court, costing them 45 precious feet. Wade then knocked down his second free throw, and when Harris’ shot was way off, this series had its latest controversy.

TITLE: Ogilvy Wins As Favorites Crash Out
PUBLISHER: Agence France Presse
TEXT: MAMARONECK, New York — Geoff Ogilvy won the 2006 U.S. Open golf championship here in a war of attrition that ended with Phil Mickelson and Colin Montgomerie melting down at the final hole. 
The 29-year-old from Adelaide parred his final four holes to finish with a two-over 72 and a five-over total of 285, capturing his first major championship by one shot over Mickelson, Montgomerie and Jim Furyk.
“It’s slightly sinking in,” was all Ogilvy could find to say at first.
He had moved as low as one-over early in the round, but he appeared to have missed his chance when a bogey at 14 put him two shots behind Mickelson.
But Mickelson, seeking his third straight major crown after victories in the 2005 PGA Championship and the Masters in April, had been wild off the tee all day and paid the ultimate price at 18. 
His drive off a hospitality tent was followed by a second shot that hit a tree and a third shot that plugged in a bunker.
The double-bogey cost him his first U.S. Open title, as well as a chance to join Tiger Woods and Ben Hogan as the only men since Bobby Jones to win three major titles in a row.
“This one hurts more than any tournament because I had it won,” Mickelson said. “I had it in my grasp, and I just let it go.”

TITLE: Diesel Power Boosts Le Mans Victory
PUBLISHER: Agence France Presse
TEXT: LE MANS, France — Italian Emanuele Pirro and German duo Frank Biela and Marco Werner drove Audi to an historic victory in the Le Mans 24 hour race on Sunday.
The Audi R10 finished four laps ahead of the Pescarolo driven by France’s Franck Montagny, world rally champion SÎbastien Loeb and Eric Helary to become the first diesel-powered car to win the famous endurance race.
But there was disappointment for Dane Tom Kristensen whose bid for a record seventh win in a row and eighth overall were hit by a series of mechanical problems in the other Audi R10.
The Audi of Kristensen, Allan McNish and Rinaldo Capello finished in third place, 13 laps behind the winners.
“It’s a big day for Audi and diesel,” said Pirro, who was at the wheel at the finish line as the German team claimed a sixth win in the last seven years.

TITLE: Ullrich Wins Swiss Before Tour de France
PUBLISHER: Agence France Presse
TEXT: BERN, Switzerland — Former Tour de France winner Jan Ullrich warmed up for next month’s race by winning the Tour of Switzerland for the second time.
The T-Mobile rider claimed overall victory by dominating the ninth and final stage, a 30.7 kilometer time-trial, as many riders were hampered by a storm.
Ullrich admitted he feared the difficult conditions would stop him winning the event.
“I’m very happy with this win because it comes before the Tour de France,” said Ullrich.
“I was not sure if I would win. In cycling, nothing is never certain. I saw it as a difficult task because of the storm.
“I think that I was at 90 percent of my top condition. The 10 percent which was missing, I will find before I start the Tour de France.”
Ullrich has warned that he is aiming for Tour de France success this summer.
He won the French race last time in 1997.

TITLE: Swiss Chance Boosted by Win Over Togo
PUBLISHER: The Associated Press
TEXT: DORTMUND — Alexander Frei and Tranquillo Barnetta scored a goal each Monday to lead Switzerland to a 2-0 win over Togo in Group G at the World Cup. 
Frei gave the Swiss team the lead in the 16th minute, heading in a pass from Barnetta. In the 88th, Barnetta added another with a 17-meter  shot off a pass from Mauro Lustrinelli.
Frei missed a chance to score another goal in front of an open net early in the second half.
The win boosted Switzerland’s chances of reaching the second round. The team is tied with South Korea at the top of Group G with four points each. France is next with two points while Togo, which has been eliminated, has zero. 
Switzerland is playing at the World Cup for the first time in 12 years. Togo is making its first appearance at the tournament.
The Swiss staged a much faster, more attacking game than their 0-0 draw against France and could have won by a bigger margin.
Togo struggled without suspended captain Jean-Paul Abalo, who got two yellow cards in the first match, and injured defender Ludovic Assemoassa.
Still, forwards Emmanuel Adebayor and Mohamed Kader launched repeated surprise attacks against the Swiss defense but failed to finish when it mattered.
Westfalen Stadium resembled a mini-Switzerland, echoing to roars of “Hopp Schweiz.” 
The sea of red and white at the sold-out 65,000 seat stadium was punctuated by a tiny corner of drumming Togolese fans clad in the yellow and green of the national flag.
The African team came into the match after a bruising row over pay. Togo had threatened to boycott over player bonuses, but finally settled its dispute with the soccer federation a day before the match.
Earlier, Togo coach Otto Pfister had quit but returned hours before his team played South Korea in its opening match.

TITLE: Japan Down But Not Out Ahead of Match Against Brazil
PUBLISHER: Agence France Presse
TEXT: TOKYO — Desperate fans across Japan are praying for a repeat of their miracle win over Brazil at the 1996 Olympics, with hopes of remaining in the World Cup now resting on beating the title holders.
Led by Brazilian coach Zico, Japan pulled out a 0-0 draw with Croatia in an unimpressive second game Sunday, meaning that they now have to defeat the powerhouse side to survive.
“Japan is surviving as its head hasn’t been chopped off yet, although it is hanging by a thin piece of skin,” wrote the Tokyo Chunichi Sports newspaper. “Japan must defeat Brazil. God, make a miracle!”
But many admitted beating the champions on Friday seemed far-fetched.
Amane Suzuki, 30, a company worker and amateur football player, said that Japan may just not be in the ranks of top football nations yet.
“It’s very frustrating. Now we have a very limited chance of advancing,” said Suzuki, wearing a “Samurai Blue” jersey as he watched the Croatia match at a Tokyo bar.
“Our strikers are crap. There were some moments when they could have taken shots but they didn’t,” he said.
Ryu Fukumoto, 29, who sold his ticket to watch the match in Leipzig because he could not find a hotel, made do instead by taking part in an impromptu post-game rally with drums and flags in the Shibuya nightlife district.
“We could have won but we missed a lot of chances. It’s really regrettable,” Fukumoto said.

TITLE: IN BRIEF
TEXT: Proud Arena
HAMBURG (AP) — Heart. Courage. Grit. Determination. Never has the U.S. soccer team sounded so proud of a tie. 
Then again, never before had the Americans earned a World Cup point in Europe, as they did in an improbable roller-coaster of a game against world power Italy.
“They brought an attitude to the field and a confidence that allowed them to be successful yesterday,” U.S. coach Bruce Arena said Sunday, a day after the historic — and grueling and tantalizing — 1-1 tie.
For nearly the entire second half Saturday night, the United States labored with nine men against Italy’s 10, following the rapid-fire ejections of one Italian player, then two Americans.

Maradona Fined
BERLIN (AFP) — Argentinian legend Diego Maradona was fined by German police for speeding as he drove back to his hotel after watching his nation thrash Serbia and Montenegro in the World Cup. 
The 1986 World Cup winner had to pay $250 dollars on the spot after being stopped for travelling at 120 kilometers an hour  on a stretch of road limited to 80 kmph in Gelsenkirchen on Friday, Bild newspaper said in its online edition.
Maradona, 45, who has battled against drugs and his ballooning weight in recent years, has been an enthusiastic supporter at both of Argentina’s matches, accompanied by an entourage including his daughter Giannina.
Argentina qualified for the last 16 after crushing the Serbs 6-0 in Gelsenkirchen.

Soccer Mad MPs
DHAKA, Bangladesh (Reuters) — The speaker of the Bangladesh parliament may cut sessions short so that soccer-crazy politicians can follow the World Cup on television.
“I shall consider [the proposal] so that members can watch the World Cup matches,” acting speaker Akhtar Hamid Siddiki told the house while presiding over a session on Sunday night.
The acting speaker had been responding to a plea by a treasury bench member who said most of his colleagues in parliament were eager to see matches of their favourite teams. 
Brazil was playing Australia in Germany when parliament was in session on Sunday.
Opposition members also requested the speaker to instruct the relevant electricity supply department to ensure uninterrupted power supply across the country during matches.
Soccer fans have attacked and vandalised various local supply offices after power-cuts during matches.
Bangladesh failed to qualify for the World Cup finals, but millions of soccer fans in the country stay up late at night to watch on television.