SOURCE: The St. Petersburg Times
DATE: Issue #1501 (63), Tuesday, August 18, 2009
**************************************************************************


TITLE: Merkel
Welcomes Russian Investment
AUTHOR: By Maria Antonova
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — German Chancellor Angela Merkel on Friday welcomed Russian investment into Opel, chipmakers Infineon and Qimonda and a shipyard in Germany, whose recovering economy won praise from President Dmitry Medvedev.
The two leaders met for cordial one-day talks at Medvedev’s summer residence in the Black Sea resort of Sochi, and the only public criticism came during a final news conference when Merkel condemned a series of killings of human rights activists in Chechnya. Medvedev ordered Chechen President Ramzan Kadyrov to bring the killers to justice. 
At the news conference, Merkel reiterated her support for Magna-Sberbank’s bid for Opel and said she and Medvedev had discussed “a strategic partnership in the field of electronics,” namely investments into Infineon Technologies and “probably” Qimonda.
“All of these are projects that have emerged from somewhat difficult economic situations amid the crisis and are offering opportunities for more intensive cooperation based on the win-win principle that will benefit both sides,” Merkel said, according to a Russian transcript posted on the Kremlin’s web site.
Asked by a reporter whether supporting Germany’s economy would harm Russia’s during the crisis, Medvedev said the crisis had brought down prices, so “now is the time to make investments.”
“We should invest money in areas where we do not yet have sufficient economic activities, for example, investments into companies like Infineon or Qimonda or the acquisition of Opel,” Medvedev said. “They are investments in high technology companies, and the high-tech industry is precisely what we are lacking and what could really help us improve the structure of our economy, thereby helping us be better protected for future crises.”
Merkel said negotiations over Opel, which employs 25,000 people in Germany, were in a “decisive phase,” but could not say how long it would take to reach an agreement.
Magna and Sberbank offered a revised bid to Opel’s parent company, General Motors, on Thursday, but the U.S. carmaker indicated Friday that the process might be far from completion. “There is more to consider and more to do before an agreement for Opel is reached,” GM’s chief negotiator for the sale, vice president John Smith, wrote on his blog.
One holdup to the deal was a demand by Magna for rights to Opel’s intellectual property, but Magna agreed to make Opel cars under a licensing agreement under the revised bid, Kommersant reported Friday.
Hammering out licensing agreements would further delay the sale and add several million dollars to the already “enormous” sum of 500 million euros offered by Magna and Sberbank, said Yelena Sakhnova, an analyst with VTB Capital. On top of that, it will cost Magna an extra $100 to $300 for each car that it produces under license, she said.
“It seems like nobody really wants this agreement, but the government has an obsessive idea and they are realizing it,” she said, referring to Magna’s partners Sberbank and GAZ.
Sberbank is an unwilling investor that will be stuck with the Opel stake, unable to sell it to GAZ, whose financial position is “catastrophic,” and GAZ is the unwilling partner because it does not work in the passenger car segment, Sakhnova said.
But Sergei Mikheyev, an analyst at the Center for Political Technologies, said the Russian government was unlikely to willingly make a bad investment. “In terms of political image, it would not look very good to do this during a financial crisis,” Mikheyev said.
Medvedev and Merkel also discussed the possible sale of a stake in Infineon to Sistema, a holding company headed by billionaire Vladimir Yevtushenkov.
Both companies said they were aware of discussions between the German and Russian governments about their possible cooperation but added that they were not involved in the talks.
The Russian and German leaders gave no details about their talks about Qimonda, a maker of dynamic random access memory that is owned by Infineon and filed for bankruptcy earlier this year.
High technology is a field that Medvedev hopes to turn into a motor of the Russian economy, and Russian companies need the modern technology that it could offer.
Medvedev congratulated Merkel on the news earlier in the week that Germany’s economy had emerged from recession.

TITLE: Planes Collide in Rehearsal for Air Show
AUTHOR: By Ira Iosebashvili
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — Two Su-27 fighter jets collided in midair above the Moscow region town of Zhukovsky during a rehearsal for the MAKS air show on Sunday, killing one pilot and injuring five people on the ground.
The crash occurred when jets with the elite Russian Knights flying team attempted a maneuver in which they lined up with a distance of just two meters separating the nose of one from the tail of the other, said Magomet Tolboyev, the honorary president of the air show.
The jets had taken off from the Zhukovsky airfield southeast of Moscow, where the biannual MAKS Aviation Salon will still open as scheduled despite the crash, organizers said. Sunday marked the Day of Russian Aviation holiday, with numerous government officials sending out congratulations before the crash.
All three pilots manning the planes, one of which was a two-seater, managed to eject. The pilot who died was Colonel Igor Tkachenko, 45, the squadron leader of the Russian Knights, air show organizers said.
One of the surviving pilots was hospitalized with a spinal fracture, RIA-Novosti reported. The third pilot was in satisfactory condition, the Air Force said.
The crash was likely caused by pilot error during the execution of a difficult maneuver, an Air Force spokesman said. “We will also investigate the possibility of a technical malfunction of one of the planes,” the spokesman told RIA-Novosti.
The flight data recorder from one of the planes has been found, RIA-Novosti reported. Debris from the crash was scattered across a distance of 1.5 kilometers.
Debris from one jet caused havoc on the ground, bursting into flames as it struck residential buildings in the Moscow region village of Sosny. Firemen battled to extinguish a blaze that had engulfed several houses and a nearby field as residents looked on in shock. The blast wave from one of the jets completely destroyed a three-story private house, sending bricks flying for hundreds of meters and damaging nearby houses, RIA-Novosti reported. At least five people from the village were hospitalized with serious burns, including a 51-year-old woman with burns covering 80 percent of her body, Interfax reported.
The other plane crashed in a field near the village of Tyazhlovo, and its blaze was quickly extinguished with no reports of injuries.
A commission comprised of top officials from the Defense Ministry and the Air Force has been formed to investigate the incident, Air Force spokesman Vladimir Drik said, Interfax reported. A criminal investigation will be opened, the Investigative Committee said.
The Russian Knights, created in 1991, lost four pilots in December 1995 when three of its Su-27 jets crashed into a Vietnamese mountainside in rough weather as they flew back to Russia from an air show in Malaysia.
Tkachenko, the killed pilot, had more than 1,500 hours of flying experience in attack aircraft, according to the Russian Knights’ web site. He was married and had a son and daughter.
President Dmitry Medvedev offered his “deep and sincere” condolences to Tkachenko’s family, the Kremlin said.
The crash was not the first involving Su-27 jets, one of the most commercially successful military planes manufactured by Russia. In 2002, a Su-27 clipped the ground and mowed down spectators before exploding into a ball of flame at an air show near Lviv, Ukraine, killing 85 people in the world’s worst air show accident. The crash was blamed on pilot error, and the two pilots who bailed out received prison sentences.
In February, a report compiled after the crash of a MiG-29 on a training flight in southern Siberia found that at least a third of the nation’s fighter jets were unsafe and should be written off or repaired.
In June, officials grounded the air force’s entire fleet of Su-24 bombers after two crashes in three days.
MAKS 2009, which is due to open Tuesday, will not be canceled due to the crash, organizers said.
“The format of the event will not be changed. The Air Force will take part in the event, although it’s not clear yet in what format,” said Vladimir Borisov, the head of Aviasalon, one of the event’s organizers.
Tolboyev, the air show’s honorary president, said this was in line with domestic and international norms.
“Never in the history of aviation salons — not ours, and not those in other countries — are flights ever stopped,” Tolboyev said, Interfax reported.

TITLE: Verdict on Okhta River Pollution Disappoints Ecologists
AUTHOR: By Galina Stolyarova
PUBLISHER: Staff Writer
TEXT: St. Petersburg’s Environmental Prosecutor Yury Pykhtyrev said this week that an investigation into a series of oil discharges into the waters of the Okhta River has shown that the most likely cause of the pollution was accidental interference with stocks of oil products during the construction of Okhta Center, the new local headquarters for Gazprom Neft. The construction site is situated directly on the former territory of the Petrozavod shipbuilding factory, which used large quantities of oil when it was still operating.
At the same time, the prosecutor said his office had failed to establish the exact source of the oil discharges into the Okhta.
Pykhtyrev said the Environmental Prosecutor’s office had asked the local branch of the Russian Environmental Watchdog (Rosprirodnadzor) to keep construction work under close observation and ensure that environmental laws are observed.
Environmentalists of the local branch of international pressure group Greenpeace have been trying to draw attention to the plight of the Okhta River since June, sending reports to City Hall and the environmental prosecutor’s office.
Dmitry Artamonov, head of the local branch of Greenpeace, spoke with frustration about Pykhtyrev’s report. “This is not the first time we have filed a complaint providing complete evidence of substantial environmental pollution, only for nobody to be punished,” he said. “It is very often in cases like this that the prosecutor’s office and other controlling organizations talk about the high level of pollution in nearby territories and try to justify their helplessness by stressing that there are so many industrial sites on the banks of local rivers and canals that establishing the guilty party is near to impossible.”
Artamonov also complained about the frustratingly slow pace of official investigations and accused the state environmental watchdog organizations of turning a blind eye to illegal industrial discharges.
“Naturally, if you start looking into an oil discharge several weeks after it happened, finding the responsible company will be very difficult,” the ecologist said. 
“More importantly, environmental prosecutors really have to start working closely with official monitoring organizations and provide regular and consistent control over local waters,” he added. “It is extremely alarming that it is always us who finds the polluted spots. None of the official organizations ever reports anything.”
Greenpeace said their volunteers often find themselves filming and documenting illegal discharges during the night in the total absense of any environmental specialists from state organizations. “It is an open secret that in most cases, illegal industrial discharges happen at night,” Artamonov said. “Everyone knows this, including both the managers of the companies responsible for the discharges, and the state organizations that have to make sure these discharges do not happen. This implies that everyone is happy with the status quo, except for environmental enthusiasts like us.”
City Hall says there are currently 375 drains channeling untreated industrial discharge within the city limits, and more than 1,000 sewage dumping points. Most of these are located in tributaries of the Neva. The Okhta River is the most polluted.
Vodokanal, the city’s water treatment monopolist, has long been fiercely criticized by local environmental groups for not punishing companies that illegally discharge pollutants into local waters, and for not working to build more water-treatment facilities.
“We can observe those ugly oily spots in the Neva River for weeks, and Vodokanal does nothing,” Artamonov said.
“Ordinary people don’t seem to have any idea just how polluted the Neva is — they swim and fish in dirty water without a care, just meters from discharge sites, and they do not react when we try to show them those ugly fluorescent streams of waste bubbling in the water next to their fishing lines,” he said. “Our efforts are not enough to raise public awareness and concern to the level needed in such a big city.”

TITLE: At Least 8 Dead in Hydroelectric Plant Accident
AUTHOR: By Nataliya Vasilyeva
PUBLISHER: The Associated Press
TEXT: MOSCOW — An accident during repair work at Russia’s largest hydroelectric plant on Monday killed at least eight workers and injured 10, while 54 others were missing, investigators said.
The accident shut down the Sayano-Shushinskaya power station, on the Yenisei River in southern Siberia. The plant supplies several major aluminum plants.
A transformer exploded during repair works, destroying walls and the ceiling in an engine room where turbines are located and causing the room to flood, the Investigative Committee of the federal prosecutors office said.
The plant’s dam was not damaged, and the accident posed no threat to towns downstream, Emergency Situations Minister Sergei Shoigu said.
The accident caused an oil spill, however, and the slick was floating down the Yenisei, the ministry said.
Two of the plant’s 10 turbines were destroyed and one was seriously damaged, said Vasily Zubakin, acting chief executive of the plant’s owner, RusHydrop.
Shoigu said the repairs would be difficult. “We’re probably talking about years rather than months to restore three of the 10 turbines,” he said on state-run television.
Electricity supplies from other plants were being routed to areas normally serviced by the Sayano-Shushinskaya station, Shoigu said.
The world’s largest aluminum producer, RusAl, was operating as usual, with its smelters being powered from other plants, company spokeswoman Yelena Shuliveistrova said.
Power shortages were reported, however, in the city of Tomsk and the mining area of Kuzbass, state RIA Novosti news agency said.
Aging infrastructure has long been regarded as a key obstacle to Russia’s development.
Analysts have warned that Russia needs to boost its power production significantly to meet the growing demand of industrial producers or it would face regular power shortages as soon as several years from now. Monday’s accident put these plans in jeopardy.
RusHydro’s stocks were down more than 7 percent on the MICEX on Monday morning when the stock exchange suspended trading for its shares.

TITLE: Suicide Bomb Truck Kills At Least 20 in Caucasus
AUTHOR: By Shamsudin Bokov
PUBLISHER: The Associated Press
TEXT: NAZRAN, Russia — A suicide bomber exploded a truck at a police station in Russia’s North Caucasus on Monday, killing at least 20 people and wounding about 60 others, officials said.
The bombing was the deadliest in months in the restive southern region, denting Kremlin claims that the area was stabilizing after 15 years of separatist fighting in Chechnya and violence in surrounding provinces.
The attacker rammed the gates of the Nazran city police headquarters, in Ingushetia province, and detonated his explosives as police officers were lining up for a morning check, said Svetlana Gorbakova of the regional branch of the Investigative Committee of the Russian Prosecutor General’s office.
Police had fired shots at the truck, but failed to stop it. The blast triggered a fire that raged for hours, destroying a weapons room where ammunition detonated.
A nearby apartment building and several office buildings were also damaged, and burned-out cars littered the street.
At least 20 people were killed, Gorbakova said, though official figures on the number of wounded varied. Gorbakova said 57 people were hurt, including 10 in critical condition. Ruslan Koloyev, the acting head of the Emergency Ministry’s branch in Ingushetia, said on Rossiya television that 92 people were injured.
An Associated Press reporter saw 11 badly burned bodies at a morgue in Nazran, the largest city in Ingushetia, which borders Chechnya to the west.
Local authorities announced a three-day period of mourning.
The attacker and the truck were pulverized by the blast, said Svetlana Gorbakova of the regional branch of the Investigative Committee of the Russian Prosecutor General’s office.
While large-scale fighting from the two wars that ravaged Chechnya since 1994 has ended, Islamic militants continue to mount regular hit-and-run attacks and skirmishes. Bloodshed has surged in recent months and increasingly spilled into provinces neighboring Chechnya.
Ingushetia’s Kremlin-appointed president, Yunus-Bek Yevkurov, was badly wounded in a suicide bombing in June and has yet to return to his duties.
Yevkurov said Monday’s suicide attack had been organized by militants trying to avenge recent security sweeps in the forests along the mountainous border with Chechnya.
“It was an attempt to destabilize the situation and sow panic,” Yevkurov said in a statement issued through his spokesman.
Speaking in an interview with Russian News Service radio, Yevkurov blamed Chechen separatist warlord Doku Umarov for staging June’s suicide attack on his convoy.

TITLE: Russia: Ship Search Under Control
AUTHOR: By Alexandra Odynova
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — The search for a missing cargo ship and its Russian crew is “under control,” and Moscow does not need any additional help, Russia’s envoy to NATO, Dmitry Rogozin, said Saturday.
The statement came the same day that Finnish authorities said they received a ransom request, and it follows a spate of reported sightings, none of which has been confirmed.
The vessel, the Arctic Sea, was last seen in the Bay of Biscay, off the western coast of France, on July 30 — two days after radio contact was lost.
An unidentified high-ranking military official in Brussels told Itar-Tass on Saturday that Artic Sea’s location had been determined, but that it was not announced for unclear reasons.
“We have the situation under control, and our partners are just sending us information. No other support is needed,” Rogozin said in comments on the Vesti-24 news channel.
He said NATO was providing informational support but was not directly involved in the search, which is going “full swing.”
Rogozin declined to give details, saying the case “is too serious and related to the life, safety and health” of Russian citizens. He brushed off rampant media speculation about what happened to the ship and its whereabouts.
The 4,000-ton Arctic Sea, sailing under the Maltese flag with a 15-member crew from Arkhangelsk, disappeared under mysterious circumstances en route to Algeria from Finland.
Swedish police said the ship was attacked in the Baltic Sea on July 24, a day after setting sail. Men who called themselves Swedish police boarded the ship, tied up the crew and carried out a search, before leaving the ship.
Finnish police said in a statement Saturday that a ransom had been demanded for the ship, although they declined to give details. 
The statement said more than 20 countries were participating in the investigation through Interpol and Europol.
“The authorities have not been able to confirm the alleged hijacking, and a connection between the alleged incident and the later events has not been established yet,” Helsinki police said.
The Navy and Federal Security Service began looking for the ship earlier this month, but the search kicked into high gear Wednesday when President Dmitry Medvedev ordered Defense Minister Anatoly Serdyukov to take all necessary measures to find and, if necessary, liberate the Arctic Sea.
Solchart Arkhangelsk director Nikolai Karpenkov told Itar-Tass that his company operated the ship, which is owned by Maltese firm Arctic Sea Ltd.
The vessel is insured by Ingosstrakh, although the sum of the coverage has not been disclosed.
Solchart Arkhangelsk has suggested that the Arctic Sea may have been attacked by pirates, although the European Commission on Friday said the circumstances surrounding the disappearance did not suggest piracy.
Swedish police are investigating the possibility of a commercial dispute, the BBC reported Thursday.
Viktor Matveyev, director of Finland-registered Solchart Management, could not be reached for comment.
Numerous possible sightings have since been reported, including at the Spanish port of San Sebastian. The European Commission said Friday that the vessel might have been attacked a second time off the Portuguese coast, although Lisbon said the ship hadn’t entered its waters.

TITLE: Investigators To Create Olympic Unit
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — The Investigative Committee will create a branch to deal with violations connected to the construction projects for the 2014 Olympic Games in Sochi, the committee’s head, Alexander Bastrykin, said Friday.
The department will hire officers with experience in investigating financial and economic crimes, Bastrykin said, Interfax reported.
“We mustn’t allow embezzlement of state money,” he said.
The government has earmarked about $13 billion toward the games, but much of the financing is supposed to come from outside investors. The global economic crisis has deterred many private investors, but state-linked companies have stepped in to fill the gap.
In June, Deputy Prime Minister Alexander Zhukov said the government would not need to direct funds toward the Olympics because there was enough money from sponsors.

TITLE: Russia Gets Desperate Housewives
AUTHOR: By Anna Malpas
PUBLISHER: The St. Petersburg Times
TEXT: This week, the Rossia channel started a new daytime show called “Otchayanniye Domokhozyaiki,” or “Desperate Housewives.” The presenters wear high heels and dresses to deliver words of wisdom on how to cook rice and make yourself trim and on what kind of dressing gowns can be worn during the day.
The title of the show is a bit odd. I think it’s meant to convey images of glamour from the U.S. show, which has aired in Russia, but surely it’s rather insulting. The show’s creative producer told Moskovsky Komsomolets that the show will be watched by people who are unemployed and “are very pessimistic in mood,” and that’s why it’s colorful and upbeat. I can imagine the storm of outrage if someone making daytime television on the BBC said something like this —however true it may be.
The show is described as a “gift for women” on the Rossia web site. The show’s four hosts are writer Tatyana Nedzvetskaya, former news anchor and State Duma deputy Alexandra Buratayeva, Rossia host Nika Ganich and Yekaterina Konovalova, who hosts a Moscow news show.
These women might have something interesting to say, but they are limited to one topic each, respectively: a retro “where are they now?” section, cooking, fashion and dance.
The best thing about the show is that it’s live, so there’s plenty of potential for things to go wrong. On Thursday, the chef couldn’t turn on the gas and viewers were given the wrong instructions for a home-made face mask as the host busily grated carrots. If anyone wants to galvanize the downtrodden classes into action, they should book a slot between the dance class and the cooking section, although the viewers may be too pessimistic to respond — or still wearing their dressing gowns.
On Thursday, Ganich lectured women on wearing dressing gowns at home during the day — a common habit in Russia — with the help of a fashion expert called Alexander. “Why would you wear a dressing gown during the day? You should wear something that shows off your assets,” Alexander said, suggesting something “clingy but comfortable.”
Ganich handed over a tracksuit to a blonde woman called Larisa, who admitted that she had worn the same dressing gown for the last four years. To be fair, she wasn’t wearing it in the studio. “Be charming and attractive,” Ganich ordered her.
She also touched on leggings and whether they can be worn by women with spare tires. Alexander ruled that they could, as long as you wore a long top to cover up your offending curves.
Another woman explained that she always wears something pretty around the house. “Your husband has to like it?” Ganich questioned her. “First and foremost,” she replied. “Oh, a real woman,” Ganich praised her.
Buratayeva’s section is called “Desperate Cooking,” which makes it sound rather more interesting than the chicken and fried rice recipe being demonstrated Thursday. The real  work was done by a chef, a quiet man called Yury Kim, who stayed calm as the stove refused to light.
The audience members swayed gently to the “retro section” where the singer of a band called Blue Bird recalled his glory years. We also got to watch a video where he performed wearing an outsize bow tie.
In the dance section, a gym instructor showed off some exercises to do at home, wearing a flowing outfit. The hosts all showed that they followed Ganich’s rules of attractiveness by joining in while wearing little dresses and vertiginously high heels.

TITLE: Prisons to Free Inmates to Do Public Works
PUBLISHER: The St. Petersburg Times
TEXT: Authorities can start releasing prisoners convicted of less serious crimes as early as this month, according to Justice Ministry instructions published Friday in Rossiiskaya Gazeta.
According to the instructions, which come into force within 10 days of publication, jail terms for some convicts will be replaced with public works projects or bans on holding certain jobs.
Authorities will return the convicts to jail if they fail to show up for their work assignments or violate discipline rules more than twice within one month.
Convicts will have to work at least 12 hours per week in addition to their main employment, and will be paid a salary — part of which will be handed over to the state. Convicts will have an 18-day paid vacation from public works each year.
A government regulation published in Rossiiskaya Gazeta on Friday will allow convicts sentenced to a term in a penal colony to travel there on their own at the state’s expense. Currently, they await the transfer in detention centers and are then transferred by law enforcement officers.

TITLE: Medvedev Extols Student  Days Spent in Petersburg
AUTHOR: By Scott Rose
PUBLISHER: The St. Petersburg Times
TEXT: President Dmitry Medvedev took a helicopter tour of construction work for the Sochi Olympics on Thursday and regaled a student brigade with stories from his days as a summer laborer.
Accompanied by new Olimpstroi chief Taimuraz Bolloyev, Medvedev flew over several key sites, snapping photos from his personal camera and joking that he had taken the construction under his personal control.
Earlier in the day, Medvedev visited students working on one of the 2014 Olympics’ key projects, an $8 billion road connecting the coastal city of Adler with the Alpinka-Servis ski resort, 50 kilometers away.
“The fact that the Olympics will be held here in a few years and that you can contribute a bit of your own work is really exciting,” he said. “And besides, a couple of months in Sochi isn’t bad either, even if it’s two months working. And if they’re paying, too, then that’s just great.”
Medvedev said he made “about 500 rubles” one summer guarding rail cars transporting Zhigulis near his home in St. Petersburg, Interfax reported.
“I chose a brigade that protected and escorted cargo on the railroad,” Medvedev said, adding that at the time he needed to stay close to home.
“I didn’t build anything, but all the same I guarded something,” he said.
“You felt every bump, every rustle, because unfortunately even then, like now, there were a lot of incidents and crimes on the railroads,” he said. “And since they didn’t give us weapons, the only serious means I had to react was a whistle. You could also yell loudly.”
Fortunately, nothing happened on his watch, the president said.
Medvedev also noted that the summer of 2009 was the 50th anniversary of the practice of using student labor to build key national projects, which he said dated back to 1959, according to comments posted on the Kremlin web site. Last summer, the country’s 270,000 student workers were paid 5 billion rubles ($157 million), a figure he said “isn’t too bad.”
He conceded that the sum of about 18,500 rubles earned by each student  on average is “a bit more modest, but nonetheless it’s still money.”
“When I was involved in this, it was pretty good money for me. I think I made about 500 rubles, which at the time was significant money. I don’t know what you’re making, but I hope they’re not taking advantage of you here or anywhere else,” he said.
He said he would submit a bill to the State Duma that would clarify the legal status of student workers to spell out their “legal rights and obligations.”
The president isn’t the only one who’s felt a twinge of nostalgia for student years while visiting the region this month.
In an interview with Abkhaz reporters on Wednesday, Prime Minster Vladimir Putin said he first visited the now-breakaway region as a student builder, making 800 rubles in one summer.
“I remember I bought a coat, which I wore for the next 15 years. We successfully blew through the rest of the money in your Gagra,” he said, referring to a small town on the Black Sea coast. “So sure, I do have some memories. Those were good times. I remember them with pleasure.”

TITLE: Ruble Volatile on Devaluation Concerns
AUTHOR: By Ira Iosebashvili
PUBLISHER: The St. Petersburg Times
TEXT: The Central Bank and prominent lawmakers say the ruble does not need to be devalued, but a 10.9 percent drop in gross domestic product and a projected federal deficit of 9.4 percent of GDP are causing some to start second-guessing.
As the ruble closes a volatile week, market watchers are split on what direction the currency will take in coming months, with some saying devaluation is inevitable while others contend that the biggest problem the currency faces is excessive appreciation.
Earlier this month, Duma Deputy Anatoly Aksakov, a member of the Just Russia party and head of the Regional Banking Association, drew fire when he called for a 30 to 40 percent ruble devaluation to avoid tax increases in the face of a growing budget deficit.
Aksakov’s suggestion drew a harsh response from his fellow lawmakers. Duma Speaker Boris Gryzlov said rumors of a coming devaluation were “groundless” and “an attempt to apply the recipes of 1998.”
Other lawmakers were equally scathing in their responses, including Duma Deputy Speaker Vyacheslav Volodin, who said Aksakov’s proposal was “against the people” and “asserted the interests of oligarchs and big business” by undermining the ruble.
On Wednesday, Gryzlov went a step further, telling the Duma’s financial committee to remove Aksakov from the National Banking Council.
It was not the first time government officials vociferously denied claims of a weakening ruble. Last fall, when the currency started wobbling as the full extent of the financial crisis began to be apparent, state-owned Channel One ran a long segment ridiculing people who believed in “rumors” of a devaluation, comparing them to pensioners stockpiling 20-kilogram bags of salt on speculation of a future shortage. The report then accused a Georgian web site of spreading the rumors in a malicious campaign of “black PR.”
Two weeks later, the Central Bank announced the first in a series of devaluations that would see the ruble drop a total of 36 percent from its all-time high set in July 2008.
This time, however, could be different. The price of Urals crude oil, Russia’s chief export, which was in freefall when the last devaluation began, is sitting comfortably around $70 per barrel, nearly double its February price.
And while the country’s economy shrank 10.9 percent in the second quarter — the biggest contraction on record, analysts say the overall picture is far healthier than last fall, when the state had to dole out billions of dollars to save key companies from going broke.
“The economy is obviously 11 percent smaller, but in much better shape,” said Roland Nash, chief strategist at Renaissance Capital. “Companies have restructured their debt, businesses have found the necessary capital. The next two quarters will see the highest amount of ruble debt issuance in the country’s post-Soviet history.”
The ruble will probably experience more volatility as the state moves from targeting currency prices to targeting inflation, Nash said.
“But right now, there is more pressure for the ruble to appreciate than depreciate,” Nash said. “Russia’s biggest currency problem in the future could be a strong ruble,” he said.
Investors received a taste of volatility last week, when the ruble fell nearly 2 percent by Wednesday to an August low of 32.37 against the dollar before rallying to close the week at 31.67.
Others, however, saw the ruble drifting lower, as the Central Bank continues to cut rates and the money supply grows.
“There’s a great deal of money going into the system now,” said Elina Ribakova, chief economist at Citibank. “The ruble will get cheaper, the question is — now, or at the end of the year.”
A drop resembling the one the ruble underwent last fall, however, is not in the cards, Ribakova said. She predicted the currency would sink no further than the bottom end of the trading corridor the Central Bank mapped out for it last year.
In January, the Central Bank said it would keep the currency within the 26 to 41 rubles against the dollar euro basket, a range it has not broken since then.
Devaluation would benefit some segments of the economy, like domestic producers, who would see a greater demand for their goods as a result of a cheaper ruble. But the risks of devaluing the currency still outweigh the rewards, said Chris Weafer, chief strategist at UralSib.
“Domestic producers are far too small a segment of the economy to make devaluation worthwhile. And there is always the specter of 1998, and the fear of a run on bank deposits. [Devaluation] is an idea the government is likely to reject out of hand,” he said.
The ruble plummeted over 70 percent in 1998 as oil prices fell into the single digits and the country defaulted on its debt.
And though he feels the ruble is “defendable” at these levels, Weafer said the currency is by no means out of the woods, partially due to its close relationship with oil prices.
“Keep in mind, the ruble is the main petro-currency in the world right now. When the price of oil dipped last week, the ruble dipped right along with it, which should give you an idea of how fragile the currency really is,” he said.

TITLE: ’98 Crisis Worse For Russians
AUTHOR: By Nadia Popova
PUBLISHER: The St. Petersburg Times
TEXT: Russians suffered more during the 1998 crisis than they are during the current one, according to a survey released Thursday.
About 40 percent of Russians said they have not been affected by the current economic crisis, up from the 26 percent who made the same claim about the 1998 default and ruble devaluation, according to the survey by the Public Opinion Foundation.
The difference is obvious, just look outdoors,” said Oleg Tyurpenko, chief executive of MetallService, Russia’s biggest metals trader. “Imported goods are still out there on store shelves and foreign cars are being driven around. The atmosphere is completely different now because the economy is much stronger than it was back in 1998.”
Following the government’s default on $40 billion of domestic debt on Aug. 17, 1998, the ruble dropped in value from 6 rubles to the dollar to more than 20 rubles to the dollar by the year’s end.
Thirty-two percent of respondents said they suffered more from the 1998 default, while only 20 percent said the current crisis was worse than the one 11 years ago.
Thirty-six percent said they have been affected by macroeconomic problems both in 1998 and now.
The government, whose own financial problems prompted the 1998 crisis, is better off now and has played an active role in softening the effects of the current turmoil, Tyurpenko said. “The government is much stronger now and it is much more active in solving social problems than it was 11 years ago,” he said.
In 1998, the crisis mainly affected people over 60 and living in Moscow, the survey found.
This time, Russians aged from 31 to 45 are suffering the most from the crisis and Moscow is among the cities suffering the least, it said.
The cities dealt the most severe blow by the current crisis are others with populations of more than 1 million, it said.

TITLE: Proposed Bill Would Allow Drugs to Be Sold in Stores
PUBLISHER: The St. Petersburg Times
TEXT: The Industry and Trade Ministry has proposed legislation that would allow nonprescription drugs to be sold in supermarkets, the ministry said Friday.
“We are proposing a legislative review of the participation of nonspecialized trade organizations in retail sales of medications,” a ministry spokeswoman said, RIA-Novosti reported.
The ministry is also proposing that supermarkets should be permitted to sell other non-medicinal goods sold by pharmacies.
The Health and Social Development Ministry, however, raised fears that selling medication in supermarkets might negatively affect peoples’ health, saying customers might become addicted without advice from pharmacists.
“Uncontrolled delivery of even a limited list of medicines to nonspecialized stores does not allow us to ensure the safety of the consumer,” a ministry spokesman said Friday.
“In accordance with licensing requirements, entities selling medicines must have a specialized pharmaceutical education,” the spokesman said.
He added that this was especially important when it comes to the elderly and young parents.
The Health and Social Development Ministry said that as much as 70 percent of earnings at pharmacies are from non-prescription drugs and other goods.
“These earnings are used to cover expenses arising from the fulfillment of their social functions: providing the ill with free and subsidized medications, pain relievers and psychotropic substances,” the spokesman said.
The Industry and Trade Ministry’s spokeswoman dismissed fears that the sale of medicines in supermarkets might encourage counterfeit drugs, saying, “If the Federal Drug Control Service oversees the stores as they do now the pharmacies, what’s the danger?”
Retailers say the legislation will allow them to lower prices on drugs and that large retailers will be able to ensure their safety.

TITLE: VEB to Lend $1.9 Billion to Borrowers in ‘Real Economy’
PUBLISHER: The St. Petersburg Times
TEXT: Vneshekonombank plans to lend an additional 60 billion rubles ($1.9 billion) in the third quarter to borrowers in the “real economy,” bank head Vladimir Dmitriyev said Saturday.
“In the third quarter we have planned, with the agreement of the other state banks, that VEB will get 60 billion rubles of new money in the plan for increasing loans to the real sector,” Dmitriyev told Prime Minister Vladimir Putin at a meeting in Sochi, the Cabinet said on its web site.
In a future session of VEB’s supervisory council, Dmitriyev plans to discuss the bank’s exposure to two large projects: infrastructure development at the Ust-Luga terminal, which the bank has loaned 15 billion rubles, and the Zelyonaya Ulitsa tanker factory, which will receive 28 billion rubles.
Dmitriyev said VEB loaned out more than 31 billion rubles to the real sector of the economy in June. “This went to the military-industrial complex, infrastructure, facilities [for the 2012 Olympic Games in Sochi], agriculture, and a number of other industries,” he said.
In June, Putin told the heads of the five largest state-controlled banks that they must issue at least 150 billion rubles in loans by Aug. 1, an additional 150 billion rubles by Sept. 1, and 100 billion to 200 billion rubles more by Oct. 1.
He then told the heads of Sberbank and VTB that they couldn’t take a vacation until they set plans in motion to reach those targets.
Putin allowed VTB head Andrei Kostin to go on a vacation on Thursday.

TITLE: Phone Companies Rage Against Handset Backlog at Customs Offices
PUBLISHER: Vedomosti
TEXT: Cell phones are starting to pile up at customs offices again, as the Federal Customs Service makes sure that importers aren’t packing more than one handset per box.
Customs officials are using various pretexts to refuse to register customs declarations for mobile phones and aren’t letting them into the country, managers for three phone companies said.
The customs service has implemented procedures, set to expire in the fall, that require the weights of imported phones to be checked, said Anton Guskov, a representative of Ratek, an electronics trade association. There is a big difference between the weight of a phone with its packaging and without it, and customs officials are making sure importers aren’t putting more than one phone into a box, he said, adding that the service can only inspect 20 to 30 percent of the total cargo.  
Opening the packaging, weighing the goods and repacking them takes a lot of time, and that’s why there is such a delay at the customs offices, Guskov said.
It’s unclear why telephone importers think its normal that Russia has a huge market for illegal cell phones, but customs inspections are something out of the ordinary, an official in the customs service said.
A source familiar with the situation told Vedomosti that one company was being forced to pay 500,000 rubles ($15,700) to 1 million rubles per month to store the telephones in the customs offices.

TITLE: Swine Flu — An Excuse 
To Close the Borders?
AUTHOR: By Anna Shcherbakova
TEXT: Freedom to travel abroad has come under serious threat, with Russia’s public health chief Gennady Onishchenko proposing to ban Russian school trips to the U.K over fears of the children catching swine flu. The country’s chief medical officer does not have the legal right to enforce such suggestions — it’s the jurisdiction of the State Duma or president. 
While deputies, human rights activists and users of livejournal rage and curse Onishchenko, the local authorities have taken up his idea of “recommendations.” For instance, the head of Moscow’s public health department stopped a group of scholars that was planning on learning English at a summer camp in the U.K, and the Investment Committee of the St. Petersburg government recently appealed to travel agencies to inform their clientele of the bad epidemiological situation in some provinces of China in order to talk tourists out of going there. 
Other initiatives by Onishchenko have included banning Georgian wine and mineral water exactly at the time when political conflict was escalating between Russia and Georgia. 
The geography of swine flu is not well defined, so the possibilities of a prospective ban are fairly broad for the authorities. The reason for building a new iron curtain appears to be absolutely altruistic — to protect the country from a very dangerous infection by closing the borders. 
A shot across the bow was made a couple of years ago when people who did not pay taxes, fines or even rent or alimony on time were stopped at the borders and not allowed abroad. Civil rights seemed threatened when various authorities like tax inspectors and road traffic police coordinated their efforts with border guards in order to extract money from debtors. Things began to look even worse when some commercial services like cell phone operators joined them. Incidences of debtors being unable go to on vacation or business trips attracted the attention of the press and were widely covered, or in other words, used as propaganda. After those stories, the tax authorities reported an increase in payments. Recently, a person whose $4,000 trip was ruined because of unpaid alimony filed a suit against bailiffs. If he is victorious, many will follow his pattern. 
Along with civil rights, there is another party that is suffering from rough justice: The travel industry. Its audience was no more than 10 percent of the Russian population even in the good times when Turkey and Egypt seemed to have replaced the traditional destinations of Sochi and Yalta. This summer hasn’t been so prosperous for operators, who have canceled up to half of their charter flights to popular holiday resort destinations. 
The decreased purchasing power of the ruble, followed by unpredictable bans and the risk of being stopped at the border for a forgotten cell phone bill is unlikely to make people rush abroad. I got several invitations to join groups traveling to the Cote d’Azur or exotic islands, but I’d better spend this summer at home, a prosperous developer said cautiously. The owner of a large business said he could not afford more than ten days away due to the unstable economic situation, which forces him to stay alert. 
Poor travel agencies! The authorities have scared away their last clients.