SOURCE: The St. Petersburg Times
DATE: Issue #1480 (42), Friday, June 5, 2009
**************************************************************************


TITLE: Signs Of Stability Lead To 
Rate Cut
AUTHOR: By Paul Abelsky and Alex Nicholson
PUBLISHER: Bloomberg
TEXT: The Central Bank cut the main interest rates for the third time in six weeks after government officials and policy makers suggested the economic slump in the world’s biggest oil supplier may have reached its low point.
Bank Rossii cut the refinancing rate, seen as the limit for borrowing, to 11.5 percent from 12 percent and lowered the repurchase rate charged on central bank loans to 10.5 percent from 11 percent, effective tomorrow. The bank cut rates for the first time since 2007 on April 24 and then again on May 13.
“The rate cut is certainly good for the economy,” said Alexander Zakharov, co-head of equities at the Metropol brokerage in Moscow.
Russian officials say there are signs the economic contraction may ease over the rest of the year. The central bank doesn’t rule out further cuts in the refinancing rate this year and may revise its inflation forecast to below 12 percent, deputy chairman Alexei Ulyukayev said, according to Interfax.
Oil prices between $60 and $70 per barrel are “fair,” President Dmitry Medvedev said in an interview with CNBC aired last night. With prices set to stay above $50 per barrel in the “near future,” the economy should stabilize, his top economic adviser Arkady Dvorkovich said yesterday.
This may help the government contain a deficit expected to exceed 7.4 percent of gross domestic product this year as it deploys 3 trillion rubles ($97.6 billion) in stimulus spending.
“I want to believe the change in the oil price already reflects certain fundamental trends that are taking shape in the world economy,” Medvedev said on CNBC. Higher oil prices, slower inflation and unemployment in Russia and some evidence of stabilizing industrial production “put me in a very moderately optimistic frame of mind.”
The central bank said in April it will start a “trend toward further cuts” as inflation eases and after the recession deepened in the first quarter.
Russia is facing its biggest economic test since 1998, when oil prices dropped below $10 a barrel and the government defaulted on $40 billion of debt. National output slumped an annual 9.5 percent in the first quarter and may fall as much as 8 percent this year, Economy Minister Elvira Nabiullina says, after 10 years of expansion averaging almost 7 percent.
The rate cuts in April and May were the first since the bank increased the cost of money to arrest the ruble’s 30 percent drop since August and prevent lenders using borrowed cash to speculate on the currency’s decline.
Inflation may slow below the government’s 13 percent target this year, Ulyukayev said in an interview last month.

TITLE: Prime Minister Calls Time on Unpaid Wages
AUTHOR: By Irina Titova
PUBLISHER: The St. Petersburg Times
TEXT: Prime Minister Vladimir Putin visited the Leningrad Oblast town of Pikalyovo on Thursday in an attempt to alleviate concerns surrounding the town’s dire economic situation.  
Pikalyovo’s three main enterprises,  including, most notably, oligarch Oleg Deripaska’s BasElCement Pikalyovo, have ground to an almost complete halt, leaving about 4,000 people jobless and with mounting unpaid wages going back several months.
Putin forced Deripaska to sign an agreement with Fosagro to supply raw materials to the BasElCement plant in Pikalyovo, Interfax reported. This action should allow work at the plants to restart. He also ordered that all outstanding wages be paid by Thursday.
“It is my opinion that you’ve made thousands of people hostages to your ambition, lack of professionalism and plain greed. This is absolutely intolerable,” Putin told the plants’ proprietors.
“Whatever happened to social responsibility in business?” he asked.
During his visit to Pikalyovo, Putin gave the owners of the plants three months to resolve the problems.
In response, a spokeswoman for the plant, Svetlana Andreyeva, said that the wage arrears had been prompltly repaid in full, RIA Novosti reported late Thursday. Andreyeva said that the plant may begin work again within a week.
All three enterprises were initially one single technological complex, and all are to this day dependent on the alumina processing at BasElCement’s Pikalyovo Alumina Plant. However, in recent years the enterprises have been operating as separate companies.

Hit By Crisis
About 400 Pikalyovo residents had earlier gathered at the control post of the BasElCement plant waiting for Putin, claiming to be “desperate to talk to the prime minister.” Some of them braved the rain for several hours despite being pregnant or burdened with prams, said Oksana Gavrilova, an engineer from Pikalyovo’s other plant, Metakhim, and a participant in the protest.
“People want to tell Putin about their terrible situation — no work and barely enough money to get by on,” Gavrilova told The St. Petersburg Times.
“My friend is standing here, pregnant,” she said. “She and her husband wanted to help the state to improve the poor demographic situation, but now they don’t even know what they’re going to live on.”
During the last few months, bread and potatoes have been the staple in many families where people have lost their jobs or haven’t been paid, Gavrilova said.
“Eggs and milk are already a luxury.  Hardly anybody buys meat anymore,” she said.
Local grocers have reported that their sales have dropped by two thirds.
At the same time, many people in Pikalyovo can no longer afford to send their children to kindergarten, and so many have stopped attending altogether, she said.
Andrei Petrov, deputy head of the trade union at BasElCement Pikalyovo, said that “people have been looking forward to Putin’s visit.”
“They have been saying that if the situation in the town did not change before June 12, then they would go further and block the highway or railroad on a longer-term basis,” Petrov said.
Petrov said employees of the town’s three main concerns want the plants to be nationalized and consolidated into a single enterprise.
“They believe that the businesses might all function more effectively under a single owner. The thing is that when our plant stopped working, the other two plants depending on it also had to cease production,” he said.

State may intervene
In his strongly-worded address, Putin signalled that such a move may well take place in the coming months. “The problems were created when the unified complex was divided… Then production chains were broken, and the owners got stuck deep in their quarrels,” he said. 
If the plants’ owners fail to reach an agreement by mutual consent, the prime minister explained, “then the site will be restored to one single technological complex all the same. If you can’t agree with each other, then this will be done without you.”
After the meeting, Putin went to meet the workers waiting for him outside the plant.
“Everything will be fine. You will work again!” Putin said. People greeted him with loud applause, Gavrilova said.
Putin’s visit comes just two days after about 400 jobless workers blocked the St. Petersburg-Vologda road near Pikalyovo, 280 kilometers northwest of St. Petersburg, for a seven-hour period. The resulting traffic jam stretched for 400 kilometers.
As well as demanding the resumpt ion of work at the plant, they also demanded the payment of back wages for March and April amounting to 40 million rubles ($1.3 million), and that Prime Minister Vladimir Putin intervene to resolve the deadlock. The action was timed to coincide with Putin’s visit to St. Petersburg for the city’s Economic Forum.
On Thursday, some workers already began to receive wage arrears for March and April, Gavrilova said.
On Wednesday a group of Russian State Duma deputies introduced a bill to the Duma to nationalize the plants, Interfax reported.
The bill’s authors — United Russia deputies Andrei Isayev and Mikhail Tarasenko — said the nationalization would rehabilitate the united complex that produces alumina, cement, soda, and some other chemicals.
The deputies said such action would correct the mistake made when Glinozyom was parcelled up and divided amongst three owners back in 2004.
Workers of the BasElCement plant also sent an open letter to President Dmitry Medvedyev and Prime Minister Putin, 100 TV channel reported.
“It’s a catastrophe,” the letter said.  “At the moment, wages are not getting paid. People are losing confidence in the future. We, the engineers and technical workers of the plant, can see only one solution to this situation — we need to unite all the three enterprises into one and transfer the administrative functions to an owner who can provide effective management for the whole technological complex,” it said.

Taps run dry
On May 15 the town’s problems were further exacerbated  when the local water-heating plant stopped its work because of gas supply debts. The station was financed by BasElCement Pikalyovo. As though job losses and wage arrears were not enough, the residents awoke to find that their hot water had been switched off.
The workers of the water-heating facility also refused to resume their work because they too were owed payment of five million rubles ($162,000) in wage arrears.
On May 20th, residents of the town stormed the town hall and demanded that bureaucrats take measures to resolve the situation. Soon afterwards,  the Leningrad Oblast authorities decided to allocate 20 million rubles ($650,000) in subsidies to the town.
On May 25th, Pikalyovo residents sent a letter to President Dmitry Medvedev demanding that he take an “active stance in finding a solution to the problem.”

Local Action
On Tuesday, the head of Boksitogorsky district, Sergei Mukhin, called on the crowd to go home and said that Leningrad Oblast Governor Valery Serdyukov had signed a decree to allocate another 1.7 million rubles ($55,000) to support the residents of Pikalyovo.
Another five million rubles ($160,000) was earmarked for transfer to BasElCement Pikalyovo to make the payments for hot water supplies and to pay workers’ salaries.
The regional government also suggested that Pikalyovo residents could seek alternative employment in neighboring towns.
Gavrilova criticized such suggestions. She said the salaries offered there were small, and would not even cover traffic expenses and apartment rent.  Furthermore, people were reluctant to leave their children and elderly parents in the town when moving to other places for work, Gavrilova said.
Meanwhile, some experts stated that nationalization would be an excessive measure in the case of Pikalyovo. Yevgeny Fyodorov,  chairman of the Economic Policy and Business Committee of the State Duma, said that “legislative regulation of the problem would be a disproportionate reaction,” Interfax said.
Fyodorov said that there was no need for the state to nationalize the Pikalyovo plants as there were alternative ways to support such enterprises already in place.
BasEl’s term for repaying its debts to VTB bank is set to expire this summer. If the debts remain unpaid, VTB may seize the enterprises as collateral, and since it has good managers it could help to revive the plants, Fyodorov suggested.

TITLE: St. Petersburg Banker Ebralidze Linked to Georgian Mutiny
AUTHOR: By Ira Iosebashvili
PUBLISHER: The St. Petersburg Times
TEXT: Last Month’s failed mutiny at a tank base near Tbilisi was financed by a wealthy St. Petersburg banker with ties to Prime Minister Vladimir Putin, a senior Georgian lawmaker said. 
The banker, Alexander Ebralidze, owner of Konstans Bank, with an estimated fortune of at least $250 million, told The St. Petersburg Times that he was not behind the mutiny and did not know Putin personally. But he said he was “absolutely certain” that he would become Georgia’s next president. 
The allegations add a new twist to bad relations between Tbilisi and Moscow, which sank to new lows after Georgia suffered a humiliating defeat at the hands of Russian forces in its attempt to forcibly retake its separatist region of South Ossetia last August. 
Georgian President Mikheil Saakashvili has accused Russia of seeking to orchestrate his ouster, including with the failed May 5 mutiny at the Mukhrovani military base. 
Russian officials have called his allegations “insane,” although Putin has made no secret of his contempt for Saakashvili, telling French President Nicolas Sarkozy during the South Ossetia conflict that he wanted to “hang Saakashvili by the balls.” 
Givi Targamadze, chairman of the security and defense committee in Georgia’s parliament, said he had evidence that the failed mutiny was sponsored by Ebralidze, an ethnic Georgian who holds a Russian passport, and suggested that Ebralidze had acted with Putin’s blessing. 
“I wouldn’t name this person, but he announced after the mutiny that he could no longer wait and would run for president in the next elections. This person is Mr. Ebralidze,” Targamadze said in comments aired on Georgia’s Rustavi-2 television late last week. 
Targamadze added, “If anyone thinks that in today’s Russia it is possible to be an oligarch from St. Petersburg and not be controlled by the most famous St. Petersburg native of all, Putin, he is wrong.” 
Targamadze accused Ebralidze of financing the mutiny to “as a minimum cause riots and as a maximum to prepare the base for the entry of Russian occupation forces into Tbilisi.” 
The bloodless mutiny, which involved a 300-member tank battalion and ended with the unit’s peaceful surrender after several hours, occurred a day before the start of month-long NATO exercises in Georgia. Russia opposed the war games as “muscle flexing.” 
Ebralidze, 54, who was born in Batumi, Georgia, and has lived in Russia since 1971, announced his presidential bid on May 15 at a Sochi meeting of the World Congress of the Nations of Georgia, an organization that he heads. 
“I have been waiting for 20 years, but now I am giving up my modesty,” Ebralidze told the congress, prompting the Georgian delegation attending the event to immediately walk out in protest. 
Ebralidze, who does not have a Georgian passport, said at the meeting that he would come to Tbilisi in June to claim Georgian citizenship and to open a branch of his organization in Georgia. He said he planned to run in 2013, when Saakashvili’s term expires. 
In addition to owning Konstans Bank, Ebralidze is the founder and CEO of Taleon Group, which owns a hotel, a casino and a restaurant in St. Petersburg. One of Taleon’s directors is Arkady Rotenberg, Putin’s former judo teacher, Vedomosti reported. 
Various sources estimate Ebralidze’s net worth to be anywhere from $250 million to $500 million. He served two prison sentences in Soviet times on charges of armed assault and hooliganism. 
Ebralidze told The Moscow Times that he was not involved with the mutiny and said he had lodged a complaint against Targamadze with the Prosecutor General’s Office in Tbilisi. 
“We will wait for a response and then take the next step,” Ebralidze said in e-mailed comments. “I think this citizen will have to explain himself in court.” 
He said “unfortunately,” he did not know Putin personally. 
Putin’s spokesman, Dmitry Peskov, said he was unaware of Putin being personally acquainted with Ebralidze. 
“Sadly, we hear all kinds of wild claims from Tbilisi that are too absurd to comment on,” he said. 
Ebralidze said patriotic pride toward both Georgia and Russia had led him to seek Georgia’s presidency. “I love my motherland, Georgia. The presidency provides a way to solve the problems of Georgia’s territorial integrity and a way to foster good ties with my second motherland, Russia,” he said. “I am absolutely certain of victory.” 
Ebralidze said as president he would promote a policy of neutrality for Georgia, and the country would have “equally friendly” relations with Russia, the U.S. and the European Union. 
Georgian politicians and analysts downplayed Ebralidze’s importance while emphasizing that anything was possible in the world of Georgian politics. 
“He’s an inflated figure,” said Dato Zurabishvili, of the opposition Republican Party. “He has no authority in Georgia.” 
He also cast doubt on Ebralidze’s possible involvement in the mutiny. “They [the government] talk plenty of nonsense,” he said. “They think that just because they say something, people will believe it.” 
Ebralidze is still “a new thing for Georgia,” said Alexander Rondeli, president of the Georgian Foundation for Strategic and International Studies, a think tank. “He is quite unknown here. 
“Will people vote for him? In Georgia, you can find people willing to vote for a crocodile,” he said. “But whether he will get any significant amount of votes remains to be seen.”

TITLE: Local Party Takes Legal Action Over TV Series
AUTHOR: By Galina Stolyarova
PUBLISHER: Staff Writer
TEXT: The Communists of St. Petersburg will file a suit on Friday at Moscow’s Gagarinsky district court against the Rossia television channel asking for 1 billion rubles in compensation for moral damages for producing a color version of Tatyana Lioznova’s hugely popular Soviet classic “Seventeen Moments of Spring.”
The original series, set in Germany in 1945, was originally released in 1973 and immediately become one of the nation’s most popular programs. It tells the story of the Soviet agent Maxim Maximovich Isayev, a man on a dangerous mission among the highest echelons of the Nazis where he is posing as Standartenfuhrer von Stirlitz. The film is loosely based on Yulian Semyonov’s 1968 novel of the same name.
The Communists of St. Petersburg party leader Sergei Malinkovich said the legendary 12-part spy saga had been “distorted by televisual murderers and turned into a cheap, low quality entertainment product.”
On May 4, in the run-up to Victory Day, the Rossia channel began broadcasting a new color version of the popular series, produced by an international team using the latest coloring techniques. The idea was to give the old movie a fresh, modern feel and thus attract younger audiences. State experts praised the work as meticulous and brilliant, while some independent critics denounced the new film as a children’s coloring book.
The original version of “Seventeen Moments in Spring” was not destroyed in the coloring process.
In the second half of May, the Communists of St. Petersburg attempted to file the same suit at the Moscow City Court but the appeal was rejected. The court press secretary Anna Usachyova told reporters that the issue is not under the court’s jurisdiction.
The Communists of St. Petersburg and Leningrad Oblast is a tiny regional party with just over 500 members.
“The original black-and-white, ascetic movie creates a particular feeling among Russian audiences. They saw a strong Soviet man and Stalin’s model of socialism winning out over fascists and American conspirators,” reads an official statement released by the Communists of St. Petersburg. “The film was a symbol of the Soviet era, it was a precious relic. The authorities did not have the guts to destroy the Stirlitz film itself, and instead used a state television channel to turn a serious film into a ridiculous comic book.”
Leonid Chudotvorov of the Communists of St. Petersburg, speaking to the Rosbalt News Agency, said he was bewildered by the color version, with its "cheap melodramatic flavor.”
“Stalin looks like some sort of goblin, and the legendary Stirlitz has a sickly yellow face, Chudotvorov told the agency. “The unique documentary flavor, one of the film’s most valuable qualities, has vanished after the coloring."
As Malinkovich points out, back in 1973, shooting color film was already technically possible, and the black-and-white cinematography was the crew’s deliberate choice — a choice for which, he argues, the new version shows disrespect. “What has happened to the ‘Seventeen Moments of Spring’ is a litmus test for public tolerance,” he said. “If the audiences do nothing, next time we might see a vaudeville based on what once was a seemingly inviolable classic.”
Malinkovich and his party have accused Alexander Lyubimov, the deputy general director of the channel, of being “personally responsible for turning a masterpiece into a flashy piece of hack-work” and slated the television official as “an expert in bashing all things Soviet.”
The television channel refused to comment on the situation.
On May 13, Malinkovich also created a Movement Against Coloring and Distortion of Soviet Films in response to the Rossia television channel announcing vast plans for the financing of color versions of a number of black-and-white Soviet era classics.
It is not the first time that the party has engaged in a flamboyant crusade against the film industry.
In October 2008 the organization condemned the Bond girl Olga Kulylenko for “agreeing to become the girlfriend of a man who spent decades destroying the USSR and following orders given by Margaret Thatcher and Ronald Reagan.” The protest received international media coverage, including an item by the BBC World Service.
In May 2008, the party campaigned against the latest installment in the Indiana Jones series, claiming that the film “disseminates lies about the USSR allegedly attempting to start a nuclear war in 1957.”

TITLE: Indian Frigate Docks in City
PUBLISHER: The St. Petersburg Times
TEXT: The Indian frigate Beas arrived in St. Petersburg on Wednesday for a four-day official visit. The ship, under the command of Captain Sunil V. Bhokare, is moored at the Lieutenant Schmidt Embankment together with its Russian host, the corvette Steregushchy.
At a press conference and welcome ceremony for the ship attended by India’s Ambassador, Prabhat Prakash Shukla and Consul General, Radhika Lal Lokesh on Wednesday evening, Captain Bhokare addressed the guests in Russian. 
After welcoming them on board, he said that it was important to work together in security issues. “I hope we will continue to work together and carry out training activities more often,” he said.
The Beas, which has a crew of 417, including 50 officers, will be open to the public from noon to 5 p.m. on Saturday. Visitors can meet the ship’s crew and see photos of the Beas’ recent patrolling mission in the pirate-ridden Gulf of Aden. During the mission earlier this year, the crew of the Beas successfully captured Somali pirates and confiscated their arms.
The Beas and the Steregushchy will conduct joint military exercises on Sunday morning in the Gulf of Finland, where the crews will practice maneuvers, life-saving operations and ways of combating pirate activity, among other skills. Later that day, the Beas will leave Russia for Germany.
The visit of the ship is just one of a host of India-related events taking place in 2009, which has been designated the Year of India in Russia. On Saturday, Indian classical dancer Yamini Reddy will perform at the Komissarzhevskaya Theater on Italianskaya Ulitsa at 7 p.m. Tickets are free and can be obtained from the Indian Consulate.

TITLE: Nurgaliyev: Policemen to Wear Name Badges
AUTHOR: By Natalya Krainova
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — The names of police officers will be sewn on their uniforms, and police cars will be equipped with video cameras under new anti-corruption measures being implemented by the Interior Ministry.
Interior Minister Rashid Nurgaliyev said Tuesday that police officers would start wearing badges with their names on by the end of the year to give people the opportunity “to report the actions of a certain police officer,” RIA-Novosti reported. 
Patrol cars and traffic police cars will be equipped with video cameras that will record what happens inside and outside the car on a device that is inaccessible to the vehicle occupants, Interior Ministry official Stanislav Trushin said late last week, Interfax reported.
In Russia, rank-and-file police officers are widely seen as the country’s most corrupt public servants. 
Efforts to root out corruption took on a new urgency after Moscow police Major Denis Yevsyukov opened fire at a Moscow supermarket in late April, killing three people and wounding six others. 
In the aftermath of the shooting, President Dmitry Medvedev fired Moscow police chief Vladimir Pronin, and Nurgaliyev announced that all police officers would be required to present their tax declarations to their superiors starting next year.

TITLE: SMEs, Technology in Spotlight At Forum Opening
AUTHOR: By Boris Kamchev
PUBLISHER: The St. Petersburg Times
TEXT: The dark clouds over Russia’s economy may be lingering as long as the dreary weather during this year’s International Economic Forum in St. Petersburg, but the opening day of the event focused on optimistic new projects in the city’s business, education and innovative technology spheres.
The start of the forum’s agenda sought up-to-date and intelligent ideas for weathering the economic crisis at both national and global levels. A roundtable titled “Innovative politics — Creating a Russian anti-crisis program” tried to answer the question of what sectors of the economy could be the engines of the country’s technical and economic development.
“The crises in the traditional industries have deteriorated the Russian regions,” said Vladimir Knyaginin, director of the Severo-Zapad (Northwest) Center for Strategic Development. “We shouldn’t expect any innovative drivers in the economy if it’s based on the industries of the 1960s, 70s and 80s.”  
Knyaginin listed four innovative technologies that are currently the most discussed in the West and on which he said the Russian economy should rely to overcome the crisis: Alternative energy, the health industry, cognitive technologies and new developmental technologies based on new infrastructure.
The St. Petersburg administration is confident that investment in education and IT development is a key factor in building qualitative human resources. Governor Valentina Matviyenko and Craig Barrett, chairman of the board of Intel Corporation, signed an agreement on Thursday on cooperation in the sphere of school education. 
“Our administration has done its best to attract partners to help modernize St. Petersburg’s elementary and high schools with 250,000 personal computers during 2009-2012,” Matviyenko told journalists after signing the agreement. “Moreover, we are creating a new innovative program that includes opening free economic zones for companies working in the IT sector, as well as cooperation between Intel and the Russian nanotechnology sector,” she said. 
Last year, Intel successfully implemented a pilot project — “Classmate PCs” — in four St. Petersburg schools.

SMEs in the spotlight
The development of small and medium-sized enterprises (SMEs) has been on the economic agenda of President Dmitry Medvedev since the beginning of his presidential term. On Wednesday, the city administration, with the support of the Ministry of Economic Development, announced a large-scale program worth $25 million to support SMEs in St. Petersburg. The project aims to give new professional hope to entrepreneurs and managers who lost their jobs after the economic crises hit Russia this year.
“We have created sixteen programs that include 50 percent discounts on electricity for new SMEs, as well as the creation of a business incubator and the setting of lower taxes for small businesses,” Matviyenko said during the signing ceremony with Economy Minister Elvira Nabiullina. A third of the funds for SMEs will come from the state coffers, while two thirds will be direct support from the city budget.
“I hope that the program will help a great number of entrepreneurs in St. Petersburg to create new businesses,” said Nabiullina. “The development of small and medium size businesses is the government’s greatest priority,” she told the media after signing the agreement.
The program also aims to help those who have lost their jobs but are willing to create their own business — 300,000 rubles ($9,730) will be allocated to every first-time hopeful entrepreneur. 

A GLOBAL AFFAIR
All of Thursday’s other events, including the Russia-EU business dialog that tackled issues such as simmering energy disputes between the two sides, and the signing of a memorandum for cooperation between the St. Petersburg Chamber of Commerce and Chamber of Commerce of the city of Jeddah in Saudi Arabia, emphasized the international dimension of the forum’s opening day.
The forum’s official opening day is Friday, when President Medvedev is due to deliver a keynote address titled “The global economic crisis: First lessons and leading the way ahead.” The evening session, which opens with a discussion on “Strengthening the role of international cooperation and opposing protectionism,” will be moderated by Thomas Friedman, the award-winning American journalist, columnist and author of the book “The World is Flat.”
At Saturday’s main discussion, titled “Post Crisis Financial Architecture,” Finance Minister Alexei Kudrin is expected to speak. 
The World Grain Forum will take place for the first time on Saturday and Sunday, and will be held on the sidelines of the St. Petersburg International Economic Forum. The agenda includes a banking conference that will be attended by some of the world’s top bankers. Restructuring financial institutions is most likely the key theme that will be discussed at the conference.
“At the roundtable that I will moderate, the heads and managers of banks such as Goldman Sachs, Citibank, Nomura International, VTB and MDM will have their say on the current financial crisis,” said Andrei Sharonov, managing director of Troika Dialog, in an interview on Wednesday. He added that the main topic of the roundtable would be the difficulty both of obtaining government bailout money, and of getting rid of its consequences.

TITLE: Debt-Ridden Belarus Lashes Out At Russia
AUTHOR: By Nikolaus von Twickel
PUBLISHER: The St. Petersburg Times
TEXT: The Belarussian Central Bank’s web site is not exactly what you call an exciting read, but surfing its statistics section these days is harrowing, to say the least. 
The numbers make it quite clear that Belarus, one of Russia’s staunchest allies, is on the verge of bankruptcy.
Foreign currency reserves stood at $3.75 billion on May 1, yet foreign currency debt at the beginning of the year had reached $14.8 billion, $7.9 billion of which is short term.
A government budget of $25 billion and a massive trade deficit complete this bleak picture.
“The financial situation is incredibly serious, and it is worsening every month,” a senior Western diplomat said by telephone from Minsk, requesting anonymity because of the sensitivity of the issue.
Yet help is at hand, with billions of dollars pouring into the small, landlocked country of 10 million people wedged between the European Union’s eastern rim and Russia. The money is coming from Russia, which has promised a $2 billion loan, and the International Monetary Fund, which is to extend a credit line of up to $2.4 billion.
But paradoxically, Belarussian President Alexander Lukashenko, a former collective farm director who has kept an iron grip on the country since 1994, has bluntly slapped Moscow in the face.
Last week, Lukashenko lashed out at Finance Minister Alexei Kudrin, who had questioned Belarus’ worthiness of getting the last $500 million tranche of the Russian loan and speculated that the country might be insolvent by the end of the year.
“[Kudrin] joined ranks with our hoodlums who bark for Western money and teach us how to work,” an angry Lukashenko said.
He said Belarus would not “whine and weep” if things did not work out with Russia but “look for better luck in other parts of the world.”
President Dmitry Medvedev retorted Wednesday that the outburst was unacceptable. “We have never tolerated and we will we never tolerate giving personal characteristics to other countries’ leaders,” he said at an economics meeting, Interfax reported. 
The clashes throw into doubt long-standing efforts to form a “union state” of both countries.
Despite the fact that he has been labeled Europe’s last dictator, Lukashenko has recently embarked on a carefully staged rapprochement with EU countries, culminating with a visit to Rome in April and Belarus’ accession into the European Union’s Eastern Partnership program in May.
Yet Russia kept its cool amid Lukashenko’s outbursts, with officials effectively saying relations are fine and the money should keep flowing.
Kudrin said Monday, several days after his initial assessment, that the $500 million loan was still being discussed and that Moscow would even consider raising the credit line for Minsk from $2 billion to $3.2 billion.
Analysts said that despite Belarus’ dire financial situation, Lukashenko was in a comfortable position because neither Russia nor the EU could afford to let the country’s economy collapse.
The Europeans fear a domino effect that could send shockwaves across the continent, said Tomas Valasek, a director with the Center for European Reform, a London-based think-tank. In addition, a lot of Western investment in Belarus would be at risk, he said.
Belarus has seen a surge in foreign direct investment since opening up its economy in 2007, following a gas dispute with Russia that increased the amount it paid for gas by more than 170 percent.
Russia, on the other hand, is ready to go to great lengths to tolerate Lukashenko in order to maintain its influence in the so-called near abroad, said Masha Lipman, an analyst with the Carnegie Moscow Center.
“Lukashenko is still much closer to Moscow than to Europe, and the Kremlin is extremely sensitive to Western influence encroaching on Belarus,” she said.
Lipman added that despite Lukashenko’s recent maverick behavior, he would not cross any red lines to alienate Moscow. “After all, his well-being depends on relations with Russia.”
Valasek said the main difference between the Russian and Western approach to bailing out Lukashenko was that Moscow would like to control Minsk’s foreign policy, while the IMF and Western donors just wanted their money back.
He noted that the EU had not offered any special aid and preferred to work through the IMF.
Yet the EU’s Eastern Partnership — which offers six former Soviet states free trade, economic integration and economic aid — obliges participants to commit to democracy, rule of law and sound economic and human rights policies. The program has been criticized by Moscow as an intrusion into its traditional sphere of influence.
Elmar Brok, a former chairman of the European Parliament and prominent lawmaker for German Chancellor Angela Merkel’s Christian Democrats, said that the European policy goal must be to safeguard Belarus’ independence.
“There is a lingering threat that the country will be swallowed by Moscow,” he said by telephone from Hamm, Germany.
He said Minsk’s refusal to recognize the independence of Georgia’s rebel regions of South Ossetia and Abkhazia provided evidence that Belarus still controlled its own destiny.
The EU has made it clear that recognition of the two regions would unravel any progress being made with Belarus.
But Brok warned that Europeans should not be drawn into a conflict with Moscow in their talks with the Belarussian government. “We have to be wary because the government has been crafty toward both sides in the past,” he said. 
Brok also said that when talking about aid, Europeans should stick to stringent conditions. “We must make sure that Lukashenko does not just go panhandling,” he said.
Belarus, meanwhile, is demanding another $9 billion from Moscow. Prime Minister Sergei Sidorsky sent a letter to Putin on Tuesday seeking the loan to build a nuclear power plant and related infrastructure.

TITLE: Finns Weigh Up Nord Stream
AUTHOR: By Anatoly Medetsky
PUBLISHER: The St. Petersburg Times
TEXT: Finnish Prime Minister Matti Vanhanen said Wednesday that his government needed more time to decide whether to permit construction of the Nord Stream gas pipeline, dealing a setback to his visiting Russian counterpart, Vladimir Putin.
The government will consider allowing the pipeline to cross Finland’s economic zone under the Baltic Sea in September or October, Vanhanen said after talks with Putin in Helsinki.
Finnish President Tarja Halonen said after a meeting with President Dmitry Medvedev in April that a decision might be made when the countries’ prime ministers had their next talks, which she said would take place in July.
The choice of months for a Nord Stream decision may not be accidental, as Russia and Finland, which are at odds over Russia’s restrictions on logging exports, will hold a forum on the timber trade in the fall. Putin announced the forum at the news conference with Vanhanen, saying Russia would host the event. He did not give an exact date.
In a new twist, Vanhanen said an additional permit would be needed for the pipeline: clearance from environmental authorities to detonate 31 old sea mines near the project’s route. Finland is also studying the project’s compliance with water legislation.
Putin offered a sarcastic but lighthearted retort to the latest hurdle, saying his Finnish counterpart was very knowledgeable about the pipeline.
“I think he counted every mine and held it in his hands,” Putin said. “It’s better to destroy regardless of whether the pipeline runs there,” he added, drawing a smile from Vanhanen.
Nord Stream AG, the company set up to build the pipeline, in March formally requested Finland’s approval. The company also needs permission from Russia and Germany, which stand to gain the most from the pipeline, as well as Sweden and Denmark. 
Gazprom, Germany’s E.On and BASF and Holland’s Gasunie expect all permits from these states this year. Gas shipments are scheduled to start in 2011. The partners in Nord Stream did everything necessary to receive permission, Putin said. “The question is about the desire of the European [countries], not only Finland, to have our cheap gas,” Putin said. He again warned that Russia could opt to sell more liquefied natural gas, at a much higher price, if delays continue. 
Vanhanen said Nord Stream was important for Europe’s gas needs and that Finland would approve construction if the pipeline didn’t harm the environment.
Putin also dispensed an emotional comment about the employee of the Finnish consulate in St. Petersburg who helped a Finnish father bring his 5-year-old son out of Russia in his diplomatic car without permission from his Russian mother.
Finnish diplomats say the boy’s mother illegally brought him to Russia last year.
The dispute, which drew an official complaint from Foreign Minister Sergei Lavrov last month, added an unexpected twist to the countries’ already complicated talks.
Putin said he was told by the Finnish side that the diplomat felt emotionally compelled to help the father. The diplomat, Putin said, would do better being a priest.
“If he places his feelings higher than his duties, he belongs to a church rather than state diplomatic service,” he said.

TITLE: Nissan Plant Starts Production
AUTHOR: By Irina Titova and Anatoly Medetsky
PUBLISHER: The St. Petersburg Times
TEXT: Japanese automobile concern Nissan Motor Corporation opened a $200 million plant in St. Petersburg, its first in Russia, in a ceremony attended by Prime Minister Vladimir Putin and Governor Valentina Matviyenko on Tuesday.
The opening comes as the Russian car market, like many others, has fallen on hard times. Putin made sure to mention that the ceremony crowned a deal reached in 2006 at the St. Petersburg International Economic Forum, apparently hoping to encourage potential investors ahead of this year’s meeting, which opened Thursday. 
Putin, in the driver’s seat, and Nissan President Carlos Ghosn took a short ride in a locally assembled Teana. Putin praised the car as “beautiful, good quality and easy to drive,” but declined to compare it with his recently bought Niva, made by AvtoVAZ. 
“Today is a very happy and pleasant day,” Putin said at the event in his native city. “Despite any problems and difficulties associated with the global financial crisis and the global economic crisis, large investment projects are materializing in Russia.” 
“The Russian government will support any investments, especially direct investments connected to new technologies and innovations,” he said.
The prime minister said St. Petersburg was “a very convenient place” for such plants “because it has a sea port that can provide good logistics for sales in Eastern and Western Europe.”
Ghosn said that Russia was of strategic importance for Nissan “as one of the most dynamically developing automobile markets.”
“Russia is our no. 1 market in Europe and no. 5 in the world,” he said at the opening ceremony. 
“Our success in Russia will directly depend on the support of the Russian government and people,” he said. 
Matviyenko said that the opening of the plant, whose construction began in 2007, was “our answer to the global economic crisis.”
“We are thankful to our reliable and loyal Japanese partners, who despite any difficulties and pessimistic forecasts about the crisis did not cancel their plans,” she said.
“We set a difficult goal to create an automobile cluster in St. Petersburg — a new industrial field for our city. And today we can say that this cluster, or ‘the St. Petersburg Detroit’ has been made,” she said.
The new plant, located in the village of Kamenka to the north west of the city, is initially expected to produce 50,000 cars per year.  
Putin said that the plant is currently only using one third of its available territory, and if it expanded production, it could manufacture up to 500,000 cars per year.
At first the plant will produce two models — the Teana sedan and X-Trail off-road vehicle. It will begin production of the Teana this month, and start making the X-Trail in three months’ time, said Ghosn.
Fujio Hosaka, the plant’s director, said at the press conference that the plant would assemble from 500 to 1,000 Teana vehicles and 1,000-2,000 X-Trail vehicles a month. He added that the number of cars would change from month to month depending on demand. Hosaka said that the price of the models assembled in St. Petersburg is still under consideration.  
Ghosn said the plant would provide 750 jobs on site, and 5,000 additional jobs to be created by suppliers and other partners when the plant begins to work at full capacity.
Nissan sold 146,000 cars in Russia last year, a 26 percent increase on 2007, Ghosn said.
He said that Nissan was also planning to produce a budget car in Russia together with Renault and AvtoVAZ.
“We want to have rational competition on the Russian market,” he said at the press conference. “Therefore Nissan wants to produce inexpensive cars together with Renault and AvtoVAZ.”
Ghosn said that the budget model would be a sedan, but did not give detail about when and where the model would be launched.
“When Russia recovers from the crisis, such a model will be in demand,” he said.
Nissan Motors is one of the leaders of the global automobile industry, with an annual turnover of more than $80 billion. The company currently has 75 dealer centers in Russia, in 49 cities, and occupies 5.7 percent of the country’s automobile market.
Putin said Russia and Nissan plan to carry out “a full program to produce car parts.”
Ghosn said he expected sales of new cars in Russia to decrease by about 50 percent this year, including sales of Nissan. He said however that the company plans to maintain its share of the Russian market at 5.7 percent.
Car sales in Russia grew 26 percent in 2008, continuing the trend of recent years, but were down 53 percent in April this year and 44 percent during the first four months of the year.
The Russian government has offered substantial incentives to foreign producers to set up assembly plants or manufacture auto parts in Russia. Ford, Renault, Scania, Toyota, Volkswagen and GM have all opened plants during the past six years.  
There are currently four car-making plants in St. Petersburg and the Leningrad Oblast — Ford, GM, Toyota and Nissan. South Korea’s Hyundai also plans to open a plant in St. Petersburg next year.
Canadian auto parts maker Magna is building a plant near St. Petersburg that will start operating next April, said Maxim Sokolov, St. Petersburg’s investment committee chief, Interfax reported. Suzuki, another Japanese carmaker, appeared to go against the tide when it decided to delay construction of a factory in St. Petersburg until at least 2011, Bloomberg reported in April, citing Nikkan Kogyo newspaper. 
Putin said that Russia has a strategy for developing car manufacturing. He said on Tuesday that last week’s announcement that Germany’s Opel would be purchased by a consortium that includes Sberbank, GAZ and Magna was “in keeping with the strategy for the development of the national automobile manufacturing industry,” and reiterated the state’s decision to provide 25 billion rubles ($813 million) for the stricken carmaker AvtoVAZ.

TITLE: Opel Deal May Herald New Government Policy
AUTHOR: By Ira Iosebashvili
PUBLISHER: The St. Petersburg Times
TEXT: On a cold February day in 1999, then-Ford CEO Jacques Nasser came to the Kremlin with an interesting proposal: Ford would open a factory in Russia, building its inexpensive Focus model using both imported and Russian-made parts. Over the next five years, the U.S. auto giant would have to incease the use of locally made components until its Russian costs represented half the value of each car.
Eager to open up the economy — devastated half a year earlier by a debt default and ruble collapse — to foreign investment, the Kremlin agreed. Ford laid out $150 million to build a factory on the site of a former Russky Diesel plant in Vsevolozhsk, just outside St. Petersburg, and became the first foreign carmaker to open production facilities on Russian soil. 
The arrangement worked well — too well, some might say. The economy rebounded with a vengeance, and other foreign carmakers rushed to open factories in and around St. Petersburg, with the enthusiastic encouragement of the local administration. Prime Minister Vladimir Putin and President Dmitry Medvedev have been fixtures at ground-breaking and ribbon-cutting ceremonies in recent years, and in the first half of 2008, Russia managed to overtake Germany as Europe’s largest car market.
“St. Petersburg had the advantage over other candidates because of its close location to the car market, infrastructure and easy logistic access,” Toyota’s press office said in a statement. “And the support of the St. Petersburg government, especially the assistance of Mrs. Matviyenko, was very important to us.”
But the successful completion of ‘St. Petersburg’s Detroit,’ as Governor Valentina Matviyenko termed it this week, also brought a rude awakening for Russia’s native automakers, which had survived for years as the only game in town thanks to heavy import tarriffs.
And while Russia’s three best-selling cars are all AvtoVAZ-made Ladas, six of the top 10 spots belong to foreign producers: Ford, General Motors, Renault and Daewoo. The government, hoping to staunch the loss of market share to the invited competition, chose a bold but risky new strategy.
Late last month, Canadian auto-parts maker Magna and Sberbank bought control of Opel, the German unit of the now-bankrupt GM, with Oleg Deripaska’s GAZ invited into the consortium to share its production facilities.
The deal gives the Kremlin a chance to win the best of both worlds: keeping foreign automakers investing in Russia and using their technology to breathe new life into domestic producers. But the timing of the move makes it feel like a last gasp following months of generous loans and other support with no real effort at restructuring the industry.
Earlier this year, Tolyatti-based AvtoVAZ was forced to produce unfinished cars after local suppliers decided to stop delivering components because they had not been paid for months. On Thursday, Putin instructed the government to provide an additional 25-billion ruble ($806 million) loan to state corporation Russian Technologies, which owns a 25-percent stake in AvtoVAZ, to help the carmaker pay down debts.
GAZ, best known for its Volga sedans and the boxy GAZelle van, said last month that it was selling loss-making British van maker LDV for less than a quarter of the 22 million pounds it paid in 2006. Adding insult to injury, the LDV buy was supposed to lead to localization of its Maxus vans, which would eventually serve as the basis for a new generation of the GAZelle. 
The state’s policy was to throw money at the problem, and its pockets seemed deep given the threat of unrest over layoffs and unpaid wages. The Opel deal, however, represents a different strategy altogether. 
Sberbank will own a 35 percent stake and together with Magna inject up to 500 million euros into the German company. But Russia’s investment in the European automaker is more about GAZ, which will give Opel the use of its Nizhny Novgorod production facilities and in turn gain access to German engineering.
Sberbank president German Gref, a former economic development minister, called the deal a chance for Russia to get “one of the most technologically advanced European carmakers at an unprecedented low price,” and that it would “make it possible to restructure the Russian car industry.”
In particular, the deal offers new hopes of improving Russia’s auto-components industry, which remains a hurdle to greater localization of production.
“The more foreign automobiles get produced in Russia, the more incentives auto-component makers will have for setting up operations here,” said Sergei Udalov, an analyst with Avtostat.
“GAZ and AvtoVAZ make everything themselves, from start to finish,” he said. “Experience has shown that this is not the best way to do things.”
Having local parts makers will raise product quality across the board, for domestic and foreign automakers, he said. 
But with car sales in Russia plummeting because of the economic downturn, no one expects the Opel investment to be an automatic panacea, especially after GAZ’s experience with LDV.
Magna’s goal of selling one million cars in Russia is “quite ambitious, and very unlikely anytime soon,” said Mikhail Pak, analyst at Metropol. “Opel will use GAZ’s production capacity and dealer network, but I don’t see GAZ getting much from them in terms of technology,” he said.
Vedomosti reported Thursday that the Magna-Sberbank consortium was also expecting to receive all of General Motors’ assets in Russia and the CIS, including the plant that GM opened in St. Petersburg last July.
Chris Gubbey, president of GM CIS, said Thursday that all GM entities in Russia were “working as usual” and that GM Corp.’s bankruptcy filing did not affect overseas operations.
“At this point, detailed negotiations on the partnership with Magna have just begun.  Clearly, the Russian operations are a critical part of GM’s business in Europe and are of keen interest to all parties involved,” Gubbey said. “However, there are no firm commitments or details of what is being discussed that can be confirmed at this time.”
And there are still the risks of doing a deal when the country’s economy is anything but rosy.
Auto sales have dropped drastically in Russia, with 44 percent fewer units sold between January and April than in the same period a year ago, according to the Association of European Businesses. The automakers committee of the AEB forecasts a decrease in Russia’s annual output to about one million vehicles this year, from 1.8 million in 2008.
Nonetheless, foreign carmakers continue to flock to Russia, and their geographical opportunities are expanding as other regions — notably Kaluga, which saw a Volkswagen plant open last year — build on St. Petersburg’s success.

TITLE: BP Head Tells Russia To Drop Investment Barriers
PUBLISHER: Bloomberg
TEXT: BP Plc Chief Executive Officer Tony Hayward urged Russia, the world’s largest energy supplier, to drop barriers to foreign investment and mitigate risks at a time when “capital is in short supply.”
“Erecting barriers to the inflow of foreign direct investment is questionable,” Hayward said Thursday at the St. Petersburg International Economic Forum. “Russia would benefit from higher investment.”
The global oil industry scrapped or delayed projects valued at $170 billion from October to mid-April as crude prices tumbled and banks restricted access to capital, according to the Paris-based International Energy Agency, which advises 28 industrialized nations on energy policy.
BP’s largest investment in Russia is its joint venture, TNK-BP, with local billionaire partners. TNK-BP accounts for about a quarter of the London-based company’s production and reserves. BP is also cooperating with Russia’s state-owned Rosneft to search for oil and natural gas in the country’s Far East and in the Arctic, according to BP’s web site.
Nations that are rich in oil and gas, such as Russia, Venezuela and Brazil, are restricting foreign access to resources as part of a policy described by Hayward as “a new form of protectionism” or “resource nationalism.” That hurts global investors “in a world where capital is in short supply and is likely to remain so for some time,” he said.
“Restricting foreign investment will also slow down the transfer of technology and managerial know-how” in Russia, Hayward said. “In the short term, in response to the financial crisis, increased investment in the energy complex will boost government revenues.”
Hayward called upon Russian legislators and the government to improve “the stability of the fiscal and regulatory regime, the respect of property rights and the rule of law.”

TITLE: BP to Postpone Share Sale
PUBLISHER: Bloomberg
TEXT: BP Plc, Europe’s second-largest oil producer, said it will delay a share sale in a unit of its Russian venture, TNK-BP, by at least a year to 2011 because of lower market valuations.
The timing will be “market-driven,” while the shareholders haven’t yet decided on which TNK-BP unit will sell shares, Peter Charow, BP’s vice president for Russia and Kazakhstan, said Thursday at the St. Petersburg International Economic Forum.
BP and its Russian billionaire partners in September agreed to sell as much as 20 percent of TNK-BP in an initial public offering in 2010 to boost value. The plan was part of a settlement to a dispute between the two groups of shareholders for the management of Russia’s third-largest oil producer.
TNK-BP stockholders are unlikely to make a decision on selling shares before the end of 2010 or even 2011, because it’s “primarily dependent on the return to some sense of normality at the financial markets,” BP Chief Executive Officer Tony Hayward said in March.
Moscow-based TNK-BP accounts for about 25 percent of BP’s production and reserves. The venture has generated more than $25 billion of net income and distributed more than $20 billion in dividends since it was set up in 2003, Hayward said in March.

TITLE: RZD to Help Out KIT Finance
AUTHOR: By Courtney Weaver
PUBLISHER: The St. Petersburg Times
TEXT: The Deposit Insurance Agency outlined the new structure of failed bank KIT Finance on Wednesday, heavily relying on Russian Railways and TransFinCapital to rehabilitate the brokerage — one of the first victims of the financial crisis last October.
Russian Railways will loan KIT 22 billion rubles ($713 million) for the bank’s day-to-day administration, while the Deposit Insurance Agency will provide a loan of 47 billion rubles to refinance KIT’s mortgage portfolio. TransFinCapital will provide 4 billion rubles in reserves to recapitalize the bank. 
Russian Railways will take a 45 percent stake, while TransFinCapital, part of Russian Railway’s pension fund, will take 45 percent in addition to the 10 percent stake it already owns.
The deal marks a second attempt at restructuring KIT after the failure of a deal in October in which Russian Railways and state diamond monopoly Alrosa tried to purchase the bank for a nominal $100.
In September, the same month KIT collapsed, legislation went into effect that handed responsibility for administering and winding up failed banks to the Deposit Insurance Agency from the Central Bank.
But in order to receive the necessary financing from the agency, the bank had to change the structure of the deal.
In the case of KIT Finance, the restructuring deal has been particularly challenging because of the state’s commitment to keeping the brokerage afloat instead of allowing it to be liquidated and the number of government agencies involved in the transaction, said Anton Tadakh, a senior analyst at Troika Dialog.
“Both Russian creditors and other entities try to avoid getting involved with the government” in cases of bankruptcy, he said, and in the case of KIT Finance, ensuring the safety of both the brokerage and its various holdings is a delicate process.

TITLE: Forum In Brief
TEXT: <strong>Gref: Russia At Bottom</strong>
ST. PETERSBURG (Bloomberg) — Sberbank Chief Executive Officer German Gref said Russia’s economic contraction is slowing “sharply” and the country is at the bottom of the crisis.
Further economic decline is unlikely, Gref, a former economy minister, told reporters in St. Petersburg on Thursday.

<strong>Chubais Is ‘Optimistic’</strong>
ST. PETERSBURG (Bloomberg) — Russia’s economy will stop contracting in the third-quarter, Rusnano Chief Executive Officer Anatoly Chubais said.
Chubais, an architect of Russia’s privatization program after the fall of the Soviet Union, said that the government’s response to the worst financial crisis in more than a decade has been “professional” and that he’s “cautiously optimistic” about recovery.

<strong>Stocks May Fall 20%</strong>
ST. PETERSBURG (Bloomberg) — Renaissance Capital, the Russian brokerage part-owned by billionaire Mikhail Prokhorov, expects the country’s main stock indexes to fall by as much as 20 percent this month in a “bull-market” correction.
“There is a bull market for Russian stocks that has gone a very long way in a very short time, and therefore it should be expected to see a 15 percent to 20 percent correction within the bull market,” said Roland Nash, Renaissance’s chief strategist, in an interview at the St. Petersburg International Economic Forum.

<strong>Nash Sees Turnaround</strong>
ST. PETERSBURG (Bloomberg) — Russia’s economy is luring foreign investors again after a “major turnaround” in sentiment, said Roland Nash, chief strategist Renaissance Capital, the Russian brokerage part-owned by billionaire Mikhail Prokhorov.
Russian stocks will probably have “some kind of correction, but the market looks pretty good in the medium term,” Nash said in a Bloomberg Television interview at the St. Petersburg International Economic Forum Thursday.

<strong>No Growth Forecasted</strong>
ST. PETERSBURG (Bloomberg) — Citigroup Inc. expects Russia’s first recession in more than a decade to continue through the rest of the year, said Elina Ribakova, the U.S. bank’s chief economist in Moscow.
“I’m not forecasting any growth, just a slowdown in the contraction, stabilizing by the end of the year,” Ribakova said in a Bloomberg Television interview at the St. Petersburg  International Economic Forum on Thursday. “We’re not sure we’ve hit the bottom. We’ll see the effects of the government’s economic stimulus by the end of this quarter.”

<strong>Russia Ready for WTO</strong>
ST. PETERSBURG (Bloomberg) — Russia, the biggest economy outside the World Trade Organization, expects to join the group by the end of next year, Economy Minister Elvira Nabiullina said Thursday at the St. Petersburg International Economic Forum.

<strong>U.S. Optimistic on Bid</strong>
ST. PETERSBURG (Bloomberg) — The U.S. government is working with a “cooperative spirit” on Russia’s bid to join the World Trade Organization and may conclude talks this year, U.S. Trade Representative Ronald Kirk said.
“We have the opportunity to make extraordinary progress in the next few months, if not by the end of the year,” Kirk said at the St. Petersburg International Economic Forum on Thursday.

<strong>Stocks Offer Potential</strong>
ST. PETERSBURG (Bloomberg) — Russian stocks offer a “historic buying opportunity” since oil prices stabilized, said Martin Hrdina, head of emerging-markets equities at Deka Investment GmbH.
“We’re going to remain overweight in Russia over the next years unless something really bad in the political scene happens,” Hrdina said in a Bloomberg Television interview at the St. Petersburg International Economic Forum. “We’re happy with our long call on Russia.”
Russia’s economy probably will have “a rather positive” second half this year after a rebound in commodity prices, Hrdina added. 

<strong>Terrorizing Continues</strong>
ST. PETERSBURG (Bloomberg) — Russian authorities have redoubled efforts to squeeze bribes out of companies since President Dmitry Medvedev called for an end to the use of “scaring” tactics, Kremlin adviser Igor Yurgens said.
“After Medvedev told the government to stop terrorizing businesses, the terrorizing went up twofold,” Yurgens told reporters at the St. Petersburg International Economic Forum on Thursday. “Examples of terrorizing are too numerous to enumerate, just try dealing with the tax authorities, police.”
Medvedev said last July, four months after taking office, that officials must stop “causing nightmares” for businesses. “We need to create a normal investment climate in our country,” Medvedev said at the time.

<strong>Slovenia Eyes Pipeline</strong>
ST. PETERSBURG (Bloomberg) — Gazprom Chief Executive Officer Alexei Miller said he hopes Slovenia will soon sign an agreement on the South Stream natural-gas pipeline.
Miller met Slovenian Economy Minister Matej Lahovnik on Thursday during the St. Petersburg Economic Forum, Gazprom said in an e-mailed statement.
Slovenia is “seriously considering” the agreement, Miller said according to the statement.

<strong>Free-Trade Zone Slated</strong>
ST. PETERSBURG (Bloomberg) — Russia, Kazakhstan and Belarus may introduce a free-trade zone next year, said Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs, the country’s big-business lobby.
The zone would best operate under World Trade Organization rules, Shokhin said at the St. Petersburg International Economic Forum on Thursday.

<strong>TNK-BP Conflict Over</strong>
ST. PETERSBURG (Bloomberg) — BP Plc Chief Executive Officer Tony Hayward said his company’s conflict with the Russian shareholders of their TNK-BP oil venture is over.
“That’s just business,” Hayward said in a Bloomberg Television interview in St. Petersburg on Thursday. Hayward said he’s “happy” with the joint decision by the venture’s shareholders to appoint billionaire Mikhail Fridman acting CEO until one of two nominated candidates takes over.

<strong>X5 Plans New Stores</strong>
ST. PETERSBURG (Bloomberg) — X5 Retail Group plans to open 100 stores this year, including seven hypermarkets, Chief Executive Officer Lev Khasis told reporters at the St. Petersburg International Economic Forum on Thursday.

<strong>Miller Meets Shell Head</strong>
ST. PETERSBURG (Bloomberg) — Gazprom Chief Executive Officer Alexei Miller said the Russian company’s partnership with Royal Dutch Shell Plc on Sakhalin Island “may become the basis for further cooperation” in liquefied natural gas, including on the Arctic Yamal peninsula.
Miller met with Jeroen van der Veer on Thursday in St. Petersburg, Gazprom said in an e-mailed statement.

<strong>RusAl to Miss Deadline</strong>
ST. PETERSBURG (Bloomberg) — United Co. RusAl, the Russian aluminum producer controlled by billionaire Oleg Deripaska, will miss a June 11 deadline to renegotiate $7.4 billion of debt to foreign banks, Chairman Viktor Vekselberg said.
The company “won’t need long” after the deadline to reach an agreement with lenders, Vekselberg told reporters at the Economic Forum on Thursday.

TITLE: The Productivity Trap
AUTHOR: By Vladislav Inozemtsev
TEXT: Russian experts and policymakers have increasingly raised the question of productivity, stressing that the country’s lag behind leading global economies has become an acute nationwide challenge. On May 15, President Dmitry Medvedev addressed the issue at a meeting on modernization and technological development and emphasized that “we must not forget one simple, unfortunate fact: labor productivity in this country is currently equivalent to only one quarter of the labor productivity in the United States.” 
According to the World Bank, every employed Russian contributes only $16,100 to the country’s gross domestic product, compared with $38,100 in South Africa, $48,600 in Greece, $59,400 in France and $74,600 in the United States. 
But these numbers alone do not reflect the true scope of the problem. Russia’s low productivity is exacerbated by the fact that the country is dominated by natural resource extracting with relatively little industrial development in the real sector. Although the overall productivity in Thailand ($12,500 of GDP for an employed person), Brazil ($16,700) or Malaysia ($22,900) do not differ from Russia’s in a dramatic way, in these countries’ high-tech industrial exports account for 16.2 percent, 22.4 percent and 36.7 percent of all exports, while in Russia they constitute a meager 2 percent. Thus, Russia suffers not only from a low level of productivity but also from a counterproductive economic structure, slow technological progress and outdated labor relations.
The country’s economy in recent years shows two distinct features. First, an unprecedented economic boom from 2001 to 2008 failed to produce significant additional employment. For example, in the mid-1990s there were 66.3 million people employed. In April, the number stood at 67.5 million, indicating an increase of only 2 percent. The United States in the same time period increased from 123 million employed to 144 million, or by more than 17 percent. 
Second, real wages increased 12.2 percent a year in Russia during these seven years, while the expansion of the country’s GDP was roughly 6 percent. In the United States, the labor costs in manufacturing between 2001 and 2008 declined by more than 25 percent in U.S. dollars when compared with 14 major countries from the Organization for Economic Cooperation and Development. This underscores how much Russia lags behind developed nations in terms of productivity.
Can the situation be improved in the near future? Productivity is bound to be low for several reasons. First, an improvement will depend on the overall level of economic development in the country. But in Russia, where the prices for domestically produced goods and services are from two to three times cheaper than in Western Europe or in the United States (absent a few exceptions such as real estate and construction), the absolute amount of value added is limited — and so is productivity.
The second reason why the future looks bleak for improving the country’s productivity has to do with the woefully low output per worker. Automobile manufacturing is the most glaring example. In 2007 at AvtoVAZ, 106,000 full-time production workers manufactured only 734,000 downscale vehicles. BMW, employing 107,000 workers at its German plants, produced 1.54 million upscale vehicles. The main reason for this large discrepancy is Russia’s outdated technical basis and the unwillingness of companies to adjust their labor force to the requirements of the market. Another factor was the huge inflow of low-skilled workers from former Soviet republics, which also decelerated technical change.
A third factor is the excessively high number of people employed in security services. About 4 million people are employed in the military and law enforcement agencies, while an additional 700,000 people work for private security companies and in corporate security services. This is terribly inefficient, particularly if you look at Western countries where so many security services have been automated.
Leading companies facing a falling demand on their products should optimize their workforce and cut the dead weight even if that means laying off as much 30 percent of their personnel. This is a good time to implement this restructuring since expanding production during the crisis is not an option. The main obstacle, however, is the country’s increasing unemployment, which has become a volatile political issue. The government has urged entrepreneurs not to be too harsh in terms of layoffs. AvtoVAZ, for example, has followed the Kremlin’s cue by cutting back to one shift per day, rather than laying workers’ off. 
In the end, modernizing the country will be a truly formidable task, and this will remain the case as long as the Kremlin is obsessed with protecting and strengthening state-controlled “strategic industries.” This is a productivity dead end, and it leads me to believe that 2009 productivity levels will show an even greater decline. 

Vladislav Inozemtsev is the director of the Research Center for Postindustrial Society and the publisher and editor-in-chief of Svobodnaya Mysl magazine.

TITLE: Learning Modernization from Gref
AUTHOR: By Konstantin Sonin
TEXT: There are several reasons for the relative calm regarding Russia’s economy. First, the crisis looks worse on the pages of newspapers and analytical reports than on the streets of Moscow, where it doesn’t appear that we are in the middle of a deep crisis. 
Despite official figures showing that unemployment reached 10.2 percent in late April, there have been no mass demonstrations outside the Moscow Ring Road like there were during the turbulent 1990s. 
Second, the economic downturn has finally slowed its pace. 
Third, most of the signals coming from world markets are positive. If the Chinese government is not manipulating its economic data — which is always a distinct possibility in countries without a free press — then even the sharp drop in exports has not stopped the Chinese economy from growing at considerable speed. Meanwhile, the price of oil, which is considered an indicator of investor confidence, refuses to climb back to levels of seven or eight years ago, a time when it was widely believed that the global market economy had learned to function without a cyclical rise and fall. 
But there are still many reasons to be pessimistic. First, many governments of the world have transferred the burden onto the present generation by piling huge debt on it from future generations, making the task of balancing their budgets extremely difficult for years to come. 
Second, gross domestic product has fallen at record speeds in many countries. This has been a cruel surprise for governments. If in the past they refused to increase the money supply for fear of spurring inflation, now this is no longer off limits since prices across the board have fallen along with the economy. But it is anybody’s guess as to how those governments will eventually close their budget deficits.
Russia’s prospects look bleak on their own without taking into consideration the broader problems in the global economy. How will the Russian economy turn the tide by showing positive GDP growth? If the price of oil does not rise above current levels, Russia will earn enough petrodollars to cover its budgetary needs but not enough to address the problem of long-term development. 
Cheap liquidity is not the solution because the price of borrowing money will only increase in the near future. As soon as the global economy picks up again, most developed economies will have to tighten monetary policy. The energy with which bankrupt Russian firms resist creditors’ efforts to repossess their property makes it clear that credit will be hard to secure for years to come because political favoritism has kept so many “zombie firms” artificially alive.
Given these circumstances, it is not clear when we will ever see positive growth again. Now is the time to think seriously about modernizing Russia’s economy. Perhaps President Dmitry Medvedev should dust off the strategic modernization program that German Gref developed in 1999, when he was head of the Center for Strategic Development think tank, and read it cover to cover. He might learn something new. 

Konstantin Sonin, a professor at the New Economic School/CEFIR, is a columnist for Vedomosti.

TITLE: Dweezil Zappa Pays Tribute to His Father “the Alien”
AUTHOR: By Sergey Chernov
PUBLISHER: Staff Writer
TEXT: Frank Zappa, the legendary U.S. musician and composer (1940-1993), never performed in Russia, despite his immense underground following in the Soviet Union. Now his music is finally coming to St. Petersburg, performed by Zappa Plays Zappa — the act founded in 2006 by his son Dweezil Zappa, who has temporarily put aside his own music career in order to pay homage to his father and introduce his “timeless” music to newer generations.
Zappa spoke to The St. Petersburg Times last week while on tour in Germany.
<b>Q: You’ve been touring with Zappa Plays Zappa for quite some time. What’s most interesting for you in performing your father’s material, and how do people react?</b>
A: We started four years ago. When we did the first tour, we made preparations so it would be possible to do it on an annual basis, if it turned out there was a demand from the fan base. It was a successful tour, and so we’ve continued to do it ever since. 
But people that like the music have been looking for an opportunity to see this music played in an official capacity and also with a very respectful band playing it, so it’s been a fun thing for people. They get to meet other fans who have similar interests. 
In a way, Frank Zappa fans are almost outcasts in society; it’s almost like a very secret club, the people who like this music. But we’re trying to actually expand that so that more people have the opportunity to enjoy the music. 
The people who do know about it are very serious about it, they enjoy seeing it. A lot of the people who see us play have seen us play multiple times on tour; for example, there’s a guy who, since this tour started in Europe, has seen every show since the beginning. He’s traveling around just the same as we are, watching every show, so it’s amazing how fanatical some people can be. 
<b>Q: Do you know about Frank Zappa’s huge underground popularity in the Soviet Union? It was also, as you put it, a very secret club of very serious fans. Later they even built a Frank Zappa monument in Lithuania.</b>
A: I can imagine that was the case. I’m interested to see how the Russian audience will enjoy this. But because Russia has traditionally had a strong sense of the arts and music and great composers and stuff, I can imagine that they would have a good appreciation for my father’s music. 
Really, he’s not so much a rock musician as he was a composer using a rock band to bring his music to life, so I think a lot of the sophisticated elements that are involved in the music come from his ability as a composer of serious, classical music.
He had over 80 albums, so there’s so much music to choose from.
<b>Q: You once said in an interview that Frank Zappa was “misunderstood.” What exactly did you mean?</b>
A: Yes, I think that particularly in the United States, his music’s really not played on the radio, but what little that did get on the radio was songs that had a pretty good sense of humor to them, songs like “Don’t Eat the Yellow Snow” or “Valley Girl” or “Dancin’ Fool” or even a song called “Titties and Beer.” 
If those were the only songs that you’d ever heard by Frank Zappa, you would think that he’s similar to “Weird Al” Yankovic, a sort of novelty or comedy songwriter, but he has over 80 albums, and not every record has this comedic element to it. There’s a lot of serious music and things that get overlooked by people, because if they casually only know a song that has a sense of humor, they think “Oh, yeah, he’s just the guy that has the funny songs and the kids with the funny names,” and that’s pretty much how he has been portrayed in the media. 
So few people have any familiarity with the bulk of his music; they just know a couple of the songs and then have this misconception that he’s just a comedy guy.
<b>Q: Considering Frank Zappa’s vast body of work, what songs and from what periods do you choose to perform?</b>
A: It changes, depending on the instrumentation that we have in the band. Currently we have one less keyboardist than we have had in past years, so it slightly alters some of the material that we may choose to play, but in general we play stuff from different decades. A lot of the stuff we really like to play and have the most fun playing are things from the mid-70s, which was a particularly great period of Frank’s music, because it combined rock, jazz, funk, classical — all in one type of environment. 
So a lot of the things that we play are from records like “Roxy & Elsewhere,” “Apostrophe (‘),” “Over-Nite Sensation,” “Sheik Yerbouti,” and “Joe’s Garage,” but we also play things from “200 Motels,” from “Freak Out!,” from “Hot Rats,” — we play things from all throughout Frank’s catalog. But in general, it focuses on some of the most well-known classic rock periods of his career.
<b>Q: Could you say a few words about the band?</b>
A: I purposely put a band together that had no affiliation with Frank previously. On previous tours we have had some alumni members sit in and play a few songs with the band. On this tour we don’t have any people that formerly played with Frank, so it’s really just the core band. 
But all of the people who play in this band I selected, obviously for their musical skill, but I was trying to also create a band that had a younger age range than if I were using more alumni, because we want this music to have the chance to appeal to a younger audience, so I didn’t want a band filled with 60-year-olds on stage. 
It was hard to find players who were a bit younger but had the appropriate background to really play the stuff well. You have to have at least 18 to 20 years of playing experience. The average age of the band is in the thirties, but we’re still trying to have the ability to present us to a younger audience, because I think the music is timeless. 
Particularly with the state of the music business as it is, I think that this type of music would have an even broader appeal now than it ever has had before, if it has the chance to be exposed to a bigger audience. 
So in the band, we have a percussionist who plays marimba and a whole host of other percussion elements, drums, bass; a rhythm guitar player also plays some solos here and there. We have a girl on keyboards and vocals and she plays multiple horns and flutes, and we have a singer, and then there’s me.
<b>Q: There’s a strong element of spontaneity and improvisation to Frank Zappa’s music. How do you deal with that?</b>
A: That’s actually one of the most fun parts of the show. There’s a real balance between all of the structured, difficult things that are real written parts, and then a lot of Frank’s compositions have these open sections that are meant to be spontaneous, and so the band is really quite good at creating things on the fly — interesting solos and all that kind of stuff. 
So that’s the fun part of playing the shows — being able to go ahead and take chances, musically.
<b>Q: Your guitar-playing style was different before Zappa Plays Zappa. Have you had to change it to perform this material?</b>
A: I definitely had to make a lot of technical changes, learned some different picking techniques and stuff, but beyond that I also had to do a lot of studying musically and learn more of the things that were the influences that Frank was using in his own playing in order to play in context to the music. I didn’t want to just take a sharp left turn every time I play a solo — I want to play and have it sound like it’s in the same vicinity that Frank would have been selecting notes from.
<b>Q: Since you are an artist in your own right, what are you working on except for performing Frank Zappa’s material  — are you composing or recording something on your own right now?</b>
A: I haven’t had a chance to work on anything new for a while, but when we finish in September, I am planning to do some more stuff, and next year, maybe. I keep incorporating some of my own music in the things that we do, because a lot of people have been asking about that at this point.
<b>Q: Finally, is Frank Zappa’s music really relevant in 2009?</b>
A: Yeah, his music is timeless, because the instrumental elements are so far ahead of their time, and the production elements are so far ahead of their time on a lot of the records that people still haven’t caught up with what he was on to 20, 30, even 40 years ago. There’s some stuff that’s still as shocking to listen to for the creativity of the sound of the compositions, but also the sound of the records. And some of the stuff can be 40 years old. It’s just amazing.
I don’t know how he did it, but he’s pretty much an alien in that regard.

<em>Dweezil Zappa performs with Zappa Plays Zappa on Friday, June 12 at Oktyabrsky Concert Hall, located at 6 Ligovsky Prospekt, Tel.: 275 1300. M Ploshchad Vosstaniya. www.zappaplayszappa.com</em>

TITLE: Coining it
AUTHOR: By Luke Ritchie
PUBLISHER: The St. Petersburg Times
TEXT: At first glance, the solid wooden door and its elegant handles are reminiscent of an archetypal pub on an idyllic Edwardian street. Yet the interior of this new pub, although elegantly stylized in green wallpaper with faint streaks of gold and solid wooden paneling everywhere else, feels more like an Australian bar than an old man’s tavern. The large TV screens both upstairs and downstairs dominate their areas of influence, and the music is lively and youth-orientated. This is not simply an intentional replica of an English tavern, but a slick money-making operation aimed at a clear demographic, and it succeeds with style. 
Shilling benefits from an advantageous location on Nevsky Prospekt, previous experience gained from its older sibling of the same name on Baikonurskaya Ulitsa, and offers an excellent selection of international beers. England, Ireland, Belgium, Germany and the Czech Republic are all represented on Shilling’s menu, though the star pick has to be the fabulous Belgian cherry beer (220 rubles, $7 — the price goes for all beers except for the daily special (not available on Fridays and Saturdays), which costs 140 rubles ($4.50)).
 The unisex toilets are pleasant. English menus are available, the floor is not yet sticky with spilt drinks and the waitresses go about their job with a friendly smile. In essence, the atmosphere is pleasant.
The presentation of dishes at Shilling is outstanding. Salmon rolls (210 rubles, $7) were tender morsels of salmon curls wrapped around a cool cheese-cream ball and accompanied by a sweet-and-sour sauce. The taste was light and pleasant, easily proving itself to be the best choice for fish lovers. 
The beef stroganoff was also excellent at 300 rubles ($10), and actually improved its tender taste with every bite, while a truly international cheese plate at 250 rubles ($8) complemented the other dishes well. The portions of the kebabs (340 rubles, or $10.90) proved exceedingly generous, and the side orders were themselves quite satisfying. 
A beautiful, wobbly panna cotta in an orange drip coulis slid lovingly down our throats, but the tiramisu provided far too alcoholic to stomach. Both desserts cost 170 rubles, or $5.45.
One can therefore imagine what the monstrous ‘Meat table’ (1,950 rubles or $62.53), which promises to cater for 4-5 people, would be like. However, even if you don’t feel like gaining a few pounds in one meal, the low prices offered at Shilling prove to be good value for money on most dishes, even for students. One major problem with Shilling at the moment, however, is that it does not yet have the capacity to accept credit cards, so visitors must make certain that they have their money at hand.
Shilling is an excellent, friendly, easy-going pub in the best of English style and with rumors of a third Shilling set to open on Sadovaya, this brand looks to be staying. If it keeps its formula like the one it has on Stary Nevsky, it’ll soon be everywhere.