SOURCE: The St. Petersburg Times
DATE: Issue #1278 (44), Friday, June 8, 2007
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TITLE: Enel Pays $1.5Bln In UES Auction
AUTHOR: By Simon Shuster
PUBLISHER: Staff Writer
TEXT: MOSCOW — Italian utility Enel scooped up a blocking stake in OGK-5 on Wednesday for $1.52 billion, driving up valuations in the power sector by paying an unprecedented premium of 18 percent to the market price.
In a climate of tightening state control over strategic industries, Unified Energy System’s sell-off of all its assets is the country’s last large-scale privatization, and foreigner investors have not made many inroads into the power sector yet.
“We are so happy that it was Enel,” said UES spokeswoman Tatyana Melyayeva. “Yes, because they are a foreign company, but also because they have real experience working in Russia.”
The purchase of the 25.03 percent stake in OGK-5 in Yekaterinburg will bring Enel’s exposure to the Russian power sector to $4.4 billion.
“With OGK-5’s acquisition we delivered on our strategy to develop a strong, balanced, integrated position in the energy sector in Russia,” Enel CEO Fulvio Conti said in a statement.
Enel’s foreign competition at the auction came from Germany’s E.On utility, while from the Russian side, bids came from Novatek, Russia’s second-biggest natural gas firm, and United Company RusAl, the world’s largest aluminum producer. The amounts of the other bids were not announced.
Gazprom and Norilsk Nickel are seen as the main contenders to buy up UES assets, but they did not bid in Wednesday’s auction. In March, Norilsk Nickel paid a 13 percent premium for a large stake in OGK-3.
Whereas the average price for a kilowatt of installed capacity is around $543 in Russia, Norilsk paid $602 per kilowatt in March, and now Enel has paid $664 per kilowatt, Alfa Bank said in a note to investors.
“Enel paid so much because they know they’ll never have another chance at such a big stake,” said Dmitry Terekhov, utilities analyst at Antanta Capital.
OGK-5’s stock gained 2.9 percent Wednesday.
Enel will become the second foreign company that can block board decisions at a Russian power-generating company. The other is Finland’s Fortum, which owns 27 percent of TGK-1 in the Leningrad region.
Enel’s expansion has been brisk. In April, it teamed up with Italy’s largest oil firm, Eni, to buy a choice batch of former Yukos assets for $5.83 billion. It also snapped up a 49 percent stake in power distribution firm Rusenergosbyt for $105 million last year, and has managed the Northwest Power Plant near St. Petersburg since 2004, but owns none of it.
“At Northwest, we have been trying to learn the Russian system, and our experience will be very useful for Enel,” Georgio Cimini, the general director of the Northwest plant, said by telephone.
His experience has not always been rosy, however. Most of Cimini’s decisions had to be approved by state or UES officials during his first year on the job, and he said Enel would still have to work within the confines of Russian bureaucracy. “But what drives us is the business side, which will continue to improve.”
Local investment banks agreed with that sentiment, rushing out notes with bullish forecasts for the sector.
But some problems for Enel may come from its financial commitments to UES and OGK-5. Before investing in a UES asset, all investors must sign a memorandum promising to carry out that asset’s investment program.
OGK-5, which has an installed capacity of 8,700 megawatts, plans to invest $2.2 billion in 2,460 megawatts’ worth of new turbines. As a whole, the nation’s power system needs some $120 billion in repairs and expansion.
Melyayeva said UES would hold Enel and all of its strategic investors to these plans, even though the UES board of directors failed during a May 28 meeting to set up a precise mechanism for doing so.

TITLE: Bush Talks Missiles At G8 Summit
AUTHOR: By Jennifer Loven
PUBLISHER: The Associated Press
TEXT: HEILIGENDAMM, Germany — President Bush said he hoped to convince Russian President Vladimir Putin on Thursday that a Europe-based U.S. missile defense system is not an issue either side should “be hyperventilating about.”
Bush and Putin are seeing each other here for the first time since their clash over U.S. plans for a missile shield flared into Cold War-style rhetoric.
With U.S.-Russia relations at their lowest point in decades, Putin and Bush will sit down Thursday on the sidelines of a summit of the world’s eight major industrialized democracies being held at this seaside resort.
The United States says the shield targets a potential Iranian nuclear weapon, not Russian ones. 
Russia retorts that’s an “insufficient” explanation. Putin has warned that a new shield could require Russia to retarget missiles toward Europe or take other buildup measures.
Trying to damp down Moscow’s anger, Bush officials have argued that it’s obvious the defense system isn’t aimed at Russia because of its huge arsenal of nuclear rockets.
“A missile defense system cannot stop multilaunch regimes. ... The fact is that you can’t stop two, three, four, five missiles,” the president said after a meeting with British Prime Minister Tony Blair.
He added: “Russia is not a threat. They’re not a military threat. They’re not something that we ought to be hyperventilating about.”
Blair had held out hope that he could bridge an impasse between the United States and some other countries over setting specific targets at the meeting for reducing the greenhouse gas emissions thought to cause global warming. German Chancellor Angela Merkel, as summit host, is pushing for binding targets.
But Bush stuck to his view that specific targets would not be the result of this week’s summit, also attended by other European leaders, as well as those from Canada, Japan and Russia.
“Nothing’s going to happen in terms of substantial reductions unless China and India are participating,” the president said.
Blair said he thought the leaders would at least agree on “the need to make sure that we have a substantial reduction in emissions” by all the world’s top greenhouse gas emitters.
For his part, Bush pushed his desire to bring allies along in support of tougher action against Sudan over the crisis in its Darfur region. 
Bush announced new U.S. penalties against Sudan last week, but he also wants backing for a UN resolution to add pressure on the government to allow a UN peacekeeping force.
“The international organizations can’t move quickly enough,” Bush said. “I don’t know how long it’s going to take for people to hear the call to save lives. ... If the UN won’t act, we need to take action ourselves.”
The president indulged wistful thoughts about this month’s departure of Blair, for years his closest foreign ally. “It’s a nostalgic moment for me,” Bush said, the Baltic Sea shimmering behind the two men. “I’m sorry it’s come to be. But that’s what happens in life.”
In between private meetings on the sidelines, the eight leaders had a full day of meetings to discuss issues ranging from Africa aid to trade and Lebanon.
The gathering is being held under tight security, with Heiligendamm entirely encircled by a seven-mile, razor wire-topped fence to keep out protesters and terrorists.
Thousands of demonstrators spent the night in a no-demonstration zone established in a half-mile perimeter around the fence. 
On Thursday, protesters for a second day blockaded roads leading into the summit zone. And offshore, Greenpeace environmental activists led police on a boat chase, with one boatload briefly spilling into the Baltic after collision.
There are many items on the disagreement list between Washington and Moscow.
Russia is unhappy about U.S. support for independence for the breakaway Serbian province of Kosovo. It bristles at what it sees as U.S. meddling in its affairs and its traditional sphere of influence.

TITLE: Mass Nazi-Era Grave Found in Ukraine
AUTHOR: By Natasha Lisova
PUBLISHER: The Associated Press
TEXT: KIEV — Ditch-diggers discovered a mass grave believed to contain thousands of Jews slaughtered in Ukraine during World War II, a Jewish community spokesman said, a grim finding in a nation one Holocaust expert said had been “an enormous killing field.”
The grave was found by chance last month when workers were laying gas pipelines in the village of Gvozdavka-1, about 175 kilometers northwest of the Black Sea port city of Odessa, regional Jewish community spokesman Roman Shvartsman said Tuesday.
The Nazis established two ghettos during World War II near the village and brought Jews there from Odessa and what is now Moldova, Shvartsman said.
In November 1941, Nazi officials set up a concentration camp in the area and killed about 5,000 inmates.
“Several thousand Jews executed by the Nazis lie there,” Shvartsman said.
Shvartsman said the Jewish community was aware of the mass murder at the time, but no one knew where the bodies were buried.
Yitzhak Arad, a Holocaust scholar and a former director of the Yad Vashem Holocaust Museum in Jerusalem, said the area was known to be a site of mass executions of Jews during the Holocaust. He said he knew that some 28,000 Jews were brought there from surrounding towns and that 10,000 died.
Holocaust expert Efraim Zuroff, director of the Israel office of the Simon Wiesenthal Center, said the discovery was not shocking or unexpected.
“I’m not surprised that, even in these days, there are discoveries such as these. It underscores the enormous scope of the plans of annihilation of the Nazis and their collaborators in Eastern Europe,” Zuroff said.
Hundreds of mass graves exist in Ukraine, and many have not yet been discovered, Zuroff said. 
“Ukraine was an enormous killing field, hundreds of thousands of Jews were murdered,” he said.
Anatoly Podolsky, director of the Ukrainian Center for Holocaust Studies, said there are believed to be some 250 to 350 mass grave sites dating from the Nazi occupation, during which some 1.5 million Ukrainian Jews are believed to have been killed. The number includes those massacred near their homes and those deported to death camps elsewhere.
Podolsky said that most of the sites were located after the 1991 Soviet collapse, but that there were still some left to find.
Ilia Levitas, the head of Ukraine’s Jewish Council, put the number of Jewish mass graves in the country at more than 700.
The names of 93 Jews killed at the Gvozsdavka-1 site have been established, Shvartsman said. He said Jewish community members planned to conduct studies at the newly found site to identify victims.
“We must figure out their names. It is our debt to the victims and survivors,” he said.
Odessa’s chief rabbi, Shlomo Baksht, wants to erect a fence around the site and a monument to the victims this year.

TITLE: Safety Thwarted In Mine Explosion
PUBLISHER: The Associated Press
TEXT: MOSCOW — Russia’s top industrial safety official on Wednesday blamed interference with a safety system for a methane explosion that killed 39 coal miners, saying gas gauges had been blocked — possibly with rags — in an apparent effort to keep work going and increase profits, a Russian news agency reported.
Investigators believe equipment that measured methane gas levels at the Yubileinaya mine in Siberia’s Kuzbass area was tampered with to reduce readings, ITAR-Tass quoted Konstanin Pulikovsky, head of the industrial watchdog Rostekhnadzor, as saying.
“At Yubileinaya there was a domestically made system — we know that it can be covered with a simple rag and it stops working,” the news agency quoted Pulikovsky as saying. He said the intent could have been to ensure that mining would not be halted because of high methane levels.
The May 24 disaster followed a methane blast in March that killed 110 workers at the nearby Ulyanovskaya mine — Russia’s worst coal mining accident in more than 60 years. Pulikovsky said the methane detection system there had been blocked.
“At Yubileinaya, like at Ulyanovskaya, there was interference with the gas warning system,” ITAR-Tass quoted Pulikovsky as saying Wednesday.
Both mines are owned and operated by Novokuznetsk-based OAO Yuzhkuzbassugol.

TITLE: Foreign Minister Backs Serbs in Kosovo Dispute
PUBLISHER: Reuters
TEXT: MOSCOW — Foreign Minister Sergei Lavrov reiterated on Wednesday that Russia had “firm solidarity” with Serbia on Kosovo, in a sign that Moscow is unwilling to change its stance on the Balkan province ahead of the Group of Eight summit.
“The Serbian government has proposed the continuation of talks, and we support this. We will not agree to any unilateral imposition of a decision on Belgrade,” Lavrov told reporters at a meeting with Serbian Foreign Minister Vuk Jeremic.
Kosovo’s ethnic majority is impatient for independence and has the backing of the United States and the EU.

TITLE: Police Detain 51 Protestors Following Stavropol Murders
AUTHOR: By Natalya Krainova
PUBLISHER: Staff Writer
TEXT: MOSCOW — Fifty-one people were detained during an overnight protest in Stavropol to denounce the killing of two students, police said Wednesday. Two were still being held Wednesday.
About 1,000 young people took part in the protest, denouncing non-Russians and brawling with police. Most were skinheads and members of ultranationalist organizations such as the Movement to Stop Illegal Immigration, a Stavropol city police spokesman said by telephone.
The slain students, Viktor Chadin and Pavel Blokhin, were stabbed to death Saturday night in what ultranationalists call an ethnic hate crime. The deaths came less than two weeks after an ethnic Chechen student, Gilani Atayev, was killed in a street brawl in the southern city.
But a prosecutor said ethnic hatred was not even being considered as a possible motive. “There is no basis for that,” Andrei Vlasov, prosecutor of the city’s Leninsky district, said by telephone.
Another source in the Leninsky district prosecutor’s office noted that a suspect had been identified in the killings and he was not from the Caucasus. No arrests have been made.
The Stavropol prosecutor’s office has opened a criminal case against a demonstrator suspected of inciting ethnic hatred, the city police spokesman said.
A spokesman for the police station in the Leninsky district, where the demonstration took place, identified the suspect as Alexander Chernovolov, a Stavropol resident. “Chernovolov shouted ultranationalist slogans more furiously than others, called for the expulsion of people of other nationalities from Stavropol, and insulted them,” said the spokesman, Interfax reported. Chernovolov was being held in custody Wednesday. If charged and convicted of inciting ethnic hatred, he could face up to five years in prison.
Another demonstrator faces a fine for hooliganism, including the use of foul language, the city police spokesman said. The other 49 detainees were released after a short “explanatory conversation,” he said. He said a window of a cafe was broken during the rally but nothing was seriously damaged.
The presidential envoy to the Southern Federal District, Dmitry Kozak, and Interior Minister Rashid Nurgaliyev met with Stavropol police on Wednesday to discuss the May 24 street brawl in which Atayev was killed. Kozak called the incident “an ordinary fight that often happens in Moscow and other cities” and accused “outside forces” of exaggerating it.

TITLE: Putin to Keep Luzhkov as Mayor
AUTHOR: By Natalya Krainova
PUBLISHER: Staff Writer
TEXT: MOSCOW — President Vladimir Putin hinted Tuesday that Mayor Yury Luzhkov might stay on after his term ends in December, telling him that it was too early to retire.
Opposition politicians in the City Duma and State Duma said Putin’s remarks suggested that the Kremlin had decided to keep Luzhkov in office to help deliver votes in parliamentary elections in December and in the presidential vote in March.
Putin praised Luzhkov during a visit to the recently built Kurkino district in northwestern Moscow and said the mayor still needed to find ways to provide young families with affordable housing and deal with defrauded homebuyers.
“I believe that first you should start solving these problems, and then we can talk about a change in your activities, but a little later,” Putin told Luzhkov, Interfax reported.
Putin said he would like to see all of the city’s problems “solved as effectively as in Kurkino.”
Luzhkov was elected to a third four-year term in 2003. Under a 2005 law that abolished gubernatorial elections, Luzhkov could have to seek the president’s blessing for another four years sometime before his current term ends. Putin’s nomination would then have to be approved by the City Duma, which is dominated by Putin supporters.
Alternatively, Luzhkov could wait for Putin to ask his envoy in the Central Federal District, which includes Moscow, to select two candidates for the job and submit them for his consideration. The one whom Putin picks would then need to be approved by the City Duma.
Luzhkov, who previously has ruled out a new term, made no public comment Tuesday on whether he would seek to stay in office. Vedomosti reported in April that Luzhkov would seek Putin’s blessing that month, while Gazeta.ru said Tuesday that he had made the request in the spring.
Officials in Luzhkov’s press service did not answer the phone Tuesday evening. A Kremlin spokesman declined to comment.
Sergei Nikitin, a Communist deputy in the City Duma, said the Kremlin needed Luzhkov to deliver votes for United Russia in the State Duma elections and victory for Putin’s preferred successor.
“I think the president meant exactly that when he talked of the unsolved problems that Luzhkov faces,” Nikitin said. “After that, Luzhkov will not be needed.”
Andrei Metelsky, head of the City Duma’s United Russia faction, which controls 28 of the chamber’s 35 seats, said in April that the deputies would support a new term for Luzhkov if Putin nominated him for the post.
United Russia leader and State Duma Speaker Boris Gryzlov said late last month that he hoped Luzhkov would top the party list for Moscow in the State Duma elections
Independent State Duma Deputy Vladimir Ryzhkov said Luzhkov’s reappointment would match the political trend of leaving governors in their posts.
“The essence of the deal is simple: Governors are reappointed in exchange for the loyalty to the Kremlin,” Ryzhkov said.
If Luzhkov left office, it would deal a serious blow to United Russia in its efforts to sweep the State Duma elections, said Alexei Makarkin, an analyst with the Center of Political Technologies.

TITLE: Completed Dam to Reduce Federal Flows
AUTHOR: By Yekaterina Dranitsyna
TEXT: The majority of work on St. Petersburg’s dam is expected to be completed by the end of 2008, the Federal Agency for Construction and Housing (Rosstroi) announced this week. As a result, the agency will considerably reduce its spending in the city over the next few years to focus on infrastructure projects.
“This year Rosstroi will spend over 12 percent of its budget on St. Petersburg,” Vladimir Blank, Deputy Head of Rosstroi, said at a news conference on Monday.
Last year Rosstroi spent 11.4 billion rubles ($438.5 million) on St. Petersburg, with over 23.5 billion rubles planned for this year. “Such an increase in funding is logical considering the large construction projects that are currently being realized in the city,” he said.
In 2008, Rosstroi spending in St. Petersburg is planned at 17.2 billion rubles, in 2009 – at 11.3 billion rubles and in 2010 at just 6.8 billion rubles.
According to Blank, the St. Petersburg dam is  the largest construction project being undertaken in Europe. Last year, Rosstroi approved completion of the dam project, which requires 55 billion rubles in investment.
“We use international sources of funding, co-funding and direct budget funding. Only by combining all these sources will we manage to complete the dam on time,” Blank said.
According to the plan, the share of budget funding will decrease from 8.85 billion rubles in 2007 (45 percent of the total cost of the dam) to 269 million rubles in 2012 (5.6 percent).
By the end of 2008 the dam will protect St. Petersburg from flooding and by 2012 Blank promised a road over the dam would be completed. 
Among other Rosstroi projects in St. Petersburg, he mentioned reconstruction works in the center of the city, residential construction for military servicemen, veterans and invalids, investment in engineering infrastructure and financing of state housing certificates.
“Transport and engineering infrastructure are the main problems in St. Petersburg. A major Rosstroi project for the next few years is the construction of a main sewer. This sewer will allow the construction of new residential buildings in northern parts of the city and decrease waste dumped in the sea,” Blank said.
“We will increase spending on the modernization of engineering infrastructure. This will require 15 billion rubles. We will complete construction of new metro stations including Admiralteiskaya, stations on the Frunzensky circle line and a second pavilion at Sportivnaya station,” Blank said.
Spending on infrastructure will increase from 597 million rubles in 2007 to 1.8 billion rubles in 2008, 1.1 billion rubles in 2009 and 1.2 billion rubles in 2010.
Nikolai Pashkov, Director for Professional Activities at Knight Frank in St. Petersburg, agreed that the northern areas of the city as well as the more expensive Primorsky and Vyborgsky districts are the most promising areas for residential construction.
“To provide engineering infrastructure at a construction site has traditionally been difficult. Monopolists charge a high price and there is no guarantee that they will provide all the communications on time. Authorities should first provide communication lines and then auction off the land,” Pashkov said.
He also indicated problems in the south. “Despite a new water purification plant, the southern districts still suffer from problems with sewerage. But almost all districts have their problems,” he said.

TITLE: Banking Congress Puts Accent On Integration
AUTHOR: By Yekaterina Dranitsyna
TEXT: “Banks: Capitalization, Stability, Competitiveness” is the agenda of the 16th International Banking Congress, which runs June 6 through June 9 at Pribaltiiskaya Hotel in an event organized by the Central Bank of Russia and City Hall. 
“This congress is considered one of the largest and most representative business forums in Russia, an authoritative platform for detailed discussion of professional issues,” the congress web site cited President Vladimir Putin as saying.
The main topics for discussion at the congress were proposed by the former Deputy Chairman of the Central Bank of Russia, Andrei Kozlov, who was assassinated in January this year. This congress is being held in his memory — he had been an active promoter of international banking congresses in St. Petersburg for a number of years.
“What distinguishes our congress is that participants can discuss a wide range of topics, choose the most interesting sessions to attend and communicate informally,” Kozlov said at the 15th International Banking Congress last year.
Then the congress focused on Basel standards. Banking experts analyzed possible ways of introducing them into practice in Russia. 
Experts discussed the efficiency of control over the banking industry, international standards of capital assessment, the industry’s stability and mechanisms of internal control and audit.
This year the organizers have laid stress on the present state of the banking industry in Russia, the level of its capitalization, financial stability and competitiveness of Russian banks, risk management, transparency and global trends in banking and regulations.
“The Russian banking industry is integrating into the international community. It forces us to reconsider the capitalization, stability and transparency of the banking industry as well as regional development and retail services,” said Igor Zhigunov, member of the board of Gorodskoi Mortgage Bank and director of its activities in the Northwest.
Of interest are all the sessions on the increasing competitiveness of the banking industry and the move towards the transparency of operations, Zhigunov said.
“The issues under discussion at the plenary session are particularly topical. They feature recent trends in the banking industry — mergers and acquisitions, development of credit services, bank funding, the credit histories bureau and its role in decreasing credit risks,” Zhigunov said.
The list of participants includes the chairman of the Bank of Russia and representatives of Russian and foreign banks, international financial organizations, bank unions and associations, audit and investment companies.
According to a report by the Central Bank of Russia, by Jan. 1, 2007, Russian banks accounted for 14,045.6 billion rubles ($538.5 billion) in total assets, representing 52.4 percent of GDP. Bank capital was estimated at 1,692.7 billion rubles. Loans to individuals and non-financial institutions were estimated at 8,031.4 billion rubles (30 percent of GDP), individual deposits at 3,793.5 billion rubles.
Over 50 percent of loan companies are based in Moscow. The five largest Russian banks account for about 44 percent of total bank assets.
According to a report issued by ReDeal analytical group, 99 M&A deals were completed last year in the Russian banking industry, amounting to $4.8 billion. Ten deals accounted for over $100 million, while the average cost of deals was $57.6 million.
According to the report, 14 percent of M&A deals accounted for 75 percent of the market value. Foreign banks as buyers were involved in 21 percent of deals, while in terms of value they accounted for 72 percent of the total market value.
On average, buyers estimated Russian banks at 40 percent of their assets and 2.5 times the size of their capital.
Igor Zhigunov was positive about the trends, alluding to the increased volume of banking services both in retail and corporate financing and the development of investment banks. “It is a result of economic growth, stabilization in the financial industry, growth in production, increasing supplies of money and real incomes and increasing levels of trust shown by the population in banking services,” Zhigunov said.
He also emphasized the active development of retail services both by well-established and new market players. “The largest Russian subsidiaries of foreign banks have started to expand,” he said.
Zhigunov singled out car loans and mortgages as the most dynamic segments with growth at over 150 percent last year. He forecast the volume of mortgages to exceed the volume of consumer loans in the next few years.
Among other events that he considered postive was the emergence of a credit histories bureau, the introduction of the under-writing approach to credit applications and the securitization of loans.

TITLE: Blank Blames ‘Unpredictable’ Finns
AUTHOR: By Yekaterina Dranitsyna
PUBLISHER: Staff Writer
TEXT: Despite a recent compromise in the conflict over the Mobi Dick container terminal in Kronshtadt, the Federal Agency for Construction and Housing (Rosstroi) and the Mobi Dick company continue to accuse each other of violating agreements.
At a news conference on Monday, the Deputy Head of Rosstroi, Vladimir Blank, addressed Mobi Dick managers and shareholders with new accusations. “It’s the Finnish company’s unpredictability that is preventing Rosstroi from operating normally. With no legal right to do so, they are keeping hold of the land,” he claimed.
It was evident that Blank prepared the accusations in advance. He easily switched the subject of the news conference around to Mobi Dick, holding up discreditable photographs of protesting Mobi Dick activists and extensively citing decrees and agreements concerning the company.
Last year Rosstroi demanded the return of the 5.5 hectare territory, which had been leased to Mobi Dick in 2004 for the expansion of the container terminal. Officials suggested “temporarily” returning the land to them until the terminal, which is being constructed in proximity to the land plot, was completed.
According to Blank, Mobi Dick signed a document whereby they agreed to vacate the territory by November 1, 2006; however they did not do so.
A public scandal arose in April this year when Rosstroi blocked access to the terminal. Mobi Dick, in turn, blocked the road to Kronshtadt with trucks. Smolny revoked the decree granting the land to Mobi Dick.
In April the Finnish shareholders of Mobi Dick – Container Finance Oy – wrote a letter to the St. Petersburg governor, signed by CEO Harry Nordstrom. In this letter Nordstrom indicates that the land was leased to Mobi Dick for 49 years, and the period expires only in 2051.
“At the end of 2006, persons close to the Deputy Head of Rosstroi, Vladimir Kogan, who supervised the dam informed us that we should break the rental agreement and turn down involvement with the terminal because our territory had to be given to a very powerful and influential commercial group,” the letter said.
“In fact we were advised to abandon our legal business immediately and hand it over to a rather shady group.” Nordstrom asked the governor to clarify the situation and protect the company from “a raid.”
The Mobi Dick terminal processes about 10 percent of cargo from St. Petersburg Sea Port, and the conflict has affected many foreign companies including Toyota, Ford, Wrigleys and Kraft Foods.
Blank claimed that, according to the latest agreement, the land is temporarily exempt but should be returned to Mobi Dick by April 1, 2009.
Mobi Dick continues to appeal to the Arbitration Court asking to ensure free access to its terminal and compensate for the financial damage caused to the company. 12 applications are currently listed on the Arbitration Court web site filed by Mobi Dik in 2006 and 2007 against the Committee for the Management of State Property, the local department of Rosstroi, City Hall and other state bodies and their contractors.
However, the Finnish company has been more optimistic in talks with partners and shareholders.
“In order to secure uninterrupted traffic flow Mobi Dick, has built a temporary road of approximately 850 meters, which will connect the terminal’s truck parking area to the Kronstadt crossing. This temporary road has been approved by the appropriate St. Petersburg officials,” says the statement distributed on Containerships Group web site.
Meanwhile, Vladimir Blank claimed that Mobi Dick is “a strange exception” among over 500 companies with Finnish shareholders that operate in St. Petersburg without any difficulties. He stressed that Mobi Dick should initially have agreed on the usage of its territory with Rosstroi.  
“Since February 24, 2004 they have had quite enough time to solve their problem — to create an alternative road and get it approved,” Blank said.

TITLE: Reaching Unparalleled Heights
AUTHOR: By Yekaterina Dranitsyna
PUBLISHER: Staff Writer
TEXT: St. Petersburg ranks as one of the regions in Russia with the lowest level of investment risk. In November last year the national rating agency Expert RA put the city in first place in a list of Russian regions with “the lowest investment risk in 2005-2006,” praising it for “the high efficiency of regional governance.” St. Petersburg has a BBB- credit rating from Standard & Poor’s.
According to the Committee for Economic Development, Industrial Policy and Trade, $5 billion was invested into fixed capital in St. Petersburg in January-November 2006, which is a 6.7 percent increase on the same period for 2005.
Foreign investment tripled, increasing to $2.7 billion in the first nine months of 2006. Direct foreign investment accounted for $479.5 million. Most of the funds were invested into the processing industry, food production and tobacco production.
During the 10th St. Petersburg International Economic Forum held in June last year, companies signed contracts amounting to around $1 billion. Among the major contracts was an investment agreement with Nissan for the construction of a $200 million car plant in the city. Another foreign carmaker, General Motors, started construction of its plant in June.
In the 2006 city budget, spending on infrastructure tripled compared to 2003, reaching $993 million. This year investment into infrastructure will increase to $1.5 billion.
The city has won a national tender to create a special economic zone, 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 and medical equipment will all be subject to the terms of the scheme.
The benefits of being located in a special economic zone include a unified social tax of 14 percent 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.

Baltic Pearl

A multifunctional project comprising residential buildings and office and entertainment areas is being constructed in Strelna near St. Petersburg on a 180-hectare site. It should be completed by 2010, providing housing for about 35,000 residents.
The total cost of the project is estimated at about $1.5 billion. Over one million square meters of residential premises and 500,000 square meters of commercial premises are to be constructed and funded by the Shanghai Overseas Investment Company.

Transport Infrastructure

Last year the Russian government allocated two projects financing from the state investment fund — the Orlovsky tunnel under the Neva River and the Western High-Speed Link Road.
The tunnel is to link the city center with Vasilievsky Island from the intersection of Piskarevsky Prospekt and Orlovskaya Ulitsa. The total cost of the tunnel will be $987 million. Apart from the $328 million supplied by the investment fund, the city budget will provide roughly the same amount. Private investors are to cover the remaining costs. Systema Gals, a subsidiary of AFK Systema, has completed the basic planning works.
The cost of the Western High-Speed Link-Road is estimated at $2 billion. The 46.4 kilometer toll-road will run from north to south through the city, connecting the ring road with the sea port and main transport hubs of the city.
The concession scheme is aimed at ensuring that the construction will be financed by an investment fund ($620 million), the St. Petersburg budget ($370 million) and private investments. Planning works have already been completed. 
The planned overland express is another key infrastructure project. By 2011 it should link the Baltic Pearl with the Prospekt Veteranov metro station. The Kupchino and Obukhovo stations will be linked to the initial line at a latter date. The total cost of the project is 18 billion rubles ($700 million).

Football Stadium

A new $225-million stadium is to be built on the site of the Kirovsky Stadium on Krestovsky Island which was originally built in the 1950s. It will be funded from the tax payments of Gazprom Neft oil company into the city budget.
From a short-list of five architectural companies, City Hall approved the plans drawn up by Kisho Kurokawa architect & associates. 
According to the signed contract, construction of the 62,000-seater stadium should be completed by December 2008. The building will meet the standards of the governing bodies of European and World football, UEFA and FIFA.
The stadium, designed in the form of a “space-ship,” will be 56.6 meters high. 

Sea Passenger Terminal

The federal authorities and the Morskoi Fasad (Sea Facade) firm will invest $310 million in the construction of a sea passenger port on Vasilievsky Island to serve 1.2 million passengers a year. The port will be completed by 2009.
This is currently the largest project in Europe for the development of land on a seashore site — the 476-hectare plot will be home to the port, office centers, shopping and entertainment facilities and residential buildings.

Okhta Center

To be located on the banks of the Neva and Okhta rivers near the Peter the Great Bridge, the Okhta Center will comprise a high-rise office center for Gazprom Neft oil company as well as office and shopping areas, a hotel and museum, residential buildings and transport and social infrastructure.
Though construction of the 300-meter high skyscraper in the historical center of the city has been criticized by local media and architectural experts, the Gazprom Neft Invest company plans to complete the tower by 2012. The whole project is due to be completed in 2016.
The total cost of the project is estimated at $2 billion. It will be funded from Gazprom Neft tax payments to the city budget. Over one million square meters of area will be developed.

New Holland

The redevelopment of this island, located in the heart of St. Petersburg and first developed in the 18th century, will cost $319 million in investment and take 30 months to complete.
New construction on the 220,000 square meter island will comprise offices, hotels and varied social infrastructure. 
The construction of a multifunctional center of 10,000 square meters is obligatory as are the provision of 1,000 car-park spaces, a main road and several pedestrian bridges to provide public access to the island.
The British architect Norman Foster and the Moscow based ST Group construction holding were awarded the contract in February 2006.

TITLE: Governor Targets
FDI of $8 Billion
AUTHOR: By Anatoly Temkin
PUBLISHER: Vedomosti
TEXT: Foreign investment into the city economy is expected to rise more than one and a half times over the next three years to $8.6 billion, St. Petersburg Governor Valentina Matviyenko revealed May 23, at her annual address to the Legislative assembly. Experts consider this feasible.
Although in 2006 foreign investment into the city economy reached $5.6 billion, City Hall wants to increase that figure to $8.6 billion a year by 2010, Matviyenko said.
“With a favorable prognosis, we may reach these heights as early as 2008,” she said.
According to an analyst at the investment bank Trast, Yevgeny Hadorshin, the figure is attainable, but it will be hard to maintain such a level.
Across the country as a whole in the first quarter of 2007 foreign direct investment stood at $7.8 billion, he said, and St. Petersburg would have to become exceptionally attractive for investors to attain $8.6 billion. He also observed that the intensity of foreign investment into Russia will fall over the coming years – foreign investors want to minimize political risks related to the election of a new president in March 2008. 
“This concerns St. Petersburg in particular, given that it is the president’s hometown and that he has particularly strong influence on the city,” the expert said.
Over the next few years the city can rely on large foreign investment public-private infrastructure projects – the Western High-Speed link road (with a total cost of 83 billion rubles) and the Orlovsky tunnel (costing 26.3 billion rubles). The concessionaire, to be chosen by the Ministry for Economic Development by way of tender, should finance half of the total cost of the link road. Four consortiums are taking part in the tender, and they are almost entirely made up of foreign construction firms. The private co investor in the Orlovksy tunnel will have to contribute around 8 billion rubles – details of the tender have yet to be announced. Both projects should be completed by 2010 – 2011. Before then carmakers General Motors and Nissan expect to open their St. Petersburg assembly plants. Nissan will invest more than $200 million into local production, GM $300 million, following which both companies intend to localize production of components.
At the end of last year the Canadian company Magna bought land to build a plant for $50 million, while at the beginning of May British company Stadco announced it was to build a plant near to St. Petersburg.
If the city fulfills its obligations with regards to the development of infrastructure then investors will be attracted to the city, said Natalya Kudryavtseva, Director of the St. Petersburg International Business Association (SPIBA). According to her, City Hall has created a generally favorable investment climate, though the engineering and road infrastructure necessary for new investors to appear have not been fully developed. Another obstacle could be a shortage in labor supply. Development and construction firms are already faced with a slight deficit in skilled labor in all specializations and levels and if City Hall does not do something to change the situation then it will become pointless to build new plants in St. Petersburg, warned Kudryavtseva.

TITLE: 3 Summits With One Message
AUTHOR: By Anna Smolenko
PUBLISHER: Staff Writer
TEXT: Three seems to be the magic number for the economic forum in St. Petersburg this weekend.
Three summits will be held over three days for 10,000 people — roughly triple the number who attended last year. Agreements worth $3.3 billion are expected to be signed in the presence of President Vladimir Putin and his two favored successors. Even the entertainment program has three distinct flavors: the Scorpions, the Bee Gees and ballet.
First and foremost, though, Putin is hoping to win over the participants — and he is going to give top foreign investors a chance to quiz him on Russia's course.
One hundred foreign CEOs have been invited to participate in a closed-door meeting with Putin that is being organized by the World Economic Forum during the St. Petersburg International Economic Forum, which starts Friday.
“We would like a frank discussion,” Deputy Economic Development and Trade Minister Kirill Androsov said in an interview. 
“They will be able to ask any question and receive any answer.”
Klaus Schwab, the Geneva-based forum’s founder and executive chairman, will moderate the 1 1/2-hour question-and-answer session with Putin, who is to fly to St. Petersburg straight from the Group of Eight summit in Germany. Putin will deliver a brief speech as well.
The business leaders also will meet with First Deputy Prime Minister Dmitry Medvedev and Economic Development and Trade Minister German Gref to hear about Russia’s domestic priorities and the diversification of the economy. 
First Deputy Prime Minister Sergei Ivanov and Industry and Energy Minister Viktor Khristenko are expected to speak about “renationalization trends in the energy sector” and Russia’s relations with the European Union and the United States, according to an agenda provided by organizers. Medvedev and Ivanov, who has yet to confirm his participation, are seen as the leading possible successors to replace Putin next year.
“I would call it a summit within the summit,” Felix Howald, director for Europe at the World Economic Forum, said by telephone from Geneva.
Among the 100 CEOs on the guest list to meet Putin are Royal Dutch Shell’s Jeroen van der Veer, BP’s Tony Hayward, Chevron’s David O’Reilly, Coca-Cola’s Muhtar Kent, PepsiCo’s Michael White, Siemens’ Klaus Kleinfeld and Magna’s Frank Stomach.
The conference is modeled on a similar event organized by the World Economic Forum at German Chancellor Angela Merkel's request after her election last year.
“Everybody is excited about the opportunities in Russia,” said Michael de Csillery, partner at Bain, a U.S. consulting group that is just establishing a presence in Russia. He intends to attend sessions with Medvedev and Ivanov, while Bain chairman Orit Gadiesh will meet with Putin.
De Csillery said he was keen to hear how the government would “continue to support the growth.” Russia expects to post strong economic growth of more than 6 percent this year.
With the government pulling out all the stops to make the 11th annual St. Petersburg International Economic Forum a success, their efforts appear to be paying off. Some 200 heads of top international companies have confirmed their participation, and a dozen agreements worth $3.3 billion will be signed, Androsov told reporters Tuesday. Last year about $1 billion in deals was signed.
Androsov declined to give details about this year's deals, saying only that they would involve the construction of new plants in the timber-processing, automotive, food, petrochemicals and electronics industries.
Japanese carmaker Suzuki is expected to sign a deal on a Russian plant.
An informal CIS summit will coincide with the economic gathering, and a total of 10 heads of state from CIS countries are scheduled to show up, together with 11 prime ministers and 68 ministers.
In all, at least 6,000 guests will attend the forum, bringing the total number of participants to 10,000, Androsov said. A total of 168 executives are coming from China alone. “Russia has never before been honored to host a Chinese delegation of such magnitude,” Androsov said.
Speakers are to include former U.S. Vice President Al Gore, Norwegian Prime Minister Jens Stoltenberg, John Hopkins University professor Francis Fukuyama and steel magnate Lakshmi Mittal.
Olympic swimming champion Maria Kiselyova and Yulia Bordovskikh, an NTV television presenter, are to participate in a session titled "Russia — Building Trust." The government will also use the forum to again trumpet its bid to hold the Winter Olympics in Sochi in 2014.
State and private companies are forking out a lot of money to help pay for the 500 million ruble ($19.36 million) forum. Sponsorship fees average 5 million to 15 million rubles, said Anton Troyanov, director of the St. Petersburg Economic Forum Fund, a major organizer. Gazprom is the forum’s main sponsor.
“We are doing it for ourselves,” said Sergei Grigoryev, a vice president at Transneft, speaking of the state pipeline monopoly’s decision to sponsor the event. 
Transneft was among the companies whose officials were scheduled to attend the Russian Economic Forum in London in April but pulled out at the last minute amid a Kremlin boycott. Some companies have said the Kremlin asked them to give preference to the St. Petersburg forum.
Grigoryev praised the St. Petersburg forum, saying it would give Russian companies an opportunity to showcase themselves and clinch deals.
A new conference hall has been built at the Lenexpo complex for the forum. Equipment, including lights and a screen, were rented from Finland, said Alexei Berlov, spokesman for the forum.
The Scorpions and the Bee Gees will kick off the forum’s entertainment program with concerts on Friday night. Ballet and other performances are scheduled for Saturday and Sunday.

TITLE: Malls Fight it Out For
Million-dollar Shoppers
AUTHOR: Anastasia Yasinskaya
PUBLISHER: Vedomosti
TEXT: Last year St. Petersburg saw a record number of state-of-the-art shopping and retail centers and hypermarkets launched across the city. Veteran property consultants admit they have never registered such buoyancy in investment over the years of monitoring the market. Within the past twelve months alone property developers succeeded in nearly doubling the city’s stock of retail properties that meet international standards, having built more shops than in all the previous years of the new century put together.
The implications of such “shopping mania” are self-evident. The rivalry between shopping malls in hunt of the shopper’s wallet is in full swing, while retail operators are gradually coming to realize that the consumer is, after all, a key figure for whose sake the entire investment project is initiated in the first place. From the standpoint of a man in the street St. Petersburg’s retail real estate, having reached a certain degree of maturity in 2006, is only just entering the most exciting stage of development.

Shopping Rush

Analysts’ estimates of the volume of retail space launched last year vary, but they all agree that it exceeded the one million square meter mark. Colliers International puts the size of retail space commissioned in 2006 at 1.175 million square meters and the number of new shopping malls launched across the city at 39. Analysts at Praktis Consulting & Brokerage argue that as many as 48 new malls were launched, measuring a total of 1,211,700 square meters including 821,400 square meters of rentable space. IB Group’s statistics show that 46 projects measuring a total of 1,355,000 square meters and providing 968,370 square meters of rentable space have been launched.
The reason for those discrepancies is that developers permanently postpone commissioning of their projects and revise project parameters after building works start.However, it is clear that the long-anticipated retail boom in St. Petersburg has already begun. “A look into the dynamics of launches of new properties, of which 374,000 square meters were finalized in 2003, 384,000 square meters in 2004 and 280,000 square meters in 2005, offers a clear picture of what exactly was happening on the market last year,” says Yuri Borisov, managing partner at IB Group.
The 4th quarter accounted for the largest share of shopping space finalized last year, with a total of nearly 650,000 square meters launched in the last three months of 2006, Praktis C&B reports.
“Today, consultants come up with varying estimates as to supply of modern retail space per resident in St. Petersburg. In particular, they often put that figure at 200 square meters per 1,000 residents,” Borisov said. “In our opinion, those figures are hugely understated. Of course, each consultant proceeds from his own perception of “prime retail space” but even if only rentable space in European-style shopping malls launched in 2006 is taken into account we will come up with the aforementioned figure of 200 square meters per 1,000 St. Petersburgers. And this — without taking into consideration retail complexes and hypermarkets launched earlier as well as top-quality street retail projects on Nevsky Prospekt, Bolshoi Prospekt on the Petrograd side and other busy thoroughfares. I assume that following last year’s developments St. Petersburg holds the lead in terms of supply of shopping space in this country and is far ahead of other Russian cities.” Becar estimates the supply of shopping space at 441 square meters of space built in line with international standards per 1,000 residents.
However, quantitative characteristics in this case are hardly the issue of utmost importance. In 2006, the market experienced a qualitative breakthrough. “St. Petersburg eventually saw the beginning of construction of the so-called format-driven shopping complexes with a well thought-out concept, not just those which occupy lucrative spots next to metro stations. The city now has family-oriented shopping and leisure centers where visitors are ready to spend a whole day at the weekend,” says Yulia Drovyannikova, chief executive at Praktis Consulting & Brokerage.
A landmark event of the year is, undoubtedly, the launch of two Mega malls in the Leningrad Oblast, just outside the city next to KAD (outer ring road) southeastwards from St. Petersburg (Mega Dybenko) and northwards (Mega Parnas). The two projects, worth a total of approximately $300 million, opened at an interval of two weeks one after the other, adding over 300,000 square meters of shops to the city’s supply of retail space. IKEA expects a payback on both developments in 7 to 10 years.
The malls were built on freeholds of approximately 60 ha each, acquired by IKEA. The projects are similar, just like all other Mega malls operating in Russia. The Kudrovo mall (Mega Dybenko) is somewhat larger, however . The total area of the super-regional mall exceeds 170,000 square meters and 75 percent of properties are rentable. The main anchor tenants are IKEA (24,000 square meters), Auchan hypermarket 20,000 square meters, a DIY store run by Germany’s OBI chain (14,000 square meters) and Media Markt (5,000 square meters) — the first store launched by the German home appliance chain in Russia. In the fall of 2007 they will be joined by a multiplex cinema providing 9 to 10 screens to be run by Russian-U.S. company KinoStar (8,000 square meters).
Mega Parnas in Bugry measures 138,000 square meters, offering a similar choice of shops and leisure venues, although a home appliance store will be run by M.Video, not Media Markt. .
Southern Mega brings together nearly 200 tenants; the northern mall houses approximately 150 retailers. Shopping galleries houses shops by Marks & Spencer, TJ Collection, Ecco, Mango, Bestseller, Adidas and others.
Both complexes have unprecedented parking capacity of 9,000 spaces in Kudrovo and approximately 7,000 in Bugry. The projected attendance rate for each mall is 20 million shoppers in the first twelve months of operation.
Yet another retail giant entered the market in February 2006. The shopping and leisure complex Grand Kanion (Canyon) was launched by a local developer on the northern outskirts of the city, near the metro station Prospekt Prosveshcheniya (on Prospekt Engelsa). The company Solomon rebuilt an unfinished development of the former weaving mill into a 75,000-square-meter shopping mall. Nash Hypermarket (run by the Moscow-based chain Sedmoi Kontinent) and the 9-screen multiplex theater Cinema Park launched operations at Grand Canyon, over 9,000 square meters. Other anchors are M. Video, two department stores run by Stockmann — Bestseller and Seppola, children’s leisure center Premier Park and others. Curiously, the new complex was raised right next to an operating commercial center housing shops, billiards rooms, bowling alleys, fitness facilities, etc. As a result, the joint retail and entertainment zone expanded to 150,000 square meters, thus challenging Mega Malls.
Enlargement of retail projects is one of the noticeable trends of the year. Properties measuring over 30,000 square meters account for approximately 27 percent of all complexes launched in 2006. As many as 14 new super-regional and regional shopping and leisure complexes measuring a total of over 700,000 square meters were built in the city (source: Praktis C & B).

Targeting Common People

Another visible sign of late is the decentralization of the city retail market. Developers are forced to admit that all the best spots in central locations and next to bustling transport hubs are no longer available for construction. Hence, their attention is now focused on commuter areas that remain largely underdeveloped in terms of retail. Even more so as the skyline of the suburbs is changing rapidly as the city administration pursues the plan to step up housing construction in defiance of public protests. New residential estates targeting a burgeoning middle class are mushrooming within lower-income communities built up with standard panel apartment blocks.
As a result, last year the city witnessed the launches of several shopping and leisure complexes, which are expected to have a profound impact on the way of life in communities that are far from prosperous such as the Frunze, Kirov and Krasnogvardeisky districts.
The first mall opened in the area was Yuzhny Polyus (“South Pole” in Russian), launched in February 2006 in Kupchino, at the intersection of Prospekt Slava and Prazhskaya streets. The 35,000 sqm project has succeeded in letting space to Perekryostok supermarket chain, M. Video, Bowling City, Intersport, family-oriented leisure center Star Galaxy, Mexx, TJ Collection, Carlo Pazolini, Peacocks and others. “Some two or three years ago few believed that this location was suitable for retail. However, [the mall] succeeded in creating a tenant mix comparable to that of the centrally located Sennaya Mall. That means for retailers an increase in locals’ purchasing power is self-evident,” says Yury Borisov, whose IB Group developed the concept and acted as an exclusive leasing agent and property manager for Polyus in the first 12 months of operations of the mall.
In April 2006, Adamant Group launched its new retail project, the shopping and leisure center Kontinent, at the corner of Prospekt Stachek and Marshall Kazakov Street — the largest shopping center in the Kirov District. The five-storied complex measuring 60,000 square meters houses a Perekryostok supermarket, Domovoi household goods store, Detsky Mir children’s shop, 7-screen multiplex theater Karo Film and a fitness center featuring a Reebok swimming pool.
In December, a 46,500 square meter shopping and entertainment complex Iyun (“June”) providing a 3-level indoor parking facility was launched at the intersection of Kosygin Prospekt and Industrialny Prospekt (Rzhevka Porokhovye commuter area). The mall is the pilot project by Regiony Group who are set to build a chain of 20 shopping centers in large Russian cities. Anchors are Mosmart hypermarket — the first outlet launched by Mosmart in St. Petersburg, Detsky Mir and Sportmaster department stores. Approximately 50 percent of rentable space in Iyun is allocated for leisure facilities (Bowling City, Extra Sport fitness center, five-screen Matritsa theater  and Star Galaxy).
Incidentally, such a correlation between leisure facilities and shopping space in newly built malls first became visible namely in 2006. Developers do not confine themselves just to bowling alleys and food courts and undertake more ambitious projects.
Last year St. Petersburg saw the launch of Russia’s first-ever mall oceanarium. The 5,000 square meter 3-level facility opened in April 2006 at the 28,000 square meter Planeta Neptun (Planet Neptune) shopping center on Ulitsa Marata, where 32 aquariums operate quite successfully in the company of a Perekryostok supermarket, Dino Park amusement park and a shopping arcade. The project is estimated to be worth $36 million.
The shopping and leisure complex Varshavsky Ekspress (Warsaw Express) launched on the premises of the landmark Varshavsky vokzal on the embankment of the Obvodnoi Canal, claims the title of the first entertainment complex of citywide scale. The developer — Adamant — has allocated half of the entire area of 34,000 sqm for a standard assortment of leisure facilities, including a 9-screen Karo Film multiplex theater, Shangri La gaming complex featuring a casino, restaurants, night club and mini-hotel, a Game Zona amusement center and AMF bowling alley.
Visitors queue up for the shopping and leisure center Rodeo Drive, launched in December in the northern suburb of the city (1 Prospekt Kultury). The point of attraction at Rodeo Drive is the water park featuring a spa center. Until recently, none of the developers working in St.Petersburg had ventured to combine shops and water amusement facilities, and the only water park in the city operated at Pribaltiiskaya Hotel. The developer of the ambitious project is the investment and property management firm Makromir. The cost of construction of the 47,450 sqm complex is estimated at $51 million. Half of rentable space is occupied by the amusement zone, which features a multiplex theater and billiards rooms etc. Makromir’s representatives believe that in the long term Rodeo Drive’s leisure zone will give the mall an advantage over rivals and ensure high attendance.
“Unlike Moscow residents, St. Petersburgers are less keen on shopping and prefer pleasant pastimes. That is why leisure facilities will play an increasingly important role especially in district malls that are unable to vie, say, with Mega by the number of shops. This will inevitably bring about a slump in returns,” says Yulia Drovyannikova.
The number of hypermarkets and specialized retail projects grew rapidly across St. Petersburg in 2006. For example, the retail chain Okay opened five new outlets. As many as nine Karusel stores and two Lenta supermarkets were launched.
The market of DIY stores has been formed. Several international chains of DIY stores arrived in St. Petersburg, seeking to challenge local stores of household goods and construction materials by offering similar goods at lower prices. In the summer of 2006 Castorama launched its first store in the Nevsky District. Within just a couple of months OBI opened three hypermarkets, in Garden City and both Mega malls. Finnish company Rautakesko launched two K-Rauta stores near city exits. Local operators, too, reported active growth. Among projects launched by domestic retailers are two Metrika stores, a new Maxidom and the first hypermarket of the chain Start, to name but a few.

Chasing the Shopper’s Purse

In the course of the past twelve months rents at professional malls grew steadily, by nine to 13 percent on average, Colliers International reports. The upper limit stood at $2,000 to $2,400 per square meter per year. The majority of shopping and leisure centers reported occupancy rates of 95 to 98 percent. Nevertheless, the questions as to how elastic the market is and when the crisis of overproduction will hit sound increasingly emotional. “According to our estimates, the demand/supply curve of retail space is unlikely to reach the inflection point where the landlord’s market evolves into the tenant’s market prior to 2010-2012. An increase in individual incomes, a shift in consumer preferences towards retail chains, untapped districts and the arrival of new operators all impede retail saturation. Among new operators are retailers themselves, professional investors interested in acquisition of readymade shopping and leisure complexes and finally development network companies, of which there is still an acute shortage here. They are the ones who are supposed to introduce a new product that would arouse interest of institutional investors,” Yury Borisov assumes.
“I think that what is in store for us is not a crisis of overproduction but a normal natural selection, strictly according to Darwin, where weaker projects will be ousted by the fittest. Sadly, St. Petersburg has plenty of badly designed, poorly built shopping centers with an inappropriate tenant mix. Nonetheless, the market is still short of approximately 1.5 million square meters of truly professional space. Only after this shortage is eliminated will true rivalry begin among modern projects, as tenants will be able to choose between the good and the best and rents may begin to drop,” said Boris Yushenkov, general director at Colliers International St. Petersburg. “That is why what we are likely to witness in the near future is a mass re-conception initiated by sensible landlords, not price wars between them.”
The first examples of projects aimed at revising mall concepts were registered in the city in 2006. The shopping complex Torgovy Mir Svetlanovsky on  Prospekt Engelsa — one of the oldest city malls targeting higher-income earners — underwent renovation, with support from Colliers International’s consultants. But then, the age of the complex is not the key. Owners of the newly-built Kosmopolis shopping center, launched in the spring of 2005 on Vyborgskoye Shosse, are also considering revision of their mall concept. River House on Prospekt Medikov is another project in dire need of re-conception. All those properties operate in locations that are hardly ideal for retail, which is why they were the first to suffer the implications of the growing competition.
In 2006, even the most widely publicized and quite successful retail complexes were contemplating promotion campaigns, while newcomers, despite their up-to-date concepts and a strong mix of anchor tenants, engaged in active struggle for buyers.
“The competitive environment of today is profoundly different from that of some three or four years ago,” said Yelena Marinicheva, head of marketing and advertising at the property management company Adamant. “Back in those days our holding in fact held a monopoly on retail space, whereas today the buyers are given a choice of quality malls. As a result, over the past 12 months Adamant stepped up its marketing and promotional activities. In certain complexes we hold six to eight major advertising campaigns a year,” she said.
Another 750,000 to 800,000 square meters of retail space are slated to be commissioned in 2007, Becar reports. In actual fact, analysts expect no more than 580,000 to 680,000 square meters to be launched as developers often fail to meet construction deadlines.

TITLE: Making Conservative Investors Forgo Their Foreign Principles
AUTHOR: By Anastasia Yasinskaya
PUBLISHER: Vedomosti
TEXT: International investment funds have been increasingly active in St. Petersburg over the past twelve months. The city saw the first transactions involving the sale of lucrative properties. Faced with a shortage of ready-made investment instruments, foreign operators, notorious for their conservative approach, are ready to forgo their principles and consider participation in development projects. According to the estimates of property analysts, at least 20 foreign investment funds are now mulling projects in St. Petersburg.
“A couple of years ago there were no more than two or three of them in the whole of Russia. And they preferred not to move beyond the boundaries of Moscow, focusing solely on operating business centers rated as class A, raised by Western developers, faultless and occupied by respectable tenants. In this way, investment funds expected a rate of return of 14 percent per year. These days the situation has changed greatly,” says Boris Yushenkov, general director at Colliers International St. Petersburg. “I think that about a year ago investors began to change their perception, as Russia moved upwards in world rankings. That served as a kind of signal for many foreign funds. They began with dispatching their emissaries to St. Petersburg; later on they opened their representatives in the city.”
“There are about a dozen funds that have been active in St. Petersburg. They have clear-cut plans to work and purchase properties in the near future — some of them are making deals already. Approximately five of them are examining the market situation. Another three to five investment firms have announced their presence in the city but are not yet doing anything of note,” Igor Gorsky, development director at Becar real estate agency, said.
Irina Neustroyeva, finance director at Schongauer Investburo, said there are about ten investment funds operating in St. Petersburg. “Some of them are very active and seek publicity, such as Raven Russia, specializing in warehouse real estate, or London & Regional Properties, which has recently announced plans to invest $1 billion in Russian projects. Others, for example Eastern Property Holdings, are working on smaller, individual deals,” Neustroyeva said.

Securities Market

 The most active international funds are from Finland and other Scandinavian nations, and the U.K. “This is quite understandable,” according to Neustroyeva. “Great Britain retains the title of the financial capital of Europe and all major funds have their headquarters in London, while the Scandinavians are closer to us geographically. They have close historical ties with Russia and with St. Petersburg in particular.”
The Finns used to build actively even in the days when this city was still known as Leningrad, during the Soviet regime, said Igor Gorsky. “They know the city well enough, they feel quite confident here and that is why they are ready to finance local projects, unlike, say, U.S. funds, which remain quite passive and will probably enter our market with the mediation of European firms. For example, we know that Deutsche Bank has many clients among U.S. pension funds.”
Boris Yushenkov observes that certain funds, especially those from Scandinavian countries, focus mainly on St. Petersburg, while the overheated Moscow market, where competition is strong, is of much less interest to them. The average budget international funds are bringing to the Northern capital stands at 200 to 300 million euros. Some operators announce plans to spend up to 1 billion dollars or euros on local projects.
“It should also be remembered that the majority of those funds are highly leveraged. As a result, with, say, $150 million at their disposal they are able to pursue projects worth up to $500 million. Being well-known in the West enables them to raise cheaper loans,” Neustroyeva said. One extremely important tendency is the decrease in returns. According to experts’ estimates, when buying into a ready-made (completed and commissioned) development they are ready to put up with rates of 10 to 11 percent per year. When pursuing development projects their target is 15 percent and over.
Investors’ preferences in terms of functional use of projects are quite stable (with the exception of specialized funds). “Business centers top the rankings, according to our estimates,” said Andrei Morozov, senior consultant at Knight Frank. “They are followed by retail complexes, logistics centers and hotels.” 
“Office real estate is the most predictable and profitable segment of the commercial property market, as operating costs are quite low,” said Neustroyeva. “In hotel projects cash flows, on the contrary, are hard to predict. Hence, the preferences of international investors.”
The classic example of an international investment fund entering into the St. Petersburg market is the Danish investment fund Baltic Property Trust Asset Management A/S (BPT), with participation of the Danish government, pension and insurance funds. The company has already built up a reputation as a major institutional investor in the Baltic region, where it runs a number of affiliated funds (BPT Optima  S.A SICAR, BPT Secura A/S, BPT A/S) with financial resources totaling over 1 billion euros. In the summer of 2005 BPT took a decision to establish the Arista fund specializing in investments in Russia. In March 2006 Arista opened offices in St. Petersburg. Within the next three years BPT plans to put up funds to the tune of 330 million euros in Russian real estate projects.
“We are set to invest up to 60 percent of those funds in St. Petersburg and the Leningrad Oblast, approximately 30 percent in Moscow and the remaining 10 percent in other regions of Russia. We prefer to invest in the acquisition of completed developments, filled with tenants,” says Charles  L. Voss, regional director at BPT Asset Management. 
“However, we are ready to work together with developers and undertake commitment to buy out future projects once they are completed. The returns expected by BPT vary significantly depending on each project, but they do not exceed average market rates. One of our advantages, in our opinion, is that we run a fully-fledged office operating in immediate proximity to the regions where we pursue investment activities.” 
BPT plans to spend approximately half of all funds allocated for Russia on retail projects, 30 percent on offices and 20 percent on hotels or logistical projects. “Today we are looking at approximately ten projects. We expect deals on two of those projects — one in Moscow and another in St. Petersburg — to be made soon,” Charles  L. Voss says.

Chasing Ready-made Projects

In the fall of 2005, St. Petersburg’s property fund sold the Atrium business center with a plot of land beneath it at a closed auction, along with the city government’s 8.82 percent stake in the company that holds a title to that project — the open joint stock company Nevsky 25, for $2 million. This is a  prime six-story office and retail complex, rated as class A and measuring 7,000 square meters — the reason so little was paid is because of certain obstacles related to its development.
In particular, the city government and JSC Nevsky 25 had signed a tenancy agreement for the period till 2043. By the time the project was put up for auction two-thirds of rental payments had already been paid in advance, while the right to tenancy was mortgaged as a security for a loan raised in the 1990s to refurbish the building. Private shareholders holding stakes in JSC Nevsky 25 were the EBRD with 40.18 percent, the central marine equipment design bureau Rubin (39.44 percent), the U.S. company NILP (9.8 percent) and others.
The auction was won by a Cyprus-based offshore firm Duze Investments Limited. Months later it turned out that the acquisition had been made in the interest of the British company Dawnay, Day Properties Limited. Incidentally, before purchasing Atrium the Britons had taken over the long-standing loan raised by Nevsky, 25. The investors believe their project in St. Petersburg to be the most profitable over the past 3 to 4 years.
Another recent high-profile deal  was the acquisition of a class B+ business center, Petrovsky Fort. The title to the project was purchased last summer by Swiss investment company Eastern Property Holdings (EPH), for $65 million. The new owner expects a rate of return of 13.5 percent per year. The building, developed on a 1.2-ha site of an unfinished property that had been planned as Hotel Sankt-Peterburg, at 4 Finlyandsky Prospekt was launched in the spring of 2003.
Up until 2001 the development belonged to the company RAO VSM, whereupon an affiliate of the corporation Stroimontazh took over the project and assumed the role of an investor. Fort measures a total of 48,000 square meters, comprising nine floors providing 16,300 square meters of rentable office space and two floors of shops. The basement houses a parking area with 106 spaces. Back in 2003, the office project was estimated to be worth approximately $20 million.
By the time Petrovsky Fort was put up for sale it had been fully leased out. Rates charged there today range from 576 to 720 conventional currency units (c.c.u.) per 1 square meter per year.
EPH, established in 2003 with a view to pursue real estate investments in Russia and the CIS (former Soviet states), has a track record of landmark deals. In 2004, the company purchased the Berliner Haus office center in Moscow from Westdeutsche Immobilien Bank. The Swiss firm has also bought into the hypermarket chain Mosmart.
“We launched operations in St. Petersburg several years ago,” says Alexander Novikov, managing director for Russia and the CIS at MCT Asset Management, which is part of the EPH group. “Today, we are considering participation in several projects. Most likely, those will involve new construction. Our main focus is office development, as well as shopping projects, which we finance in the framework of our participation in the company Gipertsentr and the hypermarket chain Mosmart. So far it is hard to speak of the final amount that will be spent in St. Petersburg. Much depends on the availability of concrete interesting projects. But as early as today the total amount of investment made or planned exceeds $120 million. If everything goes well it will grow considerably.”

Do It Yourself

“With virtually no ready-made investment products available on the market, funds are forced to reconsider their strategies. For example, they agree to finance development projects on condition of future acquisition of completed properties. Some investors even secure freehold titles to the sites where construction is planned,” Alexander Morozov said.
“However, funds agree to participate in development projects only upon enlisting the support of strong local partners or where well-known international consultants, brokers or lawyers are involved,” says Nikolai Vecher, who runs the Vecher Center for Real Estate Development Projects.
For example, in March 2006 the British investment firm London & Regional Properties purchased a hotel development in St. Petersburg. The project, featuring a first-class hotel and a spa facility, is being developed by a leading domestic operator, Etalon LenSpetsSMU, as part of a prime residential estate at the Rostral Columns on Vasilievsky Island.
With a portfolio in excess of 3.5 billion pounds, London & Regional Properties is one of the U.K.’s largest private property companies. In early 2006 the company owned 61 hotels across Europe. LenSpetsSMU said it had received quite a few bids from potential buyers. The holding, specializing chiefly in residential development, decided to find a co-investor for the hotel project years ago, as it never sought to pursue projects in fields other than housing construction.
The total size of the hotel and the spa-center is over 25,000 square meters. The newly built seven-story hotel has 280 rooms. The wellness complex will partially occupy the refurbished wine cellars of the Yeliseyev merchant, built in the middle of the 19th century. The property, to be launched in 2007, will be operated by the Finnish hotel chain Holiday Club. The cost of the project is estimated at approximately 50 million euros. 
British investment fund Raven Russia Limited is pursuing two warehouse development projects in St. Petersburg. The company plans a 128,000 square-meter warehouse complex on a plot of land in Shushary, south of the city, undertaken jointly with the company Avalon Logistics.
Last summer the fund launched another project, a 60 square-meter office and warehouse complex on a territory measuring 10 hectares on Pulkovskoye Shosse (also in the south of the city). To that end Raven Russia had established a joint venture with Adama (Overseas) Ltd., set up by investors from Portugal. The developer of the project, estimated to be worth $44 million, is the Moscow-based company Espro-Development. Raven expects returns at the rate of 15.5 percent per year.
One more operator who has been highly active in St. Petersburg of late is the investment company Ruric AB set up in Sweden to oversee commercial real estate projects in Russia. Ruric AB’s founders are the Robur Pension Fund, with a portfolio of 37 billion euros, the Oman financial house established over a century ago, and others. For the time being, Ruric AB has established its presence only in St. Petersburg where it has built a strong team of local managers. The company focuses on centrally located developments. In the summer of 2006 Ruric AB was said to have already poured nearly $100 million into local projects and pledged to invest just as much by the end of the year.
The targeted rate of returns is 20 percent per year. Ruric AB has already launched two class A business centers on Vasilievsky Island — Magnus and Gustaf. Not long ago Ruric AB secured a freehold to the Grifon operating business center, rated as class B, at 19-21 Ulitsa Dostoyevskogo.
Furthermore, Ruric AB is refurbishing several shopping buildings in Apraksin Dvor (marketplace and storage area), and is involved in the relocation of the Military Transport University of Railway Troops (VTU), from the Moika Embakment. The vacated site measuring 3 ha will be used for the development of a 100,000-square-meter mixed-use facility.
The most highly publicized business alliance formed by an affluent international investor and a local firm recently was launched by Deutsche Bank and St. Petersburg-based RBI Group, who announced a joint venture in the spring of 2006. The bank’s real estate investment fund RREEF holds a 75 percent stake in the newly established fund. The company is set to finance projects for the development of prime apartments, offices rated not lower than class B+, shops, warehouses, etc. The only sector the Germans take no interest in is the hotel industry.
Each project will be overseen by a separate firm established especially for the purpose. The compulsory requirement is the acquisition of freeholds for construction. Investors seek plots measuring from one to 15 and up to 20 hectares, and industrial estates, for example, along the embankments of the River Neva. The fund is ready to undertake the relocation of production facilities operating on those sites. The German firm has given free rein to their Russian partners. RBI will act as a developer and operator of investment projects. Admittedly, St. Petersburgers are required to secure the approval of their plans from their Western colleagues. But the parties have agreed to do that in the shortest possible time.
The JV has already begun its first project, envisaging construction of a commercial property measuring a total of 52,000 sqm on a 1.2-hectare plot at 23 Novgorodskaya Ulitsa, acquired from a local spinning mill. Earlier the plot was occupied by a sports stadium. The new complex, estimated at $85 million will provide 25,000 square meters of residential space, 15,000 square meters of offices and a 12,000-square-meter parking area. 
 “The competition between investment funds in St. Petersburg is already felt. Admittedly, this is due not to the number of operators but to the shortage of properties which meet rigid requirements set by funds considering acquisitions in terms of title deeds, transparency of operations, etc.,” said Ilya Yeremenko, general director at Practis CB.
“Western funds face strong rivals among domestic investors such as Gazprom, AFK Sistema, VTB and others, who pursue huge real estate investment projects through their affiliates,” says Irina Neustroyeva. In these circumstances, international investment funds which are committed to continuing their projects in Russia will have to put up with lower returns and lower their requirements.

TITLE: Corporate News
TEXT: The annual meeting of suppliers to Moscow’s Kremlin took place in the Kremlin’s Bolshoi Palace.
A ceremony was held to award the regalia for new admissions to the Guild of Suppliers to the Moscow Kremlin.

The ceremony’s guests then had the chance to view the “Suppliers to the Court of His Imperial Majesty – Suppliers to Moscow’s Kremlin” exhibition. 

The idea of recognizing the quality of Russian goods with a special mark belonged to Peter the Great. It was under his rule that the Demidovs, owners of factories in the Urals, were the first to receive “the Mark of Sable.” In 1856, a mark of “Supplier to the Court of his Imperial Majesty” was established. This illustrious title was awarded to industrialists and merchants by the emperor himself “for the condition of production and influence on the life of the country.” Towards the beginning of the 20th century, the title of “Supplier to the Court” was possessed by 105 Russian and foreign entrepreneurs. But … revolutions, wars… this excellent tradition died out. 

In 2004, following an initiative from social activists and representatives of the fields of science, the legislature and the executive bodies of power in Russia, the Guild of Suppliers to the Moscow Kremlin was founded. Today it comprises about 40 companies manufacturing products that have been professionally analyzed and deemed to have met the appropriate international criteria and Russian standards. Membership in the Guild obliges these manufacturers not only to accord with the traditions of Russian entrepreneurship established over centuries but also to make every effort to ensure that these traditions are reinstituted. A fall in the level of the quality of the goods manufactured tarnishes business reputations, risking immediate exclusion from the Guild. 

One of the suppliers to the Moscow Kremlin is St. Petersburg factory Petro, belonging to JT International (JTI), a subsidiary of Japan Tobacco, Inc. (JT).

The forerunner of this factory was the “Laferm Comradeship of Tobacco Goods Factories,” renamed the Uritsky First Tobacco Company following the revolution. People would stand in line for the legendary cigarettes produced by this factory, such as Dyushes, Monplaisir, Zefir, Nezabudka, Druzhok, Belomorkanal and Prima, because it was in these products, inveterate smokers said, that the pre-Revolutionary taste of strong “Russian tobacco” was maintained. 

Today, Petro is a powerful, high-tech complex. High-speed production lines, manufactured in Germany, allow 1,000 packs – 20,000 cigarettes – to be produced every minute by one line. At the same time, a rarity of the Soviet era is preserved at the factory – the unique Belomorkanal production facilities, which continue to produce  Belomorkanal papirosy.

“The Petro Factory currently produces the full range of JTI’s global brands, Camel, Winston and Salem,” says the vice-president of JTI for manufacturing in the CIS, Jaap Landsmeer. “However, we also respect the traditions of the country where our manufacturing base is located. That’s why our specialists created the premium brand Russian Style, and in 2006, thanks to that brand, the company received the status of ‘Official Supplier to the Moscow Kremlin,’ which we value greatly.”

“We are proud of the fact that we managed to become one of the official suppliers to the Moscow Kremlin, and this title of great honor confirms the quality of our produce. It’s a great honor to be one of the suppliers and an heir to the old traditions, to be able to present the fruits of our works here, in the center of power in Russia, and in this center of culture and history. And, apart from all that, it’s very important for me personally, because the Dutch have always played a very active role in different spheres of life in Russia.”
“Today, JTI is striving to do its best in taking part in Russian life, in bringing to life projects which can either give support to heritage from the past or, on the contrary, play a role in the future. This is because a genuinely international company must be an integral of the state where it is working, and a part of the society for the good of which it is working. And not only on a commercial level, as is more often than not the case, but in all senses and in the cultural and social spheres.” 

“Russian culture is very rich and genuinely unique. And sensing one’s participation in it is a very exhilarating feeling. For that reason, the projects which we take part in – the restoration of the fence of the Mikhailovsky Gardens, the construction of the new concert hall of the Mariinsky Theater, support for the Hermitage and Russian museums, social aid – all this is very natural and very positive. 

After all, the Laferm company, when it was supplier to the Imperial court, carried out activities as a patron in just the same way. And that means that it’s also the right path for us. And this policy is seen by us as being right in all the divisions of our company, wherever they might be located, whether it be in Japan, Switzerland or anywhere else.”

TITLE: Bypassing Europe Is a Mistake
AUTHOR: By Raffaello Pantucci and Alexandros Petersen
TEXT: This week’s Group of Eight summit is one that is likely to be a triumph of process over substance. The reasons for this are many and multifaceted, but at their core lie two fundamental problems.
The first is that it is hard to imagine a serious discussion about global issues when so much of the globe is clearly absent.
The second is that there seems to be a growing divergence in worldviews among some of the members. More specifically, Russia and the West appear increasingly to have what Foreign Minister Sergei Lavrov called, in reference to the question of Kosovo’s status, “diametrically opposed” perspectives on global affairs.
The problem related to the missing important global players is a fundamental G8 issue that must be addressed in some detail and with a general re-evaluation of the organization’s purpose in the world. The second issue, however, is one that the G8 is ill-suited to fix, as it is primarily a fundamental question at the heart of the current Russian-Western relationship. Hopefully, the summit will serve to highlight how serious this problem at the center of international diplomacy is, and to start generating ideas on how to move beyond this increasingly acrimonious conversation.
While U.S. President George W. Bush’s invitation to President Vladimir Putin to spend some time after the summit at his family home in Kennebunkport is a welcome gesture with a clearly positive significance, it has also become clear that the key interlocutor with Russia in international affairs should be the European Union.
There are numerous reasons for this. It is in part due to the symbiotic energy and trade relationship between them. Europe depends on Russian energy in the same way that Russia depends on Europe as a source for investment and capital. Beyond this, Europe and Russia share a continent and a considerable common security space.
Until now, unfortunately, it seems as though these facts have been broadly disconnected from the debates on Russian-EU relations, something that has helped feed the current stalemate. For Europe, an inability to present a common front in negotiations has impeded progress. For Russia, the tendency to treat international affairs as a zero-sum game and to present itself as the global “anti-America” has caused the problems.
Unfortunately, one effect of the bilateral Russia-U.S. meeting is that it will reinforce this sense in Moscow, and further undermine the crucial centrality of Europe in the conversation. It is Europe, and not the United States with which Russia has a significant security and energy relationship, but Russian rumbling about troubling issues tends to imply that it is the dark hand of the U.S. that pulls the strings behind the events. Europeans seem often to be considered here as playing the roles of puppets in a larger game between Russia and the United States. It is a complete return to the Cold War paradigm.
This is not to suggest that the United States does not have a role to play, and thus far its behavior and refusal to respond in the face of particularly inflammatory rhetoric from Russia has been exemplary. The time has come, however, for Europe to assume a more robust common posture, founded upon an acknowledgement of the common security space that Russia and the EU occupy.
This involves first getting together to understand why Russia sees the positions on Kosovo’s status as diametrically opposite. Every effort must be made to engage Moscow on an issue it considers so fundamental. Europe must present its case clearly, pointing out that Serbia’s geographical position on the continent makes it a priority issue. Efforts must be made to emphasize that Kosovar independence is not some sort of global precedent, and more work must be done to bring the Serbs and the EU together more broadly. The gradual elevation of a European nation within Europe to the role of pariah state is something that the EU cannot countenance.
Next, the EU must establish red lines on Georgia and Ukraine. Legitimate Russian concerns have to be borne in mind, but the EU’s mildly nebulous policy on both is counterproductive. While hasty decisions will not help, some direction might aid in focusing European efforts so that they can be made in a manner that will allow Russia to come to the table.
Finally, Central Asia must remain a point of European focus and interest beyond German Chancellor Angela Merkel’s push while she holds the rotating EU presidency. This is not only for realpolitik reasons of energy and transnational threats, but also to underscore the EU’s desire to engage in helping the region develop. Russian involvement in the region may be bolstered by strong and long-standing connections, but there is also an unfortunate historical element to these ties that cannot be ignored. If Europe continues to reinforce the fact that it is not looking to promote regime change in the region and emphasizes that it is not trying to displace Russian power in the region, then the two might find that their interests do not clash in Central Asia. Europe could actually prove a useful ally in helping nurture a long-lasting stability in this Russian border region.
For years, official rhetoric out of Moscow has characterized Russia as a part of Europe, yet its stance has increasingly become one of direct opposition to the West. Putin’s threat to target EU countries in response to U.S. plans to establish missile defense facilities in the Czech Republic and Poland is only the latest flashpoint demonstrating that this week’s G8 summit is a good time to try to halt this escalating rhetoric. The EU can engender a rethink about the current course of policy by emphasizing its symbiotic relationship with Russia, while clearly setting down Europe’s critical interests with regard to Kosovo and Serbia, the union’s newest members and neighbors, and Central Asia.

Raffaello Pantucci is a research associate at the International Institute for Strategic Studies in London and Alexandros Petersen is deputy director of operations at the Henry Jackson Society at the University of Cambridge.

TITLE: Problems Facing Foreigners Investing in Russia
AUTHOR: By Tom Stansmore
TEXT: Most problems faced by foreigners investing in Russia can be traced back to one common element: not fully appreciating the adversarial relationship between the government and the people. Once the depth of this animosity is understood, everything else begins to make sense regarding the administration of business operations. 
In brief, Russia’s currency control regulations, tax enforcement mechanisms and accounting rules are designed not to assist the economy and promote growth, but to assist the bureaucrats empowered to oversee everyone’s operations. Everything from the requirements on how invoices may be drafted through the number of grams of food one is ordering from a restaurant menu is done not to help business, or consumers, but to help the inspectorate enforce regulations. 
A few case studies may help to illustrate this point: 

Currency Control
Our bank refused to accept a payment made by the Representative Office of one of our clients because the contract between our two companies didn’t provide a date in which it ceased to be effective. As we provide outsourced accounting services, our relationships with our clients are long–term and our contracts are therefore open–ended. Moreover, from a western perspective, one’s bank is a place to hold one’s money until told where to send it and it really is no business of theirs what the contract says (assuming that one is even written down). 
From a Russian perspective, however, your bank is not really your bank at all, but an agent of Russia’s Central Bank. These “banks” therefore scrutinize all the transactions that occur within the economy to make sure that all the rules are being followed. The truth of the matter is, of course, that these regulations don’t stop those determined to thwart the system and only make life more difficult for those who want to remain within the law. 

Tax
The initial accountant of a foreign–owned company was unfamiliar with the process for indicating on the tax declaration how the Russian VAT should be withheld and paid on behalf of a foreign company. In brief, it was the difference between the number “1” or the number “2” on the top right hand part of the VAT form, and she got it wrong. Although the company paid the proper amount of VAT (close to 1 million rubles) it went to the wrong internal VAT “budget” and the tax authorities froze their bank account. 
In any other country, as the proper amount of tax was actually paid, the error would most likely be treated as clerical and sorted out within the tax authorities with little inconvenience brought to bear on the payer. There may not be a great deal of affection felt toward the tax authorities in western countries, but at least we know in our hearts that they are not out to kill you. Russia is different. 

Accounting
Accounting is fundamental to business in any country, but because it is fundamental to tax and currency control issues, this is truer in Russia than in other places. My final example concerns a client who, eager to start operations, sent a large sum of money via Western Union from the corporate parent of a Russian legal entity to a Russian individual, as their corporate bank account had not been opened (the bank was insisting on additional documents of one sort or another). The money was spent as intended, but our client wanted to put it on the books of their Russian legal entity. 
In brief, because there was no link between the funds transferred from abroad and the Russian legal entity, nor between the Russian legal entity and the Russian individual, (an employment agreement had not yet been concluded), it was only possible to put some of the equipment (where there were receipts) onto the balance sheet of the Russian company and most of the funds had to be allocated to the European parent company (where there were more flexible accounting regulations). 

Conclusion
The relationship between the government and the people continues to evolve. Russia today is freer than at any other time in its history. However, the laws that govern business belie a deeper paradox: Russia wants to be a capitalist nation, but doesn’t fully trust its people enough to let it happen. Russia wants to encourage foreign investment and passed a very liberal tax code for that purpose, but the authorities that enforce the laws are more concerned with the letter of the law rather than it’s spirit. 
Russia is a place where one can do business and make a profit, but it takes both hands and full concentration. An appreciation of the foundations for the laws that govern the economy will also go a long way to help you succeed. If you know how the authorities think, you are far more likely to take measures to protect yourself. Vigilance is crucial, and the law places accountants on the forefront of tax and currency control regulation enforcement. A good Russian chief accountant can’t guarantee your company’s success, but without one, you don’t have a chance. 

Tom Stansmore is the General Director of Emerging Markets Group, one of St. Petersburg’s premier outsourced accounting, tax and law firms.

TITLE: Apocalypse now
AUTHOR: By Chris Gordon
PUBLISHER: Special to The St. Petersburg Times
TEXT: St. Petersburg and Venice have always been linked in the popular imagination sharing, as they do, an antique urban space defined by a network of canals, stucco clad architecture, and a booming tourist trade. 
But as St. Petersburg is busy cramming mirror-clad shopping malls into the fabric of its historic center, Venice is truly a museum of a city that takes its heritage to heart. This preservationist spirit, while saving Venice for future generations, leaves little room for new art. Except, that is, for once every two years when it is home to one of the most important exhibitions of contemporary art in the world. In this respect the Italian city has a distinct advantage over the Venice of the North.
This year, however, the ties between Venice and St. Petersburg are just a bit stronger. With an exhibition at the State Russian Museum’s Marble Palace, the AES+F group of artists is also representing Russia at this month’s Venice Biennale. Being an exhibition of contemporary Russian art of international significance and one so considered in its formulation and connection to the art of the past, it is truly something to celebrate. And because of it, Petersburg doesn’t feel quiet so provincial this summer.
Formed in 1987 as AES, the group consists of Tatiana Arzamasova, Lev Evzovich, and Yevgeny Svyatsky who were joined in 1995 by Vladimir Fridkes, transforming into AES+F. The faceless, corporate styling of the group’s moniker and the collaborative efforts that subsume individual concerns into a group identity creates a project that avoids issues of personal history to focus on a critical engagement with society.
Exhaustive, and somewhat exhausting, the Marble Palace retrospective exhibition spans a period of 20 years and features not only almost every series the group has completed but, it seems, just about every single piece. 
Visitors are greeted at the museum entrance by the group’s “Space Bedouin” (1996), an Arab astronaut that floats in the marble foyer ready to plant his flag and claim some new territory for Islam. But other than this, there is a notable lack of work from the Islamic Project, arguably the group’s most famous series. The only other piece on view from the project is a single, seemingly half-finished installation that houses a set of Egyptian-made silk rugs. Featuring altered picture-postcard views of famous tourist attractions, the carpets present landmarks such as the Kremlin and the Guggenheim Museum with minarets and other Islamic elements grafted onto them. In this impoverished presentation, gone are the multicolored hangings, sofas with water pipes, and Arabic music that completed the piece in former installations, leaving its metal armature curiously exposed. 
Elsewhere, given copious amounts of space, two nearly identical series of digital photo-collages sprayed onto canvas portray teenagers as participants in a cyber apocalypse. Taking up at least eight galleries, the images of youth on the rampage in the computer-generated environments of the “Last Riot” (2005-07) and “Action Half Life” (2003-05) do not necessarily gain from their vast number; in fact, quite the opposite is true. It is only with the character studies from “Action Half Life,” like boxes for Star Wars action-figures rendered as Renaissance cartoons, that the tone of the project lightens; although the group is to be commended for an admirable commitment to its theme.
Of the two series, images from the “Last Riot” are more interesting for their references to Mannerist art of the 16th century and the neoclassical painting of Jacques Louis David and Géricault. However, seductive as they are, the implied comment on the dehumanizing effect of the media is nothing new and doesn’t necessarily warrant such a mountain of objects. 
The violence sprawling across the thirty-odd canvases, sculptures and photographs has the effect of desensitizing the viewer to the exact problem the artists seem to want to address. And by the time one reaches the last room where a panorama balanced precariously on easels is stuffed into a gallery much too small for it, one has finally had enough. This is not to deny that there are strange delights to be found among the works, as in the comical tableau of five boys, swords raised, captivated by the sight of copulating rodents. 
For the most part though, the work from the “Last Riot” isn’t entirely up to the references it makes. Like the Mannerists the artworks achieve an eerie beauty with their distorted perspective, scale, and proportion and dramatic use of space and light, but lacking the arch emotionalism and strange plasticity that made the Mannerists great. The sculptures and “paintings” by AES+F simply feel plastic. The wall texts go to great pains to point out the classical connections of the work, as if feeling the need to build an unassailable buttress. And while it is good to see Russian contemporary art that claims a well-deserved place on the world stage, a bit of editing would have been welcome. 
As well as referencing the distant past, the group’s work also takes inspiration from more the more recent art of Jeff Koons and Vanessa Beecroft. Yet where Koons’ outrageously kitschy works have technical perfection and an exquisite sense of material about them — one need only think of his white porcelain sculpture of Michael Jackson with pet ape Bubbles — here, other concerns sometimes eclipse the aesthetic.  The large sculpture “First Rider” (2007), for example, which is wittily placed opposite the statue of Tsar Alexander III in the museum’s courtyard, reveals ugly seams where the body is joined, undercutting any magnetism the slick black surface had at a distance. 
Also worth mentioning is the “King of the Forest” series from 2001, that references both Goethe’s famous “Erlkönig” and the novel by Tournier from which it takes its title. Like a Vanessa Beecroft installation for the under-10 set, it is made up of photographs and a video of hundreds of child models in their pants milling about the great hall at Tsarskoe Selo. Taking the idea of a magical creature that collects children and spirits them away to its castle as a metaphor, it addresses the increasingly paedophilic gaze of the media and advertising. With the story as a starting point, AES+F have devised a beautifully rendered trap to ensnare the viewer while commenting on a devouring commodification of innocence and the price paid.
Another highpoint of the exhibition for its sheer strangeness and provocation is “Who Wants to Live Forever” (1999). Genuinely disturbing and more than a touch morbid, in it a Lady Di look-alike has been dressed in a full-length evening gown and made-up with the wounds sustained during the princess’s fatal car crash in Paris. Painstakingly reconstructed from coroner’s reports, the wounds are fresh and vivid and the “people’s princess” vamps across nine photographs against a heavenly white ground with only a single automobile seat as prop. A morbid take on a fashion spread, it is more than a bit unsettling and its ghoulishness is haunting. An interesting and well-judged meditation on the nature of celebrity and our obsession with the flesh, it displays the power that the group is capable of to great effect.
If there is a downside to the exhibition, it the crushing scale of it. One of the side effects of this vastness is that a very interesting show of hats by British designer Philip Treacy, “When Philip Met Isabella,” is unceremoniously shunted into a single gallery. A memorial to the fashion maven Isabella Blow, who died earlier this year, it demonstrates Treacy’s great inventiveness, keen sense of materials, and does so in such a concise manner that it can make the AES+F exhibition seem a bit self-indulgent at times. And that’s saying something because Tracey is all about extravagance. It is too bad that an extra gallery or two couldn’t have been found to give this gem of a show the space it needs. After all, even in Venice sartorial splendor is accorded the respect it so richly deserves.

TITLE: Chernov’s choice
TEXT: In a recently established tradition, pompous official events such as the Economic Forum this weekend are routinely accompanied with the most monstrous music imaginable. 
Four years ago, President Vladimir Putin treated 40 foreign heads of state at St. Petersburg’s 300th anniversary celebrations with an intoxicating musical cocktail that featured Greek pop singer Demis Roussos and German rockers Scorpions.
Apparently, such events share the same promoter as the <b>Economic Forum’s Concert</b> on  Palace Square on Friday that features the same old <b>Scorpions</b> but in a nightmarish combination with the Mariinsky Theater’s <b>Valery Gergiev</b> who, with his orchestra, is supposed to give symphonic scale to such gems as the German band’s perestroika anthem “Wind of Change.” 
Those who disagree with  Kremlin policies will gather near the Oktyabrsky Concert Hall to take part in a <b>Dissenters’ March</b> at 5 p.m. on Saturday. The rally has been given official permission but this does not exclude special forces violence as was seen at such a meeting in April.
<b>My Chemical Romance</b> plays at the Ice Palace on Monday, <b>DG 307</b> at Roks on Saturday,  <b>Suicidal Tendencies</b> at Port on Tuesday and <b>The Tiger Lillies</b> at Verandah More on Wednesday.
<i>— By Sergey Chernov</i>

TITLE: Stepping forward
AUTHOR: By Evgenia Ivanova
PUBLISHER: Staff Writer
TEXT: The cradle of Russian classical culture — from ballet and opera to architecture — St. Petersburg is becoming a modern dance mecca, as the annual Open Look festival unfolds in the city. 
The international festival, which began Tuesday, continues until July 13 offering a wealth of modern dance performances. It is the ninth such festival and, its organizers say, is the leading festival of its kind in Russia.
“I don’t want to boast, and I am not saying we are the best, but we certainly are the leading international modern dance festival in the country in terms of our scale and the ability to bring international companies,” Vadim Kasparov, the festival’s director told The St. Petersburg Times in a telephone interview Thursday.  
According to Kasparov, the festival showcases “the entire spectrum of contemporary choreography” and is a chance for audiences to see what’s happening in modern dance outside Russia. This year’s program is almost entirely made up of performances by foreign troupes.  Exceptions are the Yekaterinburg-based “Provincial Dances” group which opened the festival on June 5, and productions from Kannon Dance, a St. Petersburg company that is also the driving force behind the festival.
Sweden’s “Scentrifug” (due to perform at the Music Hall on Saturday) hits the road to search for “Paradise?” and “Dance Works Rotterdam” will show its “Human Figures” to music by Johann Sebastian Bach at the Hermitage Theater on July 2.  
There are also shows by the U.S.-based “David Dorfman Dance” company that explores the topic of terrorism (and tries to discover when activism turn into it), a production from Dusan Tynek, who is often called “the most popular Czech in New York,” at least in dance circles, and a number of shows from Danish artists who are participating in Open Look for the first time. 
“People have to understand that what they are going to see now [during the festival] is what contemporary dance is currently all about,” Kasparov said. “We want people to take notice.” 
The task is not an easy one, given the state of contemporary art in St. Petersburg.  
Even City Hall’s Culture Committee, which has supported the event for the past two years and which, according to Open Look’s organizers, paid the rent for the festival’s venues this year, agrees modern dance has been slow to develop in the city. 
“Modern art has always been on the outskirts of dance life [in St. Petersburg] and nobody has really cared to somehow support and develop this genre,” Anna Pakhomova, head of arts and international relations at City Hall, said. 
“Here, classical ballet is huge, and people are very conservative in a way. But I can understand it as St. Petersburg is only 300 years old,” Petter Jakobsson, cofounder of “Scentrifug” told The St. Petersburg Times. “When they started classical ballet here [in St. Petersburg], there was nothing.” 
“People made something fantastic out of nothing. And now, when it has been established for so long and it works, why should they change it? A lot of tourists come and watch and they make money from it,” Jakobsson said Monday at a news conference ahead of the festival.
Jakobsson and his creative partner Thomas Caley think that the first step to changing the outlook for modern dance in St. Petersburg is to change attitudes.
“It’s very bad if you stay closed and conservative and this is the difficulty here,” Jakobsson said. “You have a formula [of the classical ballet] that works and it’s very difficult to change it. Especially in the current economical situation when you rely on money so much.”
“You have your classical ballet but you should also put more money and energy into contemporary and modern dance. What’s interesting is when you mix things. And these [two forms of dance] can feed from each other,” he added.
“Modern dance is always research. If classical modern dance is written and structured, the real modern dance is there hopefully to question those ideas — always,” Caley said.
“In Sweden, where I’ve been living for the past seven years, although it is a very small country, there is a wide variety of different forms of dance. There’s ballet but there is also a lot of very physical dance or it is theater-oriented, when they almost don’t move or step,” Caley said.
“Knowledge is always good, so the more you know, the more influence you have, the more you do, the better it is.” 
Kannon Dance Center: Tel 362 6271. www.kannondance.ru

TITLE: The Czech that bounced
AUTHOR: By Sergey Chernov
PUBLISHER: Staff Writer
TEXT: After The Plastic People of the Universe, the legend of  Czechoslovakian artistic resistance which performed in St. Petersburg last November, comes DG 307,  a band that represents another aspect of underground music in the Czech Republic over the past three decades which also comes to Russia for the first time, thanks to support from the Czech Center in Moscow.
“The Plastic People is a rock band based on lyrics, [while DG 307] is partly based on lyrics and partly on music, of course. But since we have no drums, it’s not rhythmic, it’s more soft, it’s more chamber-like,” said poet and singer Pavel Zajicek, speaking by telephone from Prague this week.
“It’s string-instruments-plus-voice — which makes no sense, because we sing in Czech.”
As well as Zajicek, DG 307 features Pavel Ciganek on violin, Tomas Schilla on cello and Jan Pokorny on guitar.
Described as an “underground classic” by The Prague Post, Zajicek formed DG 307 in 1973 with Milan Hlavsa, the late founder, composer and bassist of The Plastic People of the Universe, under the influences of psychedelia and prog rock.
“We played only a couple of shows in the 1970s, because everything was banned at that time, and we were not allowed to play publicly, so that was it,” he said.
“There were many people involved in the so-called Czech underground. They [the communist authorities] wanted to somehow destroy it. Since nothing was going on in this country, we were just trying to play music, and they were not allowing us to play music. It was so many years ago that I don’t even talk about it that much, I don’t even think about it. It was a period of my life, and that’s all.”
Zajicek shared the fate of some of his generation of independent artists. For his music, he was sentenced to one year in prison and from 1980 lived in exile, first in Gothenburg, Sweden, then, from 1986, in New York. Zajicek returned to the Czech Republic in 1992, after the Velvet Revolution that led to the election of dissident playwright Vaclav Havel as president.
Today’s DG 307, which Zajicek formed on his return is, in reality, a new band that is linked to the old band only by name, he said.
“For 10 years I was away. After returning I started the new DG 307, which is actually just a name that stayed from the early 1970s,” he said.
Although, alongside The Plastic People of the Universe and other bands of the Czech underground, DG 307 helped to bring about the Velvet Revolution, Zajicek appears to be much more interested in discussing his current music than the band’s heroic dissident past.
“We got banned, some people were imprisoned and so on. It’s a well-known topic for your country [Russia] from the past.”
Nevertheless, the very name of the band is political; DG 307 was the diagnosis of mental illness frequently given to Czechoslovakian dissidents to isolate them in a mental institution under the communists.
Some of Zajicek’s samizdat writings from the 1970s were collected in a book called “Zapisky z podzemi” (Notes from the Underground) in 2004.
“I love Dostoevsky so I used [a namesake book by him] for the title. It’s my writings from the 1970s before I left for Sweden,” he said.
Zajicek said he was not involved in music much while in exile.
“It was hard enough to survive and I probably didn’t meet the right people. But I did meet [guitarist] Gary Lucas from Captain Beefheart, so I did a couple of gigs with him in New York all those years ago. I stay in touch with him. I lived an ordinary life, I didn’t reach for the stars when I lived in New York.”
“But music is important for me, like a breath of fresh air and the rhythm of life.”

DG 307 performs at Roks club on Saturday. 
<i>www.dg307.cz, www.guerilla.cz</i>

TITLE: In the Spotlight
AUTHOR: By Anna Malpas
PUBLISHER: Staff Writer
TEXT: In NTV’s new talk show, “Bitch Love,” a drag queen called Zaza Napoli gathers confessions of passion, betrayal and obsession from a series of people who used to be famous at some point in the early 1990s. She also meets some carefully selected freaks, who aren’t gilded by the rays of fame but at least have a missing limb or two.
Last week’s show began with a singer called Polina Griffis who used to be in the pop group A-Studio. She said that her ex-husband, a Danish singer, used to beat her up and lie around in a drunken stupor; then the camera cut to him at home with his new girlfriend, who said they were in love. They certainly seemed happy and quite possibly unaware of how that footage was going to be used.
Moving swiftly on—the show doesn’t leave much time for sober reflection—Napoli went off to meet a woman whose legs hadn’t developed in the womb. Each segment has a tabloid-style headline, and this part was called “All Your Life on Your Hands.” Lyuba was married to an older man who had been an orderly at her boarding school, and she seemed to get around all right with his help. 
Clearly, that wasn’t much good as a storyline. So we got the sex angle—Lyuba being washed by her husband and him praising their “great” love life—and also a bit of hand-wringing. Passersby were shown theatrically averting their eyes from Lyuba in a nearby town, and she finally spoke of her dream of waking up and being able to walk. Or at least the narrator said it for her—after all, she certainly should think that.
The 35-minute show also crammed in the former husband of a dead television presenter and a woman who splashed acid in her rival’s face. In a heartwarming scene, NTV even arranged for the victim to meet the splasher, once she had gotten out of jail. The object of their passion, a kiosk owner, was now “only in love with the bottle,” the narrator explained, but the two women were still a touch frosty.
So far, so watchable, in an exploitative kind of way. But why is the show presented by a drag queen? Zaza performs as a cabaret act at gay clubs and is certainly a bizarre choice for NTV, which prides itself on being a channel for real men, with plenty of blood and police dramas. 
Although she tripped around gamely in sparkly blue eyeshadow and high heels, Zaza didn’t really get much to work with in terms of camp humor. Perhaps the channel brought her in as a last-minute replacement for one of their usual hard-bitten types and forgot to change the script. There’s only so bubbly you can be about suicide attempts and grievous bodily harm—although it was a nice try to get tied up by the doctors in a psychiatric ward. 
Yes, a segment called “Love to the Grave” showed a very thin man, Sergei, who wasn’t famous for anything but got on television because he swallowed a bottle of pills after being rejected by a woman whom he was obsessively stalking. He ended up in a psychiatric hospital, which wasn’t great for him, but at least his former doctors got very giggly at the chance to put a drag queen in a straitjacket. 
And, who knows, it may have been therapeutic for Sergei to go round to the woman’s apartment with Zaza and a bunch of flowers and get rejected again.

TITLE: Musical Olympians
AUTHOR: By Larisa Doktorow
PUBLISHER: Special to The St. Petersburg Times
TEXT: The Musical Olympus festival is celebrating its 12th year this summer. Among the many international festivals it has a unique mission of acquainting the public with young, stellar performers who are at the start of their professional careers. This year, the St. Petersburg public had a chance to hear 21 performers from 11 countries in a series of six concerts. The opening concert was conducted by Alexander Sladkovsky, whose career was launched at an earlier Musical Olympus festival. 
The director of the festival, Irina Nikitina, spoke about its development over the years.
“The festival has become more stable in the sense that the best orchestras of the city are eager to work with us and that we get the most prestigious concert halls. I feel it is easier to compose the programs now. That shows that our idea of the festival proved to be right and is working.”  
Who does the programming? How many years ahead is it planned? 
“I supervise it. We invite people who have won international contests in the same year. Usually the young performers play the same program that led them to victory. It is unreasonable to demand that they prepare an all-new program in two months time.  In this way, our festival can be called a festival of festivals. We introduce to the public the stars of tomorrow.”  
Do you follow the career and progress of your participants?
“Certainly. We have a list of 250 names. They all are great musicians. Each has an impressive career.” 
When choosing a performer, what is most important for you: their technique, their musicality or the fact that they was awarded first prize?  
“Nowadays a musician can’t go far without good technique. I look for something in addition to technique. For example, for this year’s festival we’ve invited two vocalists. They are both laureates of the Maria Callas competition. One got first prize, and the other came in second. They are very different and very special. For an artist now it is not easy to preserve individuality.”
This year there were a large number of Russian performers? Did this happen by chance? 
“Absolutely. I consider it as a sign that the Russian performing school is on the rise again.”  
It often happens at international competitions that contestants representing Russia or China have in reality been living in Germany or the U.S. for many years. Where do your Russian participants live?
“Some stay in Russia. I am seeing this tendency now for the second year. Many of our performers are very young. They study in music schools in Moscow or St. Petersburg, they win prizes at local competitions and are awarded fellowships from the Russian Ministry of Culture or are sponsored by Russian foundations.”  
Isn’t it hard for audiences to absorb concerts with so many musicians? 
“On May 30 we had a concert in the Cappella hall. Before the concert I was worried. We included in that one evening pieces for the flute, accordion, horn and viola. But it happened to be a great evening. After Schnittke’s viola concerto, the audience rose to its feet. Such moments make me happy.” 
Twelve years ago the festival was sponsored by Swiss banks. What about today? Have you got Russian sponsors? 
“The Swiss remain devoted to the Festival. Many events are paid for by the Swiss Friends of Musical Olympus. But now we are also getting support from Russians. This is more proof that our country is changing.”

TITLE: Dances of the past
AUTHOR: by Larisa Doktorow
PUBLISHER: Special to The St. Petersburg Times
TEXT: The legend of Sergei Diaghilev and his ballet troupe is brought back to life at a new exhibition at the the Mikhailovsky (Engineer’s) Castle of the Russian Museum.
The show, titled “Memory Album,” is drawn from the collection of the Italian dancer and choreographer Tony Candeloro, and shows his fascination for the atmosphere of the period and the myth surrounding the Ballets Russes, the company that Diaghilev formed in France in the early years of the 20th century. 
Candeloro lived and studied in Paris, where he befriended Russian dancers associated with the impressario and who gave him many of the items in the show. Now the collection is one of the most important of its kind dealing with the history of Russian ballet. 
Currently the head of a ballet troupe in Apulia in southern Italy, Candeloro is also the director of the Fokine Association. 
Diaghilev presented the first performance by his troupe in the Chatelet Theater, Paris a century ago on May 9, 1907. The Russian Seasons which he then inaugurated lasted until his death in 1929. Thereafter his artists spread the new ballet art around the world. 
In Russia, events such as World War I and the 1917 Bolshevik Revolution, pushed ballet to the margins. But the history of Russian ballet is being recovered as more and more materials are discovered — Candeloro’s collection is playing its role in this.
It is significant that the exhibition has opened in St. Petersburg, the city where most of Diaghilev’s stars started their artistic careers. 
The exhibition presents 47 photos, some of them never seen before, such as  seven pictures of Anna Pavlova posing for a sculpture in the private setting of a hotel room; and a dramatic portrait of Vaclav Nijinsky drawn during his confinement in a psychiatric clinic. 
Costumes worn by Pavlova, Tamara Karsavina and others, drawings and paintings, personal belongings, designs for costumes and sets created by Leon Bakst and Alexander Benois fill several halls of the Mikhailovsky Castle.  
The Candeloro collection does not stop with the end of Diaghilev’s troupe: rather it continues through the years that followed.  Films of appearances by Serge Lifar at the Paris Opera in the 1930s, scenes from the ballets of Fokine created for the Monte Carlo Opera Theatre, Matilda Kshesinskaya’s lessons in her Paris studio and Isidora Duncan follow this legendary epoch.  
Diaghilev’s troupe was rich in talent not only in the performing arts, but in design and music. Outstanding musicians and artists were involved in creating shows for the Ballets Russes. These included Igor Stravinsky, George Rouault, Benois and Jean Cocteau. Their photographs also form part of the exhibition. 
Russian dancers left an indelible impression on ballet worldwide. After Diaghilev’s death they went to different countries and theaters where they revamped the art of ballet and created new troupes. George Balanchine and Alexandra Danilova created the New York City Ballet with help from Alicia Markova and Anton Dolin. They were all captured in photographs displayed in the exhibition. 
“Nowhere have I met such deep understanding of music and dance, such a high level of choreography as with them and especially with Fokine,” Candeloro said of his fascination with Diaghilev’s contemporaries. 

Memory Album runs through June 30 at the Mikhailovsky (Engineer’s) Castle of the Russian Museum. www.rusmusem.ru

TITLE: A Matter of Honor
AUTHOR: By Olga Sharapova
PUBLISHER: Special to The St. Petersburg Times
TEXT: On June 20 St. Petersburg’s Military-Historical Museum of Artillery, Engineers and Signals Corps, simply known as the Artillery Museum, will a new exhibition called “A Matter of Honor: The Duel in Russia from the 17th Century to the beginning of the 20th Century.”
The display features not only the history of the duels and special arms of different types, but relates the circumstances of duels between both famous and ordinary people — including even women. 
Duels were actually prohibited in Russia in 1837 when  perhaps Russia’s most famous duel took place between poet Alexander Pushkin and George d’Anthes. 
This duel — which resulted in Pushkin’s death aged 37 — forms the centerpiece of the exhibition but various other kinds of duels, from brutal combat to a romantic contest called a quatre, in which all participants including seconds had to fight are also featured. 
From the creation of the Russian Imperial army under Peter the Great to the military might of the Red Army during the Soviet era, the Artillery Museum celebrates Russia’s long military history. 
The museum, which is located in the red-brick Kronwerk building dating from 1860 behind at Peter and Paul Fortress, is one of the oldest and biggest military museums in the world. It holds significant collections of artillery armaments, ammunition, uniforms, banners, and guns not only from Russia and the U.S.S.R., but also from other countries. 
The museum was founded in 1703 by Peter the Great as an arsenal for keeping military equipment and has been supported by the army and the government since. 
Before visiting the internal halls of the museum everyone is impressed or even shocked by an outdoor display of large tanks and huge rocket-launchers situated in the two-hectare courtyard of the Kronwerk.
Inside, a large number of weapons, old vehicles and rare historical monuments to battles and wars fill its enormous halls. 
Featured are the first Russian artillery armaments called pishchals from the 14th century and Peter the Great’s personal cannon, which was presented to him when he was 11. 
Among the museum’s rarities are the Maxim machine-gun tested by Tsar Alexander III in 1888 and the Austin armored car on which Lenin gave a speech near the Finland Station in April 1917. 
A chilling Cold War relic can be viewed at the museum: the so called Hanoi Telegraph Pole, a Soviet rocket  which brought down an American U2 bomber during the war between the U.S. and Vietnam in the 1960s. 
More distant wars and ways of fighting them are recalled with a number of ancient artifacts.
A collection of knight’s armor, chain-mail, helmets and shields from the 15th to the 18th centuries and rare examples of German armor from the 16th century are further highlights of the museum. The museum possesses unique samples of Japanese Samurai armor and protecting armaments from Iran, India, China and other countries.
There is also a display of fragments of the armor worn by the royal impostor, False Dmitry I, who captured the Russian throne for a year in 1605. 
The current show, “The Thunder of Victory is Heard” presents a large collection of musical instruments from military orchestras and follows the history of military parades.

TITLE: Shades of red
AUTHOR: By Lewis H. Siegelbaum
PUBLISHER: Special to The St. Petersburg Times
TEXT: An ambitious book by Robert Service pieces together the history of world communism — in all its forms.	
Comrades came in many varieties: the quintessential revolutionary icon Che Guevara; the most famous 20th-century artist, Pablo Picasso; the Cambodian mass murderer Pol Pot; and the now nonagenarian Spanish Civil War veteran from the Abraham Lincoln Brigade, Moe Fishman. The gentle Bolshevik Nikolai Bukharin and the gray bureaucrat Konstantin Chernenko; the self-sacrificing activists in the Resistance during World War II and the self-aggrandizing functionaries of the ruling party elites of Eastern Europe; M.N. Roy of India and Agostinho Neto of Angola — they all proudly identified themselves as communists. How to write a history of communism that can encompass their enormous range? How to avoid engaging in apologetics on the one hand and polemics on the other? Has communism been dead long enough to be treated by a historian dispassionately, if not objectively?
The task has not often been attempted. In 1975 three dons from St. Antony’s College, Oxford, published their version. Communism was just reaching its zenith in terms of the number of countries ruled by parties claiming to adhere to the Marxist-Leninist principles of the one-party state, the one-ideology culture, a state-dominated economy and a mobilized society. Nearly 20 years later, not long after it had all come crashing down, Eric Hobsbawm (longtime professor at Birkbeck College, University of London, and himself an erstwhile comrade) defined the global history of the “short 20th century” in terms of the rise and fall of Soviet communism. Now, we have Robert Service, another St. Antony’s don, weighing in.
The author of biographies of Vladimir Lenin and Josef Stalin as well as general histories of the Russian Revolution and the Soviet Union, Service takes a no-nonsense approach in “Comrades! A History of World Communism.” His prose is crisp. One short, declarative sentence follows another. Sometimes, nuance is sacrificed. Some statements border on caricature. Some — such as that Salvador Allende’s government was “communist-led,” that Herbert Marcuse was a professor at the University of California, Berkeley, or that Bill Clinton became president in 1994 — are simply wrong. But there are many acute observations too: The Bolsheviks “were Jacobins with the telephone and the machine-gun.” They became obsessed with inventing ways of investigating and controlling the state machinery because it was not theirs. The purges of the 1930s robbed the communist parties of their fittest individuals and thus were “a process of inverted Darwinism.” The slaughter of Indonesian communists under General Suharto represented the “most comprehensive attack on communists since Stalin had assaulted his own party in 1937-8.” And so on.
“Comrades!” is fairly harsh on Karl Marx and Friedrich Engels, the founding fathers whose ideas “contained seeds of oppression and exploitation” by the regimes that would laud them. Lenin too gets stern treatment, as indeed do all communist leaders with the partial exceptions of Wladyslaw Gomulka and Fidel Castro. Other than Stalin (a “bad man” with a “gross personality disorder”) and Mao (a “political thug”), the greatest vituperation is reserved for Sidney and Beatrice Webb, the Reverend Hewlett Johnson, Dean of Canterbury, New York Times correspondent Walter Duranty and other apologists for Stalinist repression. Unnamed “revisionist” scholars of the late 1970s and 1980s are castigated (unfairly) for the same sin. Working with a lot of memoir material — both published and deposited at Stanford University’s Hoover Institution — Service extracts nuggets about the personal lives of leading communists. Arresting as these are, they tend to distract attention from the book’s main argument.
This is that the universal failure of ruling communist parties to sustain whatever initial popularity they may have enjoyed was due to their assumption of a tutelary role based on their claim to know what was best for “the masses.” Military, financial and other kinds of dependence on Moscow both resulted from and perpetuated the congenital unpopularity of East European ruling parties. More generally, political insecurity and contempt for democratic procedures produced elections marked by force and fraud, labor camps and elite comrades feeding at the trough. It is not clear which Service considers worse — rule by true believers or opportunists. In the history of world communism there were plenty of both kinds. Marxism is likened to religion or presented as its political substitute. It attracted intellectuals whose medieval predecessors “argued about how many angels could stand on the point of a needle.” Karl Kautsky, the leading theoretician of the Second International before 1914, “set himself up as the Pope.” Soviet communists “quoted excerpts from Marx, Engels and Lenin after the fashion of religious people with their sacred texts.” The other analogy that “Comrades!” employs is signaled by the titles of its six parts: “Experiment,” “Reproduction,” “Mutation” and so on. The allusion is to a virus capable of “infecting” other movements, including those of the Far Right.
Service takes a more benign view of “independently minded” comrades and parties willing to compromise for the benefit of their constituents. His treatment of certain rank-and-file British communists, based on material in the National Archives of the United Kingdom, is particularly sympathetic. Likewise, the Italian comrades running the Bologna municipal administration and the communists of Kerala and West Bengal are admired for their pragmatism and electoral success. This is all well and good, but what goes unmentioned is that the extremism of the Bolsheviks, the Chinese communists, and, for that matter, Pol Pot’s Khmer Rouge grew out of extremity: the seeming endlessness of World War I, the brutalities of Japanese occupation and carpet bombing courtesy of the United States. The rise of communism as distinct from other socialist movements is inexplicable without taking due account of such extreme situations. Not only poverty and social inequality but the genuine crisis of global capitalism and the rise of fascism in the 1930s sustained belief in the promise of a better world under communism. One did not have to be a “fool for Stalin” to become a comrade or a supporter of the Soviet Union when the Nazis were at Stalingrad. After the war, it was a different story. As Service points out, Western Europe was “too successful in its economic, social and political regeneration” to give communist parties an opportunity for electoral success. 
Toward the end, Service notes, “Communism as it really existed became bewilderingly diverse.” This diversity becomes increasingly difficult for the book to handle: Vietnamese intervention in Cambodia and the overthrow of the Khmer Rouge in 1979 is followed by the rise and fall of Allende in Chile; a capsule biography of Mikhail Gorbachev and perestroika comes two chapters after the collapse of communism in Eastern Europe; the Sandinistas are first discussed later still. But these are quibbles. On the whole, the book succeeds in explaining what all the fuss was about, something that a whole generation that has grown up in the aftermath of communism’s collapse needs to know. 
Lewis H. Siegelbaum is a professor of history at Michigan State University and the author of the forthcoming book “Cars for Comrades: The Life of the Soviet Automobile.”	



Comrades! A History of World 
Communism
By Robert Service
Harvard University Press
624 Pages. $35

TITLE: A bit of Russia in New York
AUTHOR: By Seth Kugel
PUBLISHER: The New York Times
TEXT: Through whatever mechanism Russian immigrants managed to make the Brighton Beach section of Brooklyn their own — be it demographic evolution or intelligent real estate design — things sure worked out well. They landed a prime section of beachfront, right near the subway but far enough away not to be overrun by gentrifying artistes, as happened in Puerto Rican Williamsburg.
You can do Russia in Manhattan, but the heart of any true Russian weekend here must be a trip on the B or Q train out to Brighton Beach. Or, preferably, two trips: one on a sunny day, the better to sit on the boardwalk and snack on your purchases from the markets, and one at night to visit the campy, cavernous and vodka-infused dinner clubs.
There are several such clubs in Brighton Beach, and they follow a general formula: huge parties of Russians (and Poles and Ukrainians and other Eastern Europeans) celebrate weddings, birthdays and other milestones by feasting on Russian food, drinking wine and vodka and watching a flashy stage show that some outsiders have compared to those in Las Vegas and others to cruise ship entertainment. Most are simply left speechless.
A Saturday night at Imperator, for example, is sort of like attending “Tony ‘n’ Tina’s Wedding” (except everyone’s speaking some Slavic language and no one’s acting), followed by a show that at times seems inspired by “Blades of Glory.”
Imperator, like the others, has banquet pricing for larger groups, but a smaller group — especially with finicky eaters — might want to stick with the à la carte menu, which has a minimum charge of $50 on Friday nights and $65 on Saturdays. Either price is enough for a shared bottle of vodka, appetizers, main courses and desserts. But be ready for surprises: Coke does not come with a diet option (“Russians don’t drink Diet Coke,” a waiter said). And there is no decaf. (The waiter’s wry look said, “See previous answer.”) 
Rasputin, which is off the main Brighton Beach Avenue shopping strip, should be the choice of those with deeper pockets seeking a younger, more fashionable Russian crowd. But that’s why you go to Moscow. 
The Imperator crowd is heavy on elegantly dressed grandmas, and the dance floor fills with couples of all ages. The music is in English, Russian and sometimes Spanish, though when a cover of the Ricky Martin pop tune “She Bangs” comes on and the singer urges “Everybody salsa!” you know this isn’t the Copa. 
Shopping the main avenue can fill the better part of a day, and much more than a day’s recommended calorie intake. The food shops have seemingly endless varieties of sausages, breads and salads — and absolutely no signs in English. There are also often no signs in Russian. It’s lucky that just about everyone speaks at least a smattering of English.
M & I International is the most bustling of the shops, huge and thronged with customers, sort of like a Russian Zabar’s. Upstairs it has a serviceable cafeteria (O.K., it’s the Russian Fairway) serving classic Russian salads, fish and compote — a plum-tasting fruit punch. More intimate shops like Taste of Russia and Food Heaven, along the same strip, are less intimidating. 
Other stores worth a visit include the St. Petersburg Trade House, a book, video and music emporium with just about nothing in English. But you can pick up a CCCP shirt, a selection from the impressive opera-on-DVD racks, or a Russian-speaking plush toy sure to confuse any toddler you know. Another store, RBC Video, has cool $5 posters from 1940s-era Soviet Union.
Those looking to get away from pure Russian cuisine can try the Georgian restaurant Primorski, which has an astonishing $5.49 lunch special on weekends, or even better, Cafe Adolat, a tiny side street spot that serves Uighur cuisine, where the lagman — or homemade noodle soup with a lamb broth, chunks of meat and a pungent mix of vegetables and spices — is as far from a cabbage knish as possible. (For an alternative Russian atmosphere, there’s Varenichnaya, which serves its namesake Russian raviolis.) 
You should also spend a day exploring Russian Manhattan. For eating, Russian Samovar is popular (and expensive), but Uncle Vanya, hidden on a side street in Clinton, has traditional and inexpensive chicken Kiev, borshch and pelmeni. 
The Russian Tea Room has reopened, of course, and Frank Bruni of The Times gave it one star in December, writing that the arrival of Greg Robins as its chef has “produced an engrossing tug-of-war: his culinary internationalism and contemporary sophistication versus the institution’s stodgy traditions and geographically constrained name.” 
And Russian art is everywhere: The Guggenheim has works by Naum Gabo and Wassily Kandinsky; an exhibit at the New York Public Library at Fifth Avenue and 42nd Street examines “The Art and Impact of Fedor Solntsev” through June 16; and Tchaikovsky’s “Swan Lake” is at the Metropolitan Opera the last week of June. 
It’s all much more sophisticated than the late-night shows at Brighton Beach, and much more convenient, but not nearly as much fun.

TITLE: Where’s the beef?
AUTHOR: By Tobin Auber
PUBLISHER: Staff Writer
TEXT: Stroganoff Steak House // 4 Konnogvardeisky Boulevard. Tel: 314 5514 // Open daily from midday to midnight // Major credit cards accepted // Menu in English and Russian // Dinner for three with alcohol 3,410 rubles ($132)

This must be something of a trend — the number of excellent restaurants opening over the last few months on the other side of St. Isaac’s Cathedral from Nevsky Prospekt has been further increased by the arrival of the Stroganoff Steak House. It’s only been open a few weeks, so it could justly be accused of suffering from a few minor teething problems, but otherwise diners are in for a mediumrare, copiously portioned treat. First things first — it’s vast. If you’re thinking of exploring its eight huge rooms, or even just looking for the toilet, you might want to take hiking boots and a packed lunch. To put it mildly, finding a table if you happen to turn up without having booked shouldn’t be a problem. Even with the tables spread so far apart, it can seat 300, and with its high, arched brick ceilings and tall windows it has a lovely spacious feel. And, despite its size, a lot of attention has clearly been paid to the interior decor, with its dark woods and comfy leather chairs and banquettes. The walls are covered with reproductions of prints and pictures from the 19th and early 20th centuries, as well as adverts from pre-Revolutionary newspapers. They make for some interesting reading. The toilet, for instance, has ads for various laxatives and spot creams and there’s also one for an artificial limb shop on Italianskaya Ulitsa — “Light, Durable, Refined!’’ reads the slogan.
We took a window seat and a waiter was soon giving us an informed lecture on the various steaks, complete with a tray of fresh meats in order to better demonstrate the differences between a Rib Eye (850 rubles, $33), a New York (850 rubles, $33) and a Fillet Mignon (850 rubles, $33). The selection isn’t large, and for the most part it’s not cheap. The meat is imported from Australia and Argentina and kept chilled for 28 days to improve the taste and succulence. We tried the Rib Eye and the Mignon and both were excellent, and the chicken Caesar (270 rubles, $10.50) and Caprese (340 rubles, $13) salads that we had as starters were also excellent. Don’t be too put off by prices, however, as some of the dishes are excellent value for money and you needn’t spend a fortune. The humble burger usually comes in for short shrift among Russians, who are forever complaining about the American obsession with sendvichi. The burgers available at other restaurants and fast food joints around the city haven’t helped. But the 1/2 pound Stroganoff Burger (270 rubles, $10.50), however, made from fresh ground beef with porcini and served with tomato, onion, pickled cucumber and fries, should be more than enough to convince them otherwise. With a perfectly toasted bap, succulently juicy meat and wonderfully crisp fries, this dish could dethrone Burger King and should have poor old Ronald McDonald weeping into his limp sesame-seed bun. Another thing worth remembering – Sibirskaya Korona beer here is just 70 rubles ($2.70) for a half-liter, something of a giveaway price for a joint of this level. It’s not all good news though. The cheese was off (how hard can it be to pick up a few packs of cheddar from the local produkty store?), and while all the waitstaff were good, they were a little over-keen. The above-mentioned waiter was excellent, but we could have done without another guy who hovered around the table, ready to pounce and empty the ashtray or remove an empty glass at the blink of an eye. Similarly, the Sibirskaya Korona was great, but it ran out even before we’d got started and the Belgian Leffes we ordered instead (200 rubles, $7.70) was so soapy that it may have been bottled by Procter & Gamble.
These niggles, however, are typical of new restaurant openings in the city and will no doubt soon be ironed out. And even with these minor drawbacks, the Stroganoff can be very highly recommended.
And a quick word to the wise — if you’re in town for the Economic Forum and you need a quick bite to eat without having booked ahead, you’re bound to find a place at this cavernous steak house.

TITLE: Riot Police Use Water Cannon At G8 Summit
AUTHOR: By David Rising and Vanessa Gera
PUBLISHER: The Associated Press
TEXT: HINTER BOLLHAGEN, Germany — Riot police used water cannons to turn protesters away from the fence surrounding the Group of Eight summit Thursday, while other protesters led authorities on a boat chase on the Baltic Sea.
Some protesters blocked roads while riot police skirmished with a large group near the main entrance gate along the seven-mile security fence sealing off the summit, firing repeated blasts from four water cannons.
A line of about 200 riot police stood between nearly 2,000 protesters and the razor wire-topped fence. The ragtag band of protesters tried to charge them before being beaten back with several volleys of water blasts.
Some surged across a field, getting within 500 yards of the fence before they were struck by the water. Many stood nose-to-nose with officers, chanting in unison: “We’re peaceful, what are you?”
Thousands of demonstrators had spent the night in a no-demonstration zone within a half-mile of the fence surrounding the summit at the coastal resort of Heiligendamm.
A sign saying “Evil Empire!!!!” was taped on a road sign pointing the way to Heiligendamm.
Offshore, activists from the Greenpeace environmental organization — with banners reading “G-8, Act Now” — led police on a boat chase. One boatload of protesters spilled into the Baltic after colliding with their pursuers.
Greenpeace was calling on the summit to set clear goals for the emissions of greenhouse gases without the United States, which opposes mandatory cuts.
German Chancellor Angela Merkel is hosting the leaders of the U.S. France, Britain, Russia, Italy, Canada and Japan for a meeting focusing on climate change and aid to Africa. The summits draw protests every year.
Near Bad Doberan, on the main road to Heiligendamm, some 2,000 protesters ate apples, drank orange juice and napped on the road as three groups maintained a blockade aimed at preventing supplies and staff from reaching the summit.
Demonstrators had dodged police Wednesday, getting into the buffer zone round the fence where demonstrations are forbidden, but police let many of them stay.
“We were really surprised,” said Joschka Waas, a student from Weimar. “Here we are in the forbidden zone and we’ve got portable toilets set up and everything. Nobody thought the blockade would last this long, especially the police.”
As he spoke, protesters sat side by side on the road, parting only to let emergency vehicles through.
“We’re not after a fight, this is just a symbolic blockade of this illegitimate fence,” said Waas, barefoot and shirtless. He said that front-page photos of protesters throwing stones were the only media coverage of an otherwise peaceful demonstration.

TITLE: Ivanovic Slams Sharapova, Makes French Final
PUBLISHER: The Associated Press
TEXT: PARIS — Ana Ivanovic advanced to her first Grand Slam final, taking advantage of a sloppy showing by Maria Sharapova to win 6-2, 6-1 in the French Open semifinals Thursday.
The 19-year-old Serb will play either two-time defending champion Justine Henin or fellow Serb Jelena Jankovic.
“I knew I had to stay aggressive,” Ivanovic said. “I play a great game. I lose no shots. I was thinking the game would be much closer.”
Two-time Grand Slam champion Sharapova’s drubbing was reminiscent of her 6-1, 6-2 loss to Serena Williams in the Australian Open final in January.
The Russian was looking to reach her third consecutive final in a major after winning last year’s U.S. Open.
But Sharapova’s performance was riddled with unforced errors and five double-faults, and she lasted little more than an hour on center court.
Playing in her first French Open semifinal, Sharapova complained last week that matches on clay made her feel like “a cow on ice,” and she struggled to chase down Ivanovic’s pinpoint strokes.
Sharapova lost six straight games to trail 5-0 in the second set, before holding for 5-1.
Ivanovic closed out the win with her fifth ace, then raised her arms in triumph and grinned as she trotted to the net.

TITLE: Turkey Declares ‘Security Zones’ on Border
AUTHOR: By Suzan Fraser
PUBLISHER: The Associated Press
TEXT: ANKARA, Turkey — Turkey has declared several areas near the border with Iraq to be “temporary security zones” in a sign of increasing activity by the military in its campaign against Kurdish rebels.
The declaration Wednesday came amid a Turkish military buildup on the border, and on the same day as Turkish security officials and an Iraqi Kurdish official said hundreds of Turkish troops crossed into northern Iraq in pursuit of Kurdish guerrillas who launch raids into Turkey. Turkey’s foreign minister denied there was a cross-border operation.
The military did not clarify what it meant by “temporary security zones,” but some Turkish media reports Thursday said the areas would be off-limits to civilian flights. Others said the zones meant that additional security measures would be implemented, and entry into the regions would be restricted and tightly controlled.
In a statement posted on its web site, the Turkish military released the coordinates of the areas that would be affected and said the zones would be in place until Sept. 9, but gave no other information.
Newspapers said the coordinates relate to areas of the provinces of Sirnak, Siirt and Hakkari. Sirnak and Hakkari border northern Iraq, while Siirt is farther north of the border. All three provinces have been the scene of fighting with Kurdish rebels.
Three Turkish officials described Wednesday’s cross-border operation as a “hot pursuit” raid that was limited in scope, and one of them said troops returned to their bases by the end of the day. Turkey has conducted such brief raids in the past, but the latest incident comes as rebels are escalating attacks in their decades-old fight for autonomy in southeastern Turkey.
The security officials spoke on condition of anonymity because they were not authorized to speak to the media, and Foreign Minister Abdullah Gul denied forces had entered Iraq.
In an interview late Wednesday, Prime Minister Recep Tayyip Erdogan said an incursion into northern Iraq would require parliamentary approval.
“A parliamentary decision is required, steps would be taken accordingly,” Erdogan told Kanal 24 television. “If we are to take a cross-border step, we’ll negotiate this with our security forces, and when such a thing is necessary, we’ll take it to parliament.”
Erdogan and other Turkish leaders have said Turkey is considering a cross-border offensive, and have sent more troops and equipment to the frontier with Iraq. But they want the United States and Iraqi Kurds to act on their appeals for a crackdown on separatist fighters, who raid southeast Turkey after resting, training and resupplying in Iraq.
Meanwhile, the death toll in a suicide attack in the capital last month rose to eight — including the bomber — after another seriously injured victim died in hospital, doctors said Thursday.
Turkish officials suspect separatist Kurdish rebels, who have been fighting for autonomy since 1984, were behind the rush-hour attack outside a busy shopping mall. The rebel PKK group denied responsibility.

TITLE: Russia Holds Croatia to 0-0 Draw
PUBLISHER: The Associated Press
TEXT: Russia held Croatia to a 0-0 draw, while England beat Estonia 3:0 in European Championship Group E qualifiers on Wednesday.
In Zagreb, the hosts dominated possession and created several scoring opportunities against the Russians, who failed to produce any good chances.
Croatia, which has not lost at home in 33 competitive games since gaining independence in 1991, lost winger Darijo Srna early after he injured his knee.
Despite the loss of Srna, Ivica Olic and Joe Simunic came close to scoring with close range headers.
Naturalized-Brazilian Eduardo da Silva almost scored midway through the first half, but his chip from close up looped above goalkeeper Viacheslav Malafeev and over the bar.
Da Silva continued the pressure after the interval, shooting over the crossbar from outside the box.
Vedran Corluka also came close with a diving header off a free kick, but he sent the ball wide.
Croatia’s best chance came through Da Silva shortly after. He was alone in front of goal, but he slipped after rounding the goalkeeper and his shot was cleared off the line.
Dmitri Torbinsky cleared another header from Simunic off the line.
Russia’s most serious chance came through a distant strike from Sergei Ignashevich in the 75th, forcing goalkeeper Stipe Pletikosa to dive low.
Substitute Mladen Petric forced a good save with minutes to go and had two good shots deflected toward the end. 
In Talliin, David Beckham set up two goals to lead England to a 3-0 victory over Estonia. Joe Cole gave England a 37th-minute lead with a spin and volley from the edge of the area before Beckham, who was recalled to boost the team’s flagging qualifying campaign, set up second-half goals for Peter Crouch and Michael Owen with crosses from the right.
Owen’s goal was his first for England since returning from 10 months out with ruptured knee ligaments.
In the 37th, Crouch headed Wayne Bridge’s throw-in from the left toward Cole, who controlled the ball on his chest before shooting it past Estonia goalkeeper Mart Poom.
Crouch doubled the lead in the 54th by heading in a cross from Beckham, who was struggling after turning his left ankle early in the match. 
The former England captain sent another cross into the box for Owen to head home in the 62nd.
Croatia and Israel each have 17 points at the top of Group E. Russia follows with 15 points and England has 14.

TITLE: North Korea Fires Test Missiles Off Its Western Coast
AUTHOR: By Bo-Mi Lim
PUBLISHER: The Associated Press
TEXT: SEOUL, South Korea — North Korea fired short-range missiles off its western coast in an apparent test Thursday, South Korea’s Defense Ministry said, amid a deadlock in international negotiations over Pyongyang’s nuclear weapons program.
The United States immediately denounced the launch, saying the activity was “not constructive.”
A South Korean Defense Ministry official said it had intelligence that North Korea launched the short-range missiles into the sea off its western coast.
“We are trying to confirm how many were fired and what type of missiles they are,” the official said, speaking on customary condition of anonymity.
South Korea’s Yonhap news agency also cited two unidentified intelligence officials as saying the North fired at least one missile. One of the officials said Pyongyang fired two — one in the morning and one in the afternoon — which is believed to be part of the communist regime’s “routine drills,” according to Yonhap.
The missiles were either land-to-ship or ship-to-ship models with a range of less than 62 miles, and fell into North Korea’s territorial waters, the report said.
The news came two weeks after North Korea test-fired at least one short-range missile into eastern coastal waters, which South Korean and U.S. officials played down as part of the country’s regular military exercises.

TITLE: U.S. Death Toll Approaches 3,500 in Iraq
AUTHOR: By Hamid Ahmed
PUBLISHER: The Associated Press
TEXT: BAGHDAD — Iraq’s seemingly inexhaustible corps of terror bombers struck across the country again Thursday, from a restaurant in Baghdad’s teeming Sadr City, to a police station leveled by a blast near the Syrian border. At least 15 people were reported killed.
The new blows against Iraqi government authority came as U.S. military casualties rose toward a four-year death toll of 3,500, with 22 dead reported for the first six days of June, almost double that of June 2006.
The U.S. military reported four U.S. soldiers were killed in separate incidents Tuesday and Wednesday — roadside bombings in eastern Baghdad and near Beiji, north of the capital, and an explosion and enemy gunfire in Diyala province, northeast of Baghdad.
That lifted the U.S. death toll in four years of war to 3,498. And it raised the average rate of U.S. troops deaths to about four per day in June, compared with two a day in June 2006.
The Bush administration has warned that the current troop buildup in and around Baghdad will result in more U.S. casualties as American troops increasingly come into contact with enemy forces.
Brig. Gen. Kevin J. Bergner told reporters Wednesday that the last of five brigades earmarked for the buildup will arrive in the “next couple of weeks,” but may take up to two months to establish itself as fully operational.
In the capital’s eastern Sadr City district, a Shiite Muslim stronghold, a bomb beneath a parked car exploded at lunchtime outside a falafel restaurant, police reported. At least three people were killed and eight wounded, said a police officer, speaking on condition of anonymity because he wasn’t authorized to release the information.
Sadr City has been repeatedly targeted by Sunni extremists seeking to terrorize Iraq’s Shiite majority and inflame hostilities between the Muslim sects.
Earlier, in the day’s first reported attack, a suicide bomber blew up his explosives-laden truck at about 9 a.m. at a police station in Rabia, near Iraq’s border with Syria, killing at least four policemen and five civilians, and wounding 22 other people, an Iraqi army spokesman said.
A guard shot the driver as he approached the building, but the truck still penetrated its blast walls and exploded, destroying the one-story structure, said Capt. Mohammed Ahmed of the army’s Third Division. Rabia is 50 miles west of Mosul and about three miles from Syria.
An hour later, in Ramadi, 70 miles west of Baghdad, three policemen were killed and four others wounded when a suicide driver blew up his automobile at their checkpoint, police said.
The post was just 50 yards from the traffic police headquarters, said another police officer.
In other attacks Thursday, mortar shells landing in two districts of western Baghdad killed two civilians and wounded 12 others, police reported.
On the offensive early Thursday, a joint Iraqi-American force raided locations in Baghdad’s Sadr City and detained 16 suspected members of a “secret cell terrorist network” believed helping transport weapons, including advanced roadside bombs, from Iran to Iraq, the U.S. command reported.
An Iraqi police officer said two on-duty policemen in the area were wounded by random fire from the raiding party.
At midday, in another incident, an exploding roadside bomb targeting a U.S. patrol wounded two Iraqi civilians in the Neiriya area of eastern Baghdad, and two others were wounded when the Americans opened fire randomly at the scene, an Iraqi police officer said.
All the Iraqi police officers spoke on condition of anonymity because they were not authorized to release the information and feared repercussions.
The U.S. command press information center said it had no immediate information on the casualties in those two incidents.
In another development, the British ambassador to Iraq, Dominic Asquith, issued an appeal to the kidnappers of five Britons, held since May 29, to release them or open negotiations.
The five — four security guards and a consultant — were abducted from the Iraqi Finance Ministry by some 40 heavily armed men who then rode off with them in the direction of Sadr City.
Iraqi officials have said they believe they were taken by the radical Shiite Mahdi Army militia, possibly in retaliation for the killing by British forces of the militia’s commander in the southern city of Basra.
“I ask those holding them to release them so they may return to their families,” Asquith said. 
Then, in a clear offer to consider demands, he added, “We have people here in Iraq who are ready to listen to any person about this incident, or any person who may be holding these men and who may wish to communicate.”